First Quarter 2014 - ACC North Florida Chapter Newsletter

FOCUS...on the North Florida Chapter

 

By in-house counsel, for in-house counsel.®

North Florida Chapter News and Information
Chapter President's Letter: Beautiful People, Terrible Lawyers
By Michael Herman, SVP and GC, Rayonier Inc.

The portrayal of lawyers on television has made a lot of money for Hollywood, but has been a curse for real life practicing lawyers.  This is because non-lawyers now derive most of their knowledge about what we do from shows like The Good Wife, Allie McBeal, Rake, Suits, Boston Legal and Franklin & Bash.

The good news for ACC members is that I am not aware of any television show having an in-house lawyer as the main character. However, when an in-house lawyer does appear in a supporting role, as they have in a number of Law and Order episodes, he or she is usually portrayed as the conspiratorial counsel to an evil corporation that spews toxic chemicals or produces products the CEO knows are killing people. 

Granted, some of these shows rank high as pure entertainment. Every morning at the YMCA, I have to arm wrestle a woman or two on treadmills—lawyers, no less—for the remote control when I want to change the TV channel from Suits to Sportscenter. 

But as non-Hollywood lawyers, we all know that what TV lawyers do in no way resembles practicing law. For example, the following common TV law clichés do not exist in my legal practice:

  • Many TV lawyers and paralegals wear high-end designer clothes and look like models, and all of this temptation routinely results in romantic trysts with each other on desks in their offices, in file rooms, in the courthouse and various other voyeuristic locations. In fairness to Hollywood, perhaps this type of action routinely occurs in the Orlando (Disney influence) and Savannah (“Midnight in the Garden of Good and Evil”) legal communities, but not here in Jacksonville.
  • Every TV law negotiation is a series of snarky remarks and one-upmanship, which usually concludes with one TV lawyer sanctimoniously announcing that “We’re done here” while slamming closed his notepad and storming out of the conference room. I have been negotiating deals for 27 years and have never heard those three words uttered, but it happens on every episode of The Good Wife, following in the tradition of LA Law.
  • On TV every merger is about to fail, until the lawyer makes an impassioned speech in a boardroom that moves hard-bitten corporate titans to see the error of their ways and sign the deal.  Frankly, the more likely real life scenario is that a corporate titan softens his negotiating position in response to a dispassionate waiter entering a conference room with a dinner cart.
  •  Every TV court case is about to be lost, until the lawyer finds the single document, e-mail or witness that turns the whole case around and results in an acquittal, conviction or multi-million dollar judgment. In my entire career I’ve never even seen this happen in small claims court, let alone a capital murder trial.
  • The antics of eccentric, neurotic and mentally unbalanced lawyers are not only tolerated by judges and colleagues, but on TV usually result in successful outcomes for their clients.  I’m pretty sure that Judge Moran would not find Allie McBeal or Denny Crane of Boston Legal to be suitable role models for Jacksonville litigators. 

I will, however, agree that the following quote from numerous Law and Order episodes is likely often heard in prosecutors’ offices in Jacksonville and around the country: “I can’t get a warrant with that. Get me something I can use.”

Most of the TV audience doesn’t routinely see real life practicing lawyers doing their jobs. When they do, they are likely sitting on a jury in a criminal or civil trial, or seeking advice on estate planning, probate or divorce, or needing help with a workers compensation matter, or retaining a lawyer for personal injury litigation because they or a loved one has been hurt.

The real life of a practicing lawyer is not very glamorous. Television doesn’t show the hours, the preparation, the research, the investigation, the factual and legal analysis, the careful thought and strategy, and the experience put into action. Frankly, it can’t, because that would make terrible entertainment.  The drunken, gambling, womanizing, unethical Greg Kinnear as Rake is far more entertaining than the entire ACC North Florida Chapter Board put together. (Apologies to my colleagues on the Board but, thankfully, none of us would give Arnie Becker of LA Law a run for his money.) 

I suspect that the entertainment industry will continue to portray lawyers as over-libidinous, self-indulgent neurotics, and trials as little more than exercises in overwrought theatrics. But it could be worse. After all, look at how Hollywood portrays Washington politicians.

I have to go now—don’t want to miss the latest episodes of Scandal and House of Cards.

____________________

* Credit for the title is hereby given to Dan Bean, Executive Partner of Holland & Knight's Jacksonville office.  However, be advised that Dan is neither a beautiful person nor a terrible lawyer.

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New Newsletter Format!

We hope you like the new email-based newsletter format!

On the right-hand column of this newsletter, you will see links to articles, news events, and our Chapter Sponsors.  Also, starting with our next newsletter, we will start posting active job openings in the North Florida market for lawyers and other legal professionals.  This will be updated during the quarter until the next newsletter is published (so make sure to check the newsletter regularly during the quarter!).

Finally, please be sure to check the Newsletter tab on our Chapter page.  It will allow you to search the newsletters.  

If you have any feedback or questions regarding the new format or regarding submissions to the newsletter, please contact Blake Gibson (blake.gibson@bkfs.com).

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Sulzbacher Center Event -- ACC North Florida Chapter Giving Back to the Community
By Blake Gibson, ACC North Florida Board Member

The ACC North Florida Chapter’s first community service event of 2014 was a success!  Monday, volunteers from the ACC North Florida Chapter cooked food and served a great dinner to almost 600 people at the Sulzbacher Center in downtown Jacksonville.  We would like to recognize the following ACC members for their service at Sulzbacher on Monday.

Volunteer Cooks:

  • Courtney Thompson
  • Nathan Thompson
  • Lisa Hathaway
  • AJ Ruvane
  • Julie Davis
Volunteer Servers:
  • Amber Allred
  • Linsay Warren
  • Seth Shapiro
  • Steve Nardizzi
  • Julie Davis

We would also like to specially recognize and thank Julie Davis (ACC Board Member) for coordinating the event. 

As additional service events are scheduled, we will let you know.  This is a great way to give back to the community, and get to know other in-house counsel in and around north Florida.

Photos from the event (and prior events) can be viewed on our Chapter website here.

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Upcoming Chapter Events
By Blake Gibson, ACC North Florida Board Member
Please mark your calendars for July 16th for the upcoming Jaguars' Locker Room Event at EverBank Field hosted by Holland & Knight.  This event was brought back in 2014 by popular demand.  This is a one-of-a-kind networking event as it is located in the Jags' locker room.  Space is limited, so please RSVP early.  More information can be found here.
 
 
Please be sure to check our Chapter page for other upcoming events by clicking here.
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Newsletter Articles
Networking – An In-House Lawyer’s Guide to Building a Strong Network
By Sharon A. McLaughlin, Esq., Special Counsel

There are a myriad of reasons why it’s beneficial for in-house lawyers to build a strong professional network of other lawyers.  This article will address some of those reasons and provide a few ways to go about doing it.

Many in-house lawyers practice in small legal departments or a small section of a large legal department.  As result, these lawyers may not be as “connected” to their peers and the legal community as perhaps lawyers practicing in law firms.  Some inherent challenges that may arise include:

  • Staying abreast of changes or trends in the law and/or legal issues in their practice area;
  • Ability to seek advice or opinions from other lawyers regarding legal issues or simply having a sounding board;
  • Being informed about new legal tools and resources; and
  • Being aware of precedents, news and articles.

Building a strong network of other lawyers can be a solution to address some of these challenges.  However, even in their absence, networking is important because it provides a lawyer the ability to tap into the knowledge, resources and connections of others.  This can be useful for professional development, education, personal connections (“opening doors”), business opportunities, career opportunities, referrals, recruiting/hiring, and much more.

To build a network, there are a few places that an in-house lawyer can start:

1. Association of Corporate Counsel (ACC)

ACC (www.acc.com) is a members-only organization for in-house lawyers who work for corporations, associations and other private-sector organizations.  ACC has thousands of members all over the world.  To bring its members together, the organization created “chapters” in local communities to provide its members the opportunity to connect with other in-house counsel in their local areas.  The local chapters offer a variety of legal education programs, advocacy initiatives, educational events, social and professional networking events and leadership opportunities through involvement in their local chapters.  As a result, members get to know each other and have access to resources necessary for their personal and professional growth.  

2. Other Professional Organizations 

There are numerous lawyers’ organizations in local communities throughout the world that are created by and for lawyers that share common backgrounds, for example: 

  • Young Lawyers
  • Alumni Lawyers
  • Women Lawyers
  • Lawyers of the same minority group (race, religion, etc.) or ethnicity

Joining these organizations allows lawyers with similar backgrounds and interests, irrespective of practice area, to meet, network and collaborate.  They also provide a forum to exchange ideas, knowledge, experience and initiatives relevant to the individual members.  Lawyers are often able to find these organizations by searching the Internet or contacting their local state bar associations.

3. LinkedIn

LinkedIn (www.LinkedIn.com) is one of the world’s largest professional networking websites for people in a variety of occupations, including in-house lawyers.  It provides a directory of individuals and companies and has millions of members all over globe, including lawyers from every Fortune 500 company.  LinkedIn is a great tool for various professional networking objectives, including:

  • Recruiting and finding jobs, people and business opportunities
  • Providing company information
  • Reconnecting with former colleagues, employers, clients, etc.
  • Forming “groups” where users can ask questions, seek career advice, and meet others with similar interests, backgrounds or practice groups
  • Tracking movement in the industry – promotions, job changes, acquisitions, mergers, etc.
  • Source of articles and publications
  • Researching people in a particular industry or practice area
  • Professional branding – posting your career history and developments, publications and articles, certifications, academic accomplishments and degrees
  • Building professional relationships through introductions, correspondence and invitations to meet in person
  • Soliciting reviews and referrals from other users
  • Finding experts in a particular area of practice

4. Twitter

Twitter is an online networking and microblogging site that enables millions of users around the globe to send and read short 140-character text messages called “tweets.”  While Twitter is widely known as a social networking site, more and more people are realizing that it makes a valuable professional networking platform.  The live stream of tweets (or messages) on Twitter provides continuous information to users and allows them to narrowly target (or “follow”) specific areas and people of interest.  A few ways that Twitter can be useful in professional networking include:   

  • Following legal news accounts or other lawyers to get fast access to legal news, articles and developments
  • Professional branding – branding oneself as a subject matter expert in a particular practice area through carefully crafted profiles and tweets
  • Asking questions and engaging in conversations through live tweets

While these networking tools are not exhaustive of every way to build a network, they’re a great place to start meeting people and getting well informed.

____________________

Sharon A. McLaughlin, Esq. is a Regional Search Director with Special Counsel in Houston, TX (www.specialcounsel.com).

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Maintaining Your Company's Competitive Advantage: A Guide to Protecting Your Company's Trade Secrets
By Tyler J. Oldenburg, Marks Gray, P.A.

Whether a company is large or small, an employee who misappropriates a company’s trade secret can significantly damage, and even ruin, the business. Every company is familiar with the situation - a valuable and trusted employee leaves the company and is working for a competitor or has started a competing business. While non-compete agreements can be effective in protecting a company, many employers, for a variety of reasons, may not have an employment agreement or may not include non-compete covenants in their employment agreements. Moreover, non-compete agreements are often insufficient to protect a company’s trade secrets. A tool that is underutilized by employers, regardless of whether the employee is subject to a non-compete agreement, is Florida’s Uniform Trade Secret Act (FUTSA), Sections 688.001 et seq., Florida Statutes. The FUTSA prohibits the “misappropriation” of “trade secrets” and authorizes the holder of the trade secret to obtain injunctive relief against the former employee and to recover its damages caused by the misappropriation, which can include exemplary damages and the company’s attorney’s fees. However, the FUTSA will be of no use to an employer who does not take the proper steps to protect its valuable trade secrets. By following the steps below, an employer will be in a far better position to prevail on a FUTSA claim should court intervention be necessary. 

I. Identify the Trade Secrets

An employer must start by identifying its trade secrets in advance and disclosing the existence of them to its employees. Generally, any piece of information can be considered a trade secret under the FUTSA provided that it: 1) derives independent economic value, either actual or potential, from not being generally known; and 2) is “the subject of efforts that are reasonable under the circumstances to maintain its secrecy.” The employer bears the burden of showing that the information is a trade secret and that it took reasonable steps to protect it. 

Generally, the first prong can be established by showing that the trade secret would provide some benefit to a competitor and that the trade secret is not publicly available. Superchips, Inc. v. Street & Performance Electronics, Inc., 2001 WL 1795939, *5 (M.D. Fla. Dec. 6, 2001). This is a fairly easy standard to satisfy. The types of secrets protected under the FUTSA include formulas, client lists, supplier lists, marketing plans, manufacturing processes, designs, company pricing information, computer code, data, devices, methods, techniques, and any other kind of “business information.” It is important to keep in mind that information that took time to accumulate, such as a customer list, can still be classified as a trade secret under the FUTSA even though it may contain publicly available information. Unistar Corp. v. Child, 415 So. 2d 733, 734 (Fla. 3d DCA 1982).  

As the scope of the FUTSA can be exceedingly broad, it is an attractive cause of action for employers to pursue against its former employees. However, a company that has not identified its own trade secrets will have a harder time enforcing its FUTSA claim against an unsuspecting employee. Therefore, proactively identify the company’s trade secrets and disclose their existence to the employees who will have access to them. If this step is followed, an employee will not be able to claim ignorance of the trade secret should a FUTSA claim need to be pursued. 

II. Keep the Trade Secret a Secret! 

In addition to identifying its trade secrets, an employer must take reasonable steps to maintain the secrecy of the trade secret. The “reasonable steps” required of an employer can vary depending on the trade secret involved and the company. While absolute secrecy is not required, every employer should institute security measures to protect its trade secrets. PSC, S. A. v. PriceSmart, Inc., 2007 WL 2781021, *6 (S.D. Fla., Sept. 19, 2007). These steps should begin on the employee’s first day and continue throughout his or her employment, including the employee’s last day. 

A. The Employee’s First Day

Newly hired employees must be made aware of the fact that they will have access to their employer’s trade secrets. This should be addressed in an employment agreement and/or in the company’s internal policies and procedures, which should be disclosed to the employee on his or her first day. Require the employee to sign a memorandum of understanding in which they agree to abide by the company’s policies. Specifically identify the trade secrets the employee will be exposed to and include a catch-all provision that includes the definition of a “trade secret” under Florida law. Inform all employees whether they are permitted to use or access the trade secret from remote locations. Finally, the agreement should also inform the employee of the “work for hire” concept. Many employees simply do not understand that, even if they created the trade secret, they cannot take and use the trade secret when they leave the company.

B. Security Measures

Develop internal policies and procedures that specifically address the company’s trade secrets. These policies should limit who, from within the company, has access to the trade secret. The days of locked doors and safes have been replaced with passwords and firewalls. Work with the IT department to limit who has access to any computer files that may contain trade secrets. Consider prohibiting remote access to the trade secret. If this is not practical, work with the IT department to ensure it cannot be transferred to a non-secure device or personal computer. Create a procedure for being able to track who has access to the trade secret. More importantly, periodically check who has accessed it and determine whether there is any suspicious or unusual activity. 

Create an internal committee whose sole responsibility is to develop ways to protect the company’s trade secrets. Be sure to perform annual training with those employees who have access to the trade secrets. This will enable a company to inform its employees of any new policies and procedures adopted by the committee and remind them of their obligations to maintain the secrecy of the trade secret. Encourage employees to become “whistleblowers” should they learn of a breach in the company’s policies and procedures.   

In certain circumstances, it may be important to develop security measures so that a trade secret is not lost by inadvertent disclosure to a customer. Although an employer should avoid disclosing a trade secret to a client, in certain circumstances this is not feasible. However, the disclosure of a trade secret to a client will not automatically cause the information to lose its status as a trade secret provided that the appropriate steps are maintained to limit the disclosure. See Liberty American Ins. Group, Inc. v. Westpoint Underwriters, L.L.C., 199 F. Supp. 2d 1271, 1285 (M.D. Fla. 2001). Therefore, consider including confidentiality and licensing agreements in all contracts with those client who may have access to a trade secret. 

C. The Employee’s Last Day of Work 

An employee’s last day of work is a vital opportunity to reiterate what was conveyed to the employee on day one. If the employee is willing, have them sign an exit form in which they agree that they are not taking any company property and will be bound by the company’s policies regarding its trade secrets. While an employee is generally permitted to utilize the skills and knowledge they gain from a prior employment at a future employer, they cannot misappropriate a trade secret to assist them or their future employer. WellCare Health Plans, Inc. v. Preitauer, 2012 WL 1987877, *4 (M.D. Fla. May 23, 2012). Finally, ask where they intend to work and monitor that company to determine whether it may be utilizing a company trade secret. Consider sending the new employer a letter informing them that the former employee was exposed to valuable trade secrets and is prohibited from using or disclosing such secrets. While contacting clients may also be appropriate, the company should be very cautious in doing so as this may open the door to a counterclaim. 

D. The Power of the Water Cooler 

It is no secret that employees talk to one another. This is a powerful weapon that can be harnessed so that employees become aware of the consequences for misappropriating their employer’s trade secrets. As a trade secret, by definition, brings value to the company, employers should be willing to spend time, effort, and expense in protecting it. That includes seeking court intervention when appropriate. The thought of litigating against a company can be terribly daunting to an employee. By pursuing litigation, a company sends a strong message that it values its trade secrets and will protect them at all costs. This message will resonate loud and clear with all current and future employees.  

III. Conclusion

Misappropriation of a trade secret can be devastating to a company. The FUTSA can be an exceedingly valuable tool to ensure that a company retains its competitive advantage. However, the success of any FUTSA claim may depend on whether an employer took proactive steps to protect its trade secrets. By instituting the above procedures, it will be far easier to prosecute and prevail on a FUTSA claim and to protect the valuable trade secrets that provide an employer with its competitive advantage. 

___________________

More information about the author of this article, Tyler Oldenburg, can be found here: Tyler Oldenburg Bio

 
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When Is a Letter of Intent Truly Non-Binding?
Christopher J. Thanner and Kyle M. Sawicki, McGuireWoods LLP

A letter of intent (“LOI”) is frequently used by buyers and sellers to memorialize their agreement on the material terms of a transaction such as price, closing date, financing, due diligence and other important deal points.  The LOI can provide a measure of comfort that the parameters of a workable deal are in place and the parties can safely proceed to contract drafting and, possibly, the due diligence stage of the transaction.  Details, boilerplate and remaining issues excluded from the LOI are typically addressed during the contract drafting stage by the parties and their attorneys.  Though a LOI is almost universally intended to be non-binding, it frequently contains binding provisions governing confidentiality and marketing or negotiating exclusivity.  The hybrid binding and non-binding nature of an LOI begs the question: when is a non-binding letter of intent binding?  

A typical LOI contains a broad disclaimer that the parties will not be bound by its terms unless and until a separate binding agreement has been negotiated and executed by the parties.  However, despite the presence of broad disclaimers, some courts have held that a LOI can evidence a “meeting of the minds” on the terms of an enforceable contract sufficient to award damages for breach.  This is true even when one of the parties possessed the subjective belief that it never intended to be bound by the LOI.  The rationale for this conclusion results from the court’s use of an objective test in lieu of a subjective test in determining the existence of a binding contract: the interpretation of an offer or acceptance is not what the party making it thought it meant or intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.   

In determining whether a LOI is binding upon the parties, Florida courts will generally consider several factors to determine whether ”a meeting of the minds” occurred, including: (1) the type of contract at issue; (2) the number of terms agreed upon relative to all of the terms to be included; (3) the number of details to be ironed out; (4) the relationship between the parties; and (5) the degree of formality attending similar contracts as compared to the LOI.  Midtown Realty, Inc. v. Hussain, 712 So. 2d 1249, 1252 (Fla. Dist. Ct. App. 1998).  Below are two illustrative cases. 

In Med-Star Cent., Inc. v. Psychiatric Hospitals of Hernando Cnty., Inc., 639 So. 2d 636 (Fla. Dist. Ct. App. 1994), Med-Star and Psychiatric Hospitals signed a document titled “Transport Proposal” which (1) identified the parties and listed the liabilities that both parties “shall” have under the agreement; (2) provided that there was an “independent contract relationship between the parties;” (3) provided that the agreement would bind the parties for a minimum of 12 months; and (4) established rates for transportation and a payment schedule for services.   Id.  Med-Star sued Psychiatric Hospitals alleging it had used another company to transport its patients. Psychiatric Hospitals defended on the basis that the proposal was not an enforceable contract, but only a proposal as the title indicated.  The court of appeals reversed the trial court’s holding in favor of Psychiatric Hospitals and held that an issue of fact existed as to whether the proposal created a binding contract. Psychiatric Hospitals’s contention that it did not intend to enter into a binding contract was irrelevant. “The test of the true interpretation of an offer or acceptance is not what the party making it thought it meant or intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.”  Id. 

In Midtown Realty, Inc. v. Hussain, 712 So. 2d 1249 (Fla. Dist. Ct. App. 1998), the court held that a letter of intent is not considered a binding contract when the parties are continuing to negotiate essential terms of the agreement.  In that case, Midtown Realty entered into a listing agreement with Mr. Hussain (“Seller”) for the sale of a gas station.  Mr. Fiori (“Purchaser”) signed a two page “Letter of Intent” (“LOI”) that stated it was a “proposal” for the purchase of the gas station and contained: (1) a proposed purchase price; (2) plan for financing; (3) proposed inspection period; (4) proposed closing date, and (5) a statement that if the terms of the LOI were acceptable to the Seller, the Purchaser would present a more detailed and formal Purchase and Sale Agreement (“PSA”).  A few weeks after executing the LOI, the Purchaser presented a more detailed and formal PSA.  When the parties could not agree on its terms, the Seller withdrew the property from the market and the Purchaser filed suit alleging that the LOI represented a binding agreement.  The court disagreed, stating that “[i]t is well established ... that a meeting of the minds of the parties on all essential elements is a prerequisite to the existence of an enforceable contract, and where it appears that the parties are continuing to negotiate as to essential terms of an agreement, there can be no meeting of the minds.”  Id.  The court examined the language of the LOI and the surrounding circumstances in coming to this conclusion and noted that, among other things, the parties repeatedly called the LOI a “proposal,” indicating it was not an offer but rather an initial statement for consideration.  Furthermore, the LOI stated that after execution, Purchaser would present to Seller a “more detailed and formal Purchase Agreement.”  The court concluded that the Purchaser, like the Seller, believed that until the PSA was executed, there would be no binding contract and the LOI was a non-binding agreement.  

So, when is a LOI truly non-binding?  While even a well-drafted LOI cannot provide absolute certainty, there are several steps parties can take to avoid being bound by the terms of a letter of intent.  They include:  

  • Include a clear and unequivocal statement that the LOI is non-binding upon the parties;
  • Follow the Midtown decision and characterize the LOI as an initial statement for consideration only and that further material terms will be negotiated as part of a subsequent detailed and formal agreement;
  • Reserve the right to terminate negotiations at any time in your sole discretion;
  • If the LOI contains a binding exclusive or confidentiality provision, comply with its terms completely.  A failure to do so may provide grounds for a reliance claim;
  • Do not include a covenant to negotiate in good faith; in fact, consider an express disclaimer of the obligation.  Though this issue is less problematic in Florida than in some other states, it’s a good idea to expressly disclaim any obligation to negotiate in good faith in the text of the LOI;
  • Do not characterize the LOI as a binding or final agreement in communications with the other side; insisting that the LOI contains material terms binding on the other side or represents the final agreement can prove costly in subsequent litigation.

____________________

Chris Thanner is a Partner in the Real Estate and Land Use Department of McGuireWoods LLP’s Jacksonville, Florida office. Chris practices in the areas of real estate leasing and development, acquisition and disposition of distressed assets, real estate finance and financial services litigation.  Chris can be reached at 904.798.2686 or cthanner@mcguirewoods.com.  Kyle Sawicki is an associate in the Real Estate and Land Use Department of McGuireWoods LLP’s Jacksonville, Florida office and practices in the areas of real estate law and finance.  Kyle can be reached at 904.798.2682 or ksawicki@mcguirewoods.com.   

 

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The EEOC Picks a Fight with Your Separation Agreement
By Justin C. Sorrell and Richard N. Margulies, Jackson Lewis P.C.

The EEOC has recently begun a campaign to vigorously attack separation agreements that contain clauses companies routinely use, claiming those clauses are overbroad, misleading, and unenforceable; ironically, in 2006, the EEOC had approved many of these same terms in a consent decree with Kodak. In light of the EEOC’s about-face, companies should act now to evaluate and strengthen their separation agreements to avoid becoming the Commission’s next target.  

In its Strategic Enforcement Plan for 2013 through 2016, the EEOC announced it would be targeting “policies and practices that discourage or prohibit individuals from exercising their rights” and “impede the EEOC’s investigative or enforcement efforts.” Recent cases indicate that the EEOC views commonplace language found in many separation agreements as unlawfully deterring Title VII rights and impeding the Commission’s investigatory mandate.

By way of background, in February 2014, the EEOC sued CVS Pharmacy, Inc., in the Northern District of Illinois, alleging that the following terms in CVS’ standard separation agreement—many of which should look familiar—violated Title VII of the Civil Rights Act of 1964: 

  1. A cooperation clause requiring notification to CVS if the employee was contacted for information relating to any lawsuits or investigations;
  2. A nondisparagement clause prohibiting disparagement of CVS and its employees;
  3. A nondisclosure clause prohibiting disclosure of confidential information;
  4. A general release clause releasing CVS from all claims and charges of discrimination;
  5. A covenant not to sue clause affirming the employee had not and would not file any complaints or charges of discrimination, and promising to pay CVS for fees and costs if breached (even though the agreement carved out the employee’s right to participate in agency proceedings and permitted cooperation with agency investigations); and
  6. An affirmation of irreparable harm clause permitting CVS to obtain an injunction for violations of the agreement and requiring reimbursement for CVS’ attorneys’ fees and costs.
Although the CVS case is still proceeding, in July 2013, Baker & Taylor, Inc., entered into a consent decree in the Northern District of Illinois rather than litigate its separation agreements. Because the consent decree has the EEOC’s stamp of approval, it may be considered as a guide for drafting severance terms that would satisfy the Commission’s concerns. In the decree, Baker & Taylor agreed to insert the following clause:

Nothing in this Agreement is intended to limit in any way an Employee’s right or ability to file a charge or claim of discrimination with the U.S. Equal Employment Opportunity Commission (“EEOC”) or comparable state or local agencies. These agencies have the authority to carry out their statutory duties by investigating the charge, issuing a determination, filing a lawsuit in federal or state court in their own name, or taking any other action authorized under these statutes. Employees retain the right to participate in such any action [sic] and to recover any appropriate relief. Employees retain the right to communicate with the EEOC and comparable state or local agencies and such communication can be initiated by the employee or in response to the government and is not limited by any non-disparagement obligation under this agreement.

This clause illustrates the principle the EEOC is trying to enforce: separation agreements should not create the impression that employees are prohibited from seeking redress with the EEOC or similar state and local agencies, nor may they chill employees’ willingness and ability to assist in agency investigations. In line with this principle, in the consent decree, Baker & Taylor further agreed to provide explicit exceptions for interactions with the EEOC and similar state and local agencies in any confidentiality clause, nondisparagement clause, and clauses waiving rights to file a charge with a governmental agency.

The legal mettle of the EEOC’s challenges to separation agreements has not yet been tested, since the CVS case is pending and the Baker & Taylor case has settled. While there is room to argue that the EEOC is overstepping its bounds, there is great risk and expense in becoming the “test case.” As a result, companies are encouraged to review their separation agreements for clauses that may limit employees’ ability to communicate and file charges with the EEOC or impede an EEOC investigation, making prudent modifications, where appropriate.

The EEOC has recently begun a campaign to vigorously attack separation agreements that contain clauses companies routinely use, claiming those clauses are overbroad, misleading, and unenforceable; ironically, in 2006, the EEOC had approved many of these same terms in a consent decree with Kodak. In light of the EEOC’s about-face, companies should act now to evaluate and strengthen their separation agreements to avoid becoming the Commission’s next target. 

___________________

More information about the authors of this article, Justin C. Sorrell and Richard N. Margulies, can be found here: Justin C. Sorrell and Richard N. Margulies

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The IRS and “Obamacare”: New Employer Reporting Requirements
By Barbara Sanchez-Salazar, Buchanan Ingersoll & Rooney PC

Embedded in the multitude of new tax code provisions stemming from the Patient Protection and Affordable Care Act (“PPACA”) are two new sections of the Internal Revenue Code (§§6055 and 6056) which require action by employers and health care “issuers” next year.  Initially, compliance under §§6055 and 6056 was required for this year.  However, IRS Notice 2013-45 provided transitional relief for 2014.  Under the relief, filing entities are asked to voluntarily comply in 2014 with requirements becoming mandatory in 2015 (thus IRS forms and employee statements due in early 2016). On March 5, 2014, the IRS released two sets of Final Regulations implementing the reporting provisions and modifying the original statutory requirements for both these Code Sections.  In some cases, statutory requirements were relaxed, while in others the regulations require additional information.  This article explores the filing requirements in light of recently issued Regulations. 

§ 6056 requires annual information reporting by “applicable large employers.”[1]  These reports are needed for the administration of Code §4980H (the PPACA enacted provision which requires compliance with the Employer Mandate, a/k/a the “Play or Pay” Penalty, on employers with more than 50 full time equivalent employees) and for administration of Code §36B (the Premium Tax Credit available to employees with incomes below 400% of the Federal Poverty Line who either have no employer provided coverage or have unaffordable or inadequate coverage).  §6055 requires annual information reporting by health insurance issuers which includes employers that self insures medical benefits.[2]   §6055 reporting is needed for the administration of Code §5000A (the PPACA enacted provision which requires compliance with the Individual Mandate (the provision which places an annual penalty on individuals without adequate health coverage).    

To comply with §6055, issuers, including self-insured employers, must provide a return containing: 

  • the name, address and EIN of the reporting entity
  • the name, address, and TIN (or DOB if a TIN is not available) of the primary insured 
  • the name, address and TIN (or DOB if a TIN is not available) of each individual obtaining coverage under the policy,
  • for each individual covered in the plan, the months the individual was covered during the calendar year,
  • if the coverage consists of employer provided group health insurance coverage: 
  • the name, address and EIN for the employer sponsoring the plan,
  • whether or not the coverage is a qualified health plan offered through a SHOP exchange and the identifier for that exchange.
Entities that file a return shall also furnish to each individual whose name is required to be set forth in the return, a written statement showing:
  • the name and address of the person required to make such a return and the phone number of the information contact for such person, 
  • the information required to shown on the IRS return as to such individual.
To comply with §6056, applicable large employers must file a return which includes the following information:
  • the calendar year for which the return is being filed,  
  • the name, address and employer identification number of the employer, 
  • name and telephone number of the employer’s contact person,
  • a certification as to whether the employer offers to its full-time employees and their dependents an opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan, by month,
  • if the employer certifies that the employer did offer to its full-time employees and their dependents the opportunity to so enroll
  • the months during the calendar year for which coverage under the plan was available
  • the employee’s share of the total allowed cost of benefits provided under the plan 
  • the number of full-time employees for each month during the calendar year, and
  • name, address and TIN of each full-time employee during the calendar year and the months during which such employees were covered under such health benefit. 
Every employer required to complete a return under §6056 shall also furnish to each full-time employee whose name is required to be set forth in such return a written statement showing: 
  • the name, EIN and address of the employer required to make such return, and
  • the information shown on the return with respect to such individual.

The statements to individuals should be furnished on or before January 31 of the year following the calendar year for which the IRS filing is made.  The reports to the IRS are due by February 28th of the year following the year coverage was offered (March 31st  if the forms are filed electronically).    

The Final Regulations provide for streamlined consolidated filings on forms which have yet to be made available.  Reporting for an applicable large employer that sponsors a self-insured plan is made on Form 1095-C  with information for both §§6055 and 6056.  An applicable large employer that provides insured coverage will report on a Form 1095-C, but will complete only the parts of the form that reports the information it needs to file under Code §6056.  Reporting entities that are not applicable large employers (such as health insurance issuers, multi-employer plans and providers of government sponsored coverage) will report for §6055 on Form 1095-B.  The IRS allows employers to file using a substitute form, but it must include all of the information required to be reported on the IRS issued forms.  

In addition, filing compliance under the Code §6056 can be managed through one of two alternative methods.  The first alternative method allows the employer to disregard monthly employee specific information if the employer provides a “qualifying offer” to any of their full time employees.  A qualifying offer is an offer of minimum value coverage that costs the employee not more than §1,100 in 2015 combined with an offer for the employee’s family.  If the employee receives the offer for a full 12 months, the employer will need to report only the names, addresses and TIN and a statement that such an offer was made.  If the employee received the offer for fewer than 12 months the employer can enter a code indicating that the qualifying offer was made to the employee.  For employers that make a qualifying offer in 2015 to 95% of their workforces, will be able to use the simplified reporting for the entire workforce.   The second alternative allows the employer to report those employees who may be full time rather than definitively identify in its report which employees are truly full time.  This option is available if the employer can certify on its report that affordable, minimum value coverage is offered to at least 98% of the employees it is required to report on.

Filing entities may benefit from the assistance of a third party in preparing returns and statements.  However, while third parties may file and furnish reports and statements, the employer remains responsible. 

In 2016, after the IRS receives the information filed by the applicable large employer under Code §6056 and also receives information about employees claiming the premium tax credit for a given calendar, the IRS will determine whether any of the employer’s full-time employees received the premium tax credit and if so whether an assessable payment under Code §4980H may be due.  If the IRS concludes that the employer may owe such an assessable payment, it will contact the employer and the employer will have an opportunity to respond to the information the IRS provides before payment is assessed.

While there is still ample time before either of the §§6055 to 6056 filings are due, as with many PPACA provisions, preparing an employer for compliance takes time.  During 2014  employers should organize and tweak their internal recordkeeping and payroll systems (or work with their third party vendors) to gather the 2015 information needed for compliance in 2016.    
      
____________________

[1] Prior regulations issued under PPACA provided that the determination of an applicable large employer is made on an aggregated employer basis  under Code §414.  However, like the imposition of Pay or Play penalties, Code §6056 filing requirements apply on a member by member basis to each member in the applicable large employer group.  For example, if an applicable large employer is comprised of a parent company and 4 wholly owned subsidiary companies, if the combined group has over 50 full time equivalent employees,  there are 5 applicable large employer members.  Thus, each member with full-time employees is responsible for filing Code §6056 report and providing full-time employees the information statement.

[2] Government agencies and other providers of health coverage could also be considered a health insurance issuer.  An issuer will not have to file a report for individual Exchange coverage and certain benefits that supplement otherwise qualified minimum essential coverage. 

____________________

More information about the author of this article, Barbara Sanchez-Salazar, can be found here: Barbara Sanchez-Salazar

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Court Ruling May Increase Lawsuits From ADA “Testers”
By Christine Fuqua Gay and Lindsay Dennis Swiger, Holland & Knight LLP

In the past several years, many Florida businesses have been the subject of a rash of lawsuits filed under Title III of the Americans with Disabilities Act (ADA).  Typically, these lawsuits are filed by serial plaintiffs who appear to do no more than travel the state looking for businesses to sue. These plaintiffs can file numerous lawsuits against the same type of restaurant, for example, numerous McDonald’s in several different cities all across the state. 

Often, these individual plaintiffs will also claim to be "testers," or individuals with disabilities who visit places of public accommodation, such as hotels or restaurants, specifically to determine whether they comply with the accessibility requirements of Title III of the ADA. When the "tester" finds a non-compliant business, the "tester" files a lawsuit alleging violations of the ADA. 

In the past, businesses facing a Title III ADA case filed by a "tester" have been successful in obtaining dismissal of the case by arguing the "tester" lacked standing to sue.  However, the Eleventh Circuit's recent opinion in Marod Supermarkets has significantly weakened this defense in these types of lawsuits.  

Title III of the ADA prohibits disability discrimination in places of public accommodation, including restaurants and hotels. The ADA defines "discrimination" as a failure to remove architectural barriers that impede a disabled individual's access to and enjoyment of a public accommodation.  A plaintiff may not receive monetary damages – only injunctive relief, such as removal of the barriers to access. Importantly, however, if the plaintiff prevails, he is entitled to recover his reasonable attorneys’ fees.

Houston v. Marod Supermarkets, Inc.

In Houston v. Marod Supermarkets, Inc. (11th Cir. Nov. 1, 2013), the Eleventh Circuit for the first time addressed whether a "tester" has standing to sue for injunctive relief under Title III of the ADA.  To establish standing to pursue a Title III ADA lawsuit, plaintiffs must show "injury-in-fact" by proving a past injury and a real and immediate threat of future injury.

The plaintiff, Joe Houston, who is paralyzed and confined to a wheelchair, sued Marod Supermarkets, Inc., to compel it to bring its store, Presidente Supermarket, into compliance with Title III of the ADA regarding parking, travel paths and restrooms. 

Marod moved to dismiss the complaint, arguing Houston lacked standing, pointing to Houston's prior 271 Florida ADA cases and the 30.5 mile distance between Houston's residence and the supermarket. The district court granted Marod's motion to dismiss, finding that Houston was a "tester of ADA compliance" and not a "bona fide patron" of the store. 

The appeal presented two issues: (1) whether Houston's "tester" motive behind his visits precluded his having standing; and (2) if not, whether Houston had shown a real and immediate threat of future injury.

Tester Motive

The Eleventh Circuit held that "testers" of ADA compliance are not precluded from bringing suit, concluding that Houston had established an "injury-in-fact" by visiting Presidente Supermarket for the purpose of testing its compliance.

The Eleventh Circuit, having never addressed whether a "tester" has standing under Title III, noted (1) Supreme Court and Eleventh Circuit decisions allowed for "tester" standing under similar anti-discrimination statutes, (2) the broad language of the ADA prohibits discrimination against "any person," and (3) other anti-discrimination statutes expressly limit coverage to "bona fide" plaintiffs, but ADA Title III does not. 

Accordingly, the court concluded that the motive behind visiting a public accommodation was irrelevant to whether the plaintiff was discriminated against by encountering architectural barriers to access. 

Real and Immediate Threat of Future Injury

The Eleventh Circuit next determined that Houston established a "real and immediate threat of future injury" to obtain injunctive relief. In reaching its conclusion, the court relied on Houston's two past trips to the Presidente Supermarket to "test" ADA compliance, as well as his alleged intent to return due to his many ADA cases and its proximity to his lawyer's offices. The court also noted that since ADA testing appeared to be Houston's avocation, or at least what he does on a daily basis, Houston's prior 271 cases suggested a likelihood of future visits.

The Houston v. Marod Supermarkets, Inc. decision makes it much easier for ADA "testers" to file a multiplicity of lawsuits across the Eleventh Circuit, while hindering quick case dismissals for a lack of standing. As a result, we can expect to see increased, prolonged Title III litigation against restaurants and hotels, and potentially increased settlement value of these claims. 

Accordingly, now is a good time for owners, landlords, tenants and operators of public accommodations to review the requirements of Title III to determine whether corrective action is needed to comply with the ADA. 

____________________

Christine Fuqua Gay and Lindsay Dennis Swiger are members of Holland & Knight's Labor and Employment Practice Group. They frequently counsel management clients on Americans with Disabilities Act (ADA) compliance, along with other federal, state and local employment laws, and defend them against litigation.  

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Data Privacy: Safeguarding Information in an Interconnected Marketplace
By Adina L. Pollan and Alexandria V. Hill, GrayRobinson P.A.
Target Corp. Neiman Marcus.  Sally Beauty.  What do these retail giants have in common?  They are all victims of massive data thefts.  Of course, the first question is: How could this happen?  But the more important, underlying question is: What more could have been done to prevent this from happening?
 
In an interconnected marketplace, personal data is a fundamental requirement.  It eases transactions by minimizing wait times for the consumer, and serves to enhance marketing efforts in targeting specific consumers with certain products or services. [1]  But this personal data must be safeguarded, as the above examples of data thefts evidence how desperate the price is if the information is left vulnerable. [2]
 
As a result, it is imperative that companies have a solid policy in place for the storage and disposal of private consumer information.  Not only is it a good business practice, but in many instances it is required under state and federal law.
 
Exactly what type of information requires protection is outlined under federal law.  Specifically, the Disposal Rule [3] requires companies to protect “consumer information,” which is defined as any record about an individual, whether in paper, electronic, or other form, that is a consumer report, or is derived from a consumer report.  Consumer information also means a compilation of such records. Consumer information does not include information that does not identify individuals, such as aggregate information or blind data. [4]
 
This information can be stored directly in consumer databases or indirectly, for example, through a copy machine [5] or mobile application.  No matter how this information is collected and stored, federal law requires companies to protect it.
 
Once consumer information requiring protection is isolated, the next step is to determine how, exactly, to protect it.  In December 2008, the Department of Homeland Security (“DHS”) issued a Private Policy Guidance Memorandum, which outlines the Fair Information Practice Principles (“FIPPs”) as “foundational principles for privacy policy and implementation” [6] specifically at DHS.  While the FIPPs are legally only applicable to DHS, they provide a clear guideline for companies in the protection of consumer information, and are considered the widely accepted framework for individual privacy.  The FIPPs include:
  • Transparency.  Engage in transparency by providing notice to consumers regarding the collection, use, and dissemination of personal identifiable information (“PII”).
  • Individual Participation.  Involve the consumer in the use of PII and, where practicable, obtain consumer consent for the collection, use, dissemination, and maintenance of PII.
  • Purpose Specification.  Specify any authority that permits the collection of PII, and explain how such PII will be used.
  • Data Minimization.  Only collect PII that is directly necessary for the company’s purpose, and then only retain such PII until its use is completed.
  • Use Limitation.  Only use PII for the purposes relayed to the consumer.
  • Data Quality and Integrity.  Ensure PII is accurate, relevant, timely, and complete.
  • Security.  Protect PII in all media though appropriate security safeguards.
  • Accountability and Auditing.  Be accountable for complying with the FIPPs, including training employees and contractors who use PII, and audit the use of PII. [7]
In addition to these principles, it is also important to follow four basic tenets:
  1. Use anonymized data8 when possible.  This includes using encryption software to scrub elements of personal data safeguarding it from any  unintended breach.
  2. Respect how personal data is collected.  Always balance inherent privacy concerns with the purported benefits that will be achieved.
  3. Be transparent in the intended use of personal data.  For example, the social network Path, Inc. suffered irreparable damage when it was found to have been mining personal data from user’s mobile address books. [9]  Path, Inc. was also found to have violated the Federal Trade Commission Act and the Children’s Online Privacy Protection Rule, resulting in an $800,000.00 penalty settlement. [10]
  4. Provide consumers with reasonable access to their information.
Further, the Federal Trade Commission (“FTC”) has issued several publications, which are available on their website at www.busness.ftc.gov, to help companies protect consumer information. [11]
 
Lastly, personal data that is not retained must be properly disposed.  The FTC’s Disposal Rule, which provides guidance to  companies regarding how to properly dispose of consumer information, applies to both large and small companies that use consumer reports, and includes a wide-reaching range of industries. [12]  Section 682.3 of the Disposal Rule provides examples of reasonable measures that protect against unauthorized access or use of consumer information in connection with its disposal, which include:
  • Burning, polarizing or shredding paper containing consumer information;
  • Destruction or erasure of electronic media containing consumer information;
  • Conducting due diligence and hiring a document destruction contractor to depose of consumer information; and 
  • Conducting due diligence, including reviewing an independent audit of a disposal company’s operations, obtaining information about the disposal company from references, requiring the disposal company to be certified, and reviewing and evaluating the disposal company’s information.  
It is important to note that this is not an exclusive or exhaustive list, but only examples provided by the FTC to assist companies in ensuring they are taking reasonable steps to protect consumer information.
 
Overall, the key to avoiding or minimizing the impact of potential data security breaches lies in a solid information governance policy.  If companies start planning now by implementing these procedures into a corporate handbook or policy, then not only are public relations nightmares alleviated, but also e-discovery efforts are made much simpler—saving your organization money.
 
____________________
 
[1] See, e.g., Charles Duhigg, How Companies Learn Your Secrets, N.Y. TIMES, February 16, 2012, available at http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?pagewanted=all&_r=0 (last accessed April 9, 2014).
 
[2] For example, more than 90 lawsuits have been filed against Target as a direct result of the breach, by customers and banks alleging negligence and compensatory damages.  Target has also expended $61 million in efforts to respond to the breach, which was on top of a 46% decline in holiday shopping revenue for the same quarter last year.  See Michael Riley, Ben Elgin, Dune Lawrence and Carole Matlack, Missed Alarms and 40 Million Stolen Credit Card Numbers: How Target Blew It, BLOOMBERG BUSINESSWEEK: TECHNOLOGY (March 13, 2014), available at http://www.businessweek.com/articles/2014-03-13/target-missed-alarms-in-epic-hack-of-credit-card-data (last accessed April 9, 2014).
 
[3] Disposal of Consumer Report Information and Records, 69 C.F.R. § 682 (2005).
 
[4] Id. at § 682.1(b).
 
[5] Many companies overlook copy machines as a data collection devise; however, with the increased use of digital copiers, it is paramount for companies to recognize and protect the data that is being collected  from these digital computers.  See Copier Data Security: A Guide for Businesses, FEDERAL TRADE COMMISSION, BCP BUSINESS CENTER, http://www.business.ftc.gov/documents/bus43-copier-data-security (last accessed April 9, 2014).  
 
Before purchasing or leasing a copier, it is important to vet the security features.  A copier should have encryption features and overwriting features, which will allow the overwriting of existing data with random caricatures—essentially the same function as file wiping or shredding.  Most importantly, once the use of the copier is finished, there is an ongoing requirement to continue protecting the consumer information that may be stored.  Confirm with the manufacture or dealer for options on securing the hard drive, which may need to be removed and returned back to your organization.  Id.
 
[6] Hugo Teufel III, Chief Privacy Officer, The Fair Information Practice Principles: Framework for Privacy Policy at the Department of Homeland Security, PRIVACY POLICY GUIDANCE MEMORANDUM, Memorandum Number: 2008-01, at 1 (December 29, 2008).
 
[7] Id. at 3-4.  The United Kingdom’s Information Commissioner’s Office also employs similar “data protection principles,” evidencing a global framework for data privacy.  See Data Protection Principles, ICO, http://ico.org.uk/for_organizations/data_protection/the_guide/the_principles (last accessed April 10, 2014).
 
[8] Data anonymization refers to technology that converts clear text data into a nonhuman readable and irreversible form, including but not limited to pre-image resistant hashes (e.g., one-way hashes) and encryption techniques in which the decryption key has been discarded.  Data is considered anonymized even when conjoined with pointer or pedigree values that direct the user to the originating system, record, and value (e.g., supporting selective revelation) and when anonymized records can be associated, matched, and/or conjoined with other anonymized records.
 
Data anonymization enables the transfer of information across a boundary, such as between two departments within an agency or between two agencies, while reducing the risk of unintended disclosure, and in certain environments in a manner that enables evaluation and analytics post-anonymization.
 
Domingo S. Herraiz, Director, Bureau of Justice Assistance, Office of Justice Programs, Privacy Technology Focus Group: Final Report and Recommendations, U.S. DEPARTMENT OF JUSTICE, at 12 (September 19, 2006).
 
[9] See Nick Bilton, Disruptions: So Many Apologies, So Much Data Mining, N.Y. TIMES (February 12, 2012), available at http://bits.blogs.nytimes.com/2012/02/12/disruptions-so-many-apologies-so-much-data-mining/?_php=true&_type=blogs&_r=0 (last accessed April 10, 2014).
 
[10] Social Networking Company to Pay $800,000 for Collecting Personal Information from Minors, DEPARTMENT OF JUSTICE, OFFICE OF PUBLIC AFFAIRS (February 1, 2013), http://www.justice.gov/opa/pr/2013/February/13-civ-144.html (last accessed April 10, 2014).
 
[11] Other rules apply to specific industries, including the Gramm-Leach-Bliley Act, 15 U.S.C. § 6081 et seq., and the Federal Trade Commission’s Standards for Safeguarding Consumer Information, 16 C.F.R. § 314 (2003), which apply to financial service providers.
 
Another valuable resource is the Protecting Personal Information: A Guide for Business issued by the FTC.  This guide can be found at www.ftc.gov/infosecurity.  The guide outlines five key principles including: (1) know what personal information is in company files (Take Stock); (2) keep only what is needed for a stated business purpose (Scale Down); (3) protect information that is retained (Lock It Up); (4) properly dispose of what is no longer needed (Pitch It); and (5) create a plan to respond to security incidents (Plan Ahead).
 
[12] I.e., lenders, insurers, employers, landlords, government agencies, mortgage brokers, automobile dealers, attorneys or private investigators, debt collectors, individuals who obtain credit reports, and entities that maintain informational consumer reports.  Disposing of Consumer Report Information? Rule Tells How, FEDERAL TRADE COMMISSION, BCP BUSINESS CENTER (June 2005), available at http://www.business.ftc.gov/documents/alt152-disposing-consumer-report-information-rule-tells-how (last accessed April 10, 2014).
 
____________________
 
Adina L. Pollan (adina.pollan@gray-robinson.com; D 904-632-8457)
 
Adina is an AV rated attorney in the Jacksonville office and practices in the areas of commercial litigation, bankruptcy and real estate litigation.  Her experience includes representing creditors, debtors and trustees in cases under Chapters 7, 11, 12 and 13 of the Bankruptcy Code, and significant experience in residential and commercial real estate litigation.  Additionally, Adina has substantial knowledge assisting clients with complex commercial litigation matters.  Her experience also includes a wide range of contract disputes, debt workouts, construction disputes and commercial lending matters, as well as banking and finance matters.
 
Alexandria V. Hill (alexandria.hill@gray-robinson.com; D 904-632-8486)
 
Alexandria is an associate in the Jacksonville office of GrayRobinson P.A. and practices in the areas of commercial litigation, bankruptcy, and corporate and business transactions.  Her experience includes representing businesses in all aspects of the corporate life cycle, including entity selection issues, shareholder disputes, asset and stock purchases and exit strategies. 
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Florida Adopts Daubert Standard for Admission of Expert Testimony in State Court
By Donald D. Anderson and Priyanka Ghosh-Murthy, McGuireWoods LLP

In The Next Step in Florida Tort Reform: Bringing Daubert to the State Courts, which appeared in the Third Quarter 2011 Issue of the Association of Corporate Counsel Newsletter, we explained the need for legislation in Florida that adopted the federal Daubert standard for the admission of expert testimony in state courts.  We posited that replacing the Frye standard then prevailing in state courts with the Daubert standard would be a significant step towards tort reform.  The Florida legislature took that step during its 2013 session, and Governor Scott signed the change into law.  The new law took effect on July 1, 2013. This new evidentiary standard is a win for tort reform, because it limits expert testimony to sound science and curtails the introduction of “junk science” into courtrooms.  

Frye versus Daubert

Frye has been the prevailing standard in Florida for decades.  The Florida Supreme Court expressly adopted the Frye standard for evaluating and admitting expert testimony in 1985.  Bundy v. State, 471 So.2d 9 (Fla. 1985).  Under the Frye standard, which was set forth in the D.C. Circuit’s opinion in Frye v. United States, 293 F. 1013 (D.C. Cir. 1923), courts assessing whether to admit expert testimony must ensure that the scientific principle or discovery from which a deduction is derived is “sufficiently established to have gained general acceptance in the particular field in which it belongs.”  Id. at 1014.  The Frye standard has been dubbed the “general acceptance” standard.  See Marsh v. Valyou, 977 So.2d 543, 557 (Fla. 2007).  Although some states still apply the Frye standard in evaluating expert testimony, the standard has some insurmountable weaknesses. One flaw is that the efficacy of the “general acceptance” inquiry is often compromised due to difficulties in identifying the appropriate fields that would encompass the relevant scientific community. Another significant weakness is that the standard does not place enough emphasis on the reliability of an expert’s methodology and its application to the facts of the case.

In contrast, the Daubert  standard, which was first articulated by the United States Supreme Court in Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993) and codified in Federal Rule of Evidence 702, focuses on scientific knowledge to determine whether an expert is qualified and if her methodology and its application is reliable. The Supreme Court emphasized in Daubert the trial court’s role as “gatekeeper.”  Id. at 597.  Under Daubert, in addition to considering whether an expert’s testimony is based on a methodology that is generally accepted in the relevant scientific community, the judge must also consider whether: (1) the testimony is based upon sufficient facts or data; (2) the testimony is the product of reliable principles and methods; and (3) the witness has applied the principles and methods reliably to the facts of the case.  Id. at 589-591. Unlike the Frye standard, where the emphasis is on whether the ultimate scientific conclusion is accepted by the relevant scientific community, the focus of the Daubert standard is “solely on principles and methodology, not on the conclusions that they generate.” Id. at 595.

Florida’s Move from Frye to Daubert 

Florida’s old evidentiary rule, which was modeled on Frye, provided: 
     


Testimony by experts. – If scientific, technical, or other specialized knowledge will assist the trier of fact in understanding the evidence or in determining a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education may testify about it in the form of an opinion; however, the opinion is admissible only if it can be applied to evidence at trial.

Fla. Stat. § 90.702 (2012) (emphasis added).  The Florida Supreme Court interpreted the old rule as allowing Florida courts to admit “pure opinion testimony.”  Marsh v. Valyou, 977 So.2d 543, 548 (Fla. 2007).  In Marsh, the Florida Supreme Court held that because a causation expert’s testimony that trauma can cause fibromyalgia was “pure opinion testimony” that eschewed science and was based on his experience and training, the opinion need not be vetted under even the Frye standard.  Id. 549-550. According to the court, that testimony was admissible even if it was based on a theory that had not gained general acceptance.  Id. at 550.

Florida’s new rule tracks Daubert and Federal Rule of Evidence 702.  

The new rule provides:

Testimony by experts. – If scientific, technical, or other specialized knowledge will assist the trier of fact in understanding the evidence or in determining a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education may testify about it in the form of an opinion or otherwise if:
(1) The testimony is based on sufficient facts or data;
(2) The testimony is the product of reliable principles and methods; and
(3) The expert has reliably applied the principles and methods to the facts of the case.

Fla. Stat. § 90.702 (2013) (emphasis added).  

The new rule changes the criteria for admission of expert testimony in several ways.  First, it mandates that trial court judges consider not only the general acceptance of a theory by the relevant scientific community but also various other criteria that address whether the testimony is based on a methodology that is scientifically reliable.  Second, the new rule expressly prohibits the admission of the “pure opinion testimony” that was allowed in Marsh v. Valyou.  Ch. 2013-107, §3, at 1462, Laws of Fla. (2013).  Third, the new rule applies equally to both “scientific” and “technical” expert testimony.  The preamble to the new statute, id., expressly states that Florida’s new evidentiary rule should be interpreted consistent with not only Daubert but also Kumho Tire Co. v. Carmichael, 526 U.S. 137, 147-149 (1999), which held that the Daubert test applies to testimony based on “scientific” knowledge and also testimony based on “technical” and “other specialized” knowledge.
      


Impact of the New Evidentiary Rule on Toxic Tort Litigation 

The new evidentiary rule is a step in the right direction towards tort reform in Florida.  It aims to ensure that only reliable expert testimony is presented to the jury.  Litigants in Florida can expect trial court judges to carry out their gatekeeping obligations by conducting Daubert hearings, during which they will thoroughly vet the experts and weed out testimony that lacks the threshold reliability. This new framework for evaluating admissibility will also afford defendants in toxic tort cases opportunities to challenge causation testimony on new grounds, including challenges to the testability of the methodology, the soundness of the underlying quantitative analysis, the statistical significance of the outcome, and the expert’s qualifications. Stricter scrutiny on the part of judges and more fulsome advocacy on the part of defense counsel will enhance the opportunity to obtain early dismissal of toxic tort cases grounded in unsound science.  It will likely also deter plaintiffs from bringing frivolous lawsuits in the first place.

____________________

Donald D. Anderson, Partner (904.798.3230; ddanderson@mcguirewoods.com)

Don Andrews has practiced for more than 25 years as an environmental attorney with particular additional experience handling safety and health matters. He provides advice on regulatory compliance as well as strategic advice on the environmental, safety and health aspects of numerous business and real estate transactions, including hazardous substance or petroleum contamination and indoor air quality.  Don also has litigated government enforcement and private party cases involving all major federal environmental, safety and health statutes, as well as commercial disputes involving environmental issues, and common law toxic torts.  He focuses on the coordination of regulatory actions driven by government agencies with mass tort litigation defense arising from hazardous substance or petroleum contamination. He has practiced before federal and state courts and agencies, and in alternate dispute resolution, throughout the eastern United States. He regularly advises clients in the aftermath of workplace accidents and on managing agency investigations. 

Priyanka Ghosh-Murthy, Associate (904.798.2614; pghosh-murthy@mcguirewoods.com)

Priyanka practices in the area of complex commercial litigation. She served as a law clerk to the Honorable Gerald Bard Tjoflat on the U.S. Court of Appeals for the Eleventh Circuit from 2012 to 2013 and to the Honorable Ursula Ungaro on the U.S. District Court for the Southern District of Florida from 2010 to 2011.  Priyanka received the Public Service Stars Award while completing her law degree. As a Fulbright Scholar, she studied political science at the University of Copenhagen in Denmark from 2006 to 2007. Priyanka was also awarded the Northwestern Glen Vail Academic Scholarship for her academic achievement as an undergraduate student and the Target Corporation All Around Scholarship and Best Buy Dollars for Scholars Scholarship for her public service and volunteerism. 

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The Emerging Trend Against Arbitration of Commercial Disputes: Pros and Cons of Including Arbitration Requirements in Commercial Contracts
By Alan Wachs, Adams and Reese LLP

Conventional wisdom teaches arbitration is the preferred alternative dispute resolution tool.  The underlying premises claim that arbitration is more cost effective, swift, predictable, and confidential than litigation in court.  As with most widely held beliefs, despite the kernels of truth in each premise, each may be false in application.  Arbitration clauses do not provide a universal improvement over the litigation alternative.  As such, counsel should give the process careful consideration at the front end as to whether the benefits of an arbitration provision are appropriate for the prospective contract.

Is Arbitration More Cost Effective Than Litigation?

The nature of arbitration can yield cost efficiencies over litigation in many situations.  Discovery is typically very limited (indeed the parties can expressly limit discovery in their agreement).  Discovery is usually the single biggest cost item in litigation and even where the agreement is silent, most arbitrators will only allow limited discovery to keep costs down.  Further, there is usually little or no motion practice (threshold motions, dispositive motions, discovery dispute motions, and the like when attempted in the arbitration process are typically ineffective, especially where industry professionals are serving as arbitrators).  Most arbitration rules do not contemplate motion practice beyond questions of the arbitrator’s qualifications or the venue for the final hearing, and the motions themselves are typically mere letters.  As such, the countless hours litigators spend writing briefs and memoranda of law are typically avoided entirely or extremely curtailed in the arbitration process.

Nonetheless, in many cases, other hidden costs of the arbitration offset and even swallow these efficiencies such that all too often arbitration can cost much more than litigation.  First, in litigation the taxpayer has already paid for the judge.  No one gets an invoice from the judge itemizing how much time it took for the judge to read your motion, conduct a hearing or trial, or write an order.  The judge has absolutely no incentive to prolong a case or allow anything to go any longer than it should.  Conversely, the parties pay for the arbitrator or, in many instances, the arbitration panel.  In a more complex case paying for the additional cost of arbitrators billing by the hour will likely be offset by the savings on motion practice and discovery disputes.  In simpler cases where one might have expected only the expense of one lawyer handling the case, additionally paying for half of the hourly rate of an arbitrator and possibly even three arbitrators may eradicate whatever savings one hoped to get from arbitration.

Although a more modest example, the filing fee for litigation is a few hundred dollars.  The plaintiff in arbitration (or counter claimant) can find itself paying filing fees well in excess of $10,000.  In bigger cases this probably doesn’t matter, but again in smaller simpler disputes this creates more hidden cost.

Not all motion practice increases cost.  The growing trend in the Florida courts has been to strictly apply the parol evidence rule to contract disputes relying on the age-old maxim of contract interpretation that “[t]he language used in a contract is the best evidence of the intent and meaning of the parties.” [1]  Where the nature of the anticipated dispute is likely to only require enforcement of the plain express language of the agreement, summary judgments are easily obtainable in the state and federal courts either to dispose of the case in whole or to limit whatever issues will survive for trial.  The absence of the practical ability to fully resolve issues in arbitration as a matter of law prior to final hearing can result in the increased expense of having to proceed forward with discovery and a final hearing on the merits of a case that a court might have resolved sooner as a matter of law.

Arbitration frequently breeds collateral litigation, driving the true cost up.  Specifically, one does not need to look too hard to see that the vast majority of litigation under the Federal and Florida Arbitration Acts deal with whether a matter needs to be submitted to arbitration in the first place.  The typical fact pattern involves one party filing a suit and the other party moving to compel arbitration arising out of an agreement to arbitrate.  Sometimes the fight is over whether the clause is valid or enforceable—sometimes the parties fight over what disputes need arbitrated and which ones are for the court.  Resolution of these issues involve the expensive motion practice that one hoped to avoid by agreeing to an arbitration provision in the first instance.  The ruling on the motion to compel arbitration often gives rise to an appeal and the parties now have the expense of an appeal before anyone has heard the merits.  If one is truly to achieve the economic benefit anticipated from arbitrating instead of litigating, then it is helpful to make sure that the other party genuinely believes in the arbitration process as a means of alternative dispute resolution as opposed to someone agreeing to it because they believe they have no choice and are therefore more likely to challenge it.  Forcing an arbitration clause onto the unwilling may provide some benefit, but cost savings is not likely one of them.

The arbitration award is a mere piece of paper without any ability to force collection.  Thus, at the conclusion of arbitration, one must turn the award into a judgment. [2]  A motion to confirm the arbitration award is the vehicle to convert the award into an executable judgment.  We have all seen the arbitration provisions that state that the arbitrator’s award shall be “final and non-appealable.”  This language, however, still does not bar the disaffected loser of the arbitration from filing a motion to vacate the arbitration award when unhappy with the result.  As a result, at the back end of many arbitrations, one is often in court dealing with motions to confirm or vacate the award, and both sides can appeal an adverse ruling.
      
In summary, as far as cost efficiency goes, the benefits are likely most pronounced in cases where both parties are knowledgeable and believe in the arbitration process and the issues anticipated to be in dispute are not those capable of easy disposition by a trial judge.  Conversely, arbitration may still be of benefit, but not for cost reasons where the dispute is instead:  likely to be a simple matter of contract interpretation capable of easy disposition on summary judgment or motion to dismiss; a smaller amount in controversy; or with a less sophisticated party who will likely be resistant to actually arbitrating the case.

Is Arbitration More Swift?
      
Within their arbitration provision, the parties can control the amount of time in which a final hearing must be held.  Absent such an agreement, from the time of filing the demand for arbitration until the final hearing is likely four to eight months, depending on the arbitrator and the nature of the dispute.  Thus, getting to a final hearing in an arbitration can be quicker than a court proceeding.  For the same reasons that it is not always less expensive to arbitrate, however, there are places where delay can inject itself into the arbitration, making final resolution just as slow as litigation.
      
For instance, a pre-arbitration dispute over whether a particular dispute has to be submitted in whole or in part to arbitration, with a subsequent appeal, can take over a year to resolve before the parties ever address the merits of the dispute.  At the back end of the arbitration, if a party is dissatisfied with the result, the resulting motion to confirm the arbitration award or motion to vacate the arbitration award at the trial level typically takes four to six months to resolve.  The dissatisfied party still has the right to then appeal an adverse ruling.  Thus, an arbitration with either a disputed confirmation process or pre-arbitration dispute over what must be arbitrated can take as long as litigation.  When all three phases are present in an arbitration, the arbitration can be longer than litigation.
      
While it is true that from the moment of the demand for arbitration through the final hearing will often be a fraction of the time it would take to get to trial in court, the total amount of time spent in the arbitration process can, therefore, be just as long as the litigation counterpart and sometimes longer.  Moreover, in many cases that a court would resolve as a threshold matter on dispositive motion, the arbitrator will likely not resolve before the final hearing.  As such, just as with evaluating the cost factor, if time is a consideration, general counsel should carefully consider the anticipated nature of the disputes to arise out of the agreement before assuming that arbitration will lead to a faster result.  Arbitration is likely faster for more complex cases between sophisticated parties who prefer it, but again, simpler contract disputes or disputes with those resistant to arbitration may be more quickly resolved in court.

Is Arbitration More Rational and Predictable?

Arbitration avoids juries and allows the parties to pick the qualifications of the arbitrator to decide the case.  Very often commercial parties will agree to an arbitrator possessing certain minimum experiential requirements.  One does not get to pick their judge or his or her qualifications or experience in an industry.  In cases where the transaction is very technical or requires a high level of industry knowledge to understand the terminology or accepted practices, industry professionals can certainly provide a level of predictability (and even efficiency) that lay people who are only exposed to the industry during the trial cannot achieve.

Nonetheless, any process relying on human judgment can yield disagreeable results.  When this happens in litigation, judges can review the jury’s decision to make sure it comports with the manifest weight of the evidence.  In turn, appellate judges will review the work of trial judges to ensure that no error of law has occurred.  Nonetheless, a trial court can only refuse to confirm (or vacate) an arbitration award for one of four very narrow factors, to wit:

  1. where the award was procured by corruption, fraud, or undue means;
  2. where there was evident partiality or corruption in the arbitrators, or either of them;
  3. where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
  4. where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. [3]

An error of law or a decision against the manifest weight of the evidence is not one of the foregoing factors.  Until recently, there was a judicially created doctrine that enabled a trial court to refuse to enforce an arbitration award where a party showed the arbitrator the law, but the arbitrator ignored the law, and instead acted arbitrarily and capriciously or in manifest disregard of the law. [4]  Nonetheless, in a recent decision from the U.S. Supreme Court, the Supreme Court held that the Federal Arbitration Act limited relief from an arbitration award to only the specifically-enumerated statutory factors. [5]  The 11th Circuit Court of Appeals has now explicitly held that this means that judicially created doctrines for vacating an arbitration award (such as an arbitrary or capricious award or acting in manifest disregard of the law) are no longer grounds to avoid an arbitration award. [6]  As a result, there is no relief within the 11th Circuit if an arbitrator ignores the law, or in the case of the unreasoned decision, simply comes up with a result or number with no explanation at all even if the record is devoid of any real evidence supporting that conclusion.  The case law teaches that arbitrators are not “junior varsity judges” with courts thereafter sitting as appellate courts.  Unlike the typical contract dispute, where a trial judge is constrained to interpret the contract according to its express language, the arbitrator dealing with the same dispute no longer has any such limitation on his or her authority to act, and may “do the right thing” as he or she deems fit.

Moreover, in the courtroom, there is a very well-defined body of law that establishes what documents and testimony the court will allow in evidence.  Absent grafting some language into the arbitration provision adopting an evidence code, an arbitrator is typically free under the governing arbitration rules to accept hearsay affidavits not subject to cross examination, unauthenticated documents, or the like.  All of those types of “evidence” lead to unpredictability and sometimes irrational results.  There is, however, no backstop to protect against those errors.  Thus, arbitration can be a haven for those with weak cases hoping to get lucky.  

The single arbitrator can lead to predictability in a commercial context of a different sort.  The single arbitrator in a commercial dispute understands that in the selection process, both parties effectively hired him or her and deemed him or her an appropriate arbitrator for the case.  This leads to the predictable human desire on the part of some arbitrators to please everyone.  An appointed judge for life has no such temptation.  The single arbitrator attempting to make both parties happy can frequently succumb to the temptation of trying to split the baby.  While this result is predictable, it is usually not in one party’s interest.  Thus, if on the front end, a party believes they are likely to have the better case on the law in the event of anticipated disputes, arbitration clauses may level the playing field in the wrong direction.

Another problem leading to potentially unpredictable or irrational results is the multiple forum problem.  This typically occurs in a commercial contract where all foreseeable parties in the event of a dispute are not actually in privity of contract.  By way of example, if one hires a professional for a commercial project and the professional commits malpractice, an arbitration clause in the contract with the professional’s firm may require you to arbitrate against the entity, but the individual malpractice claims, for which there would be errors and omissions insurance available, would have to be litigated in court.  This situation commonly presents the problem of losing all benefit of any cost efficiency of the arbitration forum because one is litigating the identical case to the one that is being arbitrated.  This scenario also arises in the context of commercial warranties where one has privity of contract with the builder or installer who may have an arbitration provision in its contract, but there exists a direct claim against a component manufacturer or subcontractor with whom there is no direct privity and no ability to compel arbitration.  In this scenario, all too often there is a risk of the manufacturer blaming the defect on the installer, and vice versa with the result that not only can one wind up in two different fora, but one could have different results in both fora.  Thus, before agreeing to an arbitration provision it is worth analyzing whether in the foreseeable disputes that might arise out of the transaction, all persons potentially responsible are agreeing to participate in the arbitration.  In the absence of getting everyone to the party, it is far better to invite no one, as one can always find a court that can host the event for all concerned.

Thus, the premise that arbitration is more predictable or leads to more rational results than litigation is not necessarily true.  In deciding whether this factor truly supports use of an arbitration provision, one should consider whether there are very sophisticated industry concepts or terminology that will be more easily understood and better handled by fact finders who are themselves industry professionals, or whether the most likely type of dispute to result is a mundane one that would be covered by the express language of the contract.  The closer a dispute is to the complexities of the first, the more an arbitration provision requiring the use of industry professionals may be helpful in creating industry-understood results.  The closer a dispute is to the simpler, more mundane case with easily understood contract language, the more one might obtain predictability and consistency of results with a trial judge supervised by an appellate court.  Further, whatever benefit may exist to avoiding a jury can be achieved with a provision waiving the right to a jury trial.

Is Arbitration More Confidential?

Our state and federal court records are public record.  Both the state and federal courts are increasing the burdens on placing matters into the record under seal, often requiring motions supported by evidence establishing good cause for sealing or redacting portions of the record.  Mishaps do happen, and clerks, private court reporters, and other personnel have been known to inadvertently release sealed materials.  Quite simply, it is difficult to keep matters truly confidential when in litigation.  Conversely, the arbitration process (with the exception of the litigation seeking to vacate or confirm an award) occurs outside the public record.  If confidentiality is important, arbitration remains likely better to protect one’s interest.  If confidentiality is a key concern, counsel should also give careful consideration to the arbitration provision requiring the use of an unreasoned arbitration award, as this will help to limit what would otherwise be in the public record in the event of a dispute on confirming the award.

Conclusion

There are many benefits to arbitrating a dispute.  It is not, however, a one-size-fits-all remedy for all potential commercial disputes and careful consideration ought to be given at the front end to the true objectives to be gained from an arbitration and whether the foreseeable disputes that could arise out of the transaction are those for which arbitration will better serve those objectives than a courtroom.
_____________________
[1]  Jenne v. Church & Tower, Inc., 814 So. 2d 522, 524 (Fla. 4th DCA 2002).
[2]  See 9 U.S.C. § 9; See also § 682.12, Fla. Stat.
[3]  9 U.S.C § 10(a).
[4]  Rollins, Inc. v. Black, 167 Fed. Appx. 798, 799 (11th Cir. 2006).
[5]  Hall St. Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 589 (2008).
[6]  Frazier v. CitiFinancial Corp., LLC, 604 F.3d 1313, 1324 (11th Cir. 2010).

_____________________

More information about the author of this article, Alan Wachs, can be found here: Alan Wachs Bio

 

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ACC National Article and News
ACC Speaks with General Counsel and Chief Legal Officers about Their Changing Roles
By Justin A. Connor, Senior Counsel & Director of CLO Services, ACC

ACC has released several recent publications focusing attention on the areas that matter most to general counsel (GC) and chief legal officers (CLOs):  benchmarking, knowledge sharing, best practices and thought leadership on the challenges of leading the legal department in today’s complex corporate environment. In December 2013, ACC published Skills for the 21st Century General Counsel, a report forming part of the ACC Executive Series, in cooperation with Georgetown Law’s Center for the Study of the Legal Profession. In order to prepare the report, ACC had extended interviews with 28 thought leaders in the in-house legal profession – including current and past general counsel of leading companies, independent directors of major companies, chief executive officers (CEO), executive recruiters and others. In cooperation with the National Association of Corporate Directors (NACD), ACC also surveyed 78 corporate directors. Finally, ACC surveyed 689 CLOs and GCs within its membership base to gather the following report findings.

How ACC Serves CLO Members

Effectively serving GCs and CLOs is one of ACC’s key strategies identified in its Strategic Plan for 2013-2018. In line with its strategy, both the “Skills for the 21st Century General Counsel” report and the annual CLO Survey support members by providing benchmarking data, comparison of key metrics and an overall sense of the most important issues facing CLOs today.

ACC, through its CLO Services department, aims to encourage further engagement by CLOs in numerous ways, from participating in the CLO Club events, serving as faculty at the Annual Meeting, authoring or co-authoring an article or resource for in-house counsel and serving on ACC Advisory Boards to attending CLO Roundtables to benchmark with their peers, being profiled for the CLO Executive Bulletin and attending CLO events organized by chapters.

ACC is also reviewing the executive education programs with an eye toward launching the ACC Executive Leadership Institute to develop exciting new programs for law department leaders and heighten existing efforts to increase CLO engagement. Ensuring that our association and its activities always remain relevant, practical and immediately useful to our members and their law departments is one of ACC’s main priorities.

To that end, CLO Services is pleased to offer the following executive summary of two recently released reports: Skills for the 21st Century General Counsel report and the ACC 2014 CLO Survey, both of which directly address the dynamic role and high expectations of today’s general counsel.

Leading the Legal Department

Quote from a former GC:

“Everyone at the top wears multiple hats. You need to deeply understand the business and where it is headed, so your GC hat doesn’t go out the window, but you simply put on more hats. Many of the business people do as well. You want them to wear a compliance hat and a risk hat, for example, in addition to a business hat. So you become much more integrated into that world, but it definitely requires more training and more understanding of the business.”

The most important job of a GC and CLO is still chief provider of legal advice and manager of the legal department. About 84 percent of GCs report providing legal advice and managing legal matters for the company as one of the top ways they provide value to their organizations. Although nearly three-quarters (74 percent) of corporate directors rated these more traditional functions in the top three contributors to value, they were more likely to see value in other activities. Directors were much more likely, for instance, to view the compliance function as a source of value than GCs themselves (54 percent vs. 34 percent).

And while managing legal expenditures was lower on the list of value-add activities (approximately 10 percent of both directors and GCs rated this in their top three), more experienced GCs were much more likely to report that they add value through this activity (19 percent of GCs with more than 10 years of experience in prior GC roles).

As legal departments cope with increasing regulation, complexity and globalization, without corresponding increases in resources, effective legal department management is more important than ever. As these trends continue, future GCs will first need to have an excellent understanding of the business, and its sources of cash flow, risk and strategic priorities. Using this information, GCs must then be able to creatively address resource constraints by continuously re-evaluating the way they staff legal matters, use outside counsel and manage processes. They will need to be adept at managing a team of lawyers who are sometimes globally dispersed, even in smaller companies.

We predict more splitting of the GC role, so that a legal chief operating officer may be more focused on management of the department, while the GC/CLO focuses more on counseling and strategic activities, especially as legal department management needs increase.

GC as Counselor in Chief

Quote from an executive recruiter specializing in general
 counsel searches:


”I can’t tell you how many times the first words out of the CEO’s mouth are: “I need a business partner.” Sometimes, that’s code for: “I currently have a GC who may be a good lawyer, but he or she is not astute regarding the business issues that our business is facing.” That comes up constantly. They don’t want someone who has got an ivory tower mentality, and a lot of lawyers do.”

The second key area where GCs provide value to their organizations is through counseling the CEO and board of directors. Approximately half of GCs and directors cited counseling the CEO as one of the top three value-drivers. Although fewer GCs (20 percent) cited counseling the board of directors as a top source of value, a much higher percentage of board members (38 percent) view this activity as a significant source of GC value, suggesting that many GCs do not fully appreciate the positive impact of their contributions to their organization’s board.

The counseling role goes beyond simply providing legal counsel; the GC also serves as a trusted advisor to the CEO and the board. GCs must perform a delicate balancing act between being trusted and active members of the management team (i.e., having a “seat at the table”) and maintaining their independence. To serve in this role, future GCs will need to possess the managerial courage to say “no,” even when it is unpopular.

To do this effectively, they will need to have excellent communication skills and emotional intelligence to ensure they are constructive in their assessment of risk and rewards in a business context. They also must build credibility and respect with their executive peers, which are influenced by the degree to which they demonstrate the third essential skill — being a strategist.

GC as Strategist

Quote from a current general counsel with 11 years in the GC role:

“I think the biggest surprise to me was the extent to which technical legal expertise is really not that important. ... I think you have to expect that your general counsel is going to be a very good lawyer, but there are a lot of people who are very, very good lawyers but, in my opinion, wouldn’t make great general counsel. That’s the base level, and I think that you should be able to take that for granted. The things that make you a great general counsel have very little to do with technical legal expertise.”

Perhaps the most striking finding of this study is the growing importance of the GC role as a strategic thinker. Looking ahead five to 10 years from now, both GCs and corporate directors view strategic input as becoming a larger source of added value. However, there is a disconnect between GCs and directors when it comes to the contribution of strategic input: GCs are much more likely than directors to rate the GC’s role in providing strategic input into business decisions as being in the top three sources of added value, both now and in the future (see Figure 1). This difference in opinion may be especially important given a distinction directors make when evaluating the performance of their GCs. According to directors, the highest performing GCs add value by contributing strategic advice.

With strategic input increasing in prominence and necessity, future GCs would be wise to develop strategic-thinking skills. They need to be comfortable with risk and helping their business colleagues decide which risks are reasonable and which are not. On the other hand, GCs cannot focus wholly on risks and constraints, as they also need to define and embrace opportunities, especially conversations about strategic choices – both as lawyers and as general managers who are trained in the law.

A broad worldview, an ability to network and generate ideas with people from diverse perspectives and ability to focus on the longer-term impact of decisions is equally important as understanding the risks and opportunities facing one’s company.

As previously noted, GCs increasingly play a more meaningful role in executive and boardroom conversations as they move from traditional legal advisors to corporate strategists. GCs may help their organizations adapt to faster-moving environments by utilizing their mediation skills and insight across the business spectrum to bring diverse perspectives together and solve business challenges.

In the role of integrator, GCs can help drive organizational innovation and renewal. Integrator GCs can broker disparate pieces of information across organizational silos, while also assisting the executive team in setting up a culture where measured risk in the pursuit of new ideas is nurtured.

The full report explains the ACC’s findings and details the evolution of GCs from legal advisor to counselor to strategist. Particularly, the ACC’s research seeks to capture the current state of the role of GCs, understand how and where the role appears to be evolving and identify skills and competencies required for GCs to be successful in the future.

Future generations of GCs will find a job that is broad-ranging, impactful, innovative and increasingly global in scope — a rewarding prospect for those prepared to meet its diverse challenges.

The ACC CLO 2014 Survey

Quote from Patricia R. Hatler, Executive Vice President, Chief Legal and Governance Officer, Nationwide Insurance:

“I once worked for a CEO who said the only reason he could sleep at night was a strong culture of ethics and compliance at the company. The more experience I have, the more I see how right he was. In today's environment, a compliance mindset has to be ‘in the water.’ It has to be everyone's job.

Highly regulated businesses are even more highly regulated today. There are more regulators, and they are more active. Companies have to devote resources to staying on top of those regulatory expectations and building effective communications with the regulators.” 

To understand the driving forces behind the evolving role of the CLO and of corporate legal departments, ACC reached out to 9,600 individuals. The CLO 2014 Survey results reflect response data from more than 1,200 individuals in 41 countries who serve as the organization’s CLO or GC. From roles and responsibilities to salaries, skills and work environments, the study explored a broad range of topics and is the most comprehensive global study of its kind to date.

Specifically, the annual report discusses CLOs’ prioritization of business issues, adoption of practices that drive greater value for law departments and concerns for the coming year. New this year is a comparative analysis of the data from the 2013 and 2014 survey results, thereby addressing current trends facing law departments.

Increasingly it falls upon CLOs to identify issues related to ethics and compliance as their influence has grown within their companies. Therefore, it is not surprising this ranked as a top concern for 2014. Minimizing compliance risks facing organizational liability and expanding into new markets requires a high level of knowledge and experience. From global expansion to the rapid adoption of new technology, businesses are increasingly facing new challenges and unchartered waters.

Regulatory or government changes and information privacy ranked second and third respectively as pressing issues keeping CLOs up at night now and in the year ahead. Taking note of GCs’ and CLOs’ current and future concerns not only plays an important role when organizations seek to expand into new areas or new markets, but also in terms of handling levels of complexity that require a combination of business and legal expertise.

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ACC News
By ACC National Staff

Take Credit

If you need to fulfill your CLE/CPD requirements for the year, the ACC Annual Meeting (October 28-31, New Orleans, LA) is your one-stop solution. The two-and-a-half day event is packed with timely, relevant sessions on important topics like contracts, compliance, law department management and more — all eligible for CLE/CPD credit. Return to work prepared and take credit for your success. Session selection is now available. Learn more and register at am.acc.com.

Are You Prepared?

Regardless of your industry and the jurisdictions where you do business, the shifting global business landscape will impact how you and your in-house counsel peers focus your time and advise your CEO. Attend the ACC Emerging Global Trends for Corporate Counsel program (June 19–20, Toronto, Ontario) to gain insights from leading general counsel faculty and learn emerging global trends and their implications for general counsel and their legal departments in Canada and around the world. Topics include global anticorruption regulations, corporate governance, cross-border privilege and more. Early bird rates are in effect through May 1.  For more information, visit http://www.acc.com/education/egt/.

Mini MBA, Project Management and Risk Management

Enhance your business management skills with these targeted business education courses offered by ACC and the Boston University School of Management:

  • Mini MBA for In-house Counsel (June 11–13; September 17–19; and December 3–5)
  • Project Management for the In-house Law Department (September 29–30)
  • Risk Management & In-house Counsel (October 7–9)

All programs take place in Boston unless otherwise noted. Learn more and register at www.acc.com/businessedu. 

Protect Your Copyright

Companies thrive on the exchange of information. But in the daily rush to get things done, even well intentioned employees may unknowingly share copyrighted material without permission to do so, exposing your organization to not only the risk of copyright infringement but also financial and reputational damage. Check out this QuickCounsel, prepared by ACC Alliance Partner Copyright Clearance Center (http://www.acc.com/legalresources/alliance/index.cfm), to learn how to best manage copyright compliance at your organization.

 

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Chapter President's Letter: Beautiful People, Terrible Lawyers
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Sulzbacher Center Event -- ACC North Florida Chapter Giving Back to the Community
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Networking – An In-House Lawyer’s Guide to Building a Strong Network
Maintaining Your Company's Competitive Advantage: A Guide to Protecting Your Company's Trade Secrets
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The IRS and “Obamacare”: New Employer Reporting Requirements
Court Ruling May Increase Lawsuits From ADA “Testers”
Data Privacy: Safeguarding Information in an Interconnected Marketplace
Florida Adopts Daubert Standard for Admission of Expert Testimony in State Court
The Emerging Trend Against Arbitration of Commercial Disputes: Pros and Cons of Including Arbitration Requirements in Commercial Contracts
ACC National Article and News
ACC Speaks with General Counsel and Chief Legal Officers about Their Changing Roles
ACC News
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