October 27, 2017
President's Letter
Letter from the President
By Kristol Simms, ACC St. Louis 2017 President

Kristol Simms
2017 ACC St. Louis Chapter President

 

 

As the time comes near for the holiday season it is a natural thing to reflect on many of the opportunities and gifts that we have to be thankful for.  The obvious—good health, loving family and friends, a successful career all readily come to mind.  One thing that we all share as members of the bar that often is overlooked is the fortune to be a trusted advocate on behalf of others before the judiciary and other governing bodies.  This is a great and very valuable position to be in and it is one that I know I have to be very conscious about in order to not take it for granted.  For me it is important to use this gift to improve the life and station of those around me.

We all took an oath when we were sworn into the bar as new lawyers.  In Missouri, that oath includes a vow to "practice law to the best of my knowledge and ability and with consideration for the defenseless and oppressed".  As members of the Association of Corporate Counsel St. Louis I ask that we all think about what it means to honor the oath that we have taken, regardless of jurisdiction.  Do we believe that we have the tools needed to live up to the measure that we would have held ourselves to back on the day that we held our hand up and took the oath as a new lawyer?  This is one reason why our Chapter is committed to offering and supporting pro bono opportunities for you, our members. 

 

This fall—together with our 2017 Pro Bono Sponsor, Husch Blackwell LLP—our Chapter will work to help you make progress in your pro bono goals.  We will present a special CLE with the Bar Association of Metropolitan St. Louis, and Corporate Pro Bono, providing an overview of the ethical issues in-house attorneys face when representing clients in pro bono matters in the U.S. and globally, as well as address practical issues related to in-house pro bono.  The program will take place on November 16, 2017 at The Ritz-Carlton. 


If you're like me it has been a long time since you've read or recited the oath but this program will be a great way to refocus and find a way to meet the commitments we all made. The registration for this event will open up to our membership this week.  I encourage you to find the time, if you are interested, to attend this program and take back what you learn to your company and work teams as well.  And regardless, let's all commit to reflecting on how we can best embody the lawyer we thought we would be.

 

Kristol Simms
ACC St. Louis Chapter President
314-694-4328 (office)
ksimms@ameren.com

Return to Top
Chapter News
Deadline for You to Vote for Judicial Elections Approaches!

Advocacy Update

 

Upcoming Judicial Commission Elections in Missouri

By: Sven Fickeler, Bunzl Distribution (ACC St. Louis Chapter Advocacy Chair)

 

Starting October 11 and through November 3 all Missouri attorneys in good standing or inactive status are called to elect new members to the Missouri Appellate (Eastern District of MO) and Circuit Judicial Commissions under the Non-Partisan Court Plan.

 

How It Works:

 

The Missouri Non-Partisan Court Plan governs the selection of judges for the Missouri Supreme Court, the Missouri Courts of Appeals and the Circuit Courts for many of the larger counties in Missouri.  Judicial vacancies that are subject to the plan are filled by the Judicial Commissions, who interview candidates for the position and nominate a panel of three judges that is sent to the Governor.  If the Governor does not select one of the three candidates from the panel, the commission selects one of the three.

The Appellate Judicial Commission that fills vacancies on the Missouri Supreme Court and the Missouri Courts of Appeals and is comprised of seven members: three attorneys elected by the Missouri bar, three citizens appointed by the governor, and the chief judge of the Supreme Court. The Appellate Commission is comprised of three attorneys, one from each of the three appellate districts (Eastern District, Western District, and Southern District). An election for an attorney member is held every two years in one of the districts of the Court of Appeals. All attorneys residingwithin each of the three appellate districts of the Missouri Court of Appeals vote electronically for the purpose of electing one of their peers to serve a six-year term to commence on January 1, 2018 as a member of the Appellate Judicial Commission. Each clerk of the three Missouri Court of Appeals districts will send all eligible attorneys within the district an e-mail message with a link to a website where they may vote. Attorneys may be eligible to vote in multiple Judicial Commission elections.  If attorneys are eligible to vote in multiple elections, they will receive separate emails, including details pertaining to the election, for each Judicial Commission election in which they are eligible to vote.

The Circuit Judicial Commissions are five-member commissions that fill vacancies on the circuit courts of the city of St. Louis and Clay, Jackson, Platte and St. Louis counties. The governor appoints one of the three candidates submitted by the Circuit Judicial Commissions. If the governor does not appoint one of the three panelists within 60 days of submission, the commission selects one of the three panelists to fill the vacancy. Each commission consists of the chief judge of the district of the Court of Appeals in which the circuit is located and four residents of the circuit. In selecting the resident members, two attorneys are elected by members of The Missouri Bar in that circuit, and two non-attorneys are appointed by the governor. The chief judge serves for two years. All other members serve staggered terms of six years each. A list of Circuit Judicial Commission members appears on the Missouri Judiciary web site: https://www.courts.mo.gov/page.jsp?id=1786.

Historically the majority of eligible attorneys do not vote in these commission elections with voter turnout in the lower 20% even though voting does not take much effort as the MoBar sends the ballots by email and all that is needed is the bar number and the pin number located in the corner of our Missouri bar card to submit the ballot. Consequently, Commission elections tend to be dominated by special interest groups, in particular the plaintiffs’ bar that has been very successful in past elections as the current member roster of the Appellate Judicial Commission shows:

Chair
Chief Justice, Supreme Court of Missouri

Jefferson City, Missouri

 

Eastern District Attorney Member

Mr. Thomas M. Burke

Hullverson Law Firm (plaintiffs’ personal injury)

St. Louis, Missouri

Term expires December 31, 2017

Eastern District Resident Member

Mr. Edward "Nick" Robinson

Hazelwood, Missouri

Appointed by Governor Jay Nixon

Term expires December 31, 2018

Southern District Attorney Member

Mr. Donald E. Woody

Law Office of Donald Woody (plaintiffs’ personal injury-general practice)

Springfield, Missouri

Term expires December 31, 2019

Southern District Resident Member

Ms. Michelle Beckler

Marshfield, Missouri

Appointed by Governor Jay Nixon

Term expires December 31, 2020

Western District Attorney Member

Mr. Scott S. Bethune     

Davis Bethune Jones (plaintiffs’ personal injury)                            

Kansas City, Missouri

Term expires December 31, 2021

Western District Resident Member

Ms. Kathy Ritter

Columbia, Missouri

Appointed by Governor Jay Nixon

Term expires December 31, 2022

 

As in-house counsel we have a vested interest to be adequately represented in these Judicial Commissions. The only way to achieve that and to avoid one-sided representation of interests as the current make-up of the Appellate Commission might suggest is to vote and raise awareness of the importance to vote in those elections. All eligible attorneys will receive an electronic ballot and have about three weeks to vote. So there is hardly an excuse for not voting. The ACC St. Louis Chapter encourages all of its members and every attorney in the State to use their privilege to vote in those elections and help form a balanced judiciary in the State of Missouri. Go vote and encourage others to do the same!

Return to Top
Member News
Welcome New Chapter Members!

Please help us welcome the following New Members, who joined since June 2017.

  • Richard L. Bridge, Vice President and General Counsel, Handi-Craft Company
  • Heather Buethe, Senior Counsel - Epoxy & International, Olin Company
  • Sally Caraker, Senior Claim Specialist, AssuredPartners, Inc.
  • Jane Anne Crane, Senior Counsel, Macy's Inc.
  • Robert O. Enyard, Jr., VP, Patent and Legal Counsel, Aclara
  • Mary Frontczak
  • Michele Gardner, Associate Counsel Corrosion Protection, Aegion Corporation
  • Ellen Harmon, Associate General Counsel, Air Medical Group Holdings, Inc.
  • Jennifer A. Haynes, Assistant General Counsel, Federal Reserve Bank of St. Louis
  • Timothy M. Huskey, Assistant Vice Chancellor & Associate General Counsel, Washington University St. Louis
  • Gregory J. Kelly, Owner/General Counsel, Business Owner/Investor
  • Alexander Kolumbus, Vice President Legal Compliance Government Affairs, Protective Life Insurance Company
  • David E. Martin, Vice President, Assistant General Counsel, Macy's Inc.
  • Matthew Melick, General Counsel, Omega Partners III, LLC
  • Lisa Nicastri, Senior Counsel, Olin Corporation
  • Michael Orlowski, General Counsel, Content Pass, Inc.
  • Ruben Ortiz, Jr., Director, Legal Counsel - Operations, Charter Communications, Inc.
  • Melissa R. Pence, Senior Manager, Counsel - Operations, Charter Communications, Inc.
  • Matthew Ward Potter, Vice President, US Bank, NA
  • Peter Rasche, Senior Counsel, Lumeris
  • Stephanie E. Russell, Assistant General Counsel, SunEdison, Inc.
  • Brian C. Stone, Attorney, Metropolitan St. Louis Sewer District
  • Christopher C. Swenson, Vice President & General Counsel, Varsity Tutors, LLC
  • Corey Then, Associate General Counsel, Edward Jones
  • Jeff Tucker, Corporate Counsel, Enterprise Holdings, Inc.
Return to Top
See Anyone You Recognize?

ACC St. Louis has been busy in the second quarter of 2017!  See anyone you recognize?


ACC St. Louis Annual Planning Meeting - Aug 11th





 

 

 

9th Annual Golf Spa CLE program - Sept 15th

 







 

Social Event - Sushi Sake Tasting - October 5th 




 


 

Return to Top
Save these Dates

The St. Louis Chapter offers a variety of programs and events designed for our Members’ unique needs.  Keep your eye on the Chapter calendar (www.acc.com/chapters/stlouis) and be sure to mark your calendars to attend a few of the chapter programs and special events coming soon:

October 31st - Nonprofit Legal Clinic at LSEM

November 2nd - Diversity Leadership CLE

November 9th - Professional Development Program

November 10th - ACC St. Louis Board Meeting

November 16th - Pro Bono CLE Program

November 17th - Tueth Keeney CLE Program

December 1st - Evans & Dixon CLE Program

December 7th - ACC St. Louis Holiday Social at Flemings


 




Return to Top
We Missed You!

We missed you! If you sign up for an ACC St. Louis event (even an event with no cost to members) and find that you cannot attend, please let the Chapter Office know just as soon as you can. You can email the office at accstl@qabs.com.

Sometimes we have members on our waiting list who would love to fill in for you, or the sponsors can make adjustments to food and beverage orders. Always, we want to avoid disappointing our sponsors and our members who are counting on seeing you.

So let us know if you cannot attend, but we hope that you will!

Return to Top
Featured Article
Evans & Dixon: Missouri Legislature Enacts Important New Labor and Employment Laws

Missouri Legislature Enacts Important New Labor and Employment Laws

Gerald M. Richardson

Evans & Dixon, L.L.C.

During its 2017 term, the General Assembly made the enactment of several labor and employment laws high priorities.  The House and Senate adopted reconciled bills to enact the Right to Work Law on February 2, 2017.  Governor Eric Greitens signed that legislation into law on February 6, 2017. 

In addition, the legislature enacted major amendments limiting employee lawsuits under the Missouri Human Rights Act (“MHRA”) and the Workers’ Compensation Law.  It also substituted a new Whistleblower’s Protection Act (“WPA”) to restrict common law retaliatory discharge claims more narrowly.

Right to Work Law Enacted, But Put on Hold by Referendum Petition Drive

The Right to Work Law prohibits any one or more of the following conditions of employment: (a) mandatory either union membership or non-union status, (b) obligations to pay union dues, fees, or assessments, or (c) compulsory contributions to a either a charity or other organization instead of union dues, fees, or assessments.  The law also makes an agreement between a union and an employer invalid if it violates the rights of employees under the Right to Work Law.  Finally, it creates a class C misdemeanor that holds any person that violates the law criminally liable.

The Right to Work Law originally had an August 28, 2017 effective date. Supporters of organized labor, however, filed a petition on August 18, 2017 seeking to hold a referendum on the Right to Work Law.  It requests the referral of the Right to Work Law to the voters for their approval or rejection of the law at the general election to be held on November 6, 2018. 

Secretary of State, Jay Ashcroft must certify the referendum petition’s satisfaction of the Missouri constitutional and statutory requirements for the referendum election to be held.  The certification process may take several months to complete.  In the meantime, the Right to Work Law remains pending and ineffective.  If Secretary Ashcroft certifies the referendum petition, that certification will suspend the law’s effective date until after the state conducts the referendum election.  On the other hand, if the referendum petition receives no such certification, then the Right to Work Law will take effect immediately.  Even if Secretary Ashcroft certifies the referendum petition, the legislature could change the election date from November 6, 2018 to the primary election date of August 7, 2018. 

Legislature Tames the Beast of Employee Lawsuits Under State Law

The legislature also took steps to reform Missouri’s employee friendly environment for employment related lawsuits.  In the past ten years, a series of Missouri appellate court decisions had shifted Missouri courts from employer-friendly to employee-friendly venues. To counteract these decisions, the legislature amended both the MHRA and the Workers’ Compensation Law and enacted an entirely new law, the WPA.  These measures remake the state anti-discrimination law in the image of federal employment discrimination laws and replace ever expanding common law wrongful discharge claims by the WPA’s narrowly defined remedies.

1.         The Motivating Factor Replaces a Contributing Factor as the Employee’s Burden of Persuasion.

First, the WPA and the amendments to both the MHRA and the Workers’ Compensation Law raise the threshold level of proof of an employer’s unlawful conduct that an employee must produce to establish liability.  In several decisions beginning in 2007, the Missouri Supreme Court established liability on the basis of an employer’s unlawful conduct being “a contributing factor” to the employer’s imposition of an adverse action against an employee.  See, e.g.,  Daugherty v. City of Maryland Heights, 231 S.W.3d 814, 820 (Mo. 2007) (en banc); Fleschner v. Pepose Vision Institute, 304 S.W.3d 81, 93-95 (Mo. 2010) (en banc);Templemire v. W&M Welding, Inc., 433 S.W.3d 371, 373 (Mo. 2014) (en banc).  The amendments to both the MHRA and the Workers’ Compensation Law and the creation of a statutory whistleblower claim nullify these Missouri Supreme Court holdings. 

The new legislation substitutes “the motivating factor” for “a contributing factor” as the employee’s burden of persuasion to prove an employer’s unlawful motive and to hold the employer liable for an adverse employment action. In each instance, the legislation defines the meaning of “the motivating factor” to require an employee to show that membership in a protected class under the MHRA, or status as a protected person under the WPA, or the exercise of Workers’ Compensation Law rights “actually played a role” in the adverse action.  The legislature intended this reformulation of the employee’s burden of persuasion to make it harder for employees to prove their claims.  It will take the application of this new burden of persuasion over a number of cases before an assessment of the legislative intent versus the law’s application can take place. 

2.         Revisions to the Definition of Employer Eliminate MHRA Individual Liability for Owners, Supervisors, and Managers.

The amendments to the MHRA further narrowed the definition of an “Employer.”  The definition before August 28, 2017 read as follows: any person employing six or more persons within the state and any person directly acting in the interest of an employer.

The new definition deletes the text that included “any person acting in the interest of an employer” within statutory employers.  It also adds “[a]n individual employed by an employer” to the list of specific exclusions from the definition of “Employer.”  In so doing, it eliminates the basis for holding individual owners of a closely held corporation or limited liability company, managers, and supervisors personally liable for MHRA violations in addition to the employing entity.  While juries have typically entered verdicts for actual damages jointly and severally against individual and entity defendants, in some cases, they have imposed separate liability for punitive damages against individual defendants in addition to a punitive damages award against the employer.  This change will restrain the total dollar damages awarded by juries and allow individual owners, managers, and supervisors to make employment decisions without putting their personal assets at risk. 

In addition, it also allows more employers to remove cases filed in state courts to federal courts on the basis of diversity jurisdiction.  Previously, an employee could defeat diversity by naming a manager or supervisor who resides in Missouri as a co-defendant when she sued her employer with its principal place of business outside of Missouri.  

3.         The MHRA Amendments Impose Limits on Damages.

The amendments further limit the damages, except for back pay plus interest, that an employee can recover in MHRA claims in accordance with a sliding scale.  The limitations affect all other types of damages, such as, any one or more of emotional distress, future lost earnings, or punitive damages.  The MHRA caps such damages as follows:

1.                 $50,000 for employers with 6 to 99 employees,

2.                 $100,000 for employers with 100 to 199 employees,

3.                 $200,000 for employers with 200 to 500 employees, and

4.                 $500,000 for employers with more than 500 employees.

These limits on damages will greatly reduce the amounts recovered by employees in MHRA trials if the appellate courts uphold them.

4.                 The Amendments Change the Procedures Applicable to the Filing of Discrimination Charges and Issuance of Right to Sue Notices.

The MHRA’s amendments, furthermore, void a Missouri Supreme Court decision that narrowly interpreted an employer’s right to question the timeliness of an employee’s filing of his discrimination charge.  They, instead, allow employers to challenge the timeliness of an employee’s filing of a discrimination charge at any time either during the agency investigation or in the litigation of an MHRA claim after the Missouri Commission on Human Rights (“MCHR”) has issued a right to sue notice.  The amendments specifically provide that untimely discrimination charges deprive the MCHR of jurisdiction and require the agency to make a determination of its jurisdiction with respect to each charge that it investigates.  Finally, the amendments authorized the MCHR to issue a right to sue notice only after an employee makes a request for one that occurs no earlier than the 181st day after she or he filed her or his discrimination charge.  These procedural changes streamline the process for employers to defeat MHRA lawsuits based on untimely discrimination charges.

5.         The amendments require business judgment jury instructions in MHRA lawsuits. 

The MHRA amendments essentially reverse Missouri appellate decisions that forbid business judgment jury instructions.  See, e.g., McBryde v. Ritenour School District, 207 S.W.3d 162 (Mo. Ct. App. 2006).  These instructions tell the jury that employers have the right to make business decisions that have non-discriminatory negative consequences for employees.  They further direct jurors to avoid second-guessing an employer’s business judgment even if they believe that the employer made a wrong or unfair decision. Although the amendments directly state, “a jury shall be given an instruction expressing the business judgment rule,” as a practical matter, courts give the instructions that the parties request.  Employers that make no such request and suffer an adverse jury verdict will most likely find an appellate court unwilling to find that the trial court erred.  The court of appeals, instead, would likely find the employer’s failure to request such an instruction to involve invited error and affirm the jury’s verdict against the employer. 

6.         The Whistleblower Protection Act replaces all existing common law wrongful discharge and retaliatory discharge claims

The WPA prohibits employers from discriminating or retaliating against a “protected person.”  It further defines a “protected person” as a member of any of three categories.

           1.                 An employee who reports his employer’s either

a.                  unlawful conduct to proper authorities or

b.                 serious misconduct in violation of a clear mandate of public policy to the employer.

2.                 An employee who disobeys an employer’s instructions that, if followed, would violate the law.

3.                 An employee who acts in a manner protected by statute or regulation.

Protected persons, however, exclude the employer’s supervisors, managers, officers, or executives that the employer employs to report or to render professional opinions as to whether unlawful acts or serious misconduct has occurred.  In addition, the WPA offers no protection to an employee who reports allegedly unlawful conduct to the person who allegedly committed such conduct.

The WPA authorizes lawsuits by protected persons and provides monetary remedies.  They include:

1.                 Lost wages,

2.                 Reimbursement of medical bills,

3.                 Liquidated damages, and

4.                 Attorneys’ fees and court costs.

Liquidated damages equal the aggregate of the amounts awarded for lost wages, reimbursement of medical bills, court costs and attorneys’ fees.  To recover them, an employee must prove the employer’s evil motive or reckless indifference to the rights of others.

Finally, the legislature declared the WPA to be both a codification of existing exceptions to the employment at will doctrine and a limit on the expansion of such exceptions.  It further made the MHRA, Workers’ Compensation Law, and WPA “the exclusive remedy for any and all claims of unlawful employment practices.”  Historically, however, clever judges have eluded legislative efforts to curtail the common law’s evolution. 

Gerald M. Richardson is a Member at Evans & Dixon, L.L.C.  You can reach Gerald at 314-552-4053 or grichardson@evans-dixon.com


 

 

Return to Top
Greensfelder Hemker & Gale: Restrictive Covenants in a Social Media World

 


 

Christopher A. Pickett
Litigation Officer
Greensfelder, Hemker & Gale

Scott T. Apking
Associate
Greensfelder, Hemker & Gale

Restrictive covenants in a social media world

By Christopher A. Pickett and Scott T. Apking

The use of social media has dominated the headlines this year. In addition to its rise as a political tool, businesses devote substantial resources to developing robust social media presences. At the individual level, social media interactions often replace phone calls and in-person visits. Employees’ social media connections with customers are the norm, and these connections can alert employees and employers to a host of client information that previously took businesses decades to collect. As well-connected employees depart, the risks and benefits of employees using social media is becoming clear, and as with most technological advances, courts and litigants face the challenge of applying established legal concepts to new questions. When the business is based on customer relationships, this presents the potential for damage to the former employer’s business.

Increasingly, courts are considering whether contacts made through social media accounts constitute a solicitation that may be in breach of a restrictive covenant. Companies must determine how to best protect their businesses’ interests while also counseling new employees who may be arriving from a competitor.

Historically, courts look to the language of the restrictive covenant, and relevant social media policies, to determine the boundaries of departing employees’ conduct as it relates to their post-employment obligations. Courts are quick to note the absence of any provisions addressing social media contacts.

A Connecticut court found that a LinkedIn notification was not a solicitation pursuant to the terms of an employment agreement. In BTS, USA, Inc. v. Executive Perspectives, LLC, No. X10CV116010685 (KJD), 2014 WL 6804545 (Conn. Super. Ct. Oct. 16, 2014), an employee of BTS, Bergmann, left to join a direct competitor. Shortly after joining the competitor, Bergmann posted his new job to his LinkedIn account, sending out a notification to anyone linked to Bergmann, and he also posted an invitation to “check out” the competitor’s new website. Id. Bergmann’s employment contract contained a non-solicitation provision, but the agreement did not provide a definition of “solicit” and, further, there was no reference to social media in the employment contract. BTS brought an action alleging that Bergmann solicited BTS clients in violation of the employment contract. The court observed that (1) BTS had no policies or procedures regarding employee use of social media; (2) BTS did not request or require ex-employees to delete BTS clients or customers from LinkedIn accounts;(3) BTS did not discuss with Bergmann his LinkedIn account in any fashion; and (4) BTS continued to allow its employees to maintain LinkedIn accounts without monitoring or restriction. The court ultimately found that “absent an explicit provision in an employment contract which governs, restricts or addresses an ex-employee’s use of [LinkedIn], the court would be hard pressed to read the types of restrictions urged here, under these circumstances, into the agreement.”

Evidence that a departing employee used social media to solicit clients in the previous employment may indicate to a court that posts after departure constitute solicitation. In Mobile Mini, Inc. v. Vevea, No. 17-1684 (JRT/KMM), 2017 WL 3172712, *5 (July 25, 2017), the court found that using LinkedIn constituted a breach of the defendant’s employment agreement. Of significance, the court considered the declaration from the branch manager at Mobile Mini that provided he and the departing employee “discussed using LinkedIn as a marketing tool, to advertise Mobile Mini's products and services, and that the departing employee did in fact use LinkedIn for that purpose during her employment at Mobile Mini.”

If a restrictive covenant is broad or specific enough to encompass social media posts, courts further analyze the content of the social media communication and whether the communication was targeted at specific individuals to determine whether a post constitutes a breach of a restrictive covenant.

In Invidia, LLC v. DiFonzo, 2012 WL 5576406 (Mass. Super. Ct. Oct. 22, 2012), the Superior Court of Massachusetts rejected the argument that a former employee becoming Facebook friends with customers she previously serviced for her prior employer constituted a breach of her non-solicitation agreement. The court held that “one can be Facebook friends with others without soliciting those friends to change [service providers] … .” The court observed that the employer failed to present any evidence of the content of any communications made through Facebook in which the employee suggested that the Facebook friend should change service providers, i.e. she merely “friended” these customers.  

In 2013, a Federal Court in Oklahoma considered whether a Facebook post constituted solicitation in violation of a non-solicitation agreement. Pre-Paid Legal Services, Inc. v . Cahill, 924 F. Supp.2d 1281 (2013). The court found that the posts were not solicitations because there was no evidence that the defendant made any targeted contacts of employees by posting on their walls or through private messaging.

            Recently, in Mobile Mini, Inc. v. Vevea, No. 17-1684 (JRT/KMM), 2017 WL 3172712 (July 25, 2017), the United States District Court for the District of Minnesota granted a preliminary injunction to Mobile Mini against its former employee Vevea. Six months after she resigned from Mobile Mini, Vevea updated her LinkedIn account to reflect that she now worked at a competitor, Citi-Cargo. At least some of Vevea’s LinkedIn connections were alleged to be customers of Mobile Mini. The contract prohibited Vevea from directly or indirectly soliciting Mobile Mini’s customers for one year after her employment terminated.

The court distinguished social media posts in cases similar to Invidia, LLC and Pre-Paid Legal Services, Inc., noting that “Vevea made two blatant sales pitches on LinkedIn on behalf of Citi-Cargo before the expiration of the Agreement's non-solicitation provision. Contrary to Defendants’ arguments, the posts are not mere status updates announcing Vevea's new position and contact information — if that were the extent of the posts, then there would likely not be a breach of contract.” The court focused on the purpose of the posts holding that they indicated that Vevea’s intention was to solicit sales in her new position through social media. Citing Bankers Life & Cas. Co. v. Am. Senior Benefits LLC, No. 1-16-0687, 2017 WL 2799904, at *4 (Ill. App. Ct. June 26, 2017) (noting that the key consideration when determining whether a social media post is a “solicitation” is “the content and the substance” of the post).

Other courts have offered somewhat conflicting decisions. A federal court in Michigan held that untargeted posts that may include protected customers constitutes solicitation. Amway Global v. Woodward, 744 F.Supp.2d 657, 673-74 (E.D. Mich., 2010) (holding that an online post, viewed by 100,000 “diffuse and uncertain” readers, constituted solicitation).

            If an employer can establish that using social media in this context constitutes a breach of a restrictive covenant, it does not guarantee a recovery of damages. Courts often scrutinize whether the post caused any of the damages that may have been sustained as clients transition to the departed employee. In Eagle v. Morgan, No. 11-403, 2011 WL 6739448 (E.D. Penn. Dec. 22, 2011), the court noted that the plaintiff failed to establish that LinkedIn posts caused damage, though the court concluded that LinkedIn contacts may be assigned monetary value.

Recently, in Arthur J. Gallagher & Co., v. Anthony, 2016 WL 4523104 (N.D. Ohio, Aug. 30, 2016), a Federal Court in Ohio acknowledged the wide reach of social networking and the fact that a customer of Gallagher who ultimately left “liked” a post regarding Anthony’s new position, but noted that with around 1,500 connections on LinkedIn, only seven total users “liked” the post. The court ultimately held that the circumstantial evidence of the timing of the customers’ departure did not sustain a finding of solicitation, but instead pointed to customers’ dissatisfaction with Gallagher’s service once Anthony was no longer servicing their accounts.

Given the limited and varied analysis provided by courts, employers need to take steps to protect their interests and maximize their chances for enforcement of restrictive covenants. First, businesses should implement clear policies regarding the use of social media for business purposes. Second, if the business uses contracts to govern their relationships with employees or other individuals, those contracts should include provisions that impose obligations upon the employee regarding the social media profile or the connections. Those provisions could require that employees refrain from contacting previous customers on social media, deletion of the profile, or simply the deletion of the connections created after the inception of the relationship.

Finally, in exit interviews, remind employees of their agreements and establish clear ground rules and expectations for the employee’s post-employment conduct, including social media contacts with former customers. Employers gaining employees subject to restrictive covenants will want to review the specific terms of the employment agreements to ensure that the employee might post about the new position or new company without running afoul of any restrictive covenant that the new employee may have with their prior employer.

            Businesses, whether concerned with employees leaving or recruiting new employees, must be cognizant of the use of social media and also familiar with all relevant employment agreements and/or social media policies to effectively analyze potential litigation risk. This analysis, though, will result in a lower risk of litigation and, consequently, less money paid to attorneys who will not have to fight the social media battle on a field that is not yet well defined.

Christopher A. Pickett is a litigation officer at Greensfelder, Hemker and Gale, P.C. in St. Louis. He leads the Securities & Financial Services industry group and serves as the firm’s chief diversity officer. 

Scott T. Apking is an associate at Greensfelder, Hemker and Gale, P.C. in St. Louis. He is a member of the Litigation practice group and the Securities & Financial Services industry group.

 

Return to Top
SmithAmundsen: Cyber Risk: The Cure May Be Worse Than the Disease

Cyber Risk: The Cure May Be Worse Than The Disease


David Asmus, Partner, SmithAmundsen

 

The Growing Threat

Breach.  Hacking. Risk.  Security.  Avoidance. And the list goes on and on in today’s cyberworld.  The question for a business is no longer whether some form of cybersecurity is necessary but when (or how frequently) the company’s cyber risk and security policies must be updated.

The standard “cure” is often millions of dollars in data protection measures.  Yet, does this really protect the company and its customers from future risks?  Do any of these timely and cost-effective remedies and preventive efforts fix something that was apparently broken?

In this article, let’s take a brief look at the dynamic landscape of cyber risk today, who is affected, what avoidance measures companies undertake, how often such cyber security management policies are updated, and when all is said and done, what exactly are the actual, quantifiable, calculable damages that result from data breaches, hackings, and claims that a company failed to “do its duty” in protecting sensitive information from attackers. So, is the cure actually worse than the disease?

No One is Immune from Cyber Crime

The reality today is that cyber risk impacts all of us. Every person and every business, no matter the size or industry is affected by some form of cyber security or risk. In an individual’s mind, they may feel that the security measures of financial institutions, health care providers, a local utility service, online shopping and retail services, and other internet-based websites (which are required before the person can access their account or make a purchase) must be working because, ultimately, the person cannot access that account, pay that bill or complete their purchase transaction because they forgot their overly creative or secretive user name that requires a minimum 20-character password (complete with upper/lower case letters, at least one numerical character and a symbol from a list of symbolic characters), a security question (e.g., what was the name of your first dog?) or one of the other number of access requirements. 

We read media stories in the news, it seems, almost daily where some data breach has occurred and confidential information of a highly sensitive nature has possibly been disclosed. In fact, as I was drafting this article, Equifax announced a cyber breach of its consumer records systems with upwards of 143 million accounts subject to hacking.

This brings us to the questions: How do these data breaches happen and why with such frequency?  Are companies doing all they can in prevention efforts?  Or are they unable to maintain adequate security measures due to lack of effective resources? Could it be the rapid pace with which cyber hackers attack systems render the maintenance of adequate security measures all but impossible whether the company is Fortune 500 or Main St. USA small business size?

Companies adopt security policies with every expectation of compliance by all parties working for the business.  Nonetheless, sometimes through nothing more than an inadvertent error or unintended oversight, the best risk avoidance measures are compromised when staff fails to adhere to company policies and procedures on protecting the company’s data information.

What Can Be Done?

In a recent article in the St. Louis Business Journal (Aug. 28, 2017 edition), author Tony Munns, partner at Brown Smith Wallace, cited the 2017 Verizon Data Breach Incident Report which noted the majority of breaches (75%) were caused by external attackers. Munns writes “it is important that an organization has a layered or defense-in-depth approach to security.  From multi-factor authentication on the front-end, to data leak prevention on the back-end, there are many effective tools that can be deployed to reduce the risk of compromise.” With regard to the 25% of internal attack incidents, Munns notes “the risk of internal attackers can be mitigated by up-to-date access controls, which help mitigate the risk that former employees, contractors or low-level users access sensitive information.”

Munns goes on to suggest “it is important for organizations to regularly review where critical data is stored – servers, laptops, phones, portable devices or paper – and determine the best way to secure it based on the various security risks posed wherever the data is located.”  Use of encryption tactics for data ‘at rest or in motion in databases and servers’, says Munns, is essential to “lock down sensitive information.” 

In the above referenced Verizon report, almost two-thirds of breach incidents involve hacking.  Furthermore, 81% of hackings result from stolen or weak passwords. In his article, Munns notes “segmentation, reduced authorities, intrusion detection and prevention, keeping patches up-to-date, and secure coding are all part of layered defenses that effectively minimize the data at risk.” 

Regardless of how a company’s IT resources may be staffed or handled, these are basic, bottom line compliance measures that are most often found in a company’s cybersecurity policy requirements.  These components form the foundation of protection for a business and its data.  Yet, are these measures fixing what is apparently broken?  Or conversely, have these efforts or “cures” resulted in something more problematic than the “disease”?

What are the Damages?

We are all too familiar with media stories on data breaches as noted above.  From Yahoo to Aetna to HBO to Equifax and many stops in between, cyber hackings and breaches are common place. And national media reports on these incidents often in a series of articles starting with the discovery, followed by the company’s initial reaction, sometimes a class-action lawsuit is filed (for instance, in the Equifax case, the same day on which national media stories appeared), and maybe a follow up article reporting on the company’s remedial measures to address the hack or breach. 

Does anyone recall stories on the actual, proven damages as reported by victims?  Not extortion demands or threats of release of hacked data and information (as in the case of HBO’s recent hacking incident where allegedly scripts of the series Game of Thrones were threatened with release prior to the broadcast of applicable episodes) to the detriment of the company victimized by the breach but actual, calculable damages?

It is very likely such damages cases are more difficult to recall due to the fact the matters have more “worry and inconvenience” factors as opposed to actual loss.  However, this is not to suggest no one or no business has suffered or incurred any loss,damage or diminution in company value as a result of a data breach or network system hacking.  In fact, it is far from it.  It’s just that media highlights the event and sheds a bright light on the discovery of such breach or hacking and the immediate reaction(s).  But what about the damages?

Eight Circuit Decision Finds Standing But Not Breach of Contract (Damages)

A recent decision from the Eight Circuit Court of Appeals addressed the “damages” argument.  As reported by the Patterson Belknap Webb & Tyler LLP firm on JDSupra.com the Eighth Circuit delivered a “pyrrhic victory for customers victimized by a data breach”.  In Kuhns v. Scottrade, Nos. 16-342, 16-3542 (8th Cir. Aug. 21, 2017) the Eighth Circuit ruled that although the plaintiff had established standing to pursue a claim against Scottrade, Inc. resulting from a data breach, “the customer failed to sufficiently allege that the brokerage firm breached its contractual obligations.” 

A group of Scottrade customers, including Matthew Kuhns, filed a consolidated class action against the Scottrade brokerage firm alleging hackers accessed Scottrade’s databases and utilized customer information obtained from the hackings “to operate a stock manipulation scheme, engage in illegal online gambling and develop a Bitcoin exchange.”  Due to Scottrade’s alleged inadequate cybersecurity, Kuhn and his fellow class action plaintiffs faced “imminent and increased risk of identity theft and fraud.”  Only Kuhns appealed the District Court’s dismissal on the grounds of lack of standing to assert the claims.

The Eighth Circuit considered whether Kuhns “suffered an injury in fact, that is, “an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical.’”  The Patterson firm’s report notes “the court found that Kuhns had standing to assert the contract-related claims on the basis of the allegation that he did not receive the full benefit of the contract with Scottrade. 

But the court also found that Kuhn’s complaint did not plausibly allege a breach of contract. The court wrote, “the implied premise that because the data was hacked Scottrade’s protections must have been inadequate is a ‘naked assertion devoid of further factual enhancement’ that cannot survive a motion to dismiss.” In passing, the court noted “massive class action litigation should be based on more than allegations of worry and inconvenience.” 

Cyber Security Is Everyone’s Job

We live in a cyber world where technology is an intimate part of our daily lives.  With such digital advances and its many beneficial uses and features come the risk of cyber risk and disclosure of sensitive, confidential information, which potentially may be significantly detrimental to individuals, companies and organizations.  And, these breaches and hackings are becoming more and more “industry agnostic” to the extent all of us are in our own way “at risk” to become victims of these actions. 

Cyber security measures on various levels have become the norm.  That said, even the most extensive measures with diligent, ongoing updates may fall victim to data breach and hacking incidents whether by sophisticated, maliciously-intended efforts by international cyber terrorists or simple, inadvertent oversight by a company staffer or third-party vendor. 

Constant vigilance, updating of cyber security measures and adherence to policy requirements when utilizing technology at the workplace or home are the new world order.  We will continue to monitor cases where breaches have occurred and allegations of misconduct and claims of risks of loss are asserted.  Courts will be asked to determine not only whether a victimized party has standing to assert claims but more importantly, whether such party was damaged and if so, how much. 

Sometimes, we may find the cure was in fact almost worse than the disease.  Stand by as we will very likely be reading about these matters almost daily.

 

David Asmus is a partner in the St. Louis office of SmithAmundsen. He handles the corporate and transactional needs of businesses throughout the U.S. To learn more about David or SmithAmundsen, reach out at dasmus@salawus.com or visit www.salawus.com.<http://www.salawus.com.>

 

Return to Top
Stinson: Internal Investigations: Obtaining the Best Outcome When Issues are Uncovered

 


John Munich, Partner
Stinson Leonard Street

 J. Nicci Warr, Associate
Stinson Leonard Street

Internal Investigations:  Obtaining the Best Outcome When Issues Are Uncovered

J. Nicci Warr and John Munich, Stinson Leonard Street

In this second installment of a two part series on internal investigations, the authors will discuss the issues that must be considered to obtain the best outcome for the company in the event that wrongdoing is discovered.  The first installment was published in the December, 2016 ACC St. Louis newsletter and can be reviewed HERE.  

Internal investigations are an important aspect of good corporate governance.  Unfortunately, in some instances internal investigations uncover misconduct.  In this second installment of a two-part series on internal investigations, we will discuss the issues that must be considered to obtain the best outcome for the company in the event that wrongdoing is discovered.  The four “C”s—cooperation, candor, collateral consequences, and compliance—are key principles to keep in mind during the process.

Cooperation

The primary issue most companies face when they undercover wrongdoing as a result of an internal investigation is whether to self-report to a government regulator.  Whether or not a company self-reports and the extent to which it cooperates with the government can be a consideration in whether the government takes action against the company and, if so, what type of action. Of course, the best outcome for the company is for a government regulator or prosecutor to decline to take any action.  But absent that result, the best outcome for a company may be to obtain a Deferred Prosecution Agreement or a Non-Prosecution Agreement.  These types of agreements are most commonly entered by the Department of Justice and the Securities and Exchange Commission, but other federal and state entities have entered these types of agreements as well. The chart below shows the number of DPAs and NPAs entered by the DOJ and the SEC over the last decade.  The number of DPAs and NPAs entered has been fairly consistent, with the exception of 2015 when the number of agreements was inflated by a DOJ Tax Division Program (the Swiss Banks Program) related to investigations of the use of foreign bank accounts to commit tax evasion.      


Self-reporting and cooperation also pay a role in the amount of fines and penalties that may be assessed against a company.  The Sentencing Guidelines for calculating a corporate fine provide a reduction for self-reporting, cooperation, and acceptance of responsibility.  To obtain the largest reduction a company must self-report before a government investigation has begun and cooperate fully with the investigation.  But even if a government investigation has started a company can obtain a reduction for cooperation.     

One of the most significant recent events effecting decisions about self-reporting and cooperation was the Yates Memo, which was issued by the DOJ on September 9, 2015. In the Memo, then-Deputy Attorney General Sally Yates indicated that the DOJ would prioritize the prosecution of individual employees—not just companies.  In furtherance of this goal, the DOJ announced that companies would be required to provide the DOJ “all relevant facts relating to the individuals responsible for the misconduct” in order to obtain credit for cooperation. The DOJ also pronounced that it would not resolve matters with a company without a clear plan to resolve related individual cases.  It is not clear whether the DOJ will change its enforcement priorities under the new administration.  But so far the DOJ has not taken any action that would indicate that it no longer intends to follow the principles addressed in the Yates Memo.

For certain categories of misconduct—those that implicate the federal antitrust laws or the Foreign Corrupt Practices Act—the DOJ also has detailed leniency policies for companies that self-report and/or cooperate.  The DOJ Antitrust Division’s Leniency Policy has been in place in its current form since 1993.  Under the Policy, a company that self-reports before a government investigation has begun receives total immunity from criminal charges if certain conditions are met. And even if a government investigation has already started, the first company to self-report can still obtain immunity if certain conditions are met.  The DOJ Fraud Section started its own leniency program in April 2016.  The program was initially designed as a one-year “Pilot Program.”  Under the Program, a company that self-reports, cooperates with the government, and remediates the issue, will be considered for a declination of prosecution or at least a reduction of up to 50% of the fine provided by the low end of the Sentencing Guidelines.  The company may also avoid the necessity of an appointed monitor.  A company that does not self-report but that cooperates with the government is eligible for only a 25% reduction in the Guidelines. Unlike the Antitrust Division’s Leniency Policy, the Pilot Program allows prosecutorial discretion for even those companies that meet all of the requirements.  Although the Pilot Program was initially supposed to end in April of this year, the DOJ has announced that it will continue the Program while it evaluates the results.

Candor

Whether or not a company decides to self-report, candor is an important factor in dealing with the government in any investigation or enforcement action.  The relationship that is created with the government attorneys can have an enormous impact on declination, charging, and sentencing decisions. 

Candor does not necessarily mean providing the government with everything it requests, however.  It simply means being open and honest about what the company can provide and what it cannot.  One of the primary areas of concern for most companies is protecting attorney-client privilege and work product.  In 2008, the DOJ issued a memo stating that companies are not required to provide the government with privileged information in order to obtain cooperation credit.  After the Yates Memo was issues, then Deputy Sally Yates confirmed that “there is nothing in the new policy that requires companies to waive attorney-client privilege.” Being candid does not necessarily mean giving everything away. 

Collateral Consequences

When any misconduct is discovered, a company must consider the collateral consequences of the misconduct. In many instances, there could be a potential for civil actions related to the misconduct.  The potential civil actions could be small, individual actions or large class actions, depending on the type of misconduct and the breadth of any injury on account of the misconduct.  Companies that operate in highly regulated fields must also consider the potential loss of necessary licensure—either for the company or for vital employees.  Companies in the healthcare field may need to consider the potential of being barred from participating in Medicare by federal or state authorities.  And companies that do substantial business with government entities should consider the potential of a similar bar. 

The potential collateral consequences should not be considered in isolation, but in conjunction with the determination of how to handle any cooperation with the government. The disclosure of documents to the government, for example, may increase the likelihood that those documents could be obtained by private plaintiffs for use in civil litigation.  Appropriate pre-disclosure agreements with the government may lessen that risk, however.  The ultimate determination of how best to mitigate potential collateral consequences will depend on the specifics of the company’s business and the misconduct uncovered.  But potential collateral consequences should be a factor that every company considers when addressing wrongdoing uncovered by an internal investigation.

Compliance

A robust compliance program can be a proactive tool that can help prevent misconduct in the first instance.  But even if the compliance program does not prevent every single incident of misconduct (no compliance program can), the fact that a sound compliance program was in place can be an important factor in the ultimate resolution of the matter. In some instances, a sound compliance program together with other factors may persuade a government regulator to decline prosecution or enforcement.  A pre-existing compliance program is also a factor in the ultimate fine that a company may be assessed.  The Sentencing Guidelines provide for a reduced fine if a company had an “effective compliance and ethics program” in place and high-level personnel did not participate in, condone, or remain willfully ignorant of the misconduct. To qualify as an “effective compliance and ethics program,” the leadership of the company must exercise reasonable oversight of the program, the program standards must be communicated throughout the organization, and periodic auditing and evaluation of the program should take place.  The Sentencing Guidelines are explicit that the occurrence of misconduct does not necessarily mean that a company did not have an effective compliance program.

Post-conduct compliance is also an important consideration.  Government authorities may request or insist that a company institute or strengthen its compliance program as a part of any resolution.  In some instances, the government may even insist on an independent monitor who oversees and provides recommendations on how to strengthen the company’s compliance program for several years. Monitors are more common for misconduct involving corruption, money laundering, government contracts, and export controls.  Recently, monitors have also become more frequently assigned in instances of healthcare fraud, financial services fraud, and even in antitrust actions.  Having an independent monitor can be an expensive and time-consuming proposition for a company.  If the appointment of an independent monitor is a possibility, a company should consider and advocate for less intrusive alternatives, such as self-monitoring. 

In any event, it is important for a company to consider how best to institute or improve a compliance program after any misconduct to help prevent similar issues in the future. As in life, more is often learned from failure than from success.  An incident of misconduct, while unfortunate, should be used to analyze what systems or processes broke down allowing the misconduct to occur and how they can be changed to increase the likelihood of pre-conduct detection in the future. 

Closing Thoughts

The decision process that will lead to the best outcomes for a company after a finding of wrongdoing is highly fact-dependent.  The industry in which the company operates, the company’s customers, the details of the misconduct, and the company’s processes and procedures all play a role. But the four “C”s—cooperation, candor, collateral consequences, and compliance—are considerations that should be in the forefront in almost every situation.         

 

John Munich is a Partner at Stinson Leonard Street and can be reached at 314-259-4555 or john.munich@stinson.com

J. Nicci Warr is an Associate at Stinson Leonard Street and can be reached at 314-259-4570 or nicci.warr@stinson.com

           

Return to Top
Thompson Coburn: Digital Assets After Death

 

Scott Bieber
Partner
Thompson Coburn

Jessica Gordon
Associate
Thompson Coburn

 

Digital Assets After Death

Scott Bieber and Jessica G. Gordon

Historically, estate planning has been concerned with tangible assets, such as real estate and personal property, and intangible assets, such as securities and other investment assets.  In the digital age, estate planning should also be concerned with another category of assets—that which is stored online or in electronic storage devices, or, digital assets.  The term “digital assets” encompasses a wide variety of electronic records, from your e-mail and Facebook accounts to your iTunes music, domain name and Paypal account. Some of them may have monetary value while others only may have sentimental value, but they all represent challenges to survivors after the death of the owner.

The biggest challenge after a death may be finding the asset in the first place.  If your family or named fiduciary is not aware that you have a Dropbox account (or does not know what Dropbox is), no one may ever look for it.  Still, even if they know you have the account, it is not likely to be accessible without the password.  Leaving this information in a format that can be accessed easily after death will allow your survivors to at least begin to deal with those assets.

Unfortunately, that is only part of the problem.  Even if you had the forethought to leave account passwords to your loved ones, there are currently federal and state laws that may make it a criminal offense for anyone other than you, as the account owner, to access your accounts.  For example, the federal Computer Fraud and Abuse Act[i] prohibits accessing certain computers without express authorization, while at the same time, many Terms of Service forbid users from giving their passwords to anyone else.  So, if  anyone other than the account owner accesses an account by entering the owner’s password, that is arguably a criminal act.  Additionally, online service providers are prevented under the federal Stored Communications Act[ii] from disclosing the contents of certain communications to anyone not given “lawful consent” by the originator or recipient.  The statute is not clear if a fiduciary named by a user is given lawful consent for these purposes.  These laws were intended to penalize hackers and identity thieves, but they catch many others lacking such criminal intent.  Moreover, the laws in general give service providers the right to deny information to anyone other than the account owner.  Though well-intended, these laws have made it difficult, and in some cases impossible, for fiduciaries to access digital assets after death.

To address this, the drafters at the Uniform Law Commission created the Uniform Fiduciary Access to Digital Assets Act (the “UFADAA”).  In its original form, the UFADAA allowed fiduciaries to access digital assets of a decedent just as they have the right to recover any other asset, applying this rule to everyone except those who "opted out."  However, after opposition from many service providers, the UFADAA was unable to make headway among state legislatures.  So, the Uniform Law Commission revised it, converted the act to an "opt in" statute among other changes, and renamed it the Revised Uniform Fiduciary Access to Digital Assets Act (the “RUFADAA”), which has been met with large success.  As of the middle of August 2017, the RUFADAA had been enacted in 36 states, although Missouri is not yet one of them.  Illinois and California have adopted this legislation[iii], but as to be discussed later, California adopted a modified version that raises certain issues in that state.  By the end of 2017, it is expected that almost every state will have enacted some form of RUFADAA. 

RUFADAA establishes a three-tiered approach to allowing fiduciary access to a deceased account-user's digital assets.  Prevailing above all else is the user’s direction via online tool. The comments to RUFADAA define an “online tool” as “a mechanism by which a user names an individual to manage the user’s digital assets after the occurrence of a future event, such as the the user’s death or incapacity.  For example, within Facebook Settings, one may select an “authorized person” to handle his or her account on death.  The designated person does not necessarily have to be the user’s fiduciary.  If the user has provided no such direction in an online tool, then authorization to handle digital assets under the user’s will or trust controls.  Finally, in the absence of any direction, the Terms of Service for the platform control (the worst, and most common, scenario).  When utilized, the first two tiers allow users to identify and vest control in persons of their choice, either on the platform itself or in their estate plans—progress, in that designated fiduciaries gained certain rights to manage digital assets.  However, neither of these options is the default, and both require action on the part of the user.  Moreover, because most providers do not yet have the appropriate online tool (or it is obscured in the array of available settings), and far too few users have or maintain estate plans, account-Terms of Service, which by and large favor privacy protection, will remain the most common authority under the three-tiered system, and the obstacles in accessing digital assets will persist.

Even with RUFADAA, the best that a fiduciary will be able to do is request access.  If the service provider refuses to do so, it still may be necessary for the fiduciary to go to court and ask for an order directing the provider to comply with the request.  A service provider receives immunity under RUFADAA for any act or omission done in good faith.

It is important to note that in general, RUFADAA only applies to fiduciaries as specifically nominated in an estate plan.  That would include an executor of a decedent’s estate, a trustee of a revocable trust, an agent under a power of attorney and a court-appointed guardian of a disabled person.  It would not apply to family members or friends who have not been appointed to one of those positions unless that person is designated by the user in an online tool.  Nor would it seem to apply to someone who utilizes a small estate affidavit or similar non-probate procedure to transfer assets (again unless so designated by the user in an online tool).

As noted, California adopted a modified version of RUFADAA, which raises special issues.  While other states’ versions of the uniform law apply during a user’s incapacity, California’s version applies only after the death of the user.  This means that, under the current law, an agent under a power of attorney is, in fact, powerless with respect to managing the online affairs of an incapacitated California user.  Consequently, in California it is even more important to plan ahead, outside the four corners of the statute.

A user should be encouraged to seek out an online tool for each account the user owns, and nominate a person to access such account after death (or provide alternate direction).  Absent an online tool, inclusion of appropriate provisions in wills, trusts and powers of attorney is now essential in any jurisdiction that has enacted RUFADAA. It is also important to deposit an inventory of digital accounts, along with usernames and passwords (ideally updated and with answers to security questions), with the estate plan in a secure location.  There are now several web-based services that store and safeguard account information for digital assets, and will permit access only to the authorized person as selected by the user.  At least one third party website has collaborated with online service providers so that, it claims, an indication by the user on its website that the user wants digital information or accounts to be shared with another person after death will work the same as if the user had so indicated in the provider’s online tool. By taking these steps, loved ones are provided the best chance that the decedent's legacy of digital assets will be honored, and the management and value passed on to them, with minimal stress and heartache during a difficult time.

Business owners and their counsel may take comfort in the fact that RUFADAA does not apply to an employer’s digital assets used by an employee in the ordinary course of the employer’s business.[iv]  So, for example, the statute does not cover a fiduciary’s access to an employer’s internal email system.  This would be true even if the employee had used the employer’s internal email system to conduct personal business and the fiduciary had no other means for finding out details about it.  Since the employer did not enter into a Terms of Service agreement with its employee, it is not considered a custodian subject to RUFADAA.

Given all of the tax law changes in recent years (and those that are likely to occur in the near future), it is worthwhile to have competent counsel review your estate plan for tax reasons.  Beyond taxes, though, most older estate plans likely have not addressed the issue of digital assets.  Having wills, trusts and powers or attorney that grant a fiduciary permission to access digital assets (or deny access to certain of them, if that is what a person prefers) is important in the world in which we now live.  It may be time to update those old documents.

 


[i] 18 U.S.C. §1030

[ii] 18 U.S.C. §§2701-2712

[iii] 755 ILCS 70/1 et seq.; Cal. Prob. Code §§870 et seq.

[iv] Act §3(c)

Return to Top
left corner
In This Issue
right corner
President's Letter
Letter from the President
Chapter News
Deadline for You to Vote for Judicial Elections Approaches!
Member News
Welcome New Chapter Members!
See Anyone You Recognize?
Save these Dates
We Missed You!
Featured Article
Evans & Dixon: Missouri Legislature Enacts Important New Labor and Employment Laws
Greensfelder Hemker & Gale: Restrictive Covenants in a Social Media World
SmithAmundsen: Cyber Risk: The Cure May Be Worse Than the Disease
Stinson: Internal Investigations: Obtaining the Best Outcome When Issues are Uncovered
Thompson Coburn: Digital Assets After Death
Sidebar Bottom
Spacer
left corner
Newsletter Tools
right corner
Search Past Issues
Print-Friendly Issue
Forward to a Friend
Subscribe to This Newsletter
Subscribe via RSS
Sidebar Bottom
Spacer
Poll
What is your preferred CLE venue?
CLE Sponsor Office
Restaurant/ Club/ Dining Room
College or University Campus
left corner
2017 ACC St. Louis Sponsors
right corner

GOLD

Armstrong Teasdale, LLP

Gowling WLG

Greensfelder, Hemker & Gale, PC

Husch Blackwell

Ogletree Deakins Nash Smoak & Stewart, P.C.

Thompson Coburn LLP

SILVER

Evans & Dixon, LLC

Lewis Rice

SmithAmundsen

Stinson Leonard Street LLP

Tueth, Keeney, Cooper, Mohan & Jackstadt, P.C.

EVENT

Constangy, Brooks, Smith & Prophete, LLP

Littler Mendelson

Polsinelli

DIVERSITY SPONSOR

Thompson Coburn

FERGUSON TWILIGHT RUN SPONSOR

Beveridge & Diamond

RESOURCE SPONSOR

Axiom

Sidebar Bottom
Spacer
left corner
ACC St. Louis Quick Links
right corner
•  Upcoming Events
•  Chapter Website
Sidebar Bottom
Spacer