New York Noncompete, Trade Secret & School Negligence Blog

After 2007, which bore the dubious distinction as "The Year of the Recall," and 2008, which saw even more recalls that were undertaken either voluntarily or in response to a governmental demand (not to mention the recent recall of well over 2,000 peanut-based products following the salmonella scare), there were several news reports of small businesses, particularly children's toy distributors and tire suppliers, that openly expressed their fears that any recall of their particular products would force them to close their doors. Strangely, none of these articles discussed a relatively straightforward solution to this threat: defective product or product contamination insurance.

According to A.M. Best Co., this area of insurance, despite the economic recession, is continuing to grow at a rapid clip of over 30% a year. 

If you run a small business that either manufactures or distributes products that could potentially become the subject of a safety recall, it certainly behooves you to ascertain whether this brand of insurance can cover your business; your business's survival may one day depend on it. 

In a somewhat scary opinion that was issued last month, the appellate court for the D.C. Circuit affirmed a lower court's order which both sanctioned and held in contempt a non-party for failing to comply with a deadline for the completion of electronic discovery that its attorneys had previously agreed to.

In its opinion, the appellate court refused to consider the non-party's arguments that this discovery request was overly broad and undly burdensome. In particular, the non-party noted that the parties' search terms returned such a broad swath of electronic documents, that several personal e-mails between employees and their spouses (which were clearly irrelevant to the case) came up, and the sheer volume of documents that these search terms returned forced this non-party agency, The Office of Federal Housing Enterprise Oversight, to hire approximately 50 contract attorneys for this document review, and to incur roughly $6 million in expenses (approximately 10% of this agency's annual budget).

Despite this incredible burden - and by a non-litigant no less - the court remained unpersuaded that the lower court had abused its discretion because OFHEO had already extended - and subsequently disregarded - several deadlines for their compliance with these discovery demands, and their obligation to comply with the terms of their own attorney's agreement was unambiguous.

The lessons to be learned here for New York small businesses that have been called into commercial litigation are clear:

(1) Make sure you have a good estimate about the scope and expense of an anticipated electronic data or document disclosure - BEFORE  any agreements are entered into regarding the time and expense of the data production;

(2) DO NOT allow the other parties to determine what the appropriate search terms will be without an appropriate mechanism to assure that you do not end up being required to produce a voluminous amout of records that bear no relation to the case;

(3) Make sure that the manner in which the electronically stored information is to be produced is reduced to writing - this could save you a great deal of time and effort, not to mention trees; and,

(4) In appropriate circumstances, that there are systems in place to assure that the demanding party bears at least some of the expense of the production (parenthetically, this is probably one of the best ways to insure that the demands are streamlined to the relevant discovery, as it is unlikely that the demanding party will want to pay for a bunch of e-mails you had with your brother about his trip to Atlantic City).

As noted in the News and Small Business sections of our site, a small construction materials supplier by the name of Screws and More has decided to go after one of the nation's largest construction materials manufacturers, Powers Fasteners, claiming that some of the parts Powers provided did not meet specs, and cost Screws a large line of business. Although the contracts between the manufacturers and suppliers are often slated in the manufacturers' favor, and expressly limit the manufacturers' liability, there are certain elementary steps that a small commercial supplier should take to assure that it does not lose any important jobs due to the failure of its manufacturer's products. To read more on this topic, click here.

Last week, a California appellate court which sided with Costco in its bid to prevent disclosing the names of its clothing suppliers on the grounds that this information was deserving of judicial protection as a trade secret. As we have previously noted, it is incumbent on the party asserting that certain information, such as a supplier's identity, be protected from disclosure in in a commercial, small business litigation as privileged matter or a trade secret, to demonstrate that this information was not readily obtainable from another public source, as well as what concrete steps and expense the business took to develop and protect this proprietary list. Otherwise, under New York law, the Court is obliged to compel the disclosure of the list.

Consequently, I was hoping that the California appellate court would elaborate on what specific steps Costco took to convince the Court that their clothing suppliers'  identities were privileged matter worthy of protection from disclosure as a trade secret, if only to provide a measure of comparison to New York law. Unfortunately, after reading the opinion, the Court clearly glossed over this topic, stating in cursory fashion that Costco produced some evidence that its list of suppliers had monetary value, and that it made significant strides to make sure that the names and addresses of its suppliers did not become public.

Diminishing Jury Verdicts and the Economic Recession: Do They Go Hand in Hand?

Lawyer Jonathan Cooper talks about practice areas

In an article that appears in today's New York Times, a few prominent venture capitalists are quoted as saying that in the midst of this economic recession, the best way to entice investment in a start-up or small business is by demonstrating how the company's mission is specifically geared to save their clients money; decreased revenue across the economic spectrum have mandated that it is no longer enough to put out a great product.

And how does a small business go about showing that? Some recommendations, culled from the hi-tech sector, include using renewable materials, or promoting new web-based applications that are designed to seamlessly integrate different software applications, thereby increasing productivity.

This rule applies to the law business as well. In order to effectively market a law practice to small businesses, attorneys should be able to demonstrate, in concrete terms, to prospective clients how their firm streamlines the legal process to assure peak efficiency, particularly, but not limited to the context of litigation. One way this can be done is by filing cases electronically; another is by storing documents electronically for easy reference and retrieval; a third way is communicating with clients, adversaries and experts via e-mail, which not only reduces significantly postage costs that would otherwise be incurred, but also eliminates the time lag caused by the back-and-forth of snail-mail.

In an important ruling, New York’s Appellate Division, First Department recently held that, as a general rule, a trial court may not accept trial testimony that is conducted via video or teleconferencing because it violates the other party’s constitutional right to confront adverse witnesses. Although the Appellate Court acknowledged that there were limited exceptions to this rule, such as cases where testimony was sought from children that were victims of abuse, the majority of the split court still felt that a party’s right to confront adverse witnesses “face to face” outweighed other parties’ needs to adduce testimony from witnesses that could not appear in court either due to illness or inconvenience (such as where the complainants lived in Australia).

 

This ruling was rendered in the criminal law context, but apparently applies in the civil context as well, including cases dealing with small business or commercial litigation, personal injury or defective products lawsuits.  And this can have very real economic and other consequences, such as where one of the defendants to a defective products lawsuit is a foreign manufacturer or distributor, or where the “silent” partner of a small company is a venture capitalist who lives more than 6,000 miles away.

 

In the end, I am not convinced that face-to-face confrontation is uniquely able to reveal the truth, particularly given the technological advances that would render these witnesses in remote locations to view the entire courtroom – including their adversaries. To the contrary, I think that this ruling effectively dealt the search for truth a harsh blow, because it will prevent numerous important witnesses from telling their stories before juries.

Stars' Admissions of Drug Use And Lessons We Can Apply At Trial

New York Lawyer Jonathan Cooper looks at sports and drugs

Although the Economic Stimulus Act of 2008, with its allowances for larger credits and write-offs for research-based expenditures, and reducing the amortization period for deducting the expense of rental space improvements are certainly welcome news for small business owners, these provisions, as correctly noted in yesterday’s New York Times article, do little, if any, good for many small companies that made little or no money against which these deductions would theoretically be applied.

Some small business owners are facing a different problem: those who made a moderate sum of money in 2008, but now, due to the recession, cannot afford to pay their taxes. While a spokesman for the Internal Revenue Service stated publicly that the IRS was willing to work with small commercial business owners to ease the burden of paying their tax bills in full, little specifics on how the mechanics of this process will work have been provided.

One provision in the new proposed stimulus plan is somewhat promising: it permits businesses that lost money in 2008 to offset the loss against the surplus that the business had in the five previous years. In that fashion, these businesses could recover, in the form of a tax refund, some of the losses that they experienced in 2008.

While many pundits have postulated that additional help for small businesses are in the works, the proof will be in what makes it (and doesn’t make it) into the legislation that is due to be signed shortly. Time will tell.