New York and Connecticut Business Litigation Lawyer & Attorney : Rogers & Tartaro Law Firm : Commercial Litigation : Westchester County NY, Fairfield County CT

The Delaware Business Litigation Report recently reported a case in which the Delaware Court of Chancery upheld the right to refuse to settle “Court of Chancery Upholds Right To Refuse To Settle”). One might wonder why that right was ever in question.

The case was somewhat complex and involved an insurer, a company, the company’s former directors and D&O coverage. The company wanted the former directors to settle so it could use their admission of liability, part of the settlement, as a legal “club” against the insurer. 

The Court did not think much of the company’s argument against its directors and upheld the directors’ right to refuse to settle. But,  the company’s position was at least based on a thought-out, rational legal strategy. I won’t actually comment further about that particular case, the text of which is available on the DBLR post.

I will comment on situations, encountered often, in which clients refuse to settle not because of any legal strategy, good or bad, but because of strictly emotional reasons. These situations are unfortunate.

Settlement puts the parties in charge. They can decide the terms by which their dispute be resolved. In a fully litigated case, the court decides for the parties. Often, unlike the Delaware case, there is no insurance involved and the parties exhaust themselves financially.

In our firm, we make it a practice to counsel litigation clients to start thinking about the acceptable terms of a settlement at the outset of a case. Of course, not every case can settle or, even when it can, not necessarily early on. Sometimes the parties need to go through discovery and pre-trial procedures to fully understand their positions. Sometimes, as was once pointed out to me by a judge’s clerk, the parties need to start spend money to fully realize the wisdom of a settlement. 

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A law firm is being audited because it allegedly instructed its clients to contact the firm before hiring U.S. workers, according to a post by Dan Slater (“Do Lawyers Help Companies Find Reasons Not to Hire U.S. Workerson the Wall Street Journal Law Blog, citing a story in the Wall Street Journal by Nathan Koppel.”)

The audit was initiated, apparently, because the U.S. Department of Labor does not consider it proper for an employer to consult counsel before turning down a U.S. worker. when sponsoring a foreign national for permanent residence (“green card”). The issue is described more thoroughly in the LB post.

A quotation in the LB post from an immigration attorney caught our attention:

The audit, according to immigration lawyers, could deter companies from asking attorneys to help them decipher Labor Department rules. “Attorneys need to be involved in [the green-card] process,” said New York immigration lawyer Philip Kleiner. “It’s more complicated than tax work.”

Tax attorneys may argue Mr. Kleiner’s last point. But I think that a consensus is reachable: aspects of both Immigration Law and Tax Law can be complicated and the assistance of counsel is important to achieve compliance. 

Thus, the story raises a concern because the audit seems to discourage employers from seeking counsel when they most need it. Actually, the issue is more subtle than that because there are specific regulations governing the role of counsel in the process being audited and the audit is about whether there was compliance with these specific regulations.

For our business clients, the “lesson” from this story is simpler. Both Tax Law and Immigration Law have another aspect in common. In both, the complexities often (and we will concede, not always) arise when you seek the advantages or benefits of the laws. After all, many people file short-form 1040’s and the Tax Law is not that complicated for short-form filers. But, if you seek to benefit from a tax shelter, you should proceed cautiously and with the advice of counsel. 

Similarly, there are benefits to be gained for both employers and foreign nationals from the provisions of the Immigration Laws. But, the process can be complicated and, despite the audit described in the LB post, it is best to proceed with the advice of counsel.

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HartfordBusiness.com reports that the world now has ten million millionaires (“World now has 10 million millionaires, report says”). The story, by Associated Press Writer Candice Choi, is based on a report issued by Merrill Lynch & Co. and consulting firm Capgemini Group. It also reports that one third of the millionaires are located in the United States.

I will suspend my skepticism at anyone’s ability to overcome differences around the world related to, among other factors, differences in currency, property valuations and customs of confidentiality to derive an accurate number. The exact number, after all, is not that important.  We like milestones so let's consider the number to be 10 million. 

Whatever the exact number, a lot of people are millionaires and multi-millionaires without realizing it. We can credit the growth of IRA’s, 401(k)’s, 403(b)’s, and even life insurance (and allowing for the current dip) home values.

But, the HartfordBusiness.com story also reports that a million dollars isn’t what it used to be. Today, millionaires can be people of fairly modest means.   

This story drew our attention because we interpret our "business litigation" mandate broadly.  We include in our commentary issues related to estate planning, in particular, avoiding litigation among beneficiaries and the unpleasant surprises associated with unexpected estate tax liabilities and disputes with tax authorities. 

We counsel clients to think about and make plans for their entire estate. Pension assets (which include IRA’s, 401(k)’s, 403(b)’s), the proceeds of life insurance and any jointly owned assets (such as homes, bank accounts, securities) do not necessarily pass by will but by separate beneficiary designations or operation of law. In legal terminology, these are “nonprobate assets.” Writing a will without also carefully coordinating the separate beneficiary designations, for example, may lead to unpredictable distributions of assets and the potential for disputes and litigation among the beneficiaries.

On the other hand, nonprobate assets are included in considering whether an estate becomes taxable and could put a modest estate over the top to a taxable level. We counsel clients to be aware of the way asset values may have grown over time and to do the appropriate planning.

For more on this subject, we invite you to view an earlier post, with link to our video program, My Financial Journal.

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The recent Sudoku mistrial post in the Wall Street Journal Law Blog caught my attention (“The Sudoku Jury, Redux: Are the Lawyers to Blame?”). It was about a mistrial declared after a 105-day drug trial in Australia because some of the jurors were playing Sudoku. LB was following-up on an earlier post (“Can You Blame Them? Lengthy Trial Aborted After Jurors Played Sudoku”).

While every trial has its moments when the testimony is not titillating, it's the job of the attorneys to keep an eye on the jurors to make sure they are not otherwise distracted from listening to the witnesses' testimony. The distraction need not be Sudoku or any game.   More often it is simple fatigue. Not every juror gets a good night's sleep so they are sleepy during the day (especially in the afternoon if they had a big lunch).  And, no juror is focusing on the witnesses' testimony one hundred percent of the time. 

Successful trial attorneys are entertaining because they love being on trial.  Trials are the original improv and successful trial attorneys are great actors who enjoy performing.  Successful trial attorneys sense the mood of the jurors and tailor their trial tactics accordingly.  Sleepy jurors may need to take a break to grab a cup of coffee. Or, they may need to take a break to stretch their legs. Regardless, the successful trial attorney needs to make sure he or she has the jurors' attention and can hold it in the palm of their hand.  

The parties in any litigation rarely benefit when a mistrial is declared.  

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Law.com reports that Stanford plans to drop letter grades as early as this fall. It will join a few other law schools that dropped letter grades and apparently some medical schools (“Stanford Law Drops Letter Grade System”). Instead of A+ to F, students will receive honors, pass, restricted pass and no credit.

The goals, according to Law.com, are to shift students away from a focus on grades and prevent course selections that factor in instructors’ grading habits.

I have no real concerns about which grading system Stanford will use in the fall. Rather, my interest in this story arises from more general concerns about defining clear goals and matching solutions to the goals.

In my view, there appears to be a disconnect between Stanford’s goals, as reported by Law.com, and its solution. If Stanford’s goal is really to shift the students’ focus from grades, a pass-fail system would be in order.

The story reminds me of an incident in my past as a manager in a large corporation. There was a perception at the time that there were too many meaningless promotions because of the structure of our salary scale. A proposal was floated to broaden the salary ranges within each pay grade but to provide for sub-grades within each range. I held the not-so-popular view that there was a disconnect between our goal and the solution because promotions within the new grades would be just as meaningless as the old promotions between the grades. 

I am also reminded of litigation clients who were angry at the opposition and, at trial, wanted to discredit the other side with every innuendo and every bit of evidence of supposed falsehoods that they could possibly dredge up (and could be admitted). But, allowing ourselves to be distracted by side issues would create a disconnect with our overriding goal: to prove the elements of our client’s case (or disprove the opposition’s). Impeaching the other side’s witnesses, to be sure, was an important goal but we needed balance to have an effective litigation strategy. With counseling we were able to satisfy our clients and pursue an effective strategy.

I suspect that Stanford needed to balance other goals, for example, to satisfy large law firms that need or prefer quantifiable gradations in performance for recruiting. Or, they prefer to use language (“honors”) more appropriate to an academic setting. 

In any case, the story reminded me to clarify my thinking if I wished to make the grade.

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The New Jersey Employment Law Blog offers an amusing take on a case in which a female receptionist’s claim of sexual harassment failed when she took offense at being asked to get coffee for her supervisors (“Coffee Demand Fails to Brew Up Sexual Harassment Complaint for Female Receptionist”), 

Since the plaintiff is planning to appeal, we can assume the decision (and not the coffee) left a bitter after-taste.

What especially interests me about the case is the Court’s “Conclusion” at the end of its 14-page decision:

In sum, while the behavior of the Plaintiff’s supervisors and co-workers may have been rude, gauche or undesirable, their actions do not violate federal or state anti-discrimination laws.

 “Rude, gauche and undesirable” behavior is not good business, even when there is no liability.  Defending the case, regardless of the ultimate outcome, must have been costly. There is a lesson here which will be reinforced if the appeal turns out to be expensive.

In any case, I liked the NJEB’s blend (of serious commentary and humor, not coffee).

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At-Will employment is still the rule in New York, as its highest court, the Court of Appeals, reminded us ina decision handed down earlier this year. The decision, in Smalley v. Dreyfus Corp., 10 N.Y.3d 555, 853 N.Y.S.2d 270 (2008), is discussed in the New York State Bar Association’s New York Law Digest, No. 580 (April 2008), edited by David E. Siegel. 

At-Will employment means an employee may be fired for any reason or no reason, at any time. The At-Will concept may be trumped by violation of a statute, such as an anti discrimination statute. It may be trumped by a contract but not if the contract itself explicitly establishes the At-Will nature of the employment relationship. That was the situation in Smalley.    

Because the online version of the Digest is available only in a private area of the Bar’s website, we quote extensively from it here:

An attempt by the plaintiffs (after later being fired) to cast their claim in tort fails. The contract’s at-will employment is plain and rules the day, holds the Court in an opinion by Chief Judge Kaye, dismissing the plaintiffs’ complaint “in its entirety”. 

The tort the plaintiffs sought to allege was “fraudulent inducement to enter into and remain in the employment of” D.  More specifically the claim was that they were misled to believe that D would not merge with a certain other company, T. They said they took their jobs relying on that assurance, but a few years later such a merger did take place, and about half a year after that all the plaintiffs were fired. 

The Court distinguished a federal case applying New York law that was decided differently by the Second Circuit, Stewart v. Jackson & Nash, 976 F.2d 86 (1992). But, in Stewart the promise or representation alleged to be fraudulent concerned something that had occurred, not something that would or would not occur. Plaintiff, an environmental lawyer, took a job when told the employer had an environmental client. Again, the Digest:

She took the job only to learn that while D was still seeking the client, the client was not yet there. P got only “general litigation work”. When she was later terminated, she sued for damages and her claim – albeit at only the pleading stage - was sustained.

D’s promises in Stewart were “misstatements of present fact”, the Court explains, and her alleged injuries -

thwarting her professional objective to specialize in environmental law, and damaging her career potential – occurred well before plaintiff’s termination and were unrelated to it.

Stressing that the Court is neither adopting nor rejecting the Second Circuit’s reasoning, it observes that here in Smalley the plaintiffs have claimed no injury distinct from termination of their employment and that absent injury independent of termination, plaintiffs cannot recover damages for what is at bottom an alleged breach of contract in the guise of tort.

The Smalley case and the specific issue of whether a fired employee may sue in tort have relevance to two broad categories of our clients though, perhaps, on opposite sides of the issue: (1) business owners and managers; and (2) senior and mid-level corporate employees. For both, we offer the following points:

• A contract can either negate or establish and reinforce the At-Will nature of the employment relationship;

• A contract is not necessarily found in a single piece of paper labeled in capital letters: “CONTRACT;” rather, a contract can be found in employment manuals, offer letters, compensation plans, e-mails, course of dealing and in other ways consistent with basic principles of contract law;

• The Smalley case reaffirms the At-will rule in New York;

• However, the distinction that the Court made from the Stewart case serves as a caution that misrepresentations of present fact may leave the door open to a tort claim.

A tort claim, such as fraudulent inducement, depending on the specific facts, is more likely to put punitive damages and attorneys fees in play than a contract claim in New York. In Connecticut, another At-Will state where we practice, punitive damages are limited to attorneys’ fees but, similarly as in New York, more of a factor in a tort claim than a contract claim.

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The nature of an “adverse employment action” is discussed by Daniel Schwartz in the Connecticut Employment Blog (CEB) in a post entitled Court: Denial of Transfer Is Not Race Discrimination.  The post discusses a Connecticut District Court case, Charles v. State of Connecticut Judicial Branch, decided only a day or so ago (hence, no citation available yet), for which a link is provided in the CEB post.

In this case of alleged discrimination based on race, the Court decided a “truly” lateral transfer with “no significant changes in an employee’s conditions of employment” is not an adverse employment action. The decision still leaves open possibilities where the transfer is not “truly lateral” and where “significant changes” in employment conditions might be identified and argued. That’s a discussion for another case and another time.

The CEB post, after reviewing the case, makes two points: (1) that a small number of employees may sue for anything and (2) a good human resources practice should be about positive options for employee career paths, not just discipline and discharge.

Well said. We would add one other point: “good human resources practice” is not the concern of a specialized department of a large organization but of the management and principals of any organization of any size.   In the 16^th page of the 20 page decision, the Court reminds the parties that the issue in a discrimination case is whether an employer discriminated not whether the employer is “wise, shrewd, prudent or competent.” However, unwise, imprudent and incompetent actions are nothing to be proud of and, among other consequences, invite lawsuits.

For a fuller discussion of the case, we recommend the CEB post.

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