Today's General Counsel, V13 N4, August/September 2016

aug/ sept 2016 VOLuMe 1 3 / NuMBeR 4 todaysgener alcounsel.com

PRIVILEGE

How to Lose It Cross-Border InvestIgatIons tHe “Common Interest PrIvILege”

Internal Fraud Ransomware Unleashed

Cool E-Discovery Tool: Know What the Case is About

The New Trade Secrets Act The New Overtime Regs The Right Expert Witness DOJ’s PR Mill Diversity as Innovation Driver Cultivating “Resilience” $199 Subscription rate per year ISSN: 2326-5000 View our digital edition: digital.todaysgeneralcounsel.com

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Editor’s Desk

General counsel and other in-house attorneys are constantly dealing with problems relating to attorney client privilege because of their dual role as legal and business advisors.

This is especially true when they are involved in mergers, acquisitions and joint ventures.

In this issue of Today’s General Counsel, columnist Jeffery Cross provides an overview of attorney-client privilege, noting some privilege pitfalls unique to joint ventures, when the so-called “common interest doctrine” comes into play. On the same topic, Alison Nadel and Erika Pont explain how the common interest doctrine is broadly recognized by both state and federal courts, but its parameters vary widely, and attempts to incorporate a common interest privilege into the Federal Rules of Evidence have been unsuccessful.

Many countries in Europe treat in-house lawyers simply as corporate employees in their legal codes, and no privilege attaches to their counsel. That at least has the virtue of simplicity, but Neil Bloomfield and Tandy Mathis note that things get complicated when there are cross-border regulatory inquiries. For example, in the United States withholding in-house counsel communications about a merger under the attorney client privilege is standard, but if the company is responding to an inquiry from the European Commission, those documents may need to be produced. The authors provide some practice tips about responding to cross-border inquiries.

In May the federal Defend Trade Secrets Act of 2016 was signed. Christopher Cox and An Tran discuss the impact it will have on trade secret litigation, previously covered only by state or common law. They note that federal jurisdiction is not automatic, but limited to cases arising under the commerce clause of the U.S. Constitution.

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Debra Innocenti writes that ransomware has become so ubiquitous and lucrative that an industry has developed around it, with ransomware service programs now for sale, allowing malware to be deployed by anyone with the nerve to demand a ransom and set a payment deadline. Her prescription: pre-emptive cybersecurity. Also in this issue, several articles look at the increasingly pressing issue of information governance and the phenomenon that forced companies to identify and confront it in the first place: e-discovery. Matthew I. Menchel, Adriana Riviere-Badell and Lindsey Weiss Harris point out that one of the benefits of a clearly defined trial strategy is that it helps keep e-discovery costs within reasonable bounds, for both sides.

Bob Nienhouse, Editor-In-Chief bnienhouse@TodaysGC.com

aug/ sept 20 16 today’s gener al counsel

Features

C o lu m n s

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FIVE TIPS FOR RETENTION OF ExPERT WITNESSES

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TIPS FOR CONDUCTING INTERNAL FRAUD INVESTIGATIONS

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Meaghan Boyd and Geoff Rathgeber Appearance, bias, credentials and demeanor.

Katherine Lemire Don’t be too quick to call law enforcement.

DIVERSITy IN THE LEGAL PROFESSION Audrey Tillman A need for scholarships, recruitment and role models.

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PR MILL SHUTS DOWN WHEN DOJ LOSES A CASE

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PREPARING THE DESIGNATED CORPORATE REPRESENTATIVE FOR DEPOSITION

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WORKPLACE ISSUES The DOL’s New Overtime Regulations

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THE ANTITRUST LITIGATOR Consider Attorney-Client Privilege Before it Becomes a Litigation Issue

Lisa A. Schreter and Tammy D. McCutchen With deadline looming, time to rethink the salary-benefits mix.

Jeffery M. Cross Not just advice, legal advice.

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INFORMATION GOVERNANCE OBSERVED Qualities of the Resilient Information Leader Barclay T. Blair Some seem bulletproof, others crumble when faced with minor adversity.

Barry J. Pollack and Addy R. Schmitt Publicity for indictments, mum on acquitals.

John C. Maloney, Jr. Designated witness is duty bound to get smart.

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CAN TRANSACTION PARTIES RELy ON THE COMMON INTEREST PRIVILEGE? Alison L. Nadel and Erika N. Pont Courts differ, but some precautions make it more likely.

Page 48

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Departments Editor’s Desk

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Executive Summaries

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L abor & EmpLoymEnt

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16 A Legal Road Map for Wellness Programs Dave Carothers and Nicole C. Baldwin Final regulations from the EEOC.

20 What Expanding Joint Employer Rules Mean For You Tamara Devitt Control is the issue, even if it isn’t exercised.

E-DIscovEry

22 Discovery Considerations in Cross-Border Investigations Neil Bloomfield and Tandy Mathis Know the regulator’s production specifications before you begin.

26 Minimizing Discovery Cost through Effective Trial Strategy Matthew I. Menchel, Adriana Riviere-Badell and Lindsey Weiss Harris There’s nothing like knowing what the case is about.

28 Using E-Discovery Technology to Mitigate FCPA Exposure

IntELLEc tuaL propErt y

John Tredennick A powerful litigation tool equally suited to internal investigations.

Christopher J. Cox and An Tran Predictability in an area long subject to inconsistent state laws.

30 Address Information Governance Now to Avoid Legal Headaches Later Jon Tilbury Threat of inaccessible data, as both file formats and software are changing at an unprecedented rate.

34 Key Takeaways from the New Trade Secrets Act

cybErsEcurIt y

36 Protecting Your Company from Ransomware Debra Innocenti The racket that became an industry. compLIancE

38 Governance Above and Beyond Compliance Lance Croffoot-Suede and Ulysses Smith Tailor a program, don’t check boxes.

RISK, ETHICS, AND COMPLIANCE FORUM

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editor-in-Chief Robert Nienhouse managing editor David Rubenstein

exeCutive editor Bruce Rubenstein

senior viCe president & managing direCtor, today’s general Counsel institute Neil Signore art direCtion & photo illustration MPower Ideation, LLC law firm business development manager Scott Ziegler database manager Matt Tortora Contributing editors and writers

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Nicole C. Baldwin Barclay T. Blair Neil Bloomfield Meaghan Boyd Dave Carothers Christopher J. Cox Lance Croffoot-Suede Jeffery M. Cross Tamara Devitt Lindsey Weiss Harris Debra Innocenti Katherine Lemire John C. Maloney, Jr. Tandy Mathis

Tammy D. McCutchen Matthew I. Menchel Alison L. Nadel Barry J. Pollack Erika N. Pont Geoff Rathgeber Adriana Riviere-Badell Addy R. Schmitt Lisa A. Schreter Ulysses Smith Jon Tilbury Audrey Tillman John Tredennick

editorial advisory board Dennis Block GREENBERG TRAURIG, LLP

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aug / sept 20 16 today’S gEnEr al counSEl

Executive Summaries l abor & emPloyment

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e-Discovery

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A Legal Roadmap for Wellness Programs

What Expanding Joint Employer Rules Mean for You

Discovery Considerations in Cross-Border Investigations

By Dave Carothers and Nicole C. Baldwin Carothers DiSante & Freudenberger LLP

By Tamara Devitt Haynes and Boone

By Neil Bloomfield and Tandy S. Mathis Moore & Van Allen PLLC

Health insurance ranks among the top costs for an employer. Wellness programs can lead to lower premiums and impact a company’s bottom line.

Under the Affordable Care Act, a wellness program is defined as one reasonably designed to promote health or prevent disease, and now final regulations have been issued with respect to the general requirements of wellness programs. These regulations set forth two main types of wellness programs: “participatory” and “health-contingent.”

Participatory programs do not require employees to meet a certain health standard. They can, but are not required to, provide a reward to incentivize employees.

Health-contingent wellness programs are of two types: “activity only” and “outcome-based.” Under an activity-only program, an individual is required to perform an activity related to a health factor in order to obtain a reward. In an outcome-based program, the individual must attain a specific health outcome in order to obtain a reward.

In May of this year, the Equal Employment Opportunity Commission issued final rules for implementation of the ADA and the Genetic Information Nondiscrimination Act (GINA) in respect to employer wellness programs.

Under the EEOC’s final rules for these laws, wellness programs are defined to include programs that are part of an employer-sponsored group health plan and those that are not tied to a group health plan. The authors provide an outline of expansion and clarifications under these rules for implementation of the ADA and the GINA.

The recent trend of expanding joint employer liability means companies should carefully analyze the scope of their potential joint employer status in order to understand and mitigate any risk.

The common law test for joint employer liability has historically required that the putative joint employer exercise actual control over the putative employee meaning a degree of direct and immediate control over “essential” terms and conditions of employment, such as hiring, firing, discipline, supervision, and direction.

However, both the National Labor Relations Board and the Department of Labor have recently posited that joint employment means having a “right to control” the putative employee, regardless of whether that control is ever exercised.

The NLRB’s August 2015 decision in Browning-Ferris Industries of California, Inc. departed from precedent to establish a broad standard for determining when two entities are “joint employers” under the National Labor Relations Act. The new test is a two-step inquiry: (1) whether there is a common-law employment relationship between the putative joint employer and the workers at issue, and (2), if so, whether the putative joint employers “share or co-determine those matters governing essential terms and conditions of employment.”

Employers should review employee relationships to determine if some of the factors may be adjusted to minimize the risk of finding joint employer status, and review agreements with labor contractors to ensure that there are representations and warranties addressing compliance with applicable employment laws, along with appropriate indemnification provisions.

The knee jerk reaction after receiving an inquiry from a regulator in another country may be to begin processing and producing every relevant communication as quickly as possible, in order to demonstrate your client’s willingness to cooperate and the comprehensiveness of your review. But most regulators don’t want everything, and appreciate a more exacting approach. Some regulators do not want any document production at all, and prefer reports on what was found in your review of documents instead.

What you provide to one regulator may have to be provided to other regulators, depending on their jurisdiction, or it may be subject to production in civil litigation once provided to a regulator. Also, data protection laws vary by country, and those laws may affect data preservation for documents and voice recordings when responding to a regulator in a country where the data did not originate.

Different jurisdictions provide different privilege protections. For example, in the U.S., withholding communications with in-house counsel providing legal advice about a corporate merger is a standard, defensible decision. If the company is also responding to an inquiry from the European Commission, those same documents may need to be produced, unless outside counsel also participated in those communications.

Governmental inquiries have many twists and turns that are beyond your control. To limit your client’s exposure in cross-border investigations, it’s important to consider and plan for discovery challenges and consequences at the outset, to control what you can.

today’s gener al counsel aug / sept 20 16

Executive Summaries e-Discovery Page 26

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Minimizing Discovery Cost through Effective Trial Strategy

Using E-Discovery Technology to Mitigate FCPA Exposure

By Matthew I. Menchel, Adriana Riviere-Badell and Lindsey Weiss Harris Kobre & Kim LLC

By John Tredennick Catalyst

Address Information Governance Now to Avoid Legal Headaches Later

Depending on how courts implement recent changes to the Federal Rules of Civil Procedure, the cost of litigation may soon decrease. Litigants can take advantage of the amended rules by engaging counsel who are focused on devising a cost-effective legal strategy that involves limiting the scope of discovery to obtain the desired outcome. Narrowing the scope of both discovery and trial is a significant issue, given the potentially enormous expense incurred in improperly managed litigation.

Poorly managed discovery can also be strategically harmful. Parties uncertain of trial strategies often serve their opponents with long lists of broad, vague and burdensome requests, but requesting unnecessary documents allows adversaries to bury important documents among thousands of irrelevant ones and can lead to enormous document review expense.

Parties should pay special attention to how they list and describe their claims and defenses, so that they do not unintentionally expand the scope of discovery their adversaries seek. A party may be better off dropping a counterclaim that has a low probability of success, rather than opening itself to burdensome discovery on a side issue that would otherwise be irrelevant.

Counsel can also generate considerable cost-savings for their clients by limiting the issues the court needs to consider.

This limits the scope of discovery and trial, and it helps focus the judge on the issues the party wants to litigate – meaning those claims and defenses on which the party is most likely to prevail.

On April 5, the Criminal Division of the DOJ announced a pilot program aimed at more robust enforcement of the Foreign Corrupt Practices Act. The program is designed to motivate companies to self-disclose FCPA-related misconduct, fully cooperate, and where appropriate remediate flaws in their controls and compliance programs. This requires an effective compliance program that can root out potential violations and swiftly ascertain and disclose all relevant facts.

For a multinational corporation, evidence of FCPA violations could lie hidden in emails, electronic documents and other files that could be stored anywhere across the company’s global footprint, and in any mix of languages. Searching all that data thoroughly and quickly can be done only with the help of the right technology. E-discovery software helps uncover evidence by providing in-house compliance professionals with sophisticated tools for searching and analyzing corporate data.

For FCPA cases, a critical capability is multi-language document handling. In these cases, the emails and documents under scrutiny could be in any of a number of languages, or even multiple languages within a single document. The platform should be able to process such documents and search them, in multiple languages.

The same sophisticated tools that let litigators explore documents, patterns and timelines can be used by compliance professionals to identify suspicious activity. Under the DOJ’s new policy, that could make the difference as to whether a corporation is prosecuted, and if it is, what penalties it could face.

By Jon Tilbury Preservica

New research by the Information Governance Initiative (IGI) found that 98 percent of 400 information management professionals surveyed had records that needed to be kept for 10 years or more. Nevertheless, strategy to protect and govern long-term digital information storage is often lacking. While 97 percent of those surveyed understood the need for a specialized approach to critical digital information assets, only 11 percent were storing them in systems designed to ensure long-term protection and access. Digital content and records are at serious risk of being lost forever, as the hardware and software used to access them becomes obsolete or is decommissioned, and the problem is only going to get worse as technology refresh cycles get shorter. File formats and software are changing at an unprecedented rate.

When respondents were asked what digital preservation systems or strategies were in place, only 11 percent could say they were using a standards-based digital preservation system built to safeguard information. More than 60 percent are keeping information on shared network drives, which are notoriously difficult to govern properly and raise trust issues Museums, state archives and universities have been early adopters of digital preservation systems, but we are now seeing many commercial and government organizations waking up to the issue.

For general counsel, digital preservation systems can ensure that information is available in a readable and trustworthy format, something that could be of significant benefit when meeting statutory and legal defense needs.

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Executive Summaries intelleC tual ProPert y

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CyberseCurit y

ComPlianCe

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Key Takeaways from the New Trade Secrets Act

Protecting Your Company from Ransomware

Governance Above and Beyond Compliance

By Christopher J. Cox and An Tran Weil, Gotshal & Manges

By Debra Innocenti Strasburger & Price LLP

By Lance Croffoot-Suede and Ulysses Smith Linklaters

In May 2016 the Defend Trade Secrets Act of 2016 was signed into law. It amends the Economic Espionage Act, creating a federal civil cause of action for trade secret misappropriation. It will have a significant impact on U.S. trade secret litigation, formerly governed primarily by state statutory or common law.

The DTSA adopts many aspects of the decades-old Uniform Trade Secrets Act (UTSA), which was intended to provide uniformity among states by codifying basic principles of common law trade secret protection, but it diverges in several key provisions, including federal subject matter jurisdiction. Unlike in patent or copyright cases, federal subject matter jurisdiction is not automatic. The DTSA is limited to cases arising under the Constitutions’s commerce clause.

One controversial provision in the DTSA allows a plaintiff to request, through an ex parte proceeding, seizure of any property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.”

The DTSA provides liability protection to those who disclose trade secrets in confidence to a government official or attorney “solely for the purpose of reporting or investigating a suspected violation of law” in a complaint or other document filed in a legal proceeding.

The DTSA specifically states that it doesn’t preempt other law and thus will not replace existing state law. Thus trade secret owners faced with actual or threatened trade secret misappropriation may still find themselves litigating in state courts.

Ransomware has become so lucrative that an industry has developed around it, with commission-based ransomware-as-aservice programs that allow the malware to be deployed by anyone who can key a ransom and payment deadline into the software.

The harm associated with ransomware is preventable with preemptive cybersecurity. The simplest method is to perform regular backups stored in locations segregated from the network. A good practice is to back up files in three places: the file server, a local disk backup, and the cloud. The backup files should be encrypted so that only you can access them.

Downtime caused by malware may be more painful than the ransom. According to a 2016 survey by Researchscape International, organizations affected by ransomware attacks experienced an average of three days without data access.

Downtime can be reduced or even eliminated by a continuity plan. Having a plan is also crucial because attackers give victims a time limit for the ransom, a factor that can impair rational decisionmaking.

Organizations should teach employees best practices when opening email attachments and interacting with web pages. Education can be augmented with technical safeguards, such as application white-listing (allowing systems to execute programs permitted by security policy) and using virtualized environments to execute programs.

The invasive and pervasive nature of ransomware has served as a wake-up call: No organization can ignore information security in today’s global electronic marketplace.

It was once possible to satisfy regulators by having a compliance officer check a series of boxes indicating compliance with applicable regulations, but this is no longer the case. Companies are now expected to maintain compliance programs that are tailored for their industries, their business lines, risk factors, geographic regions and work force.

In April, the DOJ’s Fraud Section issued guidance related to a new pilot leniency program under the Foreign Corrupt Practices Act. First among the items generally required for a company to receive credit for remediation is the “[i]mplementation of an effective compliance and ethics program.”

Rather than focusing exclusively on specific rules, companies should consider how their compliance programs embed some key governance principals into core operations. These include accountability for all expenditures and reduction of off-the-book payments, a common mode of corruption. It also includes widespread transparency, and the generation of evidence that measures effectiveness in a way that regulators can see. The company’s compliance program should be reviewed periodically to ensure adaptation to changing environments and new risks.

For companies that fail to examine how they govern themselves, the impact on financial health and legal exposure can be substantial. Wrongdoing by directors and officers and other governance failings can diminish stock market value, harm reputation and expose the company and investors to civil and criminal liability.

General counsel must recognize their own responsibility for good governance. It’s the key to success in the global economy.

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Five Tips for Retention of Expert Witnesses

Tips for Conducting Internal Fraud Investigations

Diversity in the Legal Profession

By Meaghan Boyd and Geoff Rathgeber Alston & Bird

By Katherine Lemire Lemire LLC

The right expert witness can be the linchpin of a successful litigation strategy, whether a case goes to trial or is resolved before reaching jury or judge. But the retention must be handled correctly, so that the expert’s task and your expectations are clear at the outset.

Interview the candidate in person in order to assess appearance, bias, credentials and demeanor. For new experts, this initial meeting is the time to ask hard questions: Have your opinions on similar topics been challenged? Have you given testimony in a case with similar facts that might contradict the theme of this case?

Work with the expert witness up front to define the scope of work as precisely as possible. Discuss staffing, and discuss the expected work product. In most cases, the key deliverables are testimony and a final report, but depending on the case, visuals using recent technologies might prove to be powerful tools of persuasion.

Create and clearly communicate a budget. Details may evolve as the case progresses, but setting down a budget and a calendar-specific schedule at the outset will make any later discussions about variations easier.

In a very large case, a testifying expert may not have the resources to handle a large volume of plaintiffs, products or issues, so it might be prudent to enlist, in addition to the testifying expert, a support team to assist with research, conduct preliminary evaluation of claims or damages, and to gather data.

Decisions made at the beginning of an internal fraud investigation will either enhance the possibility of a swift and successful resolution or pave the way for a costly and drawn out legal saga that could paralyze the company. This article lays out steps to avoid critical mistakes.

As, general counsel, you should be involved from the beginning of any internal investigation. The sooner you are involved, the sooner you can begin taking steps to protect the company and yourself. Limit the number of people who know about the fraud inquiry to a need-to-know basis. When only a small number of people know about the issue, it’s less likely that perpetrators will be tipped off and have the opportunity to destroy evidence. Maintaining a closed loop also protects the organization and reputations of those accused. Preserving key information (including documents, financial records and emails) is important for establishing potential fraud. It also protects your firm against allegations of not fully cooperating – or worse, covering up.

Among the most important considerations is figuring out when to bring in law enforcement. Keep in mind that once you have handed over the investigation, it is impossible to retake control.

Getting to the bottom of suspected fraud within your organization can be difficult enough without compounding the situation through easily avoided mistakes. Understanding these factors will enable you to act quickly and with confidence toward the best possible resolution of your situation.

By Audrey Tillman AFLAC

The legal profession as a whole isn’t doing a very good job at diversity. A Washington Post article noted that 88 percent of lawyers are white, making law the least diverse profession in the country.

This represents both a problem for those who are underrepresented and a loss for the profession and companies.

Diversity leads to broader thinking and better intellectual output, and it’s the font from which innovation organically flows.

For the legal profession to effectively address the issue of diversity, the author suggests initiatives in the areas of scholarships, recruitment and role models. Scholarships should be offered to minority students who have the skills and drive to succeed in law school but lack the financial resources.

Recruitment practices should not be limited to simple job announcements, but rather should be tailored to reach minority and ethnic student populations where they are most receptive. That includes things like minority and multicultural campus groups, minority law student associations, and activities such as job fairs.

Providing role models is important.

Many young people are deprived of the simple reassurance of seeing people in the legal profession who look like them.

If you are an employer of minority lawyers whom you believe to be rising stars or established experts, don’t be afraid to get them into the public eye. If you’re a minority legal professional with a solid grasp of your subject matter, consider getting out there yourself.

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PR Mill Shuts Down When DOJ Loses a Case

Preparing the Designated Corporate Representative for Deposition

Can Transaction Parties Rely on the Common Interest Privilege?

By Barry J. Pollack and Addy R. Schmitt Miller & Chevalier

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The authors discuss a case in which the U.S. Department of Justice indicted four retired Army National Guard colonels, one of whom became their firm’s client, on charges of conspiracy, bribery, and honest services fraud.

The indictments followed seven years of investigation. The government issued a joint press release on behalf of three federal law enforcement agencies involved in the investigation, and in it the defendants’ alleged behavior was castigated and the agencies’ efforts to root out public corruption was praised: “It is unconscionable,” said the release, “how these former military officers betrayed the offices they once held for monetary gain.”

Less than a year later, after the defendants incurred hundreds of thousands of dollars in attorneys’ fees and lost their company, a jury acquitted all of them on every charge.

The authors take the government to task for failing to issue a press release or any other type of statement to announce that the men had been acquitted on all charges. Nor, they point out, was the press release announcing the indictment and claiming the defendants’ had betrayed their offices taken off the websites of two of the investigating agencies.

The public has an interest in learning that the agencies’ conclusions were not accepted by a jury. How, the authors ask, is the public to assess whether the Department is utilizing its resources wisely when it announces charges, convictions, and sentences, yet acts like acquittals never occur?

By John C. Maloney, Jr. Zuber, Lawler & Del Duca, LLP

In most commercial, IP, employment and product liability litigation, it is common for some deponents to be corporate representatives rather than individual fact witnesses. Federal Rule of Civil Procedure 30(b)(6) and its state analogues allow a party to name as the deponent a corporation, association or other entity. The Rule 30(b)(6) deposition can be used early in a case to determine the litigation landscape, and later serve as a wrap up to fill in gaps on substantive issues.

There are major differences between preparing an individual fact witness and a corporate representative for a deposition. First, the “named organization” rather than the adversary designates the deponent and knows in advance the subjects that will be covered. The named organization then has a statutory obligation to prepare its “designated person(s)” to testify regarding the listed “matters for examination.”

Defense counsel must assume responsibility for educating the designated witness about what needs to be investigated in order to testify, keeping in mind designated witnesses can be asked to testify regarding more than just facts. Counsel for the named entity must object in writing to the matters for examination if they are vague or otherwise objectionable. Objections should lead to a negotiation regarding the scope of matters for examination.

It’s prudent not to name the general counsel, or any lawyer, as a designated witness because that effectively waives protection of the attorney-client privilege and work product doctrine.

By Alison L. Nadel and Erika N. Pont McDermott Will & Emery

In many situations, parties to a transaction want to share legal advice among themselves. Parties whose interests are aligned can save money by sharing and discussing these opinions because they won’t need to get their own separate opinions. The question arises: Can they assume their communications are protected by the so-called “common interest privilege?” The answer is “perhaps.”

The common interest doctrine extends attorney-client privilege to any privileged communication confidentially shared with another represented party’s counsel for the purpose of furthering a common legal interest. Although it’s recognized by federal and many state courts, the limits vary, and in some state jurisdictions it continues to evolve. There is also lack of consistency across federal courts. Attempts to incorporate a common interest privilege into the Federal Rules of Evidence have been unsuccessful, leaving decisions in the hands of district court judges.

If litigation is not pending or imminent, parties can increase the likelihood that the common interest doctrine will protect communications by memorializing their intentions in an agreement that is specific about the intended application of the privilege, the common interest implicated, and their intention to keep privileged communications confidential; by identifying which documents are subject to the common interest privilege and labeling them accordingly; by separating communications regarding legal advice and strategy from those regarding purely business or financial decisions; and by maintaining the confidentiality of communications over which the privilege is asserted.

AUG / SEPT 20 16 TODAY’S GENER AL COUNSEL

Labor & Employment

A Legal Road Map for Wellness Programs

By Dave Carothers and Nicole C. Baldwin

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mployee wellness programs have become increasingly popular, but some companies are hesitant to implement them due to lack of legal guidance and uncertainty about the return on investment. There are indeed pitfalls to avoid when setting up a wellness program, and here are a few things to keep in mind.

PROGRAMS UNDER THE ACA

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Under the final regulations of the Patient Protection and Affordable Care Act, a wellness program is defined as a plan designed to promote health or prevent disease. In 2013, the Department of the Treasury, Department of Labor and the Department of Health and Human Services implemented final regulations to provide comprehensive guidance with respect to the general requirements of wellness programs. These regulations set forth two main types of wellness programs: “participatory” and “healthcontingent.”

and does not base any part of the reward on outcomes and (c) rewards for attending a monthly, no-cost health education seminar.

Notably, these examples all reward employees for participating in activities without requiring the achievement of a certain outcome. If a program requires an employee to meet a certain health standard, it is not a participatory program.

Health-contingent wellness programs, on the other hand, require an individual to meet a health-related standard to obtain a reward. The standard may be the performance of a certain activity relating to a health factor, or the attainment of a specific health outcome.

There are two types of healthcontingent wellness programs: “activity only” and “outcome-based.” Under an activity-only wellness program, an individual is required to perform an activity related to a health factor in order to obtain a reward. This type of program does not require someone to attain a

Health-contingent wellness programs require an individual to meet a health-related standard to obtain a reward.

Participatory wellness programs do not require employees to meet a health standard. They can but are not required to provide a reward to incentivize. Examples of participatory wellness programs include: (a) reimbursement for all or part of the cost of membership in a fitness center, (b) a diagnostic testing program that provides a reward for participation

specific health outcome, although some people may be unable to participate in the program due to a health factor like asthma, in which case a reasonable alternative must be provided.

In an outcome-based program, the individual must attain a specific health outcome in order to obtain a reward.

Examples include quitting smoking or

TODAY’S GENER AL COUNSEL AUG / SEPT 20 16

Labor & Employment attaining certain results on a biometric screening. Outcome-based programs usually have two tiers: (1) a measurement, test or screening as part of an initial standard, and (2) a follow-up program that assists those who do not meet the initial standard.

Another example of an outcomebased program is one that tests high blood pressure and rewards those within a healthy range, while requiring those who fall outside of that range to take additional steps in order to obtain the reward.

All health-contingent wellness programs must meet the following requirements: 1) Eligible individuals must be given the opportunity to qualify for the reward at least once per year.

2) The reward must not exceed 30 percent of the total cost of employeeonly coverage under the employer’s health-care plan. For smoking cessation programs, the reward may not exceed 50 percent.

3) It must be reasonably designed to promote health or prevent disease and must not be overly burdensome or a subterfuge for discrimination based on a health factor. It must not be highly suspect in the method chosen to promote health or prevent disease.

4) All materials describing the terms of a health-contingent wellness program must disclose the availability of a reasonable alternative standard to qualify for a reward (or waiver of the standard).

5) The full reward must be available to all similarly situated employees, and there must be a reasonable alternative standard or waiver. The details of this requirement are determined by whether the program is activitybased or outcome-based.

THE EEOC’S FINAL RULES

On May 17th of this year, the Equal Employment Opportunity Commission issued final rules for employer wellness programs, with respect to the ADA and “GINA,” the Genetic Information Nondiscrimination Act.

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aug / sept 20 16 today’s gener al counsel

Labor & Employment

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This EEOC’s final ADA rule provides guidance about the extent to which employers may offer participation incentives that ask employees to answer disabilityrelated questions or undergo medical exams. It expanded or clarified the rule as follows:

Regarding how incentives are calculated for employers with more than one group plan, but offer a wellness program that doesn’t require employees to participate in a particular plan. When an employer offers more than one group health plan, but participation in a wellness program is open to all employees regardless of whether they are enrolled in a plan, the employer may offer a maximum incentive of 30 percent of the lowest cost major medical self-only plan the employer offers. For example, if an employer offers three selfonly major medical plans ranging from $5,000 to $8,000, the employer could offer a maximum incentive of $1,500.

collected by a wellness program only in an aggregate form that does not disclose and is not reasonably likely to disclose the identity of specific individuals, except as necessary to administer the health plan. Second, an employer may not require an employee to agree to the sale, exchange, sharing, transfer, or other disclosure of medical information, or otherwise waive confidentiality protections under the ADA as a condition for participating in a wellness program, or receive an incentive for participating, except to the extent permitted by the ADA to carry out specific activities related to the wellness program.

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Under the EEOC’s final rules for these laws, wellness programs are defined to include programs that are part of an employer-sponsored group health plan and those that are not tied to a group health plan. What follows is how the final rules expanded and/or clarified earlier proposed rules.

THE FINAL ADA RULE

Incentives are limited for all wellness programs that seek disability-related inquiries and medical exams. Unlike the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act, the final ADA

Employers may offer an incentive to employees who participate in a wellness program, even if the employer does not offer health insurance. If an employer does not offer health insurance, but wants to offer an incentive

Employer’s notice. The EEOC advises employers to provide a new notice to employees if prior notices did not contain information about what medical information will be obtained, how it will be used, who will receive it,

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In a health-contingent wellness program, the full reward must be available to all similarly situated employees, and there musts be a reasonable alternative standard or waiver of the applicable standard.

rule places limits on disability-related inquiries and medical examinations related to wellness programs, regardless of how the information obtained is ultimately used. It also clarifies the limit on incentives in any wellness program that requires employees to answer disability-related questions or undergo medical examinations (whether participatory or health contingent). In contrast, under HIPAA and the Affordable Care Act (which apply only to wellness programs that are part of a group health plan), “participatory wellness programs” do not impose any incentive limits, as long as the programs are available to all similarly situated individuals and incentives are made available regardless of a health factor.

for employees to complete a so-called Health Reimbursement Arrangement (HRA) or participate in annual testing for glucose and cholesterol levels, the employer may offer an incentive up to 30 percent of the cost that a 40-yearold non-smoker would pay for selfonly coverage under the second lowest cost Silver Plan on the state or federal exchange, in the location that the employer has identified as its principal place of business. If such a plan would cost an employee $4,000, the maximum incentive the employer could offer is $1,200.

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Confidentiality. The final rule adds two new requirements. First, a covered entity may receive information

and restrictions on disclosure. Employers should review prior communications to their employees for compliance with the final rule.

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ADA’s Safe Harbor Provision For Insurance Does Not Apply To Wellness Programs. The final rule expressly states that the ADA’s “safe harbor provision” (which allows insurers and plan sponsors, i.e. employers, to use information about risks posed by certain health conditions to make decisions about insurability and insurance costs) does not apply to wellness programs, even if they are part of an employer’s health plan.

While the final ADA rule went into effect on July 18, 2016, it applies

today’s gener al counsel aug / sept 20 16

Labor & Employment prospectively to employer-sponsored wellness programs on the first day of the first plan year that begins on or after January 1, 2017, for the health

principal place of business. For example, if the second lowest cost Silver Plan is $4,000, the maximum incentive the employer could offer for the employee’s

wellness programs on the first day of the first plan year that begins on or after January 1, 2017, for the health plan used to determine the level of incentive

A covered entity may receive information collected by a wellness program only in an aggregate form that does not disclose and is not reasonably likely to disclose the identity of specific individuals, except as necessary to administer the health plan. plan used to determine the level of incentive permitted under the final rule.

For example, if the health plan used to calculate permissible incentive limits begins on March 1, 2017, the provision of incentives and notice requirements will apply to the wellness program as of that date. The rest of the provisions (non-incentive related), which clarify existing obligations, apply both before and after publication of the final rule.

THE FINAL GINA RULE

The EEOC’s final GINA rule clarifies that an employer may offer a limited incentive for an employee’s spouse to provide information about the spouse’s current or past health status as part of a voluntary wellness program. The rule clarified, or expanded, the previously proposed rule in the following ways:

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The final rule applies to employers even if there is no group health plan.

Unlike the proposed rule, the final rule applies to all wellness programs, regardless of whether they are offered through a group health plan. If an employer does not offer a group health plan, the employer may still offer an incentive to an employee’s spouse for providing information about his or her current health status. The maximum incentive is 30 percent of the total cost to a 40-year-old non-smoker purchasing coverage under the second lowest cost Silver Plan available through the state or federal exchange, in the location that the employer has identified as its

spouse to provide health information as part of a wellness program is $1,200.

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Regarding how incentives are calculated for employers with numerous group health plans. If an employer offers more than one group health plan, but offers a wellness program that does not require employees or their families to enroll in a particular group plan, the maximum incentive is 30 percent of the lowest cost major medical self-only plan the employer offers.

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Employers cannot sell, exchange transfer or distribute health information. The proposed rule only prohibited an employer from requiring an employee or spouse to agree to the “sale” of health information in exchange for an incentive, or as a condition for participating in a wellness program.

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No retaliation or denial of access to insurance if employee’s spouse refuses to provide information about spouse’s current or past health status.

The final rule includes new language that prohibits employers from denying access to health insurance or any benefits packages, or from retaliating against, any employee whose spouse refuses to provide information about his or her current or past health status to an employer wellness program.

While the final GINA rule went into effect on July 18 of this year, it applies prospectively to employer-sponsored

permitted under the final rule.

The discussion of relevant law in this article is not exhaustive. Other laws, federal and state, may apply. ■

Dave Carothers is a partner in the San Diego office of labor and employment firm Carothers DiSante & Freudenberger LLP. He has more than 30 years experience representing and counseling California employers in such matters as claims of wrongful termination, sexual harassment, breach of contract, ADA, wage-and-hour violations and discrimination. He has also served as lead trial counsel in complex class actions. dcarothers@cdflaborlaw.com.

Nicole C. Baldwin is an attorney in the San Diego office of Carothers DiSante & Freudenberger LLP. She advises clients on a range of employment law issues, including corporate wellness programs. nbaldwin@cdflaborlaw.com

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aug / sept 20 16 today’s gener al counsel

Labor & Employment

What Expanding Joint Employer Rules Mean For You

By Tamara Devitt

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our company has just been named in a Fair Labor Standards Act (FLSA) collective action for unpaid wages. Not great news, but not something beyond the realm of possibility in today’s environment.

After investigating, you determine that the named plaintiff is not one of your employees. You call plaintiffs’ counsel and tell her she has the wrong defendant, but she refuses to dismiss your company at the initial pleading stage. She believes your company jointly employed the plaintiffs and putative

class members (individuals allegedly placed to work at one of your facilities by a labor agency) because it had the right to exercise sufficient control over the plaintiffs to create a joint employment relationship. Frustrated, you take a look at your written agreement with the agency. There is an indemnification provision, but under its terms you will need to hire counsel to defend the action. the basics

The recent trend of expanding joint employer liability means companies

need to carefully analyze the scope of their potential joint employer status in order to understand and mitigate any risk. The concept of joint employer liability arises in various employment contexts, including labor contract bargaining, discrimination claims, leaveof-absence obligations and wage and hour liability. Unfortunately, the tests for joint employer liability may differ depending on the type of claim, making it difficult for employers to structure their practices to comfortably protect against risk.

today’s gener al counsel aug / sept 20 16

Labor & Employment The test could be more uniform, but that might make it worse. For example, in California, employers who use labor contractors face a presumption of joint employer liability under Labor Code Section 2810.3 for certain claims, including wage claims. Section 2810.3 holds employers liable for wage and hour violations committed by their labor contractors, regardless of the employer’s control over, direct participation in, or knowledge of such violations.

The common law test for joint employer liability has historically required that the putative joint employer exercise actual control over the putative employee. That means direct and immediate degree of control over “essential” terms

those workers’ terms of employment, even if that reserved or indirect control is attenuated or never exercised at all.

The NLRB’s new test is a two-step inquiry: (1) whether there is a common-law employment relationship between the putative joint employer and the workers at issue and (2), if so, whether the putative joint employers “share or co-determine those matters governing essential terms and conditions of employment.”

A common law employment relationship will exist where an individual is employed to perform services in the affairs of another person or entity and is subject to that person or entity’s control with respect to how those services are performed, whether or not that control

Both the NLRB and the Department of Labor have recently posited that joint employment means having a “right to control,” regardless of whether that control is ever exercised. and conditions of employment, such as hiring, firing, discipline, supervision, and direction. However, both the National Labor Relations Board and the Department of Labor have recently posited that joint employment means having a “right to control” the putative employee, regardless of whether that control is ever exercised.

MORE THAN ACTUAL CONTROL

The NLRB’s August 2015 decision in Browning-Ferris Industries of California, Inc. departed from well-settled precedent to establish a new, broad standard for determining when two entities are “joint employers” under the National Labor Relations Act (NLRA).

Browning-Ferris arose from a contested union election involving Leadpoint Business Services, a staffing firm that supplied employees to Browning-Ferris Industries of California, Inc. The decision held that an entity may be a joint employer of another entity’s workers based solely on reserved or indirect control over

is indirect or not exercised. The Board majority emphasized its intent to apply this test to as many employment relationships as possible, and noted that “essential terms and conditions of employment” not only include well-settled items such as hiring, firing, discipline and supervision, but may also include more indirect or less obvious terms, such as “dictating the number of workers to be supplied; controlling scheduling, seniority, and overtime; and assigning work and determining the manner and method of work performance.”

In Browning-Ferris, the NLRB found that BFI was a joint employer with Leadpoint based on the following factors: • Hiring: BFI did not recruit, interview, test or select Leadpoint personnel, but could require that applicants pass drug tests and have appropriate qualifications, certification, and training.

• Discipline/Termination: BFI could “discontinue the use of any person-

nel for any or no reason.” The Board cited times where BFI managers “request[ed] the immediate dismissal” of Leadpoint employees. Both times, Leadpoint officials terminated their employment. BFI managers did not make the termination decisions, but the Board held that “the outcome was preordained by BFI’s ultimate right . . . to dictate who works at its facility.”

• Compensation: Leadpoint could not pay employees more than BFI paid its employees for comparable work. BFI compensated Leadpoint for labor costs on a cost-plus basis, but the Board noted that such an arrangement “is not necessarily sufficient to create a joint-employer relationship.”

• Supervision: Leadpoint supervisors were on-site to directly supervise Leadpoint employees, but BFI controlled hours and production lines.

BFI required that a BFI representative attest to the hours worked by Leadpoint employees, and could refuse payment to Leadpoint for any time not confirmed by BFI. COURTS FOLLOW NLRB LEAD

In Faush v. Tuesday Morning Inc., (Nov 18, 2015), the Third Circuit held that companies contracting with staffing firms for temporary workers may be held liable for such workers’ discrimination claims under Title VII. The court held that the proper test for determining whether a company is an “employer” under Title VII is the common-law test announced by the Supreme Court in Nationwide Mutual Insurance Co. v.

Darden (1992).

The court harmonized this decision with previous decisions looking to the NLRA by explaining that “[t]he factors considered for purposes of the National Labor Relations Act are, however, essentially the same as those listed in Darden” and citing Browning-Ferris. The court then explained that this is because “the word ‘employee’ in the National Labor Relations Act, as in ERISA and Title VII, is intended to convey the common-law meaning of the term.” continued on page 25

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aug / sept 20 16 today’s gener al counsel

E-Discovery

Discovery Considerations in Cross-Border Investigations

By Neil Bloomfield and Tandy Mathis

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saying widely attributed to Winston Churchill – “He who fails to plan is planning to fail” – certainly applies to discovery when the government comes calling. If you fail to plan how you and your client are going to respond to a cross-border investigation involving multiple regulators, then you are planning to fail your client. Before commencing a review, you should ask yourself a series of fundamental questions. How you respond to these questions will dictate how you respond to the government authority that has requested information.

What are the expectations of the entity conducting the investigation?

The knee jerk reaction after receiving a regulatory inquiry may be to begin processing and producing every relevant communication as quickly as possible, in order to demonstrate your client’s willingness to cooperate and the fulsomeness of the review. But before running off and spending millions to do that, you should consider that regulators often have specific objectives in mind when making requests and they do not have the time or resources to comb through massive document productions looking

for items of interest. Negotiate the scope of your review up front.

This provides a number of advantages.

It sets the scope of the investigation for both the regulator and your client, and it can provide insight into the regulator’s expectation for document production.

This expectation can run the gamut from production of all information resulting from your search term hits, to the production of only the documents that are problematic, to the production simply of a final report detailing your findings during the review. Negotiating the scope of your review can also provide a defense

today’s gener al counsel aug / sept 20 16

E-Discovery

when the regulator asks why certain documents were not found, or certain individuals were not reviewed.

As the steward of your company’s data, your primary job is to keep that data secure, and that can be done best by reasonably limiting what data is transferred to third parties. It is incumbent upon you to suggest custodians, search terms and/or time period restrictions that can actually target the review.

Practice tiP Most regulators are pragmatic. If a salesperson’s conduct in New York is the problem, there is no need to expand the review to every sales desk across the globe, without some indication from the review that the problem has spread.

Know the regulator’s production specifications before you begin. As they become more sophisticated about document production, regulators have learned

may be able to assist. If you have made prior productions and the same regulator has agreed upon certain limitations, they will likely agree to those limitations again.

If it’s not included in the government specifications, you should also inquire as to production media format (disc, file transfer, etc.), as some entities have restrictions on the types of files they can open for security reasons. Some regulators even have file transfer sites to which they require the document productions be uploaded. These formatting issues are best handled at the outset, not when the production is ready or minutes before the deadline.

Open discussions early regarding rolling productions, production by custodian, or production of categories of documents. That may allow the regulator to provide more direction. Once the regulator gets an idea of the types of documents you will be producing, it can tailor its requests toward docu-

limit the production. Often the regulator will prefer to receive only the documents that present the most obvious problems.

Limit productions as much as possible.

Some regulators may try to piggyback off the investigations of others.

You should evaluate each regulator’s jurisdiction, including geographic limitations, before automatically turning over everything to a second authority. The purpose of each inquiry and the scope of its authority should be weighed before responding to any new requests. It is possible the government regulator’s request is made to aid a state-owned entity in civil litigation, something that would be more appropriately done through civil discovery.

Once regulatory inquires begin, keep in mind that civil litigation may occur as a result and that documents produced to a regulator in the interest of being

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Once regulatory inquires begin, keep in mind that civil litigation may occur as a result and that documents produced to a regulator in the interest of being cooperative, but that may otherwise have been protected from discovery, may later have to be produced in civil litigation.

which production formats work better with the document review software they utilize. Often regulators will post production specifications to their websites or provide them in their requests. Unless you have an explicit agreement to the contrary, you should plan to comply with these specifications.

Some regulators require documents to be processed in certain time zones or require that some file types (like Bloomberg chats) contain additional metadata fields when produced. If you cannot meet the production specifications, reach out to discuss other options, or determine if there are other vendors or products that

ments more likely to be pertinent to the inquiry and limit the amount of data your client needs to produce.

What are the potential downstream implications of production?

Every document produced to a regulator provides the possibility for additional sanctions for your client. As a result, you should provide what the regulator requests, nothing more.

Practice tiP Ranking the documents that raise questions about the conduct the regulator has identified can allow you to

cooperative, but that may otherwise have been protected from discovery, may later have to be produced in civil litigation. Every document produced to a regulator can lead to exposure to private plaintiffs.

Know all the issues in your documents. Identify unrelated issues in the relevant documents (other misconduct, or offensive/embarrassing behavior) and inform your client of these issues. For related reasons, to the extent possible, you should always seek a FOIA exemption for your document production and seek an agreement with the regulator that any privileged documents accidentally

aug / sept 20 16 today’s gener al counsel

E-Discovery

produced will be returned and will not result in a waiver of privilege.

You should also take the time to redact personal and confidential information in accordance with the privacy laws that govern in the country where the custodians are located.

What regional variations will effect production?

In today’s regulatory environment, there is a need to prepare for investigations by multiple regulators in various jurisdictions. Know the local legal restrictions on production.

Particularly for companies with employees in the European Union, processing data containing personally identifiable information presents a

the U.K. Financial Conduct Authority or other local regulations. If you are pursuing this approach, it can be helpful to cooperate with the U.S. authority in formulating the request, in order to receive a request to which the company can respond.

Jurisdictions also provide different privilege protections. Depending on who is receiving the company’s productions, your privilege calls may be different.

For example, in the United States withholding communications with in-house counsel providing legal advice regarding a corporate merger is a standard, defensible decision. If the company is also responding to an inquiry from

Take time to redact personal and

essential in identifying and collecting the most important communications.

Another important consideration is the sophistication of the local regulator with regard to discovery. U.S. government authorities, such as the DOJ or the SEC, are as sophisticated as any adversary in civil litigation. This is not always the case outside the United States, where regulators may not have access to upto-date discovery software or experience with large document productions.

It is also helpful to know whether the government authority has issued any discovery sanctions.

Governmental inquiries have many twists and turns that are beyond your control. It’s important to plan for discovery challenges and consequences at the outset to address what you can control, and thereby limit your client’s exposure in cross-border investigations. ■

confidential information in accordance with 24

the privacy laws that govern in the country where the custodians are located. series of obstacles that can either delay or completely impede the ability to respond to the governmental inquiry, without the application of a statutory exception. In other jurisdictions, such as South Korea and India, you cannot transfer documents without the consent of the individual whose personal data is being transferred.

A first step in addressing data privacy requirements is understanding where data is physically located. Once you determine its location, you should consider if housing the data locally is a viable option and assess the requirements for transferring data outside the jurisdiction. Engaging local counsel can be immensely helpful in navigating this process.

Practice tiP When responding to government entities in the United States, you may be able to produce documents through

the European Commission, those same documents may need to be produced unless outside counsel also participated in those communications.

Practical factors need to be considered when making a discovery plan.

Different jurisdictions will often have different preservation obligations or practices. For example, Dodd Frank requires financial institutions in the United States to preserve voice recordings of certain types of employees, but these same employee categories may not have their calls recorded in other jurisdictions.

Different countries have differing communication patterns and tools.

In some countries email may be the dominate medium. In others, including many countries in Asia, the most critical communications may have occurred on WhatsApp or other texting applications.

Knowing the methods of communication used, not just those authorized, is

Neil Bloomfield is a member of the Litigation Team at Moore & Van Allen PLLC, where he specializes in commercial litigation, as well as regulatory investigations, both domestic and cross-border, in Europe and Asia. He also works with clients on improving internal systems and controls to avoid future investigations. neilbloomfield@mvalaw.com

Tandy Mathis practices on the Litigation Team at Moore & Van Allen PLLC, focusing primarily on discovery issues in response to financial regulatory investigations. tandymathis@mvalaw.com

today’s gener al counsel aug / sept 20 16

Labor & Employment Joint Employer Rules continued from page 21

The Department of Labor’s interpretation may be even broader than the NLRB’s. The Wage and Hour Division (WHD) of the DOL recently released guidelines for when companies are considered joint employers under the FLSA and the Migrant and Seasonal Agricultural Worker Protection Act (MSPA).

The WHD’s guidance noted that the FLSA’s definition of “employment” means “to suffer or permit to work,” which is broader than the common law control standard and “ensures that the scope of employment relationships and joint employment under the FLSA and MSPA is as broad as possible.”

Thus, according to the WHD, a joint employment relationship may exist under the FLSA, even where there would not be a joint employment relationship under the NLRA. Unlike the NLRB’s new test, which looks at the putative employer’s level of control, the WHD’s guidance makes clear that “employment” under the FLSA looks at the “broader economic realities.” The expanded scope of this test is apparent in the WHD’s discussion of “vertical joint employment.” Vertical joint employment exists when an employee of one employer (the “intermediary employer”) is also, with regard to the work performed for the intermediary employer, economically dependent on another employer (the “potential joint employer”).

The WHD’s vertical joint employment analysis looks at whether the employees at issue are economically dependent on the potential joint employer and are thus the potential joint employer’s employees.

The WHD memo relies heavily on an MSPA regulation regarding farm labor contractor employees, and states that it should be applied in FLSA cases as well. According to this regulation, the following factors indicate economic dependence: • Directing, Controlling, or Supervising the Work Performed. Whether the work performed by the employee is controlled or supervised by the

potential joint employer beyond a reasonable degree of contract performance oversight.

• Controlling Employment Conditions. Whether the potential joint employer has the power to hire or fire the employee, modify employment conditions, or determine the rate or method of pay.

• Permanency and Duration of Relationship. Whether an indefinite, permanent, full-time, or long-term relationship exists between the employee and the potential joint employer.

ployer issues and the potential that in a dispute, a court will adopt the DOL view. As described above, there are various versions of the joint employer test depending on applicable law, and these conflicting tests create unpredictability. Nonetheless, because of the inherent fact issues in determining joint employer liability, early dismissal, avoiding class certification and summary judgment may be difficult.

In the meantime, we recommend employers consider (1) determining if they are at risk of joint employer liabil-

Browning-Ferris provides a road map for asserting joint employer status in a union environment.

• Repetitive and Rote Nature of Work.

Whether the employee’s work for the potential joint employer is repetitive and rote, is relatively unskilled, and/ or requires little or no training.

• Integral to Business. Whether the employee’s work is an integral part of the potential joint employer’s business.

• Work on Premises. Whether the employee’s performance of the work occurs on premises owned or controlled by the potential joint employer.

• Performing Administrative Functions Commonly Performed by Employers.

Whether the potential joint employer handles payroll, provides workers’ compensation insurance, provides necessary facilities and safety equipment, housing or transportation, or provides tools and materials required for the work.

THE BOTTOM LINE

The focus of the NLRB and DOL on joint employer status makes this even more of a hot button issue for employers. Browning-Ferris provides a road map for asserting joint employer status in a union environment. The DOL’s broader test means more aggressive DOL investigations involving joint em-

ity and (2) reviewing any potential joint employer relationships to determine if some of the factors may be adjusted to minimize the risk of a finding of joint employer status.

Employers should also review agreements with labor contractors to ensure that there are representations and warranties addressing compliance with applicable employment laws, along with appropriate indemnification provisions, as they continue to monitor developments in this volatile area. ■

Tamara Devitt, a partner at Haynes and Boone, counsels and represents employers in all aspects of labor and employment law. She defends against claims of discrimination, unlawful harassment, wrongful termination, unfair business practices and wage and hour claims, including class actions and complex litigation. tamara.devitt@haynesboone.com

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aug / sept 20 16 today’s gener al counsel

E-Discovery

Minimizing Discovery Cost through Effective Trial Strategy

By Matthew I. Menchel, Adriana Riviere-Badell and Lindsey Weiss Harris

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itigation costs in the United States can be exorbitant because of the scope of discovery reflexively undertaken by law firms. Often, after engaging in massive discovery campaigns, these firms find themselves unequipped to try their clients’ cases and instead encourage settlement.

Depending on how U.S. district courts implement recent changes to the Federal Rules of Civil Procedure (FRCP) – which are aimed at streamlining cases, reducing discovery costs and improving

case management – the cost of litigation may soon decrease. Parties involved in litigation can take advantage of the amended rules by engaging counsel who are focused on devising a tailored and cost-effective legal strategy that involves limiting the scope of discovery to obtain the desired outcome.

THE AMENDED RULES

The FRCP amendments, which took effect late last year, attempt to achieve the goal of securing “the just, speedy,

and inexpensive determination of every action and proceeding.” These amendments were designed to expedite the initial stages of litigation by encouraging aggressive early case management and to minimize the cost of discovery, which has skyrocketed in recent years, especially with respect to electronic discovery.

The new rules emphasize proportionality and reasonableness. Previously, the federal rules allowed for discovery “reasonably calculated to lead to the discovery of admissible evidence.” This language was used by parties to argue for broad discovery pursuant to vague and burdensome document requests, and to seek documents that were unlikely to be used at any trial. The new rule eliminates this language, allowing for discovery “proportional to the needs of the case.”

Although the idea of proportionality existed in the prior version of the FRCP, the new rules make it part of the definition of the scope of discovery.

The new rule also lists several proportionality factors, including: • The importance of the issues at stake in the action • The amount in controversy • The parties’ relative access to the relevant information • The parties’ resources • The importance of the discovery in resolving the issues • Whether the burden or expense of the proposed discovery outweighs its likely benefit

today’s gener al counsel aug / sept 20 16

E-Discovery

This new approach is a significant shift away from the traditional free rein that some law firms availed themselves of when crafting discovery requests.

WHY LIMITING THE SCOPE MATTERS

For large organizations, narrowing the scope of both discovery and trial is a significant issue, given the potentially enormous expense incurred in improperly managed litigation. If counsel to these large companies fails to limit the scope of discovery, the cost of collecting, managing and reviewing documents can

has begun, advocates can design and implement the most efficient, effective discovery plan. A narrowly-tailored list of requests is most likely to be enforced by the court and lead to the discovery of important trial evidence.

Similarly, parties should pay special attention to the manner in which they list and describe their claims and defenses, so that they do not unintentionally expand the scope of the discovery their adversaries seek. For example, a party may be better off dropping a counterclaim that has a low probability of success,

Requesting unnecessary documents allows adversaries to bury important documents among thousands of irrelevant ones, and can lead to enormous document review expense.

easily reach hundreds of thousands, and in some cases millions of dollars.

Moreover, poorly managed discovery can be strategically harmful. Parties uncertain of their ultimate trial strategies often serve their opponents with long lists of broad, vague and burdensome requests, which violate the new FRCP and may lead less patient judges to deny not only unnecessary requests, but also necessary ones, for those documents that parties really need. Requesting unnecessary documents allows adversaries to bury important documents among thousands of irrelevant ones, and can lead to enormous document review expense.

While the changes in the FRCP may help curb this costly and generally ineffective litigation strategy, the most effective means of cost reduction is to insist that your firm perform an aggressive early-stage assessment of the case, candidly evaluate the strengths and weaknesses of claims and defenses, and determine what evidence to present at trial. By thinking about trial strategy before discovery

rather than opening itself to burdensome discovery on a side issue that would otherwise be irrelevant. The key to making these decisions is pinpointing a party’s strongest claims and defenses and resisting the urge to include arguments that have the potential to drive up litigation costs.

Counsel can also generate considerable cost-savings for their clients by limiting the issues the court needs to consider. Demonstrating to a court that it need not make complex determinations that are ultimately irrelevant to the outcome of the case not only limits the scope of discovery and trial, but also helps focus the judge on the issues the party wants to litigate, meaning those claims and defenses on which the party is most likely to prevail.

Some clients, of course, are not eager to see the inside of a courtroom. Engaging counsel focused on trial, however, can actually decrease the likelihood of an expensive trial. Attorneys who are known as “trial lawyers” and not “litigators” provide their clients with significant

negotiating leverage during settlement negotiations, because adversaries know they are ready, willing and able to take their cases to trial. This means settling on better terms, and after less expense. ■

Matthew I. Menchel is a partner at Kobre & Kim, and director of the firm’s Center for Trial Advocacy, which he founded as a forum for the discussion and exchange of best practices by trial practitioners. Prior to joining Kobre & Kim, he served as the Chief of the Criminal Division of the U.S. Attorney’s Office for the Southern District of Florida, as well as Assistant District Attorney in the New York County district attorney’s office. menchel@kobrekim.com

Adriana RiviereBadell is a partner at Kobre & Kim. She focuses her practice on regulatory and internal investigations, international judgment enforcement and asset recovery, and government enforcement defense. adriana.riviere-badell@kobrekim.com

Lindsey Weiss Harris is an associate at Kobre & Kim. She focuses on regulatory, white collar and complex civil litigation. Prior to joining Kobre & Kim, she clerked on the Ninth Circuit Court of Appeals and worked as a litigator at Wachtell, Lipton, Rosen & Katz. lindsey.weissharris@kobrekim.com

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aug / sept 20 16 today’s gener al counsel

E-Discovery

Using E-Discovery Technology to Mitigate FCPA Exposure

By John Tredennick

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n April 5, the Criminal Division of the U.S. Department of Justice announced a pilot program aimed at more robust and transparent enforcement of the Foreign Corrupt Practices Act. The pilot progam is designed to motivate companies to voluntarily self-disclose FCPA-related misconduct, fully cooperate with the DOJ and, where appropriate, remediate flaws in their controls and compliance programs.

For companies that comply with the program’s requirements for selfdisclosure and transparency, the DOJ may decline to prosecute FCPA violations. Even when criminal charges result, cooperating companies are eligible for significant mitigation credits, most notably up to a 50 percent reduction off the bottom end of fines under the U.S. Sentencing Guidelines, and elimination of the requirement for appointment of a federal monitor.

All of this, however, requires that a company have an effective compliance

presence and in any mix of languages.

Searching all that data thoroughly and quickly can be done only with the help of the right technology.

Perhaps not surprisingly, a number of corporations are now using the same technology that litigators use to get to the root of a matter in e-discovery for their compliance investigations. E-discovery software provides the sophisticated search and analytics tools that compliance investigators need to quickly dig up all relevant facts.

THE PILOT PROGRAM

The details of the DOJ’s FCPA pilot program were announced by Leslie R. Caldwell, assistant attorney general in charge of the Justice Department’s Criminal Division. “The principal goal of this program,” Caldwell said, “is to promote greater accountability for individuals and companies that engage in corporate crime by motivating companies to voluntarily self-disclose

agents devoted to FCPA investigations and prosecutions, and the DOJ is also strengthening its cooperation with its foreign counterparts.

“This should send a powerful message that FCPA violations that might have gone uncovered in the past are now more likely to come to light,” Caldwell said.

Under the pilot program, a corporation can mitigate criminal penalties or avoid prosecution altogether through “timely and voluntary self-disclosure.”

In evaluating the disclosure, the DOJ will look at whether the company: • Discloses the conduct within a reasonably prompt time after becoming aware of the offense.

• Discloses all relevant facts known to it, including all relevant facts about the individuals involved in any FCPA violation.

These disclosures, the DOJ says, should be as specific as possible and

When a company has reason to suspect unlawful FCPA activity within its ranks, e-discovery software can help it quickly identify evidence of the activity, or rule it out. program in place, one that can root out potential violations and enable it to swiftly ascertain and disclose all relevant facts about the individuals involved in the wrongdoing to the DOJ. That is not necessarily easy to do. For a multinational corporation, evidence of FCPA violations could lie hidden in emails, electronic documents, and other files that could be stored anywhere across the company’s global

FCPA-related misconduct, fully cooperate with the Fraud Section, and, where appropriate, remediate flaws in their controls and compliance programs.”

At the same time, the DOJ is significantly stepping up its ability to investigate and prosecute FCPA violations.

It is adding 10 prosecutors to its FCPA unit, increasing the unit’s size by more than 50 percent. Meanwhile, the FBI has established three new squads of special

should include relevant documents and information about where the documents were found.

HOW E-DISCOVERY SOFTWARE CAN HELP

When a company has reason to suspect unlawful FCPA activity within its ranks, e-discovery software can help it to quickly identify evidence of the activity, or rule it out. E-discovery software helps

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E-Discovery

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uncover evidence by providing in-house compliance professionals with sophisticated tools for searching and analyzing corporate data.

If there is suspicious activity within a particular office, for example, the company’s compliance staff can collect all the emails and other electronic records for that office and then use these tools to zero in on possible evidence. If the

investigation turns up questionable activity warranting further inquiry, the company may deepen its probe, refer it to outside counsel, or work directly with the DOJ. Some of the leading e-discovery platforms are cloud-based and able to process and search data in multiple languages. This makes them ideal for use by multinational corporations,

because compliance staff have access to the platform from anywhere, can easily load data from anywhere, and can search across all the languages in which the corporation does business.

CASE STUDY

A number of companies are now using e-discovery technology in compliance continued on page 33

aug / sept 20 16 today’s gener al counsel

E-Discovery

Address Information Governance Now to Avoid Legal Headaches Later

By Jon Tilbury

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E-Discovery

I

f your organization is like most, you have digital records and information that you want to – or need to - keep for long periods of time. In fact, new research by Information Governance Initiative (IGI) found that 98 percent of the nearly 400 information management professionals surveyed had records that needed to be kept for 10 years or more.

Ten years is a long time. It’s definitely long enough for hardware and software obsolescence to enter the equation, threatening your ability to access and read digital records in the future.

The majority of these IG practitioners identified their reasons for the retention of records as “statutory, regulation or legal needs.” These requirements are in line with current trends toward greater regulation of information and longer

used to access and read them becomes obsolete or is decommissioned.

This being the case, how can you ensure that information retained for statutory, regulatory or legal needs can be accessed when it’s needed? Specifically, when it comes down to e-discovery and compiling required records, what position will you be in if you can’t read, use or trust the digital information in your archives?

This risk can expose businesses to grave consequences. Therefore, GCs need to play an active role in ensuring that strategies and systems for managing long-term digital information are indeed fit for the purpose.

Just to be clear, when we refer to “digital preservation” we’re talking about ways to ensure digital information

• 52 percent use line of business applications (CRM, HR System, ERP etc.).

• 44 percent use disk or tape backup.

• 33 percent use application specific archiving (i.e. through email).

• 22 percent are using removable media like USBs. The striking survey result here is the 68 percent reliance on shared network drives. With network drives multiple owners can move, amend or even delete files with little obvious audit trail. Shared network drives are notoriously difficult to govern properly and therefore can expose the business to questions over trust – e.g. has the information, either accidentally or maliciously been tampered with?

The survey showed that some companies may feel more secure in keeping files

Digital content and records are at serious risk of being lost forever as the hardware and software used to access and read them becomes obsolete or is decommissioned.

retention periods. However, what’s alarming is the lack of strategy across companies to properly protect and govern long-term digital information.

RISK OF OBSOLETE RECORDS

In fact, this lack of strategy was one of the main conclusions of the IGI 2016 benchmark survey, “The Governance of Long-Term Digital Information.” While 97 percent of those surveyed understood the need for a specialized approach to critical digital information assets, only 11 percent are storing them in systems specifically designed to ensure longterm protection and access. It’s plain to see that for the majority of companies, information governance strategies and systems are not where they need to be.

With technology refresh occurring at an ever increasing rate, digital content and records are at serious risk of being lost forever as the hardware and software

remains accessible and readable over the long term. With a robust digital preservation strategy, you’ll have everything you need to actively preserve and share your digital assets, despite the threats of obsolete hardware or software.

Given the focus on technology, it was interesting to learn that when survey respondents were asked what digital preservation systems or strategies were in place, only 11 percent could say they were using a standards-based or purposebuilt digital preservation system to safeguard digital information. An alarming number of respondent answers were limited to identifying storage technologies, with no associated specialized approach to ensure long-term protection and access. To give you some insight, here are the technologies they identified: • 68 percent are keeping information on shared network drives.

in an “Enterprise Content Management and Records Management system.” But that is a false security when it comes to long-term information, given the lack of preservation-specific functionality present in these suites and the resulting exposure of digital records to unnecessary risk.

Organizations are also exploring the use of the cloud when considering their archival storage needs, but it’s important to remember that cloud storage by itself is not enough. Protecting critical digital content and ensuring records can be accessed and read also requires digital preservation software. When paired with digital preservation, the cloud really does come in to its own because it scales to meet most budgets, and records are stored in a durable and secure way.

Museums, state archives and universities have been early adopters of digital preservation systems because

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E-Discovery

of their emphasis on critical historical assets, but we are now seeing many commercial and government organizations waking up to the need to protect vital long-term digital information.

This challenge builds as requirements for the retention of business information grows. A massive 86 percent of

DIGITAL PRESERVATION AND GENERAL COUNSEL

As discussed, legal requirements surrounding information are by far the top reason driving respondents to keep and preserve digital records. The notion of long-term retention may invoke thoughts of archives housing reams of

Both file formats and software are changing at an unprecedented rate. It’s not 100 years companies should be worried about. It’s ten.

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survey respondents said they must ensure the protection and access not just of historical or archival information, but of business records, for longer than ten years.

There are no better examples of this than some of the organizations spotlighted in the IGI Benchmark survey.

They include HSBC, the State of Texas and the Associated Press. All three have taken steps to protect not just permanent digital records, but also long-term business records that are critical to running the business. Associated Press, for example, has assessed the level of governance appropriate for different information and prioritized digital preservation of the information essential to business continuity in the event of a system failure or other event. These records include all news wires and board minutes, a full set of Associated Press annual reports starting from 1875, as well as a set of all charters and bylaws.

Texas State Library and Archives Commission (TSLAC) needed to protect and provide long-term access to over seven terabytes of an outgoing gubernatorial administration’s digital records, which consisted of policy documents, press releases, and email correspondence in a number of different file types (including digitized audio, still images, and video). On top of this, TSLAC had already created 26 terabytes of digital surrogates that required management and long-term preservation.

unnecessary information, but as general counsel know, today’s statutory, regulatory and other legal obligations are expanding information retention requirements.

For general counsel specifically, digital preservation systems can ensure that information is available in a timely fashion and in a format that is both readable and trustworthy, and that could be of significant help when meeting statutory and legal defense needs. Imagine, for instance, the retention schedule of one large multinational corporation we became familiar with. It incorporates over 8,000 individual legal recordkeeping requirements.

While smaller organizations will have decidedly less hectic retention schedules, even adhering to more than a couple of requirements can be a daunting task to consider when the information at hand begins to reach multiple terabyte stage.

The vast majority of information managers surveyed in the IGI Benchmark said they were aware that technology obsolescence could be a risk to their digital information. Unfortunately, little is being done at most organizations to address the problem. Fortyfour percent of respondents said that they were “considering their approach,” with a further 31 percent stating they had no specific strategy, and 16 percent indicating that they would “postpone action until required.”

What’s clear to us is that action is

required now. When a file becomes obsolete, it may either be too late or prohibitively costly in terms of time, money and technical resources, to access and read it, and that obsolete file may be vital to running your business or meeting compliance or legal requirements.

This problem is only going to get more difficult as technology refresh cycles get faster. Both file formats and software are changing at an unprecedented rate. Storage companies may have you believe the key is archival storage, where files can be kept safe for “hundreds of years.” But it’s not 100 years companies should be worried about. It’s ten. In fact, if you inventory your files that are already more than ten years old, you may find that some of them are already unreadable.

The full set of report findings in the IGI Benchmark provides a useful benchmark for general counsel to gauge the state of their own organization’s approach to the governance and preservation of long-term digital records.

It is available for download via the Preservica website. ■

Jon Tilbury, CEO at Preservica, has spearheaded the company’s digital preservation business from its inception. He has a degree in Materials Science from Oxford University and has worked in programming, system design, project management, technical management and business development across multiple industry sectors. He completed his Institute of Directors Certificate in Company Direction in 2000.

Jonathan.Tilbury@preservica.com

today’s gener al counsel aug / sept 20 16

E-Discovery

FCPA Exposure

continued from page 29 investigations. One example is a multinational medical device company that uses a leading e-discovery platform to streamline and standardize its process for investigating anti-bribery and other compliance issues involving its offices in Asia, Europe, and elsewhere.

Like many others, this company has set up a hotline to receive tips about potential anti-bribery violations. These tips are directed to regional compliance staff in offices across the company’s Asian and European regions. Staff also

an hour. Then, using the platform’s automatic loading and processing capabilities, custodian data specific to the country is exported from the company’s exchange servers in the United States and loaded into the site. From there, regional staff use the platform’s search and analytics tools to look for evidence of the alleged impropriety. If the initial search uncovers evidence warranting further inquiry, a local law firm is engaged to more thoroughly review the data and determine how to proceed.

For the company, a key feature of the e-discovery platform is the ability to control the process without having

For FCPA cases, a critical capability is multi-language document handling.

initiate inquiries internally. In the past, once it commenced an investigation, standard procedure was to collect emails and other electronic files from the appropriate custodians and then search through it for evidence of suspicious activity. However, the company lacked the technology that would enable it to do this effectively.

The company’s Singapore office was the first to adapt e-discovery technology for these internal compliance investigations. Legal staff there had already used an e-discovery platform and believed it could be an effective tool that would enable them to load, search and analyze data related to alleged violations. The platform worked so well in Singapore that regional offices in locations as disparate as Bulgaria, India, Japan, Spain and Thailand followed suit. The company then adopted the e-discovery platform as the standard application for its compliance investigations worldwide. Now, for each new investigation, the regional office involved sets up a new site within the cloud-based e-discovery platform dedicated to that matter.

A site can be up and running within

to wait for a third party to process and load data. An entire investigation, from when the initial tip is received to when it is either closed or referred out, often takes no more than two weeks.

An e-discovery platform can both reduce the cost of an internal investigation and make it more thorough.

However, not all e-discovery platforms are alike, and certain features can make the platform more effective for internal investigations: • Automated case creation, so the company can quickly set up new investigation sites as needed, without requiring third-party involvement.

• Automated processing and loading, so the company can load its own data into the platform and quickly get started with review.

• Robust and intuitive search capabilities, so that compliance staff can rapidly hone in on key information.

• Visual analytics, such as timelines and relationship maps, to enable investigators to identify and explore patterns in email correspondence and other data.

• Integrated batching, export and production capabilities to easily deliver documents externally to outside counsel or government investigators.

For FCPA cases, a critical capability is multi-language document handling.

In these cases, the emails and documents under scrutiny could be in any of a number of languages, or even contain multiple languages within a single document. The platform should be able to process documents in multiple languages, and more importantly, search them in multiple languages.

In light of the DOJ’s pilot program to encourage self-reporting of FCPA violations and its concomitant increase in FCPA investigations and prosecutions, corporations have more incentive than ever to adopt strong compliance programs that include rapid and thorough response to suspicious internal activity.

As it turns out, the same technology that litigators already use to quickly get to the core of a case is adept at helping in-house counsel and compliance staff get to the nub of an investigation.

The same sophisticated search and analytics tools that let litigators explore documents, patterns and timelines can be used by compliance professionals to identify or rule out suspicious activity.

Under the DOJ’s new policy, that could make the difference in whether a corporation is prosecuted, and if so what penalties it could face. ■

John Tredennick is the founder and CEO of e-discovery software and services company Catalyst.

A former trial lawyer and litigation partner with Holland & Hart, he has written books and articles on litigation and technology issues, and served as chair of the ABA Law Practice Management Section. He is editor-in-chief of its flagship magazine. jtredennick@catalystsecure.com

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aug / sept 20 16 today’s gener al counsel

Intellectual Property

Key Takeaways from the New Trade Secrets Act

By Christopher J. Cox and An Tran

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O

n May 11, President Obama signed into law the Defend Trade Secrets Act of 2016. The “DTSA” amends the Economic Espionage Act, creating a federal civil cause of action for trade secret misappropriation. It will have a significant impact on U.S. trade secret litigation, which had been governed primarily by state statutory or common law.

The Uniform Trade Secrets Act (the UTSA), published by the Uniform Law Commission in 1979 and amended in 1985, was intended to provide uniformity among state trade secret laws by

codifying “the basic principles of common law trade secret protection.” Forty-eight of fifty states adopted some variation of it, but the intended uniformity was never achieved. Differing implementations resulted in significant substantive and procedural differences from state to state.

Given this lack of state law uniformity, companies with national and international presence faced a lack of predictability in trade secret enforcement. Moreover, before the DTSA, federal courts hearing trade secret cases were required to apply the state trade secret statutes of their local jurisdictions, which led to

inconsistent rulings even within the federal courts. The push for federal trade secret protection emerged because of this lack of uniformity in federal and state jurisprudence and the resulting lack of predictability for companies engaged in interstate commerce.

The DTSA adopts many aspects of the UTSA, but it diverges significantly from existing law in the following key provisions: • Federal Subject Matter Jurisdiction Unlike in patent or copyright cases, federal subject matter jurisdiction is not automatic. The DTSA is limited to cases arising under the commerce clause of the U.S. Constitution. To trigger federal jurisdiction for actual or threatened trade secret misappropriation, the trade secret must be “related to a product or service used in, or intended for use in, interstate or foreign commerce.”

In determining whether an activity has a “substantial relation to interstate commerce,” the proper test is whether the activity “substantially affects” interstate commerce. This is a vague standard, but given the purposes of the bill and prior application of this standard in other contexts, trade secret holders should expect a fairly broad interpretation in favor of federal jurisdiction.

If a trade secret does not relate to a product or service involved in interstate commerce, the trade secret owner would be required to proceed in state court, or potentially under state rules even in federal court when diversity of citizenship or supplemental jurisdiction provide the sole basis for federal jurisdiction.

• Ex Parte Seizure Provision One of the most controversial provisions in the DTSA allows a plaintiff to request, through an ex parte proceeding, seizure of any property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” The seizure provision may be used “only in extraordinary circumstances,” and a seizure order may be issued only when other forms of equitable relief are inadequate.

today’s gener al counsel aug / sept 20 16

Intellectual Property Due to a seizure’s draconian effects, which could include both disruption of business and violation of privacy rights, the burden for obtaining seizure under the DTSA is high, with built-in protections for the target. The plaintiff must first show that the harm from denying the application outweighs the harm to the legitimate interests of the person against whom seizure would be ordered, and substantially outweighs the harm to any third parties. A plaintiff

companies in order to achieve compliance. Specifically, this whistleblower provision includes a notice requirement which states that “an employer shall provide notice of the immunity set forth in this subsection in any contract or agreement with an employee [entered into or modified after May 11, 2016] that governs the use of a trade secret or other confidential information.”

Rather than including notice provision in every agreement, an employer

The seizure provision provides a powerful weapon against industrial espionage, but it will not come into play for the vast majority of trade secret disputes. must also show that the person against whom seizure would be ordered “would destroy, move, hide, or otherwise make such matter inaccessible to the court, if the applicant were to proceed on notice to such person.”

In sum, the seizure provision provides a powerful weapon against industrial espionage, but will not come into play for the vast majority of trade secret disputes. It does provide an opportunity for companies to revisit policies, such as employee onboarding procedures, to minimize the risk of potentially disruptive and costly seizure proceedings.

• Whistleblower Protection & Notice of Immunity from Liability The DTSA provides protection against criminal and civil liability to those who disclose trade secrets in confidence to a government official or an attorney “solely for the purpose of reporting or investigating a suspected violation of law” in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal, or in connection with an anti-retaliation lawsuit, and so long as the disclosure is made to their attorney, contained in documents that are filed under seal, or is pursuant to a court order.

This is the only provision in the DTSA that requires affirmative steps by

may provide a cross-reference to a policy document, provided to the employee, that sets forth the employer’s reporting policy for a suspected violation of law.

Failure to comply with the notice requirement will result in the employer being denied the right to exemplary damages or attorney’s fees in a trade secret misappropriation action under the DTSA. Thus, it is important to include in all agreements with employees, and with any individual performing work as a contractor or consultant (entered into or updated after May 11, 2016) a notice provision and/or reference to a company policy setting forth such notice.

The notice should inform employees that they cannot be held civilly or criminally liable for: (1) Disclosure of a trade secret that is made in confidence to a federal, state or local government official, either directly or indirectly, or to an attorney, and solely for the purpose of reporting or investigating a suspected violation of law, and (2) disclosure of a trade secret that is made in a complaint or other document filed in a lawsuit or other proceeding, if the filing is made under seal.

Employees should also be notified that an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose

the trade secret to his or her attorney and use the trade secret information in the court proceeding, if any document containing the trade secret is filed under seal and does not disclose the trade secret, except pursuant to court order.

The DTSA is still in its infancy, and a body of law that will define the scope and application of its provisions has yet to emerge. In the meantime, companies need to understand its key provisions and their implications for their trade secret posture, hiring policies, treatment of confidential information, and the potential risks and exposure associated with actual or threatened misappropriation relating to employment mobility.

Keep in mind that although trade secret owners now have access to the federal courts without relying on diversity or supplemental jurisdiction, the DTSA specifically states that it does not preempt any other provision of law and thus will not replace existing state trade secret law. Thus, trade secret owners faced with actual or threatened trade secret misappropriation may still find themselves in state courts, litigating under state trade secret law. ■

Christopher J. Cox is a partner in the Silicon Valley office of Weil, Gotshal & Manges.

He leads the firm’s California complex commercial litigation practice and is a member of the cybersecurity, data privacy and information management groups. chris.cox@weil.com

An Tran is an associate in the Silicon Valley office of Weil, Gotshal & Manges, where she focuses on complex commercial litigation. an.tran@weil.com

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aug / sept 20 16 today’s gener al counsel

Cybersecurity

Protecting Your Company from Ransomware

By Debra Innocenti

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he bad news is ransomware isn’t going anywhere soon. Why? Because it works.

Ransomware is a rapidly-spreading malware delivered by infected emails and websites. It encrypts files on a computer network so that they are inaccessible and require a decryption key to unlock. The key comes with a ransom. Within the last few months, headlines have showcased attacks on medical centers, schools, municipalities, and law enforcement.

Leading the pack of cautionary tales, Hollywood Presbyterian Medical Center reportedly paid $17,000 to restore access to patients’ vital healthcare records.

There’s more bad news. Ransomware has become so lucrative that an industry has developed around it, with commission-based ransomware-as-a-service

programs that allow the malware to be deployed by anyone who is able to key in a ransom and payment deadline in the software.

The good news? The harm associated with ransomware is preventable.

However, it requires enterprises to take a pre-emptive role in cybersecurity and not wait to act until they’re hit.

Following are some critical items that should be on every to-do list.

1

Back up your files.

The simplest method of prevention is regular backups stored in locations segregated from the network. A good practice is to back up files in three places: the file server, a local disk backup, and the cloud. An even better practice is to copy the server images to a remote access

center where the full functionality of the network systems can be replicated. The backup files should be encrypted so that only you can access them. You should also test your backup to ensure that data can be restored and that the restored files are usable.

With ransomware, even backup strategies need to be continually revisited.

Some strains of malware have the ability to lock down backups on the cloud if the systems use persistent synchronization (backing up in real time).

2

Develop a plan.

The downtime caused by malware may be more painful than the ransom.

According to a 2016 survey by Researchscape International, organizations affected by ransomware attacks experienced

today’s gener al counsel aug / sept 20 16

Cybersecurity

an average of three days without access to their data. Downtime can be reduced or even eliminated by a continuity plan.

Having a plan is also critical because attackers give victims a time limit for the ransom, which can erode rational decision-making.

The data breach and recovery plan should identify the organization’s recovery time objective, recovery point objective,

example, sensitive information should not be stored on the same server or network segment as an organization’s e-mail environment.

Minimizing file-level access can also reduce the scope of the attack.

Organizations should be guided by the “principle of least privilege” – that is, limiting access to data to the minimal level that will allow an employee to do

or a link to a website hosting an exploit kit. Sophisticated phishing emails can pretend to be familiar sources, including venders, co-workers, and friends on social media networks. Such websites and emails often differ from the familiar domain by a single letter or symbol (such as a hyphen).

As ransomware adapts to respond to what doesn’t work and finds new ways

Some strains of malware have the ability to lock down backups on the cloud if the systems use persistent synchronization (backing up in real time).

and the risk appetite of the organization, all of which will better inform decisionmaking. Organizations should determine in advance who should be contacted for help and how that person should be contacted regardless of the time of day.

Remember that email systems may be compromised, so alternative forms of contact are necessary.

It is essential to designate a core team that can handle messaging for public relations, as well as the essential tasks of isolating the malware to keep it from spreading and working to restore data from backups. It is critical to preserve cyber-forensic evidence of the incident for law enforcement, and for a cyber investigator to determine whether any data was accessed, or if it was merely locked. This evidence will determine whether or not the organization has any notification requirements under the law.

Keep in mind that plans will also need to be updated to account for the latest strains of the malware and how they operate.

Preemptive planning should implicate network architecture and access.

Network segmentation, splitting a single computer network into subnetworks, can help to more easily isolate the ransomware. Segmentation should have a logic based on organizational value. For

the job. Just because an individual ranks high in the hierarchy doesn’t mean she should have unfettered access to files.

Giving enterprise account users minimal access reduces the volume of potentiallyinfected files. It also prevents administrators from being targeted as high-value conduits for ransomware or any other malware. Anyone who necessarily does have broad file-level access should receive extra training and should limit email and internet activity while logged into the organization’s computer network.

3

Train your employees.

Ransomware infects a system through user interaction. That means the first wave of protection for any organization is its people. Organizations should teach employees best practices when opening email attachments and interacting with web pages. Education can be augmented with technical safeguards such as application white-listing (allowing systems to execute programs permitted by security policy), and using virtualized environments to execute programs.

Good training requires information about social engineering, including evolving tips on how to recognize phishing emails. Criminals send recipients what looks like a legitimate email that contains an attachment infected with malware

to infect computer networks, organizations should commit to security training as an ongoing part of personnel management.

There is some hopeful news. The invasive and pervasive nature of ransomware has served as a wake-up call and a reminder that no organization, no matter how small or how local, can ignore information security in today’s global electronic marketplace. ■

Debra L. Innocenti is a partner at Strasburger & Price LLP, where she maintains a diverse practice in specialty litigation and general corporate law for technology and internetrelated industries. She is a member of the Social Media, Open Source Software and Cloud Computing Committees in the Science & Technology Law Section of the American Bar Association, and the Science & Technology Law Section of the State Bar of Texas. debra.innocenti@strasburger.com

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aug / sept 20 16 today’s gener al counsel

Compliance

Governance Above and Beyond Compliance

By Lance Croffoot-Suede and Ulysses Smith

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oday’s hyper-connected world presents businesses with a host of opportunities, along with some serious new challenges. One tweet regarding the rogue activities of a manager in a far corner of the world can invite press and regulatory scrutiny, expose trade secrets, damage reputations and impact market capitalization. An emissions scandal, leaked documents from law firms and governments, secretly

taped remarks at a closed event – such events can be broadcast instantaneously across the globe, with dramatic effects.

Concurrently, regulators have become more vigorous in their enforcement activities, extracting record fines and working in concert to investigate potential misconduct. In the past it may have been possible to satisfy regulators by having a compliance officer – a figure somewhat peripheral to the

main operations of the business – tick through a series of boxes indicating compliance with applicable regulations.

But this is no longer the case. As Leslie Caldwell, Assistant Attorney General for the Criminal Division at the U.S. Department of Justice put it in a recent speech, gone are the days “when the compliance department in a Wall Street bank was housed in a dusty backroom across the river in Hoboken.”

today’s gener al counsel aug / sept 20 16

Compliance

DOJ’S NEW FOCUS

A number of developments at the DOJ suggest an evolving approach to compliance and its role within a company.

Today the quality and effectiveness of a compliance program is a key factor that prosecutors will consider when investigating potential wrongdoing. Companies are now expected to create and

These developments are indicative of a new DOJ focus on the governance of the entities subject to its jurisdiction, above and beyond traditional compliance. Governance, as opposed to compliance, represents a holistic, proactive, stakeholder-focused approach to addressing the specific regulatory challenges and operational risks a busi-

humanitarian crisis in that country.

• The “California Transparency in Supply Chain Act,” which requires retail sellers and manufacturers that have annual worldwide gross receipts that exceed $100 million and are doing business in California to disclose their efforts to eradicate slavery and human trafficking from

Companies are now expected to create and maintain tailored compliance programs that make sense not just for their industries, but also for their business lines, risk factors, geographic regions and their work force.

maintain tailored compliance programs that make sense not just for their industries, but also for their business lines, risk factors, geographic regions and their work force. Tellingly, Ms. Caldwell noted in her recent speech that “a narrow, cramped view of compliance – that it requires only adherence to specific regulations – ultimately will inure to [a] company’s detriment.”

The DOJ clearly is signalling a broader shift in how it views the role of compliance within companies. As Brent Snyder, Deputy Assistant Attorney General for the DOJ’s Antitrust Division, stated in a 2014 speech: “The purpose of having an effective compliance program is to be a good and responsible corporate citizen.”

In addition, the DOJ’s Criminal Division has recently hired, for the first time, a “compliance counsel,” a role which is intended to provide a reality check in assessing compliance programs.

As further evidence of this evolving approach, in April the DOJ’s Fraud Section issued guidance related to a new pilot leniency program under the Foreign Corrupt Practices Act. First among the items listed as generally required for a company to receive credit for remediation is the implementation of “an effective compliance and ethics program.”

ness faces. This view of compliance is focused on the quality and effectiveness of the programs, and it seeks to ensure that the program a company puts in place actually leads to better governance for that company, not simply that the requirements of the law have been met.

The DOJ is not the only regulatory actor to signal a shift toward governance.

Other developments in recent years that indicate this broader move toward a riskand behavior-based approach include: • The U.S. Treasury Department’s issuance, in July 2012, of a General License requiring U.S. businesses operating in Myanmar above a certain threshold annual dollar amount to report to the U.S. State Department on the human rights, worker rights, anti-corruption and environmental policies and procedures that the company has put in place, thereby requiring companies to address many of the governance risks their operations face.

• Provisions of the 2010 Dodd Frank Wall Street Reform and Consumer Protection Act, including reporting requirements for companies having certain dealings in the “conflict minerals” trade in the Democratic Republic of Congo, which contributes to a

their direct supply chains for tangible goods offered for sale.

A broad range of human rights and other regulations issued in the European Union indicate that this isn’t simply a U.S. trend.

EMBEDDING GOOD GOVERNANCE

Companies are required to think differently about their compliance obligations when the focus is on governance, and general counsel will be key to ensuring their companies are handling this transition effectively. Companies will have to consider not only how their systems and processes embed compliance within the organization as a whole, but also how they fit into the wider cultural context and business environment in which they operate. In this way, a focus on governance would gather risk management, business functions and compliance into a unified framework aimed at fulfilling a company’s ethical and regulatory obligations.

Questions that general counsel should consider when governance is the standard include:

1

Are the programs supportive of a strong culture of compliance, with explicit support of leadership? This

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aug / sept 20 16 today’s gener al counsel

Compliance

tone from the top must be accompanied by the appropriate incentives and disciplinary measures to embed a culture of compliance throughout a company’s operations.

2

Are the programs tailored, such that they are effective given the company’s business lines, jurisdictions, risk factors and cultural contexts? Policies must be clear and easily understood by employees, translated into the languages actually spoken by the employees, and adapted to the specific challenges and realities faced in a given cultural and geographical context. For example, for an energy company that operates in both Norway and Nigeria, identical policies on fraud, corruption and bribery risks are likely not appropriate. Similarly, a multinational with operations across various regions likely requires a different approach to antitrust compliance than one with operations in a single state.

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3

Are the programs adaptive, up-to date, and regularly scrutinized to ensure that they successfully address evolving risks and circumstances? This will entail regular reviews of policies and making adjustments to them in light of the findings, thus ensuring that as new risks are identified the appropriate responses are developed to address them.

4

Are the programs pro-active with respect to anticipating the company’s own evolving risks, as well as promoting a broader culture of good governance in the jurisdictions where it operates? This includes sensitizing the company’s agents and third parties regarding compliance issues, and providing training and review of their performance. It could also cover the company’s relationships with key internal and external stakeholders, including the communities affected by its operations.

In addition to these considerations, companies should be guided by principles of good governance in the design, implementation and ongoing review of their compliance programs. Rather than focusing exclusively on specific rules, companies should consider how their

compliance programs embed a number of key governance principals into core operations. The principles include: • Accountability for all expenditures and actions taken, reducing the risk,

financial health and legal exposure can be substantial. Regulatory investigations and fines, wrongdoing by directors and officers and other governance failings can diminish a company’s value on the stock market, generate reputational

A focus on governance would gather risk management, business functions and compliance into a unified framework. for example, of off-the-book payments that are a common means of fraud and corruption.

• Transparency, which requires open communication regarding accounting to facilitate appropriate oversight.

• Generating evidence that allows effectiveness to be measured and presented to regulators.

• Adaptability in response to a changing cultural, regulatory or business environment.

Practically speaking, this can include steps such as having directors and senior management sign commitments to the principles and values of good governance and compliance. The topic of compliance can be added to the standing agenda for the board or senior management committees. Regular visits by senior management and compliance officers can be scheduled to various business lines and jurisdictions, particularly for multinationals. Third parties can be sensitized regarding the importance of compliance and good governance.

The effectiveness of the company’s compliance program should be reviewed periodically at the highest level to ensure adaptation to changing environments and new risks.

Expectations regarding compliance have evolved to become about more than simply adherence to specific regulations.

Beyond compliance, companies must examine how they govern themselves in the difficult business and cultural contexts in which they operate.

If they fail to do so, the impact of poor governance on a company’s

harm, and expose the company and its investors to civil and criminal liability.

General counsel must recognize that good governance will be key to navigating this challenging landscape. ■

Lance CroffootSuede is a New Yorkbased partner at Linklaters, where he heads the International Governance and Development practice. He handles white collar criminal, government regulatory and complex civil litigation matters, including securities matters and class action defense.

He has more than 20 years’ experience in criminal and regulatory matters lance.croffoot-suede@linklaters.com

Ulysses Smith is a senior associate in Linklaters International Governance and Development Practice, which advises the profit and not-for-profit sectors on governance issues. He also advises on international economic sanctions and international anti-corruption regulations, including the U.S. Foreign Corrupt Practices Act. ulysses.smith@linklaters.com

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aug / sept 20 16 today’s gener al counsel

work pl ace issues

The DOL’s New Overtime Regulations By lisa a. schreter and tammy d. Mccutchen

I

n May 2016, after a two-year rulemaking process, the U.S. Department of Labor published its final rule revising the “white collar” overtime exemption regulations. The DOL estimates the changes will result in higher salaries or overtime pay for 4.2 million workers.

The most significant change is raising the salary level above which white collar employees become exempt from the overtime requirements of the federal Fair Labor Standards Act, from $23,660

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lisa a. schreter chairs Littler’s board of directors and is co-chair of the Wage and Hour Practice Group. She focuses on representing employers in complex class and collective actions involving overtime and other wagerelated claims, and on helping employers develop forward-thinking compliance measures that reduce wage and hour disputes and other employment-related issues. lschreter@littler.com

tammy Mccutchen, a principal in Littler’s Washington D.C. office, is a former administrator of the DOL’s Wage and Hour Division. In that role, she was the primary architect of the 2004 revisions to the white collar exemption regulations. tmccutchen@littler.com

a year to $47,476. The final rule also includes automatic increases to the minimum salary level every three years, and it increases the level to qualify as a highly compensated employee from $100,000 annually to $134,004.

Companies must be in compliance with the new rules by December 1.

That may seem a long way off, but decisions about compensation and classification are difficult and time consuming. In addition to determining whether to provide employees with a salary increase or overtime pay, employers may need to modify compensation plans and employee benefits, update wagehour policies, implement new or modified timekeeping systems, reprogram payroll systems, communicate changes, and provide training on new policies and processes. Thus, companies need to begin planning for the changes now.

We have identified five steps to achieve compliance before December 1.

1

Decide whether to provide salary increases or reclassify. Companies no doubt will consider corporate culture and employee morale when making this decision, but the primary driver will likely be costs. Employers will need to pull salary and incentive pay data for all employees earning below $47,476 and calculate the cost of a salary increase vs. paying overtime. When determining the cost of the salary increase, employers should consider “re-mixing” salary, incentive pay and employee benefits. You can reduce or eliminate bonuses, commissions and other employee benefits to offset the cost of salary increases and maintain the exemption.

To determine the cost of overtime, employers will need to estimate the

today’s gener al counsel aug / sept 20 16

number of overtime hours the exempt employees currently work or will be expected to work. This might require some fact-finding by interviewing managers, sending a questionnaire to employees or even asking employees to start tracking their hours now. Very few exempt employees track their work hours (which is not legally required).

ComplianceHR, a joint venture between Littler and Neota Logic, has

tinue to pay a salary with overtime, or convert them to an hourly rate? Employers can minimize additional labor costs by using the cost-neutral hourly rate described above. Yes, this is legal, as long as the resulting hourly wage is above the applicable federal, state or local minimum wage.

The easiest method to calculate overtime pay for salaried non-exempt employees, which is compliant in every

When determining the cost of the salary increase, employers should consider “re-mixing” salary, incentive pay and employee benefits. a free app to help make this decision.

The Overtime Cost Estimator ( http:// compliancehr.com/our-solution/ ) calculates the cost of a salary increase versus paying overtime. This app also provides the “cost-neutral” hourly rate – the rate that will result in the same weekly earnings if an employee works the expected overtime hours, calculated as follows: Current Weekly Salary / (40 + (Expected Overtime Hours x 1.5)) Although the DOL did not make changes to the duties tests, employers should consider conducting a job duty review to ensure exempt employees meet the current job duties requirement for exemption. Now is the time, while you’re reclassifying other employees, to correct misclassifications under the radar and with less risk of triggering litigation. Any job review should be conducted under the attorney-client privilege, and will require interviews of subject matter expert managers familiar with the duties of each job.

ComplianceHR’s Navigator OT app can be used to assess the risk of classifying an employee as exempt from overtime based on compensation and job duties.

2

Redesign compensation plans. For employees targeted to be reclassified to non-exempt, employers will need to consider changes to compensation, incentive pay and benefits. Will you con-

state, is to divide the weekly salary by 40 hours and pay overtime at 1.5 times that hourly rate. This is also the most expensive method. In most states, however, an employer can save on overtime costs by: • Dividing the weekly salary by the actual hours worked in each workweek.

• Adopting a fixed salary for fixed workweek, where overtime is calculated by dividing weekly salary by the fixed, expected weekly work hours which the salary is intended to cover (50 hours, for example), and paying overtime at 0.5 for hours between 40 and the fixed hours (50, in our example) and 1.5 only for hours over the fixed hours (over 50, in our example), or: • Entering a fluctuating workweek agreement with employees, establishing that the salary is intended to cover all work hours regardless of the number – whether 35, 40 or 50 – and then paying overtime for all hours at 0.5.

The fluctuating workweek method results in the lowest overtime costs, but also has some legal restrictions, thus requiring close legal review of the FWW agreement.

If the employer continues to pay bonuses or commissions to now non-

exempt employees, additional overtime is due on the bonuses and commission, calculated using the following formula: Bonus Amount / (Total Hours Worked in Bonus Period x 0.5 x Overtime Hours Worked in Bonus Period) Finally, employers will need to review their employee benefit plans. Some may have benefits available only to exempt employees – e.g., stock options and profit sharing. If you want to continue to provide such benefits to reclassified employees, you may need to change eligibility provisions in benefit plans.

3

Review policies. The newly reclassified employees may have never tracked work hours or taken statemandated rest or meal periods. They most likely have company-issued smart phones or laptops to work remotely and may routinely travel for work. Now, they must report and be paid for all travel time, answering emails at home and for other remote work. There is increased risk of off-the-clock claims for reclassified employees never before subject to those policies and processes. Employers should review, revise or adopt policies prohibiting off-the-clock work and work on meal and rest breaks and travel time, and use of mobile devices.

4

Communicate changes. Only after finalizing compensation decisions, and making necessary policy and process updates, can changes be communicated to impacted employees and their managers. Employers should develop a comprehensive communications plan, with written talking points and FAQs, to ensure a timely and consistent message.

5

Train the reclassified employees and their managers. Finally, we recommend providing training to the reclassified employees and their managers, before the December 1 effective date. Training should cover your wage and hour policies and timekeeping procedures, and it should discuss the activities that are compensable work requiring employees to record and be paid for the time. ■

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aug / sept 20 16 today’s gener al counsel

T H E A N T I T R U S T L I T I G AT O R

Consider Attorney-Client Privilege Before it Becomes a Litigation Issue

By Jeffery M. cross

o

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ne question frequently asked by my clients is, what is the scope of the attorney-client privilege?

Unfortunately, the question all too often comes up in litigation, after the parties have been ordered by the court to prepare a privilege log for all documents withheld pursuant to the attorney-client privilege.

I urge my clients to think about this issue prophylactically, before litigation.

The attorney-client privilege is deeply rooted in public policy. Its purpose is to foster frank communications between attorneys and their clients, hopefully before a problem arises.

However, because the privilege acts to withhold information from the opposing party in litigation, it is narrowly construed. The privilege extends most clearly to confidential communications made by a client to a lawyer for the purpose of obtaining legal advice. But its scope is frequently misunderstood, creating issues in litigation that include whether a document is properly withheld under the privilege at the time of production, as well as challenges by the opposing party to that production.

Jeffery cross, is a columnist for Today’s General Counsel and a member of the Editorial Advisory Board. He is a Partner in the Litigation Practice Group at Freeborn & Peters LLP and a member of the firm’s Antitrust and Trade Regulation Group. jcross@freeborn.com.

Merely copying an attorney on a document as part of a string of persons to whom the document is being sent does not invoke the privilege. In fact, inclusion on such a “carbon copy” list is a sign that the communication is probably not being sent to the attorney for the purpose of obtaining legal advice. Nor does the use of a heading such as “Privileged & Confidential/Attorney-Client Communication” automatically trigger the privilege.

In that regard, I counsel my clients that more important than such a heading is that actual language in the body of the communication reflects the fact that the email or letter contains confidential information pertinent to legal advice being sought from the lawyer. In many

instances, lawyers – particularly in-house counsel – act not only as lawyers for the company, but also as a business advisors.

The communication must be clear that it is conveying confidential information in order to obtain legal advice, not business advice.

Probably the most misunderstood aspect of the attorney-client privilege is a communication from a lawyer to a client. Technically, the privilege applies only to communications from the client to the lawyer. However, most courts consider statements made by the lawyer to the client to be protected where those communications rest on confidential information obtained from the client, or where those communications would

TODAY’S GENER AL COUNSEL AUG / SEPT 20 16

reveal the substance of a confidential communication by the client. Communications by a lawyer to a client that do not meet that narrow test run the risk in many courts of being deemed not privileged.

Application of this narrow test means, for example, that an email by a lawyer to a client enclosing a recent decision that the lawyer thinks might be of interest to the client may not be protected. To some courts, such a communication is no more privileged than a legal treatise. It arguably is not in response to

privilege. They may be protected under other privileges, such as the attorney work-product doctrine, but not the attorney-client privilege.

The foregoing point should not be confused with fact-gathering by counsel within the corporation for purposes of rendering legal advice. Such fact gathering may occur, for example, if outside counsel has been asked to conduct an internal investigation regarding issues within the corporate client – such as a whistleblower’s allegations – and render legal advice regarding that investigation.

if the client and the third-party have a common interest in the legal issue, the privilege is not waived.

For example, if one party to a possible joint venture asks its attorney for a legal opinion based on certain confidential facts concerning the joint venture, the client can provide that legal advice and the facts to the other venture partner without waiving the privilege. This protection of the attorney-client privilege is based on the so-called “common interest doctrine.”

Care must be taken however, that both parties in fact have a common interest in

If an attorney independently gathers facts from third-parties and conveys them to the client as part of a legal opinion, those facts are probably not protected under the attorney-client privilege.

a request for a legal opinion, nor does it rest upon a confidential communication from the client. In this regard, I recommend that the lawyer’s memorandum to the client specifically note that it is being written in response to a request for legal advice based on facts provided to the lawyer by the client.

One corollary to the above principle is that, if an attorney independently gathers facts from third-parties and conveys them to the client as part of a legal opinion, those facts are probably not protected under the attorney-client

Such gathering of facts, and the legal advice based upon those facts, should be protected.

Again, however, I recommend that the lawyer’s memorandum prepared as a result of such an investigation specifically reflect that the attorney was asked to gather information by making an investigation of facts within the corporate client for purposes of rendering legal advice.

The attorney-client privilege can be waived. For example, if the privileged communication is sent to a third-party, the protection may be lost. However,

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the pertinent confidential facts and the legal advice based on such facts.

On the other hand, if one executive within a client forwards the legal opinion and the facts upon which it was based to another executive within the same client, the privilege is clearly maintained.

The attorney-client privilege is very important as a matter of public policy, as well as client confidentiality. It is worth giving this important doctrine consideration before litigation arises to make sure that the interests of the client reflected in this privilege are fully protected. ■

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aug / sept 20 16 today’s gener al counsel

I N F O R M AT I O N G O V E R N A N C E O B S E R V E D

Qualities of the Resilient Information Leader

By Barclay t. Blair

r

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esilience has become a buzzword, as all seemingly simple and intuitive psychological concepts do once they penetrate our public (and commercial) consciousness. The current buzz around resilience originated in the field of psychology, with researchers trying to determine what makes one person seemingly bulletproof while another person, who appears to have every emotional advantage, crumbles when faced with minor adversity. Resilience even has its own counter-buzz, signaling that it has conclusively reached memetic status.

The academic study of resilience focuses on how we respond to both “environmental” threats, i.e., problems that are chronic and less intense but no less difficult, and “acute” threats that cause shorter bursts of intense adversity or trauma.

Information leaders face both types of adversity. “House on fire” emergencies like big lawsuits and investigations, cybersecurity breaches, and major organizational changes represent acute threats that can be very intense and all-consuming, but relatively short in

Barclay t.

Blair is the president and founder of ViaLumina and the executive director and founder of the Information Governance Initiative, a cross-disciplinary consortium and think tank. He is an advisor to Fortune 500 companies, technology providers and government institutions, and has written award-winning books on the topic of information governance.

Barclay.blair@iginitiative.com

duration. Information leaders also face chronic adversity and threat, often in the form of problems that continue to emerge and reemerge, seemingly without fail and without a permanent or prophylactic solution. Examples include long-term efforts to build and enforce an information governance program; evaluating, choosing, purchasing, implementing, and configuring expensive enterprise software; or guiding a years-long change management program.

Norman Garmezy was a pioneer in the study of psychological resilience.

His critical insight was that studying successful (i.e., resilient) people would yield insights not likely to come from studying failure (the norm at the time).

His research led to the identification of “protective factors” that resilient people demonstrate. In other words, the qualities that make them resilient.

Not surprisingly, this research found that pure luck is a big factor. Some people who otherwise have a very tough life find a great mentor, bond with an emotionally mature caregiver, find easy financial success, and so on. Others have no luck other than bad luck and it simply overwhelms them, no matter what their other qualities.

Luck is also a major factor in the lives of information leaders. Sometimes the server just blows up. Sometimes a crucial staff member falls ill or leaves.

Management priorities change. Sometimes “mistakes are made,” and there is nothing that anyone could have done to anticipate or prevent the mistake.

Recognizing bad luck and not taking responsibility for it or allowing it to drive magical thinking about being “cursed” or unlucky is a key “protective factor” for resilient people, generally, and

today’s gener al counsel aug / sept 20 16

resilient information leaders specifically.

At the Information Governance Initiative, both through our research and through our direct experience in working with hundreds of IG professionals, including those leading stressful IG projects like e-discovery in “bet the company” litigation and security breaches, we have learned that resilient information leaders also share many common qualities.

Here are five of the most critical:

1

They don’t try to be heroes (and their bosses do not reward heroic behavior). Resilient information leaders, when faced with acute adversity, avoid the misguided sense of heroism that is often associated with focusing on a crisis to the exclusion of everything else. The American workplace in particular rewards this type of behavior, despite the fact that study after study has shown its devastating and potentially permanent effect on health and wellbeing.

American business has canonized and internalized the image of the cowboy, the rugged individual with a complete absence of emotional need, a singular focus on getting the job done no matter what and a superhuman ability to do it all by himself.

The lie of this myth is born out in study after study showing stress levels going up and health and satisfaction levels going down in workplaces that implicitly encourage, and explicitly reward, this behavior.

Ignoring obligations to friends and family and the emotional benefit and support derived from those relationships, sacrificing health and well being by eating poorly and shirking exercise – these things have real consequences over the long term, something that resilient information leaders recognize and incorporate into their working life even when “the house is on fire.”

Although periods of “going to the mat” intensity with extreme focus and long work hours are often required in times of crisis, they are not sustainable, nor in most cases is the damage of trying to sustain this posture worth the reward.

2

They have balance in their lives. Resilience research identifies a “positive

social orientation” as a critical quality of the truly resilient. Many factors contribute to this, but in general information leaders who strive to lead balanced lives with interests and passions outside of work, strong professional and personal relationships, involvement and commitment to their community, and a connection to the organization for which they work will be more resilient.

3

They are good at their jobs.

Although this may seem obvious, the details here are important. Resilient people are not necessarily gifted people.

In fact, research has shown that a more reliable predictor of resilience is the ability to put your skills to work effectively. If you are an information professional in the early part of your career, this means focusing on learning what your real strengths and weaknesses are, and seeking job opportunities and roles that play to your strengths and minimize opportunities to be harmed by your weaknesses.

This does not mean you should avoid new challenges. In fact a predictable quality of resilient people is that they seek out new experiences and challenges.

However, it does mean understanding your strengths well and seeking ways to learn about, identify and apply them at their full potential.

For information leaders in mid career and beyond, this means having the wisdom to delegate, to build a team whose members compliment each other, and to hire deputies who have the strengths that you lack but that are necessary for IG success.

4

They absorb (and maybe even learn from) failure. Although the concept that failure is okay, and maybe even desirable, has been fetishized beyond the point of rationality (looking at you, Silicon Valley), the way we handle failure is in fact an excellent predictor of resiliency. Fulfilling our potential as people, and as information leaders, is dependent upon our ability to absorb, bounce back from (and ideally learn from) mistakes and failures. In fact, one of the most powerful predictors of resilience is how we perceive potentially traumatic events.

How you view an event, like a stressful and scary e-discovery demand, actually determines whether or not it is in fact ultimately traumatic.

The research gets even more fascinating, clearly showing that exposure to events that could be very traumatic does not actually predict how well a person will be functioning in the future.

Rather, the most reliable predictor is the way that the person views, or “construes” an event.

This does not mean that we must be Pollyannas or deify the “power of positive thinking,” but it does demonstrate the objective effect that our response to difficult events actually has on whether or not we are traumatized by them. The best news is that the ability to construe potentially painful events in a way that minimizes their harm can actually be taught and learned.

5

They see themselves as responsible for their own success or failure.

Resilient people share a quality that academics call an internal (as opposed to external) “locus of control.” They believe that they, and not their circumstances, are in control of their success, and that they alone are responsible for their own fate. Although this comes dangerously close to a philosophical debate, the research is clear that those people who generally do not blame failures or traumatic events on others or on circumstances beyond their control are more resilient that those who do.

This orientation can also be learned, and is a quality shared by resilient information leaders.

Resilience for all of us as human beings, and at work, is ultimately determined by whether or not the depth of out adversity is greater than the strength of our resilient qualities. Everyone has a breaking point. Highly resilient people have a higher breaking point.

These qualities can in large measure be learned, and in the information governance community we are fortunate to have so many great information leaders who we can learn from as models of resilience. ■

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48

Five Tips for Retention

BY MEAGHAN BOYD AND GEOFF RATHGEBER

E

xpert witnesses play a key role in virtually every major case. Some cases involve one expert, while others with more complex scientific or technical issues might involve as many as ten or more. The right expert can be the linchpin of a successful litigation strategy, whether the case goes to trial or is resolved before reaching a jury or a judge. But retaining an expert must be done in the right way. This article offers five tips for ensuring that the expert’s task and your expectations are known and understood at the outset of the engagement.

TODAY’S GENER AL COUNSEL AUG / SEPT 20 16

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of Expert Witnesses Number one, interview the candidate in person. Whether it’s someone you have never met or someone you’ve retained in prior matters, an in-person meeting is critical. This meeting is an opportunity to assess the expert’s “ABCDs”: appearance, bias, credentials and demeanor.

Each case demands something unique. For example, if your case could benefit from an oldprofessor type, this meeting is a chance to see whether the candidate fits that bill. If candidates make a living as an expert witness, a face-to-face meeting provides an opportunity to understand

how they approach the “hired gun” line of questioning. Perhaps most important, if the candidate has very limited or no experience in deposition or the courtroom, you’ll be able to assess whether she is nonetheless a good fit for your case.

For new experts, this initial meeting is the time to ask hard questions: Have your opinions on similar topics been subjected to challenge? If so, what was the outcome? Were you disqualified?

On what grounds? Have you given testimony in a case with similar facts that might contradict the continued on page 53

aug / sept 20 16 today’s gener al counsel

Tips For Conducting Internal Fraud Investigations B y K at h e r i n e L e m i r e

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t’s a moment every general counsel dreads.

Out of the blue, an employee walks into your office, closes the door, and drops the “F” word. Fraud.

She has discovered a series of red flags indicating potential fraud involving someone or some group of people within the company. She’s not entirely certain, but suspicious enough to bring it to you. And you’re the first person she has informed.

What do you do? Is there an action plan on the shelf for this type of situation?

Decisions made at the very beginning of an internal fraud investigation – whether considerate or careless, systematic or sloppy – will either enhance the possibility of a swift and successful resolution or pave the way for a costly and drawn out legal saga that could paralyze the company. Here are some steps to consider that will help you avoid making critical mistakes.

Take Control. As your company’s general counsel, you should be involved from the outset of any internal investigation. Potential fraud is a hot potato that everyone from a mid-level manager to the CEO will be looking to get off their plate, so the issue is likely to find its way to you early. This is a good thing. The sooner you are involved, the sooner you can begin taking steps that will protect the company and yourself. If you don’t have a history in criminal law you might benefit from a few pointers on what to do next.

Practice ti P: Clear your desk and make this the priority. There is really nothing more important than getting to the bottom of a serious, potentially criminal, allegation

as efficiently and discreetly as possible.

Some reports estimate that a single tip leads to discovery in nearly half of all fraud cases, with the majority of the tips coming from employees.

Keep the Circle Small. It is wise at the beginning to limit the number of people who know about the fraud inquiry. It should be put on a need-toknow basis. You don’t know how widespread the fraud may be, and making sure that only a small number of people know about the issue lessens the risk of tipping off perpetrators who might then cover up or destroy evidence.

Practice ti P: Maintaining a closed loop also protects the organization and reputations of those accused. There is always a chance that the allegations are false. This avoids unnecessary reputation damage and cuts down on potential litigation. Making allegations without having documentation that would stand up to a lawsuit could be a critical mistake that affects your company’s bottom line.

Preserve All Evidence. Preserving key information (documents, financial records, emails, etc.) is paramount to establishing proof of potential fraud. It also protects your firm against allegations of not fully cooperating – or worse, covering up. Sometimes key evidence is lost unintentionally through routine server maintenance or data purges designed to save space. Other times, perpetrators intentionally erase evidence to conceal their tracks. Either way, the onus is on the company to prove that a loss of evidence was either

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innocent or nefarious – noting the appearance of wrongdoing is highly suspicious when information critical to the case disappears for any reason.

Practice ti P: It is important to include someone discreet, such as a trusted IT manager, who can help your investigative team ensure data integrity. It is best not to alert your entire IT hierarchy to the investigation, as others in the group could be implicated. Withholding key pieces of information, especially the identities of suspected targets, is also essential. However, having a knowledgeable IT person in your corner to help preserve digital fingerprints could be invaluable to the investigation.

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Katherine A. Lemire is president of Lemire LLC, a New York City based investigations and risk management firm. She has managed complex investigations and provided investigative consulting services to a broad array of clients in both the public and private sectors. Previously she served as a federal prosecutor in the Southern District of New York. She also served as a prosecutor in the Manhattan District Attorney’s Office and as Counsel to Raymond W. Kelly, Commissioner of the NYPD. Klemire@lemirellc. com

Know Your Own Rules. Making sure you follow your own rules will help you avoid a bungled investigation or retaliatory litigation. Before questioning any personnel, make sure you thoroughly review your firm’s internal policies and procedures, including HR guidelines, hiring contracts and non-disclosure agreements. What specific rules and regulations were employees made aware of during hiring and through routine training?

What rights are they afforded by their employment contracts or through collective bargaining agreements, and should you remind them of those rights before questioning? A complete understanding of your own rules will protect the company from the perception of violating employee rights, while at the same time helping to establish a road map for the investigation.

Knowing the law is also a must. Reporting requirements and employee rights differ among jurisdictions, and vary depending on the severity of the suspected crime. The law also holds publicly traded companies to different standards.

Having a firm grasp on all legal requirements and regulations is imperative.

Practice ti P: Review the reporting requirements for your insurance carrier, as some policies require early reporting of suspected criminal activity. Mistakes in this area could cost your company many thousands of dollars in unreimbursed legal bills.

Bring in Outside Help. One of the most important decisions you will make is selecting an external firm to conduct the investigation into your suspected internal fraud. This may be the first time you have dealt with suspected fraud, but that won’t be the case with an outside consultant.

Bringing in a third party avoids conflicts of interest, provides outside perspective, and can offer expertise and guidance you simply do not have.

Being cost conscious is also important, as the expenses stemming from the fraud investigation can sometimes surpass the losses created by the fraud itself. Some companies choose large, wellknown firms that bill several hundreds of dollars an hour, only to have first-year associates conduct much of the work.

Practice ti P: A better option may be to look for smaller investigation firms with significant law enforcement background.

Costs will likely be significantly less, and you typically end up working directly with senior people who have preexisting relationships with law enforcement that may come in handy. Whomever you select to conduct the investigation, keep an eye on costs as you go along. Investigations often chase leads down rabbit holes that can end up nowhere, resulting in many thousands of dollars in cost overruns.

Pick the Right Time to Inform Law Enforcement. Among the most important considerations is figuring out when to bring in law enforcement.

Once you have handed over the investigation, it is impossible to retake control. Doing it too early could prevent getting to the bottom of the problem before irreparable damage to your reputation is done. On the flip side, waiting too long might result in problems with the authorities, up to and including the prosecution of the case.

Having counsel with proven law enforcement experience is key to advising the right point in your investigation to alert law enforcement.

Practice ti P: With complex fraud cases, making substantial internal headway toward untangling the alleged wrongdoing is sometimes preferred by law enforcement because it makes their jobs easier and is less taxing on their often limited resources. However, when substantial material evidence is uncovered, it is best to move quickly to involve the authorities so that evidence can be preserved in a way that stands up to prosecution.

Getting to the bottom of suspected fraud within your organization can be tricky enough without compounding the situation through easily avoided mistakes. Understanding these factors will enable you to act quickly and with confidence toward the best possible resolution of a difficult situation. ■

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Expert Witnesses Retention

Seek the expert’s opinion on the most effective way to communicate to a judge or jury, using continued from page 49 the many forms of technology now available.

The expert may have good ideas that have been theme of this case? Also ask if the candidate had effective in past cases and can help with counsel’s personal or professional experience in your busiown case strategy. Minimally, having a clear idea ness that may affect her work. of the final work product at the beginning will For an expert witnesses with whom you are set expectations and help streamline the expert’s familiar, the in-person meeting is also critical. research and analysis.

Even if she has performed well in deposition or Fourth, create and clearly communicate a trial in a prior matter, the ABCDs need to be budget. The importance of doing this at the assessed specifically for the current case. Deteroutset cannot be overemphasized. With the scope mine how many times she has testified for your of work in mind, outside counsel and the expert company or for outside counsel’s law firm since should develop a task-specific budget that includes the last retention, how much she has been paid a proposed time table for completing tasks.

Work with the expert witness up front to define Details may evolve as the case progresses, but setting down a the scope of work as precisely as possible. budget and a calendar-specific schedule at the outset will make any later discussions by your company or counsel’s firm, and whether about variations much easier. or not she has testified in factually similar matIt’s important to review the budget and schedters since last being retained. ule and secure any necessary approvals before Not only is this discussion a good way to the expert spends too much time on the matter. assess the expert’s credentials, it can also be imThis ensures that everyone is on the same page mensely helpful to hear her preliminary take on and confirms expectations and procedures for the scientific or technical elements of the case. invoicing and payment processing.

For both new and familiar experts, the in-person It is common for the scope of work, and meeting offers an opportunity to hear prelimitherefore the budget, to change as facts and theonary ideas from a knowledgeable person about ries emerge in the course of litigation. But with how the case might be approached. regular communication among client, counsel Second tip: Work with the expert witness up and the expert, revisions can be made as needed. front to define the scope of work as precisely as Defining the budget up front, keeping the lines of possible. Failing this, a well-intentioned expert communication open and updating if necessary, may perform research projects and tasks that are will reduce the chance of receiving unanticipated not required for the case. Have a preliminary disinvoices later in litigation. cussion to get initial input and feedback, then get Fifth, consider enlisting a consulting expert (or additional feedback regarding how the expert proteam) to support your testifying expert. In a very poses to staff the case, whether or not the expert’s large case, a testifying expert may not have the firm is able to field the scope of work as designed, or whether narrowing it would be more appropri- resources to handle a large volume of plaintiffs, ate. At this stage, the expert should be informed products or issues. In these case, it might be prudent to enlist, in addition to the testifying expert, how her expertise fits within the overall case. a support team to assist with research, conduct Third, discuss the expected work product.

The scope-of-work discussions will have touched preliminary evaluation of claims or damages, or gather data. Building this kind of team will free on deliverables, but an in-depth conversation up the expert to do only the expected and needed about work product is still important and can scope of work, which is likely to be just offering pay dividends in the end. In most cases, the key testimony at deposition or trial. It will keep her deliverables are testimony and a final report, but depending on the case other kinds of deliverables from getting bogged down in the minutiae of data analysis or data mining, which you or outside might prove to be powerful tools of persuasion. counsel might need to do for yourselves in order In particular, visuals in the form of a PowerPoint, to evaluate the risks and liabilities of the case. ■ Prezi or video may provide an arbiter with a window into case facts that would be lost on the printed page or in oral testimony.

Meaghan Boyd is a partner at Alston & Bird, in the Environment Land Use & Natural Resources Group, and co-chair of the ABA’s Expert Witness Committee.

She focuses on toxic tort and environmental litigation, and counsels on compliance matters involving federal environmental statutes, as well as their state counterparts, and on hazardous materials transportation regulations. meaghan.boyd@ alston.com

Geoff Rathgeber is an associate in the Alston & Bird Environment, Land Use & Natural Resources Group and chair of the Young Lawyers’ Subcommittee of the ABA’s Expert Witness Committee. His practice focuses on environmental and toxic tort litigation, and on regulatory compliance. geoff.rathgeber@ alston.com

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Diversity in the LegaL Profession

By Au d r e y T i ll m A n

I

root for the University of Georgia (my law school) during football season and the University of North Carolina (my undergrad school) during basketball season. This Bulldogs/Tar Heels diversity gives me a better chance of siding with a winning team. Diversity in the workplace offers similar, though obviously more important, value.

Who doesn’t want to increase their chance of winning?

The legal profession as a whole isn’t doing a very good job at diversity. A Washington Post article,

May 2015, noted that 88 percent of lawyers are white, making law the least diverse profession in the country. This is against a backdrop of a U.S. workforce comprised of 33 percent minorities. As general counsel of a company known for diversity (43 percent of Aflac employees are minorities), I feel an acute need to recruit and retain minority legal professionals.

I knew early on that I wanted to practice law, because I was drawn to the profession’s foundation in ethics and integrity. As an attorney, I am

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the advocate for a legal position, and to do a good job I have to consider every angle, especially those that require a unique perspective.

That’s how I know achieving cultural competency makes for a more vibrant and profitable organization, where employees of all backgrounds thrive. My legal team reaps the benefits of sharing varied life experiences, and that helps us relate to unpredictable situations and process challenges in

students who have the skills and drive to succeed in law school but lack the financial resources.

Seeking out such students may be an exercise in diversity itself. We could begin by suggesting a legal career to students who come from academic backgrounds like engineering, computer science or psychology.

Recruitment practices should be tailored to reach minority and ethnic student populations where they are most receptive.

Simply circulating a Companies that hold “innovation” as job announcement is not enough. Recruita priority would be wise to emphasize ers should engage with minority campus diversity, the font from which innovation groups, including multicultural sororities organically flows. and fraternities, and clubs like the Minority Law Students different ways. We collaborate and learn from one Association or the National Black Law Student another, making us better equipped to understand Association, to help facilitate introductions and our most daunting cases. share employment opportunities. This could Diversity also keeps us sharp – or at least be in the form of participation in activities or compels us to sharpen our professional wits. In events hosted by campus groups, including job her article “How Diversity Makes us Smarter,” in fairs, presentations at club gatherings, or invitaScientific American (October 1, 2014), Columbia tions to their members to connect with the firm Business School professor Katherine W. Phillips at company-hosted events on campus. examines the impact of diversity on business Role models, most importantly, are needed to innovation. The good news: It’s a big plus. boost the feasibility of a law career for minorities.

“It seems obvious that a group of people Many young people are deprived of the simple rewith diverse individual expertise would be better assurance of seeing people in the legal profession than a homogeneous group at solving complex, who look like them. The Obamas, Justice Sonia non-routine problems,” writes Prof. Phillips. “It Sotomayor and Attorney General Loretta Lynch is less obvious that social diversity should work are surely a good start, but if you are an employer in the same way – yet the science shows that it of minority lawyers whom you believe to be rising does. Simply interacting with individuals who are stars or established experts in their field, don’t be different forces group members to prepare better, afraid to get them into the public eye. Similarly, if to anticipate alternative viewpoints and to expect you’re a minority legal professional with a solid that reaching consensus will take effort.” grasp of your subject matter, consider getting out In other words, if we are working with peothere yourself. Thought leadership opportunities ple who think differently than we do, we have abound, and more diverse lawyers should take to communicate more and with higher quality advantage of them. information. Less is taken for granted. When we Mentorship programs build relationships are obliged to explain things with more clarity, within and among different groups. The underit leads to broader thinking and better intelrepresentation of minority attorneys can be lectual output. For this reason, companies that remedied as firms sponsor and mentor minority hold “innovation” as a priority would be wise students, helping cultivate the careers of the to emphasize diversity, the font from which next generation. innovation organically flows.

Diversity in the workplace, especially as a If the legal profession is to effectively address core value within a legal department, increases the issue of diversity, I believe we should come your chances of having a winning team. And at it on three fronts: scholarships, recruitment whether you are in a courtroom or just on a and role models. court, who wouldn’t want to leverage every Scholarships should be offered to minority chance to win? ■

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Audrey Boone Tillman is executive vice president and general counsel for Aflac Incorporated. Her oversight encompasses the divisions of Compliance, Legal, General Counsel of Aflac International, Corporate Communications, Federal Relations, Government Relations and the Office of the Corporate Secretary.

Before joining Aflac, she served as an associate professor at North Carolina Central University School of Law. She is a past chair of the corporate law section of the National Bar Association.

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PR Mill Shuts Down When DOJ Loses a Case

BY BARRY J. POLLACK AND ADDY R. SCHMITT

O

n July 15, 2015, the United States Department of Justice indicted four retired Army National Guard colonels – our client, Thomas Taylor, and Edwin Livingston, Ronald Tipa, and Ross DeBlois – on charges of conspiracy, bribery, and honest services fraud.

The government issued a joint press release on behalf of three federal law enforcement agencies trumpeting the indictment, deriding the men’s alleged behavior, and lauding the government’s efforts to root out public corruption. Indeed, the press release proclaimed: “It is unconscionable how these former military officers betrayed the offices they once held for monetary gain.”

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Nine months later, after they endured extreme personal hardship for themselves and their families, incurred hundreds of thousands of dollars in attorneys’ fees and lost the company they spent years building, the evidence was finally heard.

The jury acquitted all four men of every charge.

The government did not issue a press release or any type of statement to announce that these men had been cleared of the charges the government had so publicly hailed. To this day, the web sites of both the Department of Justice and the United States Attorney’s Office for the Eastern District of Virginia still post the press release announcing the indictment and decrying the defendants’ betrayal of their offices. Neither mentions that the government was unable to convince a single juror that this was true.

THE ALLEGATIONS In approximately 2000, after retiring from positions with the National Guard Bureau, Messrs.

Taylor, Livingston, and Tipa joined Military Personnel Services Corporation (MPSC), which contracted with the government – including with the National Guard Bureau – to provide marketing, recruiting, and financial programs and services. In 2005, Mr. DeBlois retired from the Guard and joined MPSC as its CEO. The indictment filed in federal court in the Eastern District of Virginia alleged that these four men paid a bribe to a National Guard Bureau official, Robert Porter, in exchange for Porter’s influence in steering contracts to MPSC. More specifically, the government claimed that in 2010 or 2011, while Porter worked at the National Guard Bureau, Tipa and Livingston offered to pay Porter one percent of the value of any contracts he steered to MPSC, to hire Porter at MPSC when Porter retired from the Guard, and to disguise the bribe payment as a bonus to be paid once Porter began work at the company. The indictment alleged that Tipa and Livingston told DeBlois about the alleged bribe agreement back in 2010 or 2011. According to the indictment, at a board meeting in July 2014, Tipa, Livingston, and Taylor (as well as a fourth owner and director of MPSC) all voted in favor of making the bribe payment to Porter, who was at that time working at MPSC. The government also charged that DeBlois was present at that board meeting and that DeBlois arranged the payments to Porter.

THE DOJ PRESS RELEASE On the day it filed the indictment, DOJ issued a press release: “Three Owners and CEO of Contracting Company Indicted for Bribing Army

National Guard Colonel.” According to the press release, the charges were the result of a joint investigation conducted by the FBI, the Defense Investigative Service and the Army Criminal Investigative Command.

Although the actual indictment charged only one bribe of $55,000 to one Guard official, Porter, the press release misleadingly suggested that the indictment charged multiple bribes to multiple officials. The Assistant Attorney General was quoted in the press release saying that the four men were charged with using their company “to funnel payments to high-ranking accomplices in the Army

How is the public to assess whether the Department is utilizing its resources wisely when it announces charges, convictions and sentences, yet acts like acquittals never occur?

National Guard.” The press release went on say that the men’s actions were “unconscionable,” had “brought them dishonor” and claimed that these men – each of whom had retired honorably after decades of service in the Army National Guard – had “betrayed the offices they once held.”

The press release identified Messrs. Livingston, Tipa, Taylor, and DeBlois by name, gave each man’s age, and listed their city and state of residence. Not surprisingly, media outlets picked up the press release.

THE INDICTMENT’S RAMIFICATIONS The negative consequences of the indictment were swift and severe. After a search warrant was executed on the company’s headquarters in Virginia in October 2014, the company’s general counsel helped arrange for outside counsel to represent each of the owners and Mr. DeBlois.

Even before the indictment was filed, as a result of the allegations MPSC was suspended from contracting with the federal government.

This meant that in addition to the stress and shame associated with being falsely accused of committing numerous felonies, and the expense of retaining counsel, the men saw the company they had built – from a struggling start-up to a company that at one time was making over $100 million a year and employing 1,600 people – fold overnight.

Meanwhile, defending against the charges was expensive. The government dumped over 8.4 continued on page 61

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Preparing the Designated Corporate Representative for Deposition

BY JOHN C. MALONEY, JR.

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T

oday, in most commercial litigation (as well as intellectual property, employment and product liability litigation), it is common for some deponents to be corporate representatives rather than individual fact witnesses. Federal Rule of Civil Procedure

30(b)(6) and its state analogues allow a party through its notice of deposition or subpoena to name as the deponent “a public or private corporation, a partnership, an association, a governmental agency or other entity.” A key requirement is that the notice or subpoena must describe with reasonable particularity the matters for examination.

The named organization must then designate “one or more officers, directors or managing agents, or designate other persons who consent to testify on its behalf,” and the person or persons designated “must testify about information known or reasonably available to the organization.”

The Rule 30(b)(6) deposition can be used early in a case to determine the litigation landscape, including the organization’s document retention policies, the identity of custodians and location of files, the procedures followed during document production, and the key employees with personal knowledge of an event or decisions. Later in a case it can serve as a wrap-up to fill in any gaps on substantive issues.

There are major differences between preparing an individual fact witness and preparing a corporate representative for a deposition. First, in a Rule 30(b)(6) notice or subpoena, the named organization rather than the adversary designates the deponent(s). Second, the named organization knows in advance of the deposition all the subjects that will be covered during the examination.

Third, the named organization has a statutory obligation to prepare its “designated person(s)” to testify regarding the listed “matters for examination.” The designated person(s) must become a knowledgeable witness and cannot respond that he or she does not know the answer unless no one at the organization (including former employees) has any personal knowledge.

Fourth, the responses at the deposition will constitute the organization’s knowledge, not the personal knowledge of the designee, and they bind the organization as admissions.

Used properly and prudently, Rule 30(b)(6) is a cost-effective tool that can streamline the discovery process and level the playing field between plaintiffs and defendants. There are also significant risks and traps for the unwary, however, that must be managed and avoided during the witness designation and preparation process.

The following 3-part checklist for preparing a Rule 30(b)(6) witness provides a useful litiga-

tion management device, to make sure a party can take maximum advantage of and meet the challenges presented by that rule.

1 Matters for Examination • The matters for examination must be described in the Rule 30(b)(6) notice or subpoena with “reasonable particularity.”

• Just as they would object to written discovery requests, defense counsel for the named entity must object in writing to the matters for examination if they are vague, ambiguous, over broad, seek irrelevant information or no response can be provided.

• Written objections should lead to a negotiation between the parties’ counsel regarding the exact scope of the matters for examination. This is a critical step. It allows the named organization to know in advance the subjects on which it must prepare the designated witness, and it allows defense counsel to make a record at the deposition that a specific question is beyond the scope of the matters for examination.

The named organization has a statutory obligation to prepare its designated deponent regarding the listed matters for examination.

• If the negotiations are not successful, defense counsel should move for a protective order in advance of the deposition to obtain a ruling on the scope of the deposition topics. Otherwise, the noticed or subpoenaed entity risks sanctions or possible preclusion at trial.

• At the deposition itself, defense counsel cannot direct the designated witness not to testify if a question is beyond the scope of the matters for

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examination. Instead, defense counsel can only preserve the objection for the record. But the witness’s testimony with respect to a subject determined by a court to be beyond the scope of the listed matters for examination (assuming the witness has personal knowledge) will not bind the entity, and will be treated only as the witness’s individual response.

• Defense counsel must make the record clear when testimony is being taken from a Rule 30(b)(6) witness rather than a fact witness.

When a witness is serving in both capacities, separate depositions should be taken and separate transcripts made.

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John C. (Jay) Maloney, Jr. is a partner in the Commercial Litigation Department of Zuber, Lawler & Del Duca, LLP. His practice is focused on complex commercial disputes, business torts, pharmaceutical litigation, products liability, patent, toxic tort law and real estate matters in the state and federal courts of New Jersey and New York. He has served on the faculty of the National Institute for Trial Advocacy (NITA) deposition and trial advocacy training programs, in several states and the District of Columbia. jmaloney@zuberlaw. com

2 Designated Witnesses • The designated witness or witnesses need not have any personal knowledge of the listed matters for examination. Rather, the entity must make a good-faith effort to prepare them so that they can testify about all information known or reasonably available to the organization with respect to the listed subjects.

• The designated witnesses can be asked to testify regarding more than just facts, and may be examined regarding the organization’s positions, knowledge, subjective beliefs, opinions, or litigation contentions on the listed topics.

• In order to testify about the listed matters for examination, the designated witness has a duty to investigate and learn the key facts and documentary record. The witness must know the location of the organization’s documents, review them, and conduct interviews of current and former employees with personal knowledge. The witness must keep careful notes of the investigation, especially the sources of important testimony. Assume that all notes and documents reviewed by the designated witness will have to be produced to the adversary.

• The designated witnesses should have a skill set similar to a sophisticated spokesperson for the entity. They must be articulate, prudent, capable, willing to learn, and able to devote the significant time necessary for the investigation and deposition preparation. Most importantly, they must have the support of the organization in order to fulfill the required tasks.

• The organization is not limited to current or former employees as designated witnesses, and can engage a company spokesperson to testify on its behalf. But the organization would be prudent not to designate the general counsel or any lawyer as its Rule 30(b)(6) witness, because that will effectively waive the

protections of the attorney-client privilege and work product doctrine.

3 Counsel’s Responsibility for Preparation • Defense counsel must prepare the designated witness like any fact witness, including by reviewing pleadings, interrogatory responses, key trial themes, critical documents (sometimes line-by-line), and engaging in a thorough rehearsal and critical review of questions and answers, so the witness becomes confident about performing in an adversarial environment.

• Most importantly, defense counsel must assume responsibility for educating the designated witness about what needs to be investigated in order to testify with respect to the listed matters for examination, including gathering and reviewing all relevant documents and interviewing current and former employees with personal knowledge of the events at issue.

• Defense counsel must be careful to avoid sanctions that can be awarded against an organization for failure to prepare a designated witness adequately. At the same time, defense counsel must be prepared to deal with the substantive issue of an organization’s apparent lack of knowledge if that is in dispute during the deposition preparation process.

When a witness is serving in both capacities, separate depositions should be taken and separate transcripts made.

• Defense counsel must also consider early in the selection and preparation process whether it will be necessary or desirable for the designated witness to be prepared to testify on behalf of the organization at trial as well as at a deposition. Some courts are expanding the concept of “personal knowledge” under Fed. R. Evid. 602 to include acquired organizational knowledge for purposes of permitting designated corporate representatives to testify at trial despite objections based on hearsay and lack of personal knowledge. In such cases, the designated witness should be an employee who is in a position to vouch for the truth of his or her testimony as a result of having conducted an investigation, and be able to rely on multiple sources for support. ■

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DOJ’s PR

continued from page 57 terabytes – the equivalent of the entire printed collection of the Library of Congress – of largely unorganized electronic discovery on the defense.

Three federal law enforcement agencies had investigated the company and its owners for seven years, so the number of witnesses and the amount of information to be analyzed was significant. And, of course, trial in federal court is a costly undertaking.

THE TRIAL Over the course of the two-week trial, the jury learned the facts. For example, that Robert Porter had, in fact, been taking bribes and kickbacks while he was employed at the National Guard Bureau, but that those illegal activities had nothing to do with MPSC. The jurors learned that after Porter got caught and was confronted by the FBI, he agreed to cooperate in exchange for leniency in his own case, and that’s when he first claimed he had been offered (but had never received) a one percent “bribe.”

The jurors heard from a number of government witnesses – current and former National Guard Bureau officials – who said that MPSC was a good company, indeed, a model company.

The jurors heard testimony and were presented with numerous documents that showed MPSC was awarded contracts, including the contracts in question, based on the company’s qualifications, such as superior past performance and exceptional value.

The jurors heard testimony from Messrs.

Livingston, Tipa, Taylor, and DeBlois directly, and they heard from a number of additional witnesses that these were men of great character and integrity. The jurors also learned that the government’s case just did not square with common sense: If there had been an agreement that Porter would be paid this money once he joined MPSC, as Porter claimed, why did Porter – who had a gambling addiction and financial problems – wait more than two years (until after he was confronted by the FBI) to ask for his money?

VERDICT AND RESPONSE The jury deliberated for less than two days before returning not guilty verdicts for all four men on all eight counts with which they had each been charged. With a flood of emotions, these gentlemen realized that the nightmare they had been living for well over a year was finally over. Now they had to pick up the pieces.

Unfortunately, absent a showing of bad faith by the government, there is no available recourse against the government to seek compensation for the pain and suffering or the financial harm individuals suffer in these circumstances.

As President Reagan’s Secretary of Labor Ray Donovan so famously asked after he was cleared of criminal charges very publicly brought against him, “Which office do I go to, to get my reputation back?”

Having created no such office, the least the government should do is publicize the outcome of the trial to the same extent they publicized the charges.

THE PUBLIC’S ACCESS TO INFORMATION According to its website, DOJ’s Office of Public Affairs issues approximately 1,700 press releases a year – and that does not include press releases issued by its agencies, such as the U.S. Attorney’s Offices and the FBI. A review of the website confirms that these press releases largely relate to charges, convictions, and sentences obtained in criminal cases. This is also true for the websites of the U.S. Attorney’s Offices.

The Department of Justice is supposed to seek justice, not simply convictions. The case against our client was investigated by three agencies over the course of seven years, requiring considerable public resources. When it filed the indictment, the government publicized the charges and told the public the government’s version of the story. The public has an interest in learning that this story was not accepted by a jury. The Department of Justice is accountable to the public. How is the public to assess whether the Department is utilizing its resources wisely when it announces charges, convictions, and sentences, yet acts like acquittals never occur?

DOJ should issue a press release announcing the outcome of any case in which it issued a press release about the charges. The agency should also make its website easier to search, so that the public, including the media, can readily ascertain the outcome of a publicized case.

For its part, the media should set up case alerts or make other efforts to ensure that if they report on charges filed by the government, they also report when those charges result in acquittals.

Without such simple and common sense measures, too many defendants will continue to have their reputations besmirched long after charges against them have been rejected, and the public will continue to receive a very skewed view of when and how justice is actually being served. ■

Barry J. Pollack is a firm member at Miller & Chevalier and chair of the White Collar & Internal Investigations Practice. He represents individuals and corporations in criminal investigations and trials, and in other government enforcement matters including SEC proceedings, and he also conducts corporate investigations. His clients have included Fortune 500 corporations, their senior executives and government officials, including members of Congress. He is currently president of the Association of Criminal Defense Lawyers. bpollack@milchev.com

Addy R. Schmitt, a member at Miller & Chevalier, practices in the areas of criminal and civil litigation. She is former Assistant United States Attorney in the Civil Division of the U.S. Attorney’s Office for the District of Columbia. aschmitt@milchev.com

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Can Transaction Parties Rely on the Common Interest Privilege?

By A l i s on l . n A de l A nd e r i k A n . P on t

i

n many situations, parties to a transaction wish to share legal advice related to that transaction among themselves. They

may collectively want opinions about the tax consequences of a transaction or merger, or its regulatory or litigation risks, or they may request a legal opinion regarding whether their collaborative activities will infringe a third

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party’s intellectual property, or expose them to a claim for breach of contract or tortious interference.

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In such circumstances, the parties whose interests are aligned may wish to share and discuss these legal opinions, so they can save money by alleviating the need for each party to seek its own separate legal opinion. Can they assume these communications are protected by the socalled “common interest privilege?”

The answer is “perhaps.” It’s not a satisfying answer, but it reflects the current state of the law. Counsel should take care in assessing whether and when to rely on the common interest privilege. Many attorney-client privilege issues in the transactional context are fraught with ambiguity, and the “common interest privilege” (which goes by many names, including the “common defense privilege” and “common interest doctrine”) is definitely one of them. So, before relying on it and sharing what would otherwise be privileged communications, counsel should research and understand its nature and limits.

This article provides an overview of the common interest privilege, explains some of the relevant jurisprudence, and provides practical considerations for corporate counsel to consider before sharing otherwise privileged communications in these circumstances.

AN EXCEPTION TO THE RULE The common interest privilege is not an independent privilege, but rather an exception to the rule that waives attorney-client communications and work product if they are disclosed to a third party.

The common interest doctrine extends the cloak of attorney-client privilege to any privileged communication confidentially shared with another represented party’s counsel for the purpose of furthering a common legal interest.

Although it’s recognized by federal courts and many state courts, the exact contours and limits of this privilege vary from jurisdiction to jurisdiction, and in some jurisdictions it continues to evolve.

One of the most difficult elements, and one that the courts continue to grapple with, is what constitutes a “common interest.” The extent to which interests must overlap in order to be “common” varies. Some jurisdictions require interests to be “identical,” while others require only that the parties’ interests be to some degree sufficiently aligned. Some require pending or threatened litigation, while others recognize the privilege in a transactional or non-litigation context.

Section 76 of the Restatement (Third) of the Law Governing Lawyers takes a broad view, permitting multiple clients who are represented by separate lawyers to invoke the privilege if

they have “a common interest in a litigated or non-litigated matter.”

Even where state law jurisprudence about the privilege is well-developed, it continues to evolve.

New York, for example, for many years embraced a narrow version of the common interest privilege, but then in 2014 apparently reversed its position in Ambac Assurance Corporation v. Countrywide Home Loans, Inc. (Supreme Court of New York), a much discussed case which seemingly eviscerated the requirement of pending or anticipated litigation.

The court noted that “business entities often have important legal interests to protect even without the looming specter of litigation,” and opined that requiring litigation in order to invoke the common interest privilege would deter parties “from seeking and sharing that advice, and would inevitably result instead on the onset of regulatory or private litigation because of the parties’ lack of sound guidance from counsel.”

The court therefore concluded that “pending or reasonably anticipated litigation is not a necessary element of the common-interest privilege.”

There is also lack of consistency across federal courts. Attempts to incorporate a common interest privilege into the Federal Rules of Evidence have been unsuccessful, leaving district court judges to determine whether and how to apply the privilege.

The result is fact-specific inquiries and a lack of predictability.

ECONOMIC VS. “LEGAL” INTEREST A company’s business and legal interests are often inextricably intertwined. Its decision-making is driven by its business interests, but those decisions often have legal implications. Courts struggle with how to distinguish a purely economic interest from a legal one.

For example, last year in Schaeffler v. United States, a magistrate judge in the Southern District of New York considered whether the common interest doctrine could be invoked to shield documents prepared by a third party accountant and shared when litigation was neither pending nor threatened, but was anticipated. As part of a routine tax audit of Georg F.W. Schaeffler, the IRS served a summons on his accountant, Ernst & Young. Schaeffler moved to quash the summons because it sought privileged material: tax advice prepared by Ernst & Young.

The IRS countered that privilege had been waived because an entity controlled by Mr. Schaeffler (Shaeffler Group) disclosed the memo to the bank consortium that was involved in Schaeffler’s refinancing and restructuring.

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Alison Nadel is a partner at McDermott Will & Emery. She represents clients in arbitrations and other complex litigation, intellectual property matters, contract disputes, business torts, administrative law cases and in matters involving both state and federal false claims acts. She also assists clients in e-discovery and information management issues, before and during litigation. anadel@mwe.com

aug / sept 20 16 today’s gener al counsel

The district court concluded that although the bank consortium had a substantial economic interest in the debt restructuring, there was no shared legal interest sufficient to invoke the common interest doctrine because the consortium did not face future litigation with the IRS.

interest and their contemporaneous intent to invoke the privilege and keep the communications confidential. However, before relying on such an agreement, parties should consider to what extent they are likely to benefit from the bargained-for protections in light of the current jurisprudence in the applicable jurisdiction.

The common interest privilege is not an independent

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PRACTICAL CONSIDERATIONS Parties that may be privilege, but rather an exception to the rule that subject to suit in multiple jurisdictions with waives attorney-client communications and work disparate approaches to the common interproduct if they are disclosed to a third party. est privilege face the greatest uncertainty.

The most prudent The parties had executed a common interest approach in these circumstances may be to asagreement. However, although the district court sume the narrowest view of the common interest acknowledged that such an agreement can be privilege will apply. “relevant” to demonstrating a common legal inIn any case, if litigation is not pending or terest, it noted that the written agreement itself imminent, parties can increase the likelihood cannot create such an interest. The court found that the common interest doctrine will protect that the common interest was economic and not privileged communications shared among them legal, and therefore held that any attorney-client by doing the following: or tax practitioner privilege had been waived when the document was shared with the bank • Memorialize their intentions in a common consortium, and ordered its production. interest agreement that is specific about the But the Second Circuit reversed on appeal. Its intended application of the privilege, the comanalysis focused on the distinction between the mon interest implicated, and their intention to bank consortium’s economic and legal interests. It keep privileged communications confidential. found that Schaeffler and the bank consortium did Such an agreement is not a failsafe against have a common interest in the legal tax issues refuture disclosure, but it may be persuasive Erika N. Pont is an lated to the transaction, which was a “legal probto a court. associate at McDermott lem albeit with commercial consequences.” The • Identify which documents are subject to the Will & Emery. She court emphasized that the consortium’s interest in common interest privilege and label them acrepresents clients in protecting its substantial monetary investment did cordingly. Although a “Privileged” or “Comcomplex commercial not render those legal issues “commercial,” and mon Interest Communication” label is not litigation matters, with that a party’s significant financial interest does determinative, it will evidence the parties’ particular emphasis not preclude a court from finding a legal intercontemporaneous intent. on tax controversy, est where the legal aspects materially affect the • Separate communications regarding legal adpatent infringement financial interests. vice and strategy from those regarding purely and contract disputes.

The Second Circuit’s opinion clarified an business or financial decisions. Remember that She also counsels important point, and it underscores the imporordinary business communications are not clients regarding crisis tance of articulating a shared legal interest when protected in any circumstance. management and invoking the common interest privilege.

• Maintain the confidentiality of communicamedia strategy, and Would a common interest agreement help tions over which common interest privilege has done pro bono protect a shared communication? is asserted. Distribute them narrowly on a work on immigration The answer is likely yes.

While it’s not deterneed-to-know basis. and asylum matters.

She is a member of the minative of whether a court will uphold a claim that communications are protected by the comFinally, even when you have a common interadjunct faculty of the mon interest privilege, courts often take the exest agreement, be judicious when communicating George Washington in writing. ■ University Law School. istence of such an agreement into consideration.

Agreements can define the parties’ common legal EPont@mwe.com

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