D51A6F8088ED7EFC13F97B01EBDF05FA

Emerging Issues for In-House Counsel 2006
Presented by:
The Corporate Litigation Practice Group of Blank Rome LLP November 3, 2006
2006, Blank Rome LLP
Arbitration: Is It Arbitrary?
Presented by:
Edward N. Cahn, Blank Rome LLP Hirsh N. Cogan, Blank Rome, LLP, Moderator LeRoy Lambert, Blank Rome LLP Michael D. Young, JAMS,Inc.
Arbitration

Is it arbitrary?
Typical Clause

Any controversy or claim arising out of or relating to this contract, or the breach thereof shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial [or other] Arbitration Rules [including the Optional Rules for Emergency Measures of Protection], and judgment on the award rendered by the arbitration may be entered in any court having jurisdiction thereof.

Source: American Arbitration Association, Drafting Dispute Resolution Clauses, A Practical Guide
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Selection of Arbitrators

Specific Qualifications Industry Specific Number of Arbitrators PartyParty-Neutral Arbitrators
Particular Provisions

Locale Time Periods Choice of Law Reasoned Opinion
Baseball Arbitration

When is it advisable?
Mediation

Typical Clause If a dispute arises out of or relates to this contract, or the breach thereof, and if the dispute cannot be settled through negotiation, the parties agree first to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Commercial Mediation Procedures before resorting to arbitration, litigation, or some other dispute resolution procedure.
Source: American Arbitration Association, Drafting Dispute Resolution Clauses, A Practical Guide 8
Mediation

Is mediation ever too early?

Obtaining the necessary documents for mediation
Arbitration Pleadings and Procedures

Narrative, Descriptive Pleadings Preliminary Conference Scheduling Order Motion Practice
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Discovery in Arbitration

Contractual Agreement on:

Number of depositions Document production Interrogatories
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Discovery from Out of State Witnesses

Generally subpoenas calling for the production of documents do not need to comply with FRCP 45(b)(2) s territorial limit.
Hay Group, Inc. v. E.B.S. Acquisition Corp., Corp., 360 F.3d 404 (3d Cir. 2004) In re Security Life Ins. Co., 228 F.3d 865 Co., (8th Cir. 2000)
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The Second Circuit disagrees with the recent trend that subpoenas for the production of documents do not need to comply Rule 45(b)(2) s territorial limit.
Dynegy Midstream Services LP v. Trammochem, Trammochem, 2006 WL 1612722 (2d Cir. 2006)
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Injunctive Relief

Under the FAA, arbitrators can grant preliminary injunctive relief. See Advisors Inc. v. Thorley, 147 F.3d 229, 230-31 (2d Cir. 1998); Commercial Arbitration Rules and Mediation Procedures, at R-31(b). Under Pennsylvania law, arbitrators can grant any form of equitable relief. See 1980 Uniform Arbitration Act, 42 Pa.C.S.A. 7301; Dickler v. Shearson Lehman Hutton, Inc., 408 Pa. Super. 286 (Pa. Super. Ct. 1991) N.Y. C.P.L.R. 7502(c) grants the court only the limited authority to issue an order of attachment or a preliminary injunction in connection with an arbitrable controversy and does not, despite petitioners' contentions, endow the court with broad discretionary powers to fashion other injunctive orders "in aid of arbitration." Salvano v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 85 N.Y.2d 17 (1995)
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Punitive Damages

Under the FAA, if contracting parties agree to include claims for punitive damages within the issues to be arbitrated, the Federal Arbitration Act ensures that their agreement will be enforced. 9 U.S.C.S. 3, 4, Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52 Hutton, Under Pennsylvania law, if an agreement is silent as to remedies, arbitrators can award punitive damages. Phillips v. Babcock & Wilcox, 349 Pa. Super. 351 Wilcox, (Pa. Super. Ct. 1985) Under New York law, an arbitrator cannot award punitive damages. Garrity v. Lyle Stuart, Inc., 40 N.Y.2d Inc., 15 354 (1976)
The Manifest Disregard of Law Standard of Review for Arbitration Awards
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Manifest Disregard of Law under the FAA?

In order to overturn an award for manifest disregard, a court must determine that:
the law that was allegedly ignored was clear, and in fact explicitly applicable to the matter before the arbitrators; the law was improperly applied, leading to an erroneous outcome and arbitrator knew of the law s existence and that it should have been applied to the case before him.
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New York and Pennsylvania

Under CPLR 7511, manifest disregard of the law is not a standard under which a court can overturn an arbitrator s decision.
Banc of Am. Secs. v. Knight, 2004 NY Slip Op 24232 (N.Y. Sup. Ct. 2004)
Recently, there has been an indication that New York may adopt the manifest disregard of the law standard.
Wien & Malkin LLP v. Helmsley-Spear, Inc., HelmsleyInc., 6 N.Y.3d 471 (2006)
Pennsylvania law recognizes "manifest disregard of the law" as a ground for vacating an arbitration award.
Republic W. Ins. Co. v. Legion Ins. Co., Co., 2001 Phila. Ct. Com. Pl. LEXIS 58
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Arbitration Clauses

Are they always advisable? When should they be utilized?
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The Society of Maritime Arbitrators, Inc. ( SMA )

Formed in 1963 to provide a way for companies in the industry to have disputes resolved by commercial peers without resort to the courts. Membership consists of approximately 80 commercial persons (including non-practicing lawyers). non-
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Awards are published. There are presently in excess of 3800 awards. Awards are available on Lexis, ADMRTY Library, USAWDS File. There are SMA Rules for Arbitration, for Mediation, and for Conciliation. Healy & Baillie (now Blank Rome) was attorney of record in more than 600 of the published awards (more than any other firm) and of course in hundreds of other disputes subject to arbitration which were resolved prior to award.
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An SMA Panel

Most forms of charter parties call for disputes arising under the charter to be resolved by arbitration in London or New York. Typically, disputes are heard by threethreeperson panels. Each party appoints an arbitrator and those two select a chairman.
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Proceedings in an SMA Arbitration (i)

Compared to court, VERY informal, and compared to most other arbitral bodies, informal. No administration. Essentially, an ad hoc arbitration, subject, of course, to the SMA Rules. No pleadings, but parties often exchange statements of their respective cases or present their cases orally at an organizational hearing. Limited discovery. Depositions are the exception, not the rule, and only if parties agree. Extent of document production depends on the parties, their counsel, the issues, and the panel. Any and all requests are not favored.
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Proceedings in an SMA Arbitration (ii)

Claimant presents its case in chief. Respondent presents its defense. Cases are typically presented in stages, at different times, not at one sitting. This is a consequence of not having discovery. Once parties have presented their evidence, they exchange main and reply briefs. Panel issues its award. The award is subject to review by the district court in accordance with Federal Arbitration Act and/or applicable Conventions. It is very difficult to vacate an award. 24
Arbitration with a difference?

Consolidation of disputes between parties to different contracts if issue involves common questions of fact or law and/or arise in substantial part from the same maritime transactions or series of related transactions, provided all contracts incorporate SMA Rules. Section 2. Section 30 authorizes an award of attorney s fees to the prevailing party, and SMA arbitrators typically award them. SMA arbitrators may award punitive damages in maritime cases, but rarely do so.
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Emerging Issues in Delaware Law
Presented by:
Alisa E. Moen, Blank Rome LLP Craig A. Damast, Blank Rome LLP Thomas P. Preston, Blank Rome LLP, Moderator
Once Upon a Disney The Evolution of the Fiduciary Duty of Good Faith
Trenwick America Litigation Trust v. Ernst & Young, L.L.P.

2006 WL 2434228 (Del. Ch. Aug. 10, 2006) - Fiduciary duties to creditors of a subsidiary
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Once Upon a Disney The Evolution of the Duty of Good Faith

Common law origin

the Triad
Duty of Care Duty of Loyalty Duty of Good Faith - maybe

Cede & Co v. Technicolor, 634 A.2d 345, 381 (Del. 1993)
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What Is Good Faith?

good faith, n. A state of mind consisting in faith, (1) honesty in belief or purpose, (2) faithfulness to one s duty or obligation, (3) observance of reasonable commercial standards of fair dealing in a given trade or business, or (4) absence of intent to defraud or to seek unconscionable advantage
Black s Law Dictionary (2004)
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bad faith, n. The opposite of good faith, faith, generally implying or involving actual or constructive fraud, or design to mislead or deceive another, or a neglect or refusal to fulfill some duty or some contractual obligation, not prompted by an honest mistake as to one s rights or duties, but by some interested or sinister motive.
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scienter. scienter. n. Lat. Knowingly. The term is used in pleadings to signify an allegation setting out the defendant s previous knowledge of the cause which led to the injury complained of, or rather his previous knowledge of a state of facts which it was his duty to guard against, and his omission to do which has led to the injury complained of.
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The Duty of Good Faith

Is it a free-standing duty? free (Disney Ft. n. 112) Is it a state of mind? Is it a standard of conduct? Is it a catch-all? catchIs it a gap-filler? gap-
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Is It a Gap Filler?
Duty of Care perform management functions with the care that an ordinary prudent person would reasonably be expected to exercise in a like position and under similar circumstances. Graham v. AllisChalmers Mfg. Co., 188 A.2d 185, 130 (Del. 1963) Duty of Loyalty Self-dealing or conflict of interest where best interests of corporation and shareholders take precedence over interests of director, officer or controlling shareholder. Guth v. Loft, 5 A.2d 503 (Del. 1939)
Duty of Good Faith
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Is It a Standard of Conduct?
Good Faith Duty of Care Duty of Loyalty
Duty of Loyalty Self-dealing or conflict of interest where best interests of corporation and shareholders take precedence over interests of director, officer or controlling shareholder. Guth v. Loft, 5 A.2d 503 (Del. 1939)
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According to Disney .

To act in good faith, a director must act at all times with an honesty of purpose and in the best interests and welfare of the corporation a true faithfulness and devotion to the interests of the corporation and its shareholders
In re the Walt Disney Company, Company,
2005 WL 2056651 (Del. Ch. 2005)
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Bad Faith

An intentional dereliction of duty, a conscious disregard for one s responsibilities deliberate indifference and inaction in the face of a duty to act conduct that is clearly disloyal to the corporation. It is the epitome of faithless conduct.
In re the Walt Disney Company, Company, 2005 WL 2056651 (Del. Ch. 2005)
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How is Good Faith different from Loyalty?

No allegation of breach of duty of loyalty in Disney just bad faith The only way to rebut the business judgment rule presumption is to demonstrate that the conduct was in bad faith
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Breach of Duty of Care

Directors are protected by the BJR, unless Plaintiffs can demonstrate gross negligence or bad faith.
No Indemnification 145
No Exculpation 102(b)(7)
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Breach of Duty of Loyalty

may be authorized and ratified by the majority of disinterested directors; may survive the entire fairness test no protection of the BJR, no indemnification, no exculpation, probably no D&O
(See 145(g) permits purchase of D&O regardless of whether the conduct can be indemnified, but not willful, deliberate, or criminal conduct)
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Statutory Framework Delaware General Corporation Law

good faith is not defined no liability imposed finding of bad faith negates statutory exculpation and indemnification
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8 Del. C. 101 et seq.

The term good faith appears nine times
-
102(b)(7) exculpation clause 103(i) filling error ( good faith effort ) 125 conferring academic or honorary degrees 141(e) reliance on corporate records and third party reports 144 ratification of conflict transactions by shareholders 145 indemnification 162(c) transfer of stock 172 reliance on corporate records and third party reports 203 business with interested stockholders
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Fiduciary Duties in Alternative Entities

The policy of alternative entities is to give maximum effect to the principle of freedom of contract and to the enforceability of [alternative entity s] agreements.
17-1101(c); 18-1101(b) 1718-
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Contractual Abrogation

To the extent that, at law or in equity, a member or manager or other person has duties (including fiduciary duties) to a limited liability company or to another member or manager or to another person that is party to or is otherwise bound by a limited liability company agreement, the member s or manager s or other person s duties may be expanded or restricted or eliminated by provisions in the limited liability company agreement; provided, that the limited liability company agreement may not eliminate the implied contractual covenant of good faith and fair dealing.
6 Del. C. 18-1101(c) 1843
Why Do We Care?

102(b)(7)
a provision eliminating or limiting the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty shall not eliminate or limit the liability for acts or omissions not in good faith
145
a corporation shall have power to indemnify any person by reason of the fact that the person is or was a director, officer, employee or agent of the corporation if the person acted in good faith
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Business Judgment Rule

a presumption that in making a business decision, directors of a corporation act on an informed basis, in good faith, and in an honest belief that the action taken was in the best interest of the company.
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Application of the BJR

[b]usiness judgment rule protects the directors of solvent, barely solvent, and insolvent corporations, and the creditors of an insolvent firm have no greater rights to challenge a disinterested, good faith business decision than the stockholders of a solvent firm.
Trenwick Am. Litig. Trust, Trust, 2006 WL 2333201, at *22 n. 75, see also North Am. Catholic Education programming Foundation, Inc. v. Ghewalla, et al. 2006 WL 2588971, at *11 (Del. Ch. al. Sept. 1, 2006).
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Trenwick

The complaint set forth eight counts, all centered on one idea Trenwick s expansion and acquisition of Chartwell and LaSalle was irrational and resulted from gross negligence . Such expansion and subsidiary reorganization resulted in the creation of a large insurance holding company with inadequate reserves and assets to cover the claims that were ultimately made against it rendering it insolvent and leaving it with too few assets to satisfy its creditors.
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Defendants

Trenwick Group Inc. s directors (parent corporation) Trenwick America Corp s directors (wholly(wholly-owned subsidiary - Debtor) Former third-party advisors Ernst & thirdYoung, PWC, Baker & McKenzie and Milliman, Inc.
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Plaintiff

Litigation Trust - created by the Litigation Trust Agreement pursuant to Trenwick America s chapter 11 plan of reorganization. The Court dismissed claims of Debtor s creditors to the extent those claims could not have been assigned to the Litigation Trust and did not represent claims of the Debtor.
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Consequences of Trenwick .if any

Does it raise the bar on pleading insolvency? Does it change the application of 102(b)(7) to protect directors of insolvent corporations? Does the BJR rule change when the company is insolvent?
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Delaware law vs. New York law

Unlike other jurisdictions, including New York, 102(b)(7) under Delaware law exculpates directors for actions that take place when the company is insolvent.
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Delaware vs. New York Fiduciary Duties

DE
duty of care, loyalty and good faith
NY duty of care, loyalty and obedience ( the obligation of directors and officers to act within the organization s purposes and ensure that the corporation s mission is pursued State v. Grasso) Grasso)
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State v. Grasso: New Trend or Grasso: New York Non-Profit Outlier? NonThis entire case rises and falls on the issue of whether the NYSE acted ultra vires in awarding Mr. Grasso excessive compensation and benefits.
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Who is responsible for excessive compensation?

Have directors hijacked the NYSE and siphoned off the NYSE s funds to pay Grasso? Who is responsible for the ultra vires actions? directors? CEO? Who is pay?
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Trouble with Boilerplate
How Standard Clauses Stand Up In Court

Presented by:
Ann B. Laupheimer, Blank Rome LLP, Moderator Faith Greenfield, Campbell Soup Company Richard P. McElroy, Blank Rome LLP Robert J. Stillman, Aetna Inc.
Agreements to Negotiate in Good Faith

The parties agree to negotiate in good faith to resolve expeditiously any controversies, claims or disputes between the parties that may arise from time to time under this Agreement or otherwise relating to the Joint Venture. . . . This letter agreement is not intended to be binding upon the parties unless and until the parties sign a final written agreement. The parties agree to negotiate in good faith to enter into a final agreement by 90 days from today.
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Why Include These Terms?

Preliminary Duty to Negotiate In Good Faith?

nave belief in positive thinking aversion to litigation (belief in the power of business solutions ) inability to decide on firm outcome, time limits or critical deal terms weak alternative to a carefully tailored mediation and arbitration clause
Effective leverage between business persons to get to a final agreement

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Problem: How do I know when I have negotiated in good faith?

Consider one litigant s unsuccessful argument to the federal court in New York that the court imply a duty to:
Disclose information material to party s ability to formulate offer Make offers and counteroffers Continue negotiations for a sufficient minimum period of time before signing with other suitor to permit party a fair opportunity to compete with alternative offer
Candid Productions, Inc. v. International Skating Union, 530 F. Supp. 1330 (S.D.N.Y. Union, 1982).
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Will a Court Enforce a Good Faith Negotiation Duty and if So, How?

New York law: probably not.

See, e.g., See, e.g., JillcyFilm Enterprises, Inc. v. Home Box Office, Inc., 593 Supp. 515 (S.D.N.Y. Inc., 1984); Candid Productions, Inc. v. International Skating Union, 530 Union, F. Supp. 1330 (S.D.N.Y. 1982)
Pennsylvania law: probably if sufficiently definite.

Grossman, See e.g., Channel Home Centers v. Grossman, 795 F.2d 291, 299 (3d Cir. 1986).

Illinois law: maybe yes Minnesota: maybe no New Hampshire: probably yes, and reserves for another day the appropriate remedy (maybe none).
See Howtek, Inc. v. Relisys, 958 F. Supp. 46, Relisys, 48 (D.N.H. 1996) (collecting cases).
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No Jury Please
With respect to any judicial proceeding commenced by either party to this Agreement relating to a disputes, controversies, or issues arising under or relating to this Agreement, matter, both parties agree to waive their rights, if any, to a jury trial. trial.
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To Waive or Not to Waive

Reasons to waive
Belief that juries are not as intelligent as a judge Belief that subject matter lends itself to emotional bias and you are on the wrong side Belief that Judge has better judgment or ability to understand and study complex issues
Reasons not to waive

Avoid jury of one Avoid judicial lottery Believe your client has the equities
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Elements of a Successful Jury Waiver

Think Big Scope: Some cases have made subtle distinctions in Scope: the language of the waiver and Supreme Court requires that jury waivers be construed narrowly. Aetna Ins. Co. v. Kennedy, 302 Kennedy, U.S. 389, 393 (1937). Think Big Government: most federal courts enforce a clear Government: waiver. Think Big Apple: New York case law is good and plentiful. A Apple: broad jury waiver applies to torts and contracts, may be enforced even in the face of fraud in the inducement claim. Fraudulent Inducement: Most jurisdictions have embraced Inducement: Telum, Inc. v. E.F. Hutton, 859 F.2d 835, 837-38 (10th Cir. Hutton, 8371988), requiring proof that jury waiver clause induced by fraud. See Gurfein v. Sovereign Group, 826 F. Supp. 890, 921 (E.D. Pa. Group, 1993).
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Don t Look At Me! : Limiting Your Liability

Neither party will be liable to the other for consequential, indirect or punitive damages for any cause of action, whether in contract, tort or otherwise, except for any grossly negligent, willful or fraudulent act or omission. Consequential damages include, but are not limited to, lost profits, lost revenues and lost business opportunities, opportunities, whether or not the other party was or should have been aware of the possibility of these damages.
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Protect Your Client With Broad Limitation Language

Tort and Contract make sure you include tort and contract claims, as economic loss doctrine is unreliable. Lost Profits - Think about consequential in terms of direct or indirect lost profits. Punitive Damages are they available for willful breach of contract trap for the unwary. No Exceptions -- Think twice before including the gross negligence, willful or fraudulent conduct carvecarve-out. Damage Cap - Consider a monetary damages cap -- ordinarily enforceable between sophisticated parties.
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Can The Parties Eliminate the Recovery of Lost Profits and What Are Consequential Damages ?

Most courts will permit a clear waiver of lost profits Does elimination of consequential damages avoid all claims for lost profits
Ordinary benefit of the bargain damages for breach of contract look a lot like lost profits. Most Courts distinguish between direct and indirect lost profits.
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Punitive Damages for Intentional Breach of Contract

Conventional wisdom: punitive damages are available only for torts New York: punitive damages available for willful or egregious breach of contract claims that include element of public wrong. Rocanova v. Equitable Life Assur. Soc y, 83 y, N.Y.2d 603, 613 (N.Y. 1994) Minority of jurisdictions: punitive damages available for intentional breach of contract under specific circumstances Caution: exclude punitive damages, at the very least for contract claims. Fraud: hornbook law that a party may not, consistent with public policy, insulate itself from any claim of fraud, but you can likely limit the damage. Restatement (Second) of Contracts 195 (1981)
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Contractually Shortened Limitations Periods

Parties frequently provide for expiration of warranties in a shorter timeframe than statute of limitations or other mechanism to shorten limitations period.
New York: Ok Pennsylvania: Ok Illinois: Ok Missouri: against public policy by statute Kentucky: Ok California: Ok
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Drafting an Integration Clause That Sticks

This Agreement, including Appendices attached to this Agreement and the Recitals set forth herein, constitutes the entire agreement between the parties pertaining to the subject matter hereof, and all prior representations, discussions and negotiations between the parties and/or members or Groups pertaining to the subject matter of this Agreement are superseded.
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Preventing Claims of Fraud Based On Pre-Contractual Negotiations Pre
Boilerplate Integration Clauses Often Fail to prevent claims of reliance on pre-contractual information preexchange
New York: a general merger or integration clause does not bar a claim for fraud or fraud in the inducement. Gizzi v. Hall, 754 N.Y.S.2d 373, 376 (N.Y. App. Div. 2002). Hall, Delaware: simple integration clause traditionally not enough to bar fraud in the inducement. Norton v. Poplos, Poplos, 443 A2d 1 (Del. 1982). Pennsylvania: We, too, have attempted to find consistency in Pennsylvania parol evidence cases where fraud is alleged. Our examination of the pertinent cases has led us reluctantly to conclude that no intellectually sound analysis of the cases can yield a perfectly consistent set of principles. 1721 Cherry St. Partnership v. Bell Atlantic Properties, 439 Pa. Super. 141 (1995) (Beck, J.). Properties,
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Favorable Trend in Sophisticated Business Transactions

Delaware Chancery Court: ABRY Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032, 1057 (Del. Ch. 2006): LLC, a party cannot promise, in a clear integration clause of a negotiated agreement, that it will not rely on promises and representations outside of the agreement and then shirk its own bargain in favor of a but we did rely on those other representations fraudulent inducement claim.
Southern District New York: DynCorp v. GTE Corp., 215 Corp., F. Supp. 2d 308 (S.D.N.Y. 2002): A party to a contract cannot allege that it reasonably relied on a parol representation when, in the same contract, it "specifically disclaims reliance upon [that] particular representation." See also MBIA Insurance Corp. v. Royal Indemnity Co., 426 F.3d 204, 21870(3d Cir. 2005) (Alito, J.)1 Co.,
Draft Detailed Integration/AntiIntegration/AntiReliance Provision

Be Specific: Describe the representations or information upon which the parties may not and did not rely, such as sales information or forecasts, reserves, omission of proprietary information, projected income, budgets Be detailed: disclaim accuracy of all data exchanged, have parties specifically agree that they did not rely on particular types of information. Waive any right to allege fraud in the inducement based on anything not included in the final written agreement.
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What About Parole Evidence?

Will a court look outside the four corners of contract for meaning and intent of the parties where a term is found ambiguous? Will the integration clause prevent this? Pennsylvania: Parol evidence of representations concerning a subject dealt with in an integrated written agreement and made prior to or contemporaneous with the execution of the agreement is admissible to modify or avoid the terms of that agreement only where it is alleged that the parties agreed that those representations would be included in the written agreement but were omitted by fraud, accident, or mistake. This is commonly referred to as fraud in the execution . . . . 1721 Cherry St. Partnership v. Bell Atlantic Properties, 439 Pa. Properties, Super. 141 (1995) (Beck, J.).
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Indemnify This!
Each Indemnifying Group shall be responsible for and shall indemnify the other Group against any and all Losses arising in connection, directly or indirectly, with
any material breach of any material representation or warranty made by an Indemnifying Group in this Agreement or in any document contemplated by this Agreement; any material breach of any material covenant made by an Indemnifying Group in this Agreement or in any document contemplated by this Agreement; Products made and sold by or on behalf of such Indemnifying Group or Date; its predecessors prior to the Effective Date; Breaches of contract, negligent acts or omissions, or breaches of law, law, perpetrated or caused by such Indemnifying Group or its predecessors prior to the Effective Date; Employee claims (including, without limitation, due to dismissal by reason of redundancy, conduct or otherwise) made by employees of such Indemnifying Group or its predecessors prior to the Effective Date; and Any acts or omissions occurring prior to the Effective Date arising out 73 of or relating to (i) such Group s Transferred Assets, or (ii) such Group s business which are the subject of this Agreement.
Indemnification for Claims of Intentional Wrongful Conduct

Prohibited in most jurisdictions where there is a finding of intentional wrongful conduct, with jurisdictions less clear on whether a finding of is required. New York: permits (with clear language) contractual indemnification so long as no finding of intentional wrongful conduct. See Gibbs-Alfano v. Burton, 281 F.3d 12, 19-22 (2d GibbsBurton, 19Cir. 2002). Delaware: scant law but general observations critical of indemnity contracts which indemnify one against the consequences of his own negligence or where party found e.g., liable for conduct more egregious than negligence. See e.g., Alten v. Ellin & Tucker, 854 F. Supp. 283, 288 289 (D. Del. Tucker, 1994), citing Howard, Needles, Tammen & B v. Steers, Perini & P, 312 A.2d 621, 624 (Del. 1973). P,
BUT: see Delaware has highly developed law of indemnifying officers and directors so long as they acted 74 in good faith.
Indemnification for Punitive Damages?

Punitive damages: usually awarded only in cases of malicious, fraudulent, intentional or willful misconduct, but in some jurisdictions available for reckless conduct.
insurance coverage cases permit indemnification for vicariously imposed punitive damages Include special choice of law, modeled after insurance policies or a promise by the parties not to invoke public policy or challenge enforceability
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Indemnification for Cost to Comply With Non-Monetary Relief Non
NonNon-monetary loss: if contract includes specific language and method of calculating value, freedom of contract should permit indemnification. See National Casualty Co. v. Newtown Township, 2000 Township, U.S. Dist. LEXIS 10747 (E.D. Pa. 2000) (Fullam, Sr. J.) (insurer may contract to avoid indemnity obligation for non-monetary loss, implying that noncontract would govern this question) Outboard Marine Corp. v. Liberty Mutual Ins. Co., 607 N.E.2d Co., 1204 (Ill. 1993) (costs to comply with equitable relief qualify as damages subject to indemnification).
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Indemnification for Party s Own Negligence

Illinois and New Jersey: prohibited by statute in construction contracts: With respect to contracts or agreements, either public or private, for the construction, alteration, repair or maintenance of a building, structure, highway bridge, viaducts or other work dealing with construction, or for any moving, demolition or excavation connected therewith, every covenant, promise or agreement to indemnify or hold harmless another person from that person's own negligence is void as against public policy and wholly unenforceable. 740 ILCS 35/1. See N.J. Stat. 2A:40A-1 (same). 2A:40APennsylvania: while such contracts are disfavored, party may be indemnified against its own negligence if it uses clear and unambiguous language with burden on party seeking indemnity and ambiguities resolved against. See Amquip Corp. v. Delaware Valley Erectors, 1999 U.S. Dist. LEXIS Erectors, F.3d 1054 (3d Cir. 2001). 18276 (E.D. Pa. 1999), aff d, 265 77 d,
Special Rule in Securities Fraud Cases

Most jurisdictions find indemnification (implied or contractual) for securities violations unavailable based on public policy concerns, regardless of degree of fault.
Eichenholtz v. Brennan, 52 F.3d 478 (3d Cir. Brennan, 1995). Globus v. Law Research Service, Inc., 418 F.2d Inc., 1276 (2d Cir. 1969). In re Olympia Brewing Co. Sec. Lit., 674 F. Lit., Supp. 597, 611 (N.D. Ill. 1987) (collecting cases concerning implied right to indemnification)
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Developments in Database Security Law
Presented by:
Kit Applegate, Blank Rome LLP Jordana Cooper, Blank Rome LLP, Moderator
Developments In Database Security Law: Outline

Federal privacy law directed to financial institutions: Gramm-Leach-Bliley Gramm-LeachNew state privacy statutes broadly directed to businesses that conduct business within the state and/or own or license personal information of residents of the state Enforcement
State Attorney General activity Private litigation and class actions Federal agencies: FTC 80
Gramm-LeachGramm-Leach-Bliley and State Statutes: Introduction

G-L-B: 15 U.S.C. 6801 et seq.: seq.:

It is the policy of Congress that each financial institution has an affirmative and continuing obligation to [1] respect the privacy of its customers and [2] to protect the security and confidentiality of those customers nonpublic personal information. 15 U.S.C. 6801. Regulatory authority to reside with the federal banking agencies, National Credit Union Administration, Secretary of the Treasury, SEC, and FTC, which regulate the financial institutions 81 subject to their jurisdiction, and enforce G-L-B. G-
Gramm-LeachGramm-Leach-Bliley and State Statutes: Introduction

State Statutes
At least 30 states presently have security breach notification laws Statutes are similar, but far from uniform Cover a variety of topics

Notification of security breach Use of Social Security numbers Destruction of records that contain personal information
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G-L-B: Who Is Covered?

G-L-B: Any institution the business of which is engaging in financial activities as defined by Section 4(k) of the Bank Holding Co. Act of 1956. 15 U.S.C. 6809(3)(A). Financial activities include, inter alia: alia:
Lending, investing for others, or safeguarding money or securities; Insuring or issuance of annuities or acting as an agent or broker for such activities; Providing financial, investment, or economic advisory services; Underwriting or making a market in securities. 12 U.S.C. 83 1843(k)(4)(C).
G-L-B: Who Is Covered?

Generally, financial institution is defined very broadly under G-L-B and includes several entities Gnot traditionally recognized as financial institutions. 65 Fed.Reg. 33646 (FTC). But FTC Rule contains a significantly engaged modifier. Id. Overlap between financial institutions covered by G-L-B and entities covered by HIPAA. 65 Fed.Reg. 33646. Colleges and universities are not exempted may be double-regulated by FERPA; compliance with doubleFERPA adequate to FTC. 65 Fed.Reg. 33646.
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State Statutes: Who Is Covered?

Apply to both businesses and individuals who:

conduct business in that state; and/or own or license personal information of a resident of that state
Also apply to third-party vendors that compile or thirdmaintain personal information on behalf of other businesses Financial institutions covered under G-L-B are also Gsubject to the state statutes
Exceptions exist for those that maintain procedures for a breach of security system pursuant to federal or state regulations
85
G-L-B: What Information Is Covered?

Nonpublic personal information. With certain exceptions, a financial institution may not, directly or through any affiliate, disclose to a nonaffiliated third party and nonpublic personal information, unless such financial institution provides or has provided to the consumer a notice that complies with the statute and that gives the consumer a reasonable opportunity to opt out of the disclosure before it occurs. 15 U.S.C. 6802; 65 Fed.Reg. 35162.
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Nonpublic personal information : In addition to lists or groupings of consumers, this means personally identifiable financial information, excluding publicly available information (information the financial institution has a reasonable basis to believe is lawfully made available to the general public from certain specified sources). 65 Fed.Reg. 33646.
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Personally available financial information broadly includes information a consumer provides to you on an application, not just account balance information, payment history, and credit/debit purchase information. The FTC believes that any information should be considered financial information if it is requested by a financial institution for the purpose of providing a financial product or service. (Addresses, phone numbers.) It also includes the fact that the individual has been one of your customers. 65 Fed.Reg. 33646.
88
State Statutes: What Information Is Covered?

Computerized data that include personal information Personal information

Individual s name Linked to any of the following:

Social Security number; Driver s license number or state identification card number; or Account, credit, or debit card number in combination with any security code, access code, or password that would permit access to the individual s financial account 89
G-L-B: Privacy Policies

G-L-B: Among other things, a financial institution s privacy policy contains a description in general terms of who is authorized to have access to the information and states whether the institution has security practices and procedures in place to ensure the confidentiality of the information in accordance with the policy. 65 Fed.Reg. 33646.
90
G-L-B: Standards For Safeguarding Customer Information

G-L-B: Regulators confer on institutions the discretion to determine the levels of protection necessary for different categories of information. 66 Fed.Reg. 8616. Each institution must implement a comprehensive written information security program that includes administrative, technical, and physical safeguards appropriate to the size and complexity of the institution and the nature and scope of its activities. 66 Fed.Reg. 8616.
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G-L-B: Standards For Safeguarding Customer Information

The information security program should be designed to ensure the security and confidentiality of customer information, protect against any anticipated threats to the security of such information, and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. 66 Fed.Reg. 8616.
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State Law: Standards For Safeguarding Customer Information

The state statutes generally do not require the formulation of information security protocols
California is a notable exception. Companies that own or license unencrypted personal information about California residents are required to implement and maintain reasonable security procedures and practices for that data
Destruction of records
A business . . . shall destroy, or arrange for the destruction of, a customer s records [paper or electronic] within its custody or control containing personal information, which is no longer to be retained by the business . . . by shredding, erasing, or otherwise modifying the personal information in those records to make it unreadable, undecipherable or nonreconstructable through generally available means. N.J.S.A. 56:8-162.
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Limitations on use of Social Security numbers

Shall NOT:

Publicly post or display any four or more consecutive numbers of an individual s Social Security number Print an individual s Social Security number on any materials mailed to the individual Print an individual s Social Security number on any card required for the individual to access products or services provided by the entity
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Limitations on use of Social Security numbers

Shall NOT:

Intentionally communicate or otherwise make available to the general public an individual s Social Security number Require an individual to transmit his Social Security number over the internet, unless the connection is secure or the Social Security number is encrypted
95
G-L-B: What Is A Breach Triggering Statutory Notification?

G-L-B: An incident involving unauthorized access to or use of sensitive customer information. 70 Fed.Reg. 15736. Sensitive customer information : a customer s name, address, or telephone number in conjunction with social security, driver s license, account, credit or debit card number, or a personal identification number or password that would permit access to the customer s account. Also any combination of components that would allow someone to log onto or access the customer s account, such as user name and password. 70 Fed.Reg. 15736.
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State Law: What Is A Breach Triggering Statutory Notification?

State statutes are not uniform in their definition of breach of security Access
Unauthorized access of unencrypted computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the business
Acquisition
Unauthorized acquisition of unencrypted computerized data that compromises the security, confidentiality, or integrity of personal information maintained by the business
Access and Acquisition
97
G-L-B: When Must You Notify Customers?

G-L-B: When a financial institution becomes aware of an incident of unauthorized access to sensitive customer information, it must investigate reasonably. If the institution determines that misuse of its information about a customer has occurred or is reasonably possible, notification is triggered. 12 C.F.R. Pt. 30, App. B.
98
State Law: When Must You Notify Customers?

Generally, duty to notify arises when a business:

Becomes aware, discovers, or receives notification of a breach of security; and Ascertains that a customer s personal information was, or is reasonably believed have been acquired/accessed by an unauthorized person to
99
G-L-B: Which Customers Must Be Notified?

G-L-B: Notice to affected customers. If a financial institution, based upon its investigation, can determine from its logs or other data precisely which customers information has been improperly accessed, it may limit notification to those customers with regard to whom the institution determines that misuse of their information has occurred or is reasonably possible. However, there may be situations where the institution determines that a group of files has been accessed improperly, but is unable to identify which specific customers information has been accessed. If the circumstances of the unauthorized access lead the institution to determine that misuse of the information is reasonably possible, it should notify all customers in the group.100 12 C.F.R. Pt. 30, App. B.
State Law: Which Customers Must Be Notified?

Notification must be provided to those customers whose personal information was, or is reasonably believed to have been acquired/accessed Risk of harm exception in some statutes
Disclosure not required if business establishes that misuse of information not reasonably possible Determination must be documented in writing and retained for five years
101
G-L-B: How Soon Do Affected Customers Have To Be Notified?

[A]s soon as possible. 12 C.F.R. Pt. 30, App. B., Supp. A, III.A.
102
State Law: How Soon Do Affected Customers Have To Be Notified?

Generally, notice must be made in the most expedient time possible and without unreasonable delay
Florida mandates notice within 45 days
Notification may be delayed:

to determine the scope of the breach and restore the integrity of the data system if requested by law enforcement
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G-L-B: Notification To Law Enforcement

G-L-B: Response program should contain procedures for notifying appropriate law enforcement authorities. Customer notice may be delayed if an appropriate law enforcement agency determines that notification will interfere with a criminal investigation and provides written request for a delay. 12 C.F.R. 30, App. B, Supp. A.
104
State Law: Notification To Law Enforcement

Delaware, New York, and Pennsylvania do not require that law enforcement be notified first New Jersey does require that law enforcement be notified before disclosure is made to the customer As a practical matter, law enforcement should be notified
105
G-L-B And State Law: Details Of Customer Notice

G-L-B: Detailed requirements for notice, including:

Description of the incident in general terms and the type of customer information involved Description generally of what the institution has done to protect from further unauthorized access Telephone number for further information. Remind customers to remain vigilant over 12-24 12months and to promptly report incidents of suspected identity theft. 106
G-L-B And State Law: Details Of Customer Notice

When appropriate:

A recommendation that the customer review account statements and immediately report any suspicious activity A description of fraud alters A recommendation that the customer periodically obtain credit reports How the customer may obtain a credit report free of charge Information about the ftc s online guidance. 12 C.F.R. 30, App. B, Supp. A, iii.B.1
107

State Law: Details Of Customer Notice

Delaware, New Jersey, and Pennsylvania do not specify the contents of the notice New York
Contact information for the business making the notification The personal information that was or believed to have been acquired
Means of providing notice

Written notice Electronic notice
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State Law: Details Of Customer Notice

Means of providing notice

Telephonic notice Substitute notice

If the business can demonstrate that (1) the cost of providing notice will exceeds a certain dollar amount, or (2) that the affected class of customers exceeds a certain number, or (3) that the business does not have sufficient contact information to provide notice, substitute notice may be made by:
E-mail; Posting the notice on business s web site; and Notifying major statewide media
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G-L-B: Regulator Notice?

G-L-B: Response program should contain procedures for notifying primary federal regulator as soon as possible. 12 C.F.R. 30, App. B, Supp. A, II.A.1
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State Law: Regulator Notice?

New York
New York Attorney General New York Consumer Protection Board New York Office of Cyber Security and Critical Infrastructure Coordination
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G-L-B: Notice To Credit Reporting Agencies?

G-L-B: Institutions are encouraged to notify nationwide consumer reporting agencies prior to sending notices to a large number of customers that include contact information for the reporting agencies. 12 C.F.R. 30, App. B, Supp. A, III.B.2.
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State Law: Notice To Credit Reporting Agencies?

Generally, where a large number of customers are affected, a business must notify, without reasonable delay, all consumer reporting agencies that compile or maintain files on consumers on a nationwide basis of the timing, distribution, and content of the notices
New Jersey: 1,000 New York: 5,000 Pennsylvania: 1,000
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G-L-B: Consequences -Regulator Action

G-L-B: Enforcement by OCC, Federal Reserve, FDIC, OTS, National Credit Union Administration, SEC, state insurance regulators, FTC as to persons within their respective jurisdictions. Penalties not enumerated. 15 U.S.C. 6805 Agencies clarify (OCC) that existing authority is preserved. 12 C.F.R. Pt. 30, App. B Under existing authority, agencies may impose fines. e.g., OCC: 12 U.S.C. 1818 e.g., Most active regulator enforcement: FTC!
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State Law: Consequences -Regulator Action

State AGs vested with authority to prosecute violations
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G-L-B And State Law: Consequences! -- AG Actions

State AGs have been active in consumer privacy before the new state statutes and before G-L-B based Gon their authority under state consumer fraud and other statutes. 1999: Minnesota AG action against a large financial institution: Sale of customer information to a thirdthird-party marketer in violation of its privacy policy. Settlement over $3 million. Led to charges by 38 other state AGs. Led to class action lawsuit funded by several million dollars in settlement, plus attorney s 116 fees.

[1] Inadvertent disclosures of [2] nonsensitive information prosecuted. Alta Vista: NY AG action. $70,000 settlement (2001). Involved names and addresses only input by consumers into Alta Vista Yellow Pages directory to narrow searches to businesses nearby and promised privacy; programming error led to inadvertent disclosure to a third party company. No one profited and third-party company did not thirduse the information.
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Lesson: You must follow your privacy policies. Elliot Spitzer on privacy policies (March, 2006):
Personal information secured through a promise of confidentiality must always remain confidential. Companies must adhere to known privacy policies and promises. Failing to do so constitutes a clear consumer fraud. fraud.
118
G-L-B And State Law: Consequences! -- Private And Class Actions

Suits under G-L-B: Most courts have determined no private right of action.
e.g., .g.,

Menton v. Experian Corp., 2003 WL 21692820 Corp., (S.D.N.Y. July 21, 2003); Dunn v. First Nat l Bank, 111 P.3d 1076 Bank, (Kan. App. 2005); Borninski v. Williamson, 2004 WL 433746 Williamson, (N.D. Tex. March 1, 2004); Briggs v. Emporia State Bank and Trust, 2005 WL 2035038 Trust, (D. Kan. Aug. 23, 2005); American Family Mutual Ins. Co. v. Roth, 2005 WL 3700232 Roth, (N.D. Ill. Aug. 5, 2005).
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Back door : Negligence claims, esp. negligence per se, based on G-L-B standards: GDunmire v. Morgan Stanley, 2005 WL 1005993 Stanley, (W.D. Mo. April 7, 2005):
Refuses to dismiss complaint asserting a claim for negligence per se based on allegations that Morgan Stanley delivered account information to account-holder s soon-to-be-ex wife, premised on accountsoon-to-beviolation of G-L-B and implementing regulations. G-
Guin v. Brazos Higher Ed. Service Corp., 2006 WL 288483 Corp., (D. Minn. Feb. 7, 2006):
Employee maintained unencrypted personal customer information on a laptop kept at home; burglary; defendant not able to tell which customer information was active on laptop and sent 550,000 customer notices. No identity fraud appeared to have occurred. Negligence claim analyzed on sj under G-L-B standards; defendant Gprevailed. 120

Negligence claims: Best-case scenario: Bestlost data.

Giordano v. Wachovia Securities, 2006 WL Securities, 2177036 (D.N.J. July 31, 2006).
UPS package containing personal financial data was lost in transit. Mere fear of misuse in future fear of injury insufficient to create Article III standing.
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Negligence claims: More risk: Burglary of equipment without known interest in data. Stollenwerk v. Tri-West Healthcare Alliance, 2005 TriAlliance, WL 2465906 (D. Ariz. Sept. 6, 2005). Class action.
Burglary of computer hard-drives. Summary judgment hardgranted on negligence claims. Absent evidence that the data was actually targeted or accessed, there is no basis for a reasonable jury to determine that sensitive personal information was significantly exposed.
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Negligence: Worst-case scenario: Save money; Worstpoor security protocols; data theft. Richardson v. DSW, Inc., 2006 WL 163167 (N.D. Ill. Inc., Jan. 18, 2006): Suit under state consumer fraud statute alleging retailer, on notice by credit card company of its contractual obligations regarding the proper handling and disposal of credit card information, failed to follow the specified procedures. Complaint states a claim where alleges protocols ignored to save money, and hacking ensured.
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Second back door : Suit for breach of contract based privacy policy as contract. Best defense: Contract claims require damages. Loss of privacy held not to satisfy requirement of economic losses flowing directly from the breach. See In re Jetblue Airways Corp. Privacy Lit., 379 Lit., F.Supp.2d 299 (E.D.N.Y. 2005); In re Northwest Airlines Privacy Lit., Lit., 2004 WL 1278459 (D. Minn. 2004).
Note: This defense has application in negligence context as well. Forbes v. Wells Fargo Bank, N.A., 420 F.Supp.2d 1018 (D. Minn. 2006) (theft of computers containing unencrypted customer information; negligence for failing to adequately secure data; no damages the threat of future harm, not yet realized, will not satisfy the damage requirement. )
Additional defense: Privacy policy a unilateral undertaking but not a unilateral contract no offer and acceptance. In re Northwest Airlines. Airlines. 124 Untested defense: Preemption by G-L-B. G-

Common law claims for common law duty of bank confidentiality. Usual defense: Banks not liable for acts of third party wrongdoers or criminal acts of insiders as beyond scope of employment. e.g., Roth v. First e.g., Nat l State Bank of NJ, 169 N.J. Super. 280 (App. NJ, Div. 1979). Perhaps can augment defense with good G-L-B protocols. Also, preemption??? GOn the other hand, may lose this legal defense as G-L-B contemplates insider abuse and institution responsible for limiting opportunities for abuse and developing means to detect 125 contain it. and

Private consumer fraud suits
typically class actions.
Breach of state statutes automatically qualifies as a consumer fraud violation in many states. e.g., NJCFA e.g., willful, knowing or reckless failure to comply with notice requirements is a NJCFA violation; attorney s fees, treble damages. N.J.S.A. 56:8-166. 56:8Lack of damages defense. Before new state statutes, we have argued ascertainable loss requirement for private CFA claims not met by a data security breach in and of itself. Will this defense survive the new statutes???
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Best Defense: Good Privacy And Security Practices

Materials:
April 2006 California Dept. of Consumer Affairs Recommended Practices on Notice of Security Breach Involving Personal Information

Covers protection and prevention as well
127
The Federal Trade Commission s Privacy Enforcement Initiative

The FTC has the power to protect personal information pursuant to:
Section 5 of the Federal Trade Commission Act ( FTC Act ); and The Gramm-Leach-Bliley Act Gramm-Leach-
128
Section 5 of the FTC Act

Prohibits unfair or deceptive act or practices in or affecting commerce. 15 U.S.C. 45(a) Unfair practices: those that cause or are likely to practices: cause substantial injury to consumers which is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition The FTC Act allows the FTC to initiate federal district court proceedings to enjoin violations and to secure equitable relief including, but not limited to restitution and disgorgement.
129
Section 5 of the FTC Act

Although Section 5 does not grant the FTC specific authority to protect privacy, over the last several years it has been construed to prohibit certain privacy invasions based on deception. Generally applies to persons, partnerships, or corporations.
130
Examples of Cases Brought by the FTC:

In the Matter of Nations Title Agency, Inc. (GLB) In the Matter of CardSystems Solutions, Inc. (FTC Act) Federal Trade Commission v. ChoicePoint Inc. (FTC Act)
131
Ethics/Internal Investigations
Presented by:
Jerry D. Bernstein, Blank Rome LLP Timothy D. Katsiff, Blank Rome LLP William H. Roberts, Blank Rome LLP, Moderator Joseph G. Poluka, Blank Rome LLP
A. Internal Investigations: A Brief Historical Perspective
133
B. The Purpose, Structure and Mechanics of the Internal Investigation
134
What is the impetus for the investigation?

A request of the Board Employee complaint of alleged misconduct Commercial third party assertion Individual whistleblower Governmental assertion Governmental enforcement agency inquiry or investigation
135
Evaluate the possible end results that may occur and tailor all aspects of the investigation accordingly
Architecture should fit the objective. Is there an applicable/industry voluntary disclosure program?
136
Evaluate the possible end results that may occur and tailor all aspects of the investigation accordingly (cont.) What are the nuances of the program? e.g., e.g., DOJ Antitrust Division amnesty program What are the requirements of the program? What are the benefits of the program, e.g., e.g., nonprosecution agreement, reduced fines, lifting of debarment from receiving U.S. Government contracts, etc.?
137
Evaluate the possible end results that may occur and tailor all aspects of the investigation accordingly (cont.)
Will a waiver of privilege be required under the program? Is there something less than the waiver that will satisfy the government? Negatives of amnesty program or other corporate cooperation? What is the impact of the waiver as it relates to other potential adversaries of the client? Fight or flight? Should you disclose at all decide as early as possible.
138
Need for Quick Completion

Generally, investigations should be conducted swiftly with the objective of evaluating the scope of the impropriety and stopping any misconduct immediately while concurrently gathering all the facts so the best possible defenses may be asserted, including voluntary disclosure.
139
Is There an Ongoing Governmental Investigation?

Have the government investigators contacted employees? Give guidance to employees to attempt to protect corporation without creating obstruction of justice issues. Encourage employees to be interviewed at work with counsel present.
140
Is There an Ongoing Governmental Investigation? (cont.)

Do not advise that they are prohibited from speaking with the government investigators. Attempt to contact the agency to discover focus of inquiry. Be sensitive to issues of multiple representation of company and employees.

We will discuss this issue in detail during the ethics segment of the 141 program.
Who Should Conduct the Investigation Inside or Outside Counsel?

Is there a need for independence? Is there a possibility that internal counsel may become a witness? Internal counsel s ability to give legal advice in local jurisdiction?
142
Is There a Corporate Compliance Department/Officer?

Degree of involvement? Is there a corporate compliance policy? Generally ensure that any investigation by corporate compliance is done at the written direction of Legal in support of its objective of providing legal advice to the client. Is there an opportunity for a dual investigation? Compliance Department and Legal Department (to protect work product)
143
Who is the Client?

The dominant CEO syndrome? Must Legal circumvent management and go directly to the Board? Shareholders
144
Specific Objective of the Investigation

Determination of the standard of care/due inquiry as required by the law, regulation, contract, etc. Is it a case of don t ask, don t tell ? Is finding red flags the objective? (FCPA issues)
145
Other Practical Investigation Issues

Interviews of employees and need for witnesses to such interviews Counseling of such employees about the confidential nature of the investigation and the duty not to disclose same
146
Other Practical Investigation Issues (cont.)

Document retention/recovery processes & capabilities Litigation holds preservation obligations and sanctions Forensic information technology Duty to maintain anonymity (ethics hotlines) No retaliation against whistle blower
147
Insurance Issues
Duty to disclose to trigger coverage? Impact of disclosure?
148
C. Ethical Considerations for Internal Investigations
149
Define Your Role

Clearly define the scope of your engagement at each stage Clearly identify the client or clients you are representing Communicate your role with clarity to those to be interviewed Be clear whether the representation extends to the individual directors, officers, employees, former employees of the corporation, as well as the corporation itself.
150
Can I Do It How ?

What factors should be considered in deciding on a simultaneous representation of the company and some of its officers or employees? What are the dangers of later withdrawing from one of the representations and attempting to continue the representation of the other party or parties? What disclosures and consents are required?
151
When may a simultaneous representation be undertaken?

There is no per se bar to simultaneous representation. Three limitations on multiple representation (see dr 5-105; similar to PA and NJ and DEL RPC 51.7(b)):
Must be able to conclude that a disinterested lawyer (DR 55105) would regard multiple representation as in the interest of corporate client and employee client. Must obtain consent of both clients after full disclosure. Must be alert to changes in circumstances that render continuation of multiple representation no longer permissible.
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Basic Test

Basic Test : [i]f the exercise of independent professional judgment on behalf of a client will be or is likely to be adversely affected or if it would be likely to involve the lawyer in representing differing interests [NY] Then consider the Disinterested Lawyer Standard
153
Basic Test

Conflicts Subject To Disclosure And Consent

If the attorney s exercise of independent professional judgment will be or is likely to be adversely affected, then the second part of the test must be satisfied: a disinterested lawyer would conclude that the lawyer can competently represent both the corporation and the constituent.

immaterial conflicts--remote or unlikely to affect the lawyer s conflicts--remote judgment nonnon-consentable conflicts consentable conflicts
154
Basic Test
The disinterested lawyer : an objective, hypothetical lawyer whose only aim would be to give the best advice possible about whether the client should consent to the conflicted representation.
155
Easy Cases

Example: Disinterested Lawyer Test Not Satisfied:

Case 1: The government is investigating securities law violations in the filing of false or misleading statements and the employee has admitted wrongdoing in connection with the financial statements under investigation.
Corporation would have strong interest in avoiding or limiting liability by cooperating fully with the government and providing any information sought by the government regarding preparation of the financial statements.
156
Easy Cases
The individual would have to consider a variety of factors before deciding whether it was in his interest to cooperate with the government and would need counsel able and willing to negotiate a resolution of the matter. (See New York City Bar Formal Opinion 20042004-02)
157
More Easy Cases

Example: Disinterested Lawyer Test Satisfied

Case 2: Same investigation as Case 1 above, except maintenance employee only overheard comments regarding need to alter the corporation s financial statements but would have no concern about personal liability for wrongdoing. No need for counsel to negotiate independently with government. Therefore, lawyer could represent individual as well as the Company.
158
Closer Cases
Case 3: Employee is in accounting department but not involved in the preparation of the financial statements under investigation. Case 4: Employee is in accounting department of division, whose statement is under investigation, but had limited discretion to decide how to account for the transactions giving rise to the investigation.
159
Closer Cases
Case 5: Employee is in accounting division involved in preparation of statement, but had no decision-making authority with respect to how to account for the transaction, but nonetheless participated in booking the transaction. These closer cases will depend on the specific of knowledge possessed by the employee, and the specific laws or regulations implicated by the conduct and the perceived scope of the government s investigation.
160
Getting The Facts

Obtaining The Relevant Facts In determining whether the Disinterested Lawyer Test is satisfied, the lawyer will require a detailed grasp of the relevant facts. How can this be done before making the judgment to engage in a multiple representation? Initial Interview with Employee: The Miranda Warning

The lawyer is representing only the corporation 161 in this interview.
Getting The Facts

Advise the employee/director/officer:

I represent the corporation and do not represent you. Any information you provide is privileged under the attorneyattorney-client privilege but the privilege is held by the corporation and not you. It is up to the corporation and not you whether to waive that privilege and share that information with third parties [and the corporation may decide to do that without asking you or informing you].
162
Should I Get My Own Lawyer? Are You My Lawyer?

What if the employee asks whether he should consult with his own counsel?
Suggested response: I represent the corporation and cannot advise you one way or the other on that. Should corporate counsel recommend getting counsel? No, that potentially acts against the interest of the corporation, the lawyer s client.
163
Should I Get My Own Lawyer? Are You My Lawyer?

What if prior to the interview the employee asks corporate counsel to represent him/her?
Corporate counsel should ordinarily decline to represent the employee at this stage. In most cases, the lawyer will not have sufficient facts at this stage to make a determination that the Disinterested Lawyer Test is satisfied and a multiple representation can be undertaken, subject to disclosure and consent of both clients. It will be the exceptional case where this will be permissible or appropriate.
164
Later Retention
The Later Request for Multiple Representation.

If the government requests an interview with the employee who has already been interviewed by company counsel, and this triggers a request that corporate counsel represent the employee, then the lawyer should determine whether he/she has enough information to make the determination called for by the Disinterested Lawyer Test.
If the lawyer does not, how can this information be obtained? In further interviews of the employee, the lawyer must always make it clear that the lawyer represents only the corporation, not the employee, and that any information received will be provided to the corporation.
165
Later Retention
If this is not done, then since information received from a prospective client is subject to the lawyer's duty of confidentiality, the lawyer s corporate client will be disadvantaged by this restriction on the lawyer's ability to share this information. in some cases, the lawyer who fails to handle the interview in this manner may be precluded from continuing to represent the corporation. Restatement (Third) of the Law Governing Lawyers, 15 (2000).
166
Full Disclosure

What Disclosures Must Be Made To Render Multiple Representation Permissible? If the lawyer determines that the Disinterested Lawyer Test has been satisfied, the lawyer must then make a full disclosure to both clients and obtain their knowing consent.
167
Full Disclosure
What is involved in a full disclosure ?

information reasonably sufficient, giving due regard for the sophistication of the client, to permit the client to appreciate the significance of the potential conflict. disclosure of any and all defenses and arguments that a client will not have because of the joint representation and the lawyer's fair and reasoned evaluation of those defenses and arguments, and the possible effect of failing to raise them. risks and advantages of the joint representation.
168
Risks .Advantages
Usual advantages

Avoiding expense of other counsel Broad and detailed knowledge of the relevant facts
Usual risks

a conflict may arise in the future that will disable corporate counsel from continuing for the corporation--prejudice to corporation--prejudice the corporation from the need to switch counsel; similar risk to employee need to obtain a prospective consent
169
Risks .Advantages

the loss of credibility to the investigating agency limitation on the lawyers ability to pass on to the corporation confidences and secrets that are not germane to the matter--less of a risk where the employee has been matter--less fully interviewed, but always present possible complications for the corporation in crippling or preventing the corporation s full ability to cooperate with the government. The corporation may have in its possession information which its counsel obtained from the employee that would help the corporation cooperate with the government to its advantage, but be unable to share this information because the employee does not wish to waive the attorney-client privilege attorney170
Structuring and Getting Consents

Steps include obtaining prospective consents and consents to withdrawal:

Prospective Waivers

Should be accompanied by full disclosure Should be in writing signed by the client Should advise of the types of conflicts that may arise to the extent possible--who the conflicted parties would be, possible--who and the source of the potential conflict
171
Structuring and Getting Consents

Subjects of waivers: the possibility of future litigation client s waiver of objection to former lawyer s right to cross examine former client potential need to revisit the scope of the waiver and the conflict that actually did arise contractual limitations of the scope of the representation, e.g. representation through investigatory stage only, to a single interview, or to a series of interviews with the government or on designated topics
172
Agreements On Privilege And Separate Shadow Counsel

Understandings on privileged information

whether and what kind of confidential information will be shared with the two clients who will control the privilege what will happen in the event of a dispute between the clients Middle ground representation for attorney who is involved to take over in the event of withdrawal and to provide independent advice at times where conflict arises Adds to cost but reduces risk of potential conflicts and their resolution 173
Shadow Counsel and Co-counsel Co
1.
The Thompson Memorandum
174
2.
Selective Waiver
175
1. Payment of Attorney Fees for employees 2. Thompson Memorandum and DOJ s consideration of payments of an employee s legal fees when determining whether to indict the corporation.
a. U.S. v. Stein, No. S1 05 Crim. 0888, 2006 Stein, WL 1735260 (S.D.N.Y. June, 2006)
176
E. Enron: A Case Study
177
Whose Privilege Is It Anyway?
Presented by:
Lesli C. Esposito, Blank Rome LLP John D. Kimball, Blank Rome LLP Jeremy A. Rist, Blank Rome LLP, Moderator Daniel L. Stackhouse, Blank Rome LLP
The Privilege Is Under Attack!

The attorney-client privilege is, more than ever, subject to attorneyincreasing challenge: 1. 2. 3. 4. Aggressive government investigatory techniques Increasingly insistent transaction partners Technology changing conditions and frequency of communication Heightened auditor independence and demand for information
Each of these phenomena places the exercise of the attorneyattorney-client privilege at a higher risk than ever before.
179
Special Topics

Waiver of the privilege through transaction disclosures Waiver of the privilege through disclosure to the government Waiver of the privilege through disclosure to insurers and auditors Bonus Topic: OpinionOpinion-Shopping
180
I. Transactional Disclosures
Whether a company waives the attorneyattorneyclient privilege through due diligence or other disclosures to a transaction partner is a question that arises frequently, and increasingly often. Examples: Examples: Patent opinions; attorney memoranda on litigation exposure; unredacted board minutes
181
Disclosure Destroys Privilege

Basic Rule: A disclosure of privileged information Rule: to a potential transaction partner waives the privilege, as the confidential nature of that privilege, information has been destroyed. Confidentiality Agreement irrelevant. Privilege waived even if disclosure is required by law (e.g., material information ). (e.g., Waiver of certain privileged information may waive privilege as to all communications on same subject.
182

Waiver of Privilege Identified

Oaks Industries, Inc. v. Zenith Industries, Inc., 1998 WL 79614 (N.D. Ill. July 27, 1988): Inc.,
We decline to expand the coverage of the attorneyattorneyclient privilege to information which a party freely shares with other business persons. Such an expansion to all persons with whom the party may enter or consider entering into a business transaction would quickly swallow up the general rule that disclosure waives the attorney-client privilege. attorneyMoreover, it would do little to promote the underlying purpose of the privilege, that of encouraging open discussions between clients and their attorneys.
183

Libbey Glass, Inc. v. Oneida, Ltd., 197 F.R.D. 342, Ltd., 347347-49 (N.D. Ohio 1999) (client waived privilege as to attorney s opinion on trade dress infringement issues by disclosing it during negotiations to representatives of an entity with whom a joint venture was eventually formed) Intl l Honeycomb Corp. v. Transtech Serv. Network, Network, 1992 WL 314897 (E.D.N.Y. Oct. 9, 1992) (decision to reveal privileged information to potential investors for legitimate business purposes was rational, yet entailed consequence of waiver)
184

Cheeves v. Southern Clays, Inc., 128 F.R.D. 128, Inc., 131 (M.D. Ga. 1989) AMCA Int l Corp. v. Phipard, 107 F.R.D. 39, 43 (D. Phipard, Mass. 1985) (client s disclosure of counsel s memorandum explaining royalty payments waived privilege on that memorandum and on all other communications with any attorneys regarding such payments) Paul R. Rice, Attorney-Client Privilege in the United AttorneyStates (2d ed.) (2003) 9:90
185
Privilege Deemed Preserved

Hewlett-Packard Co. v. Bausch & Lomb, Inc., 115 HewlettInc., F.R.D. 308 (N.D. Cal. 1987) (disclosure of counsel s confidential opinion letter in negotiations over sale of subsidiary did not waive privilege). Three factors identified: identified: party had duty to disclose possibility that patent litigation could arise disclosure made only after special confidentiality agreement to protect this specific information real possibility that potential purchaser would purchase the business
186
Privilege Deemed Preserved

Tenneco Pck g Specialty and Consumer Prods., Inc. v. S.C. Johnson & Sons, Inc., 1999 WL Inc., 754748 (N.D. Ill. Sept. 14, 1999) (also stressed late stage of disclosure and extremely limited confidentiality agreement as to the specific information in question) Rayman v. Am. Charter Fed. Savings & Loan Ass n, n, 148 F.R.D. 647 (D. Neb. 1993) Cavallaro v. United States, 153 F. Supp.2d 52, 62 States, (D. Mass. 2001) (dicta) (erroneously stating that disclosure of information during merger negotiations does not pose problems for privilege)
187
Can a Common Interest Agreement Preserve Privilege?

Answer generally no in negotiation context. A community of interests exists among . . . separate corporations where they have an identical legal interest with respect to the subject matter of a communication between an attorney and a client concerning legal advice . . . The key consideration is that the nature of the interest be identical, not similar, and be legal, not identical, legal, solely commercial.
Duplan Corp. v. Deering Milliken, Inc., 397 F. Supp. 1146, 1172 (D. S.C. Inc., 1975).
TransactionTransaction-related interests are usually deemed commercial, at least until final stages where regulatory scrutiny may be at hand.
188
When Privilege May Be Preserved Despite Disclosure

Legal duty to disclose Transaction is near closing Transaction is a merger or a stock transaction (i.e., not an asset sale) (i.e., Special precautions are taken to ensure the confidentiality of the privileged information in question Formal regulatory inquiry has begun or is imminent
189
II. Waiver Through Disclosure to the Government

Incentives to produce privileged information to the government in connection with an investigation Effects of such disclosure Attempts to ameliorate consequences of disclosure or refusal to disclose
190
Incentives to Produce Privileged Information

Intense pressure Required for favorable treatment

Thompson Memorandum: one factor a prosecutor may weigh in assessing the adequacy of a corporation s cooperation is the completeness of its disclosure, including, if necessary, a waiver of the attorney-client and attorneywork product protections.
191
The Effects of Voluntary Disclosure

Effect on communications with attorneys Does the disclosure to the government constitute a waiver with respect to the materials produced? With respect to all materials on the same subject matter?
192
Waiver of the Privilege With Respect to the Materials Produced

The law regarding selective waiver is in a state of hopeless confusion.

See, e.g., Columbia/HCA Healthcare Corp. Billing Practices Litig., 293 F.3d 289 (6th Litig., Cir. 2002).
Most of the Courts of Appeals have held voluntary disclosure to the government to constitute a waiver with respect to the materials produced.
See, e.g., Permian Corp. v. United States, 665 F.2d 1214 (D.C. Cir. 1981). States,
However, However, the Eighth Circuit has accepted the theory that disclosure taking place in a non-public setting may preserve the nonprivilege, with or without special confidentiality agreement.
See, e.g., Diversified Indus. v. Meredith, 572 F.2d 596, 611 (8th Cir. 1978). A party Meredith, may selectively waive the privilege as to the government, but preserve it against outsiders. Most other courts have rejected this.
193
Waiver of the Privilege With Respect to the Materials Produced

Some courts, however, have noted that special confidentiality agreements may be effective in preserving the privilege.
See, e.g., Enron Corp. v. Borget, 1990 WL 144879 (S.D.N.Y. Borget, Sept. 22, 1990)
Confidentiality agreements are generally ineffective.

See, e.g., Columbia/HCA
194
3 Basic Positions as to Selective Waiver

Selective waiver never permissible Selective waiver permissible Selective waiver permissible where government agrees to special confidentiality protections The first position is dominant
195
Waiver of the Privilege with Respect to all Materials on the Same Subject Matter

Some courts have determined that partial waiver of some privileged information waives privilege as to all other privileged communications related to the same subject.
See, e.g., In re Sealed Case, 676 F.2d 793, 818 (D.C. Cir. 1982); In re Case, Martin Marietta Corp., 856 F.2d 619 (4th Cir. 1988). Corp.,
Probably only triggered at a certain point after a significant quantum of privileged information related to the subject has been disclosed. May not apply where partial information is not put into public record. What does fairness dictate?
196

Efforts to Preserve the Privilege

H.R. 2179 (2004) would have limited waiver of privilege to any information disclosed to the S.E.C. pursuant to a written confidentiality agreement. Sentencing Commission: April 5, 2006, Commission voted to remove language from 8C2(g), cmt. 12, which required waiver of privilege as prerequisite for finding full cooperation. Proposed F.R.E. 502: would preserve privilege and work product protections where information is disclosed to a federal, state, or local government agency during an investigation by that agency, and is limited to persons involved in the investigation.
197
III. Waiver of the Privilege Through Disclosures to Insurers and Auditors

Insurers

Insurance policy cooperation clauses may require the insured to share privileged information with the insurer. Disclosure of privileged or work product information to an insurer may waive the privilege as to other parties. The issue of waiver will often turn on whether the insured and insurer share a common interest in the underlying suit.
198
Location, Location, Location: Know What States Laws May Apply

A majority of insurance disputes are litigated in federal court based on diversity jurisdiction. State law is not uniform regarding attorneyattorneyclient privilege in the insurance context. As a result, disclosure to an insurer may result in a waiver in one jurisdiction, but not in another.
199
The Common Interest Doctrine

Insurer providing a defense: The common interest defense: doctrine is most likely to preserve the privilege where the insurer has retained counsel to defend the insured.
See e.g., Metropolitan Life Ins. Co. v. Aetna Cas. & Surety Co., 730 A.2d 51, 65 (Conn. 1999); Lectrolarm Custom Sys., Inc. v. Pelco Sales, Inc., 212 F.R.D. 567,571 (E.D. Cal. 2002).
Reservation of rights: The doctrine is less likely to apply rights: if the insurer has reserved its rights or the scope of any identity of interest is uncertain.
See e.g., North River Ins. Co. v. Philadelphia Reinsurance Corp., 797 F.Supp. 363 (D.N.J. 1992); Lectrolarm, supra.
Separate counsel: Most courts will not find a common counsel: interest if the insurer declines coverage or the insured has its own counsel and acts independently of the insurer.
See e.g., Lectrolarm, supra; Metropolitan Life, supra at 65 n. 33.
200
Common Interest: Sword and Shield

In a coverage dispute, insurers may use the common interest doctrine to seek access to the insured s privileged materials from the underlying case.
The unity of interest eliminates any expectation of confidentiality for communications relating to the defense of the underlying case. Privilege may still attach to communications related to coverage because the interests of the insurer and its insured are adverse. See, e.g., Nationwide Mut. Fire Ins. Co. v. Bourlon, 617 S.E.2d 40, 47 (N.C. Ct. App. 2005).
201
Little Clarity From the Courts

Several courts have found that a common interest eliminates a claim of privilege between the insured and insurer.
See, e.g., Waste Mgmt., Inc. v. Int l Surplus Lines Ins. Co., 579 N.E.2d 322, 328 (Ill. 1991); Dendema v. Denbur, Inc., 2002 U.S. Dist. LEXIS 3804 (N.D. Ill. Mar. 8, 2002); Metro Wastewater Reclamation Dist. v. U.S. Fire Ins. Co., 142 F.R.D. 471 (D. Col. 1992)
Other courts have rejected this approach.

See, e.g., N. River Ins. Co. v. Columbia Cas. Co., 1995 WL 5792 (S.D.N.Y. Jan. 5, 1995); Int l Ins. Co. v. Newmount Mining Corp., 800 F. Supp. 1195 (S.D.N.Y. 1992); Owens-Corning Fiberglass OwensCorp. v. Allstate Ins. Co., 660 N.E.2d 755 (Ohio Ct. Com. Pl. 1993).
202
Privilege and Insurance Policy Cooperation Clauses

Insurers have argued, and some courts have agreed, that the insured s contractual duty to cooperate waives the privilege with respect to materials in the underlying case.
See, e.g., Waste Mgmt., Inc. v. Int l Surplus Lines Ins. Co., 579 N.E.2d 322, 328 (Ill. 1991).
Most courts have rejected the cooperation clause waiver argument.

See, e.g., Bituminous Cas. Corp. v. Tonka Corp., 140 F.R.D. 381, 386 (D. Minn. 1992); Metropolitan Life, supra at 63-64. 63-
203
Disclosures to Accountants & Auditors

Auditors

In general, the attorney-client privilege does not attorneyapply to communications that are intended to be disclosed to third parties, or that are in fact so disclosed.
See, e.g., U.S. v. Rockwell Intern., 897 F.2d 1255 (3d Cir.) 1990).
[N]o accountant-client privilege exists under accountantfederal law, and no state-created privilege has been staterecognized in federal cases.
United States v. Arthur Young & Co., 465 U.S. 805, 817 (1984).
204
State Law All Over the Map on AccountantAccountant-Client Privilege

At least 31 states have codified some form of accountantaccountant-client privilege, but the statutes and the protection afforded thereunder vary considerably. Only about 12 states provide a meaningful privilege. Many others have merely codified accountants existing ethical obligations. The Accountant-Client Privilege: A Prescription Accountantfor Confidentiality or Just a Placebo?, New Eng. L. Rev. 697, 735 (2000). Statutory accountant-client privilege is often strictly accountantconstrued.
205
An Exception to Every Rule: Accountants as Translators

Accountant may be deemed privileged agent where the accountant serves as a translator to facilitate communications between counsel and client for the purpose of obtaining legal advice.
See, e.g., United States v. Kovel, 296 F.2d 918 (2d Cir. 1961).
This exception does not apply where the accountant is providing accounting services or information that is not necessary to counsel s provision of legal advice to the client.
See, e.g., United States v. Ackert, 169 F.3d 136, 139 (2d Cir. 1999); In re G-I Holdings, Inc., 218 F.R.D. 428, 436-37 (D.N.J. G4362003); United States v. Chevron Texaco Corp., 241 F. Supp. 2d 1065, 1072 (N.D. Cal. 2002).
206
Disclosures to Auditors

Generally, disclosure of privileged information to auditors will waive the privilege.

S.E.C. v. Brady, 2006 WL 2880444 (N.D. Tex. Oct. 6, 2006) Brady, (disclosure of confidential information to auditors for purposes other than seeking legal advice destroys the right to claim the privilege). First Fed. Savs. Bank v. United States, 55 Fed. Cl. 263, 269-70 269(Fed. Cl. 2003) (disclosure of unredacted board minutes during annual audits waived the privilege, because the disclosure did not have a legal purpose). United States v. El Paso Co., 682 F.2d 530, 540 (5th Cir. 1982) (disclosure of tax pool analysis and underlying documentation to outside accountants for tax purposes waived the privilege).
Where counsel retains an auditor to assist in providing legal advice, the auditor acts as a privileged agent.
See U.S. ex rel. Robinson v. Northrop Grumman Corp., 2002 WL 31478259 (N.D. Ill. Nov. 5, 2002). 207
Privilege v. Work Product: An Important Distinction

Waiver of the attorney-client privilege is not necessarily a attorneywaiver of the work product protection for the same documents.
See S.E.C. v. Brady, supra at *10.
Most courts find work product waived only when it is disclosed to an adversary or potential adversary .
See, e.g., Lawrence E. Jaffe Pension Plan v. Household Int l, Inc., 237 F.R.D. 176, 183 (N.D. Ill. July 6, 2006); United States v. Stewart, 287 F. Supp.2d 461 (S.D.N.Y. 2003).
Generally, waiver of opinion work product will not result in a broad subject matter waiver.
See, e.g., S.E.C. v. Brady, supra at *14; Chambers v. Allstate Ins. Co., 206 F.R.D. 579, 589 (S.D. W. Va. 2002).
208
Is An Auditor an Adversary ?

The fact that an auditor must remain independent does not establish that it is adversarial to the company it audits.
See, e.g., Lawrence Jaffe Pension Plan, supra at 183.
Some courts have suggested that auditors and the companies they audit share a common interest in the information shared by the company.
See Merrill Lynch & Co., Inc. v. Allegheny Energy, Inc., 229 F.R.D. 441 (S.D.N.Y. 2004). But see Medinol Ltd. V. Boston Scientific Corp., 214 F.R.D. 113 (S.D.N.Y. 2002) (in view of recent accounting scandals, it is crystal clear that in order for auditors to properly do their job, they must not share common interests with the company they audit ) (emphasis added).
209
Privilege Threat Increased in PostPost-Enron Environment

The enactment of the Sarbanes-Oxley Act of 2002 in the wake Sarbanesof Enron and other corporate scandals has broadened the scope of information requested by auditors and increased potential threats to the privilege. Areas of inquiry include liabilities and contingency/litigation reserves, results of internal investigations, and legal advice regarding regulatory and transactional matters. In response, the ABA recently adopted a resolution urging the SEC and other governmental and professional organizations to adopt standards, policies, practices and procedures to ensure that the privilege and work product protections are preserved throughout the audit process
See ABA Aug. 7-8, 2006 Resolution and Report of ABA Task 7Force on the Attorney-Client Privilege, available at AttorneyPrivilege, http://www/abanet.org/buslaw/attorneyclient/home.shtml.
210

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Emerging Issues for In-House Counsel 2006

Specific Qualifications Industry Specific Number of Arbitrators PartyParty-Neutral Arbitrators

Locale Time Periods Choice of Law Reasoned Opinion

Is mediation ever too early?

Arbitration Pleadings and Procedures

Narrative, Descriptive Pleadings Preliminary Conference Scheduling Order Motion Practice

Contractual Agreement on:

Discovery from Out of State Witnesses

The Manifest Disregard of Law Standard of Review for Arbitration Awards

Manifest Disregard of Law under the FAA?

New York and Pennsylvania

Are they always advisable? When should they be utilized?

The Society of Maritime Arbitrators, Inc. ( SMA )

Proceedings in an SMA Arbitration (i)

Proceedings in an SMA Arbitration (ii)

Arbitration with a difference?

Emerging Issues in Delaware Law

Trenwick America Litigation Trust v. Ernst & Young, L.L.P.

Once Upon a Disney The Evolution of the Duty of Good Faith

Duty of Care Duty of Loyalty Duty of Good Faith - maybe

What Is Good Faith?

The Duty of Good Faith

Duty of Good Faith

2005 WL 2056651 (Del. Ch. 2005)

How is Good Faith different from Loyalty?

Breach of Duty of Care

Breach of Duty of Loyalty

Statutory Framework Delaware General Corporation Law

8 Del. C. 101 et seq.

Fiduciary Duties in Alternative Entities

Business Judgment Rule

Application of the BJR

Consequences of Trenwick .if any

Delaware law vs. New York law

Delaware vs. New York Fiduciary Duties

duty of care, loyalty and good faith

Who is responsible for excessive compensation?

Trouble with Boilerplate

How Standard Clauses Stand Up In Court

Agreements to Negotiate in Good Faith

Why Include These Terms?

Preliminary Duty to Negotiate In Good Faith?

Effective leverage between business persons to get to a final agreement

Problem: How do I know when I have negotiated in good faith?

New York law: probably not.

Pennsylvania law: probably if sufficiently definite.

To Waive or Not to Waive

Reasons not to waive

Elements of a Successful Jury Waiver

Don t Look At Me! : Limiting Your Liability

Protect Your Client With Broad Limitation Language

Punitive Damages for Intentional Breach of Contract

Contractually Shortened Limitations Periods

Drafting an Integration Clause That Sticks

Preventing Claims of Fraud Based On Pre-Contractual Negotiations Pre

Favorable Trend in Sophisticated Business Transactions

Draft Detailed Integration/AntiIntegration/AntiReliance Provision

What About Parole Evidence?

Indemnification for Claims of Intentional Wrongful Conduct

Indemnification for Punitive Damages?

Indemnification for Cost to Comply With Non-Monetary Relief Non

Indemnification for Party s Own Negligence

Special Rule in Securities Fraud Cases

Preventing Claims of Fraud Based On Pre-Contractual Negotiations Pre

Indemnification for Cost to Comply With Non-Monetary Relief Non