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The Dodd-Frank Act, signed into law in 2010, established a program for whistleblowing related to securities and commodities law violations.  It created a private cause of action for whistleblowers to sue their employers for retaliation after reporting company misconduct.  However, federal circuit courts are split as to when employees are eligible for anti-retaliation protection under Dodd-Frank.  The answer hinges on whether the SEC must be notified of the potential misconduct or if an internal company complaint will suffice.

The Fifth Circuit, in Asadi v. G.E. Energy (USA), LLC, 720 F.3d 620 (5th Cir. 2013), held that the employee must report information to the SEC to qualify as a whistleblower, whereas the Second Circuit and the Ninth Circuit have held that Dodd-Frank protects internal whistleblowers as well as those who report to the SEC.  See Berman v. Neo@Ogilvy LLC, 801 F.3d 145 (2d Cir. 2015); Somers v. Digital Realty Trust, Inc., 2017 WL 908245 (9th Cir. Mar. 8, 2017) (finding that Somers was wrongfully fired after he complained to upper management that a supervisor violated Sarbanes-Oxley internal-control requirements, but before Somers was able to report the same to the SEC).  On April 26, 2017, Digital Realty Trust, Inc. petitioned the U.S. Supreme Court in hopes of a definitive resolution to the circuit split.  See Digital Realty Trust, Inc. v. Somers, U.S., No. 16-1276.

If the U.S. Supreme Court hears the case and determines that individuals must report to the SEC to be eligible for protection, expect internal compliance programs to be ignored as would-be whistleblowers head straight to the SEC for protection.  Although Dodd-Frank was designed to promote U.S. financial stability and improve financial transparency, absent a definitive ruling from the nation’s high court, an employee lodging an internal complaint could be fired as he or she is dialing the SEC’s number to report misconduct – just in time to render the employee ineligible for anti-retaliation protection under Dodd-Frank.

In the Second Circuit and the Ninth Circuit, employers are not permitted to terminate the employment of anyone who raises an internal complaint about how the company is conducting its business and must proceed with caution, even if the employee should be terminated on other grounds.  If and until the U.S. Supreme Court opines, employees and employers alike should seek legal counsel to advise as to whether Dodd-Frank’s anti-retaliation protections are applicable with respect to internal reporting of alleged unlawful activity.

Note: we are monitoring proposed changes to Dodd-Frank, most of which focus on tax and regulatory relief, and will report on these issues in a future article.

By Patrick McCormick

PowerPoint presentations have become a staple of law school classes, business presentations, and educational seminars – so it’s no surprise that they have also made their way into the courtroom.  But at what point does a PowerPoint cross the line from helpful to harmful?  The Court of Appeals recently addressed this question in People v. Williams, 2017 WL 1216063, 2017 N.Y. Slip Op. 02588, a criminal case that is still informative in commercial and other civil matters.

People v. Williams stems from a violent encounter in 2009 in which the defendant allegedly broke into the victim’s apartment, shot him, cut him with a knife, and poured bleach over his head.  Somehow, the victim survived, and testified at trial that he had been on the phone with his brother when the defendant and others broke into the apartment.  The victim’s brother had been driving near the victim’s block around the time of the attack.

At trial, the prosecutor displayed still photos of surveillance footage purportedly showing an SUV driving down the block shortly before the crime occurred.  The victim’s brother testified that the SUV in the images “looked like” the vehicle he had been driving that night.  He also testified that when driving down the block, he saw a few people on the sidewalk wearing hooded clothing.  While he admitted that he did not see the defendant’s face because it was dark outside and snowing, the brother testified that he thought one of these individuals was the defendant, describing him as “the only short person I know.”

Before closing arguments, the trial court advised the jury that they alone were the finders of fact, that the attorneys’ summations were “simply argument[s] submitted for your consideration” and not evidence, and that the jury’s recollection of the evidence presented controlled, no matter what the attorneys said in summation.

During his summation, the prosecutor showed PowerPoint slides containing images of the trial exhibits, including still photos of the surveillance video about which the victim’s brother had testified.  The slides were annotated with captions such as “[the victim’s brother’s] truck” and “[the victim’s brother] sees the defendant,” despite the fact that the brother had been unable to definitively identify the truck or the defendant.  Defense counsel raised objections throughout, some of which were sustained.  The trial court even expressed its own concern, advising the jury at one point to disregard the annotations on the slides and ultimately stopping the PowerPoint presentation in light of the “superimposed words.”  The defendant was ultimately convicted of burglary in the first degree, assault in the second degree, and criminal possession of a weapon in the second degree (he was acquitted of robbery in the first, second, and third degrees).

Defense counsel moved for a mistrial, and while the trial court said it was “sympathetic” to these arguments, it denied the motion.  The Second Department affirmed, finding that neither the PowerPoint presentation nor the prosecutor’s summation had deprived the defendant of a fair trial (123 A.D.3d 1152).

Upholding the order of the Appellate Division, Chief Judge DiFiore wrote for the Court of Appeals that “it is well-settled that attorneys are entitled to broad latitude in commenting on pertinent matters of fact in summation, so long as they limit themselves to relevant matters within the four corners of the evidence” (see People v. Ashwal, 39 N.Y.2d 105, 109 (1976)).  As to the PowerPoint, the Court found “no inherent problem” with its use, even noting “it can be an effective tool,” but cautioned that “the long-standing rules governing the bounds of proper conduct in summation apply equally to a PowerPoint presentation.  In other words, if it would be improper to make a particular statement, it would likewise be improper to display it” on a PowerPoint slide.  Therefore, if “counsel is going to superimpose commentary to images of trial exhibits, the annotations must, without question, accurately represent the trial evidence.”  See People v. Santiago, 22 N.Y.3d 740, 751 (2014).

At trial, while the slides may have misrepresented the trial evidence, “the trial court was very attuned to the annotated slides and, in the exercise of its discretion, ultimately stopped the slideshow and instructed the jury to disregard the slides.”  The Court of Appeals also discussed the numerous occasions that the trial court reminded the jury that the prosecutor’s arguments were not evidence, of which the jury was the sole judge.  Moreover, the actual exhibits “remained pristine for the jury’s examination.”  The Court of Appeals therefore found that the trial court’s “prompt corrective action cured any potential prejudice.”

Incorporating a PowerPoint presentation into your summation at trial may be an effective way to draw the jury’s attention to the evidence that best supports your case.  But this case teaches that it’s the evidence that’s key.  So keep the focus “within the four corners of the evidence,” and click away.

Patrick McCormick, Esq. is a partner at Campolo, Middleton & McCormick, LLP, a premier law firm in Ronkonkoma and Bridgehampton, where he chairs the Litigation & Appeals practice group.  A member of the board of directors of the Suffolk County Bar Association, Patrick is also the incoming dean of the Suffolk Academy of Law. 

By Christine Malafi

Liability insurance policies provide both indemnification and defense coverage to insureds when they are sued for injuries and/or damages. Insurance policies also contain various exclusions, or exceptions, from insurance coverage. After an insured notifies its insurance company of a lawsuit brought against it, the insurance company investigates the claim and the coverage provided to the insured under the terms of the applicable insurance policy. The insurance company then determines whether the suit is covered, not covered, or possibly covered under the terms of the policy.

If the lawsuit is covered by an insurance policy, and litigation defense coverage is provided for in the policy, the insurance company is obligated to protect its insured’s interests and rights.  Under most insurance policies, the insurance company has the right to determine the defense strategy in the suit, as well the right to settle the lawsuit.

If it is determined that the suit is covered under the policy, the insurance company assigns defense counsel to represent the insured. If the insurance company determines that no coverage is provided under the terms of the policy, it will not provide defense coverage and the insured is left to hire its own attorney.

So, what happens when the insurance company determines that its insured is “possibly” covered? In this case, the insurance company will issue a reservation of rights letter, outlining the potential policy exclusions for the insured, and providing a defense under that reservation of rights to later disclaim coverage to the insured for the suit. The insurer will assign defense counsel of its choice. The assigned defense counsel is, in all likelihood, an attorney or firm that is on a list of firms which the insurance company regularly deals with, provides files for defense regularly, and with whom the insurance company has a long relationship.

Under normal circumstances, i.e. a full coverage under the policy, the insurer, insured, and defense counsel all have the same interests and goals–the full and complete defense and indemnification of the insured in the lawsuit. However, in the case of a defense being provided under a reservation of rights, there is an implicit conflict of interest. The insured rightfully wants the insurance company to defend it throughout the lawsuit and to pay any and all settlements or judgments in connection with the lawsuit. However, the insurance company will be reviewing all facts as they are gathered in the lawsuit and constantly analyzing whether a disclaimer of coverage under one of the policy’s exclusions can assist the insurer in avoiding payments under the policy for indemnification or future defense costs.

So, where does that leave the assigned defense counsel? The assigned defense counsel is in the position of reporting to the insurer, and is dependent upon the insurer paying all legal bills. The assigned defense counsel is not, however, the attorney for the insurance company. The assigned defense counsel’s client is the insured, and all duties of loyalty are owed to that insured. It is a difficult position to be in as an attorney. Although many insureds don’t realize it, it is an even more difficult position for the insured to be in. The assigned defense counsel must do what is right for the insured, but is reporting to and billing the insurance company.

Fortunately, most insurance companies and assigned defense counsels understand this precarious position. If handled correctly, the insurance company must assign two separate claim representatives to oversee the two matters—the defense of the insured on the one hand and the insurance coverage issues on the other hand—and those two claims representatives will not communicate with each other regarding the defense, nor will their supervisors. The defense counsel will report to the claims representative handling the defense of the insured only and the claims representative on the insurance coverage issues will never see those reports or the defense file.

Because of this inherent conflict, there is a risk to the insured. The courts, therefore, hold that an insured is entitled to retain its own independent defense counsel to represent it in the defense of the litigation, at the full cost and expense of the insurance company. Therefore, it is in the insured’s power to insist on its own independent attorney to defend the matter. By insisting on your own attorney to defend you, you can rest assured knowing that your own attorney is doing everything possible to protect your rights so that you can reap the full benefits of the indemnification coverage for which you paid.

At Campolo, Middleton & McCormick, LLP, not only do we have the experience to defend you, but we also have the experience to work with you to make sure that your insurance company lives up to its full obligations under the insurance policy for which you have paid premiums.

A crucial issue for any business named in a lawsuit or that is on notice that it will be named in a lawsuit is the preservation of evidence, specifically electronically stored information (“ESI”).  Attorneys will typically send “litigation hold” letters to their own clients or opposing parties in litigation to ensure that all steps are taken to preserve all documents and ESI that could be relevant to the litigation.  Essentially, businesses are instructed that nothing should be deleted, removed, modified, etc. by anyone within the company while the litigation is pending.  When a client destroys evidence or is negligent in preserving evidence, it is considered “spoliation” of evidence and can lead to sanctions imposed by the Court against the party that is guilty of spoliation including, but not limited to, dismissal or striking of a pleading, monetary penalties, or a negative inference at trial.  The negative inference at trial can be incredibly damaging to a party because it permits a jury to infer that any missing evidence is missing because it negatively impacted that party’s case or defense.

The Commercial Division in Queens County recently dealt with this spoliation of evidence issue in Ferrara Bros. Bldg. Materials Corp. & Best Concrete Mix Corp. (“Ferrara”) v. FMC Constr. LLC, et al. (Dufficy, J.).  Plaintiff Ferrara commenced the lawsuit against FMC Construction LLC (“FMC”) and Casa Redimix Concrete Corp (“Casa”) claiming that Casa interfered with the contract Ferrara had with FMC to provide cement for a construction project.    Casa’s defense was that it did not know about the contract between Ferrara and FMC at the time it entered into its contract with FMC.  However, Ferrara alleged that Casa purposely backdated its contract with FMC to give the impression that it was entered into prior to Ferrara’s contract rather than after Casa’s principals became aware of Ferrara’s contract.

Given the issue with the timing of the contract between Casa and FMC, Ferrara sought in discovery (over seven years after the case had been commenced) the electronic data, specifically metadata that would reveal the true dates that the contract between Casa and FMC was prepared, modified, and executed.  In response to the request, an IT specialist submitted an Affidavit on behalf of Casa claiming that two years after this litigation was commenced, the computers on which the native information was stored had been replaced and discarded due to a need to update Casa’s computer system.  The Court made a point to note that this computer system replacement was not done through an automatic process but rather was a conscious decision by Casa to update its computer system in the midst of litigation.

As a result of the discarding of the information by Casa, Ferrara brought a motion seeking sanctions against Casa for spoliation of evidence.  The Court noted that a party seeking sanctions based on spoliation of evidence must show the following: (1) the party having control over the evidence possessed an obligation to preserve it at the time of its destruction; (2) the evidence was destroyed with a “culpable state of mind”; and (3) the destroyed evidence was relevant to the party’s claim or defense such that the trier of fact could find that the evidence would support that claim or defense.  VOOM HD Holdings LLC v EchoStar Satellite L.L.C., 93 AD3d 33, 45 (1st Dep’t 2012), quoting Zubulake v UBS Warburg LLC, 220 FRD 212, 220 (S.D.N.Y. 2003)

Considering that the timing of the contract between Casa and FMC was at the heart of Casa’s defense in the case regarding its knowledge of the contract between Ferrara and FMC, the Court found that the metadata Ferrara sought was relevant to the case.  The Court also found that, considering that the parties were in the midst of litigation at the time and Casa knew or should have known that the ESI regarding its contract with FMC would be relevant to the litigation, Casa had an obligation to preserve this ESI.  Lastly, the Court held that Casa had not presented any evidence to rebut the presumption that Casa was negligent and possibly even grossly negligent in failing to suspend its destruction of the computer system containing ESI relevant to the litigation.   As such, the Court found that Ferrara had established the factors necessary to prove spoliation and turned to the issue of sanctions.

In reviewing sanctions to be imposed against Casa, the Court noted that spoliation sanctions are often based on the degree of willfulness with respect to the refusal or failure to disclose information which ought to have been disclosed.  Hameroff & Sons, LLC v. Plank, LLC, 108 A.D.3d 908 (3d Dep’t 2013).  Further, when the party seeking sanctions is still able to prove its case or defense, less severe sanctions are generally appropriate.  De Los Santos v. Polanco, 21 A.D.3d 397, 398 (2d Dep’t 2005).

After reviewing the facts of this case and based on the fact that the Court believed that Ferrara could still prove its case even without the missing evidence, the Court determined that the appropriate sanction would be a negative inference at trial to the jury.  Essentially, what this means is that if the case goes to trial, the jury will be permitted to infer that the reason the metadata was not disclosed is because it would act against Casa’s defense that it was unaware of Ferrara’s contract with FMC prior to its own contract with FMC.

The importance of preserving evidence in anticipation of litigation cannot be stressed enough.  While it is entirely possible that Casa simply needed a computer system upgrade and did not realize it would be destroying evidence pertinent to the pending litigation, as seen here, courts will impose a duty on the business and its employees to have those holds in place to ensure that everything is preserved.  The fact that Casa was already two years into the litigation at the time of the computer system replacement made the discarding of ESI even more egregious and should serve as an important lesson to business owners as well as attorneys counseling their clients at the start of and throughout litigation.

On January 10, 2017, the U.S. Equal Employment Opportunity Commission requested public input on proposed enforcement guidance for addressing unlawful harassment in the workplace and hostile work environments under Title VII of the Civil Rights Act of 1964.  Harassment claims have risen over the past few years and the proposed guidance follows a June 2016 EEOC report.  While there are a number of classes protected under federal and state law, harassment claims based on sex, race, and/or disability appear to be most common.  Employers should be aware of the legal standards and potential liability for unlawful harassment in order to help mitigate damages in advance.

As the Supreme Court explained in Harris v. Forklift Sys., Inc., 510 U.S. 17, 21-22 (1993):

Conduct that is not severe or pervasive enough to create an objectively hostile or abusive work environment – an environment that a reasonable person would find hostile or abusive – is beyond Title VII’s purview.  Likewise, if the victim does not subjectively perceive the environment to be abusive, the conduct has not actually altered the conditions of the victim’s employment, and there is no Title VII violation.

The “severe or pervasive” standard seeks to find a middle ground between conduct that is juvenile or annoying and conduct that goes so far as to create a hostile work environment.  Whether a person has been harassed depends on the “totality of the circumstances,” and a finding of harassment will turn on the specific facts of each case.  Certain conduct is more blatant than other conduct, such as racial slurs or offensive comments about disabled persons.  Other conduct may be more benign such as off-color jokes or distasteful insinuations but may nevertheless be a form of harassment when taken into the overall context.

Harassment must be based on a protected characteristic and can even be based on the perception that a person has a particular characteristic or belongs to a protected group, even if that perception is ultimately incorrect.  Similarly, “associational discrimination” covers harassment against a person because of his or her association with individuals, such as a spouse, child, or close friend.  Even if the alleged harasser belongs to the same protected class, harassment based on a protected characteristic may be found.

The liability standard on the employer depends on whether the harasser is the employer’s “alter ego” or “proxy,” a supervisor, or a non-supervisory employee, coworker, or non-employee.  The burden of proof on an employee to simply file a discrimination or harassment complaint is virtually non-existent and federal and state agencies seem to accept blanket and conclusory allegations when accepting a charge.  This turns the burden, along with the expense of properly defending a complaint, however frivolous, on the employer.  For this reason, paper trails are important, and employee complaints along with disciplinary action and remedial measures should be properly documented and preserved to defend against all types of complaints.

The full text of the guidance is available at https://www.regulations.gov/document?D=EEOC-2016-0009-0001.  The EEOC is accepting comments through Feb. 9, 2017: https://www.regulations.gov/docket?D=EEOC-2016-0009.  If you have questions about how to protect your company and your employees from harassment in the workplace, please contact us.