The big oops

karenk@stritmatter.com (Karen Koehler) — Wed, 21 Mar 2012 23:39:21 GMT

Am in the well seasoned congressman'a office. Admiring the faily photos on the credenza. He is standing with his daughter who Is in her wedding dress. A proud father. See the photo of the newborn. Sweet. As we get up to leave, shake his hand and congratulate him on becoming a proud grandfather.

He says, I'm the dad. The eldest child is three and we have an infant as well.

Dont bat an eye. Oh. He rushes to explain.

Guess its his oops not mine.

Have survived without laptop but miss it. Have learned a lot about iPad. Cannot upload photos without doing something on th back end of this blog and getting a special blog app. So m not total dunce after all. Bye bye DC.

In-house Access Springs for a New Look

Wed, 21 Mar 2012 19:21:25 GMT

Welcome to the NEW In-house Access blog! Spring is in the air, flowers are blooming; here in Washington D.C., the cherry blossoms have arrived giving the city a fresh face and In-house Access is following suit with a freshly redesign site. With the help of Lexblog, we have recently made a few changes to our... Continue Reading

Welcome to the NEW In-house Access blog! Spring is in the air, flowers are blooming; here in Washington D.C., the cherry blossoms have arrived giving the city a fresh face and In-house Access is following suit with a freshly redesign site. With the help of Lexblog, we have recently made a few changes to our design and transitioned In-house Access over to a new WordPress platform.

New platform — so what? In case you can’t readily identify some of our changes, let me highlight them for you. With the new WordPress platform, we have:

changed the color scheme and design to better emulate that of our online community, Member-to-Member;
added “Share Features/Buttons” at the bottom of each post, making it easier to share the information within your social networks;
added a ‘Stay Connected’ section within the left navigation, which will send you to other pages where you can continue to engage with ACC; and
made it much easier to share more dynamic content with you (e.g., video, images, etc.).

We are very excited to launch this new design and can’t wait to hear your feedback. So, take a look around, check out some of our new features and leave us a comment to let us know what you think about the new design!

In-house Access Springs for a New Look

Wed, 21 Mar 2012 19:21:25 GMT

New platform — so what? In case you can’t readily identify some of our changes, let me highlight them for you. With the new WordPress platform, we have:

changed the color scheme and design to better emulate that of our online community, Member-to-Member;
added “Share Features/Buttons” at the bottom of each post, making it easier to share the information within your social networks;
added a ‘Stay Connected’ section within the left navigation, which will send you to other pages where you can continue to engage with ACC; and
made it much easier to share more dynamic content with you (e.g., video, images, etc.).

New law regulating Internet Information Service Providers comes into force in China

gjacobs@reedsmith.com (Greg Jacobs) — Wed, 21 Mar 2012 18:41:22 GMT

This post was written by Cynthia O'Donoghue and Zack Dong.

New regulations governing the activities of Internet Information Service Providers (“IISPs”) unveiled
by the Chinese Ministry of Industry and Information Technology (“CMIIT”) in December came into
force on 15 March. The “Several Provisions on Regulation of the Market Order of Internet Information Services” (“Provisions”) aim to enhance the protections available to Internet users in China in areas such as Internet security, data protection and online advertising.

For a more detailed analysis, please click here.

Tips, Batali, DOL

aeinhorn@messner.com (Aaron Einhorn) — Wed, 21 Mar 2012 17:08:35 GMT

Mario Batali, one of America’s best known Chefs and Restaurateurs, recently settled a class action lawsuit alleging (among other things) that he and his associate illegally deducted 4%-5% of nightly wine sales from the tip pool to cover the cost of sommeliers and related wine expenses. The lawsuit covered approximately 1,100 employees at 8 restaurants. The settlement amount was $5.25 million.

I’ve spoken with some restaurateurs who sympathize with Batali, noting that waiters easily can earn a $20+ tip on a bottle of wine they had nothing to do with selling (and perhaps the guest would have bought a more expensive bottle if the $20 tip weren’t lurking in the background). At the same time, as any restaurant owner or operator knows, employees are protective of their tips. Perhaps more importantly, the law is protective of employees’ tips.

Just days before the settlement was announced, the U.S. Department of Labor issued a Field Assistance Bulletin advising that it will “enforce nationwide” its 2011 tip ownership regulation. Under this regulation: (1) a tip is the sole property of the tipped employee regardless of whether the employer takes a tip credit; and (2) an employer may not use an employee’s tips for any reason except as a credit against minimum wage or in furtherance of a valid tip pool. This regulation clarifies a long-standing ambiguity which had prompted some courts to conclude that, if an employer does not take a tip credit, the employer can include back of house employees in a tip pool.

Bottom Line: Failure to comply with tip laws can be very costly. Your best insurance against a costly lawsuit is understanding and complying with federal and state tip laws.

Primary Lineup Set in North Carolina

ccoble@brookspierce.com (Charles Coble) — Wed, 21 Mar 2012 16:32:50 GMT

The primary election in North Carolina is Tuesday, May 8, 2012, with a second primary (if needed) being either June 26 or July 17. The second primary will be June 26 if no second primary is needed for U.S. Representative races and it will be July 17 if there is a second primary for those federal races. Since there are a number of multi-candidate primaries in the Congressional races, odds are that the second primary will be July 17. If no candidate receives 40% of the vote in the first primary, the second-place finisher can--but doesn't have to--call for a second primary.

We have covered disputes and issues relating to political advertising during prior election seasons. With this year's contested primaries in North Carolina and with the presidential election in the fall, we expect to have plenty to report on this year. To kick it all off, we'll run down the primaries slated in North Carolina.

Federal Races

President

President Obama has no named opposition in the primary but consistent with State law, there is a line for "no preference" on the May 8 primary ballot. There will also be such a line on the Republican presidential primary ballot.

The four major Republicans pursuing the White House are all on the North Carolina primary ballot--Newt Gingrich, Ron Paul, Mitt Romney and Rick Santorum.

U.S. House

Congressional candidates this year will run in new districts drawn by the 2011 North Carolina General Assembly, and, in many cases, the lines are substantially different than the last election. In fact, some incumbents did not run again in large part due to the redistricting.

Democratic incumbents G.K. Butterfield (1st), David Price (4th), Mike McEntyre (7th), Larry Kissell (8th) and Mel Watt (12th) are seeking re-election and face opposition. Butterfield, Price and Watt are favored for re-election while the 7th and 8th districts are highly competitive.

Republican incumbents Renee Elmers (2nd), Walter Jones (3rd), Virginia Foxx (5th), Howard Coble (6th) and Patrick McHenry (10th) are running again and are favored to win.

Two Democratic incumbents chose not to run for re-election--Brad Miller, who currently represents the 13th district but who was put in the 4th district with Price when the lines were redrawn, and Heath Shuler, who currently represents the 11th district, which was redrawn to be much less favorable to a Democrat. Republican incumbent Sue Myrick from the 9th district chose to retire after many years in Congress.

Three other districts do not have an incumbent running and lean Republican based on the new lines. They are the 9th district (Myrick's current seat), the 11th district (Shuler's current seat) and the 13th (Miller's current seat). All have both Democratic and Republican candidates with contested primaries in the 9th (11 Republican candidates), the 11th (3 Democrats and 8 Republicans) and the 13th (2 Democrats and 3 Republicans).

Statewide offices

Governor

There 6 Democratic candidates for Governor with the best known being Lt. Governor Walter Dalton, former Congressman Bob Etheridge and Representative Bill Faison.

There are 6 Republican candidates with former Charlotte Mayor Pat McCrory being the strong favorite against a field of lesser-known candidates.

Lt. Governor

Two Democrats are running--Senator Eric Mansfield, who is an medical doctor from Fayetteville, and Linda Coleman, current State Personnel Director and a former Legislator and County Commissioner from Wake County.

There are 5 Republican candidates including Representative Dale Folwell from Forsyth County, Dan Forest (son of Congresswoman Sue Myrick) of Raleigh, Tony Gurley, Wake County Commissioner, and Grey Mills, a Representative from Mooresville.

Other Statewide offices

Attorney General Roy Cooper (D) is unopposed.

Incumbents State Auditor Beth Wood (D), Agriculture Commissioner Steve Troxler (R), Insurance Commissioner Wayne Goodwin (D), Labor Commissioner Cherie Berry (R), Secretary of State Elaine Marshall (D), Superintendent of Public Instruction June Atkinson (D) and Treasurer Janet Cowell (D) are all running for re-election and have contested races.

General Assembly

The Republicans currently hold margins of 31-19 in the Senate and 68-52 in the North Carolina House over Democrats. In addition to allowing them to control activity at the Legislature, these margins are important related to gubernatorial vetoes. A margin of 60% of those present and voting is necessary for Legislators to override a veto and thus Republicans currently have a "veto proof majority" in the Senate if all Senators vote by party, whereas they do not in the House. Thus, both parties are competing not only for party control but also are closely watching the numbers related to future vetoes.

It appears that Republicans drew Legislative lines during the 2011 redistricting process that will best position them to maintain control of the General Assembly after the 2012 election. There is still litigation challenging the redistricting but the May primary is going forward using the new lines and many observers expect the lines drawn last year to be the ones used for this year's election.

In addition, a number of senior leaders in both chambers and both parties chose not to run again, some of them due to being "double bunked" with other incumbents in the same new district. Senators that chose not to seek re-election and that are not running for other offices include Republican Senators Richard Stevens of Wake County, Harris Blake of Moore County and Jean Preston of Carteret County and Democrats Bill Purcell of Scotland County, Linda Garrou of Forsyth County and Bob Atwater of Chatham County.

House members not running again or for other offices include Republicans Phillip Frye of Mitchell County, Carolyn Justice of Pender County, Mark Hilton of Catawba County and Bill McGee of Forsyth County. Democrats in this category include former Speaker Joe Hackney of Orange County, Bill Owens of Pasquotank County, Phil Haire of Jackson County, Jennifer Weiss of Wake County and Maggie Jeffus of Guilford County.

State Senate

A number of incumbents are unopposed. Unopposed Republicans include Senators Harry Brown (Onslow), Louis Pate (Wayne), Andrew Brock (Davie), Tommy Tucker (Union), Fletcher Hartsell (Cabarrus) and Kathy Harrington (Gaston). The two unopposed Democrats are Wake County Senators Dan Blue and Josh Stein.

As for incumbents with opposition, 11 are Democrats and 20 are Republicans. There are 11 seats that are open with no incumbent running.

State House

A couple of dozen incumbents (about the same number from both parties) are unopposed. They include influential Republicans Ruth Samuelson of Charlotte and Tim Moore of Shelby and long-time Democratic members Paul Luebke and Mickey Michaux of Durham and Deborah Ross of Raleigh.

There are about 30 seats that are "open" (no incumbent running). Although the new district lines are different from the old ones, similar districts were formerly held by 6 Democrats and 12 by Republicans, with the rest not held by an incumbent.

Wed, 21 Mar 2012 15:10:47 GMT

Because I am dense I went out to run Sunday in the most orange item of apparel I own. It wasn't until I turned the corner at the Historical Society and started seeing Kelly clad revelers that I realized my faux pas, and I didn't hear any catcalls or anything like that, but it was embarrassing. The Saint's Day is taken pretty seriously in Buffalo-- it is essentially a three week long celebration, commencing with the Shamrock Run on the first weekend of March, and culminating with the parade. I stopped going to the parade some years ago, although I used to enjoy shouting imprecations at the politicians. The weather is traditionally some of the worst Buffalo sees. It is either snowing, or sleeting, or if it is clear the temperature is hovering around 2 degrees. This year, however, St. Patrick's Day marked the official start of White Legs season. It's been in the 70's, and it is a little unnerving.

Day 2 and an iPad day smarter

karenk@stritmatter.com (Karen Koehler) — Wed, 21 Mar 2012 01:47:27 GMT

I wrote this blog then lost the whole blasted thing. Tis sits about how my iPad experience is going. Humbling.

Am deep in the world of free apps. Used Zite to create a magazine of things that interest me. some of which already don't and are destined for the delete key. Now have an alarm clock that tells the weather. My favorite tho is the kissing kitties am going to send them to my girls.

Still cannot figure out how to cut and paste. So much for editing documents and creating them which is what I really need and miss the most, according to the blogs laptops still cannot be surpassed by the iPad in that arena. So don't feel too bad.

Took a cool picture of nancy Pelosi at the reception tonight in iPhone, emailed it to myself, figured out how to say it on iPad, but cannot crack the code of how to get it on this blog. Maybe it is the platform that is causing the problem.

Finally have decided biggest problem of iPads s a work stations s that it is ergonomic sky poor, a you have to bend your head too much to work on it.

Thrill Seekers Are Bound By Releases When Things Go Wrong

proberts@lawsonlundell.com (Peter Roberts) — Tue, 20 Mar 2012 21:53:27 GMT

The B.C. Court of Appeal recently upheld, and arguably extended, the enforceability of liability waivers and releases signed by customers of commercial enterprises. The decision, Loychuk v. Cougar Mountain Adventures Ltd., is a strong affirmation that participants in inherently risky recreational adventures who sign releases will not be able to sue if they are injured, even where the injury was solely as a result of the negligence of the operator.

In Loychuk, two women were zip lining in Whistler and were injured when they collided. Ms. Loychuk had become stuck part way down and, as a result solely of miscommunication by the operators, Ms Westgeest was sent down the same line and collided with Ms. Loychuk. They sued the operator. However, both had signed a release prior to, and as a condition of, taking part in the zip-lining. The operator admitted negligence but sought dismissal of the case relying on the terms of the releases. The trial court dismissed the claim and the Court of appeal upheld the decision.

In doing so, the Court of Appeal reviewed the judicial history of releases and waivers in the context of inherently dangerous activities such as skiing, white-water rafting and ski-doing. In seeking to distinguish their claim from earlier decisions, the plaintiffs argued that in the case of zip-lining, all the risk in the activity was controlled by the operator. The participants could not be contributorily liable. If there ever was such a distinction, the Court of Appeal has erased it. The court reasoned that releases are not contrary to public policy, even where the activity in issue is controlled completely by the operator. If the law is to change for such activities, it is for the Legislature to do, not the courts.

The court also addressed the argument that the participants had no meaningful ability to negotiate the release terms. The operator simply presented what was effectively a contract of adhesion. In dismissing this submission, the court noted that there is no power imbalance where a person wishes to engage in inherently risky recreational activity that is controlled or operated by another. It is not unfair for an operator to require a release or waiver as a condition of participating. If a person does not want to participate on that basis, he or she is free not to engage in the activity.

That is not to say that adventure companies will always escape liability. Liability can be established where it can be shown that the party seeking to rely on an exclusion clause knew it was putting the public in danger by providing a substandard product or service, or was reckless as to whether it was doing so. In other words, that party engaged in conduct that is so reprehensible that it would be contrary to the public interest to allow it to avoid liability. In such cases, any release signed will not protect the operator.

The court also considered whether waivers or releases were “unconscionable” and in contravention of the Business Practices and Consumer Protection Act (“BPCPA”). The court found the test for unconscionability under the BPCPA was the same as the test at common law. The court also noted that under the BPCPA, proof of unconscionability was only one of a number of enumerated factors that must be proven before a consumer transaction could be set aside. In any event, the requirement to sign the waiver in order to go zip-lining was not unconscionable. There was nothing in the conduct or advertising of the zip-line operator that misled its customers.

For those wishing to partake in dangerous adventures offered by commercial operators, this decision is a warning that you must truly appreciate the potential risks before taking part. This includes the possibility of the operator’s negligence. If you are injured, the courts are unlikely to provide you with any recovery.

Court Determines New York Proper Venue for Corporate Raiding Lawsuit Against California Insurance Broker: Aon Risk Servs., Northeast v Cusack

mdonovan@farrellfritz.com (Matthew D. Donovan) — Tue, 20 Mar 2012 20:00:44 GMT

In a February 28, 2012, decision by Justice Fried, the court denied in part and granted in part defendant-employee’s motion to dismiss under CPLR 3211. The court also denied defendant-employer’s motion to dismiss under CPLR 327. Plaintiff Aon sued its former employee and his new employer for breach of contract and various business torts, including misappropriation of trade secrets, seeking damages “as a result of their orchestration and participation in a massive raid on the clients and employees of plaintiffs.” In support of his motion, defendant-employee argued that his restrictive covenant with plaintiff expired with his employment agreement. Because the agreement expressly provided for the survival of the restrictive covenant provisions upon termination, however, the court denied his motion. The court also denied defendant-employee’s motion in connection with the scope of the restrictive covenant, as well as plaintiff’s purported failure to state causes of action for the various business torts alleged, based on the court’s earlier ruling on plaintiff’s application for injunctive relief that plaintiff was likely to succeed on the merits of these claims. Likewise, the court granted defendant-employee’s motion to dismiss plaintiff’s claims for misappropriation of trade secrets based on its earlier ruling that plaintiff was not likely to prevail on these claims. As to defendant-employer’s motion based on forum non conveniens, the court rejected its argument that the action was better suited for the California courts and denied the motion because (i) there was a substantial nexus between New York and the raid; (ii) plaintiff is a New York resident and conducts business in New York, and New York therefore has a vested interest in the dispute; and (iii) defendant-employer, while headquartered in California, has ample resources to defend the case in New York and otherwise has a presence in and regularly conducts business throughout New York.

Aon Risk Servs., Northeast v Cusack, Sup Ct, New York County, February 28, 2012, Fried, J., Index No. 651673/2012

Unsworn Redacted "Witness" Statement Insufficient to Support Summary Judgment: Castlepoint Insurance Co. v. Santana

azerykier@farrellfritz.com (Aaron Zerykier) — Tue, 20 Mar 2012 19:29:26 GMT

In a February 29, 2012 decision by Justice Oing the court denied dueling cross-motions, each seeking a declaration as to whether or not an insurer was obligated to provide coverage for a slip and fall accident. One of the defendants slipped and fell on ice leaving the house where his daughter rented the second floor apartment. He sued the property owner and his daughter. The property owner’s insurance carrier (plaintiff) denied coverage arguing that the property owner’s insurance did not cover rental properties and, because the property owner did not live at the house, it was a rental property. The defendant who was injured moved for summary judgment as did the insurer based on statement given by the property owner to the insurer’s investigator. The proffered statement was “unsworn” and redacted by the insurer’s attorneys to remove what they considered “irrelevant” statements. The court rejected the unsworn and redacted statement as insufficient to meet the insurer’s prima facie burden on its summary judgment motion. The court also denied the injured person’s motion finding there were disputed issues of fact as to whether or not the house was the property owner’s residence or a rental property.

Castlepoint Insurance Co. v. Santana , Sup Ct, New York County, February 29, 2012, Oing, J., Index No. 116171/10

Change or Die? A General Counsel Panel - Part I

lindsaygriffiths@iln.com (Lindsay Griffiths) — Tue, 20 Mar 2012 19:27:29 GMT

A few days ago, I offered my initial recap of the general counsel panel that we were treated to at this year's Legal Marketing Association Annual Conference, focusing on some key quotes from the session. Now, let's get into the meat of the panel, where even more value is to be found.

The one overriding thought I had (and I was not alone if you listened to the tweet stream) was that year after year, we're hearing the same comments and advice from general counsel. What does that mean? It means that law firms STILL aren't listening to what their clients really want.

In the past, this has been manageable, because the economy was thriving and there was plenty of work to be going around. But now, as Jeff Carr of FMC Technologies warns:

There will be new business models that come into place. We'll build them if you won't. We don't need YOU to survive. We need the [legal] industry to survive."

Scary stuff.

The lesson to be learned here is that the client is in charge, as they should be. So we've got to listen to them in order to survive. Let's see what else the panelists had to say...

They began by reading Felice Wagner's "A Client's Poem" which does a good job of summing up what GCs really want (I encourage you to click through and read it).

General Counsel: Lawyer or Business person?

Then, the moderators dove right into the questions they had prepared, beginning with a discussion of the GC's role as business manager versus their role as lawyer. Jeff Carr answered this very succinctly - "We are not lawyers. We are business people first."

Going into a little more detail, he said that their primary job is to be the strategic advisor for the business team, then to be the legal advisor, and then to build and run a high performance team. Because his job is to deliver shareholder value every day, he expects the outside counsel that he works with to understand and appreciate this.

Janet Dhillon of JC Penney agreed with him, and said that her job is about balancing her clients' business objectives with their legal requirements. She has a passion for her business and believes the firms they hire should share that passion. Along these lines, Ron Barger added that firms should try to understand what roles their clients fill, because these are not just legal roles. When firms have that perspective, there are avenues outside of the legal arena where firms can bring assistance and add value.

Creating Client Intelligence

The moderators then asked the panelists to comment on how a firm's understanding of their business affects their purchasing of legal services. Janet said that it's such an easy thing to do these days with the existence of the internet and all the technology out there, and it greatly saves her time. She suggested that firms set up daily Google news alerts for their clients, and said that staying abreast on what is happening with them can keep firms relevant.

Janet emphasized again that firms need to learn about their business in order to become their go-to firm, and said that firms need to "Share our passion." Some of the best relationships that she has with outside counsel are with lawyers who will send her an email that demonstrates their passion and commitment to her company.

Ron said that in the past, firms used to send their clients newspaper clippings. However, there are now news aggregators online that lawyers can use to collect this information. He said that firms should be creating intelligence on their clients, and that it shouldn't be just one attorney at the firm doing it - it should be shared with the team. Don't simply look at what affects their business either, but also look at what their competitors are doing.

Janet illustrated this idea of staying focused on client intelligence with a story - the day after the Christmas holiday one year, a news story broke about her company, involving a plant in a foreign country. One of their firms emailed them to let them know that they had a partner vacationing in that very country, who was on the ground to assist them if needed. Although they didn't require his assistance, it was invaluable that the firm had taken the time to stay updated on the issues affecting the company, reach out to them to offer their assistance, and did so even during the holiday season. That has stayed with her.

Jeff added that outside law firms are never going to understand his business as well as he does. So instead, he expects them to understand them as a company and a legal team, and what they expect. What does he want from his firms? "To be their most important and least significant client." He wants his outside lawyers to think not like lawyers, but like business people, and to help give them a strategic advantage.

Keeping You Up at Night?

Although Ron joked that nothing is literally "keeping him up at night," he does expect his outside counsel to keep on top of the things he might not know about that are coming down the pike. So the firms who can be their eyes and ears, and talk to him about these things, are the valuable ones.

Janet agreed and said that she wants her firms to tell her what she's not planning for or anticipating. If a firm sees a trend that might impact her business, she wants to know about it. Janet also said that firms shouldn't assume that their clients know about something already - even if they do, they will appreciate that their firms are thinking about them and their business.

Jeff added that he doesn't want to hear an attorney say "You've got a big problem on the horizon and I can help you!" He just wants to know what the problem is, and how he can deal with it.

The moderators asked the panelists to comment on what sources their using for their own business intelligence gathering, so that the firms can avoid duplicating their efforts. Ron said that he reads the news, specifically the Wall Street Journal, the Washington Post, and the New York Times.

Lawyers and Non-Lawyers

The moderators then asked the panelists about their feelings on non-lawyers being responsible for managing a case. In one of the most applauded lines of the session, Jeff Carr said "I could care less if I talk to a lawyer, or I talk to a janitor. Just give me someone who can do the job." He said that lawyers needs to "get over" the difference between "lawyers" and "non-lawyers."

However, that being said, Janet cautioned that she doesn't see professionals as being a substitute for a lawyer on their matters.

It's All About Culture

Interestingly, Ron commented that he has never been asked by a firm about their culture, though understanding a company's culture is crucial, since that's what drives the business. Jeff agreed - he said that companies hire for credentials, experience and culture - the first two can be fixed, but you can't fix culture if there's a mismatch between the company and the firm. Ron emphasized, "If your firm's culture doesn't match my culture, you're dead."

Understanding a client's culture is also about understanding what they DON'T like, and in this case, the panelists agreed - they don't like surprises. Janet said that getting an unexpected bill, or learning about something she should have known already tells her that there's a communication breakdown.

Ron added that a breach of confidence is also a no-no, as well as representing a competitor. Even if there isn't a legal conflict, representing a competitor can look like an "allegiance conflict." However, Janet didn't agree with him, saying that sometimes when a firm represents their competitors, it can show that they have a particular understanding of their industry, which can help them be better advocates.

In another popular quote from the session, Jeff said that "The legal industry is perverse. It is the only industry where buyers act like sellers and sellers act like buyers." He said that another of his pet peeves as a client is when a firm won't take responsibility for something that is their fault. He doesn't want to argue fault; he just wants to know what the firm will do to make things better, and that it won't happen again. Janet agreed, saying that if a firm makes a mistake, own up to it. They can understand most mistakes, but arguing about it or not being candid is a problem.

Managing Costs

One of the things that gets everyone's attention these days is the discussion of fees, and it was no different during this client panel. Janet said that clients aren't looking to cheat their attorneys, they just have an expectation that their fees be reasonable. She also said that when there's trust on both sides and they're appropriately structured, alternative fee arrangements can really work. If you really understand a business, you will understand the level of importance of an individual matter and plan accordingly - but make sure to gauge your approach according to the importance of the matter to the CLIENT.

Ron commented that five years ago, he had said the billable hours would be gone in ten years. Since we're already halfway there, he told the audience "You guys have to work on that." He also agreed with Janet, saying that there is the misconception that clients are trying to screw down fees to grow revenues. But they just want to spend their money wisely. It comes down to aligning on the ultimate goal, understanding the deliverables, and being thoughtful about something.

Companies look at legal costs, and costs per matter, so they're irritated when their outside counsel don't. Ron said that as a whole, outside counsel are lagging behind inside counsel on competitive intelligence. GCs are looking at metrics and costs, and while law firms should, they're not. Jeff agreed and said:

The traditional law firm model is dying. Get over it and understand what the new world is going to be. There will be new business models that come into place. We'll build them if you won't. We don't need YOU to survive. We need the industry to survive."

In terms of managing costs, Jeff said that he has banned the word "alternative" - "there is nothing 'alternative' about 'alternative fees.'" Instead, he wants to talk about value-based fees, etc. His company is currently doing all of their legal work in the United States using value-based fees, and he told the audience "You guys have got to figure this out."

He emphasized that firms must know what their costs are to do a certain kind of work. Firms must understand their cost structure, which is too high and based on pass-through and on inefficiencies. Jeff says he won't tolerate that, and there are others in the industry who won't either.

Janet said that as a GC, she has the cost data for matters that have been handled for them. Firms would have even more data if they chose to capture it, but they're just not doing it. Firms should be able to figure out with every matter on average how much it will cost them. For example, she knows what it costs to litigate a certain type of matter. But if there are firms out there who know these costs, she hasn't found them yet. She's baffled when she shows her own data to firms and gets blank stares because they don't know their own costs.

Once firms understand what their costs are, Janet says that it's reasonable to build in a profit rate that's fair.

Ron recommended that everyone read Richard Susskind's The End of Lawyers, which will amplify what they shared in the panel. He said that in terms of managing costs, in his experience, when they've run firm proposals by the same matters that they've done historically, they always come in 25% higher than what they were billed. That isn't right.

He said that until firms know what their costs are, they can't be good partners to their clients. Janet agreed, saying that it's in line with their values, which is also why understanding a company's culture is so important. For JC Penney, their model is "fair and square pricing." So they expect their law firms to be consistent with that, or it's a cultural mismatch. She said that they'll walk away from firms if they think they don't share their values - it's not "win at all costs."

Tune back in tomorrow for Part II of the General Counsel Panel, when we discuss how firms can find out what their clients really want to accomplish, using secondees, whether size matters, true differentiation, and what's at the heart of it all - relationships.

Creditors' Competing Interest in Law Firm's Assets Does Not Render Payment to One a Fraudulent Conveyance: RDLF Fin. Servs., LLC v Esquire Capital Corp.

hfrommer@farrellfritz.com (Hillary A. Frommer) — Tue, 20 Mar 2012 18:06:09 GMT

In a February 27, 2012 decision by Justice Demarest, the court granted the defendant’s motion to dismiss the complaint which alleged that the payment by a non-party law firm to the defendant constituted a fraudulent conveyance under New York Debtor Creditor Law (“DCL”) §§ 273 and 276. The plaintiff alleged that it had entered into an assignment agreement with the law firm, whereby it acquired the rights to certain attorney’s fees the law firm was owed. Before entering into that assignment agreement, the law firm entered into a wholly separate funding agreement with the defendant, whereby the defendant advanced $200,000 to the firm, to be secured by those same attorney’s fees. When the firm obtained its duly owed fees, it paid the defendant under the funding agreement. The plaintiff then brought suit alleging that the transfer was constructively fraudulent because it was made without fair consideration and for the purpose of rendering the law firm insolvent and unable to pay its obligations to the plaintiff under the assignment agreement. In dismissing the claim under DCL § 273, the court found that under DCL § 272, fair consideration exists when a payment is for satisfaction of an antecedent debt, and a transfer in satisfaction of an antecedent debt, even if made while the debtor is insolvent, or to prefer one creditor over another, is not fraudulent. The court found that the firm’s payment to the defendant was in satisfaction of the antecedent debt owed under the funding agreement. The court also found that the plaintiff failed to establish that the transfer was made with the actual intent to hinder or defraud, in violation of DCL § 276, because it did not prove the defendant participated in any fraud by the law firm. The court rejected the plaintiff’s argument that it had priority over the defendant because it perfected its security interest (while the defendant did not), finding that the filing of a UCC-1 financing statement did not per se render the transfer fraudulent and voidable under the DCL. The court also rejected the plaintiff’s claim that the defendant impaired its security interest in the firm’s assets, finding that even if the monies at issue were covered by the UCC financing statement, the collateral changed to cash once the firm received the fees, those assets became co-mingled with the firm’s money, and the security interest lapsed.

RDLF Fin. Servs., LLC v Esquire Capital Corp., Sup Ct Kings County, February 27, 2012, Demarest, J. Index No. 13906/11

Summary Judgment Granted Based on Plain and Unambiguous Meaning of Term: Brio Capital, L.P. v Sanswire Corp.

Tue, 20 Mar 2012 17:58:28 GMT

In a December 21, 2011 decision by Justice Fried, the court granted Brio’s motion for summary judgment with respect to its first cause of action seeking declaratory relief, and granted Brio’s motion for an award of reasonable attorney’s fees. Brio loaned Sanswire, a publicly-traded company that manufactures unmanned aerial reconnaissance vehicles, $125,000 subject to a convertible note, two related Warrants that entitled Brio to purchase Sanswire stock at a set Exercise Price, and a Subscription Agreement. The case arose after Brio was ordered to make an issuance of its stock in a different case, at a price lower than the Exercise Price, to holders of warrants that were “substantively identical” to Brio’s. Brio sought to compel Sanswire to issue it additional shares of common stock pursuant to the Warrants. Brio claimed that Sanswire’s issuance of stock below the Exercise Price triggered its share issuance rights, which required Sanswire to issue additional stock Warrant holder “so that the average per share purchase price of the Common Stock issued to the Holder” was equal to the lower issuance price, and that the Exercise Price be automatically reduced to the lower issuance price.

In opposition to summary judgment, Sanswire’s argued for an alternative interpretation of the term “issued to” as used in Warrants. Under Sanswire’s construction, Brio would only be entitled to additional shares at the lower price if it already held Sanswire shares at the time of an issuance at a below Exercise price. Noting that Sanswire’s proposed construction was contrary to that given to the clause in the prior case, and to the plain meaning of the section the clause appeared in, the court held that Sanswire’s attempt to insert ambiguity was unpersuasive because as it was used, “issued to” had a definite and precise meaning and purpose, namely to protect the warrant holder from dilution. The court granted Brio’s motion for attorney’s fees pursuant to a section of the Subscription Agreement, but ordered that the motion be held in abeyance pending a report and recommendation of a Special Referee as to the amount of reasonable attorney’s fees.

Brio Capital, L.P., v. Sanswire Corp. f/k/a Globetel Communications, Inc., Glenn D. Estrella, and Does 1 through 50, Sup Ct, New York County, December 21, 2011Fried, J. Index No. 650830/2011

Tue, 20 Mar 2012 17:44:31 GMT

It strikes me that the design of the Republican primary process this season is unusually poorly thought out, and I wonder what the thought process behind it was. Months and months of debates, which were the ideal vehicle for gaffes, followed by the Iowa caucuses and the New Hampshire primary, then a bunch of beauty contests, then a slow dribble of primaries and caucuses that were set up in ways that made doing the delegate math complicated, prolonging the process further. It's been wicked expensive, and it looks like it was set up to leave the eventual nominee bleeding and ill-equipped to appeal to either the base or the general electorate.

iPad or bust

karenk@stritmatter.com (Karen Koehler) — Tue, 20 Mar 2012 04:35:53 GMT

I am in DC at an ugly hotel for AAJ. I have made the plunge and decided to leave my laptop at home. This will force me to rely solely upon the iPad that I've been dabbling with since December. Leaving the laptop is like leaving one of my arms. I'm bereft and a little scared.

So far I'm most underwhelmed by typing on this thing. ILife to type fast and as you can see do not have the technique down yet. Actually it's I getting better but still is too slow andtoo many mistakes.

Before getting on the plane I tried to download two episodes of glee to watch b it they are still "waiting" which means whatever. Sandwiched in the middle seat I could only read a book on the kindle app but finished it and so had to be bored which I hate so dozed off which means I will never get to sleep in this ugly hotel.

I do like how small it is. I do like the camera. I don't like not having word on it. And the way you have to get documents into and out of it...I have big challenges ahead.

Photo: seatac by iPad camera. No one knew I was pointing it at them. I have no idea how to italicizes this or how to attach the photo!

Sixth Circuit Issues Its Long-Awaited Opinion on Free Speech Challenge to New Federal Tobacco Law

Mon, 19 Mar 2012 22:07:13 GMT

The Sixth Circuit today issued its long-awaited opinion in the free speech challenge to the Family Smoking Prevention and Tobacco Control Act, Public Law 111-31, which gives the Food and Drug Administration the power to regulate tobacco advertising and marketing. See Opinion, Discount Tobacco City & Lottery v. United States (6th Cir., Case Nos. 10-5234 & 5235) (PDF). The Sixth Circuit case was the first major challenge to the Tobacco Control Act brought by tobacco companies, and it attracted a number of amicus briefs.

Sixth Circuit Judge Jane B. Stranch and United States District Judge Michael R. Barrett (Southern District of Ohio), sitting by designation, voted to uphold a key element of the new tobacco law which requires new color warnings graphically depicting the negative health consequences of smoking. Beginning in Fall 2012, these new warnings must occupy the top half of the front and back of all cigarette packages, and must occupy 20% of all cigarette and smokeless tobacco advertising. The warnings, which were formally unveiled by the FDA on June 21, 2011, include graphic images of, among other things, a dead man's body with staples lining his chest, decaying teeth, and a man breathing through a hole in his neck.

The panel majority determined that the color graphics requirement is constitutional because it materially advances the government’s interest in curing an information deficit in consumers regarding health hazards. Judge Eric L. Clay dissented. Even though he agreed that the government had demonstrated that an “information deficit” still exists among consumers, Judge Clay concluded that the government had “not adequately shown that the inclusion of color graphic warning labels is a properly or reasonably tailored response to address that harm.” Judge Clay wrote that “[i]t appears, from the government’s own evidence, that the color graphic warning labels are intended to create a visceral reaction in the consumer, in order to make the consumer less emotionally likely to use or purchase a tobacco product.” Judge Clay’s dissent is not surprising and, indeed, was foreshadowed during oral argument back in July when he asked U.S. Department of Justice attorney Mark Stern during oral argument why the government did not develop a more narrowly tailored warning, “instead of those disgusting pictures.”

In addition to upholding the constitutionality of the new color warnings, the Sixth Circuit affirmed the district court’s decision upholding several other provisions of the new tobacco law, including the restrictions on speech concerning modified risk tobacco products, the marketing bans on brand-name sponsorships and merchandise and sample tobacco products, and the new requirements for textual health warnings. The Sixth Circuit also affirmed the district court’s decision invalidating the Act’s restriction on the use of color and imagery in tobacco product advertising because the ban was “vastly overbroad.” Finally, the Sixth Circuit reversed the district court’s holding invalidating the Act’s restrictions on representations that tobacco products are safer or less harmful due to FDA regulation, as well as the district court’s decision upholding the constitutionality of so-called continuity programs, pursuant to which existing age-verified adult customers are rewarded for their purchases with non-branded, non-tobacco merchandise.

The Sixth Circuit’s 2-1 ruling today comes on the heels of a decision by Judge Richard Leon of the U.S. District Court for the District of Columbia, who ruled on February 29 that “these mandatory graphic images violate the First Amendment by unconstitutionally compelling speech.” See Memorandum Opinion, R.J. Reynolds Tobacco Co. v. U.S. Food and Drug Admin., Case No. 11-1482 (D.D.C.) (PDF). The United States is appealing that decision. Judge Clay cited Judge Leon’s decision in dissent as support for his conclusion that the color graphic warning requirement violates the First Amendment.

This is a case that could end up at the U.S. Supreme Court, and we will continue to follow it closely.

The Death of the Class Arbitration Waiver? Not So Fast...

Mon, 19 Mar 2012 19:29:51 GMT

Last month, the Second Circuit—for the third time, no less—struck down a class arbitration waiver in American Express’ card acceptance agreement with merchants. The latest decision, however, is particularly striking given that it follows, and vigorously distinguishes, the Supreme Court’s opinion last spring in AT&T Mobility v. Concepcion. Will the Supreme Court, whose previous opinions on the subject have twice caused the Second Circuit to revisit its original decision, take this opportunity to weigh in yet again on class arbitration? If not, how do businesses—and courts--navigate the two decisions?

Unlike Concepcion, which involved fraud and false advertising claims under California law, In re American Express Merchants’ Litigation is a federal antitrust case. The plaintiffs allege that American Express’ requirement that merchants honor all American Express cards—both charge cards and credit cards—constitutes a tying arrangement in violation of the Sherman Act. American Express’ card acceptance agreement with the merchants, however, both (i) permits either party to elect arbitration and (ii) prohibits classwide arbitration. Thus, by electing arbitration, American Express can force merchants to adjudicate their claims on an individual basis.
After the Second Circuit first held the arbitration waiver invalid (“Amex I”), the Supreme Court remanded the case for reconsideration in light of the Supreme Court decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp. Stolt-Nielsen involved an arbitration clause that was silent on class arbitration, and the Court held that the Federal Arbitration Act prohibits compelling a party to submit to class arbitration unless there is contractual evidence that the party agreed to do so. On remand, the Second Circuit (“Amex II”) concluded that since the American Express contract was not silent, but expressly banned class arbitration, Stolt-Nielsen did not change the original Amex I analysis. So far, so good.

While the Amex II mandate was on hold, however, Concepcion was decided, and the Second Circuit requested further briefing. Earlier this month (“Amex III”), the Second Circuit held that Concepcion, like Stolt-Nielsen, was inapplicable. The court’s effort to distinguish Concepcion, however, is far more troubling—if not from a legal perspective, then at least from a practical perspective.

In Concepcion, the plaintiffs—consumers challenging a class arbitration waiver in their cellular telephone contract—sought to invoke a California common law rule holding that arbitration clauses containing class waivers are unconscionable in consumer contracts of adhesion, where individual damages are small. The Supreme Court held that this rule was preempted by the FAA’s general protection of arbitration clauses.

In light of this holding, doesn’t the FAA protect the American Express arbitration clause, class waiver or no class waiver? Not according to the Second Circuit. In AmEx III, the court held that the American Express class arbitration waiver could be unenforceable if “the practical effect of enforcement would be to preclude [plaintiffs’] ability to vindicate their federal statutory rights.” The panel went on to hold that the plaintiffs’ economic expert had demonstrated, as a matter of law, that the cost of the plaintiffs’ individually arbitrating their disputes with American Express would be prohibitive, such that the class arbitration waiver had the effect of precluding their rights under the federal antitrust laws. Accordingly, since enforcing the arbitration clause would impermissibly force the plaintiffs into individual arbitrations, the Second Circuit held the arbitration clause unenforceable.

At first glance, the Second Circuit’s opinion, in light of Concepcion, is a head-scratcher. The plaintiffs’ economist opined that the median volume merchant would sustain damages of approximately $5,300 after trebling. While such a small amount surely would render individual arbitration cost-prohibitive, individual arbitration would have been even less feasible in Concepcion, where the named plaintiffs’ damages were a mere $30.22. Moreover, the AmEx plaintiffs were businesses—albeit small ones—while the Concepcion plaintiffs were individual consumers. Why was the Second Circuit concerned with the practical preclusion of the American Express merchants’ ability to enforce their rights, when the Supreme Court in Concepcion allowed a class arbitration waiver to preclude AT&T Mobility customers from enforcing theirs?

The answer, apparently, is that AmEx, unlike Concepcion, was brought under a federal statute. “Concepcion plainly offers a path for analyzing whether a state contract law is preempted by the FAA,” wrote Judge Rosemary S. Pooler, who authored the Second Circuit opinion for a two-judge panel. (Sonia Sotomayor had been the third member prior to her elevation to the Supreme Court.) “Here, however, our holding rests squarely on a vindication of statutory rights analysis, which is part of the federal substantive law of arbitration.” (Emphases added; internal quotations omitted.) In this case, the court held that “[e]radicating the private enforcement component from our antitrust law scheme cannot be what Congress intended when it included strong private enforcement mechanisms and incentives in the antitrust statutes.”

Thus, under AmEx III, a class arbitration waiver will be invalid if it precludes plaintiffs from bringing a federal statutory claim, but not if it merely precludes them from bringing a state law claim. Will this distinction merit, and survive, Supreme Court review? Justice Scalia’s majority opinion in Concepcion had some choice words for class arbitration as a concept, calling arbitration “poorly suited to the higher stakes of class litigation.” Would the Concepcion majority uphold the invalidation of a company’s arbitration clause merely because it requires those who do business with the company to waive this “poorly suited” mechanism in a federal statutory suit?

Perhaps it will, given that the FAA’s preemption of state laws does not apply to other federal statutes. But reconciling Concepcion and AmEx III could lead to some strange results. Class counsel, who frequently find themselves fighting removal under CAFA on diversity grounds, would now have an incentive to invoke a federal question when litigating under contracts with class arbitration waivers. Meanwhile, dismissing federal claims prior to class certification could become critical for defendants. And if they are unable to do so, will courts, when asked to enforce class arbitration waivers on motions to compel arbitration, be required to evaluate the true federal nature of the claim in order to determine whether the waiver is valid?

Finally, the question remains as to how businesses can rely on class arbitration waivers with any certainty if the validity of the waiver will depend on the nature of the plaintiff’s claim. In AmEx III, the remedy imposed by the Second Circuit was not to order class arbitration, since to order American Express to submit to this procedure would have violated Stolt-Nielsen. Instead, the Second Circuit struck down the entire arbitration clause and permitted the plaintiffs to litigate the matter as a judicial class action. Thus, businesses who incorporate class arbitration waivers into their contracts may immunize themselves against class proceedings based in state law, but risk forfeiting arbitration altogether if the claim is brought under federal law.

Companies need not be in a hurry to amend their class arbitration waivers. If a class action is filed under state law, Concepcion will ensure the likely preemption of any state law limiting enforceability, and the waiver will be upheld. If a class action is filed under federal law, the defendant will be forced to litigate the class action, just as it would if there had been no class arbitration waiver. Nevertheless, the questionable enforceability of the waiver, and its potential impact on both sides’ litigation strategy, might lead some to wonder whether Concepcion and AmEx III, read together, create an optimal rule—let alone one that is likely to endure.

DEMOCRACY IN ACTION?

smhonig@duanemorris.com (Steve Honig) — Mon, 19 Mar 2012 15:30:09 GMT

This morning’s mail has upset a part of my world view.

Universities long have been accused of being bastions of populist, liberal thought; Northeastern elite universities (along with anomalous Berkeley, the Harvard of the West) have borne the brunt of this accusation.

Such was not my experience at Harvard Law School; during my attendance (decades ago) it was the bastion of pro-corporate thinking. Corporations should be minimally regulated so as to return greatest profit to their sole relevant constituency: the shareholders.

My 7:44 AM email today from The Harvard Law School Shareholder Rights Project reports that that group, “a clinical program through which Harvard Law School faculty, staff and students assist public pension funds and charitable organizations to improve corporate governance at publicly traded companies in which they are shareowners,” has been working all year to force public companies to de-stagger their boards.

They have submitted proposals to over 80 of the S&P 500, and 42 (one third of the S&P 500 with staggered boards) have agreed to move to annual elections of the entire board. The list includes Alcoa, BlackRock, Cigna, Lilly, McDonald’s and PPG.

Several aspects are fascinating. Leave it to Harvard to apply some of its student outrage in the support of retirement funds who have invested in public companies; not exactly the poor huddled masses being dragged upwards by the power of the law. Leave it to Harvard to take the training ground of the conservative corporate advisors and turn it towards the “democratization” of corporate governance. Leave it to Harvard to undertake the remaking of concepts of corporate governance in a way that empowers shareholders whose interests may be short-term and inconsistent with long-term measured corporate growth.

It is not clear where they will turn next, but this kind of success is not going to do anything except further inspire Professor Bebchuck and his hearty band. The shopping list of corporate democracy demands includes broad proxy access, greater ratchet on comp, independent board chairs, and independent board majorities.

While no doubt entrenched boards beholden to management sometimes in the past led to failure to respond to favorable takeover bids and to over-compensation of top executives, the causes for these lapses are many and complex and cannot be made to disappear by granting greater power to shareholders. The small shareholder is and will remain without power. The larger shareholders have, and are legally entitled to, their own agendas; those agendas may be short term and short sighted and not consistent with healthy corporate growth or innovation.

Two lessons emerge: first, this initiative will ultimate fuel the M&A market; second, directors had better start listening more closely to Professor Bebchuck, whose message and flat presentation have not exactly made him the darling of the corporate speakers’ circuit around Boston. He is single-handedly remaking corporate governance in America and he is doing it under many radar screens that ought to be picking up the incoming blips.

Standing up for Those Who Need Pain Management

polsen1243@aol.com (Pat Olsen) — Mon, 19 Mar 2012 06:08:20 GMT

Or, A Response to Prescription Pill Abuse

One unfortunate repercussion of the prescription pill abuse epidemic is that it gives people who desperately need pain management a bad name. As one person commented on the Malibu Beach Recovery Center blog article, "Doctors who Fuel Addiction and Relapse," at best, they’re viewed with suspicion, and at worst, their needs can be brushed under the rug. Doctors may quit on them because they’re not getting better, as happened to that person.

You can’t blame him (I assume it’s a man) for complaining, and he’s right—Unless you’ve never faced unbearable pain and needed medication to get through the day, you can’t know what it’s like. And if those of us who write about prescription drug abuse want to be fair, it pays to include a comment that there are people who need pain medication and don’t abuse it. Or people who started out taking pain pills for a valid reason and unfortunately became addicted. There are those who hate the side effects, too -- hate the feeling of being high, but give in so they can function.

So thanks to the person who wrote in. We’ve seen articles recently saying that the media is too heavily weighted toward ranting about the bad news, and we should have mentioned that. We should all be in the business of recovery together, trying to see that the doctors who are criminals are stopped, those who become addicted are helped, and those who need pain management are recognized and taken care of.

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