West Virginia Business Litigation : West Virginia Business Litigation Lawyer & Attorney : Law Office of Jeffrey V. Mehalic : Charleston, Huntington, Parkersburg

For much of this month, we watched as, for better or worse, NBC dismantled its late-night programming schedule, when it attempted to move Conan O'Brien and "The Tonight Show" to 12:05 a.m. from its traditional slot at 11:35 p.m. in order to move "The Jay Leno Show" from 10 p.m. to 11:35 p.m.

As everyone knows now, O'Brien would not agree to move "The Tonight Show" to a later time, and his final show aired last Friday night. According to media reports, NBC paid O'Brien a total of $45 million; he will get approximately $33 million and the balance will go to his 200-person staff for severance payments.O'Brien can return to television on September 1 when his non-compete expires. After the Winter Olympics end, NBC will air Leno's show in the 11:35 p.m time slot.

I am particularly pleased today to share a brief interview I conducted with Patricia Glaser, name partner and litigation department co-chair at Glaser, Weil, Fink, Jacobs, Howard & Shapiro, LLP in Los Angeles, who represented O’Brien in his negotiations with NBC. 

Patricia is a native of Charleston, West Virginia, and attended Rutgers University Law School. She clerked for United States District Judge David W. Williams of the Central District of California, after which she practiced at Wyman, Bautzer, Christensen, Kuchel & Silbert until 1988, when her current firm was formed. Patricia was kind enough to agree to answer a few questions, and I thank her for her time.

Q.     How did you get into entertainment law?

A.      I don't consider myself an entertainment lawyer. I'm a business trial  lawyer. If you're in Los Angeles, and you don't do some matters related to entertainment, it's surprising. The studios are here, TV is here, production companies are here, and artists are here. So you're going to touch on it in your practice.

Q.     How would you describe your practice, both in terms of what you do and the composition of your client base?

A.      When you litigate in entertainment cases, the jargon is distinct, but a contract is a contract, antitrust and securities law principles are the same no matter in which industry one is litigating. Those things don't change. In my practice, I would say I touch on entertainment matters in about 40% of my cases.

Q.     In your most recent high-profile case, you represented Conan O'Brien in his dispute with NBC. How long have you represented Conan?

A.      I represented Conan regarding potential litigation with NBC. I am not his transactional lawyer, and he's not particularly litigious.

Q.     Can you provide any specifics on the terms of Conan's settlement beyond what have been reported?                                                                                                                                                                         

A.     No. 

Q.     When your client is a celebrity, does his or her status or fame affect your representation -- or are the issues in a dispute the same regardless of who your client is?

A.      It depends on the client and the context of the dispute. Some celebrities in some cases are so concerned with public perception and therefore how a conflict is perceived is an important consideration in the overall strategy of a case. In cases where a celebrity is involved, public relations is more often a factor than in other types of business disputes.

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A few days ago, I wrote about the dismissal of Charter Oak Lending's lawsuit against a larger rival for alleged misappropriation of proprietary information and other claims. The outcome of Charter Oak's lawsuit demonstrates the perils of trade secrets litigation.

With that case in mind, I want to share an end-of-the-year post from Nancy Geenen, one of the authors of Foley & Lardner LLP's Trade Secret/Noncompete Blog, which explains why a company needs a trade secret protection program and how to implement one. I would add that even if a company doesn't have trade secrets, which Nancy defines as "formulas, devices, methods, techniques, or processes," more than likely it has information that it wants and needs to keep confidential, such as clients' or customers' names, operating agreements, financial records, etc., which could be included in such a program.

By the way, Nancy is also the author of an article I discussed last week about the need for your engagement letter to accurately describe the scope of your representation. 

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For the last day of 2009, I thought I'd write about Smith v. United Salt Corp., 2009 WL 2929343 (W.D. Va.), a decision from the United States District Court for the Western District of Virginia regarding a lawyer's ex parte contact with an opposing party's employees. Mike Holm and Jim Kinsel discussed Smith in this post in their Unfair Business Practices Blog.

The facts are that the plaintiffs alleged that while they were employed by United Salt, they had been sexually harassed, discriminated and retaliated against, and subjected to assault and battery by United Salt's manager, all in violation of Title VII of the Civil Rights Act of 1964. Their lawyer sought to conduct ex parte interviews with United Salt employees "not to obtain admissions imputable to the corporation[,]" but "to gather information relevant to the incidents of sexual harassment that occurred on the premises of United Salt." United Salt predictably sought to prevent the interviews from taking place, and asserted that such ex parte contacts were prohibited by Lewis v. CSX Transp., Inc., 202 F.R.D. 464 (W.D. Va. 2001).

The plaintiffs relied on Rule 4.2 of the Virginia Rules of Professional Conduct, which provides that, "[i]n representing a client, a lawyer shall not communicate about the subject of the representation with a person he lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized by law to do so." The plaintiffs also pointed out that Comment 7 to Rule 4.2 clarified that "[i]n the case of an organization, this Rule prohibits communications by a lawyer for one party concerning the matter in representation with persons in the organization's "control group" as defined in Upjohn v. United States, 449 U.S. 383 (1981) or persons who may be regarded as the 'alter ego' of the organization." 

The Comment explains that the "control group" test:

prohibits ex parte communications with any employee of an organization who, because of their status or position, have the authority to bind the corporation. Such persons may only be contacted with the consent of the organization's counsel, through formal discovery or as authorized by law. 

Thus, the plaintiffs argued that because the employees whom their counsel wanted to interview did not have the authority to bind the corporation, they were not within its "control group," and so Rule 4.2 permitted the interviews to take place.

However, the court found that the Lewis court had explained that Rule 801(d)(2)(D) of the Federal Rules of Evidence required a court to look to federal law, and not just the Rules of Professional Conduct, to decide whether ex parte contacts with the corporate defendant's employees were permissible.

The court distinguished Lewis on the grounds that it involved a plaintiff's claim under the Federal Employer's Liability Act for damages resulting from injuries sustained due to the negligence of his employer. Under those circumstances, the plaintiff's co-workers could make statements regarding the allegedly negligent condition of the empoyer's equipment that would constitute admissions, even though those employees were not management or otherwise members of the "control group."

That was not the case with the plaintiffs' claims against Salt Rock and their manager under TItle VII, though, where "the employer is subject to vicarious liability only for acts of supervisory employees." Consequently, only those supervisory employees could impute liability to the employer:

While statements from co-workers regarding the actions of supervisory personnel could be used as evidence to prove that sexual harassment had occurred, those statements, from non-supervisory personnel, would not be an admission imposing liability on the employer. With this distinction in mind, it appears that the rationale for the Lewis decision -- to prevent an attorney from circumventing opposing counsel to obtain statements from employees which could be used to impute liability on the employer -- is not present in this case.

The court held that the plaintiffs' counsel could contact the plaintiffs' co-workers, but not any supervisory or managerial employees.

Holm and Kinsel point out that Smith means that a company involved in a dispute should inform its employees that litigation could result, in which case the other party's lawyer may contact them. They suggest that the company should also consult its lawyers about what to say to its employees about the potential contact by the other side, which makes sense. But as I read Smith, a corporation's non-supervisory or managerial employees are under no obligation to talk the opposing party's lawyer, so that may be the best advice to give the employees. 

And finally, I wish everyone a happy, healthy, and successful 2010!

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The December issue of the ABA Journal features its third annual Blawg Review, which I highly recommend. But I want to address the Practice Pitfalls section of the magazine, particularly the entry by Nancy J. Geenen entitled "A Well-Crafted Engagement Letter Saves Trouble Down the Line."     

In her article, Geenen writes about Jane, who signs up her first commercial client, a small technology company, and sends a letter confirming the engagement, which pertains to a joint venture. But Jane also provides advice to the company's president, Jim, on a variety of other matters, such as employment and trade secret issues.

Jim contacts Jane when a competitor starts to raid his employees, but Jane discovers that her firm has represented the competitor so her firm can't represent either party. It goes from bad to worse for Jane when the court rules that the noncompete provisions in the employment agreements are not enforceable -- the same employment agreements about which Jane had advised Jim.

None of this sits well with Jim, who sues Jane and her firm for malpractice because she failed to advise him about new court decisions that made the noncompete provisions unenforceable.

Geenen suggests that Jane's problems started with the vagueness of her engagement letter, which led Jim to believe that she and her firm represented his company in all matters, not just the joint venture.

She points out that Rule 1.2 of the ABA Model Rules of Professional Conduct permits a lawyer to restrict his or her representation: 'A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances and the client gives informed consent." I compared that language to West Virginia Rule of Professional Conduct 1.2, which provides at subsection (b) that "A lawyer may limit the objectives of the representation if the client consents after consultation." So unlike the Model Rule, West Virginia's rule does not mention the reasonableness of the limitation of the representation, although it requires that the client consent to any such limitation.

The take-away is that Jane should have specified in the engagement letter that she and her firm were representing Jim's company regarding only its joint venture, rather than "the matter we discussed," then followed up with engagement letters for any other matters in which the parties agreed that Jane would provide representation.

Although a client needs to understand clearly and unequivocally when it is and is not being represented, the burden is on the lawyer to ensure that the client understands the scope of the representation. As a lawyer, the last thing you want is a fight with your client about whether your engagement letter was sufficiently specific -- because at that point, that fight is probably the least of your problems.

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Some of you may recall that in 2007, I had written about Charter Oak Lending Group, LLC’s lawsuit against CTX Mortgage Company,  and what Charter Oak claimed were CTX’s illegal – and successful – efforts to hire Charter Oak’s employees and obtain proprietary information regarding its clients for the purpose of damaging or ruining Charter Oak’s business.

In an order entered on August 27, 2008, Judge Vincent Roche of the Superior Court for the Judicial District of Waterbury, Connecticut dismissed Charter Oak’s claims for misappropriation of trade secrets, conversion and statutory theft, and breach of fiduciary duty. That decision left Charter Oak’s claims under the Connecticut Unfair Trade Practices Act, civil conspiracy, and unauthorized computer access.

The court ruled on those issues on July 7, 2009, when it dismissed all of Charter Oak’s remaining claims against CTX and its former employees whom CTX had hired.

Debra Killian, Charter Oak’s president, kindly provided me with copies of the court’s decisions and advised me by email that Charter Oak is appealing the rulings. 

This is what the court had to say about Charter Oak’s claim for civil conspiracy:

The more credible evidence adduced at trial indicates that some individual defendants made independent decisions to leave the plaintiff’s employment and in effect sought out and related to the corporate defendant CTX as a possible source of employment. The individual defendants as independent contractors and “at will” employees, not under any contractual restraints from the plaintiff, could seek whatever employment opportunities were available in the marketplace without being conspiratorial about it. The fact remains that two or more defendants had a “book of work” and realized independently that their best economic interests as loan originators were not going to be served by remaining within the plaintiff’s employment. This does not mean that they engaged in some unlawful act(s) or were necessarily exercising unlawful means to seek new employment with a ready, willing and able new employer, namely CTX.

But I think this sentence in the July 8 order, which the court quoted from its August 27, 208 order, sums up the rationale for the court’s rulings:

The departure from one employer, who had announced a new business model with the cutting of benefits and other financial remunerations in order to go to another employer is not unfair and not unlawful especially in a situation where the parties are under no contractual obligations concerning confidentiality or competition and in effect are employed “at will.”

Womble Carlyle’s Trade Secrets Blog wrote this about the decision (the link is to the blog's October archive because the post doesn't have its own link), and Carlye Adler at CNN/Money wrote this aptly-titled article. And N. Kane Bennett, who writes the Connecticut Business Litigation blog, uses the Charter Oak decision to ask a particularly pertinent question.

I agree with Kane's analysis. Not having a non-compete or confidentiality agreement does not mean necessarily that an employer has no recourse if an employee unfairly competes, but an employer should err on the side of having employees, especially those with access to any proprietary or confidential information, execute such an agreement. Otherwise an employer may find itself in Charter Oak's position.   

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One of the more interesting decisions -- at least to me -- issued by the Supreme Court of Appeals of West Virginia during its last term is Princeton Ins. Agency, Inc. v. Erie Ins. Co., 2009 WL 4020269 (W.Va. 2009), which involved an insurance company's termination of its business relationship with an insurance agency, and the agency's corresponding allegations that the insurer committed antitrust violations. 

Kevin Webb and his insurance agency, Princeton Insurance Agency, had had an agency agreement with various Erie Insurance Group entities since the early 1990s. In 2002, Webb's agency established a relationship with a new agency known as Princeton Insurance Associates, which sold insurance on behalf of multiple insurers, but not Erie.

Thereafter, Erie alleged that it began to experience a decline in the profitability and quality of its products that Webb's agency was underwriting, which prompted Erie to question whether it should continue its relationship with the agency. Erie also suspected that Webb's agency was directly business to the new agency.

Erie attempted to learn how much business the new agency had written with State Auto, which Erie suspected was receiving a disproportionate amount of the new agency's business. Webb refused to produce the production reports for State Auto, although during a meeting with an Erie representative, he did scribble on a napkin a figure representing policy sales by the new agency on State Auto's behalf. A few months later, Erie terminated its contract with Webb and his agency under a termination clause that allowed either party to end the arrangement with 90-days notice.

Webb and the agency sued Erie and several of its affiliates and alleged that the parties' agency agreement violated public policy; that Erie violated the West Virginia Unfair Trade Practices Act by requesting confidential information (the production reports); and that Erie violated the West Virginia Antitrust Act by improperly restraining trade. The Circuit Court of Mercer County dismissed the public policy count, which left the UTPA and antitrust claims for the jury's consideration.

The jury found for the defendants on the UTPA claim, but returned a verdict for the plaintiffs on the antitrust claim for $1,411,429 in compensatory damages and the same amount in punitive damages. The opinion does not describe how or why, but the circuit court vacated the punitive damage award and trebled the compensatory damages, which resulted in an award to the plaintiffs of $4,233,627.

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In case you haven't noticed, there are two opinions from the Supreme Court of Appeals of West Virginia that were not released during the term that ended on November 25, and presumably will be issued during the term that begins next month. One of the opinions is Perrine v. E. I. duPont deNemours and Co., which is DuPont's appeal from the $400 million verdict returned in the medical-monitoring class action resulting from its operation of a zinc smelter in Harrison County, West Virginia. That appeal was argued on April 7, which means that it has been held over for two terms already. The other opinion is Mylan Laboratories, Inc. v. American Motorists Insurance Co., which was argued on September 2, and is Mylan's appeal from summary judgment granted in favor of four insurance companies regarding their duty to defend and indemnify Mylan in two separate lawsuits.

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I have previously written about the significance of the United States Supreme Court's decision in Ashcroft v.Iqbal, 129 S.Ct. 1937 (2009), and its effect on federal pleading standards for both plaintiffs and defendants. And with the issuance last week of Francis v. Giacomelli, 2009 WL 4348830 (4th Cir. 2009), the Fourth Circuit has now weighed in and made clear that a plaintiff has a much heavier burden to satisfy in pleading its case.

I will not discuss Francis in great detail; for that analysis, I refer you to Mack Sperling's post at the North Carolina Business Litigation Report; Rob Hoskins' post at ERISABoard (registration required);  and Jay O'Keeffe's post at DeNovo: A Virginia Appellate Law Blog.

I want to reiterate two points that Jay made. If you're a plaintiff, make the factual allegations in your complaint as specific as possible. Do not rely on generalizations or conclusory statements. A federal judge is not going to accept unsupported assertions or make assumptions in your client's favor to keep your case in court. If you're a defendant, file a motion to dismiss. You won't always prevail, but your odds have surely improved with Iqbal and Francis, and cases that a few months ago would not have been at risk of being dismissed now may end up getting tossed.

I have already encountered Iqbal in my own practice, and judging from Jay's statistics, the decision will be relied upon increasingly. Add to that the effect of Francis, and pleading for plaintiffs in federal courts, at least in the Fourth Circuit, is more arduous than ever.

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Hugh Caperton is not going down without a fight. Despite losing three times in front of the Supreme Court of Appeals of West Virginia, most recently on November 12 when the court voted 4-1 to reverse the $50 million verdict that he and his companies recovered against A. T. Massey Coal Co. and its subsidiaries, he has filed a petition for rehearing with the court, which focuses on its decision to apply retroactively the points of law established in its opinion. Here's the opening paragraph from the petition:

In its zeal and determination to deliver a complete, total and final victory to Massey, this Court, by adopting the written opinion of acting Chief Justice Robin Jean Davis, has violated Hugh Caperton's right to due process 1) by overturning settled West Virginia law and creating a new and drastically different  test for the applicability of forum selection clauses, and then applying that test retroactively; 2) by refusing to follow the mandate of the Supreme Court of the United States by relying improperly upon the constitutionally-tainted previous opinions of this Court rather than reviewing the case anew; 3) by entirely ignoring the West Virginia Legislature's statutory enactments and policy pronouncements regarding venue and other procedural dismissals of cases; and 4) by granting the dismissal of Caperton's claims with prejudice even though improper venue serves as the sole basis for this Court's decision to overturn a fully justified jury verdict returned against Massey. The consequences of this Court's erroneous ruling are neither fair nor just.

I think Caperton's argument that the court's decision to apply retroactively its newly-enunciated test regarding a forum-selection clause is his most persuasive, but as a practical matter, with a vote of 4-1, two justices -- I'm assuming Justice Margaret Workman, who filed her strongly-worded dissent on Monday, would vote to grant the petition -- have to decide to rehear Caperton's case, which is an uphill battle, considering the history of this case.

The court's September term ended last week and its new term begins on January 12. According to the court's January calendar, its first rehearing conference is on January 14, which is when it will likely consider Caperton's petition.

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