Uncategorized – Page 2 – Robson and Robson

April 24, 2018November 2, 2020

‘Pittsburgh History’: Boring Name, Big Development for Attorney-Client Privilege

'Pittsburgh History': Boring Name, Big Development for Attorney-Client Privilege

April 24, 2018

You represent a privately held corporation considering a restructuring. You believe that the proposed transaction would violate the securities laws and advise the board of directors accordingly. The board, however, disregards your advice and proceeds with the transaction anyway. It violates the securities laws as you advised and several shareholders initiate derivative claims against the board on behalf of the company. The plaintiffs propound discovery seeking your communications with the board related to the transaction. Can the company assert the attorney-client privilege against plaintiffs? Pennsylvania courts have been surprisingly quiet on this common issue until recently.

A company’s assertion of privilege against a derivative plaintiff creates the unusual problem of a client asserting privilege against those purporting to act on the client’s behalf. Moreover, the people invoking the privilege for the corporation are generally the same people whose conduct gave rise to the derivative claim. Allowing defendants to invoke the company’s privilege may deprive derivative plaintiffs of the information they need to vindicate the company’s interests. A rule that allows a derivative plaintiff free access to otherwise privileged communications may impact the corporate client’s willingness to seek legal advice for fear that the request or the advice could later be used against it.

Any discussion of a corporation’s assertion of attorney-client privilege in the context of shareholder litigation begins with Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970). In Garner, a class of shareholders brought a derivative action on behalf of a corporation against various officers, directors and controlling persons. The plaintiffs sought communications between the corporation and its counsel relating to the conduct giving rise to the plaintiffs’ claims. The corporation asserted the attorney-client privilege seeking to prevent disclosure of the communications. Both the corporation and the American Bar Association, as amicus curiae, asserted that the corporation had an absolute right to assert attorney-client privilege in such circumstances. The plaintiffs took the equally extreme position that the privilege simply does not apply in the context of derivative claims.

The U.S. Court of Appeals for the Fifth Circuit rejected both positions and adopted a “goldilocks” approach that affirmed the applicability of the attorney-client privilege for a corporation involved in litigation with its shareholders, but allowed shareholder plaintiffs to pierce the privilege for good cause: The attorney-client privilege still has viability for the corporate client. The corporation is not barred from asserting it merely because those demanding information enjoy the status of stockholders. But where the corporation is in suit against its stockholders on charges of acting inimically to stockholder interests, protection of those interests as well as those of the corporation and of the public require that the availability of the privilege be subject to the right of the stockholders to show cause why it should not be invoked in the particular instance.

The court identified a nonexclusive list of “indicia” used to evaluate whether a derivative plaintiff has good cause for piercing the attorney-client privilege: the number of shareholders and the percentage of stock they represent; the bona fides of the shareholders; the nature of the shareholders’ claim and whether it is obviously colorable; the apparent necessity or desirability of the shareholders having the information and the availability of it from other sources; whether, if the shareholders’ claim is of wrongful action by the corporation, it is of action criminal, or illegal but not criminal, or of doubtful legality; whether the communication related to past or to prospective actions; whether the communication is of advice concerning the litigation itself; the extent to which the communication is identified versus the extent to which the shareholders are blindly fishing; and the risk of revelation of trade secrets or other information in whose confidentiality the corporation has an interest for independent reasons. Both the Restatement (Third) of the Law Governing Lawyers and the American Law Institute’s Principle of Corporate Governance: Analysis and Recommendations also adopted the substance of Garner.

There are two Pennsylvania cases addressing Garner. They reached contrary results and have not settled the law in this area. In Agster v. Barmada, 43 Pa. D. & C.4th 353, 359–60 (Com. Pl. 1999), Judge R. Stanton Wettick addressed a dispute among owners of a closely held business. A minority shareholder of a medical practice sued the majority shareholder for a variety of claims related to the majority’s diversion of business away from the practice. The minority shareholder plaintiff sought communications between the majority shareholder and the corporation’s counsel arguing that the attorney client-privilege does not apply to such communications. The court rejected this argument and prevented disclosure of the communication. Reasoning that the Pennsylvania Supreme Court had never recognized a conditional attorney-client privilege, the court expressly rejected Garner’s “good cause” analysis as inconsistent with Pennsylvania law.

The only Pennsylvania appellate court to address the attorney-client privilege in the context of derivative litigation did so on an unusual fact pattern. In Pittsburgh History & Landmarks Foundation, 161 A.3d 394 (Pa. Commw. Ct. 2017), a group of former board members of two related nonprofit corporations asserted derivative claims against the president and current board members alleging a variety of misconduct. In response to the lawsuit, defendants formed a committee to evaluate whether the derivative action was in the best interest of the nonprofit corporations. The committee determined that the litigation was not in the best interest of the corporations and defendants filed a motion to dismiss the derivative claims on that basis. The plaintiffs sought all the information provided to the investigative committee, including communications with counsel that would otherwise be privileged. The Commonwealth Court explicitly rejected the holding in Agster and adopted Garner’s “good cause” analysis. It emphasized that the possible exception to privilege only applied to communications that were “roughly contemporaneous with the events giving rise to the litigation,” presumably excluding communications that occur after a derivative plaintiff files suit.

The Pennsylvania Supreme Court granted cross-petitions for allowance of appeal from the Commonwealth Court’s decision and heard oral argument on April 11. If upheld, Pittsburgh History has obvious implications for both derivative plaintiffs and corporate counsel. For the derivative plaintiff, the case provides the potential to access a variety of highly relevant communications regarding the conduct that gave rise to their claims. For corporate counsel, the case injects uncertainty as to whether the attorney-client privilege will apply to communications with a corporation in the event of shareholder litigation. Counsel should advise their client of this possibility and, in the context of a closely held company, consider whether a majority owner should obtain personal counsel in circumstances where the majority owner wants to ensure the application of the privilege.

Reprinted with permission from the April 20, 2018 issue of The Legal Intelligencer.

March 28, 2018December 31, 2018

What You Need to Know When Representing a Minority Shareholder in a Corporate Dispute

March 28, 2018

You represent a minority shareholder of a closely-held corporation and the company is having an off year. The majority shareholder is the sole member of the board and serves in every officer position. She draws significant compensation. Without a business justification, she decides to double her salary and have the company pay the mortgage on her vacation home. Your client is the only other shareholder and likely the only person hurt by the majority shareholder’s self-declared raise. Although the minority shareholder suffers a clear injury, characterizing the injury as direct or derivative can have a significant impact on the outcome of the litigation.

Until recently, minority shareholders in closely-held companies could assert claims for breach of fiduciary duty and corporate waste directly against the majority owner. If the claimant was successful, a court could order the majority shareholder to disgorge the spoils of her behavior and pay them to the minority shareholder. This type of direct recovery is no longer permissible. Since 2014, Pennsylvania courts have made clear that claims arising from breach of the duties owed to a corporation, even a closely-held one, belong to the corporation and must be asserted on a derivative basis. This requirement creates procedural and substantive complexities when compared to direct claims. Bringing such claims requires strategic and creative analysis and careful attention to detail.

Without a shareholder’s agreement, minority shareholders are largely at the mercy of the majority shareholder. Minority shareholders have no formal ability to direct how the company spends money, compensates employees or hires vendors. Some majority owners use their power to disadvantage the minority shareholder by excessively compensating themselves or causing the corporation to contract with vendors affiliated with the majority on unfair terms. Although the minority shareholder is the party ultimately damaged by this behavior, the Pennsylvania Business Corporation Law (“BCL”) makes clear that “[t]he duty of the board of directors … is solely to the business corporation … and may not be enforced directly by a shareholder.” To obtain redress for the majority shareholder’s misconduct, the minority shareholder is therefore required to assert their claims on a derivative basis on behalf of the corporation.

In this regime, attorneys representing minority shareholders are required to look for opportunities to assert direct claims in lieu of derivative claims. The same facts that support a derivative claim may also be the basis of a direct claim. This is particularly common when the minority shareholder is involved in the operation of the business. For example, claims arising from the wrongful termination of a minority shareholder’s employment may form the basis of a direct claim on behalf of the minority shareholder, as well as a derivative claim against the majority shareholder for the breach of duty of care owed to the company.

Shareholder oppression claims are direct claims and may provide a viable method for a minority shareholder to obtain an individual recovery. Pennsylvania has long recognized that a majority shareholder has a quasi-fiduciary duty not to use their power in such a way as to exclude the minority shareholder from the “benefits accruing from the enterprise.” Carefully structured, a shareholder oppression claim can often address the same conduct that a court might otherwise classify as giving rise to a derivative claim. A claim that a majority shareholder increased their compensation to a level that leaves no profits available to be distributed to shareholders is likely a direct shareholder oppression claim. It may also be a derivative claim if the compensation is excessive by objective measure.

Fraud claims against majority shareholders may also be asserted directly if they arise from a misrepresentation made to the minority shareholder. The misrepresentation, however, must not be related to malfeasance in relation to the company. For example, misrepresenting the financial status of the business to induce a minority shareholder to invest additional capital that is subsequently lost is likely a direct claim. Falsely representing the terms of the majority shareholder’s excessive compensation is likely derivative because it is so closely related to the breach of the majority’s duty owed to the company itself.

When developing claims, keep in mind that counsel’s labeling of claims in pleadings as direct or derivative is not dispositive. Courts look to the substance of the allegations to determine the nature of the wrong.

The distinction between direct and derivative claims presents a variety of challenges in the context of closely-held business disputes. Recognizing the issue at that outset of the litigation and developing theories for asserting direct claims is critical to the successful representation of the minority shareholder.

February 22, 2018November 2, 2020

Improve Your Writing in the Time it Takes to Read This

February 22, 2018

It is perfectly okay to write garbage—as long as you edit brilliantly.
C. J. Cherryh

Many people think that litigation involves a Perry-Mason cross examination or Jack Nicholson losing it on the stand. We love courtroom dramas too but the truth is, if you can handle it, is that most commercial cases resolve after a judge decides a client’s case based on written submissions. This means that in most cases we are professionalwriters, presenting our clients’ cases not in the courtroom but through written briefs.

Although legal writing can be technical, good writing is good writing. The same techniques we use to persuade judges are techniques our clients and friends can use to persuade their team, their boss, their board and their clients. Here are 5 simple tips that will improve your writing right now.

Outline Everything

We outline every brief before we put pen to paper. In fact, we outline almost everything. Letters, substantive emails, even this blog post gets outlined. Your outline does not have to be long. The outline for this post is scribbled on the back of a magazine.

The outline does more than organize your writing, it organizes your thought process. There have been a number of times when we were headed in one direction only to go another after playing with an outline for an hour. Bad writing is often a result of fuzzy thinking. If you skip your outline, it will take you twice as long to straighten yourself out.

The more detailed your outline the more detailed your thinking. Try to make the subject headings in your outline as detailed as possible. Use a declarative sentence if possible. Even if you decide not to create separate sections in your piece, using headings in an outline will help to keep you on track.

Learn to Stop Worrying and Embrace the Ugly First Draft

Our best finished product usually starts with an ugly, near stream-of-consciousness, first draft. Do not even consider rewriting sentences or correcting grammar this round. We will sometimes simply close our eyes while typing out the first draft to avoid the temptation. It also has the added benefit of not having to look at the scary empty white space on the page. Some of us will dictate a first draft.

The point is to let your ideas flow unimpeded. Don’t worry about missing punctuation, words or even sentences. Once you grind out that ugly first draft, put it down for the day without editing or refinement.

When you pick it up again is when writing starts to get more fun. You can start filling the inevitable gaps, improving flow and adding pithy one liners where appropriate. If you try to skip the ugly first draft, it never turns out as well.

Stop Using Passive Voice

We have all heard this before but it is true. If you are not sure whether you are writing in the passive voice ask yourself, “who is the actor in this sentence?” For example, “plaintiff’s motion should be dismissed.” Who should be doing the dismissing? You can’t tell from this sentence and so know it is in the passive voice. The active voice doesn’t hide the actor – “the judge should dismiss plaintiff’s motion” – and it makes for better writing. It sounds better and provides more information.

If you find yourself using the passive voice often, consider whether you have an issue with your writing or your thinking. When we find ourselves using the passive voice, it is often because we do not fully understand our topic and are using the passive voice as a crutch. Who is the actor in your sentence? If you do not know, you may need to clean up your thinking.

Please, No Corporate Speak, Made Up Words or Weblish

Corporate speak, made up words and “weblish” continue to work their way into our lexicon. They do not have a place in your writing. If you use corporate speak, your reader may not understand you. Using the word “solution” to describe a product (often software) is a good example. “We sold the customer a solution that will help them extract more useful information from their database.” Rather than use a not so subliminal marketing tool, just describe what you sold. If you use made up words (“I would guestimate that…”), you risk looking like someone who does not have the command of the English language needed to express themselves. If you use weblish, you sound like a computer (“I don’t have the bandwidth for that…”).

You can usually avoid these issues by asking yourself a few questions. If I used this term with a family member who knows nothing about my business, would they understand me? If I looked in a dictionary, would this word appear? Was this word or term in existence in 1970? If the answer to any of those questions is “no”, then keep it off the page.

Lose the Adverbs Unless They Really Change the Meaning of Sentence

We are habitual offenders of this rule and often slash “-ly” words from our first drafts. Overuse of adverbs tends to make your writing wimpy and bloated. Use them sparingly and only when they change the meaning of a sentence.

The first sentence of this section is a good example. Removing the adverbs “habitual” and “often” does not change the meaning of the sentence and removing it makes for a stronger sentence: “We are offenders of this rule and slash ‘-ly’ words…”

You can also reduce the tendency to overuse adverbs by using more descriptive verbs. Rather than saying “he shook my hand very firmly,” you could say “he crushed my hand.” Using a stronger verb allows you to remove the adverb “firmly.”

Conclusion

Good writing takes time but little changes can have an immediate impact. Try these the next time you have a scary blank page in front of you.

January 11, 2018November 2, 2020

5 New Year’s Resolutions For Family Businesses

January 11, 2018

“The worst form of inequality is to try to make unequal things equal.” -Aristotle

Aristotle got it right. Some things were not meant to be equal. One quarterback should call the play. One physician should determine the treatment. And one person should steer the ship. Sometimes egalitarianism leads to impasse, confusion and even disaster. Yet, every month enthusiastic clients ask for assistance in setting up new businesses. The conversation goes something like this: “My partner and I have a great idea for a business! We want to form a company! We want to split everything 50/50!”

There is a certain appeal in a 50/50 ownership split. An equal split means “we share the risks, we share the rewards and we’re in this together!” Splitting equity equally suggests obvious analogies to a marriage and – like marriages – creates the expectation that the business arrangement is “until death do us part.” Dividing ownership interests equally also avoids awkward conversations about the value of each partner’s contribution and the compatibility of individual goals.

Unfortunately, as in marriages, some business ventures do not work out. Management styles may clash and the business may outgrow the talents of its founders. Partners may pursue divergent personal and professional goals. One partner may be in search of a “lifestyle” business – a business that is essentially a life time job – while the other may be a “serial entrepreneur” intent on starting-up and selling out. In the most extreme examples, a business owner may find his or herself partnering with an irrational or self-interested owner, who puts his own needs ahead of the demands of the business.

Any Decision is Better than None

When managerial control is evenly divided between owners, there generally must be unanimous agreement before the business can act. In the case of strategic decisions such as entering a new market, hiring a high level executive, or borrowing money, the need for unanimity may result in stalemate. Disagreements over strategic decisions may well reflect good faith differences of opinion in how the business should operate. At worst, however, a disgruntled fifty percent owner can use the veto power to exact concessions from a co-owner that have little to do with business strategy. An owner who is piqued at a partner can refuse to pay employee wages, vendors or company debts unless the other owner accedes to his or her demands. An owner with signing authority at a bank can abscond or move money out of the other partner’s reach. Feuding owners that give conflicting directives to employees makes for a particularly toxic work environment. Employees may be forced to “choose sides” or decide to look for new jobs.

Once the internal dissension becomes public, third parties may decide to take a defensive posture to avoid being “caught in the middle.” Banks, payroll companies and other vendors may refuse to act without the authorization of both owners. The process can be cumbersome, frustrating and damaging to the business. Customers may be reluctant to make further commitments to an entity whose days seem numbered. Over time, the inability to reach any decision might be more damaging than implementing the “wrong” decision.

But Our Operating Agreement Says That…

There are a variety of devices that can be included in operating agreements and other organizational documents to help reduce the perils of 50/50 ownership. While such provisions offer some relief, they are not a panacea.

Many operating agreements contain “shoot out” provisions. Such provisions allow an owner to offer to purchase the other partner’s interests at a formula price or at a price determined by the offeror. In the event the offer is rejected, the situation is reversed: the other partner is required to purchase the offering partner’s interests for the same amount. While such provisions may offer an opportunity for “uncoupling” incompatible partners, there may be practical limits to their efficacy. A purchasing owner must have the financial resources to complete the buyout. Privately-held businesses may be difficult to value and may not be able to attract third-party financing. Borrowing to fund the buy-out may also weaken the company’s financial posture and potentially trigger defaults with existing bank loans.

Even if an owner is successful in selling his fifty percent interest to the other owner, there may still be continuing obligations to the business. The sale of his or her interest will not extinguish an owner’s obligations under a personal guarantee. Third party creditors may have no incentive to release a departing owner from his guarantee obligations to the business.

When amicable negotiation fails to resolve 50/50 disputes, the parties frequently litigate. Unfortunately many county courts are unfamiliar with shareholder disputes. Some courts deal with fewer than a dozen commercial cases each year. As a result, the tendency of the court is to act slowly and cautiously, which can prolong the often daily combat between owners and frustrate normal business operations.

The Takeaway

When considering a 50/50 split, understand that a dispute between the owners can have a crippling effect on the business that cannot be wholly mitigated by dispute resolution techniques. While there are many ways of starting the discussion about equity distribution, one approach is to identify and weight key attributes necessary for business success and then evaluate each partner against such attributes. While such percentage weightings are not necessarily dispositive of equity ownership, they offer an objective approach to discussing roles and responsibilities. Such an exercise may also highlight talent “gaps” which must be filled for the venture to be successful. Allocating a percentage of ownership for future managers and deciding how that will affect the existing owners may make recruiting of high level talent easier and more efficient.

Frank, honest conversations at the beginning of a venture can build trust and lay the foundation for effective collaboration. Recognizing differences in talents, resources, management styles and commitment can lead to proportionate – and appropriate – equity distribution. In a business venture, the greatest inequality really is the effort to make unequal things equal.

January 11, 2018November 2, 2020

When Forming a Business Entity, Equal Partnership Isn’t All It’s Cracked Up to Be

When Forming a Business Entity, Equal Partnership Isn't All It's Cracked Up to Be

January 11, 2018

“The worst form of inequality is to try to make unequal things equal.”
Aristotle

Any Decision is Better than None

But Our Operating Agreement Says That…

The Takeaway

December 7, 2017November 2, 2020

A Reporter Calls to Talk to You About Your Organization: Now What?

December 7, 2017

Guest Column from Wayne Pollock, Esq.

Founder and Managing Attorney, Copo Strategies

There you are knee-deep in something business-related at your organization. Maybe you are speaking with an employee about a new process or procedure. Maybe you are speaking with a customer and trying to resolve an issue concerning your company’s services. Whatever it is, you are laser focused on what is front of you. And then, with no warning, your colleague bursts into the room. “You have an urgent phone call,” she says. “A reporter from [your local daily newspaper] is on the line. She has some questions for you about your company’s products and services.” It isn’t clear if these are good questions (“Your business is booming. Why?”) or bad questions (“I’ve received tips about your business from some disappointed customers.”).

What you do and say next could impact the livelihoods of both you and your organization for years to come. So, what do you do?

Pick up the phone and thank the reporter for calling, but tell him or her that you will have to get back to them.

Speaking to a reporter as soon as one calls you and thanking him or her for the call sends a signal to the reporter that you value his or her time and that you are willing to have a dialog. These gestures are small, but they are an easy way for you to endear yourself to the reporter and build a relationship with him or her. For a number of reasons, such a relationship could benefit you and your organization down the road thanks to the media exposure this relationship could provide the two of you.

But because this call is unexpected and you are not prepared to respond at this very moment, explain that you were in the middle of an urgent matter and will have to get back to the reporter. Reporters are on deadline frequently and have to put off other tasks to finish what they are working on so that it can be submitted for publication. The vast majority of them will be sympathetic to you and will have no issue with you getting back to them, provided that you do the next step.

While on the phone, ask these three important questions.

“What are you working on?”, “What would you like from me or my organization?”, and “When is your deadline?” The reporter’s answers to these three questions will provide you with the information you need to craft a response.

The first answer will guide the substance of your response. It could also provide you and your organization with an early warning that some aspect of your organization is under fire, or could come under fire, by the media, the public, your customers, etc.

The second answer will guide the form of your response and the work necessary to produce that response. Is the reporter looking for a brief response to a legal allegation? Is he or she looking for you to provide detailed answers to a number of questions? Does the reporter want to interview you? These various responses will require differing resources and preparation.

Finally, the third answer will guide your timetable to respond. Does the reporter need a response by close of business today? By later this week? By two weeks from now? This is vital information. And, this kind of question allows you to—again—endear yourself to the reporter and build a relationship by showing that you understand the nature of his or her business and its demands.

Identify the people at your organization who should assist with a response.

Now that you know what the reporter is working on, what they want from you, and how long you have to give it to them, you can now strategize about the response. The nature of the response will dictate how much work you will need to do and whether you will need assistance from particular colleagues or service providers. Anytime a reporter calls, you should make sure to notify any marketing or public relations people you work with, no matter if they are in-house or at an outside firm. They might have information about the reporter that could be helpful, and might have even worked with that reporter previously. In addition, they could help you develop the substance of your response and make sure that your response syncs with your previous branding and marketing efforts.

Moving beyond your marketing/public relations colleagues, the nature of the request will dictate who else you should speak with. Is the reporter investigating an issue that could pose legal problems for you? You should make sure your legal team is aware of the request and seek their input. Does the reporter want to know something about how your organization’s products or services work? You should be sure to involve salespeople, technical staff, or senior executives with knowledge of these details. While “softball” inquiries from reporters are unlikely to require significant input from colleagues, the more significant (and problematic for your organization) the topic the reporter is investigating, the more likely you will need assistance with the response.

Draft a response and determine who the spokesperson will be for your organization.

With your response team assembled, you can now draft the response. While, again, the nature of the reporter’s inquiry will dictate the substance and form of your response, there are three overarching rules to follow. First, your response should be substantive. “No comment” or “We decline to comment” are invitations to the public, your clients, your employees, and any other key audiences to engage in conjecture and to assume the worst about any alleged wrongdoing on the part of your organization. Second, your response should be truthful. Any attempt to be deceitful will come back to bite you down the road, and will likely cause more problems than if you were upfront about any unflattering information from the get go. Third, your response should have a persuasive purpose. That could mean convincing would-be clients to consider your organization the next time they are in need of its services, or convincing the public that any allegations of wrongdoing are unfounded and false.

Depending on the reporter’s inquiry, you may need to consider who will be the spokesperson for the organization. Should it be the owner or an executive? Should it be someone with technical background about the subject of the inquiry? Should it be a public relations person? A rule of thumb for determining who the spokesperson should be is that the brighter the spotlight, the higher up the spokesperson should be. If there is a profile of the organization in a prominent media outlet, it should be an executive or owner. If the organization is being mentioned in a trade publication for its use of a particular new technology, the spokesperson should be the person at the organization most knowledgeable about that technology.

Whoever the spokesperson is, if the response is provided in real time through an interview, that spokesperson should practice beforehand with a mock interview. This exercise should include mock “curveball” questions from colleagues to simulate a reporter asking questions that move away from the core of the original inquiry and could catch the organization’s representative off-guard.

Respond.

After finalizing your response to the reporter’s inquiry and practicing the response if necessary, you can respond to the reporter in the manner he or she requested. When you do, you should encourage the reporter to contact you if he or she has any questions or needs any additional information from you above and beyond what you have provided (and what he or she might have originally requested). Be sure to let the reporter know if you will be out of the office or otherwise tied up and unable to respond promptly to additional requests over the next 24 hours or so. This may help prevent any missed opportunities for you or your organization to comment further to the reporter concerning any last-minute developments in his or her reporting.

For most people, an out-of-the-blue inquiry from a reporter can be a terrifying experience. Adding to that sense of terror is the fact that a mishandled inquiry from a reporter can lead to heavy damage to an organization’s reputation and prosperity. A strategic and orderly process for handling a reporter’s inquiry—such as the one I described above—can help minimize that sense of terror and ensure that your organization’s response will be serve the organization’s interests no matter what the nature of the inquiry is.

Wayne Pollock is the founder and managing attorney of Copo Strategies in Philadelphia, a limited scope, boutique law firm helping other attorneys and clients make those clients’ cases in the Court of Public Opinion. He is also a Director at Baretz+Brunelle, a national communications firm that has been named the “Best PR Firm for Law Firms” by The National Law Journal and the New York Law Journal. Contact him at 215-454-2180, or @waynepollock_cs on Twitter.

November 3, 2017November 2, 2020

Good Deeds Punished? The Legal Risks of Employee Community Service

November 3, 2017

With the holidays just around the corner, employers are busy planning their company-wide charitable initiatives. To support their employees’ commitment to community welfare, many employers match employee donations to charitable or educational institutions and publicize volunteer opportunities. Some organizations, however, are making a shift to a new way of corporate giving that percolates from the bottom up: encouraging employees to “get involved” through contributions of time and talent.

More companies are creating Employee Volunteer Programs (EVP), continuous, managed efforts that allow employees the opportunity for hands-on service to the community. Employer programs are varied and innovative. Companies frequently contribute by getting the word out through community outreach that pairs organizations with employee volunteers who have particular skill sets and interests. While some employers provide paid time off for employees who volunteer, others simply permit employees to volunteer during working hours or facilitate participation in charitable enterprises during non-working hours. This kind of volunteerism has many proven benefits including increasing employee satisfaction, enhancing community perceptions of the employer and providing tangible benefits to the larger community.

Despite good intentions, these “good deeds” come with the risk of liability under the Fair Labor Standards Act (“FLSA”) if not properly managed. The FLSA is the federal law that governs the calculation and payment of wages. In some instances, time spent by employees in charitable activities may be considered as compensable time under the FLSA, requiring the employer to pay wages and even overtime to employees for time spent volunteering.

The FLSA does not require employers to pay employees for time spent volunteering for religious, charitable, civic, humanitarian, or similar non-profit organizations when such participation is truly voluntary. However, when charitable events or participation becomes intertwined with company activities, questions arise as to whether an employee may really decline to participate. Because of disparities in bargaining power, employees may feel pressure by employers to engage in charitable activities. Such pressure may even be overt. For example, a directive to all employees to participate in a “community day of service” – without any opportunity for an employee to opt out – suggests that participation is not voluntary. Subtle employer pressure – such as reassignment to undesirable tasks for non-participants during the time when others are volunteering – also raises issues.

Time spent working at the employer’s request, or under its direction or control, or for a charity related to the company or the company’s owner, is considered work time. The Department of Labor takes the position that when, at the behest of the employer, employees volunteer to do the same type of work that they perform as part of their normal work duties, the volunteer work must be included in the employees’ hours worked calculations.

Awards for FLSA violations generally include fee shifting. Consequently, an employer who runs afoul of the FLSA will be required to pay the employee’s legal fees. Even if the unpaid wages are small, the imposition of attorneys’ fees could result in a significant liability for an employer.

The Takeaway

The key to avoiding FLSA liability is to ensure that employee participation is voluntary and to avoid any perception that an employee will be penalized if he or she fails to participate. It should be clear that the employees are volunteering their time to the third-party organization directly, not to the company itself. Employees volunteering in a capacity similar to their paid work—for example, an accounting firm encouraging its accountants to provide accounting services for a charity—is particularly problematic.

Observing the following guidelines may reduce risk of an FLSA violation:

The charitable organization must be separate from the business and unrelated in a significant way to the business owners
The charitable event does not result in direct economic benefit to the business
The time spent at the organization or event is outside of regular working hours
The company notices about a volunteer event or opportunity include a statement that the employees are not required to attend or participate
Supervisors are not allowed to direct or control their employees’ participation
Employees who choose not to participate in the event are not treated differently than employees who choose to participate

Utilizing these approaches may help to avoid FLSA liability or minimize liability if a claim does arise. We all want to start the holiday season on the right foot, and a methodical, cautious approach may be the only way that the good deeds of the employees do not result in repercussions for the employer.

August 16, 2017April 17, 2019

Location, Location, Location: Mr. Nutterbutter loses home court advantage!

August 16, 2017

Mr. Nutterbutter, of course, is a giant, talking squirrel, and sidekick of acerbic late night comedian, John Oliver. Mr. Nutterbutter and friends, John Oliver, HBO and Time Warner, Inc., were recently handed a legal defeat when a federal court in West Virginia refused a request to allow a lawsuit, based in part on Mr. Nutterbutter’s comments, to proceed in federal court.

The kerfuffle began when Bob Murray, CEO of Ohio based Murray Energy Corporation, was upset – very upset – with his portrayal in the June 18 segment of John Oliver’s Last Week Tonight. During the show, political comedian John Oliver took aim at Murray and other coal company executives for their opposition to coal safety regulations and for their treatment of coal miners.

Oliver’s criticism was not limited to the Murray Energy Company. He criticized Murray personally, referring to him as a “geriatric Dr. Evil.” He also took Murray to task for claiming that an accident at Murray Energy’s Utah mine which resulted in nine fatalities, was the result of an earthquake. Oliver disputed Murray’s explanation, citing a Congressional investigation that had no evidence of a geological event.

Mr. Murray’s ire was increased when Oliver recounted the actions of two Murray Energy employees who returned bonus checks. One employee returned a check for $11.58 after signing it “Kiss my ass, Bob” while another returned a check for $3.22 after signing it “Eat shit, Bob.” Mr. Nutterbutter, the human size squirrel, endorsed the employees’ actions by offering Mr. Murray a check for “3 acorns and 18 cents…made out to Eat Shit, Bob, memo Kiss My Ass.”

Apparently Mr. Murray had anticipated his harsh treatment at the hands of Mr. Nutterbutter and John Oliver. Prior to air, Murray’s attorneys sent a cease and desist letter to Last Week Tonight, threatening legal action. The communication was not an idle threat. Over the past fifteen years, Mr. Murray was not shy about asserting his legal rights, suing local reporters, environmental activists and media outlets.

Undeterred by Mr. Murray’s letter or willingness to litigate, the show aired, with both John Oliver and Mr. Nutterbutter acknowledging the risk of a lawsuit.

Murray made good on his threat: he filed an action in state court in West Virginia against Oliver, HBO, and Time Warner, claiming defamation, invasion of privacy and intentional infliction of emotional distress. Describing the nature of his distress, Murray’s complaint states that the broadcast upset him more than anything else ever had (which presumably includes the deaths of the nine employees killed in one of his mines).

The case attracted the attention of the American Civil Liberties Union (“ACLU”) which filed an amicus brief – which was almost as entertaining as the original on behalf of Mr. Nutterbutter.

Unfortunately for Mr. Nutterbutter and his friends, the plaintiffs seem to have won the first round by defeating a motion by the defendants to remove the action to federal court. This means that the action will be tried in West Virginia state court. Mr. Murray further demonstrated his willingness to play hardball by filing an unusual motion seeking to disqualify the ACLU’s amicus brief. Mr. Murray’s lawyers argued that that Oliver’s previous on-air support of the ACLU and his fundraising, biased the ACLU on Oliver’s behalf and created a potential financial interest of the ACLU in the outcome.

While the foregoing may seem like pointless procedural wrangling, with little to do with whether Mr. Murray has suffered any injury, knowledgeable litigators know that such actions represent strategic decisions which can have an enormous impact on the outcome of the case.

As in real estate, the “location” where a law suit is filed is important. There is significant variation among states and between the federal and state courts. These differences can be an advantage for one party or an additional hurdle for the other. Each state has its own laws of civil procedure and evidence which determine how a case will proceed and how it will be decided. For example, a twelve person jury is not always required in state civil trials. States allow juries of as few as six members and do not always require a unanimous decision in non-criminal proceedings.

State court dockets may impact how long it takes to bring a case to trial while state rules of evidence determine what evidence is presented to a jury. Many states, including Pennsylvania, elect judges who may potentially be subject to real or imagined political pressure from one of the parties. And, as in sports, there is also a real “home-team advantage” in litigation. Juries and judges may be unconsciously biased in favor of a person or company that is or has been a significant benefactor of a community, or who is simply more “relatable” than an anonymous, out-of-state party.

In addition to procedural laws, each state has it own substantive version of torts such as defamation, intentional infliction of emotional distress and invasion of privacy. While the core elements of each of these claims are similar from state to state, there are differences which can be significant. For example, the interpretation of some state versions of these torts may make it extremely difficult to secure an award of punitive damages, while other states are more willing to impose damages unrelated to any economic detriment.

The posture of the parties may also make a difference. Media defendants claiming First Amendment protections have not fared as well in state courts as in the federal court system. In a recent case, Hulk Hogan sued Gawker,[1] an on-line entertainment news outlet, for invasion of privacy. Despite Gawker’s status as a member of the media, a Florida jury awarded Hogan $115 million in compensatory damages and $25 million in punitive damages. Contrast this with the famous Hustler case of 1988,[2] in which evangelical and political leader Jerry Falwell, was parodied in a satiric article. The Supreme Court ruled in favor of Hustler, and limited the ability of a public figure to recover against a media outlet for a comic portrayal. While every case, particularly those involving defamation, depend on the exact words utilized, the accuracy of the comment, and the manner in which a reasonable person might interpret such language, it is undeniable that the forum for litigation can have a significant impact on the outcome.

While basketball teams – and squirrels – can certainly overcome the challenges of not having a home court advantage, it is not without effort and the assistance of able counsel. But all is not lost. Mr. Nutterbutter may have other friends willing to file amicus briefs on his behalf. It is rumored that noted commentator, Triumph, the insult dog, is considering a brief in support of Mr. Nutterbutter. Whatever the outcome, the litigation promises to be at least as entertaining as the segment that gave rise to it all. Nuts to you, Mr. Nutterbutter!

June 13, 2017November 2, 2020

Saving Face: How to Protect Your Online Reputation

June 13, 2017

"It takes 20 years to build a reputation...and 5 minutes to ruin it."
Warren Buffet

Reputation – a difficult term to define. It is an amalgamation of social perceptions, subliminal impressions, skills, branding, word-of-mouth and first hand experiences. For businesses, reputation is an essential and irreplaceable asset. It is among the first considerations in trust building. It is frequently the basis of customer decisions and it can attract – or repel – talented employees. Once damaged, reputations can be difficult to repair. Second chances can be rare, if they come at all.

Reputational damage is always painful but it is especially so when the injury is the result of false or unfounded statements by customers, disgruntled employees, unethical competitors or persons with a grievance against the owners. The proliferation of social media, review sites and blogs magnifies the impact of any negative comments: there is little likelihood of criticism going unnoticed.

Compounding the problem is the tendency of people to remember negative events more than positive ones and to use stronger words to describe them. The title of one article on the subject says it all, “Bad is Stronger than Good.”[1] In practical terms, it takes many more positive reviews or interactions to mitigate negative ones. Warren Buffet was right.

When reputational injury does occur, reputational marketing experts have an extensive toolkit, ranging from establishing or enhancing a positive on-line presence to a total re-branding including changes to the company name and intellectual property. Such repairs are costly. Moreover, they do nothing to deter or temper the behavior of vicious and vindictive posters. Such bad actors are free to post and repost, generally diluting the impact of marketing dollars spent to repair the damage. Such cases may require more than reputational repair; they may require legal action to recover the funds necessary to undo the damage and to ensure that the poster does not continue a campaign of vilification.

Actions against the Poster

Laws protecting business and personal reputations originated in an era of print media. Nonetheless claims for defamation continue to be among the most common claims brought by plaintiffs against internet detractors. Defamation occurs when a person or business publishes a false, derogatory statement about another person or business that causes injury. When such statements are in writing or posted to the internet, they are termed “libel.”

While defamation law varies somewhat from state to state, plaintiffs seeking to establish a claim must prove that (i) a defendant made a statement about the plaintiff; (ii) the statement was false; (iii) the defendant knew the statement was false or was negligent in ascertaining the truth of the statement at the time that it was posted; (iv) the statement was “published” – i.e. was disseminated to others besides the defendant and the plaintiff; and (v) the plaintiff suffered an injury because of the false statement. In those cases where a plaintiff is a “public official” or a “public figure,” he must be able to prove that defendant made the statement with reckless disregard for whether or not it was true.

In addition to defamation, plaintiffs seeking damages for injury to their reputation caused by on-line posts have brought successful claims based on the tort of “false light.” Although similar to defamation, there are several differences that make false light a distinctive tort. Unlike defamation in which the requirement of publication can be established if the falsehood is disseminated to even a single party – as for example a customer – false light requires wider dissemination to be actionable. While both defamation and false light require the posted statement be false, false light also requires that the statement be “highly offensive to a reasonable person.”[2] Innocent misstatements are not generally actionable. Plaintiff must be able to demonstrate that the defendant was at fault when he caused the false impression, either because the poster knew the statement was false or acted with “reckless disregard” for its truth or falsity.

Action Against Subsequent Posters

The practice of “re-tweeting” information and of citing web sources and blogs can compound the reputational damage of the original post. The regurgitation of defamatory material creates a virtual “whack a mole” where the injured party successfully requires the poster to remove offensive material – only to have it to “pop-up” at another site.

Individuals who disseminate information that proves to be false are not protected from liability simply because they did not generate the original post. A plaintiff must prove all of the same elements required to establish defamation or false light in order to successfully make a claim against subsequent posters. Frequently, however, the threat of tort litigation can be sufficient to encourage such posters to take down offending material, thereby reducing reputational damage to the plaintiff.

Action Against Internet Service Providers (ISP)

Internet service providers enjoy broad protection against claims for libel and false light under provisions of the Communications Decency Act (CDA)[3] Unlike other media sources, an ISP is not liable for the defamatory materials that may be posted on its site by third parties. Section 230 of the CDA is clear: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”[4]

Section 230 grants immunity to the ISP so long as the posted content has been created primarily by third parties.[5] Internet service providers lose their immunity when the ISP is itself a content provider. Whether an internet service provider is also a content developer is a particularized inquiry, depending on the structure of the website and the manner in which the website allows access. [6]

For an ISP, the operative rule appears to be “ignorance is bliss.” Although internet service providers are not responsible for the libelous statements of third party posters, they can be held liable as distributors of libelous information if they know, or have reason to know, of its defamatory content.[7] To avoid such potential liabilities, internet service providers are frequently willing to take down material from their sites once they have been advised by a plaintiff of the libelous nature of such material.

Act Quickly To Seek Professional Advice

Legal options to reduce or repair reputational damage are multi-layered, complex – and require quick responses. Most states, including Pennsylvania and New Jersey – have a one year statute of limitations on defamation and libel actions. Absent extraordinary circumstances, this requires plaintiffs to file an action within twelve months of the posting of the material – no matter when it was discovered. Individuals or businesses that have been injured by false, disparaging claims should contact counsel as quickly as possible to determine their legal options. The first step toward repairing a reputation may be defending it.

[1] Roy F. Baumeister & Ellen Bratslavsky et al., Bad is Stronger than Good, 5 Rev. Gen’l Psych. 323 (2001).

[2] See e.g. Larsen v. Philadelphia Newspapers, Inc., 543 A. 2d 1181, 1188 (Pa. Super. Ct., 1988).

[3] 47 U.S. C. §230(c)(1), (f)(3).

[4] 47 U.S.C. §230(c)(1).

[5] Courts have held, however, that the act of selecting third party materials or minor editing of such information was not sufficient to lose the immunity of the DCA. See e.g., Batzel v. Smith, 333 F.3d 1018 (2003) (act of selecting material for internet site insufficient to void the immunity of the CDA); Donato v. Moldow, 865 (A.2d 711 (N. J. Super. Ct. 2005)(minor editing of comments and providing tips on posting insufficient to void the immunity of the CDA).

[6] See e.g., Fair Hous. Council of San Fernando Valley v. Roomates.Com LLC, 521 F.3e 1157 (9th Cir. 2008)(holding that pre-populated drop down menu was sufficient to make made defendant a content provider for purposes of the CDA).

[7] Cubby, Inc. v. CompuServe, Inc., 776 F. Suppl. 135 (1995).

May 9, 2017November 2, 2020

A Practical Guide to the ‘Nastygram’ — Best Practices for ‘Conflict’ Emails

A Practical Guide to the "Nastygram": Best Practices for "Conflict" Emails

May 9, 2017

We spend hours each week writing letters accusing people of breaching their obligations, defending our clients against the accusations of others and telling other lawyers to “pound sand” when they are not being reasonable. We affectionately refer to these communications as “nastygrams.”

You have probably written a few yourself. There are often several volleys of emails exchanged in a typical business dispute before any lawyer is ever involved. Since these emails can affect the trajectory of a dispute and its eventual resolution, we encourage our clients to contact us early when a dispute crops up. But the ideal is not always feasible. Here are a few of our best practices for your “conflict” communications:

Include Context

No one wants their emails taken out of context; so include the context. It can be tedious but it’s important. For example, you sell 10,000 widgets to a customer but 5,000 are broken. You call the furious customer and agree that if the customer does not sue you, you will give them a significant discount on their next order. After the call, you write a brief email: “I am sorry about the broken widgets and I am looking forward to putting this behind us.” Although you give the discount on the next order, the customer sues you anyway and claims that your email admits liability. A better email would have been: “This will confirm our agreement that you agree to forego taking any action against us because of the broken widgets and we will give you a 50% discount on your next order. I am looking forward to putting this behind us and hope to have a mutually beneficial relationship going forward.”

Write Your Emails To The Judge.

If a small dispute turns into a large one, a number of people are going to look at and make decisions based on your conflict emails. Opposing counsel will review them. You may be questioned about them during a deposition. A judge may make decisions based on their content.

When you write conflict emails, pretend you are writing them to a judge. Stick to the facts and leave out emotional invective. Absolutely no profanity or personal attacks. Try to stay away from technical jargon, use plain language instead. Why? Because these things make you look horrible in front of a judge!

Don’t Admit Things If They Are Not True.

Some people treat the resolution of a business dispute-particularly one involving a customer-like making up with a boyfriend or girlfriend after a fight. There is a tendency for both sides to say, “I was wrong to.” It allows the other person to avoid the full blame for the dispute and can smooth the way to reconciliation.

Resolving a business dispute is different. Do not admit wrongdoing unless you are sure you have done something wrong. Your admission can haunt you. You do not have to be cantankerous with the other party by blaming them for the dispute but if you do not believe you are at fault say so. Something like “I disagree that our company is at fault but we value this relationship and want to move forward amicably” will usually do the trick.

Do You Really Want To Put That In An Email?

Before firing off scathing emails, consider whether an email is the right way to communicate. We like email because it builds a permanent record of communication, including the exact time it was sent. Also, taking the time to write a thoughtful email can allow the sender to cool down and carefully consider the communication.

When improperly used however, emails can alienate the recipient, seeming more like an unrelieved monologue than a valuable interchange. Emails also lack the information that body language or tone of voice conveys. Language printed in an email may seem harsher than in a spoken conversation. Moreover, the “permanence” of email, which makes it a valuable recordkeeping device, also allows them to be easily forwarded to a wider audience or posted on social media.

Think carefully about how you choose to communicate. A phone call or an in person meeting can often de-escalate a situation and lead to a quicker resolution in a way that emails cannot.

What Do You Want To Happen?

Have a clear picture of what you want to accomplish with the communication. There are a variety of legitimate reasons for conflict emails but they usually fit into a few categories. You may be trying to build a record of what happened. You may need to correct someone else’s misstatement of events so that it does not appear you agree with them. You may want the other person to do or not do something.

If you do not have an easily articulated reason for writing an email or the reason is to punish someone, “vent” or generally “get something off your chest”, do not send it. Remember that not sending a communication can be a very effective strategy. Silence has its advantages. It conceals your position and your knowledge of the facts, possibly making it more difficult for the other party to interfere with your strategy. But be careful not to let silence look like acquiescence.