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Ethics in Negotiations

Posted: July 31st, 2013

Legal commentators have written countless articles and entire CLE courses are dedicated to discussing what an attorney may or may not say in negotiations. Ethics in negotiations is tricky. On one hand, a lawyer must show honesty and good faith, and not accept a result that is unconscionably unfair to the adverse party. On the other hand,the attorney is obligated to obtain a result that is in the client’s best interest and must do everything, short of fraud or deceit, to do so. The absence of a clear line between puffing and misrepresentation has resulted in a considerable body of ethics decisions and commentary.

Many lawyers refer to Model Rule 4.1 which states: “In the course of representing a client a lawyer shall not knowingly (a) make a false statement of material fact or law to a third person; or (b) fail to disclose a material fact when disclosure is necessary to avoid assisting a criminal or fraudulent act by a client, unless disclosure is prohibited by Rule 1.6.” As the commentary to the Rule makes clear, a misrepresentation occurs when a lawyer incorporates or affirms a statement by another person that the lawyer knows to be false. A misrepresentation also includes misleading statements and omissions that are the equivalent of affirmative false statements.

Generally, Rule 4.1 defers to the parties and the circumstances of the transaction to determine what is factual, what is ethical, and what is legal. Here is where the line of negotiation ethics gets blurry. Not all untruths are equal. Posturing or “puffing” during negotiations is not a breach of the Rules. Specifically, statements regarding a party’s negotiating goals or its willingness to compromise are not seen as actionable misrepresentations of fact but as negotiation tactics.

While there is a certain degree of deception inherent in some negotiations which arguably helps to promote resolution of conflicts, it is critical to keep in mind the parties involved. The ABA Ethics Committee notes that it is never acceptable to lie to a judge. If a judge were to ask about the limits of settlement authority given to a lawyer by a client, the lawyer might decline to answer but may not answer falsely. By contrast, the Committee concluded that “posturing and puffery” are acceptable between the opposing lawyers or with a neutral mediator. A lawyer may downplay the client’s desire to settle or overstate the strength and understate the weaknesses of the client’s case. Nonetheless, an attorney may not misstate facts, such as knowingly misstating applicable insurance policy limits. Thus in non-judicial settlement negotiations and mediations, a degree of posturing and puffery is permitted but the knowing or intentional misrepresentation of material facts is not.

July 2013 Legal Brief – Firm Newsletter

Posted: July 28th, 2013

Use of Designer Handbags Images Leads to False Advertising Suit

Posted: July 28th, 2013

Tags: intellectual property

Designer fashion label Michael Kors recently filed suit against Costco in the U.S. District Court for the Southern District of New York for falsely advertising that Michael Kors products were sold at Costco.

This action arose from an email that Costco sent to its customers offering handbags on sale for $99.99. The email used images of Michael Kors handbags, but the problem was that Costco is not an authorized retailer of Michael Kors products. In addition, Costco does not even sell Michael Kors handbags.

Michael Kors alleges that Costco’s use of images of its handbags would make customers believe its handbags are for sale at Costco, effectively luring away prospective customers from Michael Kors retailers into Costco stores, and the advertisement of a low price destroys the value of the brand. The average price of Michael Kors handbags ranges from $128 to $1,395.

While the ad did not explicitly state that the purses in the photos were Michael Kors, the photos did depict features that would identify the bags as products of the luxury designer.

Michael Kors is seeking a court order barring any future marketing of Michael Kors products, as well as payment of monetary damages.

A similar suit was filed against Costco by Tiffany & Co. back in February for its sale of “Tiffany” brand diamond engagement rings. The rings sold at Costco were not affiliated with the company, and use of the “Tiffany” trademark was not authorized. Tiffany & Co. also brought its action in U.S. District Court in New York’s Southern District alleging that Costco’s use of the “Tiffany” brand has tarnished its image and done irreparable harm to the brand.

These cases demonstrate that special attention needs to be paid to marketing and branding of products. Choosing images and names, while the function of the creative minds in marketing, requires cross-checking to ensure that the final product does not infringe the rights of others. Skipping this step may subject non-intending companies to potential claims similar to those brought by Michael Kors and Tiffany & Co.

The Demise of DOMA

Posted: July 28th, 2013

By: Martin Glass, Esq. email

Tags: estate planning

Awhile back I wrote about the difficulties for same-sex couples with respect to their estate planning. Well, if you haven’t heard by now, things have gotten easier for those in New York. I don’t normally write about case law, but when the Supreme Court of the United States (SCOTUS) speaks, even I try to listen. In this instance the case was U.S. v. Windsor.As a quick refresher, in 1996 President Bill Clinton signed into law the Defense of Marriage Act (DOMA). One of the things it said was that marriage is defined as being between a man and a woman. Thus all Federal statutes, rules and regulations were required to follow that concept.

In the Windsor case, Edith Windsor married Thea Spyer in New York. When Thea died, the federal government said that the estate could not use the unlimited marital deduction for federal estate taxes and had to pay over $360,000. Last month SCOTUS decreed that DOMA is unconstitutional as a deprivation of equal liberty and was in violation of the Fifth Amendment. As long as the couple were married in a state that legally recognizes such marriages, the federal government must also recognize the marriage. That now opens up over 1,100 federal benefits to those couples.

But here’s the rub. They did not say that state laws not allowing gay marriages are unconstitutional or illegal. The Justices said only that the federal government could not make that distinction between the types of marriages.

In New York, that’s OK because same-sex couples are allowed to get married. That means, for example, the married couple can now file both state and federal income tax returns the same way. On both of those they are a married couple and can file jointly and take advantage of all the marital deductions.

The couple would still have a problem if they tried that in Florida. Since Florida does not recognize same-sex marriages, they couldn’t get married there. They would have to file separate state and federal tax returns as single people. It gets even more confusing (and troublesome) if they got married in New York and then moved to Florida. They would then file a joint federal return as a married couple, but still have to file the state’s return as single people. The same would hold true for estate tax returns. The reverse of the Windsor case would now hold true. The estate could now take advantage of the marital deduction on the federal returns, but not on the state.

So, the bottom line is that it’s getting better for same-sex couples, but it’s still not the same as for opposite-sex couples. The best advice I can give is to see an Estate Planning attorney to discuss your particular situation. Making sure that all your wishes are in writing through a Will or a trust is always the best way of going.

Tidal Wetlands Permits and the Importance of Maintaining Old Bulkheads in Good Repair

Posted: July 25th, 2013

If you own waterfront property and have a functional bulkhead that is at least 100’ long and has been in place since before August 1977, you have a very valuable asset. According to the regulations of the New York State Department of Environmental Conservation (“DEC”), anything landward of such a bulkhead is not subject to the DEC’s wetlands jurisdiction. In contrast, if the property is not bulkheaded or the bulkhead is less than 100’ long or was constructed after August 1977, then any construction in the area within 300 feet landward of the tidal wetland boundary is likely subject to tidal wetlands regulations, and will require a DEC tidal wetlands permit. All too often, people overlook the importance of their pre-August 1977 bulkhead being “functional”, and, through failure to apply routine maintenance, find that the DEC is claiming work done behind the bulkhead should have been done pursuant to a Tidal Wetlands permit. In such situations, it is not uncommon for DEC to require any structure built without a required permit to be removed and to impose substantial penalties on the offender.

What is a “functional bulkhead”? Essentially, it is a bulkhead that functions as designed and is maintained in working order. Factors considered by the DEC in the determination of functionality include: if more than 50% of the footprint of the structure is missing; if the structural integrity is compromised; if the tidal wetland boundary has moved landward of the bulkhead; and, if sections are missing. In practice, the DEC tends to err on the side of caution and often will declare even a slightly damaged bulkhead non-functional if it fails to operate as designed. For example, if the bulkhead does not prevent soil from eroding into the water or the wetlands from moving landward, it may be deemed non-functional and the DEC will assert jurisdiction landward of the bulkhead.

The DEC’s regulations allow ordinary maintenance and repair, not involving expansion or substantial restoration, reconstruction or modification, to be performed without a permit. While this should be done regardless of when the bulkhead was constructed to avoid having to obtain a tidal wetlands permit in order to make substantial repairs, for the reasons set out above, it is critically important that the property owner regularly perform routine maintenance if the bulkhead was built prior to August 1977.

Supreme Court Defines “Supervisor” for Purposes of Harassment Claims

Posted: July 22nd, 2013

An employer’s liability for workplace harassment could turn on whether the harasser meets the Supreme Court’s newly adopted definition of “supervisor” of the victim, according to the Court’s opinion in Vance v. Ball State University, handed down on June 24, 2013.

Petitioner Maetta Vance, an African-American woman, had worked in the Ball State’s Banquet and Catering Department since 1989. Over the course of her employment there, Vance made numerous complaints regarding her interactions with Saundra Davis, a white catering specialist in her department. Vance filed complaints with the university and charges with the Equal Employment Opportunity Commission (EEOC), alleging racial harassment and discrimination, mainly stemming from her interactions with Davis.

Despite these efforts, the problem persisted. Vance eventually filed a lawsuit in 2006 in the United States District Court for the Southern District of Indiana, alleging that she had been subjected to a racially hostile work environment in violation of Title VII of the 1964 Civil Rights Act. Vance alleged that Ball State was liable for the hostile work environment created by Davis, whom Vance alleged was her supervisor.

Under Title VII, an employer’s liability for workplace harassment depends on whether the harasser is considered a co-worker or a supervisor. If the harasser is the victim’s co-worker, the employer may defend itself simply by showing that it was not negligent in addressing harassment complaints. However, if the harasser is the victim’s supervisor and no “significant change in employment status” occurs, such as the victim’s firing or demotion, the employer may avoid liability only by establishing that “(1) the employer exercise reasonable care to prevent and correct any harassing behavior and (2) that the plaintiff unreasonable failed to take advantage of the preventive or corrective opportunities that the employer provided.” If a significant change in employment status does occur, the employer is strictly liable.

In Vance’s case, the District Court granted Ball State’s motion for summary judgment, finding that the university was not vicariously liable for Davis’s actions because Davis, who did not have firing power over Vance, was not, in fact, Vance’s supervisor. The Seventh Circuit affirmed, and eventually so did the Supreme Court. The Court rejected the “nebulous” definition of “supervisor” in the EEOC guidelines, instead specifically defining “supervisor” as an employee who has the power “to take tangible employment actions against the victim, i.e., to effect a ‘significant change in employment status, such as hiring, firing, failing to promote, reassignment with significantly different responsibilities, or a decision causing a significant change in benefits.’”

Writing for the majority, Justice Alito explained that, in the Court’s mind, the newly adopted definition of “supervisor” would eliminate the question of supervisor status from a trial, which in turn “will focus the efforts of the parties, who will be able to present their cases in a way that conforms to the framework that the jury will apply.”

But Justice Ginsburg, joined by Justices Breyer, Sotomayor, and Kagan, argued in her dissent that the majority’s decision “ignores the conditions under which the members of the work force labor, and disserves the objective of Title VII to prevent discrimination from infecting the Nation’s workplaces.” The majority’s definition of “supervisor,” according to Justice Ginsburg, “strikes from the supervisory category employees who control the day-to-day schedules and assignments of others.” Although Justice Ginsburg herself questioned whether Davis would qualify as Vance’s supervisor even under this more relaxed definition, she lamented that “the Court has seized upon Vance’s thin case to narrow the definition of supervisor, and thereby manifestly limit Title VII’s protections against workplace harassment.”

Employers should take care not to view this employer-friendly decision as shielding them from hostile workplace claims. Instead, employers should take the opportunity to review their internal policies to ensure they provide for the prompt investigation of any such allegations and that employees are trained and remain up-to-date with Equal Employment Opportunity laws.

New York Navigation Law Update

Posted: July 11th, 2013

New York’s Navigation Law deals with oil spills, who must clean them up, and who must pay for the damage. Despite the name, the law applies to discharges of petroleum on land that may adversely impact the “waters of the State,” which include groundwater. Some recent court decisions are of interest.

Benjamin v. Keyspan Corp., 104 A.D.3d 891 (2nd Dept. 2013).

The normal statute of limitations for a claim of damage to property from petroleum contamination is three years from when the property owner knew or should have known of the problem. In this case, defendant Keyspan showed that the plaintiff had agreed to the installation of monitoring wells on his property, had participated in a survey regarding possible contamination in the area, and was notified of monitoring and testing results in the vicinity of the property at least eight years before the plaintiff filed suit. Thus, the action was dismissed as time-barred.

This decision from the Appellate Division, which has jurisdiction over Nassau, Suffolk, Staten Island, Brooklyn, Queens, Westchester, Dutchess, Rockland, Orange and Putnam Counties, underscores the importance of timely action by a property owner who knows or reasonably suspects that his property has been contaminated.

State of New York v. Zurich American Insurance Co., 106 A.D.3d 1222 (3rd Dept., 2013).

The Navigation Law allows any injured party to recover damages, not only from the “discharger”, but also from that person’s insurance company, by suing the insurance company directly. In this case, New York State expended over $124,000 to clean up contamination at a gas station in Northport, SuffolkCounty. It then tried to recover its costs by commencing an action against Zurich. However, Zurich had already obtained a declaratory judgment against its insured, stating that the claim is not covered under the policy. It argued that this decision meant that it could not be now sued by the State.

The Appellate Division disagreed. It pointed out that the State had not been a party to the earlier lawsuit and was therefore not bound by that court’s decision. The State must be given its own opportunity to convince the court that the policy covers the discharge. Of course, if it cannot, the insurance company will be off the hook. Another possibility is that, to avoid litigation costs, Zurich will agree to pay some of the cleanup costs as part of a settlement agreement.

Thus, if there is a dispute over policy coverage of a petroleum spill, the insurance carrier should add as a party to any lawsuit the injured party who may have incurred costs as a result of the discharge. That will create “collateral estoppel”, i.e. be binding on all the participating parties and deter subsequent litigation. Of course, the downside of including the State in a declaratory judgment action is that doing so will guarantee that the State becomes aware of the potential insurance coverage.

State of New York v. C. J. Burth Services, Inc., 39 Misc. 3d 1221(A) (Sup. Ct. Albany Co. 2013).

Anyone who violated the Navigation Law may be subject to penalties of up to $25,000 per day, with each day of a continuing violation counting as a new offense. In this case, the State asked the court to impose these penalties on the owners of a gas station, even though the latter claimed that they did not cause any spill and that the contamination had occurred years earlier before they had purchased the property. The State’s rationale was that, once they became aware of the contamination, “defendants failed to take all necessary actions to abate [it]”, by rejecting the Department of Environmental Conservation’s proposed stipulation about the work that had to be done and not doing any cleanup on their own. The court agreed that penalties could be imposed in this instance and set the matter for trial.

The important lesson to be learned from this case is that the net of Navigation Law liability can ensnare not only the person who causes a spill and his/her insurance company, but also a subsequent owner who discovers the contamination and does nothing to address it. To avoid heavy penalties, the innocent owner may consider applying to the Brownfields Program as a “volunteer”. This status allows the owner to limit the cleanup to the boundaries of the property without requiring him or her to investigate and remediate the off-site contaminant plume.

June 2013 Legal Brief – Firm Newsletter

Posted: June 28th, 2013

Obama Plans to Take Action Against Patent Trolls

Posted: June 28th, 2013

Tags: intellectual property

President Obama announced earlier this month a set of executive actions directed at cracking down on patent-holding firms that interfere with competition and abuse the patent system.

The Wall Street Journal reports that these “patent trolls” are forcing technology companies, financial institutions and others into costly lawsuits to protect their products by collecting large numbers of patents and then pursuing licensing fees while not actually producing any products themselves. Many technology companies have dealt with multiple lawsuits from so-called “patent trolls,” which aim to make money primarily through licensing fees.

These firms, also known as non-practicing entities (NPE) or patent assertion entities (PAE), say they are doing nothing wrong, just using patents that were legally granted by the U.S. Patent and Trademark Office. They say they promote a fair market by protecting smaller inventors.

Obama has constructed a five-step plan with a total of seven legislative changes, which will be released as part of a White House report on patent trolls. The plan includes a recommendation that the U.S. Patent and Trademark Office create rules that require patent owners to be identified and a request for Congress to pass legislation that puts sanctions on questionable lawsuits filed by patent-holding firms.

Additionally, Obama hopes to cut down on the International Trade Commission’s involvement in patent disputes. Claims filed with the ITC are often resolved more quickly than standard federal lawsuits. The Obama administration would like Congress to change certain ITC legal standards and ensure that the agency has flexibility in hiring its judges. Officials say that the President will order a review of existing procedures at the ITC. Reliance on the ITC has not been limited to patent trolls, as a number of technology companies such as Apple, Samsung, and Google have increasingly used the International Trade Commission to settle a number of patent disputes. The so-called “Smartphone Patent Wars” have ballooned in recent years and today, several major companies spend more on patent litigation and defensive acquisition than on research and development.

According to President Obama, patent-holding firms are a drain on progress. The firms, he says, “don’t actually produce anything themselves. They’re just trying to essentially leverage and hijack someone else’s idea to see if they can extort some money out of them.”

The US patent system is meant to reward Americans for their hard work, risk-taking and creativity and encourage innovation and invention. But in recent years, there has been an explosion of abusive patent litigation designed not to enforce intellectual property rights, but to threaten companies in order to extract settlements costing the economy billions of dollars.

According to the White House blog, in the last two years the number of lawsuits brought by patent trolls has nearly tripled, and account for 62% of all patent lawsuits in America. All told, the victims of patent trolls paid $29 billion in 2011, a 400% increase from 2005 — not to mention tens of billions dollars more in lost shareholder value.

It’s a problem not limited to wealthy multinational corporations and venture capitalists, but small business owners as well. Businesses of any size are vulnerable to these tactics. The White House estimates that last year patent trolls sent out over 100,000 demand letters, threatening everyone from Fortune 500 companies to corner coffee shops and even regular consumers to pay a settlement or face a day in court.

Obama’s initiative will help protect against frivolous litigation, and deter patent trolls from simply racking up licensing fees through the threat of litigation. This firm will be closely watching the bills being introduced under Obama’s plan as it will greatly affect the number and type of patent litigations that can be brought by these NPEs.