Divided Court of Appeals Alters Common Interest Privilege

New York State’s highest court fundamentally altered how business lawyers and their clients should communicate. In Ambac v. Countrywide, 27 N.Y.3d 616 (2016), a divided Court of Appeals held that the “common interest” privilege applies only where: (1) an attorney-client communication shared with a third-party was made in furtherance of a common legal interest held by those parties, and that; (2) such communication relates to litigation, either pending or anticipated. 

How might this affect your business and why does it matter?

Suppose your company wishes to merge with another entity. The diligence process of such a proposed merger requires your company to share highly confidential information with your new partner. Merging companies execute “non-disclosure” and “common interest privilege” agreements as a matter of course in such situations.

Prior to the Ambac decision, the prevailing assumption in the M&A world was that communications exchanged in the course of such mergers is privileged where the parties have executed a common interest agreement. This assumption is no longer safe.

What happened?

In Ambac, the plaintiff sought to obtain approximately 400 communications between Countrywide Homes and Bank of America. Ambac, an insurer who guaranteed payments on certain residential mortgage-backed securities issued by Countrywide, accused Countrywide of fraudulently inducing Ambac to guaranty those securities. Following the subprime mortgage crisis of 2007-09, Ambac sued Countrywide, and also named Bank of America as a defendant on a successor liability theory. The 400 or so communications sought by Ambac took place after the merger between Countrywide and Bank of America was announced but before the deal closed. 

To the surprise of many, the Court of Appeals compelled the defendants to produce the confidential communications despite the existence of defendants’ common interest agreement. 

What does this mean for your New York business?

First, you must now assume that any documents shared outside of the attorney-client relationship will become discoverable in future litigation. It would be wise to separate pre-litigation materials in any deal from materials likely to be responsive to anticipated litigation requests. You should also consider adopting the jurisdiction of another state, such a Delaware, in your deal’s choice of venue provision. 

At a minimum, discuss with your counsel the potential impact of disclosing sensitive documents to the other side of any deal before entering into a non-disclosure or common privilege agreement. Make sure your counsel is aware of the Ambac decision and has considered its potential impact on you.


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Kevin Burke

Kevin Burke is a partner in the Litigation, Labor & Employment Practice Group at Lippes Mathias Wexler Friedman LLP. EDUCATION: J.D., George Washington University Law School Georgetown University - B.A., magna cum laude Nichols High School School (Buffalo, New York) EMPLOYMENT: Lippes Mathias Wexler Friedman LLP - A partner in the Litigation Practice Group INTERESTS: Member, Nichols School Alumni Board Past Board Member and Officer, Western New York Trial Lawyers Association Bennett High School's Law Magnet Program Bar Association of Erie County Annual Mock Trial Tournament Attorney Coach Past Member, Kiwanis Club of Buffalo Past Member, Child & Family Services Annual Fund Board Leadership Buffalo Graduate, Class of 2006

Honored and grateful. But what if . . . ?

I love my job. I am privileged to be in a position to help good people and great companies navigate difficult situations. But there are some days when this seems like a pretty deal, too....

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Kevin Burke

Kevin Burke is a partner in the Litigation, Labor & Employment Practice Group at Lippes Mathias Wexler Friedman LLP. EDUCATION: J.D., George Washington University Law School Georgetown University - B.A., magna cum laude Nichols High School School (Buffalo, New York) EMPLOYMENT: Lippes Mathias Wexler Friedman LLP - A partner in the Litigation Practice Group INTERESTS: Member, Nichols School Alumni Board Past Board Member and Officer, Western New York Trial Lawyers Association Bennett High School's Law Magnet Program Bar Association of Erie County Annual Mock Trial Tournament Attorney Coach Past Member, Kiwanis Club of Buffalo Past Member, Child & Family Services Annual Fund Board Leadership Buffalo Graduate, Class of 2006

Burning Issues in New York's Tanning Bed Industry

State Attorney General Eric Schneiderman continues to turn up the heat on New York businesses in the indoor tanning industry. The State's A.G. is not alone.

According to Corporate Counsel, indoor tanning is under attack from all sides. The Federal Trade Commission is going after manufacturers. The U.S. Food and Drug Administration seeks to ban minors from using tanning salons altogether. Individuals are suing tanning salons with such frequency that some legal experts predict tobacco industry level litigation in the near future.  

Tanning industry lawyers deny that their clients are misleading consumers. Most claim that indoor tanning provides health benefits. When the tanning industry promotes these health benefits, industry lawyers argue that their clients are merely exercising their right to free speech.

Although it is too early to predict the final results of these regulatory proposals and court battles, it is clear that the controversy surrounding indoor tanning will not fade anytime soon. In the meantime, individual tanning studio are well advised to avoid directly making any claims related to the potential benefits of indoor tanning. Rather, tanning studios should direct consumers to third-party resources such as TanningTruth.com or SmartTan.com. These sites contain links to favorable blogs regarding tanning but contain warnings to consumers about the risks of overexposure to UV rays.

 

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Kevin Burke

Kevin Burke is a partner in the Litigation, Labor & Employment Practice Group at Lippes Mathias Wexler Friedman LLP. EDUCATION: J.D., George Washington University Law School Georgetown University - B.A., magna cum laude Nichols High School School (Buffalo, New York) EMPLOYMENT: Lippes Mathias Wexler Friedman LLP - A partner in the Litigation Practice Group INTERESTS: Member, Nichols School Alumni Board Past Board Member and Officer, Western New York Trial Lawyers Association Bennett High School's Law Magnet Program Bar Association of Erie County Annual Mock Trial Tournament Attorney Coach Past Member, Kiwanis Club of Buffalo Past Member, Child & Family Services Annual Fund Board Leadership Buffalo Graduate, Class of 2006

Six Tips for Keeping Your Yoga Business Out of a Bind

Maybe you’ve lost your nine-to-five desk job. Perhaps you’ve decided to quit the office rat race altogether. Or maybe your inner spark simply ignited into a consuming fire to begin anew. Whatever the reason, you’ve decided to turn your yoga practice into a full-time business.

You’ve obtained all of your certifications. You’ve lined up your financing.

Now what?

Prior to closing the windows and cranking the heat, focus your drishti on the following six tips to keep you in the flow and out of court:

·         Incorporate Yourself. Depending on the size of your prospective business, a simple limited liability company may work for you. If you have practices in multiple locations or are offering products as well as services, you may want to form a C- or an S-Corp. There is no one correct way to get incorporated. But there is a wrong way – do nothing. Do not expose yourself to potentially disastrous personal liability. Speak with an experienced commercial lawyer about your specific needs.

·         Check Your Lease. Many new businesses fail to read the fine-print on leases restricting the very activities those businesses intend to conduct. Have an experienced commercial real estate lawyer review the lease before you sign.

·         Obtain Proper Insurance Coverage. Not all policies are alike. There is insurance tailored for studios and insurance for teachers. Depending on how you classify your instructors, you may need multiple policies for them, too. Liability, employee, and director/owner policies differ from state to state. Be sure to discuss your options with a competent insurance professional before you open your studio to the public.

·         Mindfully Classify Your Staff. There is a difference between “independent contractors” and “employees” in the law. This difference affects how your staff is paid, taxed, insured, and treated by the courts in the event of an adverse job action. Confusingly, even if you consider a staff member to be an independent contractor, if you exert too much “control” over that person (scheduling, instruction, etc.), the law (taxing authorities, courts) may treat that person as your employee. Speak with experienced employment counsel to better understand this tricky but important distinction.  

·         Use Narrowly Tailored Waivers and Releases. Have your students sign waivers and releases before they begin their practice with you. Be sure to include release language for your instructors as well as the studio. Many lawyers advise against asking students about pre-existing injuries. Consult with an attorney whom you know and trust on this issue.

·         Know Your Staff. Vet your staff. Verify a person’s training. Look for feedback from the studio’s students once a new hire begins. Speak with competent employment counsel about preforming a legally permissible background check.

Like every yoga practice, each business has its own unique opportunities and challenges. Following these six easy steps will help minimize your risk in your new yoga venture. Speak with competent tax, insurance, and legal professionals before you get started. Or meet with an experienced attorney to provide a professional audit of your current business practices.

Namaste. 

Comment

Kevin Burke

Kevin Burke is a partner in the Litigation, Labor & Employment Practice Group at Lippes Mathias Wexler Friedman LLP. EDUCATION: J.D., George Washington University Law School Georgetown University - B.A., magna cum laude Nichols High School School (Buffalo, New York) EMPLOYMENT: Lippes Mathias Wexler Friedman LLP - A partner in the Litigation Practice Group INTERESTS: Member, Nichols School Alumni Board Past Board Member and Officer, Western New York Trial Lawyers Association Bennett High School's Law Magnet Program Bar Association of Erie County Annual Mock Trial Tournament Attorney Coach Past Member, Kiwanis Club of Buffalo Past Member, Child & Family Services Annual Fund Board Leadership Buffalo Graduate, Class of 2006

New EU-U.S. Privacy Shield Requires Tougher Monitoring and Compliance for U.S. Companies

U.S. companies involved in the transmission of personally identifying information (“PII”) should be aware of the new “EU-U.S. Privacy Shield” unveiled by the U.S. Secretary of Commerce this week. The new Privacy Shield requires U.S. companies “to monitor and enforce more robustly” the privacy rights of Europeans doing business with American companies.

In addition to requiring greater transparency surrounding the collection and use of Europeans’ PII, the new Privacy Shield requires American companies to self-certify annually that they meet the privacy-protection requirements under the new EU-U.S. arrangement. American companies must now reply to complaints from individuals within 45 days, and U.S. businesses handling human resources data must cooperate and comply with European Data Protection Authorities.

If your company or business handles the personal data of Europeans, this new arrangement probably affects you. Consult with a legal professional experienced in the area of international data protection today.

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Kevin Burke

Kevin Burke is a partner in the Litigation, Labor & Employment Practice Group at Lippes Mathias Wexler Friedman LLP. EDUCATION: J.D., George Washington University Law School Georgetown University - B.A., magna cum laude Nichols High School School (Buffalo, New York) EMPLOYMENT: Lippes Mathias Wexler Friedman LLP - A partner in the Litigation Practice Group INTERESTS: Member, Nichols School Alumni Board Past Board Member and Officer, Western New York Trial Lawyers Association Bennett High School's Law Magnet Program Bar Association of Erie County Annual Mock Trial Tournament Attorney Coach Past Member, Kiwanis Club of Buffalo Past Member, Child & Family Services Annual Fund Board Leadership Buffalo Graduate, Class of 2006

A Data Breach Incident Response Plan Can Minimize The Damage Caused by a Data Breach

Cyber-criminals are moving down the food chain. As larger corporations spend millions of dollars enhancing their cyber-security, data thieves and phishing-scammers are increasingly targeting small to mid-size companies. These smaller businesses typically lack the financial resources of Fortune 500 companies; accordingly, the bad guys are setting their sights on these relatively easy targets.

Cyber-crime is now everybody's problem. Although it is impossible eliminate your company's risk of suffering a cyber-attack or data-breach, there are small steps every small business can take to minimize the risk of suffering a catastrophic breach. The easiest of these steps is to draft, implement, and follow a Data Breach Incident Response Plan. 

A good Data Breach Incident Response Plan will include written instructions for your employees to follow in the event of a data breach. It should identify an Incident Response Team. Ideally, it will include sample notification letters for affected individuals, as well as notices to local, state, and federal authorities. 

No one plan will fit every small business. Talk to your company's legal counsel, IT-provider, and insurance carrier about drafting and implementing a Data Breach Incident Response Plan before your company suffers its next data breach.

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Kevin Burke

Kevin Burke is a partner in the Litigation, Labor & Employment Practice Group at Lippes Mathias Wexler Friedman LLP. EDUCATION: J.D., George Washington University Law School Georgetown University - B.A., magna cum laude Nichols High School School (Buffalo, New York) EMPLOYMENT: Lippes Mathias Wexler Friedman LLP - A partner in the Litigation Practice Group INTERESTS: Member, Nichols School Alumni Board Past Board Member and Officer, Western New York Trial Lawyers Association Bennett High School's Law Magnet Program Bar Association of Erie County Annual Mock Trial Tournament Attorney Coach Past Member, Kiwanis Club of Buffalo Past Member, Child & Family Services Annual Fund Board Leadership Buffalo Graduate, Class of 2006

Is your business one cyberattack away from financial ruin?

A savvy business owner already knows the value of property and liability insurance. Yet in today’s digital age, more and more employers are adding cybersecurity insurance in their list of must-have protection.

Cybersecurity insurance is designed to assuage losses from cyberattacks, such as breaches in data, distributed denial-of-service attacks and network damage. With cyberattacks steadily on the rise, no organization is safe.

According to a 2015 report by the Ponemon Institute, the Target data breach in 2013 resulted in 40 million stolen credit and debit cards, as well as 70 million records containing identifying information about Target customers, including names, addresses, email addresses, and phone numbers. Other notable cyberattacks in 2014 include hacks on eBay, JPMorgan Chase & Co., Staples, and Sony Pictures Entertainment.

Small businesses are not immune to a cyberattack, either. Breaches against small to mid-size businesses have risen more than 300 percent in the past two years, according to the security company Symantec.

The Ponemon Institute indicates that cyberattacks throughout the remainder of 2015 will continue to be as bad, if not worse, as more sensitive transactions occur in the digital realm.

While cybersecurity insurance cannot protect businesses from hackers, it can help lessen the sting of a potentially costly aftermath.  On top of any direct financial loss incurred by a cyberattack, corporations often find themselves shelling out more money to fight lawsuits brought on by customers victimized by the attack.

As a Scott Godes’ article in The Corporate Counselor newsletter pointed out, a court refused to dismiss a class action complaint against Target Corporation brought by banks whose customers’ information was stolen. Though Target’s losses were somewhat offset by $90 million in insurance recoveries, the corporation is still on the hook for tens of millions of dollars in uninsured losses. Additionally, Target’s cybersecurity insurance has a reported “50 million sublimit for settlements with  the payment card networks.”

Before business owners purchase (or renew) any insurance policy, it is important to examine and evaluate the program to make sure the policy fits their needs.

Business owners should not assume that any loss suffered from a cyberattack is covered under their general liability policy.  According to the National Association of Insurance Commissioners and the Center for Insurance Policy and Research, the terms and conditions of a Commercial General Liability Policy may not cover issues arising from a data breach, including liability for security breaches, the cost to notify customers of a privacy breach and the costs associated with restoring and replacing electronically-stored assets.  A cybersecurity policy is most likely needed for financial protection in such instances.

As businesses continue to perform more transactions online, and as hackers are increasingly becoming more sophisticated in their methods, it is advantageous for employers to think long and hard about the value of cybersecurity insurance.

Of course, purchasing cybersecurity insurance does not equal a safeguard from hackers. To reduce the risk of a cyberattack, businesses should consistently update their firewalls and antivirus software, talk to employees about the dangers of clicking on suspicious links, and conduct regular audits of their IT infrastructure.

 

To download the report from Ponemon Institute titled “2014: A Year of Mega Breaches,” click here.

 

 

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Kevin Burke

Kevin Burke is a partner in the Litigation, Labor & Employment Practice Group at Lippes Mathias Wexler Friedman LLP. EDUCATION: J.D., George Washington University Law School Georgetown University - B.A., magna cum laude Nichols High School School (Buffalo, New York) EMPLOYMENT: Lippes Mathias Wexler Friedman LLP - A partner in the Litigation Practice Group INTERESTS: Member, Nichols School Alumni Board Past Board Member and Officer, Western New York Trial Lawyers Association Bennett High School's Law Magnet Program Bar Association of Erie County Annual Mock Trial Tournament Attorney Coach Past Member, Kiwanis Club of Buffalo Past Member, Child & Family Services Annual Fund Board Leadership Buffalo Graduate, Class of 2006

Delaware court ruling limits employers' ability to enforce noncompete agreements

Et tu, Delaware?

 By: Kevin Burke

The enforceability of noncompete agreements in the United States has taken another hit this quarter, this time from the typically employer-friendly Delaware Chancery Court.

If your business is a Delaware corporation headquartered or with employees in a state other than Delaware, a recent decision out of the Chancery Court involving noncompete agreements will likely affect your company.[1]

In Ascension Insurance Holdings, LLC v. Underwood,[2] the Chancery Court of Delaware refused to enforce a noncompete agreement, expressly disregarding the parties’ agreement to apply Delaware law on public policy grounds in the process.

Although the parties initially agreed that Delaware law would govern the agreement, the court applied California law in rejecting the plaintiff employer’s request for an injunction against its former employee. This decision may come as an unwelcome surprise to many Delaware corporation employers who have come to rely on Delaware law as being both predictable and employer-friendly.

Delaware is strongly contractarian in its law. The Chancery Court routinely respects the rights of parties to freely contract and to be able to rely on the enforceability of their agreements. When parties choose to apply Delaware law in their agreements, Delaware law will be applied with only very limited exceptions. In fact, the Underwood court expressly noted that “[u]pholding freedom of contract is a fundamental policy of [Delaware].”[3]

However, where it is clear that the public policy of the so-called “default state” – the state where the contract was formed and will be enforced – conflicts drastically with Delaware law on a particular issue, Delaware law will not be applied.

Put another way, Delaware is generally supportive of choice-of-law provisions, but recognizes that allowing parties to circumvent state policy-based contractual prohibitions through the promiscuous use of such provisions would eliminate the right of the default state to have control over enforceability of contracts concerning its citizens.

Unlike Delaware, which allows employers to restrict former employees from competing so long as such restrictions are reasonable in scope and necessary to protect the former employer’s legitimate business interests, California public policy disallows contractual agreements not to compete.[4]

In Underwood, the Chancery Court analyzed the relationship between the employer and its former employee and found that the dealings between them all centered in California. Since the noncompete agreement at issue was “abhorrent and void”[5] under California policy, the Delaware Court refused to apply Delaware law and would not enforce the restrictive covenant.

What does this instruct Delaware corporations headquartred in states other than Delaware?

In drafting restrictive covenants containing noncompete provision, a shrewd Delaware corporation will no longer merely rely on a choice-of-law provision citing Delaware to guaranty the application of Delaware’s relatively pro-employer noncompete laws.

Rather, a prudent Delaware corporation must take into account the extent of the nexus between the agreement it seeks to enforce and the state in which the company seek to enforce it. If your Delaware corporation and its employees are headquartered in a state with a public policy (or outright ban) against noncompete agreements, best practices dictate the implementation of a plan to protect against competition from former employees without relying on the application of Delaware law alone.

A narrowly tailored non-solicitation agreement or a written policy against the misuse of proprietary information are two examples of ways to protect against future unfair competition from former employees.

As always, it is critical to consult with counsel experienced in this area of the law and with knowledge of the specific needs of your business.

 

 

[1] http://courts.delaware.gov/opinions/download.aspx?ID=218380

[2] Chancery Court of Delaware, January 27, 2015, C.A. No. 9897-VCG

[3] Ascension Ins. Holdings, LLC v. Underwood, 2015 Del. Ch. LEXIS 19, *13

[4] Cal. Bus. & Prof Code §16601

[5] Underwood, 2015 Del. Ch. LEXIS 19, *4

 

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Kevin Burke

Kevin Burke is a partner in the Litigation, Labor & Employment Practice Group at Lippes Mathias Wexler Friedman LLP. EDUCATION: J.D., George Washington University Law School Georgetown University - B.A., magna cum laude Nichols High School School (Buffalo, New York) EMPLOYMENT: Lippes Mathias Wexler Friedman LLP - A partner in the Litigation Practice Group INTERESTS: Member, Nichols School Alumni Board Past Board Member and Officer, Western New York Trial Lawyers Association Bennett High School's Law Magnet Program Bar Association of Erie County Annual Mock Trial Tournament Attorney Coach Past Member, Kiwanis Club of Buffalo Past Member, Child & Family Services Annual Fund Board Leadership Buffalo Graduate, Class of 2006