Category: Uncategorized

By Christine Malafi

To protect shareholders, in certain circumstances the law places liability upon corporations and their directors and officers for damages caused by conduct harmful to shareholders or conduct that breaches fiduciary duties. Just the way car owners and homeowners have insurance to protect themselves from potential liability claims against them, corporations and their directors and officers can have similar protection. Directors’ and Officers’ (“D&O”) liability insurance protects individual directors and officers, as well as their corporations, defending against claims of wrongful conduct specified in the coverage and losses incurred to a corporation directly in connection with those claims.

In the underwriting process, in addition  to setting the premium amount, the potential D&O  insurer may also review a corporation’s governance and business practices, and may even suggest changes to be made prior to the issuance of such coverage. As with everything in business, the purchase of such insurance may require a cost-benefit analysis.

Insurers typically offer three different coverages. The first of these coverages compensates individual directors and officers when a corporation does not satisfy certain debts on their behalf. The second protects  corporations when they indemnify their directors and officers for such claims. The third coverage protects the corporation from its own liabilities. None of these coverages defend or indemnify against allegations of fraud, acts that took place prior to the date coverage began, or suits between the corporation and its directors or officers. Nevertheless, all three of these coverages provide safeguards and help to manage the risk of liability. The D&O policy usually covers settlement amounts, legal fees, and compensatory damages that would otherwise have to be paid by the corporation or its officers and directors directly.

The one general standard that D&O insurance protects against are mis-steps by the corporation or its officers and directors. Even though the corporation and its employees can rely upon the business judgment rule as a defense to lawsuits, if a suit is based upon a decision or act which is rationally based, there are still risks, litigation may be protracted, and the cost of defending a lawsuit can be high. D&O insurance allows corporations to make rational business decisions without the fear of sustaining costs and expenses that could harm or even shut the business. As a result, it may be an important decision for a corporation as to whether to purchase D&O insurance.

In prior months, I have discussed cases involving businesses pursuing lawsuits against former employees due to perceived violations of, among other things, non-compete and/or non-disclosure agreements, as well as alleged misappropriation of trade secrets.  While the former employer is usually the one to commence the lawsuit, there are times when the former employee may also fight back with claims of his or her own.  This is exactly what happened in a recent case out of the New York County Commercial Division.  Luckily for the employer, certain of the former employee’s claims were dismissed.

In the case of International Publishing Concepts, LLC v. Locatelli (J. Bransten), International Publishing Concepts, LLC (“IPC”) commenced a lawsuit against one of its former salespeople, Thierry Locatelli (“Locatelli”).   IPC is a company that publishes books and magazines for placement in hotels.  IPC generates revenue by selling advertising within the publications themselves.  Locatelli was a salesperson for IPC for approximately five years, beginning in 2007, and generated significant revenue for IPC during the time he was employed.

In mid-2012, Locatelli left IPC and allegedly began to compete against the company, which led to a significant drop in sales.  IPC alleged that Locatelli used similar materials in an effort to mislead IPC’s clients to do business with him instead.  IPC commenced the lawsuit against Locatelli alleging claims for breach of fiduciary duty, fraud, unjust enrichment, tortious interference, unfair competition, and theft of corporate opportunity. After IPC commenced the lawsuit against Locatelli, Locatelli served an Answer containing counterclaims against IPC for defamation, among other things.  Locatelli alleged that IPC forwarded several disparaging emails and letters to Locatelli’s clients, which caused him to lose business and damaged his reputation.  Locatelli also commenced a third party action against the president and CEO of IPC for the same defamation claim as alleged against IPC.

As it turns out, the letters that were forwarded to two of Locatelli’s clients by email were actually letters from IPC’s counsel in this lawsuit.  The first letter was originally sent to IPC’s President and addressed the firm’s analysis of the claims against Locatelli and provided the firm’s recommendations as to what claims and relief to pursue.  [As an aside, it is unclear if the law firm was okay with its client sending out an attorney-client privileged communication, but it is not something that would be recommended regardless of intent.]  The second letter was a “cease and desist” letter from IPC’s counsel to Locatelli which essentially restated the legal claims against Locatelli for engaging in violative conduct.  It was these letters and the emails forwarding them that formed the basis for Locatelli’s defamation counterclaim and third party claim.

IPC and IPC’s President sought to dismiss the defamation counterclaim and third party claim respectively, among other relief.  In reviewing the defamation claim under New York law, the Court noted that Locatelli would have to establish that there was “(1) a false statement, (2) published without privilege or authorization to a third party, (3) constituting fault as judged by, at a minimum, a negligence standard, and (4) it must either cause special harm or constitute defamation per se.” Frechtman v. Gutterman, 115 A.D.3d 102, 104 (1^st Dep’t 2014).

The Court ultimately held that the defamation claim must be dismissed because the statements contained in the letters and forwarding emails were protected by “absolute privilege,” “qualified privilege,” and were also non-actionable statements of opinion rather that actionable assertions of fact.

The Court held that the absolute privilege applied because the statements made in the letters were made by individuals participating in a public function such as a judicial proceeding.  Because the statements made were pertinent to the litigation, absolute privilege applied and the defamation claim could not stand.

The Court held that qualified privilege also applied because both parties (the communicating party and the receiving party) had an interest in the communications and Locatelli could not establish that the communications were made with spite or ill will or with knowledge that the statements were false or made in reckless disregard for the truth.

Lastly, the Court held that the statements in the letters were merely non-actionable opinions rather than actual assertions of fact.  Considering that the letters merely contained statements of IPC’s lawyers’ beliefs and opinions, rather than statements of fact, the defamation claims were dismissed on that ground as well.

While the defamation claim was ultimately dismissed here, it is important that any business in this type of situation consult with its attorneys before sending out potentially inflammatory communications, especially attorney-client privileged communications.  The claims asserted by Locatelli, which include tortious interference claims that were not part of the motion to dismiss, potentially could have been avoided if IPC sought the advice of its counsel before forwarding letters to Locatelli’s clients.  It is unclear if IPC consulted with its attorneys here, but it does not appear so based on the facts presented by the Court.

Bridgehampton Teachers Get Hair Buzzed to Benefit Local Family

By Mara Certic

The last day of school before vacation tends to be an exciting one, as academics take a backseat to fun activities in most classrooms for the last few hours before that week of freedom. That was the case on Friday, February 13, at the Bridgehampton School where students prepared themselves for the chance of a lifetime—the opportunity to shave a teacher’s head.

In an effort to raise money for a family in the school district, Bridgehampton High School History teacher John Reilly decided that it was once again time to give schoolchildren the opportunity to pay money for the chance to shave his flowing locks in front of the entire school.

Mr. Reilly has previously allowed his students to give him a buzz, and this year, when he heard that the father of a first grader was battling cancer and unable to work, he didn’t hesitate to offer up his coiffed ‘do in order to raise some money.

“My hair is less important than their need,” Mr. Reilly said on Friday afternoon, shortly after he had been shorn.

The history teacher, whose mane looked like it belonged on the head of a Romantic poet, mysteriously went “missing” moments before he was scheduled to sit for his hair cut. Eric Bramoff, the school’s athletic director, asked the gathered students call out to Mr. Reilly to try to find him.

“I saw him in the hallway, maybe he’s nervous,” one second-grader shouted over the screams of “Mr. Reilly” punctuated by rhythmic claps that echoed throughout the gymnasium.

A mysterious character with long, flowing blonde locks ran in at one point and sat in the designated barber’s chair, much to the confusion of some of the children. It was not a golden-haired maiden, as some had believed, but in fact music teacher David Elliot, who had donned the shining wig.

After more chanting from the students, a reluctant Mr. Reilly emerged from another room.

“There’s just not enough money in the pot,” he said as he explained he had cold feet and was second-guessing his decision.

Just as disappointed groans started to become audible throughout the gym, Mr. Bramoff made an offer he couldn’t refuse.

Would he change his mind if the new athletic director bought another ticket for every student in the gym? Could that $175 sway his decision?

Apparently so, as Mr. Reilly sat down and lucky students were called up to begin buzzing his hair.

Charles Manning Jr., Janatan Braia, Franky Bonilla, Melissa Villa and Michael Smith were all called up to begin the trimming process.

The school’s three senior classmen were also called upon to participate in the haircut, which raised a total of $760.

Campolo, Middleton & McCormick donated $100 when it heard of Mr. Reilly’s plans.

In a shock last-minute decision, just as students were starting to file out of the room, Mr. Bramoff announced he was going to let his girls JV basketball team shave his head too, in order to get the total up to an even $1000.

The team, which is new this season, gleefully took up the challenge and quickly gave their basketball coach a haircut that might just as well be known as the “Reilly” at Bridgehampton School.

A large order comes in from a new customer – a major research university. Excited at the prospect of developing a long-term relationship with such a well known institution, you have no problem shipping out the order right away, with the invoice to follow a couple of days later.

The following week, several orders come in from an established client. Your sales reps have strong relationships with this client, who has always paid on time. Eager to showcase the customer service the client has come to expect from your company, you ship the order as soon as possible, never doubting that the client will pay the bill.

Unfortunately, what may appear to be a profitable order or a promising new customer could instead be an effort to drag your company into a complex scheme the FBI calls “purchase order fraud.”

According to a recent FBI news release, the global scam generally follows these steps:

• Cyber criminals based in Nigeria set up fake websites with domain names almost identical to those of real schools, companies, and institutions. Matching e-mail addresses and spoofed phone numbers (to make a call appear to be coming from the real company and area code) are used to request price quotes from vendors, mostly small businesses, for a variety of products including electronic equipment, hard drives, and pharmaceuticals. The perpetrators do online research to obtain employees’ names and other information to make the requests appear legitimate. The companies or schools being impersonated are typically large or well known, or are existing clients of the business being targeted.
• The criminals then place orders, requesting that shipments be made on credit (typically 30 days). Because the vendor believes the order is coming from an established client or well known institution – some of which even provide credit references – the vendor agrees.
• A U.S. shipping address is provided, which is typically a warehouse, storage facility, or even the residence of a work-from-home or online romance scam victim. From there, the orders are shipped to Nigeria. The FBI refers to these home Internet users as “unsuspecting accomplices” in the complicated scam.
• By the time the packages reach Nigeria, the vendor has billed the real institution and the fraud has been discovered – but the goods are long gone.

As highlighted in a recent Newsday article, many Long Island businesses have been the target of purchase order fraud. In October, Bohemia-based Chromate Industrial Corporation – a distributor of maintenance, repair, and operations supplies – received two orders from the University of Michigan for fluke meters, which measure voltage. The orders, totaling $40,000, were shipped to three separate locations as requested in the purchase order. After the packages were shipped, Chromate invoiced the University of Michigan. The university did not recognize the orders, and after reviewing the purchase orders, determined they were fraudulent. Eventually, with information provided by the FBI, one of the Chromate shipments was intercepted in the United Kingdom before being shipped to Nigeria and was returned to Long Island. However, $30,000 worth of goods never made it back.

Donna Galan, Vice President of Operations at Chromate, described the situation as “very disturbing, especially since we don’t know what the products are ultimately being used for.” But the experience has turned customer service into amateur FBI investigators; Chromate still receives frequent fraudulent orders, but employees now know what to look for. The FBI has published the following indications of fraud:

• Incorrect domain names. In Chromate’s case, the University of Michigan e-mail addresses ended in .com, not .edu.
• The shipping address on a purchase order is different from the business location, or is a residence or storage facility.
• Poorly written correspondence with grammatical errors and misspellings. Phone numbers not associated with the business or institution or are not answered by a live person.
• Orders for large quantities of merchandise, with a request for priority shipment and delayed billing.

The FBI has urged the business community to report any fraud to the FBI or local authorities as soon as the fraud is discovered, as the chance of recovering the shipments drops dramatically once the packages leave the country.

Ms. Galan wants local small businesses to learn from Chromate’s experience. “There were a number of things, looking back, on the e-mails that we could have picked up on,” she says. Now that Chromate’s employees are savvy to the scam, however, the scam is one step closer to being put out of business.

 Top 50 Women Awardees 2014

Launched in 2000, the Top 50 Most Influential Women in Business program has recognized the Island’s top women professionals for business acumen, mentoring and community involvement. The program’s honorees are selected by a judging committee and receive a unique crystal memento at the elegant dinner attended by more than 600 of the Island’s top business leaders, and represent the most influential women in business, government and the not-for-profit fields. Third-time recipients of the Top 50 Award are retired to The Hall of Fame and their crystal award reflects this prestigious honor.

Christine Malafi
Partner
Campolo, Middleton & McCormick LLP

Christine Malafi is a partner at Campolo, Middleton & McCormick where she is a member of the executive management team in addition to the corporate, litigation and municipal law groups. She was formerly senior corporate counsel to Leviton Manufacturing Co., Inc., where she handled corporate governance, acquisitions, routine and complex transactions, employment issues and other business matters, both nationally and internationally. In January 2004, Malafi was the first woman and youngest person ever to be appointed Suffolk County attorney. During her eight-year tenure, she was the chief legal officer of the county, supervising a legal team of more than 65 attorneys in the Suffolk County department of law.

Prior to her appointment, Malafi was a partner with Lewis Johs Avallone Aviles & Kaufman, LLP. Malafi has taught both undergraduate and law school classes on litigation, legal research and writing at LIU Post and the Touro College Jacob D. Fuchsberg Law Center. She has lectured extensively on municipal issues, insurance coverage issues and claim handling. She was appointed to the New York State pro bono scholars task force and served as a speaker and member of the state task force to expand access to legal services in New York. This year, Malafi was recognized by the Suffolk County Historical Society as the “Women in the Law: Historic Firsts in Suffolk County” honoree. She has been honored by Touro Law Center with the Paul S. Miller “With Liberty and Justice for All” award and the Alumni Association Public Service Award. She is also a past recipient of the EAC Network/Marcie Mazzola Foundation Children’s Advocate of the Year Award. She is a member of the New York State and Suffolk County Bar Associations, and was arbitrator of the Suffolk County District Court, Small Claims Part, from 1995 to 2000. Malafi received a Bachelor of Arts from Dowling College and a Juris Doctor magna cum laude from Touro Law Center, where she served as the managing editor of the Touro Law Review. She is admitted to practice in the states of New York and Connecticut, before the U.S. Court of Appeals for the Second Circuit and the U.S. District Courts for the Eastern and Southern Districts of New York.

Top 50 Women Awardees 2014

April 8, 2015

Featuring Terri Alessi-Miceli of the HIA-LI

Master the Art of Meaningful Networking

Join us as we discuss networking strategies to successfully market yourself and your business.

Time: 8:30 am – 10 am
Location: Clarion Hotel, 3845 Veterans Memorial Highway, Ronkonkoma, NY 11779

The turn of the new year brings two significant changes for employers in New York State.

First, the Wage Theft Prevention Act has been modified to reduce a key requirement under New York’s Wage Theft Prevention Act.  Second, New York’s minimum wage has increased to $8.75 per hour.  We address each of these changes below.

New York’s Wage Theft Prevention Act (“WTPA”) is intended to keep employees informed of their rate of pay, overtime rate, allowances, payday, etc.  The most notable requirement was to provide each employee with a notice identifying pay-related items specific to each employee.  Previously, the WTPA required that each employee receive the notice at time of hire and every year before February 1.  After succumbing to pressure from employers and legislators, Governor Cuomo signed into law an amendment to the WTPA abolishing the annual requirement to issue WTPA wage notices.  This change is effective immediately for 2015 and beyond.  As a result of this change, employers are no longer required to provide the WTPA notice every year to every employee.  The WTPA still requires, however, that employers provide WTPA notices to each employee at the time of hire. For additional references and information about the WTPA, please see our previous client advisories, NY Wage Theft Prevention Act, NY Wage Theft Prevention Templates, and NY Wage Theft Prevention Act Notice.

Employers should also be aware that, effective December 31, 2014, the minimum wage for employees in New York increased to $8.75 per hour.  As a result, each employee receiving wages at the prior 2014 rate ($8.00 per hour) is entitled to a wage increase for 2015.  As a result of this change, employers should update their New York Minimum Wage posters that are required to be kept at a conspicuous location to reflect the new higher rate.  The updated New York Department of Labor minimum wage poster can be found here: 2015 New York Minimum Wage Poster. Employers should be aware that another increase is schedule to take effect on December 31, 2015, increasing the minimum wage to $9.00 per hour.

For questions related to the above topics or any other labor and employment concerns, please do not hesitate to contact us.