Mass Law Blog

The ConnectU/Facebook legal saga is truly astounding.  Imagine a mature Oak tree.  Now give the it properties of Kudzu vine (the “vine that ate the South”).  Each branch of this tree is another lawsuit involving ConnectU, Facebook, the principals, and their lawyers.

Now, a new branch has burst forth.  Wayne Chang has sued ConnectU and its lawyers in Superior Court Business Litigation Session in Suffolk County, Boston, claiming that Chang is entitled to as much as 50% of the value of the ConnectU/Facebook settlement (so called, since ConnectU has challenged the finality of the settlement).

You can read about the ConnectU/Facebook saga here, or wait until the movie comes out.

Here is the complaint in the Chang case, and apologies to Robert Earl Keen.

Chang v. Winklevoss Complaint

Here is the text of new Federal Rule of Evidence 502, eliminating waiver resulting from inadvertent disclosures of attorney-client privileged or work-product materials in federal litigation:

Federal Rule of Evidence 502
(signed into law September 19, 2008)

The following provisions apply, in the circumstances set out, to disclosure of a communication or information covered by the attorney-client privilege or work-product protection.

(a) Disclosure made in a federal proceeding or to a federal office or agency; scope of a waiver. —

When the disclosure is made in a federal proceeding or to a federal office or agency and waives the attorney-client privilege or work-product protection, the waiver extends to an undisclosed communication or information in a federal or state proceeding only if:

(1) the waiver is intentional;

(2) the disclosed and undisclosed communications or information concern the same subject matter; and

(3) they ought in fairness to be considered together.

(b) Inadvertent disclosure. —

When made in a federal proceeding or to a federal office or agency, the disclosure does not operate as a waiver in a federal or state proceeding if:

(1) the disclosure is inadvertent;

(2) the holder of the privilege or protection took reasonable steps to prevent disclosure; and

(3) the holder promptly took reasonable steps to rectify the error, including (if applicable) following Fed. R. 25 Civ. P. 26(b)(5)(B).

(c) Disclosure made in a state proceeding. —

When the disclosure is made in a state proceeding and is not the subject of a state-court order concerning waiver, the disclosure does not operate as a waiver in a federal proceeding if the disclosure:

(1) would not be a waiver under this rule if it had been made in a federal proceeding; or

(2) is not a waiver under the law of the state where the disclosure occurred.

(d) Controlling effect of a court order. —

A federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court – in which event the disclosure is also not a waiver in any other federal or state proceeding.

(e) Controlling effect of a party agreement. —

An agreement on the effect of disclosure in a federal proceeding is binding only on the parties to the agreement, unless it is incorporated into a court order.

(f) Controlling effect of this rule. —

Notwithstanding Rules 101 and 1101, this rule applies to state proceedings and to federal court-annexed and federal court-mandated arbitration proceedings, in the circumstances set out in the rule. And notwithstanding Rule 501, this rule applies even if state law provides the rule of decision.

(g) Definitions. —

In this rule:

(1) “attorney-client privilege” means the protection that applicable law provides for confidential attorney-client communications; and

(2) “work-product protection” means the protection that applicable law provides for tangible material (or its intangible equivalent) prepared in anticipation of litigation or for trial.

This rule comes too late for the many lawyers spending their weekday mornings in dark bars, drinking their memories away, their careers ruined by inadvertent disclosure of privileged client documents. It also comes too late to save the hundreds of millions of dollars spent on document review over the last few decades, in an effort to make sure that privileged materials aren’t produced to opposing counsel. But, better late than never. Click here to read the explanatory note on this rule.

Click here to read an earlier post on this issue: The Agony of Inadvertant Disclosure.

It’s probably fair to say that there are thousands of software license and development agreements entered into every business day in the U.S. Only a very small number result in a lawsuit, and an even smaller number end up with a jury verdict and ruling under 93A by a Massachusetts trial judge. So, when a case does go the distance, it’s worth paying attention.

The recent decision by Massachusetts Superior Court Judge Leila R. Kern in Perfectyourself.com v. Accusoft Corporation discusses the evidence in a jury trial that resulted in a more than $400,000 verdict against Accusoft. In Massachusetts the trial judge, not the jury, decides claims under M.G.L. c. 93A, Massachusetts’ “little FTC Act.” Depending on the violation, Chapter 93A allows the judge to award double or treble damages and attorney’s fees to the prevailing plaintiff. The Accusoft decision is the trial judge’s discussion and analysis of the evidence that the jury heard for purposes of her analysis and decision under 93A.

The evidence at trial is a common story, although it rarely leads to a jury trial and judgment. Accusoft contracted with Perfectyourself.com to develop a software application. Accusoft represented that it had much of the underlying technology already in place, a claim that the jury and judge found to be untrue. After Accusoft was unable to deliver an acceptable prototype to Perfectyourself a standoff developed – “pay us” – “we’ll pay you when you deliver” – “no, you pay us first, then we’ll deliver”. Eventually Perfectyourself filed suit.

Massachusetts General Laws c. 93A makes unlawful all “unfair or deceptive acts or practices in the conduct of any trade or commerce.” The trial judge held that 93A could be violated even if there was no “intent to deceive,” and even if the defendant didn’t know that the representation was false, so long as the misrepresentation was “reasonably capable of ascertainment.” This conduct qualifies as a “negligent misrepresentation” and is a violation of 93A.

The judge did not find Accusoft’s violation to be “willful and knowing,” and therefore declined to impose multiple damages (93A allows for two or three times actual damages, at the discretion of the trial judge, based on her evaluation of the severity of the defendant’s conduct). She did, however, award Perfectyourself its reasonable attorneys fees, as the statute required her to do once a violation was found.

The moral of the story? The sales staff of a software company has to be careful not to overstate the facts when making a sale to a potential customer. The temptation to do so can be great in a competitive situation where commissions for the salesperson is on the line. Sometimes the sentiment is “sell today, worry about delivering tomorrow.”

A client might ask, “is there any way that this kind of a situation can be avoided by using the typical contractual disclaimers and limitations and liability? With one exception the answer is no, there is no contractual “silver bullet” that will insulate a software vendor from liability under all circumstances. It’s well-established law in Massachusetts that integration and non-reliance clauses are no a defense to fraud, although they may be grounds to avoid a claim of negligent misrepresentation of the sort found in the Accusoft case. However, it is exceedingly difficult to defend a claim of outright, knowing fraud by relying on contract limitations.

The one exception is this: if the signed contract addresses a specific element of performance, the customer cannot claim fraud based on a pre-contract representation with respect to that element. Some examples:

• If the contract states that the software development project will be completed in stages with specific dates assigned, a claim of fraud based on different pre-contract promised dates will not succeed.
• If the contract states that the software will operate at certain speeds (a common issue in software deals), a claim that the salesman made different pre-contract representations will not stand.

The rationale behind this distinction is that integration and non-reliance provisions are boilerplate, and contracting parties generally don’t pay much attention to them – in fact, they are often thown in at the last minute, and not negotiated at all. However, if the contract addresses a specific, material aspect of the project, such as completion dates and performance metrics, the customer is presumed to have read these terms, and cannot reasonably claim to rely on prior represenations that conflict with the express terms of contract.

• The “mother of all software breach/fraud cases” in Massachusetts is VMark Software, Inc. v. EMC Corp., 37 Mass.App.Ct. 610 (1994)
• The leading case for the proposition that a party may not base a claim of fraud on oral representations that are directly at odds with the contract provision is Turner v. Johnson & Johnson, 809 F.2d 90, 95 (1st Cir. 1986).

What do lawyers fear the most? Spiders, snakes, public speaking, death by auto de fe?

Well, I’ll be darned if I know, but one thing that scares the bejesus out of all thinking lawyers is waiver. Lawyers start to become vaguely aware of this horror in law school. Once they go out into practice it slowly dawns on them that it’s ultimately undefinable, that it lurks behind every legal shrub and tree, that opposing counsel will throw it in your face when you least expect it and long after you can fix it, and that if they don’t a court may do so on its own initiative. In its most severe forms it can lead to bankruptcy, scandal, and even malpractice (apologies to Jimmy Stewart).

Take a simple summary judgment motion in federal court. Unbeknownst to the novice lawyer, this process is fraught with dangers. The defendant files the motion. You file an opposition. The defendant files a reply affidavit introducing new facts. You lose the motion, and on appeal you argue that it was inappropriate for the defendant to introduce new facts in its reply. You cite the “no new facts” rule. After all, you were sandbagged by that reply, and the court shouldn’t have relied upon it.

Not so fast, the First Circuit recently held on these facts – did you raise this with the district court and object to the new evidence? If not you have waived the right to raise this on appeal. Desrosiers v. Hartford Life (2008). You lose.

A simple, one page motion to strike that could have been drafted and filed in an hour would have saved the day. For want of a nail …

Waiver, one of the most dreaded words a lawyer can hear. And so it goes.

Anytime these judges write an opinion, it’s treated like a papal encyclical,” . . . They really influence other judges, who act like these are the rock stars of their profession. . . These ‘rock star’ judges are not surprised that they, and not the new rules, are still the final word in e-discovery. . . .

Quoted from Rockin’ Out the E-Law, ABA Journal, July 2008.

Rock star judges, huh? OK, I’m trying not to wince, laugh or, well, you know… The American Bar Association needs to sell its publications, so you can’t blame them too much, I suppose.

In any event, this article names several judges as prominent in the area of discovery of electronically stored evidence (“ESI”), including Chief Magistrate Judge Paul Grimm of the U.S. District Court for the District of Maryland, Se

The words “hostile work environment” get tossed around a lot by lawyers. But, just what constitutes a hostile environment that’s actionable under Title VII of the Civil Rights Act of 1964 is uncertain. It’s sort of a “I can’t define it, but I know it when I see it” standard. That standard may work at the two extremes (clearly egregious vs. obviously benign behavior), but it can be difficult to apply in the grey zone.

The First Circuit has weighed in on this issue with an important decision, reported in today’s Boston Globe, reversing summary judgment against an employee of the Town of Grafton who claimed a hostile work environment based on the assertion that her supervisor repeatedly stared at her breasts. The First Circuit saw the behavior in this case differently than the trial judge, who had dismissed the case.

Quoting from the Boston Globe article:

The three-member appeals panel said that Billings’s sexual harassment suit had raised serious claims, including that Connor had created a hostile work environment by staring at the breasts of several town employees and, after Billings complained to the Board of Selectmen around 2001, had retaliated against her by transferring her to another municipal job.

“Taken in the light most favorable to Billings, the evidence depicts a supervisor who regularly stared at her breasts for much of the 2 1/2 years they worked together,” the appeals court said in its 42-page decision.

The court said a reasonable jury could find that the staring had interfered with Billings’s work performance or changed the terms and conditions of her employment.

This case appears to open the door wider to hostile work environment claims. You can read the full case here.

Courts, Litigation. Back in the early 1980s, when I was new to the Massachusetts Bar, there was an effort by the organized bar to codify the rules of evidence. That effort failed, and to this day the rules of evidence are a confusing patchwork of common law and legislative enactment. The “go to” source for the law of evidence has been, in the memory of almost all living Massachusetts attorneys, the Handbook of Massachusetts Evidence (8th Ed. 2006), by the former Chief Judge of the Supreme Judicial Court, Paul Liacos, and currently edited by Mark Brodin and Michael Avery. (The previous editions of this work were published in 1940, 1948, 1956, 1967 (when Justice Liacos took over), 1981 and 1993). However, the long-dead phoenix of evidence codification may be rising from the ashes, albeit in a slightly different form. In 2006 the SJC established an advisory committee to develop a “Guide” to evidence (not to be confused with “Rules” of evidence), and that Guide is now in its proposed form. The draft Massachusetts Guide to Evidence is available here (a 226 page pdf file).

Not surprisingly, the Guide makes unabashed and extensive use of the Proposed Rules of Evidence which, although never formally adopted, have been cited in Liacos and to trial courts since their “non-adoption” in 1982. Go figure.

At long last, the highly anticipated amendments to the new federal rules of civil procedure are here. The federal court system has amended its rules of procedure to address electronic discovery, aka “e-discovery”. The amendments became effective on December 1, 2006.

Unfortunately, this news has been greeted with yawns from many attorneys who believe this is just another run-of-the-mill procedural change. Far from it; the e-discovery revolution represented by this rules change – and it is a revolution – is anything but ordinary, and the courts (which have been warming up to this issue for some time) have warned that its effects will be profound and far-reaching.

The rule changes themselves may not appear earth-shattering, but they change the standard for both lawyers and clients as it relates to the exchange and management of information in litigation. Since the federal court system has provided summaries of the changes (see rules 16, 26, 33, 34, 37 and 45), we won’t go into fine detail. However, there are a few changes worth highlighting, including the obligations placed on litigants and the courts to confront e-discovery at the outset of a case (see rules 16 and 26), the definitional changes designed to address “electronically stored information” (see rules 26 and 34), and the “safe harbor” exception which protects parties from sanctions if data is lost during the routine, good-faith operation of their computer system (see rule 37).

What is truly special about e-discovery, however, is not really the letter of the law. What all lawyers should know is that courts and the new federal rules have placed a significant part of the responsibility for the location, preservation and production of litigants’ electronic data on their attorneys. One need only review the following examples to get the picture:

• Zubulake v. UBS Warburg LLC, (S.D.N.Y. July 20, 2004) – “Counsel must oversee compliance with the litigation hold, monitoring the party’s efforts to retain and produce the relevant documents. . . Once a ‘litigation hold’ is in place, a party and her counsel must make certain that all sources of potentially relevant information are identified and placed ‘on hold,’ . . . To do this, counsel must become fully familiar with her client’s document retention policies, as well as the client’s data retention architecture. This will invariably involve speaking with information technology personnel, who can explain system-wide backup procedures and the actual (as opposed to theoretical) implementation of the firm’s recycling policy. It will also involve communicating with the ‘key players’ in the litigation, in order to understand how they stored information. . . Once a party and her counsel have identified all of the sources of potentially relevant information, they are under a duty to retain that information . . . and to produce information responsive to the opposing party’s requests. . . . There are thus a number of steps that counsel should take to ensure compliance with the preservation obligation. While these precautions may not be enough (or may be too much) in some cases, they are designed to promote the continued preservation of potentially relevant information in the typical case. First, counsel must issue a ‘litigation hold’ at the outset of litigation or whenever litigation is reasonably anticipated. The litigation hold should be periodically re-issued so that new employees are aware of it, and so that it is fresh in the minds of all employees. Second, counsel should communicate directly with the ‘key players’ in the litigation, i.e., the people identified in a party’s initial disclosure and any subsequent supplementation thereto. Because these ‘key players’ are the ‘employees likely to have relevant information’, it is particularly important that the preservation duty be communicated clearly to them. As with the litigation hold, the key players should be periodically reminded that the preservation duty is still in place. Finally, counsel should instruct all employees to produce electronic copies of their relevant active files. Counsel must also make sure that all backup media which the party is required to retain is identified and stored in a safe place.”
• Heng Chan v. Triple 8 Palace, (S.D.N.Y. Aug. 11, 2005) – “The preservation obligation runs first to counsel, who has a duty to advise his client of the type of information potentially relevant to the lawsuit and of the necessity of preventing its destruction. . . Where the client is a business, its managers, in turn, are responsible for conveying to the employees the requirements for preserving evidence. . . Thus, once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents. When the failure to meet these obligations results in the destruction of evidence, sanctions are warranted. And, though the nature of the sanction depends in part on the state of mind of the destroyer, some remedy may be appropriate even where the destruction is merely negligent.”

Until now, issues related to document preservation fell squarely on the client who, after all, typically has exclusive control over their own documents and information. For various reasons, including the dynamic nature of electronic data and modern computer systems as well as several high-profile e-discovery catastrophes involving large corporations, the courts are now are placing affirmative and stringent obligations on attorneys. And in-house attorneys should note that these obligations do not end with outside litigation counsel but expressly include in-house counsel and appear to reach any attorney who advises their clients about litigation or document retention.

The new federal rules require attorneys to confer about their clients’ electronic data and make “electronically stored information” completely discoverable. Therefore, the amended federal rules now require lawyers to investigate and understand their client’s computer systems and data and ensure that the relevant data is preserved and then produced in accordance with their discovery obligations. Gone are the days when lawyers could tell a federal judge that they don’t understand all of this technical computer stuff.

While these e-discovery obligations must be taken seriously, there is no reason to feel overwhelmed. In fact, if you’ve read this far then you should already be able to identify many of the key issues and pitfalls. Moreover, today there are numerous legal decisions highlighting the mistakes of others from which we can all learn a tremendous amount. There is also available a wealth of publications, vendors and other resources focusing on e-discovery. These resources – which were practically nonexistent just 3-4 years ago – now make it possible for lawyers, including the non-specialist, to understand and keep up with this evolving issue.

The best aspect of law school is the subordination of math. Anon
________

The schematic displayed above (click for a blow up in pdf format) is a simplified illustration of a corporate network which Microsoft provided to the Federal Rules Committee in connection with proceedings on electronic evidence. It was intended to illustrate a generic corporate computer network.

If you are a lawyer and this seems like an alien concept that no lawyer should ever be required to understand, you’re not alone. Lets face it – like most stereotypes, the old joke that lawyers go to law school to avoid math and technology contains a large element of truth.

So, it’s not hard to sense the anxiety emanating from the hallways of the nation’s law offices as the electronic discovery tsunami picks up speed. Yes, there’s a new technology boom, but it’s not the kind that sent clients flocking to their lawyers for legal representation in the 1990s. Many lawyers in their 50s and 60s can barely find the caps lock key on a computer keyboard, much less learn the intricacies of “IT“.

Nevertheless, every day emails and brochures arrive announcing seminars and warning that the era of electronic data discovery (EDD) has finally, truly arrived. Luddite lawyers are warned that -

• 99% of all documents created today are in electronic form.

• Changes to the federal rules of civil procedure that will take effect on December 1st will require lawyers to be far more familiar with client information systems than in the past, and to work cooperatively with opposing counsel to preserve, retrieve and produce electronic data.

• Ignorance of the law (or of technology) is not a defense (!) The poster child for just how bad this can get is the Morgan Stanley case in Florida, where the trial judge ordered the jury to draw an adverse inference based on Morgan Stanley’s failure to turn over electronic documents, leading to a $600 million plus jury verdict against Morgan Stanley.

Of course, the law being what it is, the full implications of all of this are impossible to forsee. And the more you think about it, the worse it gets. How do you locate relevant electronic data in your client’s network? How do you review electronic data for relevance, work product and privilege? How do you designate individual documents “confidential” or “attorney’s eyes only” when they are part of a massive data file? How do you capture metadata? (What is metadata? Helpful hint: “metadata is information about information”). How do you capture and review data that uses software systems the client has abandoned (a surprisingly common problem)? How do you ensure that attachments accompany their original emails?

If you think the last question doesn’t present a problem, our firm can tell you about an opposing party that produced a massive Outlook email file that had been converted to an ASCII text file, and in the process had all the attachments stripped away. It took quite a bit of explaining on our part for the opposing lawyer to even understand the problem. Then, rather than incur the cost of reviewing this mass of material, the opposing party produced its entire email database for a several year period, disclosing not only irrelevant, privileged and technical client information, but personal medical records of employees.

Of course, what’s bad for the lawyers and courts is always good for the experts. The demand for computer forensic experts that can address these questions (and a hundred more), as well as take potshots at the opposing party’s EDD, will undoubtedly flourish. Kroll has already staked out a big piece of this business, but there is room for countless smaller players as the industry evolves. Courts and lawyers can’t possibly be expected to understand all of this stuff themselves. In the end, the losers will be the lawyers and law firms that can’t master this process, and the clients who are forced to pay for it.

Lawyers know that one of the most unpredictable decisions a Superior Court judge can make involves long-arm jurisdiction – that is, whether the defendant has enough “contacts” with the state to be sued here. (For an article by the author discussing the state long-arm statute in depth, click here).

Two recent decisions illustrate this point. In Saint-Gobain Ceramics v. Happy Hewes Judge Bruce Henry ruled that there was no personal jurisdiction over Hewes, who lived in Illinois, despite the fact that Hewes had been an employee of Saint-Gobain, engaged in phone calls with Saint-Gobain in Massachusetts, had made multiple visits to Massachusetts on company business and had received paychecks from Saint-Gobain’s facility in the state. Most lawyers would tell you that this was more than enough to establish personal jurisdiction, but Judge Henry disagreed, noting that “whatever Hewes did during the unspecified number of contacts with Massachusetts was at his employer’s behest and not for his own purposes.” This line of reasoning has little basis in Massachusetts law that I’m aware of, but it persuaded Judge Henry, who dismissed the case against Happy Hewes, leaving Saint-Gobain to pursue him in Illinois.

On the other hand, in Deutch Williams v. Naturopathic Laboratories Int’l a Massachusetts law firm sued its former client for attorney’s fees. Even though the former client had no operations in Massachusetts and had never visited here in connection with the representation, Judge John Cratsley held that the client’s decision to hire the Massachusetts law firm, together with communications between the law firm and its client over a period of seven months, was enough to establish jurisdiction.

It’s hard to reconcile these two decisions on legal grounds. There’s little doubt that had the cases (but not the judges) been switched, the outcome in the two cases would have been reversed. The moral? The outcome of long-arm jurisdiction motions are hard to predict at best, but the luck of the draw (which judge you draw, that is), may have a greater impact on the outcome than the facts of the case.