Business Torts and Employment Litigation Blog

ARTICLE LINK

Today's increasingly mobile workforce requires employers to think seriously about protecting confidential company information against misuse or outright theft by key employees. Contrary to popular belief, New York courts often enforce restrictive covenants designed to protect an employer from unfair competition by former employees, particularly when a well drafted agreement demonstrates necessity and is reasonable in scope. To that end, employers should consider requiring key employees to sign "non-compete" agreements.

If your business is like most, your most valuable resources are your employees, particularly after you impart knowledge regarding your operations to them. In a competitive arena where intellectual property is your most significant differentiator, the risks associated with proprietary knowledge rise in importance. No employer wants to invest time and money training an employee only to have that individual later present the fruits of your labor to your competitor. When that happens, the damage to your company is greater than the loss of that valued employee; having a key individual defect to a competitor can result in irreparable harm to your company's goodwill and bottom line.

Faced with this scenario, an increasing number of companies are protecting themselves against such loss by having employees sign non-compete agreements. A non-compete agreement is typically signed by a new employee as a condition of employment, either before or during that employee's orientation. When drafted carefully by an experienced attorney with critical input from the employer, a narrowly tailored non-competition agreement will prevent a key employee from participating in harmful post-separation activities such as competing with the company, recruiting other employees, or providing confidential information to your competitors or their customers. Non-compete agreements are critical in employment situations involving key employees with access to information unique to your particular business. Employees typically gain access to such information either directly through job responsibility, through social interactions with owners or high-level executives, or by obtaining access to encrypted or otherwise password protected company information.

Although it is true that New York courts tend to disfavor agreements restricting or otherwise impairing the post-separation mobility of employees, most courts understand that employers have a substantial investment in hiring, training and compensating employees. Additionally, the courts recognize that such employers have a right to protect their legitimate business interests.

In general, a New York court will enforce a non-compete agreement where an employer can establish that the agreement: (1) is necessary to protect a legitimate business interest of the employer; (2) is not overbroad in terms of geographic scope; and (3) is reasonable in duration. The circumstances affecting each of these three factors will obviously vary depending on the nature of your business and the relationship your employee has with your business. It is crucial, therefore, that your non-competition agreement be as narrowly tailored as possible by an attorney with intimate knowledge of both your present business and your future ambitions for your business.

In addition to drafting a tightly constructed, tailor-made non-compete agreement, offering additional consideration to an employee for entering into such an agreement increases the likelihood of court enforcement of your agreement, should court action become necessary. Like all other contracts, non-compete agreements must be supported by consideration. Although New York courts occasionally find that the mere continuation of an employee's employment constitutes "adequate consideration" for purposes of analyzing the enforceability of a non-compete agreement, it is advisable to offer the employee additional consideration in connection with the employee's recognition and acceptance of the terms and conditions of the agreement. This is particularly important when an employer asks a key employee to sign a non-compete agreement after that key employee has already begun his or her employment. The more you give the employee, the more likely the court is to enforce your agreement with that employee. Again, the circumstances will vary based on your company's business and the scope and nature of the prospective employee's job duties.

Even if you have already endeavored to protect your company by requiring your key employees to sign non-compete agreements, as a best practice agreements should be updated and revised periodically. This is particularly true where an employee has received promotions or has otherwise experienced changes to his or her job duties and responsibilities.

Should a key employee leave your company with your company's proprietary information, you should promptly contact an attorney. A tailored non-compete agreement that is reasonable in geographic scope and duration and is necessary to protect your company's proprietary interests will be upheld if you act quickly. The prompt filing of a request for immediate judicial intervention may prevent your competitor from obtaining your most important assets: your key employees and the vital information you have imparted to them. In extreme cases, this may be the difference between your company's survival and its eventual, if not immediate, demise at the hands of your competitors.

Author: Kevin Burke, Esq. (Info.)

Article Link

ARTICLE LINK

In IDT Corp. Morgan Stanley Dean Witter & Co., et al., __ N.Y.3d __, __N.E.2d__ (2009), the Court of Appeals reversed the lower court and dismissed plaintiff's claims as either time barred or having failed to state a claim.

In August, 1999, plaintiff and another telecommunications company, Telefonica International, S.A. ("Telefonica"), entered into an agreement concerning an underwater fiber optic cable network that Telefonica was building. Under the agreement, plaintiff would buy a 10% equity share in a holding company and would have the right to buy capacity in the network.

In June, 2000, Telefonica sought to amend the terms of the agreement offering plaintiff a 5% share in a different company. Plaintiff alleged that Telefonica's investment banker, Morgan Stanley Dean Witter & Co ("Morgan Stanley"), advised plaintiff that the value of the 5% interest in the larger company "was far greater than that of the 10% interest" in the original holding company. Notably, Morgan Stanley had previously acted on plaintiff's behalf in connection with a different, but similar, investment. Plaintiff was unpersuaded by Morgan Stanley's representation and broke off negotiations with Telefonica in October, 2000.

Plaintiff commenced an arbitration against Telefonica in May, 2001, alleging breach of the agreement and seeking damages in the amount of $3.15 billion. The panel found that Telefonica had breached the agreement and awarded plaintiff damages in the amount of $16,883,817. Telefonica ultimately paid plaintiff $21.6 million in damages and interest.

Thereafter, plaintiff filed suit against Morgan Stanley alleging five causes of action (i) breach of fiduciary duty; (ii) intentional interference with existing contract; (iii) intentional interference with prospective business relations; (iv) misappropriation of confidential and proprietary business information; and (v) unjust enrichment.

Morgan Stanley moved to dismiss asserting, among other defenses, the statute of limitations. The trial court dismissed the third cause of action and otherwise denied Morgan Stanley's motion. On appeal, the Appellate Division affirmed, holding the claims were not barred by the statute of limitations. The Court of Appeals, Pigott, J., held that plaintiff's first, second and fourth causes of action were time barred and that plaintiff's unjust enrichment cause of action failed to state a claim.

Plaintiff argued that its breach of fiduciary duty claim was governed by a six year statute of limitations. Morgan Stanley contended that it was governed by a three year statute. The Court noted that New York law does not provide a single statute of limitations for a breach of fiduciary duty cause of action. Rather, the applicable limitations period depends on the substantive remedy the plaintiff seeks. When the remedy sought is purely monetary in nature, courts construe the suit as alleging injury to property within CPLR 214(4)'s three year statute of limitations. Where the relief sought is equitable, the six year limitations period found in CPLR 213(1) applies.

While plaintiff did seek equitable relief, the Court held that such relief was incidental to the money damages plaintiff sought. "Thus, looking to the reality, rather than the form" of the complaint, the Court applied the three year statute of limitations. The Court then turned to accrual and stated that the breach of fiduciary duty claim accrues as soon as it becomes enforceable. According to plaintiff's complaint, it first suffered loss as a result of Morgan Stanley's conduct after Telefonica refused to comply with the agreement. The Court determined that this alleged loss must have occurred prior to plaintiff's May, 2001 commencement of arbitration. More than three years had passed sine the commencement of the litigation against Morgan Stanley rendering plaintiff's claim untimely.

Regarding plaintiff's second and fourth causes of action, the parties did not dispute that CPLR 214(4)'s three year limitations period applied. The Court held that those claims accrued at the same time as plaintiff's breach of fiduciary duty claim, rendering them untimely as well.

Finally, the Court rejected plaintiff's unjust enrichment claim holding that "[w]here the parties executed a valid and enforceable written contract" recovery on a theory of unjust enrichment is ordinarily precluded. Here, because plaintiff based its claim on a fee that arose from services Morgan Stanley rendered in connection with a written engagement letter, unjust enrichment was inapplicable. Moreover, plaintiff could not disgorge funds received by Morgan Stanley in connection with its services for Telefonica because plaintiff did not pay those fees. Therefore, Morgan Stanley was not enriched at plaintiff's expense.

Sean C. McPhee, Esq.

ARTICLE LINK

Here is a great article by Jeremy Colby, Esq. on the importance of non-compete agreements and factors to be considered when drafting: ARTICLE LINK

We would like to thank to General Practice Section for posting a link to our Committee's humble blog. General Practice Section Blog Link

Please check out the General Practice Section Blog, and the other blogs listed, as there is some great information to be found. For a general listing of NYSBA Blogs see: NYSBA Blogs Link

In 30 CPS LLC, v. Board of Managers of Central Park South Medical Condominium, _ _ N.Y.S.2d _ _, 2009 WL 513458 (Sup. Ct. N.Y. County 2009), a condominium unit owner brought an action against the condominium board ("Board") and its president, alleging (i) breach of contract; (ii) tortuous interference with prospective relations and (iii) discrimination.

Plaintiff sought to convert its condominium unit (the "Unit") from a restaurant to residential use, which was permissible under the condominium declaration and the New York City Zoning Resolutions. In connection with its proposed conversion, plaintiff obtained the approval of the New York City Board of Standards and Appeals and the New York City Department of Buildings (collectively, the "City"). The Board, however, did not approve of plaintiff's contemplated change and asked the City to revoke its permit. Ultimately, the City revoked its permit due to the Board's opposition to the change in use of the Unit.

The court noted that breach of a binding agreement and interfering with nonbinding "economic relations" are two separate torts with different elements. Regarding the latter, "the plaintiff must show that defendant's conduct was not 'lawful' but 'more culpable,' such as a crime or an independent tort, or conduct intended to inflict harm on the plaintiff." Id. at *5, citing Carvel Corp. v. Noonan, 3 N.Y.3d 182 (2004). "In addition, the plaintiff must prove that the defendants knew of the proposed contract, intentionally interfered with it and that it would have been entered into but for the interference." Id.

In this case, plaintiff alleged that the Board had knowledge of a proposed contract for the sale of the Unit to a prospective purchaser; that the contract would have been entered into had the Board not interfered with plaintiff's attempted conversion of the Unit; and that the Board's interference was based on ethnic animus.

The court held that unlawful discrimination is sufficiently culpable to support a claim of interference with prospective economic relations and denied defendants' cross-motion for summary judgment.

Sean C. McPhee, Esq.

Torts, Insurance and Compensation Law Section eNEWS - March 2009

Plaintiff’s motion for default judgment and claim for attorney’s fees granted (Federal District Court for the Eastern District of New York).

Gutman v. Klein
Slip Copy, 2008 WL 4682208
E.D.N.Y.,2008.

Plaintiffs (“Gutman”) , A to Z Holding Corp., A to Z Capital Corp., Paz Franklin Company, and Washington Greene Associates initiated an action against defendants (Klein), Dina Klein, Rachel Brach, Rodney Capital Company, Toyv Corporation, Republic Capital Group, LLC, Atlas Furniture Manufacturing Corp., A to Z Holding Corp., A to Z Capital Corp., Paz Franklyn Company, Washington Greene Associates, and others on April 1, 2003. In the instant case Gutman claims that crucial litigation evidence (contained on several laptop computers) has been purposely destroyed by Klein. This spoliation, plaintiffs claim entitles them to default judgment, attorney’s fees and punitive damages. “A party bringing a spoliation claim must demonstrate (1) that the party having control over the evidence had an obligation to preserve it at the time it was destroyed; (2) that the [evidence was] destroyed with a culpable state of mind; and (3) that the destroyed evidence was relevant to the party's claim or defense such that a reasonable trier of fact could find that it would support that claim or defense.”

The court held that Klein was obligated to preserve the evidence from the moment they knew or should have known it was relevant to litigation. As to the state of mind element, the court reasoned that the negligence of Klein and its employees is enough to satisfy this requirement. Since the element of the claim is satisfied by Klein’s negligence the burden of proof would ordinarily shift to Gutman. However, the court held that the prejudiced party should not be held to too strict a standard of proving that the evidence is relevant to their claim. Prior to instituting the instant claim Gutman, informed both the court and Klein that the information deleted would be at issue. Ultimately, the court reasoned that the spoiled evidence was relevant to Gutman’s claim. Klein contested that the actions of the employee who deleted the evidence in question prevent Gutman from prevailing because the employee was not on notice. The court disagreed, “find[ing] it very difficult to believe it was wholly innocent.” The court ruled in favor of Gutman, granting the plaintiff’s default judgment and attorney’s fees; however, not punitive damages.

This case strengthens the rule of evidence preservation and the consequences of discovery abuse. Plaintiffs that fall victim of evidence spoliation, under circumstances such as these, may be entitled to default judgment rulings and attorney’s fees. “Deleter beware”.

Submitted by: Stefanie DeMario, Law Student at New York Law School

ARTICLE LINK

The Second Circuit recently issued an opinion highlighting the heightened pleading standards required by Federal Rule of Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA). In ECA v. JP Morgan Chase Co., 2009 U.S. App. LEXIS 972 (January 21, 2009, Decided), the shareholders of JP Morgan Chase (JPMC) brought a derivative action alleging that they were defrauded by JPMC's complicity in Enron Corporation's financial scandals. Specifically the shareholders alleged that JPMC defrauded them by (1) downplaying its Enron-related exposures, (2) failing to disclose alleged violations of law in connection with certain transactions, (3) falsely portraying itself as a low-risk company with a reputation for fiscal discipline and integrity, and (4) improperly accounting for certain transactions as trades rather than loans.

To meet the heightened pleading standards under FRCP 9(b) and the PSLRA the complaint must "specify each statement alleged to have been misleading, and the reasons or reason why the statement is misleading" and "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." (emphasis added). The Court held that "a desire to maximize the corporation's profits" is not sufficient motive to defraud, plaintiffs must allege that "JPMC or its officers 'benefitted in some concrete and personal way from the purported fraud." The Court dismissed the second amended complaint with prejudice for failure to comply with the heightened pleading standard and held that plaintiffs failed to create a strong inference of scienter based on motive and opportunity.

Marissa A. Coheley

We are developing a CLE program geared for commercial litigators, professional malpractice defense counsel, and in-house counsel. The program will provide a primer on business torts with a focus on the impact of the recent financial crisis upon the standard of care imposed upon securities brokers, mortgage brokers and other financial professionals, as well as breach of fiduciary duty, fraud, and related claims. It may also consider the ethical implications of counseling businesses in a recessionary period which engage in unfair business dealings, such as the use of litigation solely as a business strategy. This program will be conducted as either a stand alone seminar and/or in conjunction with the Governmental Relations and Laws and Practices committees. Please let me know if you have any thoughts or ideas, or would like to get involved in putting this together.

In a recent decision from the Southern District of New York [Baron Partners, LP v. Lab123, Inc., __ F.Supp. 2d __, 2009 WL 12903 (S.D.N.Y. Jan. 29, 2009)], the court examined the adequacy of a party's pleadings regarding allegations of fraudulent inducement and negligent misrepresentation in connection with a Stock Purchase Agreement.

In response to plaintiff's complaint, defendant alleged that plaintiff's failure to disclose prior criminal conduct was fraudulent, or at the least, negligent misrepresentation. Interestingly, although plaintiff invested $2 million in the defendant company, defendant claimed that it suffered damages in excess of $1 million because plaintiff failed to disclose that its principal was involved in a securities trading scheme 17 years earlier.

The court reviewed the elements of the fraud claim and noted that defendant must allege a misrepresentation or material omission. According to the court, the failure to disclose a prior criminal conviction was not a material omission because nondisclosure only becomes actionable where there is a duty to disclose. Such a duty only arises where there is a confidential or fiduciary relationship between the parties. No such relationship exists, however, between the sellers and buyers of corporate stock when dealing at arms length. As a result, the fraud claim was dismissed.

Regarding the negligent misrepresentation claim, the court held that a party may not recover on that theory in the absence of a special relationship of trust or confidence between the parties. Because plaintiff and defendant were merely buyer and seller, no special relationship existed. Thus, the negligent misrepresentation claim was also dismissed.

Sean C. McPhee, Esq.

SAVE THE DATE – The annual Tort, Insurance and Compensation Law
Section’s 2009 meeting will be held August 9th – 12th. Don’t take a
chance and miss out on a wonderful opportunity to socialize and have fun
with friends and family and earn some CLE credit as well. Not only can you
enjoy the company of your friends and family, but also meet and network
with attorneys from across the state. As in the past we expect that
insurance professionals and judges will be attending. So don’t gamble away
an excellent opportunity to join us this year at our annual meeting at the
Mohegan Sun. This five star resort is more than just a casino. The
Mohegan Sun is at the heart of New England's most popular activities and
attractions, from its scenic countryside and covered bridges to local
vineyards and yachting on Long Island Sound. Hunt for antiques, visit the
past at Mystic Seaport, enjoy a show at a historic theater, hone your golf or
tennis game or just relax by shopping and dining. So save the date. More
details to follow.

The Third Department recently held that aliens who obtain employment using fraudulent documents in violation of the Immigration Reform and Control Act (IRCA) are not precluded from receiving benefits under New York State Workers’ Compensation Law. In Amoah v. Malah Management, LLC., 2008 N.Y. Slip Op. 08228 (3d Dept. 2008) applying the doctrine of conflict preemption, the court found that the New York State Workers’ Compensation law was not preempted by the IRCA.

Claimant Amoah used a friend’s Social Security card and other documents to obtain employment; he was then injured at work and received workers’ compensation benefits under his friend’s name. When Amoah refused to share his benefit award, his friend took back the identification documents. Amoah informed his employer’s workers’ compensation carrier of his real identity and the carrier contested the payment of benefits because Amoah had used fraudulent documents to obtain employment. The Workers’ Compensation Board affirmed the ruling of the Workers’ Compensation Law Judge that the claimant’s use of fraudulent documents did not preclude the award of benefits.

The Third Department expanded on the Court of Appeals ruling in Balbuena v. IDR Realty, LLC, 6 N.Y.3d 338 (2006), that the purpose of the IRCA is to combat the employment of undocumented workers and that such objective would be furthered by state law imposing liability on employers for their undocumented workers’ injuries. In Balbuena, the court relied on the fact that there was no proof of a criminal violation of the IRCA; in Amoah, the Third Department held that the presence of a criminal violation by the claimant does not change the outcome. The court held that the IRCA prohibitions against using fraudulent documents to obtain employment should be viewed in the context of the employer’s obligations and limiting the claim of an injured undocumented alien could lessen an employer’s incentive to provide a safe workplace for all employees. Therefore, limiting benefits “would actually provide an economic incentive to employers to violate IRCA by disregarding the employment verification system and would undermine IRCA’s primary goal of combating the employment of undocumented workers.” Further, preempting the state law and denying benefits to injured unauthorized workers is unlikely to bolster the purpose of the IRCA by deterring illegal aliens from using fraudulent documents to obtain employment.

Marissa A. Coheley

The Court of Appeals recently held a summary judgment motion made 62 days after the filing of the note of issue “timely” under the amended local rules. In Crawford v. Liz Claiborne, Inc., 20008 N.Y. Slip Op. 7989 (2008), an employment discrimination action, the IAS Judge issued a preliminary conference order (“PCO”) directing that all dispositive motions be made “per local rule.” At the time the PCO was issued, local rules provided that all motions for summary judgment were to be made no later than 60 days after the filing of the note of issue, and the IAS Judge had no individual part rule on the subject.

Before the note of issue was filed in the action, the local rules were amended to provide that summary judgment motions were to be made no later than 120 days after the filing of the note of issue and the IAS Judge’s individual rules were modified to require such post note of issue motions to be made within 60 days thereof. The defendant moved for summary judgment 62 days after the filing of the note of issue and the plaintiff then moved to strike the motion as untimely. The IAS Judge found that while the defendant’s motion was untimely, the defendants showed “good cause” for the delay. The plaintiff’s failed to oppose the motion on the merits, therefore defendant’s motion for summary judgment was granted. The Appellate Division, relying on Brill v. City of New York, 2 N.Y.3d 648 (2004), reversed.

The Court of Appeals held that the Brill did not apply to this case and the defendant’s motion was timely because, at the time the PCO was issued, there was no applicable individual part rule therefore “per local rule” referred to the Local Rules of Supreme Court, New York County. When the note of issue was filed, the 120-day amended local rule was in effect, therefore the defendant’s motion 62 days after the filing of the note of issue was timely under the amended local rule.

Marissa A. Coheley

The Annual Meeting of the New York State Bar Association will be held on Monday, January 26, 2009 through Saturday, January 31, 2009 at the Marriott Marquis, 1535 Broadway, New York City.

The Torts, Insurance, and Compensation Law Section program will be chaired this year by Dennis McCoy, Esq. and John Snyder, Esq. This year's Section program will focus on the impact of litigation stemming from the 9/11 tragedy on the tort, insurance and personal injury landscapes. Some of the many topics and issues to be discussed will include mass disasters, coverage, workers’ compensation, statutes of limitation, and causation. The program will feature dinner the evening of January 28 at the Cipriani Wall Street restaurant, located at 55 Wall Street, the former home of the New York Merchants Exchange, New York Stock Exchange and U.S. Customs House. See: http://www.cipriani.com/cipriani/Locs/wall.htm

For more information see:
http://www.nysba.org/AM/Template.cfm?Section=Events1&Template=/Conference/ConferenceDescByRegClass.cfm&ConferenceID=3013

Corporate officers are now easier targets to speculative fraud claims under the New York Court of Appeals' decision in Pludeman v. Northern Leasing Systems, Inc., 10 N.Y.3d 486, 890 N.E.2d 184 (2008). No longer can a corporate officer automatically take cover within the heighted pleading requirements imposed upon plaintiffs under CPLR § 3016(b). According to the Pludeman decision, so long as the alleged fraud is sufficiently large in scale all that is required of a plaintiff to state a claim against an individual corporate officer is that he or she is a corporate officer — no particular knowledge or involvement need be alleged.

Pludeman involved a number of small business owners from various states who brought suit against a business equipment leasing company and its top management for fraud. Plaintiffs claimed that sales representatives had presented them with what appeared to be a one-page contract on a clipboard, thereby concealing three other pages containing onerous terms below. The only particularity provided relative to the individual defendants was their corporate titles, some of whom did not even have any apparent connection with the sales and leasing functions of the company.

The Court of Appeals held that "the very nature of the scheme, as alleged, gives rise to the reasonable inference — rebuttable though it may later prove to be — that the officers, as individuals and in the key positions they held, knew of and/or were involved in the fraud." Id. 10 N.Y.3d at 493. This "res ipsa loquitur" approach to pleading sufficiency against corporate officers could undermine CPLR 3016(b) and provide an incentive to plaintiffs to name all corporate officers in sight for the purpose of harassment and/or to increase settlement leverage.

Heath J. Szymczak, Esq.

Background and Significance
When conducting a corporate internal investigation, it is important to ensure that an attorney-client relationship is not established between the investigating attorney and the employee being interviewed. Doing so will protect the corporation’s ability to control the privilege, as well as its ability to waive it when necessary or desirable. Where an attorney-client relationship is created with an employee, however, the corporation may not waive the privilege without the employee’s consent. This could have an impact on the ultimate disposition of an investigation or prosecution of the corporation and may be interpreted as a failure to cooperate.

The Supreme Court has held that attorney-client privilege was established to protect “confidential disclosures to an attorney made in order to obtain legal assistance.” This privilege arises where the “client” reasonably believes that an attorney-client relationship exists. Thus, regardless of the investigating attorney’s intentions or beliefs, the attorney-client privilege may inadvertently attach to the information supplied by the employee. In order to avoid this unintended result, the investigating attorney is wise to give the employees an "Upjohn warning" prior to conducting the interview.

Upjohn warnings were derived for the Supreme Court’s ruling in Upjohn Co. v. U.S., 449 U.S. 383 (1981) and serve two main purposes. First, the warnings aid the investigating attorney in discharging his or her ethical duty not to mislead the employee. Second, the warnings reserve the attorney-client privilege solely for the corporation. As discussed above, without the warnings, the privilege may be held by both the corporation and the employee, which could lead to a conflict.

The Warnings
There are three (3) warnings that should be given by the investigating attorney at the outset of the interview. First, counsel should unambiguously indicate that he or she represents the corporation, not the individual. Next, the investigating attorney should indicate that while the interview is covered by the attorney-client privilege, the privilege belongs to, and is controlled solely by, the corporation. Finally, the employee should be warned that the company may decide to waive the privilege in the future and may disclose certain information obtained from the employee in the interview to third parties and/or government investigators or prosecutors.

Application of Privilege in New York
In New York, the attorney-client privilege covers communications by corporations to their counsel, as well as communications by counsel to their corporate clients. This is true regardless of whether the attorney is employed by the corporation as staff counsel or where an outside attorney is retained by the corporation. In Rossi v. Blue Cross & Blue Shield of Greater New York, 73 N.Y.2d 588 (1989), the Court of Appeals held that an internal memorandum from a corporate staff attorney to a corporate officer communicating advice in connection with an imminent lawsuit was protected from disclosure. In that action, plaintiff sought disclosure of the internal memorandum that was identified but withheld based upon privilege. The trial court reviewed the communication in camera and directed disclosure. On appeal, the Appellate Division reversed, determining that the memorandum was privileged. Ultimately, the Court of Appeals affirmed the Appellate Division, noting the need to apply the attorney-client privilege cautiously and narrowly in the case of communications with corporate staff counsel “lest the mere participation of an attorney be used to seal off disclosure.” Id. at 593. For the privilege to apply when the communication is made from the client to the attorney, the communication “must be made for the purpose of obtaining legal advice and directed to an attorney who has been consulted for that purpose.” Id. For the privilege to apply when the communication is made from attorney to client, it “must be made for the purpose of facilitating the rendition of legal advice or services, in the course of the professional relationship.” Id.

The Court’s decision in Rossi was re-examined two years later in Spectrum Sys. Int’l Corp. v. Chemical Bank, 78 N.Y.2d 371 (1991). There, outside counsel was retained to conduct an internal investigation and render legal advice regarding possible fraud on the client/bank. Plaintiff sought production of the report prepared by the outside counsel. Supreme Court ordered that the report be produced because, in its opinion, an independent investigation could not obtain privileged status merely because it was communicated by an attorney. The Appellate Division modified Supreme Court’s order to require in camera inspection in order to determine materiality, and granted leave to appeal to the Court of Appeals. After reciting the principles set out in Rossi, the Court of Appeals determined that the report was privileged. The fact that the report did not focus on imminent litigation; reflected no legal research; and made no conclusion regarding the parties’ legal positions was immaterial. “The critical inquiry is whether, viewing the lawyer’s communication in its full content and context, it was made in order to render legal advice or services to the client.” Id. at 379. Because the report’s purpose was to convey legal advice to the client, it was privileged.

Sean C. McPhee, Esq.

Russell J. Matuszak, Esq. is Legal Counsel for HealthNow New York Inc. and is also the President of The Niagara Frontier Corporate Counsel Association Inc., an association of in-house attorneys in Western New York. Mr. Matuszak will assist in helping to make this Committee, and the TICL Section in general, more relevant and valuable to in-house counsel.

Sean C. McPhee, Esq. is an attorney with Phillips Lytle LLP. Mr. McPhee will focus on the area of business torts. He is presently reviewing the Court of Appeals' Docket for relevant decisions that may be of interest to Committee members. He will also assist with the Blog, as well as preparation of possible CLE materials relevant to the Committee.

It is my honor to serve you as Chair of the Business Torts and Employment Litigation Committee of the New York State Bar Association's Torts, Insurance, and Compensation Law (TICL) Section.

The purpose of this Committee is to provide its members with a forum in which to explore substantive issues in the areas of business torts and employment litigation, to share practice tips, and to develop and foster professional relationships and camaraderie among its members and the members of the TICL Section at large. The Committee is also interested in monitoring and discussing legislative proposals impacting its members and their clients.

One of my goals as Chair is to increase in-house counsel membership in the Committee by making it more relevant and valuable to those serving in that capacity. I would also like to invest in the future of the Committee through recruitment and mentorship of young lawyers and law students. Finally, I hope to take advantage of technological tools to facilitate the dissemination of information and promote member participation.

If you are interested in joining the Committee, please contact me at any time. If you are an existing member of the Committee, I encourage you to take advantage of the opportunities that exist through active Committee participation. For example, I encourage you to consider making a submission to the Committee Blog (http://nysbar.com/blogs/nybusinesslitigation/), raising issues on the Committee ListServ, writing an article for the TICL Journal, or attending a TICL event. I also encourage you to consider serving as a mentor to young members of the Committee. It would be my pleasure to discuss these opportunities with you.

Heath J. Szymczak, Esq.
Partner
Jaeckle Fleischmann & Mugel, LLP
12 Fountain Plaza
Buffalo, New York 14202-2292
hszymczak@jaeckle.com
http://www.linkedin.com/in/heathszymczak
Direct Dial Number: 716.843.3909
Fax Number: 716.856.0432