Lesson for Lawyers: What You Say Online Can (And Will) Be Used Against You

by DonaldScarinci@yahoo.com on May 15, 2012 · 0 comments

in social media for lawyers

Lawyers continually warn their clients to be cautious about what they say on the internet and on social media sites such as LinkedIn, Facebook and Twitter. Saying the wrong thing can harm a company’s reputation and even lead to costly business litigation.

However, sometimes lawyers don’t take their own advice. A New Jersey attorney is facing a defamation lawsuit after he characterized a defendant’s pet store as a “puppy mill.” This is not the first time this attorney has been in trouble for his online comments, according to the New Jersey Law Journal. Edward Heyburn was sued before for comments he made about his former employer, Levinson Axelrod.

Fancy Pups and its owners, Rocco and Laura Garruto, cite the prior incident with Levinson Axelrod in the current defamation lawsuit. Heyburn had sued the pet store on behalf of a New Jersey woman who bought a German shepherd puppy from Fancy Pups. The lawsuit claims that while Fancy Pups represented the dog to be a healthy, it died two weeks later from the parvovirus.

After filing the lawsuit, Heyburn allegedly used his firm’s website to paint a very unflattering picture of Fancy Pups. He allegedly posted a video that shows him serving Rocco Garruto with the lawsuit, under the heading “You’ve Been Served Rocco Garruto!” The Garrutos’ lawsuit also cites another posting entitled, “Certified Convictions for Rocco Garruto,” which links to 27 consumer fraud complaints. The Garrutos assert that the title is misleading, given that only five are actual convictions, and the complaints were not filed against Garruto personally.

In another entry on his website, Heyburn states that the Garrutos’ “puppy mill” knowingly sold sick puppies to unwitting consumers. “While customers thought they were taking home a Christmas present, they were actually taking home a dying dog that was set to drain their emotions and their bank accounts,” wrote Heyburn, who invited additional victims of “this fraud” to contact him.

In addition to defamation, the New Jersey lawsuit also alleges tortious interference and violation of the federal Anti-Cybersquatting Act. It seeks an injunction prohibiting Heyburn from using the internet or other social media to defame the Gurrutos or Fancy Pups. It also asks that Heyburn be required to issue a formal written retraction and apology on the internet and in the local media.

Given the potential for liability, attorneys should exercise extreme caution when posting to social media or elsewhere on the internet. No matter how strongly you feel about your position, it is never a good idea to post anything about ongoing cases. The same is true for media coverage regarding a case. Even anonymous comments on news sites can ultimately be traced back to the poster.

Here is the warning of this case: Don’t post anything online that you would not want to come back to haunt you.  If it is defamatory in ink, then it is defamatory on screen.  While social media is rewriting the marketing textbooks, all content you post on the internet is permanently saved somewhere on a server, even if the user later deletes it.

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Court Reprimands Delinquent Attorney

by Mike Mintz on May 14, 2012 · 0 comments

in Ethics,martindale.com,Professional Development

Attorney, Lawrence Spivak, was recently reprimanded by the Second Circuit for defaulting or otherwise failing to comply with the court’s scheduling orders in ten cases, causing the dismissal of all ten cases.  The Second Circuit adopted the recommendations of the Grievance Committee that Spivak be publicly reprimanded and required to submit to periodic status reports.  If such a status report is not filed in a timely manner or is defective, the Committee may impose additional disciplinary measures including suspension from the Second Circuit without a further hearing.

Factual Background

Lawrence Spivak graduated from Hofstra Law School twenty-five years ago, and he is a member of the New York and New Jersey bars.  He spent his early years as a labor lawyer before switching to real estate law, among other areas.  He opened his own practice over ten years ago.  As of five years ago, his practice was primarily immigration law, with some real estate and civil litigation on the side.  His immigration cases consisted mainly of  family-based petitions and federal appeals. He was the sole attorney in his office.  He was handling about twenty cases before the Second Circuit in 2007.  He maintained a Microsoft Word calendar for his federal appeal deadlines and a separate calendar for appointments.  In 2007, ten of his clients transferred their cases to a different attorney.  He claims that his preoccupation with transferring these clients’ files prevented him from meeting his other professional obligations. To transfer the files, he claims he had to retrieve the files from storage, review them and produce photocopies before sending them to the new attorney of record.  He also claims that family problems prevented him from meeting his professional obligations, including deadlines. He claimed that he had to return to his residence mid-day on a regular basis to deal with these family problems.  In 2008, he stopped accepting referrals for appeals because he recognized that he could not handle that type of work anymore.  From 2009 to the hearing in 2010, he only handled five federal appeals.  As of the date of the hearing, Spivak’s practice was overwhelmingly real estate and only a little immigration law. He now has two law offices. He is the sole attorney in one of the offices. In the second office, there is a part-time assistant with a special needs child who helps Spivak handle matters for his Bangladeshi clients. This assistant does not work a full week at Spivak’s office, and Spivak pays her as an independent contractor. He recently changed his office procedures and maintains a paper calendar and an electronic calendar on Google.com. At the time of the hearing, only two cases remained before the Second Circuit. One of these cases was in default but not dismissed by the Court.

Spivak admitted that three disciplinary complaints were filed against him in New York. Two of the complaints were dropped and one complaint resulted in a letter of private admonition from the First Department Disciplinary Committee.  In actuality there were five complaints filed against Spivak in the First Department, although the two Spivak did not mention were both dismissed. As for the matter resulting in a formal admonition, important correspondence had been sent to the client by the U.S. Citizenship and Immigration Services (USCIS) in January 2006 and October 2010.  The notices were returned to USCIS as undeliverable. Spivak maintained that the client discharged him as her attorney in 2008. Nonetheless, he also claimed that he actually received the October 2010 notice and that he had learned that the client had also received the notice at her home. He further maintained that he learned that the client was granted permanent residence in February 2011. He also claimed that he sought to contact the client to get a copy of her permanent resident card to present to the Grievance Committee, but that the client had moved and could not be located. The Committee could not verify the veracity of these statements.

The Legal Standard

Under the Rules of the Committee on Admissions and Grievances for the United States Court of Appeals for the Second Circuit (“Committee Rules”):

An attorney may be subject to discipline or other corrective measures for any act or omission that violates the rules of professional conduct or responsibility of the state or other jurisdiction where the attorney maintains his or her principal office….An attorney also may be subject to discipline or other corrective measures for any failure to comply with a Federal Rule of Appellate Procedure, a Local Rule of the Court, an order or other instruction of the Court, or a rule of professional conduct or responsibility of the Court, or any other conduct unbecoming a member of the bar. Committee Rule 4; see also Fed. R. App. P. 46(c) (“[A] court of appeals may discipline an attorney who practices before it for conduct unbecoming a member of the bar or for failure to comply with any court rule.”).

“Conduct unbecoming a member of the bar” includes “conduct contrary to professional standards that shows an unfitness to discharge continuing obligations to clients or the courts, or conduct inimical to the administration of justice. More specific guidance is provided by case law, applicable court rules, and ‘the lore of the profession,’ as embodied in codes of professional conduct.” In re: Snyder, 472 U.S. 634, 645, 105 S. Ct. 2874, 2881 (1985).

Because Spivak was a member of the New York bar during the relevant time period, the New York State Code of Professional Responsibility (“the Code”) also applies. There are two relevant Code sections. First, a lawyer shall not “[n]eglect a legal matter entrusted to the lawyer.” D.R. 6-101(A)(3); 22 N.Y.C.R.R. §1200.30(A)(3) (2008); see also N.Y. Rules of Prof’l Conduct R. 1.3(b) (effective Apr 1, 2009). Second, the Code prohibits conduct that “adversely reflects on the lawyer’s fitness as a lawyer.” D.R. 1-102(A)(7); 22 N.Y.C.R.R. §1200.3(A)(7); see also N.Y. Rules of Prof’l Conduct R. 8.4(h) (effective Apr. 1, 2009).

Courts have considered neglect of client matters and ineffective or incompetent representation sanctionable conduct. See, e.g., Gadda v. Ashcroft, 377 F.3d 934, 940 (9th Cir. 2004), Amnesty Am v. Town of W. Hartford, 361 F.3d 113, 133 (2d Cir. 2004), Matter of Rabinowitz, 596 N.Y.S.2d 398, 402 (N.Y. App. Div. 1993), United States v. Song, 902 F.2d 609 (7th Cir. 1990). Matter of Kraft, 543 N.Y.S.2d 449 (N.Y.App. Div. 1989), In re Bithoney, 486 F.2d 319 (1st Cir. 1973). Such conduct is also sanctionable under the applicable professional rules and standards. The American Bar Association’s Standards for Imposing Lawyer Sanctions call for a range of sanctions from reprimand to disbarment for various forms of “lack of diligence” and “lack of competence.” ABA Standards §§4.4, 4.5. The Disciplinary Rules of New York’s Lawyer’s Code of Professional Responsibility require that “[a] lawyer shall not…[n]eglect a legal matter entrusted to the lawyer,” D.R. 6-101(a)(3); see also N.Y. Rules of Prof’l Conduct R. 1.3(b) (effective Apr. 1, 2009); in addition, the Code’s Ethical Canons require that the lawyer should represent his or her client “zealously,” Canon 7-1, and that he or she “be punctual in fulfilling all professional commitments,” Canon 7-38.

“Any finding that an attorney has engaged in misconduct or is otherwise subject to corrective measures must be supported by clear and convincing evidence.” Committee Rule 7(h). Once misconduct has been established, in determining the sanction to be imposed, the Committee should generally consider: (a) the duty violated; (b) the lawyer’s mental state; (c) the actual or potential injury caused by the lawyer’s misconduct; and (d) the existence of aggravating or mitigating factors. See ABA Standards §3.0. This Committee may recommend to the Court’s Grievance Panel a range of sanctions, including disbarment, suspension, public or private reprimand, monetary sanction, removal from pro bono or Criminal Justice Act panels, referral to other disciplinary bodies, supervision by a special master, counseling or treatment, or “such other disciplinary or corrective measures as the circumstances may warrant.” Committee Rule 6.

The court had already noted that Spivak routinely defaulted or otherwise failed to comply with the court’s scheduling orders.  The court referenced ten matters in which Spivak was counsel. In all ten cases, Spivak’s conduct was the same–all ten matters were dismissed based on Spivak’s failure to comply with the court’s scheduling orders.  As for Spivak’s attitude to his situation during the hearing? The Committee found him to be without any remorse.

There was ample evidence showing that Spivak engaged in professional misconduct by violating the duty owed to his clients in failing to comply with the court’s scheduling orders, even though the court bent over backwards by granting Spivak’s requests for extensions.   Even after the court dismissed the subject cases for Spivak’s failure to comply with scheduling orders, Spivak never bothered to move to have the cases reinstated, even though such leave was granted by the court in some instances.  In some cases, Spivak did not even inform the clients when their appeals were dismissed for his failure to file a brief.  Spivak felt that since he received these clients through a referral, he did not owe them any duty. Yet, on the other hand, he never informed the referring attorneys of the dismissal of the clients’ appeals either.  Also, Spivak did not always refund the clients’ fees after their appeals were dismissed due to his negligence.  Although Spivak acknowledged that he had a problem with complying with scheduled deadlines, he refused to acknowledge the damage he caused to his clients. Instead, he tried to justify it by claiming that it was really the clients’ fault their appeals were dismissed, citing such excuses as a client’s inability to pay printing costs or the fact that he could not locate them.

Actual or Potential Injury

Whether Spivak’s clients’ appeals would have been successful is hard to determine.  Spivak only admitted that with respect to one of his clients did the client suffer adverse consequences because of Spivak’s negligence, noting that the client had a decent claim.  The standard of actual injury to clients, however, is whether, because of Spivak’s conduct the client was deprived of the full opportunity to have the court consider the merits of his appeal. Measured by that standard, every dismissal caused by Spivak’s acts and omissions for failure to comply with the court’s scheduling orders resulted in prejudice to his clients.  The court found most troubling Spivak’s refusal to profess to the Committee that his main concern was the best interests of his clients and he never acknowledged that the clients he obtained from referrals were even his clients.

As for mitigating factors, the court did note that the demands of the Spivak’s family life took a serious toll on his law practice.  Also, even a short-term suspension would be seriously detrimental to his practice and personal life.  He also revealed that neither he nor his wife is covered by medical insurance.  In fact, he has not been able to make ends meet for a long period of time.  The court also took as a mitigating factor the fact that Spivak did not benefit personally from his failure to meet the court’s scheduling orders.  Just the opposite is true.  He suffered financially from his many delinquencies because his failure to file motions to reinstate the cases forced him to forego additional legal fees that he could have collected had he gone through with the appeal. The court also found it encouraging that he is closing down his practice in the Second Circuit and not taking on anymore appeals.  Also, he has implemented new systems in his office to avoid missing deadlines including a calendar system and a part-time assistant.

The most disconcerting aspect of Spivak’s behavior, on the other hand, is his refusal to acknowledge that the clients he received on referral were indeed his clients.  Another aggravating factor was the nature of his clientele-his clients were often immigrants facing deportation from the U.S. which made his failure to represent them effectively– thereby failing to obtain leave to have them stay in the U.S.– most egregious.  Also troubling were his prior disciplinary problems before the First Department of New York, which the court opined, might indicate a pattern of misbehavior.

Recommendation

The Committee indicated that it was deeply troubled by Spivak’s actions, and it expressed reservations about the new measures he took to prevent future abuses.  However, the Committee did not think that Spivak intended to cause his clients any harm.  In light of his forthright admission of responsibility and the absence of additional complaints by his client and his having taken steps to close down his practice in the Second Circuit, the Committee concluded not to recommend his suspension.  Instead, the Committee recommended a public reprimand and close monitoring of his cases in the future.  The Second Circuit agreed with the Committee’s conclusions and recommendations and issued an order accordingly.

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Lessons From Dewey & LeBoeuf: Five Reasons Why Law Firms Fail

by DonaldScarinci@yahoo.com on May 11, 2012 · 0 comments

in Large law firm issues,Law Firms,Small law firm/solo practice issues

Dewey & LeBoeuf’s seemingly rapid free fall has caught the attention of business analysts and bankers as much as the legal community.  As a result, the legal industry today is undergoing the same scrutiny as the financial services industry did in 2008.

While criminal allegations, lush multi-year contract guarantees and big debt dominate the Dewey news coverage, most of the analysis of why Dewey failed is wrong either in whole or in part. The underlying reasons for the firm’s troubles are far less complicated than analysts have speculated thus far.  Here are five reasons why law firms are failing which might shed light on what happened at Dewey:

1.  Refusal to Respond to Economic Changes. Most law firms have continued to raise their billing rates each year since 2008 without recognizing the downturn in their clients’ businesses. According to the 2012 Real Rate Report, the cost of an hour of a lawyer’s time continued to grow faster than key measures of inflation, despite a struggling economy. As a result, larger corporate clients, once the exclusive property of the National Top 250 firms, have discovered the benefits of using smaller regional law firms. Smaller firms can offer more competitive pricing structures and alternative fee arrangements to accommodate the new economic realities of their clients.

2.  Arbitrary Multi-year Compensation Contracts. In law firms that have “open compensation,” allowing all partners to know how much money everyone makes, dissatisfaction often occurs when partners compare their own salaries to others.  In law firms that have “closed compensation,” there is more of a danger to create disparity in partner compensation. In all likelihood, it was both the guaranteed multi-year compensation contracts and the lack of uniformity in partner compensation that became ground zero for Dewey’s failure. In many law firms, senior partners are unwilling to reduce their compensation during downturns, and they fail to recognize that partner compensation is never guaranteed. Big compensation is possible only for rainmakers who drive profits, and not for clientless superstar lawyers, superstar billers or senior members resting on past glory.

3.  Unwillingness to Try New Marketing Approaches. In an economic downturn, most law firms resort to cutting expenditures and reducing the amount of money they spend on marketing. They rely on older, pre-2008 methods to generate new client leads.  These law firms have failed to see the shift in client preference for using the internet to select a law firm.  As a result, they continue to ignore new media marketing techniques and social media.

4.  Failure to Adapt to Changing Priorities. Law firms fail to recognize that the priorities of most lawyers have changed. Lifestyle—spending time with family and enjoying non-lawyer activities—has become a higher priority to new attorneys. Many law firms, therefore, miss the opportunity to offer less-costly benefits like flexible hours or generous vacation policies to attract and retain key employees.

5.  Inability to Change Course. Many law firms are unwilling or unable to change their business plan, even when the marketplace clearly suggests they should. Many areas of practice that thrived prior to 2008 are no longer the most profitable. For instance, while real estate was one of the most lucrative practice areas until just five years ago, this market has had a significant downturn in most parts of the country.   Now that other practice areas dominate law firm revenues, some firms lack the wisdom and leadership to reallocate resources to the most promising practice areas.

Ultimately, all of these reasons can be traced back to one common factor—many law firms fail to adapt to changing circumstances quickly enough or at all. Dewey is not the first law firm to fail since the 2008 downturn, and it will not be the last.  However, it does illustrate the changing landscape in the legal services industry.  Look for smaller, more progressive regional law firms—the middle firms–to gain prominence in the next decade.

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Recent Second Circuit Decision in the Ongoing Viacom/YouTube Battle

by Mike Mintz on May 10, 2012 · 0 comments

in Intellectual Property,martindale.com

Big names in the entertainment industry such as Viacom, Paramount, other film studios and television networks, music publishers and sports leagues sued YouTube and Google in the Southern District of New York several years ago in a lawsuit entitled Viacom International, Inc. LLC, et al. v. YouTube Inc. LLC, et al., Docket Nos. 10–3270–cv, 10–3342–cv over what the plaintiffs claim was copyright infringement.  The case arose out of video clips users displayed on YouTube which were sourced from the plaintiffs’ own videos. The Second Circuit consolidated the cases and recently issued a decision clarifying the “safe harbor” provisions of the Digital Millennium Copyright Act (DMCA) and when online service providers are liable for copyright infringement that occurs “by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider.” 17 U.S.C. § 512(c).  The plaintiffs sued YouTube for the display and reproduction of clips that appeared on YouTube from 2005 to 2008.

Under the DMCA there are a series of four safe harbors allowing internet service providers to limit their liability for claims of copyright infringement. The four “safe harbors” are: (1) transitory digital network communications; (2) system caching; (3) information residing on systems or networks at the direction of users; and (5) information location tools. 17 USC Sections 512 (a) – (d).

To qualify for protection under the safe harbor rules a party must meet certain criteria. Obviously, it must be a service provider defined as “a provider of online services or network access, or the operator of facilities therefor.” 17 USC § 512 (k) (1) (B).  A qualified service provider has to meet certain conditions of eligibility including adoption and reasonable implementation of a repeat infringer policy that provides for termination of subscribers and account holders of the service provider’s system or network.  Also, the service provider has to accommodate “standard technical measures” that are “used by copyright owners to identify or protect copyrighted works”. See § 512 (i) (1) (A) & (B). After meeting these criteria, a service provider has to satisfy one of the safe harbor provisions.  The one at issue in the instant case was the third one, i.e., infringement claims arising from the storage, at the direction of a user, of material that resides on a system or network controlled or operated by or for the service provider.  This safe harbor applies only if:

(1)   The provider does not have actual knowledge that the material or activity using the material on the system or network is infringing a copyright;

(2)   In the absence of such actual knowledge, the provider is unaware of facts or circumstances that would make the infringement apparent;

(3)   Upon obtaining such knowledge, the provider acts in an expeditious manner to remove or disable access to the material in question;

(4)   The provider does not receive financial benefit directly attributable to the infringing activity in situations where the service provider has the right and ability to control such activity;

(5)   If and when the provider receives notification of a claimed infringement, it responds expeditiously to remove or disable access to the offending material.

See § 512 (c) (1).  There is also a notification system provided for in the statute.  The notice provisions will trigger an obligation to remove the offending material expeditiously.

Facts

Although most of us are familiar with how to post videos on YouTube, a short description of the process involved will be helpful to an understanding of the opinion.  A user has to register with YouTube and create an account.  Under YouTube’s Terms of Use, the user cannot submit material unless he owns the rights, or has permission from the rightful owner, to post the material and to grant YouTube a licensing right to the material.  Users select videos to upload from their personal computer, smart phone, etc. and then instruct YouTube to upload the video by clicking on a button.  During the uploading process, YouTube makes one or more copies of the video in its original format, and it also makes copies in “Flash” format.  The video is accessed by streaming the video to the user’s computer in response to a “play” request.  YouTube also displays clips that are related to the requested clip.

Procedural Background

Viacom et al. sued YouTube for alleged copyright infringement based on the display and public performance of their videos on YouTube’s website.  The parties subsequently cross-moved for partial summary judgment, basing their motions on the DMCA’s safe harbor provisions.  The district court denied plaintiffs’ motions and found that the defendants were protected by the safe harbor provisions.  The district court identified the central issue as whether the statutory phrase “actual knowledge that the material or an activity using the material or the system or network is infringing” and “facts or circumstances from which infringing activity is apparent” in § 512 (c) (1) (A) mean a general awareness that infringements are occurring or whether it means constructive knowledge of a specific and identifiable infringement of individual items.

The district court concluded that the statute required knowledge of a specific and identifiable infringement of particular items.  According to the district court, mere general knowledge of such activity is not enough.

Legal Analysis

The central question on appeal is whether the safe harbor provision in question require “actual knowledge” of facts and circumstances indicating specific and identifiable infringements.  After the Second Circuit quoted the language of the relevant safe harbor provision, it substantially affirmed the district court’s holding.  It noted that the statute requires knowledge of specific infringing activity.  Also, if the provider acts expeditiously to remove or disable access to the material, it is still protected by the safe harbor provision.  The expeditious removal of the offending material of course presupposes that the provider had specific knowledge of the infringing material.

While the Second Circuit affirmed the district court’s interpretation of the safe harbor provision, it also found that the lower court’s granting of summary judgment was premature.  Plaintiffs argue that there are questions of fact regarding YouTube’s actual knowledge of specific instances of infringement.   The Second Circuit agreed with plaintiffs and reasoned that a jury could find that, based on YouTube’s internal communications, YouTube was actually aware of specific instances of infringing material popping up on YouTube.

The Second Circuit also addressed the issue of whether YouTube was willfully blind to specific infringing activity.  A person is “willfully blind” or engages in “conscious avoidance” amounting to knowledge where the person “was aware of a high probability of the fact in dispute and consciously avoided confirming that fact.” United States v. Aina -Marshall, 336 F.3d 167, 170 (2d Cir.2003) (quoting United States v. Rodriguez, 983 F.2d 455, 458 (2d Cir.1993)). In a  trademark infringement case, the court reasoned that “[a] service provider is not permitted willful blindness. When it has reason to suspect that users of its service are infringing a protected mark, it may not shield itself from learning of the particular infringing transactions by looking the other way.” Tiffany (NJ) Inc. v. eBay, Inc., 600 F.3d 93,109 (2d Cir.2010).

Although the DMCA does not mention “willful blindness”, a statute only abrogates a common law principle if the statute directly addresses the question covered by the common law.  The relevant DMCA provision, § 512(m), provides that safe harbor protection shall not be conditioned on “a service provider monitoring its service or affirmatively seeking facts indicating infringing activity, except to the extent consistent with a standard technical measure complying with the provisions of subsection (i).” 17 U.S.C. § 512(m)(1). In other words, safe harbor protection cannot be conditioned on a provider affirmatively monitoring its service for infringing material. § 512(m) is incompatible with a broad common law duty to monitor or seek out infringing activity based on general awareness that infringement may be occurring. Since section 512 (m) does not address directly the willful blindness doctrine, § 512(m) limits—but does not abrogate—the doctrine of willful blindness. The Second Circuit concluded that the willful blindness doctrine may be applied to prove actual knowledge of specific instances of infringement under the DMCA. The district court did not address the issue of willful blindness in its opinion and it remains a fact question as to whether it existed in this action.  The Second Circuit remanded this issue to the lower court for further fact-finding.

Next, the appellate court addressed the issue of whether YouTube received a financial benefit directly attributable to the financial activity where the provider has the right and ability to control such infringing activity, pursuant to the statute at section 512 (c) (1) (B).  The district court erred when it concluded that the control provision requires item-specific knowledge of such activity.  The lower court should not have included a specific knowledge requirement into the control and benefit provision.  The Second Circuit remanded the issue of controlf for further fact-finding.

Next the court addressed the issue of whether YouTube fell under the safe harbor provision “by reason of the storage at the direction of a user of material that resides on a system or network controlled or operated by or for the service provider”, 17 USC § 512 (c) (1).  The appellate court agreed with the district court’s holding that three of the challenged software functions, i.e. (1) the conversion of videos into standard display format; (2) the playback of videos on “watch” pages and (3) the “related videos” function fell within the aforementioned safe harbor provision.  There was a fourth software function pertaining to third-party syndication of videos uploaded to YouTube which the appellate court remanded to the lower court for further fact-finding consistent with the appellate court’s opinion.

This long-standing lawsuit, which involves some of the biggest names in entertainment and media, is not even close to being resolved.  Since posting online videos remains such a popular pastime for the general public, the case bears close watching.

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New Report Finds Law Firm Hourly Billing Rates Continuing to Rise

by Mike Mintz on May 9, 2012 · 0 comments

in Law Firms,martindale.com

According to a recent report entitled the 2012 Real Rate Report, New York City firms raised their attorney billing rates on average by 12 percent in the last few years, the second highest change in rates among lawyers in various U.S. cities.  This report also shows that a lawyer’s billing rate is determined more by law firm size and location than by status, experience or practice area.  In other words “location, location, location.”

The report was based upon legal fees billed to sixty-two companies in seventeen industries, including energy, finance, technology, insurance and health care.  The bills were provided by over 4,000 law firms in 84 metropolitan areas around the U.S.  The records were provided for a five-year period ending in December 2011.

The median billing rate for 2,020 partners in New York City in 2011 was $756 per hour.  The top 25% of those partners’ rates was almost $1,000 per hour.  However, most partners in the top tier still shy away from billing $1,000 per hour.  The four-digit figure seems to scare away clients, although a few firms have been able to charge that rate to certain clients. The 2011 median billing rate for 3,290 associates in New York City was $465 per hour.

Boston was the only city whose attorneys’ rates rose by a higher percentage than New York attorneys from 2009 to 2011.  In New York firms, average rates rose to $633 per hour from $565 per hour.

Across the nation, the top 25% of firms showed the highest jump in associate billing rates; they jumped an average of 18% to approximately $600 per hour.  The billing rate of the top 25% of partners rose 8% to approximately $900 per hour.  However, at the bottom of the ladder, the story is quite different. The bottom 25% of associates saw their rates rise by only 4% and partner rates rose by only 3%.

If you practice law in Buffalo or Albany, New York it will probably come as no surprise for you to learn that your billing rates are among the bottom ten of the metropolitan areas in the U.S.  For example, in Albany, Schenectady and Troy, New York, the median billing rate for partners was $250 per hour, and an associates’ median rate was $199 per hour.  In Rochester, New York, the median billing rate for partners in 2011 was $305 per hour, while the median rate for associates was $200 per hour.  The 2011 median rate for partners in Buffalo and Niagara Falls was $279 per hour, and the median billing rate for associates was $180 per hour.

The other not-so-surprising conclusion of the report? The bigger the firm, the higher the billing rate.  In fact, billing rates were highest in firms with the greatest number of attorneys.

Across U.S. cities, from 2009 to 2011, attorney billing rates increased approximately 13 percent at firms with 501 to 1,000 lawyers, while rates increased an average of 8 percent at 100- to 250-lawyer firms.  Rates at smaller firms, i.e. with 51 to 100 lawyers only had a 6 percent average increase, and even smaller firms, i.e. with one to 50 lawyers saw a comparatively miniscule change-their rates only increased by about 4 percent.

Another interesting conclusion of the report is that the longer a particular client stays with a firm, and the more work the firm handles for that client, the higher the billing rate the firm charges that client.  So much for rewarding client loyalty!

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New York Court Values Law Degree in Matrimonial Action

by Mike Mintz on May 8, 2012 · 0 comments

in martindale.com

Have you ever wondered just how much your law degree is worth? Well, a New York court recently  answered this very question in a divorce action entitled Esposito-Shea v. Shea, 513428, NYLJ 1202548231658 (N.Y. App. Div., 3rd Dept., 4/5/12).

After the parties were married, the wife attended law school and earned her law degree.  After the commencement of the divorce action, the wife passed the bar exam and received her law license.  In the divorce action, the supreme court awarded equitable distribution of the parties’ marital property and to that end, awarded the husband 10 percent ($12,600) of the value it placed on the wife’s law degree.

Interestingly, the court flatly denied the wife’s request to be awarded a distributive share of the husband’s Ph.D. degree.

The court based its valuation of the wife’s law degree on the testimony of the wife’s expert witness who valued the degree at $126,000.  The expert based his valuation on the wife’s employment history which the court found more reliable than the testimony of the husband’s expert witness.

The court admitted that valuing a professional degree or license depends largely on expert testimony.  The trial court must evaluate such expert testimony, provide it with the weight the court believes it deserves and arrive at a determination that is supported by credible evidence, citing Evans v. Evans, 55 AD3d 1079, 1080 (2008).  Furthermore, the value to be placed on a professional degree or license is related to the extent it serves to enhance a party’s capacity to earn a living,  McSparron v. McSparron, 87 NY2d 275, 280 (1995).  Both parties’ experts compared what they believed the wife would earn with and without the law degree for the time period in question.  The two experts’ numbers were very far apart because they held very different views as to  what they believed the wife could earn without a law degree. The wife’s expert focused on her actual employment history, as well as statistical data on what an individual with a Bachelor’s degree could have earned in the area where she lived during the relevant time period.  He came to the conclusion that, without a law degree, the wife would have had an annual earning capacity of $44,500. The husband’s expert arrived at a significantly lower figure for what she would earn with just a Bachelor’s degree because he emphasized the wife’s actual employment history in the period prior to obtaining her law degree. He concluded, given this history and based on certain assumptions, that the wife’s potential earning capacity, even with a Bachelor’s degree, would not have exceeded $22,827 per year.

The court rejected the opinion of the husband’s expert and agreed with the wife’s expert that one had to assume that if the wife had not attended law school, she would have sought employment appropriate for someone with her education and Bachelor’s degree. The appellate division affirmed the decision of the supreme court in this regard.

The husband also argued that he should have received more than 10 percent of the law degree’s value because the wife attended law school and earned her law degree while they were married. In order to obtain a reward for even a portion of the wife’s law degree or license, the husband had to establish that he made a substantial contribution to the acquisition of the degree or license.  If the husband only made modest contributions toward the wife’s attainment of a degree or professional license, and the wife is chiefly responsible, through her ability, tenacity, perseverance and hard work, for attaining the degree or license, it is appropriate for courts to limit the distributed amount of that enhanced earning capacity to the husband.

The husband contended that he should get more than 10 percent of the wife’s law degree because he was the family’s primary wage earner during the parties’ marriage and he arranged his work schedule so that he could care for their children while the wife attended law school. The court did not countenance these claims, finding instead that these sacrifices represented overall contributions to the marriage rather than an additional effort to support the wife in obtaining her license. The wife’s own efforts in obtaining her law degree consisted of the lion’s share of the work that went into her obtaining the degree. She worked in part-time jobs throughout the marriage, and she worked summer jobs while attending law school. She earned merit scholarships and paid a significant part of her law school tuition with an inheritance she received during the marriage.

For the same reasons, the court rejected the wife’s claim that she should get any share of the value of the husband’s Ph.D. degree. The husband had satisfied most of the requirements he needed to obtain this degree before the parties married and paid for it while providing financial support for his family. The wife’s assistance in aiding him in acquiring his degree was relatively insignificant and did not support awarding her a distributive share of its value.

 

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U.S. Law Firms Continue to Increase Their Presence in China in 2012

by Mike Mintz on May 4, 2012 · 0 comments

in Law Firms,martindale.com

In 2012 U.S. law firms continue to find China an alluring market for their services.  Approximately eight new law offices were opened during the beginning of 2012 alone. The largest 250 U.S.-based law firms added 194 lawyers to their Chinese offices during 2011.  So far, the number of those offices grew from 124 to 132 during 2012.

However, the picture is not entirely rosy.  So far the Chinese market has not yielded significant profits for the firms.  Foreign offices of U.S. firms in general need to invest a lot of money and time to earn a return in foreign markets, and China is no exception.

However, opening a foreign office in China presents unique challenges that the firms do not encounter in other parts of the world, say for example in the United Kingdom.  Also, there is a fierce competition over the fees charged because so many firms are trying to gain a toehold in the market.  Moreover, clients prefer to use Chinese law firms rather than branches of U.S. firms.  The U.S. firms have a lot of hurdles to overcome in order to be a successful presence in the Chinese market.

Not surprisingly, Hong Kong and Beijing were the hottest markets for U.S. firms, with the number of attorneys increasing by approximately 12 percent in Hong Kong and 10 percent in Beijing.  Shanghai is also a popular destination with the 25o biggest U.S. firms increasing their attorney presence there by three percent.

London and Paris branches of U.S. firms are still way ahead of the Hong Kong branches of firms, notwithstanding that Hong Kong is host to 1,333 attorneys from U.S. law firms.

The firm Baker & McKenzie contiues to have the biggest presence in China, followed by Mayer Brown, DLA Piper, Hogan Lovells and Reed Smith.  Baker & McKenzie has the largest number of attorneys in Beijing and Shanghai, and it is tied with Mayer Brown for the largest Hong Kong office. Hogan Lovells had the second-largest Beijing office, and Orrick, Herrington & Sutcliffe had the second-largest Shanghai office.

Notwithstanding the gaudy numbers provided by large firms like Baker & McKenzie, most Chinese branches of U.S. firms are pretty small.

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Apple Evades Billions of Dollars in U.S. Taxes (Legally)

by Mike Mintz on May 3, 2012 · 2 comments

in martindale.com,Tax Law

Have you ever dreamed of evading your income taxes, all with the blessing of Uncle Sam? Well if you have, the multi-billion dollar company Apple and other technology bell weathers are living your dream.  How do they get away with it? They form subsidiaries in tax-friendly countries like Ireland, the Netherlands and Luxemburg which allow them to save billions of dollars in federal and state taxes.  These foreign subsidiaries often consist of no more than a mailing address, with maybe a handful of employees working out of that office.  Apple, for example, is based in Cupertino, CA, but it maintains a small office in Reno, NV to collect its profits and invest them through an entity known as Braeburn.  Since Braeburn’s founding in 2006, Apple has earned more than $2.5 billion in interest and dividend income on its cash reserves and investments from around the world.  Nevada does not charge a corporate tax.  California, in contrast, has an almost 9.00% corporate tax rate.

As noted, Apple is not alone in legally avoiding billions in taxes every year. Other technology giants like Google and Microsoft engage in the same activity.  Technology companies are ideally positioned to do this, whereas companies that manufacture physical products are not.  Some of the technology giants’ revenues are derived from digital products or royalties on patents, so their profits can be moved more easily to tax-friendly states or countries.  Manufacturers of physical products, on the other hand, have a much harder time shifting the actual sale of the physical product to a tax-friendly location.  To give you an idea of the amount of money involved, the seventy-one technology companies in the S&P 500 paid on average one-third less in taxes over the past two years than other S&P 500 companies.  Since we’re talking about multi-billion dollar companies, that is a significant chunk of change.

Apple, for example, assigned approximately 70% of its profits to countries outside of the U.S., specifically to places with lower tax rates than available in the U.S.  If not for Apple’s profit-shifting, it would have paid approximately $2.5  billion more in taxes last year alone.  Apple reportedly paid $3.3 billion in cash taxes world-wide last year on a profit of $34.2 billion at a tax rate of 9.8%.

Apple, of course, asserts that it has complied with all applicable laws.

 

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CISPA: The Newest Threat to Online Privacy

by Mike Mintz on May 2, 2012 · 0 comments

in martindale.com

New proposed legislation entitled the Cyber Intelligence Sharing Protection Act of 2011 (CISPA) is  currently making its way through Congress, and it is already being censured, similar to the way the Stop Online Piracy Act (SOPA) was heavily criticized before further steps necessary to enact that bill were postponed earlier this year.

The proposed statute is designed to stop the ongoing cyberthreats to companies, including IBM, AT & T and Verizon, all of whom have expressed support for the bill.  The bill would, among other things, (1) allow Internet Service Providers (ISP’s) to share information with the government, and vice versa, in order to prevent cyberattacks; and (2) grant ISP’s immunity from prosecution of private actions if they voluntarily disclose customer information which they believe in good faith to be a security threat.  However, the proposed legislation is incredibly vague and could include monitoring e-mails, filtering content and blocking access to sites.

CISPA has major Fourth Amendments problems including the following: (1) the language of the proposed statute is too vague.  This allows the government and the subject company a lot of leeway in monitoring internet use and implementing measures to counter alleged cyber security threats; (2) ISP’s and cable and telephone companies would be immune from prosecution if they shared information with the government, notwithstanding existing law which prohibits turning over such information to the government. Needless to say, users would not be able to sue the government or the company if their privacy is invaded; (3) the most objectionable part of the bill would give the secretive National Security Agency (NSA) authority over gathering such intelligence instead of a civilian agency such as the Department of Homeland Security.  A recently proposed amendment to the bill would put the Department of Homeland Security (DHS) in charge of gathering the cyber information. However, this amendment would not prevent the DHS from then turning over the information to the NSA.

Critics of the proposed statute argue that its overly broad language can make it easier to abuse.  The bill currently defines “cyber threat intelligence” and “cyber security purpose” to include intellectual property-specifically- “theft or misappropriation of private or government information, intellectual property, or personally identifiable information.”  In other words companies can monitor users for possible infringement of intellectual property.  They could even block access to websites that they deem to be infringing on an entity’s intellectual property, as long as they claim that it was to protect them against a cyber security threat.

Critics also claim that the bill does not do enough to protect users’ privacy.  There are also insufficient limitations on the sharing of personal information between private companies, and there are not enough measures in place to make sure that the data is being used for the right purpose.  The bill simply does not make companies accountable for failing to protect the personal information of the general public.

Others complain about the bill’s provision that data turned over to the government is not subject to the Freedom of Information Act for reasons of “national security”.  Since the bill does not spell out what information can be shared with the government, anything and everything about the general public’s internet access records can be disclosed, including their use history, search terms and e-mails.  This bill runs roughshod over existing laws such as the Wiretap Act and the Electronic Communications Privacy Act which requires the government to have probable cause or a judicial warrant if they want to read people’s e-mails.  Under this bill, companies could read the general public’s e-mails if they could claim some sort of cyber security purpose, however flimsy, and provide them to the government without any judicial review.

Legislators have been listening to the growing criticism to the provisions of the bill, and they are trying to work out a compromise to help save the bill from a threatened Presidential veto. Only time will tell if they are successful.

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Five Things You Can Do to Avoid a Business Breakup

by DonaldScarinci@yahoo.com on May 1, 2012 · 0 comments

in Law Firms,Practice Management

Small businesses and service businesses like law firms are all about people and relationships.  If the relationships go bad, a business breakup can be just as difficult and costly as ending a marriage.  Business partners and colleagues invest a great deal in the relationship and there are usually significant assets involved.  The collateral damage to your employees and their families can add to the tragedy.

Despite the potential for costly business litigation, many business partners still fail to plan ahead. Perhaps, as in marriage, people never want to enter into a business relationship thinking that it is doomed to fail.  Yet statistically, the success rate for new business ventures is less than 50%; and, since 2008 the success rate for new law firms is lower.

Even long after businesses are launched and become successful, healthy business relationships encounter difficulties along the way.  Like a marriage, maintaining a good relationship with your colleagues requires effort.  Here are five things to consider that might help you avoid a messy business breakup:

1.  Check Your Emotions. As with any type of dispute, it is important to keep your emotions under control. Because owners often invest significant time and money into the business, it is easy to become angry and frustrated when things aren’t going as planned. However, emotions can often cloud your judgment and get in the way of a solution. If some cases, both partners may need to step away from the situation in order to see the bigger picture.

2.  Address the Problem Directly. While minor issues may resolve themselves in time, major issues generally head in the other direction. If left to fester, they can ultimately lead to the demise of the business. Therefore, it is imperative to address disputes quickly and openly.

3.  Make a Plan Before Disputes Arise. Having a plan in place to deal with disagreements is the best way to avoid litigation. For instance, a partnership buy-sell agreement serves much like a pre-nuptial agreement. It outlines what happens when a partner wants to leave the business. In addition, it can also address a myriad of other changes, like the death, incapacitation, or retirement of a partner.

4.  Consider Your Options. For business owners experiencing a bump in the road, it is important to thoroughly evaluate whether the relationship can be saved. For instance, have you encountered a temporary speed bump or is this really the end of the road?

5.  Seek Assistance. In many cases, the dispute cannot be resolved without the assistance of a business attorney or neutral arbitrator. It is important to know when to ask for help. Often, business partners seek assistance too late in the process and are unable to avoid the cost and expense of protracted business litigation.

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