LITIGATION ELECTRONIC DISCOVERY: AN OUNCE OF PRESERVATION

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1 PRACTICE GROUP NEWSLETTER SPRING 2010 LITIGATION 1740 BROADWAY NEW YORK, NY P: IN THIS NEWSLETTER: Spring is always a good time to take a fresh approach to your business practices. In this issue, we report on recent developments in the areas of intellectual property, commercial law and employment law, and provide practical advice that may help you avoid expensive litigation. Electronic Discovery: An Ounce of Preservation... 1 Calendar of Events... 2 Trademarks Protect More than Names... 3 How Overtime Laws Apply to Salespeople vs. Administrative Employees... 4 Avoiding the Accidental Contract... 5 D&G Litigation Partners... 6 Our tradition is based on unparalleled client service, individual attention, adding value and a strategic approach to every situation. COMMERCIAL LAW: ELECTRONIC DISCOVERY: AN OUNCE OF PRESERVATION If you ve ever been through the discovery phase of a lawsuit, the mere mention of the words document preservation can send shivers down your spine. However, if proper measures are put in place in advance, document preservation can be a far less daunting task. At the outset of any litigation and in some cases even before, parties are obligated to take steps to identify and preserve all potentially relevant documents, whether hard copies or electronic versions. The duty to preserve extends to information that would tend to make the existence of any fact that could have a bearing on the outcome of the case more or less probable. That can be a tough standard in today s business environment where more and more documents are created and stored electronically. Electronic documents are particularly vulnerable to destruction or alteration through automatic deletion processes, recycling of former employees computers, server failures, computer viruses, or even employees wellintentioned efforts to keep their boxes pruned and organized. Once deleted, an electronic document may be gone forever, or retrievable only with considerable time and expense. Since issuing a series of seminal opinions on electronic discovery in 2003 and 2004 in the often cited Zubulake v. UBS Warburg LLC case, Judge Shira Scheindlin of the U.S. District Court for the Southern District of New York has become recognized as a leading jurist on the subject of electronic discovery. A recent ruling by her, in the case Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, provides a timely reminder that a litigant who loses or destroys relevant documents even unintentionally can face serious consequences. Pension Committee concerned an action by a group of investors to recover losses stemming from the liquidation of two offshore hedge funds. Before commencing litigation, 13 of the plaintiffs did not implement litigation holds. A hold would have suspended automatic deletion/destruction of electronic documents. They also did not provide prompt, proper written notices to employees of the need to preserve documents, nor were employees adequately supervised in their document preservation and collection efforts. Some of the plaintiffs even failed to collect and preserve any documents until several years into the litigation. In the course of discovery, the defendants were able to determine that these plaintiffs had failed to locate and produce hundreds of relevant s. >> continued on page 2 Previous Davis & Gilbert LLP newsletters can be found at Attorney Advertising 1

2 ELECTRONIC DISCOVERY: AN OUNCE OF PRESERVATION >> continued from page 1 As a result, the defendants sought sanctions, and, after an exhaustive review, all 13 plaintiffs were found to have been at least negligent in their efforts to meet their discovery obligations and were required to pay monetary sanctions. The six worst offenders also were subject to an adverse inference instruction to the jury the jury would be told that relevant evidence was destroyed after the duty to preserve it arose and that the plaintiffs were grossly negligent. The jury would then be permitted, but not required, to find that the lost or destroyed evidence would have been favorable to the defendants. Practically speaking, given the array and sheer volume of electronically stored information created and used in the ordinary course of business, it is impossible to expect a party to preserve every piece of data that may be relevant to a particular dispute. However, as Judge Scheindlin explained in her ruling, while perfection is not required, the courts do expect that counsel will take effective steps to ensure that relevant records are preserved. Failing to preserve relevant documents can severely impair a party s ability to defend or prosecute its case. It can also lead to stiff monetary penalties. Failing to preserve relevant documents can severely impair a party s ability to defend or prosecute its case. It can also lead to stiff monetary penalties. Thus, as soon as a party reasonably anticipates litigation, it is critical that sources of potentially relevant documents be identified and a litigation hold be implemented. Employees who may have relevant information must be advised, in writing, of their preservation obligation. Steps must also be taken to supervise and monitor the preservation process. There are costs associated with preservation, but with the help of counsel, efficient, cost-effective strategies can be developed for protecting potentially relevant information while minimizing cost and disruption to a company s day-to-day business. In addition to providing protection from accusations of document destruction, timely and thorough preservation efforts can also result in substantial savings. By Marc Rachman, Partner, /mrachman@dglaw.com Cheryl Plambeck, Associate, /cplambeck@dglaw.com CALENDAR OF EVENTS American Conference Institute s Expert Forum on Litigating & Resolving Advertising Disputes June 15 16, 2010 Speaker: Neal H. Klausner, Partner, Intellectual Property and Litigation Practice Groups Topic: Employing Effective Settlement Strategies Location: The Helmsley Park Lane Hotel, New York, NY Register: 2

3 LITIGATION PRACTICE GROUP NEWSLETTER SPRING 2010 INTELLECTUAL PROPERTY LAW: TRADEMARKS PROTECT MORE THAN NAMES A trademark is a distinctive indicator that distinguishes an individual s or business s goods or services from those of others. Traditional types of trademarks are a product s name (Coca-Cola), a logo (Coca-Cola written in script form), or a slogan (Always Coca-Cola). However, because a trademark is simply a unique identifier, it can take non-traditional forms, such as sound, shape, color or even smell as long as it is associated with the source of origin of a product or service. Well-known nontraditional trademarks include animated characters (the California Raisins, or M&Ms) and fabric designs (Burberry s plaid). A sound can serve as a trademark if it is so inherently distinct that it is associated with a source or event think of the MGM s lion s roar or the chord sequence used in ads for products containing the Intel Pentium processor. Trademark protection can extend to nontraditional elements such as size, shape, sound, smell and color. Shapes can also be trademarks if they constitute trade dress. Trade dress refers to the total packaging and design of a product. To be protectable, trade dress must be 1) non functional, and 2) inherently distinctive or possess secondary meaning, i.e., the public associates the packaging with a single source. Courts have held that the design of a restaurant the combination of the décor, menu, etc. could be protectable. In 1990, it was held that a company s use of plumeria-scented thread could serve as a trademark where the fragrance was not an inherent attribute or natural characteristic of the item, and customers had come to recognize the manufacturer of the goods by the fragrance of its products. However, where the scent is the product itself, like an air freshener or perfume, the doctrine of functionality will preclude trademark rights. Even colors and color combinations can obtain trademark protection. For example, the Supreme Court held in a case concerning the green-gold color of dry cleaning press cover pads, that color alone can serve as a trademark where it has become distinctive and is commonly associated with one manufacturer s goods. However, color will not be protected as a mark if it is merely functional. For example, the gilding of the pages of a book cannot be protected under trademark law as gold is a standard element in decoration. Classic examples of color marks include Tiffany s blue or Cadbury s purple. Trademark protection can extend to non-traditional elements such as size, shape, sound, smell and color. Anyone involved in the marketing of a product or service needs to understand these non-traditional trademark elements in order to better protect one s own brand or a client s brand, and to avoid a claim of infringement of another s brand. By Marc Rachman, Partner, /mrachman@dglaw.com Shirin Keen, Associate, /skeen@dglaw.com 3

4 EMPLOYMENT LAW: HOW OVERTIME LAWS APPLY TO SALESPEOPLE VS. ADMINISTRATIVE EMPLOYEES Now may be the perfect time for employers to conduct an internal audit with regard to the exempt/non-exempt classifications of their employees and determine which potential exemptions to federal and state overtime laws may apply to different categories of workers. A recent decision from a New York federal court may impact employers decisions regarding the payment of overtime to certain of its salespeople. In Reiseck v. Universal Comm. of Miami, Inc., the Second Circuit held that Reiseck, a Regional Director of Sales, whose primary duty consisted of selling advertising space in one of Universal s magazines, did not qualify as an administrative employee exempt from the overtime provisions of the Fair Labor Standards Act (FLSA) and New York Labor Law (NYLL). Reiseck began working for Universal in September 2002, and was responsible for generating advertising sales in the northeast. During her employment, which ended when she was fired in February 2004, she received a base salary plus commissions, but did not receive overtime. After her termination, Reiseck filed a lawsuit claiming, among other things, that she was entitled to overtime pay and that Universal had violated the FLSA and NYLL by failing to pay her overtime. The court agreed with Universal that Reiseck was not entitled to overtime and Reiseck appealed. The federal appeals court reversed the lower court s decision. It held that Reiseck was entitled to overtime pay because Reiseck was a salesperson and not an administrative employee. In reaching this result, the court evaluated Reiseck s exemption under the FLSA s short test, which focuses on two criteria: >> whether the employee was paid at a rate of $250 per week or more (that amount is now $455); and >> whether the employee s primary duty consists of the performance of office or nonmanual work directly related to management policies or general business operation of his employer,... and requires the exercise of discretion and independent judgment. The court reasoned that Reiseck may be considered a sales employee, rather than an administrative employee since advertising space is Universal s product and [Reiseck s] primary duty was the sale of that product. The Second Circuit held that an employee making specific sales to individual customers is a salesperson for purposes of the FLSA and entitled to overtime pay, while in contrast, an employee whose primary duty is to design a sales strategy and to encourage an increase in sales generally among all customers is an administrative employee exempt from the overtime provisions of the FLSA. Because Reiseck s primary duty was the sale of specific advertising space and she was not involved in sales strategy for all customers generally, the court held that she was a salesperson rather than an administrative employee. >> continued on page 6 4

5 LITIGATION PRACTICE GROUP NEWSLETTER SPRING 2010 COMMERCIAL LAW: AVOIDING THE ACCIDENTAL CONTRACT A recent New York state court decision demonstrates the impact communications have had on our notions of contract law. This decision provides several lessons on how to reduce litigation risk through better communications. In Al-Bawaba.com, Inc. v. Nstein Technologies Corp., the court looked at whether an exchange of s was enough to demonstrate that there was an enforceable contract between the parties. The parties negotiated the terms of a proposed software license in a long series of s. The plaintiff argued that after the final , it reached an oral contract with the defendant for the license. The defendant didn t see it that way and was sued for breach of this supposed contract. The defendant argued that no oral contract had been reached, and even had there been an oral contract, only a written contract could have bound the parties because the terms of the supposed license were not performable within one year, and required a written contract under the Statute of Frauds. Negotiating parties should include a disclaimer in their s and correspondence during ongoing talks to reduce the chance of later disputes as to whether s generated during negotiations actually constitute a contract. The court granted summary judgment to the defendant, holding that there was no oral contract. The court pointed to several factors showing that there was no oral contract, including the defendant s request that a written contract should be signed before it provided the software, and the plaintiff s admission that it asked for a written contract during the very conversation in which it claimed the parties made an oral contract. The facts of Al-Bawaba indicate that the defendant did a decent job of demonstrating that it would not have agreed to an oral contract, but it could have protected itself even better by making its s clearer. Had the defendant stated in any of the s that there would only be a contract if the parties signed a complete, written contract, it would have been in a better position to stop the plaintiff from arguing that the paper trail of negotiations came to a point so close to a final contract that the parties were able to hash out the remaining terms in a quick conversation. Indeed, this plaintiff not without some moxie argued that the absence of this type of disclaimer meant that the parties would have proceeded under an oral contract. The court also held that the chain of s did not satisfy the requirement of the Statute of Frauds that there be a written contract because the s, even taken together, did not contain substantially the whole contract, with all of its material terms and conditions. The court pointed to the fact that the parties had unresolved issues over the material terms in a draft license attached to one of the s. >> continued on page 6 5

6 ATTORNEYS AT LAW HOW OVERTIME LAWS APPLY TO SALESPEOPLE VS. ADMINISTRATIVE EMPLOYEES >> continued from page 4 This decision may have a significant impact on the media, publishing and advertising industries, as many employees with similar sales-related functions traditionally have been classified as exempt from the overtime provisions of federal and state law. This case eliminates the use of the administrative exemption for these employees. However, the court specifically noted that it had not considered whether Reiseck could have been deemed an employee covered by another exemption from the federal overtime laws specifically the exemptions for an outside salesperson and a commissioned salesperson. Now may be the perfect time for employers to conduct an internal audit with regard to the exempt/non-exempt classifications of their employees and determine which potential exemptions to federal and state overtime laws may apply to different categories of workers. This case should remind all employers to work closely with legal counsel to ensure that workers are properly classified as exempt or non-exempt employees. By David Fisher, Associate, /dfisher@dglaw.com AVOIDING THE ACCIDENTAL CONTRACT >> continued from page 5 While the defendant ultimately prevailed, the company might have avoided the litigation entirely by stating in its communications that a deal would not be final unless there was an executed, complete, written contract. Negotiating parties should include this disclaimer in their s and correspondence during ongoing talks to reduce the chance of later disputes as to whether s generated during negotiations actually constitute a contract. In addition, Al-Bawaba reminds us that parties can reach a written contract in a series of e- mails or letters if all the material terms are set forth and both sides assent to these terms, even if no one signs anything on the dotted line. A company should take extra care when exchanging s, by including, for example, the disclaimer above, to avoid the possibility that what it thought was a negotiation was, to the other side, a final contract. By Scott Singer, Associate, /ssinger@dglaw.com CONTACT US Davis & Gilbert Litigation Partners Michael C. Lasky Co-Chair mlasky@dglaw.com Howard J. Rubin Co-Chair hrubin@dglaw.com Jennifer Tafet Klausner Editor jklausner@dglaw.com Miles A. Baum mbaum@dglaw.com Guy R. Cohen gcohen@dglaw.com Paul F. Corcoran pcorcoran@dglaw.com Sara L. Edelman sedelman@dglaw.com Bruce M. Ginsberg bginsberg@dglaw.com Neal H. Klausner nklausner@dglaw.com James Levine jlevine@dglaw.com Maureen McLoughlin mmcloughlin@dglaw.com Marc J. Rachman mrachman@dglaw.com Ina B. Scher ischer@dglaw.com These summaries are provided for informational purposes only and are not exhaustive. They should not be considered to be legal advice. Accordingly, you should consult an attorney with any questions regarding any of the issues referenced Davis & Gilbert LLP 6