Trade Secrets Bill with Controversial Civil Seizure Provision Passes Senate

Recently, Congress and the courts in the United States have been active in reining in what many have seen as patent system that has run amuck. In the process, they have placed a number of limits on patent holders’ ability to effectively and successfully enforce patents. But as opportunities to enforce intellectual property through patent suits have been narrowed, another IP door appears to be opening.

For several years, Congress has been working on legislation that would, in effect, federalize what until now has been a state-by-state system of trade secret law. The current version, the Defend Trade Secrets Act of 2016 (S. 1890) (“DTSA”), was approved by the Senate on April 4, 2016 with bipartisan support.

The DTSA would operate to expand the existing Economic Espionage Act by, among other things, adopting much of the framework of the Uniform Trade Secrets Act (“UTSA”) and permitting private parties to bring civil trade secret misappropriation actions. UTSA-derived provisions are already in effect in 48 of the 50 states. Thus, while there are some differences between the DTSA and the UTSA, it is unclear whether the DTSA would represent a meaningful departure from existing trade secrets law, at least substantively. There are differing views.

The DTSA’s Civil Seizure Provision

What would almost certainly represent a significant new development is the DTSA’s civil seizure procedure, which is not contemplated under the UTSA. Under the proposed law, upon application by a party asserting theft of trade secrets, a federal court would have the authority to order law enforcement officials to enter land and seize property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” Most strikingly, the bill envisions an ex parteprocess under which seizures would be authorized and executed without any notice to the relevant property owner(s), including third parties—a process that naturally raises due process and Fourth Amendment concerns.

Supporters of the bill point to analogous ex parte seizure provisions contained in the Lanham Act1 (authorizing ex parteseizures of counterfeit goods) and the Copyright Act2 (authorizing ex parte impoundments of documents and things related to copyright infringement)—provisions that have survived constitutional scrutiny.

Moreover, Rule 64 of the Federal Rules of Civil Procedure authorizes prejudgment seizures of property under applicable state law (e.g., writs of replevin or sequestration remedies), and ex parte seizures under such state law provisions have likewise been upheld under many circumstances. Courts have also justified ex parte seizures under the All Writs Act.3 Thus, there is precedent for these types of procedures.

It is also worth noting that ex parte seizure procedures are used in intellectual property cases in numerous jurisdictions outside of the United States. For example, in the United Kingdom, so-called “Anton Piller” orders have been utilized for many years to secure documents and things on an ex parte basis, in exceptional circumstances.

Significant Controversy

Nevertheless, the prospect of ex parte seizures in the trade secrets context has generated significant controversy in the United States. One major source of concern is the fact-intensive nature and overall complexity of trade secrets disputes. What exactly is the information at issue and does it qualify as a trade secret? How, if at all, has it been maintained in secrecy? Does the target of the seizure really have the information in his or her possession, and if so, how was the information obtained? Was reverse engineering involved? And so on.

Even on a preliminary basis, the complex factual issues involved in trade secret disputes may not lend themselves to fair resolution through expedited and non-adversarial ex parte procedures. Indeed, it does not take much imagination to conceive how, in the wrong hands, one-sided ex parte seizure proceedings might be used for improper purposes.

For example, in one Lanham Act counterfeit goods case, the plaintiff’s attorney “ran roughshod over the applicable statutes and rules,” submitting an inaccurate and misleading affidavit and convincing the lower court to authorize a private investigator to conduct the seizure and hand the seized property to the attorney.4 In another, the district court described a scheme in which the plaintiffs obtained seizure orders in a succession of counterfeiting cases, only to dismiss each case approximately one year after seizing the goods, without having ever established that the goods were, in fact, counterfeit.5

Rigorous Procedural Safeguards

In an effort to eliminate potential mischief, and to ensure that the new DTSA scheme passes constitutional muster, the bill’s sponsors have included a number of key procedural safeguards:

  • Ex parte seizures would be reserved for “extraordinary circumstances” only;

  • A seizure order would only issue upon the plaintiff’s filing of an affidavit or verified complaint that sets forth “specific facts” establishing, among other things: (1) immediate and irreparable injury if seizure is not ordered; (2) a likelihood of success on the merits of the trade secret claim; (3) the balance of harms favors the applicant; (4) the identity and location of the material to be seized, with reasonable particularity; and (5) more ordinary procedures (such as a TRO motion under Rule 65) would be ineffective because the seizure target would evade the order or destroy the evidence;

  • The applicant would be required to post a bond sufficient to cover damages should the seizure turn out to be wrongful or excessive;

  • Any seizure order would “provide for the narrowest seizure of property necessary” and would be executed by law enforcement officials;

  • The court would be required to provide specific guidance to the officials executing the seizure that “clearly delineates” the scope of their authority and details how the seizure must be conducted;

  • The court would also be required to schedule an adversarial hearing for the earliest possible time after the seizure was executed, at which hearing the applicant would bear the burden of proof of establishing that the seizure order was proper; and

  • The bill provides for a civil action for damages based on a wrongful or excessive seizure.

Taken together, these safeguards are significant and may reduce the likelihood of erroneous seizure orders and/or abuse of the system. In fact, it is possible that the obstacles to securing a seizure order would be so significant that, as a practical matter, they would eliminate the seizure remedy as an alternative in all but the most egregious scenarios. That appears to be an intended result.

In any event, having navigated the Senate, the DTSA will now pass to the House of Representatives for further consideration. A companion bill to S. 1890, H.R. 3326, was introduced in July 2015 and has enjoyed broad bipartisan support. In an era of partisan rancor, the DTSA may yet be one instance—the ex parte seizure provision notwithstanding—in which legislators find ways to work together across the aisle to achieve results.

1See 15 U.S.C. § 1116(d).
2See 17 U.S.C. § 503(a).
328 U.S.C. § 1651.
4Warner Brothers v. Dae Rim Trading, Inc., 877 F.2d 1120 (2d Cir. 1989).
5NASCAR v. Doe, 584 F. Supp. 2d 824 (W.D.N.C. 2008).

Announcement of “Privacy Shield” Gives Hope for U.S. Companies Who Previously Relied on Safe Harbor

We have previously discussed the EU Court of Justice’s invalidation of the long-standing Safe Harbor program, previously relied on by many organizations as a means of authorizing transfers of EU citizens’ private data to the United States. U.S. companies eagerly awaited news of a replacement for Safe Harbor and kept a close watch as the January 31, 2016, grace period on enforcement announced by the EU Article 29 Working Party expired. News of a new framework  broke in early February and the European Commission released extensive documentation revealing the details of Safe Harbor’s proposed replacement – the EU-U.S. Privacy Shield program (Privacy Shield) – on February 29, 2016.

Privacy Shield encompasses seven principles for assuring adequate protection when transferring and processing personal data originating in the European Union. Similar to Safe Harbor, organizations can self-certify their compliance with these principles, provided they (1) commit to the U.S. Department of Commerce that they will adhere to the Privacy Shield Principles, (2) publicly declare their commitment to the Privacy Shield Principles, and (3) actually implement the Principles. Once compliance is certified, organizations may seek inclusion on the Department of Commerce’s list of certified organizations, effectively authorizing them to transfer the personal data of EU residents to the United States.

Privacy Shield Principles

  1. Notice. Privacy Shield requires organizations to provide notice regarding the type of data collected, the purposes for which it is collected, any third parties to which the data may be transferred, individuals’ right to access their data, and how individuals can limit use and disclosure of personal data. The organization also must provide notice of its participation in Privacy Shield, acknowledge applicable enforcement authorities and describe recourse mechanisms available.

  2. Choice. Organizations must provide clear, conspicuous and readily available mechanisms allowing individuals to opt out of any disclosure of their personal data to third parties, or use of their personal data other than the purpose(s) for which it was initially collected or subsequently authorized by the individual. Certain sensitive information will require individuals to opt in affirmatively.

  3. Security. As under Safe Harbor, participating organizations must take “reasonable and appropriate measures,” based on the risks involved and the nature of the personal data, to protect the data “from loss, misuse and unauthorized access, disclosure, alteration and destruction.”

  4. Access. Privacy Shield–certified organizations must provide individuals with access to and the opportunity to correct, amend or delete inaccurate or improperly processed personal data. Individuals also must be allowed to confirm that their personal data is being processed. An organization may restrict access to data “in exceptional circumstances.”

  5. Data Integrity and Purpose Limitation. Privacy Shield requires not only that any data collected be “relevant for the purposes of processing” but also that organizations limit collection to relevant data only. Participating organizations also must “take reasonable steps to ensure that personal data is reliable for its intended use, accurate, complete, and current.”

  6. Accountability for Onward Transfer. Certified organizations’ contracts with third parties receiving personal data must require that such data “may only be processed for limited and specified purposes” consistent with the level of consent given by the data subject. Third-party transferees also must agree to “provide the same level of protection as the [Principles].” Certified organizations also must “take reasonable and appropriate steps” to ensure third-party agents adhere to the Principles, and are required to stop and remediate any unauthorized processing by third parties, if necessary. Importantly, with limited exceptions, certified organizations remain liable to data subjects for any vendor’s violation of the Principles.

  7. Recourse, Enforcement and Liability. Perhaps Privacy Shield’s most significant new features are its recourse and dispute resolution provisions. Complaint-handling processes must be implemented to obtain Privacy Shield certification. To ensure effective enforcement, Privacy Shield requires (1) procedures for verifying representations made about privacy practices, (2) recourse for data subjects and (3) remedies for failures to comply with the Principles. These newly required “independent recourse mechanisms” are empowered to provide remedies separate from regulators’ enforcement authority.

Legal Safeguards

Because the extent of U.S. government surveillance of personal data was a primary reason why the Safe Harbor program was invalidated, in support of Privacy Shield the U.S. Office of the Director of National Intelligence and the U.S. Department of Justice have furnished letters outlining the legal safeguards that will limit U.S. government access to personal data transferred pursuant to Privacy Shield. In addition, the U.S. Secretary of State is set to appoint a Privacy Shield Ombudsperson, who will be responsible for handling European complaints regarding whether personal data transferred under Privacy Shield has been accessed by U.S. intelligence activities.

In addition, the Judicial Redress Act of 2015, signed into law on February 24, 2016, allows EU citizens to bring civil actions against U.S. government agencies under the Privacy Act of 1974 to access, amend or correct records about them or seek redress for the unlawful disclosure of those records.

Certification and Compliance

Privacy Shield is expected to be approved by the European Commission later this year and published in the Federal Register shortly thereafter. Organizations that self-certify within the first two months following publication will be given nine months to bring all third-party relationships into compliance. Two months after the effective date, the Principles become binding on an organization immediately upon certification. Privacy Shield will thereafter undergo annual joint reviews by EU and U.S. authorities.

All organizations that intend to become Privacy Shield certified are strongly encouraged to immediately begin updating their policies to meet Privacy Shield’s heightened obligations, including reviewing their third-party agreements to ensure compliance.

Article By Gregory Bautista & James F. Monagle of Wilson Elser Moskowitz Edelman & Dicker LLP
© 2016 Wilson Elser

Announcement of "Privacy Shield" Gives Hope for U.S. Companies Who Previously Relied on Safe Harbor

We have previously discussed the EU Court of Justice’s invalidation of the long-standing Safe Harbor program, previously relied on by many organizations as a means of authorizing transfers of EU citizens’ private data to the United States. U.S. companies eagerly awaited news of a replacement for Safe Harbor and kept a close watch as the January 31, 2016, grace period on enforcement announced by the EU Article 29 Working Party expired. News of a new framework  broke in early February and the European Commission released extensive documentation revealing the details of Safe Harbor’s proposed replacement – the EU-U.S. Privacy Shield program (Privacy Shield) – on February 29, 2016.

Privacy Shield encompasses seven principles for assuring adequate protection when transferring and processing personal data originating in the European Union. Similar to Safe Harbor, organizations can self-certify their compliance with these principles, provided they (1) commit to the U.S. Department of Commerce that they will adhere to the Privacy Shield Principles, (2) publicly declare their commitment to the Privacy Shield Principles, and (3) actually implement the Principles. Once compliance is certified, organizations may seek inclusion on the Department of Commerce’s list of certified organizations, effectively authorizing them to transfer the personal data of EU residents to the United States.

Privacy Shield Principles

  1. Notice. Privacy Shield requires organizations to provide notice regarding the type of data collected, the purposes for which it is collected, any third parties to which the data may be transferred, individuals’ right to access their data, and how individuals can limit use and disclosure of personal data. The organization also must provide notice of its participation in Privacy Shield, acknowledge applicable enforcement authorities and describe recourse mechanisms available.

  2. Choice. Organizations must provide clear, conspicuous and readily available mechanisms allowing individuals to opt out of any disclosure of their personal data to third parties, or use of their personal data other than the purpose(s) for which it was initially collected or subsequently authorized by the individual. Certain sensitive information will require individuals to opt in affirmatively.

  3. Security. As under Safe Harbor, participating organizations must take “reasonable and appropriate measures,” based on the risks involved and the nature of the personal data, to protect the data “from loss, misuse and unauthorized access, disclosure, alteration and destruction.”

  4. Access. Privacy Shield–certified organizations must provide individuals with access to and the opportunity to correct, amend or delete inaccurate or improperly processed personal data. Individuals also must be allowed to confirm that their personal data is being processed. An organization may restrict access to data “in exceptional circumstances.”

  5. Data Integrity and Purpose Limitation. Privacy Shield requires not only that any data collected be “relevant for the purposes of processing” but also that organizations limit collection to relevant data only. Participating organizations also must “take reasonable steps to ensure that personal data is reliable for its intended use, accurate, complete, and current.”

  6. Accountability for Onward Transfer. Certified organizations’ contracts with third parties receiving personal data must require that such data “may only be processed for limited and specified purposes” consistent with the level of consent given by the data subject. Third-party transferees also must agree to “provide the same level of protection as the [Principles].” Certified organizations also must “take reasonable and appropriate steps” to ensure third-party agents adhere to the Principles, and are required to stop and remediate any unauthorized processing by third parties, if necessary. Importantly, with limited exceptions, certified organizations remain liable to data subjects for any vendor’s violation of the Principles.

  7. Recourse, Enforcement and Liability. Perhaps Privacy Shield’s most significant new features are its recourse and dispute resolution provisions. Complaint-handling processes must be implemented to obtain Privacy Shield certification. To ensure effective enforcement, Privacy Shield requires (1) procedures for verifying representations made about privacy practices, (2) recourse for data subjects and (3) remedies for failures to comply with the Principles. These newly required “independent recourse mechanisms” are empowered to provide remedies separate from regulators’ enforcement authority.

Legal Safeguards

Because the extent of U.S. government surveillance of personal data was a primary reason why the Safe Harbor program was invalidated, in support of Privacy Shield the U.S. Office of the Director of National Intelligence and the U.S. Department of Justice have furnished letters outlining the legal safeguards that will limit U.S. government access to personal data transferred pursuant to Privacy Shield. In addition, the U.S. Secretary of State is set to appoint a Privacy Shield Ombudsperson, who will be responsible for handling European complaints regarding whether personal data transferred under Privacy Shield has been accessed by U.S. intelligence activities.

In addition, the Judicial Redress Act of 2015, signed into law on February 24, 2016, allows EU citizens to bring civil actions against U.S. government agencies under the Privacy Act of 1974 to access, amend or correct records about them or seek redress for the unlawful disclosure of those records.

Certification and Compliance

Privacy Shield is expected to be approved by the European Commission later this year and published in the Federal Register shortly thereafter. Organizations that self-certify within the first two months following publication will be given nine months to bring all third-party relationships into compliance. Two months after the effective date, the Principles become binding on an organization immediately upon certification. Privacy Shield will thereafter undergo annual joint reviews by EU and U.S. authorities.

All organizations that intend to become Privacy Shield certified are strongly encouraged to immediately begin updating their policies to meet Privacy Shield’s heightened obligations, including reviewing their third-party agreements to ensure compliance.

Article By Gregory Bautista & James F. Monagle of Wilson Elser Moskowitz Edelman & Dicker LLP
© 2016 Wilson Elser

Managing Client Needs with Cross-Generational Leadership

Everyone knows the generational stereotypes: Baby boomers are loyal and hardworking, people who believe in putting your nose to the grindstone and getting work done but who may have a difficult time working the latest mobile technology. Gen Xers are independent and skeptical, while millennials are tech-savvy, Instagram EVERYTHING, and are aggressively interested in collaboration and work-life balance.

In law firms across America, these groups are comingling and working together to manage client matters and relationships. The panel The Ties that Bind: Building Cross-Generational Leadership at the 23rd Annual Marketing Partner Forum discussed the business imperative of building a diverse, multi-generational client team to fortify legal services. NLR took the opportunity to speak with the moderator Amanda K. Brady, Global Practice Leader at Major, Lindsey & Africa, and Melissa R. Margulies, Client Service Counsel at Ballard Spahr, about generational issues facing law firms.

The first thing to keep in mind is what a general counsel wants from his or her outside counsel. GCs want a team that will work together and get the job done, and the law firm team should represent the business needs and goals of the client. General counsels want attorneys who make their jobs easier, and law firms are expected to meet the needs of the client. Amanda Brady says, “The client doesn’t need to meet everyone working on the matter, but my sense from the GC is that they really appreciate getting to know key attorneys working on their projects so they are more comfortable conducting follow-up communications.”

Every situation is different, and factors must be considered to appropriately handle each client. Open lines of communication that allow clients to communicate their needs to the firm are imperative. Melissa Margulies points out, “We ask the client for feedback about both partners and associates and how the team has helped the client. Additionally, we continually evaluate whether the relationship partner and team members are the right fit, based upon the changing business needs of the client.”

Margulies continues, “What I see and what I encourage are different tiers of client contact and multiple points of contact.” She points out that each generation brings its own strengths, and it’s important to set up a team that can do the work and further relationships. Margulies says, “It’s important that younger lawyers are given opportunities to interact with the younger business people at the client so that those two groups grow up together.”

Traditionally, the senior attorney has the relationship and brings the client to the firm. Junior attorneys do the work, while the partner manages the relationship, allowing the junior attorneys opportunities to interact and meet with the client along the way. Brady says, “The obvious challenge is for the junior attorney. They don’t bring as much experience to the table, so they have to tout the experience of the more senior attorneys and work as a team.” Collaboration is essential, and making sure junior attorneys are brought to the table is an important part of keeping the relationship viable as the years go by.

The question becomes how often and when do you introduce the junior attorneys to the client. Of course, the answer is, “It depends.” What’s important is keeping the client relationship current and making sure you are managing the client’s current needs—as well as any needs that come up in the future. Margulies says, “There is no rule of thumb for how long it takes to develop a relationship.” She points out that if there is a long-standing relationship between the client and the firm, it might not take long to introduce a junior lawyer.  If it’s a brand new client, it could take a little longer. She says, “The longer the relationship, the firm develops an institutional memory of the client and it doesn’t take as long for lawyers to learn and understand the client’s business.”

There are a few strategies that work well in trying to get junior attorneys integrated with clients and to help understand the clients and add value to the relationship. One strategy is allowing junior attorneys opportunities to write, hold webinars, or give presentations on areas of interest to the client. Brady says, anecdotally, “Lawyers [in firms] are more specialists, more current than in-house counsel. They deal with the issues on a regular basis; in-house legal departments don’t necessarily have the education budget, so outside counsel can fill the gap. It’s a way to become dialogue partners as you sort through the information.”

Margulies suggests one way for junior attorneys to gain experience is to work off-site with a client. She says, “If we have chance for a secondment of a lawyer to a client, we will do that, as it presents an amazing opportunity for the young lawyer to go work at a client for a period of time, see what it’s like on the inside, and develop relationships that he/she might not have the opportunity otherwise to do.” Along with the benefits for the attorney and the connections that can be made, it shows a commitment by the firm to the client’s interests and the relationship.

Additionally, pro bono work is a fascinating way to get people together in an unusual context. With the good will inherent in helping others and the out-of-office environment where roles and expectations are shaken up a bit, conversation flows and relationships can advance. Margulies points out, “You can really forge relationships that way—sitting together in a different situation, doing something you might not normally  do—but you’re also working together, solving problems, and building relationships.”

These are great strategies for involving junior attorneys, but at some point, the senior partner moves on and the torch must be passed. Brady says, “Continuity for the client is important for the firm’s well-being, and there is always someone wanting to build a relationship with in-house counsel.” Making sure there are no gaps in the relationship with the client is crucial; however, this transition can be difficult. There are a few important things to remember as the changes are considered. Margulies says, “It’s important to understand that, generally, lawyers are perfectionists; transitioning  a long relationship, for whatever reason, is difficult. It’s very hard to relinquish control.”

That said, how does the change happen? Many of the strategies mentioned earlier can help ease the transition, Margulies says, pointing out that, “It is easier when lawyers are encouraged to involve younger lawyers early on so it becomes a natural progression. It’s a way to build trust and comfort, and letting go is easier when younger attorneys are involved earlier and the more senior attorneys are comfortable with their knowledge and abilities.”

Baby Boomers, Gen Xers, and Millennials are sharing the work at law firms and taking care of clients’ needs. There are difficulties and no real easy solutions, and the answer to just about every question is “It depends.” But as Brady points out, “Change is going to happen, and everyone is trying to figure out how to make it work.”

Article By Eilene Spear of The National Law Review / The National Law Forum LLC

Attorneys Facing An Uphill Battle In Litigation Should Consider Option Value When Arguing Valuation

Let me tell you a sad story; Joe owned a marketing company and earned a prosperous living for several years. Joe’s business was growing rapidly and all seemed right with the world. Then a trusted employee left Joe’s firm, taking with him half of Joe’s customers in violation of his non-compete agreement. Joe’s business slowly suffered and lost customers until eventually his firm declared bankruptcy.

Joe sued his former employee and asked for damages related to the value of his firm. Joe’s attorney argued to the court for compensation based on the value of Joe’s firm that was destroyed by the employee. Yet the attorney left out one critical question when arguing the case; how should the law account for the fact that Joe’s business was growing rapidly until the employee left?

Perhaps Joe had several big accounts that he might have been able to sign had the employee not engaged in unfair trade practices. Without taking these factors into account, Joe’s attorney is under-representing the value of Joe’s claim and leaving compensation on the table for no reason.

In finance, this idea of the possibilities that could plausibly occur in the future is called an embedded option or a real option and it is extremely useful in a variety of cases from divorce proceedings and business bankruptcies to merger disputes and matters of economic harm. In the scenario above, Joe’s firm had the ability to potentially continue to grow and become even more successful than it was at the time before Joe’s employee left. Hence the damage done to Joe is greater than simply the lost historical value of the firm. He has also lost the possibility of much more value in the future.

The crux of modern asset valuation is based on a concept called the time value of money. Essentially the idea is that because money received in the future is worth less than money received today, we can value assets or a business based on their associated cash flows and an appropriate discount rate. This approach forms the basis of everything from stock valuation on Wall Street to proper methods for computing interest rates in bankruptcy. This facet of valuation is well understood. But what about the future opportunities or chances of cash flows that are uncertain?  That’s what embedded options address.

The concept of embedded options might seem abstract or even too nebulous for many judges to buy into in a court case, but the reality is that real options have significant value and are often a subject of serious financial negotiations. Particularly for small firms, real options are often important and serve as the basis for various types of convertible debt and warrant grants.

As a finance professor and frequent consultant to companies on matters of asset valuation and financial forecasting, I have long taken it for granted that the techniques used in the finance profession were well understood and universally applied across many other industries including the law. I was very surprised to learn when I started doing expert consulting work, this is not the case. Lawyers often neglect to ask for damages based on real options in their cases. This leaves an important tool out of the litigation toolbox.

In discussing real options thus far, it might seem like they are primarily useful for parties alleging damages, yet they can also be useful for defendants as well. In particular, defendants need to understand how real options are valued and also understand the four appropriate metrics for calculating economic harm as it relates to options (compensating variation, equivalent variation, Paasche indices, and Laspeyres indices). I’ll talk more about these in a future column though.

When valuing real options, there are various statistical techniques that can be used. The math is not necessarily important here, but the concepts are. Essentially, real options increase in value in situations where there is greater uncertainty, and when interest rates in the broader economy rise. Those conditions make real options an exciting tool in today’s courts. With the Fed finally starting to raise interest rates, real options should become marginally more valuable. More importantly, situations with significant amounts of uncertainty lead to greater volatility in intrinsic asset prices.

These volatile situations are often the very situations that lead to court cases for attorneys – a business deal that went wrong leads to a bankruptcy but could have led to a hugely successful company, a merger agreement could result in substantial cost savings for both firms or substantial value destruction for investors and is being challenged by shareholders, a wrongful death case for an individual in the prime of their lives leaves so many possible futures unexplored. Thanks to new statistical techniques and greater computing power, these situations and others can be effectively modeled through computer simulations and valued by economists in ways that would have been unimaginable a decade ago.

Representing clients fairly and to the best of one’s ability in court is the foremost duty of an attorney. To do that, attorneys need to understand the tools of business and the cutting-edge techniques being used in asset valuation. Failing to use these tools is not only a disservice to clients, but a severe hindrance to the attorney as well. In a competitive legal market, the Joes of the world will flock to those attorneys that free themselves to position their clients for maximum success in court.

Article By Dr. Michael McDonald of Fairfield University Dolan School of Business

© Fairfield University Dolan School of Business

The Proposed Political Subdivision Regulations: A Puzzling Reference Impacts Legal Framework of Official Legal Signals

Treasury recently issued proposed regulations that tell us whether an entity is a “political subdivision” that can issue tax-exempt bonds on its own behalf. One requirement is that an entity must serve a “governmental purpose” to be a political subdivision. The proposed regulations say that an entity is only organized for a governmental purpose if the entity operates “in a manner that provides a significant public benefit with no more than incidental benefit to private persons.” As support for this statement, the proposed regulations contain this citation: “Cf., Rev. Rul. 90–74 (1990–2 CB 34).”

This year marks the 90th anniversary of The Bluebook: A Uniform System of Citation, and last year, the 20th edition of the text was published. The Bluebook is written by law review editors at several top-tier law schools.  Depending on your perspective, it is either what it purports to be (a uniform system of citation) or a loathsome testament to the “reflex desire of every profession to convince the laity of the inscrutable rigor of its methods.”[1]  (Or both.)  There have been several pretenders to the throne, including the Maroonbook, created at the University of Chicago law school years ago, which has faded away, and the ALWD Citation Manual, created by teachers of legal writing in law school as a more user-friendly alternative. The ALWD manual has been adopted by a few jurisdictions, but the Bluebook still reigns. Each text provides for the usage of “citation signals” that introduce the citation and explain its relevance to the point that the author is making; the “Cf.” signal in the proposed political subdivision regulations is an example.

The signal “cf.” is an abbreviation for the Latin word “confer,” which translates to “compare.” It depends on which edition of The Bluebook you’re reading, but the 18th Edition (we work on a shoestring budget here at The Public Finance Tax Blog), like most modern editions, says this about the “cf.” signal: “Cited authority supports a proposition different from the main proposition but sufficiently analogous to lend support. . . The citation’s relevance will usually be clear to the reader only if it is explained.” Among the signals that an author can use to show that the cited authority supports the position the author asserts, “cf.” is the weakest.

But because the proposed political subdivision regulations offer no other support for the position that an entity cannot provide more than incidental private benefits and remain a political subdivision, one can only believe that Treasury must have meant something entirely different and that, at long last, the lowly “cf.” signal might be taking on new prominence.

And now, members of the legal citation community are scrambling to react to what could be a revolution in citation signal usage.

“Just as Darwin had his finches and Mendel had his peas, we now have these proposed regulations from Treasury,” said one editor of ALWD.  “I guess ‘cataclysm’ is probably too strong of a word to describe it,” she told The Public Finance Tax Blog. “But oh yeah, we definitely noticed.”

She told us that “we at ALWD consider ourselves more describers of ‘what is’ in legal citation practice, rather than dispensers of ‘what ought to be’ like those silverspoons over at The Bluebook.”[2]

“The fact is,” the ALWD editor continued, “the meaning of ‘cf.’ has changed many times over the years, [3] and we may be witnessing the latest evolution of the phrase here. Who says that a government agency can’t be on the cutting edge of social change in important areas like citation policy?”

“It’s certainly true that ‘cf.’ has always been the signal that gives courts and lawyers the hardest time to understand,”[4] another editor told us. “But who says that regulations – particularly tax regulations – are supposed to be easy to understand?”

Over at The Bluebook, the editors were a bit less perturbed. “Look, we make the rules here,” said one editor, swatting away a fair trade soy latte offered up by a cowering 2L line-slugger. “We are mindful of the actual – I SAID NO FOAM! GET IT RIGHT, OR WE’RE CANCELING THE 5-HOUR BLUEBOOK EXAM FOR TOMORROW – usage  of these terms, though,” she said, “and we’re obviously going to resist changing our minds based on a single usage, even if it comes from the federal government.”

“In the past, we’ve resisted changing our minds based on some of the more fatuous uses of the cf. signal,[5] so we want to wait and see whether this is some kind of joke or mistake or just a passing fad, using ‘cf.’ to introduce the sole source of authority for a proposition.” She continued, “but it appears that this might be a good-faith attempt to finally give ‘cf.’ the rightful place it deserves instead of leaving it buried at the bottom of the pile of citation signals that show support.”

“But we’ve really got our hands full with preparations for the 21st edition, and dealing with those maniacs over at Baby Blue ripping off our work to worry about this, though. And no, all you weisenheimers; cf. does not stand for ‘couldn’t find,’ and no you’re not funny.”

It’s obviously easy to criticize the furor over the potential elevation of the status of the lowly “cf.” signal to something more as a tempest in the world’s nerdiest teapot. It’s not as though these mundane citation signal questions are literally[6] a matter of life and death.[7]

Calls to Judge Richard Posner, eminent judge of the U.S. Court of Appeals for the Seventh Circuit, and a frequent critic of the inanity of the world of legal citation, were left unreturned, although I think I heard the crackling of a bonfire in the background.

Article By John W. Hutchinson of Squire Patton Boggs (US) LLP
© Copyright 2016 Squire Patton Boggs (US) LLP

[1] Richard Posner, The Bluebook Blues, 120 Yale L. J. 850, 860-61 (2011).

[2] Cf. (not really) Ian Gallacher, Cite Unseen: How Neutral Citation and America’s Law Schools Can Cure our Strange Devotion to Bibliographical Orthodoxy and the Constriction of Open and Equal Access to the Law, 70 Alb. L. Rev. 491, 500, at n. 48 (2007) (citing Alex Glashausser, Citation and Representation, 55 Vand. L. Rev. 59, 78 (2002), as “praising the ALWD Manual as a populist instrument that promulgates citation rules predicated upon a consensus among legal professionals, rather than “the judgment of student editors at elite law schools”).

[3] Ira P. Robbins, Semiotics, Analogical Legal Reasoning, and the Cf. Citation: Getting our Signals Uncrossed, 48 Duke L.J. 1043, 1050 (March 1999) (“The authors of The Bluebook altered its definition – albeit subtly – almost every time the manual was printed between 1947 and 1996.”)

[4] See A. Darby Dickerson, An Un-uniform System of Citation: Surviving with the new Bluebook (Including Compendia of State and Federal Court Rules Concerning Citation Form), 26 Stetson L. Rev. 53, 221, at n. 90 (1996) (citing Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930, 938 n.14 (2d Cir. 1984); Palmigiano v. Houle, 618 F.2d 877, 881 n.5 (1st Cir. 1980); Doleman v. Muncy, 579 F.2d 1258, 1264 (4th Cir. 1978); Gates v. Henderson, 568 F.2d 830, 837-38 (2d Cir. 1977); Local 194, Retail, Wholesale & Dep’t Store Union v. Standard Brands, Inc., 540 F.2d 864, 867 n.4 (7th Cir. 1976); Givens v. United States, 644 A.2d 1373, 1376 (D.C. App. 1994) (Mack, S.J., dissenting); Connell v. Francisco, 89a P.2d 831, 838 (Wash. 1995) (Utter, J., dissenting); see also Givens, 644 A.2d at 1374 n.3 (concerning the “but cf.” signal)). Dickerson goes on: “As one reviewer observed: ‘The introductory signals approved by the Bluebook have been the source of dispositive judicial debate. A single “cf.” signal in a Supreme Court decision fostered extensive scrutiny among the circuits, and, with singular irony, the Bluebook was the source of ultimate authority in settling the legal questions raised in the cases.’ Peter Phillips, Book Note, 32 N.Y.L. SCH. L. REV. 199, 199-200 (1987) (reviewing the Fourteenth Edition) (footnotes omitted). The case at issue was Stone v. Powell, 428 U.S. 465, 494 n.36 (1976). See Phillips, supra, at 200 n.8.”

[5] See, e.g., Peter Lushing, Book Review, 67 Colum. L. Rev. 599, 601 (1967) (providing a review of The Bluebook’s Eleventh Edition) (“Use cf. when you’ve wasted your time reading the case.”); Hohri v. United States, 793 F.2d 304, 312 n.4 (D.C. Cir. 1986) (Bork, J., joined by Scalia, Starr, Silberman, & Buckley, JJ., noting that the use of the cf. signal means that the cited authority is “probably inapposite”).

[6] Oxford English Dictionary, Third Ed., Sept. 2011, item I(1)(a), (b), but not (c). (available online at http://www.oed.com/view/Entry/109061?redirectedFrom=literally).

[7] Gallacher, supra n. 2 at 536, n. 38 (“At least one capital punishment appeal appears to have been decided based on the Supreme Court’s interpretation of a bibliographical signal, “cf.,” and the signal’s meaning in the context of the prisoner’s brief. Lambrix v. Singletary, 520 U.S. 518, 528-29 (1997).”). The language from the Lambrix opinion: “And it introduced that lone citation with a “cf.”–an introductory signal which shows authority that supports the point in dictum or by analogy, not one that “controls” or “dictates” the result.” 520 U.S. at 529.

Health Care Companies Agree to “Core Commitments” to Improve Access to EHR

Last month, the Department of Health and Human Services (HHS) announced that a number of large health care companies and providers had “agreed to implement three core commitments” to improve access to electronic health records (EHR).  HHS touted the commitments as a significant step toward increased EHR interoperability.

The three core commitments to which the health care entities agreed are as follows:

  1. Consumer Access: To help consumers easily and securely access their electronic health information, direct it to any desired location, learn how their information can be shared and used, and be assured that this information will be effectively and safely used to benefit their health and that of their community.

  2. No Blocking/Transparency: To help providers share individuals’ health information for care with other providers and their patients whenever permitted by law, and not block electronic health information (defined as knowingly and unreasonably interfering with information sharing).

  3. Standards: Implement federally recognized, national interoperability standards, policies, guidance, and practices for electronic health information, and adopt best practices including those related to privacy and security.

HHS highlighted the number and importance of the entities that have agreed to this “Interoperability Pledge.”  According to HHS, the nation’s five largest private health care systems signed the Interoperability Pledge, as well as “[v]endors who provide 90 percent of hospital electronic health records used nationwide.”

Notably, the three commitments in the Pledge are not enforceable.  At most, the Interoperability Pledge represents an agreement by its signatories that access and interoperability are key goals of EHR use.

 
Article By Philip Peisch of Covington & Burling LLP

© 2016 Covington & Burling LLP

Department of Justice Launches Targeted Elder Justice Task Forces

Woman Pushing Man in WheelshairOn March 30, the Department of Justice (“DOJ”) announced the formal launch of 10 regional Elder Justice Task Forces designed to identify nursing homes and other long-term care (“LTC”) facilities that provide “grossly substandard care” to residents.

Similar to DOJ’s previously launched Medicare Fraud Strike Force and Health Care Fraud Prevention & Enforcement Action Team (“HEAT”) initiative, the newly created Elder Justice Task Forces will focus on coordination and information sharing among federal, state and local enforcement agencies to combat suspected cases of physical abuse and financial fraud. Each task force will consist of representatives from the U.S. Attorneys’ Offices, state Medicaid Fraud Control Units, state and local prosecutors’ offices, the Department of Health and Human Services, state Adult Protective Services agencies, Long-Term Care Ombudsman programs and other law enforcement officials.

Part of the larger DOJ Elder Justice Initiative, the task forces will have a national footprint with locations in the following districts: Northern District of California, Northern District of Georgia, District of Kansas, Western District of Kentucky, Northern District of Iowa, District of Maryland, Southern District of Ohio, Eastern District of Pennsylvania, Middle District of Tennessee and the Western District of Washington.

The new Elder Justice Task Forces signal heightened interest and attention on the LTC industry, a move that comes on the heels of last summer’s Centers for Medicare and Medicaid Services’ proposed rule to overhaul requirements for participation by LTC facilities in federal health care programs.

Article By Jessica Talati of Barnes & Thornburg LLP

© 2016 BARNES & THORNBURG LLP

Are they Worth Price of Paper They’re Printed On? – Ubersization of Arbitration Clauses

Arbitration has long been treated as an inferior method of resolving disputes, despite pronouncements to the contrary from the U.S. Supreme Court. However, arbitration does serve a purpose. The process is less formalized, so it moves much faster than the court system. That means less disruption to business. It’s also less expensive than bringing a civil action, making it easier for individuals to assert their rights or air their grievances. For these reasons and more, many businesses have incorporated arbitration provisions into their contracts and handbooks. The Federal Arbitration Act was enacted in 1925, yet these types of contractual agreements to arbitrate still get shot down in certain courts and by certain administrative authorities.more

Drivers v. Uber – The Arbitration Dispute

In Uber’s California litigation, Judge Chen has examined various aspects of the arbitration provisions contained in the various versions of Uber’s agreements with its drivers.  The 2013 Agreement and the 2014 Agreement shared several key features:

(1) all disputes not exempted from the scope of arbitration were subject to resolution by final and binding arbitration;

(2) arbitration could proceed only on an individual basis, not by class;

(3) the delegation clause in the provision stated that “disputes arising out of or relating to the interpretation or application of this Arbitration Provision, including the enforceability, revocability or validity of the Arbitration Provision or any portion of the Arbitration Provision” shall be decided by the arbitrator; and,

(4) an opt-out clause allowed drivers to avoid the arbitration clause.

In separate litigation, the Court had Uber revise the opt-out provision to make it more conspicuous and less onerous on the drivers.  Because the 2013 Agreement contained the original opt-out provision, it did not stand a chance of being found enforceable.  In later 2014 and 2015 Agreements,  Uber included the provision in boldface and ALL CAPS with text larger than the provisions around it.  Language also was added to explain the significance of arbitration and the right to opt-out.  Additionally, to exercise that right now, a driver need only send an email to Uber stating his/her name and the desire to opt-out (although he/she could send a letter by regular mail, overnight delivery, or hand-delivery, too).  As a result, when the Court certified a class on September 1, 2015, those drivers who failed to opt-out of the provision were excluded from the class.  However, in December, the Court found the arbitration agreements were unenforceable on California public policy grounds, irrespective of the opt-out provision, thus dramatically increasing the size of the class.

Meanwhile, delegation clauses, like the one set forth under (3) above, seem to cause consternation in courts across the nation.  Even the U.S. Supreme Court has recognized that courts are the typical adjudicators of whether the parties have agreed to arbitrate in the first instance.  Because a delegation clause puts this determination in the hands of the arbitrator instead, it must be clear and unmistakable.  In Uber’s case, the clause was clear, but it was made ambiguous because it conflicted with other clauses contained in the Agreements.  For instance, a separate clause in Uber’s 2013 and 2014 driver agreements stated that the state and federal courts in San Francisco had exclusive jurisdiction over any disputes, actions, or claims arising out of the Agreement.  While Uber argued that the forum selection clause reserving jurisdiction in San Francisco courts was for any disputes found not subject to arbitration, Judge Chen did not buy into that argument.  He felt the clauses conflicted, and since the courts would have to apply rules of construction to resolve the ambiguity created by the competing clauses, that meant that the delegation clause was not clear and unmistakable, and therefore, was unenforceable.

The arbitration provision in Uber’s 2013 and 2014 Agreements also addressed responsibility for payment of the arbitrator’s fees.  It provided that if applicable law did not require Uber to pay for all of the costs and fees of arbitration, then the costs would be apportioned between the parties as required by law.  Judge Chen found that because the delegation clause would force drivers to pay exorbitant fees just to arbitrate whether or not their substantive disputes even belonged before the arbitrator in the first place, when drivers would not have to pay a court to make that determination, such a clause deprived drivers of any forum for their claims.

The arbitration provision contained three additional unfavorable terms which Judge Chen found were not sufficiently highlighted for the drivers’ attention.  For one, the confidentiality clause precluded the parties from disclosing the existence, contents, or results of any arbitration.  For another, the intellectual property carve-out clause excluded intellectual property disputes from arbitration – something the Court found favored Uber.  Finally, the unilateral modification clause permitted Uber to unilaterally modify the terms of the agreement without notice to the drivers.  As a result of all of the foregoing issues, the Court found the agreements to arbitrate were unconscionable.  Thus, Judge Chen refused to enforce them.

Can an enforceable arbitration agreement even be written? 

Arbitration agreements are evaluated on a case-by-case basis.  While many are still disfavored, as I mentioned earlier, they are more likely to be upheld if they are not unconscionable.  The procedural component of the unconscionability analysis usually deals with the formation of the agreement itself.  This includes the characteristics of the parties (e.g., age, literacy, sophistication), the manner and circumstances under which the contract was executed, and whether terms of the agreement are hidden or complex, among other things.  The substantive component looks at the unfairness of the agreement.  Judge Chen, acknowledging that the issue wasn’t fully settled, nevertheless evaluated the arbitration provision through the lens of an employer/employee relationship.  Let me provide some tips that make arbitration agreements more likely to be upheld by courts in the employment context.

  • Keep your agreement to arbitrate in a separate document requiring a separate acknowledgement.

  • While the agreement may cover all workplace disputes between the parties, do not preclude employees from filing charges with state or federal administrative agencies, like the EEOC.

  • If you reserve the right to modify or discontinue the arbitration clause, include a requirement that notice will be given to employees and that the modification or rescission will be applied prospectively.

  • Since cost is a big issue for courts reviewing these agreements, make sure the employee will only be required to pay what the arbitrator finds is reasonable should the employee lose, or make sure the costs to pursue arbitration are not more costly than those to bring a lawsuit.

  • The remedies available in arbitration should be similar to those available in court.

  • Avoid delegation clauses.

As always, there is no substitute for consulting with an attorney when attempting to draft one of these agreements.

ARTICLE BY Vanessa L. Goddard of Steptoe & Johnson PLLC
© Steptoe & Johnson PLLC. All Rights Reserved.

Are they Worth Price of Paper They're Printed On? – Ubersization of Arbitration Clauses

Arbitration has long been treated as an inferior method of resolving disputes, despite pronouncements to the contrary from the U.S. Supreme Court. However, arbitration does serve a purpose. The process is less formalized, so it moves much faster than the court system. That means less disruption to business. It’s also less expensive than bringing a civil action, making it easier for individuals to assert their rights or air their grievances. For these reasons and more, many businesses have incorporated arbitration provisions into their contracts and handbooks. The Federal Arbitration Act was enacted in 1925, yet these types of contractual agreements to arbitrate still get shot down in certain courts and by certain administrative authorities.more

Drivers v. Uber – The Arbitration Dispute

In Uber’s California litigation, Judge Chen has examined various aspects of the arbitration provisions contained in the various versions of Uber’s agreements with its drivers.  The 2013 Agreement and the 2014 Agreement shared several key features:

(1) all disputes not exempted from the scope of arbitration were subject to resolution by final and binding arbitration;

(2) arbitration could proceed only on an individual basis, not by class;

(3) the delegation clause in the provision stated that “disputes arising out of or relating to the interpretation or application of this Arbitration Provision, including the enforceability, revocability or validity of the Arbitration Provision or any portion of the Arbitration Provision” shall be decided by the arbitrator; and,

(4) an opt-out clause allowed drivers to avoid the arbitration clause.

In separate litigation, the Court had Uber revise the opt-out provision to make it more conspicuous and less onerous on the drivers.  Because the 2013 Agreement contained the original opt-out provision, it did not stand a chance of being found enforceable.  In later 2014 and 2015 Agreements,  Uber included the provision in boldface and ALL CAPS with text larger than the provisions around it.  Language also was added to explain the significance of arbitration and the right to opt-out.  Additionally, to exercise that right now, a driver need only send an email to Uber stating his/her name and the desire to opt-out (although he/she could send a letter by regular mail, overnight delivery, or hand-delivery, too).  As a result, when the Court certified a class on September 1, 2015, those drivers who failed to opt-out of the provision were excluded from the class.  However, in December, the Court found the arbitration agreements were unenforceable on California public policy grounds, irrespective of the opt-out provision, thus dramatically increasing the size of the class.

Meanwhile, delegation clauses, like the one set forth under (3) above, seem to cause consternation in courts across the nation.  Even the U.S. Supreme Court has recognized that courts are the typical adjudicators of whether the parties have agreed to arbitrate in the first instance.  Because a delegation clause puts this determination in the hands of the arbitrator instead, it must be clear and unmistakable.  In Uber’s case, the clause was clear, but it was made ambiguous because it conflicted with other clauses contained in the Agreements.  For instance, a separate clause in Uber’s 2013 and 2014 driver agreements stated that the state and federal courts in San Francisco had exclusive jurisdiction over any disputes, actions, or claims arising out of the Agreement.  While Uber argued that the forum selection clause reserving jurisdiction in San Francisco courts was for any disputes found not subject to arbitration, Judge Chen did not buy into that argument.  He felt the clauses conflicted, and since the courts would have to apply rules of construction to resolve the ambiguity created by the competing clauses, that meant that the delegation clause was not clear and unmistakable, and therefore, was unenforceable.

The arbitration provision in Uber’s 2013 and 2014 Agreements also addressed responsibility for payment of the arbitrator’s fees.  It provided that if applicable law did not require Uber to pay for all of the costs and fees of arbitration, then the costs would be apportioned between the parties as required by law.  Judge Chen found that because the delegation clause would force drivers to pay exorbitant fees just to arbitrate whether or not their substantive disputes even belonged before the arbitrator in the first place, when drivers would not have to pay a court to make that determination, such a clause deprived drivers of any forum for their claims.

The arbitration provision contained three additional unfavorable terms which Judge Chen found were not sufficiently highlighted for the drivers’ attention.  For one, the confidentiality clause precluded the parties from disclosing the existence, contents, or results of any arbitration.  For another, the intellectual property carve-out clause excluded intellectual property disputes from arbitration – something the Court found favored Uber.  Finally, the unilateral modification clause permitted Uber to unilaterally modify the terms of the agreement without notice to the drivers.  As a result of all of the foregoing issues, the Court found the agreements to arbitrate were unconscionable.  Thus, Judge Chen refused to enforce them.

Can an enforceable arbitration agreement even be written? 

Arbitration agreements are evaluated on a case-by-case basis.  While many are still disfavored, as I mentioned earlier, they are more likely to be upheld if they are not unconscionable.  The procedural component of the unconscionability analysis usually deals with the formation of the agreement itself.  This includes the characteristics of the parties (e.g., age, literacy, sophistication), the manner and circumstances under which the contract was executed, and whether terms of the agreement are hidden or complex, among other things.  The substantive component looks at the unfairness of the agreement.  Judge Chen, acknowledging that the issue wasn’t fully settled, nevertheless evaluated the arbitration provision through the lens of an employer/employee relationship.  Let me provide some tips that make arbitration agreements more likely to be upheld by courts in the employment context.

  • Keep your agreement to arbitrate in a separate document requiring a separate acknowledgement.

  • While the agreement may cover all workplace disputes between the parties, do not preclude employees from filing charges with state or federal administrative agencies, like the EEOC.

  • If you reserve the right to modify or discontinue the arbitration clause, include a requirement that notice will be given to employees and that the modification or rescission will be applied prospectively.

  • Since cost is a big issue for courts reviewing these agreements, make sure the employee will only be required to pay what the arbitrator finds is reasonable should the employee lose, or make sure the costs to pursue arbitration are not more costly than those to bring a lawsuit.

  • The remedies available in arbitration should be similar to those available in court.

  • Avoid delegation clauses.

As always, there is no substitute for consulting with an attorney when attempting to draft one of these agreements.

ARTICLE BY Vanessa L. Goddard of Steptoe & Johnson PLLC
© Steptoe & Johnson PLLC. All Rights Reserved.