january/february 2008
TRANSCRIPT
January/February 2008
• Taking care of lawyers taking care of children Trying to find an acceptable work/life balance can be a daunting task for lawyers faced with the demands of juggling clients, billable hours, and career milestones along with family commitments.
• Marketing your law practice There are really just two areas you need to focus on as you market your law practice: having a well-balanced marketing plan built around marketing best practices for lawyers, and making the personal commitment to actively implement your plan. Simply stated, if you do these two things consistently over time, you will be successful.
• Disaster planning Like almost everyone in the New York City area, I knew people who died in the World Trade Center attack on 9/11, others who narrowly escaped with the shirts on their backs, and still others whose lives were disrupted in significant ways.
• Second this! My experience while on secondment, with both its risks and challenges, gave me many fresh, new perspectives that helped me grow both personally and as a lawyer. When done well, a secondment can benefit all involved: client, law firm, and lawyer.
• Coping with challenges As the legal profession has evolved over the years, the focus of lawyer assistance programs (LAPs) has changed dramatically. While in the past, LAPs primarily assisted lawyers with drinking problems, depression is now one of the main reasons lawyers ask for help from these organizations.
• Navigating the litigation landscape in Canada The United States shares a lot more than a very large border with its northern neighbor--Canada is also the United States' largest trading partner, while the United States is certainly Canada's largest trading partner as well. These business dealings, like any other, often result in disputes, and at times, the need to resort to litigation.
• Mediation and the business divorce Divorces among principals in a business frequently occur due to retirement, sickness, death, internal disputes, and financial successes or reversals. Business divorces can be very disruptive, difficult, messy, expensive, and fraught with risk, particularly for an ongoing business operation.
• Private equity transactions Private equity investing has generated worldwide attention over the last few years. Many reasons are cited for its proliferation, including an abundance of cheap debt financing as well as companies with publicly traded securities seeking to escape the burdens of Sarbanes Oxley.
• Business Law Today Index Our seventh index, 2006-2007
Departments:
• Keeping Current: Antitrust n August 30, 2007, the Standing Committee of the People's Republic of China National People's Congress enacted a new, comprehensive competition statute, the Anti-Monopoly Law (AML), which will become effective August 1, 2008. This article briefly summarizes the key provisions of the AML and potential implications for firms doing business in China.
• Keeping Current: Bankruptcy The songwriters tell us that "little things mean a lot." Little errors in a UCC-1 financing statement can mean a great deal--none of it good--to a creditor's security interest.
• Keeping Current: Securities 1 The SEC has recently made very plain its intention to more closely scrutinize plans contemplated by Rule 10b5-1.
• Keeping Current: Securities 2 Publicly traded companies faced with potential climate change obligations are facing increasing scrutiny of their securities disclosures.
• Keeping Current: Securities 3 Recently, the SEC and the Board of Governors of the Federal Reserve System jointly adopted new Regulation R.
• Focusing on Pro Bono: Rewards and challenges of pro bono in China With the practice of law becoming more and more globalized, business lawyers in the United States are increasingly seeking pro bono opportunities abroad.
• Snap Judgments
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Business Law Today
Volume 17, Number 3 January/February 2008
Taking care of lawyers taking care of childrenChild care in the legal profession
By Cathy Benton and Nicole Brown
Trying to find an acceptable work/life balance can be a daunting task for lawyers faced with thedemands of juggling clients, billable hours, and career milestones along with family commitments.The effort can be even more challenging for lawyers with children. Consequently, work/life benefitsare increasing in importance and are becoming a critical part of comprehensive benefits packagestoday.
Law firms and law department leaders may wonder whether they should address or care aboutthe work/life issues their employees are facing. Law firms that consider these matters willprobably conclude that helping lawyers and staff reach a work/life balance makes for not only abetter work environment but also better client service and work product as well.
Why Offer Child-Care Solutions? Offering work/life benefits can ease the tensions and anxieties related to life's daily challengesand, in particular, with child care. These benefits also enhance the sense of family and careamong employees. Firms need to develop and enhance benefits to push beyond the expectedbenefits most employers offer—although it has become more challenging to stay in the lead.Taking away the worries about child care goes a long way in helping employees find an acceptablework/life balance.
The importance of providing the best work/life solutions for employees was made clear more thana decade ago when child care rose to the top of the list of concerns. Increasing numbers ofwomen were graduating from law school-- they now make up at least 50 percent of graduatingclasses. A strategy that eases the burden and stress of finding quality child care allows parents tofocus on the practice of law and the delivery of quality legal service.
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A priority for all law firms is to recruit and retain talented employees. To do so, firms must domore than simply offer the most competitive salary, although salary is certainly a factor indeciding which firm to join. Lawyers are looking for firms that consider their own needs and theneeds of their families—present and future. Offering child-care solutions reinforces a firm'scommitment to the needs of its employees. Providing the right resources results in more engagedand loyal employees who are committed to the goals of the enterprise. It is an investment in thefuture and an important element in the retention of lawyers, managers, and staff.
Consider the facts: the workforce is changing and recruiting diverse employees is becoming muchmore competitive. The new associates entering the workforce are a part of a generation that isnot requesting but demanding work/life balance. The Association for Legal Career Professionals(NALP) reports that 44 percent of associates are female, but that figure drops to only 18 percentof partners. Steps need to be taken to stop the attrition and retain the talent. The decision tooffer programs is no longer an option but a necessity.
Deciding Which Options to OfferThere are a myriad of child-care options available to law firms. The first step is to determine whatis already being done to handle child care and what the true or additional needs are. Are childrenin preschool or cared for by a nanny or relative? Is the need for full-time care or just for backupcare? Is the preference for child care to be located near the office or closer to home? Do parentswant the conve-nience available to allow them to take their children with them when they travelfor business? It is important to ask these types of questions to find the right work/life solution foryour environment. For instance, an on-site child-care facility may not suit your workplace, andemployees may just want options for backup care. Offices in other cities might have differentneeds altogether.
Our ExperienceWhen Alston & Bird first started looking at expanding child-care options, we had two offices, andnow we have six. The Atlanta office was fast approaching 1,000 people and the Washington, D.C.,office had fewer than 30 people. The idea of offering firm-sponsored child care first came up inour regular town hall meetings, where we open the floor for discussion of just about any topic ofinterest or concern. At that time, we were already offering a referral service to help ouremployees locate quality child-care centers and nanny agencies in their respective cities, and abackup care option for employees in the Atlanta office. Even with these services, it was clear thatour employees still had child-care concerns and needs that were not being met. And althougheveryone was talking about it, we were not sure what people really wanted—whether they desiredfull-time care, backup care, or sick-child care.
We hired a consultant to help determine what our employees really wanted for child care. Theresults were notably different for each office and even within the Atlanta office. Everyone wantedthe firm to provide child-care assistance but to varying degrees. From a survey of our employeesin Atlanta, we determined that there was a need for quality, full-time child care for our lawyers,but our staff wanted backup care and a program for school-aged children. Employees inWashington, D.C., only wanted backup care.
With child care being such a high priority for our employees, we began to explore our options. In1999, the state of Georgia improved the tax credit for employer-sponsored child care, whichincreased the operational reimbursement to 75 percent and provided for 100 percentreimbursement of depreciable property over 10 years. From a financial perspective, the timing wassuch that it made our decision to open a near-site center much easier.
We partnered with Bright Horizons Family Solutions, a company that specializes in providing careacross multiple locations, and in October 2001, we opened the Children's Campus at Alston & Bird,in Atlanta. The center has been accredited by the National Association for the Education of YoungChildren (NAEYC) and is exclusively for the dependent children of Alston & Bird employees. It is anear-site center located within walking distance of our Atlanta office, open from 7 a.m. to 7 p.m.,Monday through Friday. The facility is 15,000 square feet and accommodates 105 children in full-time and part-time care, 55 children in backup care, and about 77 children in our school-ageprogram, which includes summer camp, winter and spring break, and school holidays. The centeris equally accessible by lawyers and staff, and we provide a scholarship program for employees ona lower salary scale.
Through our partnership with Bright Horizons, we were also able to offer child-care solutions tolawyers and employees in our smaller offices. For employees in our Charlotte office who wantedfull-time care options, we purchased reserved spaces in an existing center. In New York City andWashington, D.C., it is almost impossible to find openings in quality child-care centers, even forbackup care. To meet the needs of our employees in those offices, we purchased dedicated
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backup care spaces in existing Bright Horizons centers. We selected centers both near the officeand in the suburbs, since many of our employees use public transportation.
To further round out the firm's child-care benefit, we also offer the Bright Horizons NetworkAccess Program to all of our offices' employees. This program provides full-time, part-time, andbackup care priority access to participating Bright Horizons Centers across the country andabroad.
Do Changes Need to Be Made?Once established, child-care programs need to be reevaluated on a regular basis to make certainthey are still meeting the needs of employees. As offices grow and change, the need for differenttypes of care may also change. When it became clear that our office in Washington, D.C., neededmore than backup care, we purchased full-time spaces in an existing center close to the office.
Another area of coverage to consider is providing child care when your employees travel forbusiness or when their children are sick and need to stay at home. Through a backup careprogram at Bright Horizons, our employees have access to over 400 centers that are either NAEYCaccredited or exceed state licensing standards. Our employees don't have to spend timeresearching what centers are available. They simply contact the call center and someone will makethe arrangements for them. The employee's cost for backup care is only $15 per day. Foremployees who need in-home care for a sick child, the call center will make arrangements for alicensed home health care professional to come to their home. The cost for this service is a mere$4 per hour. While our employees have the option to stay home with their child, this resourceprovides them with an alternative. We have found that some of our lawyers will work from homebut will call on the service for an extra pair of hands. The service also provides backup in-homeelder care, which is an added bonus for our employees with aging parents.
How Much Does All of This Cost?While these programs are not inexpensive, they are worth the price for the benefits the firmreceives and are viewed as an investment in our resources. Our employees pay the market ratefor use of the Atlanta child-care facility, and the firm subsidizes the campus to cover thedifference. Having a benefit that keeps just two associates from leaving pays for the investmentmade by the firm. The backup programs also balance out in costs. In 2006, 226 employee dayswere saved due to our backup child-care programs.
Offering child-care solutions should help increase retention in your firm. Our retention statisticsshow an improvement of 6 percent since we opened the child-care center. Offering child-caresolutions can also enhance your reputation as a great place to work and as an employer of choice.Offering these services shows your lawyers and staff that the firm is committed to work/lifebalance, and the result may be increased pride and commitment by employees.Benton is the chief human resources officer and Brown is a benefits assistant at Alston & Bird LLP.Both are based in the Atlanta office. Their respective e-mails are cathy. [email protected] [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Marketing Your Law PracticeEffective Strategies for Growth
By Terrie S. Wheeler
There are really just two areas you need to focus on as you market your law practice: having awell-balanced marketing plan built around marketing best practices for lawyers, and making thepersonal commitment to actively implement your plan. Simply stated, if you do these two thingsconsistently over time, you will be successful.
The Need for a Marketing StrategyLawyers walk a fine line today between viewing their practice as a profession and acknowledgingthe reality that it is also a business. Most solo practitioners know that in order to pay the rent andutilities, meet payroll, hire experts, and run a profitable law practice, they must balance the needto serve clients with the need to generate a constant stream of new business.
Whether called practice development, business development, new business origination, or sales,lawyers in private practice need to attract new clients in order to sustain and grow their practices.Some lawyers market well, while others rely on their strong reputation with the hope it willprovide a steady stream of new clients.
Most lawyers do their best to get out and develop new relationships. But, in reality, they oftenwish clients would simply hear of their expertise and call—and that their telephone and inboxwould provide a steady stream of legal work from clients who pay on time, refer them to others,and on and on the cycle would continue. Many lawyers aren't sure what to do when someonesays, "You need to get out there and do more marketing."
How much time should you spend marketing? The answer, while not as simple as most lawyerswould like, is: as much time as it takes. Successful professionals must develop a "marketingmentality"--they are always marketing (providing exceptional service). They view marketing as
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part of their practice and look for subtle opportunities to secure additional work from existingclients or to attract new clients every day. Don't wait until you have time to market; it will likelybe too late.
In order to create a balanced marketing strategy, make sure your marketing activities are equallyallocated between the four "pillars" that represent general marketing best practices for lawyers:
1. Retaining and growing relationships with existing clients.
2. Attracting new clients and developing new business.
3. Increasing name recognition and awareness.
4. Utilizing targeted and effective communications.
Relationships with Existing ClientsAt least 70 percent of next year's revenue will come from your base of existing clients andcontacts. Growing relationships with your existing clients is at the core of your success or failureas a lawyer. To do this, clients must be delighted, not simply satisfied, with your work, yourservices, and your responsiveness. One of the single greatest things you can do to continuedeveloping professionally is to commit to nothing less than providing exceptional service to yourclients.
The core of client service is found in a client's satisfaction with you, your firm, and the servicesprovided. If you wonder what your clients think about you, ask them. As a service professional,your clients are your greatest source of information on how you're doing in the area of providingsuperior client service as well as how you can improve. If you want to maximize your potential asa lawyer and are willing to take steps to transform the ways in which you deliver services,consider conducting a client survey--it can provide a detailed roadmap on how to better serve theneeds of your existing clients.
Attracting New ClientsYou should become familiar with the qualities your best clients and referral sources possess. Whattraits and characteristics do they have in common? Do they hail from a particular industry?Proactively seek to develop new relationships and business opportunities with those individualsand companies that meet your best-client criteria.
You never know where clients may turn up: seated next to you on an airplane, at your child'sschool function, at your church or synagogue. Always be prepared to have a response to thequestion, "So, what do you do?" Your answer should be clear, concise, and offer benefits to theclient. Remember two of the best business development tips include listening and askingquestions. Use active listening skills to uncover ways in which you can help the person. Also,asking questions shows you care about them and their business and gives you an opportunity togather background information necessary to continue building the relationship.
One of the best strategies for building relationships with new clients is to become active in tradeand professional associations in which prospective clients are involved. While doing continuinglegal education presentations can be effective (if you generate business referrals from otherlawyers), focus your new business development efforts by hanging out where your prospectiveclients do. In many cases, you will find trade associations not only provide a wealth of informationon an industry you are interested in, but also attract the decision makers from the prospectiveclient companies with whom you want to do business.
Increasing Name RecognitionIn order to hire or refer you, people must know who you are. Focus on increasing your personalname recognition in the marketplace through public relations and community involvement. Thecreation of a personalized, strategic, proactive public relations campaign can lead to increasedclient work and pique the interest of prospective clients. Though often confused with advertising,public relations tactics are often more substantive and are certainly more cost-effective. Publicrelations techniques, if carefully designed, are meant to educate, inform, and influence keyaudiences through credibility-building, image-enhancing third-party media endorsements.
Community involvement should also be part of your overall plan because it allows you to make avaluable contribution to others and also helps you build individual and firm name recognition.When deciding to become more involved in your community, focus on organizations that alignwith your core values. Making decisions with a conscious nod toward core values creates a higherlevel of personal effectiveness and greater overall satisfaction as a lawyer actively involved in his
or her community.
Utilizing Targeted CommunicationsYou should understand what makes you unique as a lawyer, then capitalize on your skills andcommunicate timely, relevant information to your contacts and clients. Whether you aredeveloping external communications directed at your clients and referral sources or internalcommunications for your colleagues and staff, it is critical that both the content and itspresentation reflect your key messages and present you and your firm in a positive andprofessional light. While face-to-face relationships and trust building are often a lawyer's mostpowerful business-generating tools, of equal importance is how others perceive you through yourwritten and electronic communications.
To create effective communications, it is important to become familiar with various marketingcommunication tools and understand when and how to apply them. In addition, create andintegrate key messages about yourself and your practice into all that you do. Finally, differentiateyourself from your competition through communications that convey your professionalism andunique expertise.
Marketing TipsKeep a copy of the following marketing best practices on top of your desk (and mind). Commit toimplementing just one tactic each day. Use these handy reminders between phone calls, while onhold, or even while waiting for a long document to print.
1. Retaining and Growing Relationships with Existing Clientsa) Good relationships are the key to any successful practice, and the telephone is still one of themost personal ways to connect. Pick up the phone and call a client or referral source you have nottalked to recently. Touch base and check in to simply see how the person is doing; considerinviting him or her to have coffee with you. Or call a client for whom you have recently completeda transaction or case just to see how well his or her expectations were met.
b) It's also important to be proactive and check in with clients on an ongoing basis. For example,schedule a meeting with a client to review how the relationship is going and address any concernsyour client may have—and don't bill them for the time.
c) From time to time, you will inevitably have clients who choose to end their relationship withyour firm. But don't write them off. Instead, contact them to determine what happened;communicate to those on your team to prevent future client defections.
d) Did you know that invoices can be effective marketing tools as well? Conduct a mini-audit ofyour billing practices to ensure the invoices your clients receive clearly communicate the valueyou bring to the client (not just "Fee for Services Rendered"). Remember, clients generallyappreciate more detail rather than less.
e) Speaking of details, see what happens when you proactively provide a status update to one ofyour current clients regarding your work for them. At the very least, it will keep your client awareof the value you bring to their organization. And it could remind them of another legal projectthey've been meaning to talk to you about.
f) One way to stay at the top of your clients' minds is to watch for them in the news. If you seethem referenced in an article, featured on television, or interviewed on the radio, send them apersonal note of congratulations.
g) Networking is another good way to deepen your relationships with current clients. Start bycontacting two clients whose businesses or interests may complement one another and introducethem. Better yet, identify five clients you would like to introduce to one of your colleagues with agoal of expanding the firm's overall business with each.
h) Are you missing opportunities to do more for the clients you already have? Create a grid withyour top clients listed down the left side and the services you or your firm offer across the top.Look for gaps where the client needs services the firm offers and take action to introduce theclient to additional services the firm can provide.
i) Last but not least, spend time cultivating your "internal" relationships on behalf of your clients.Tell your assistant how much you appreciate his or her role in helping you serve clients. Take anassociate or a partner to lunch and find out more about the work he or she is doing, with a goalof introducing him or her to your clients. These people work with you every day; see yourselfthrough their eyes and imagine how this comes across to your best clients.
2. Attracting New Clients and Developing New Businessa) As you begin to develop new ideas to grow your client base, take a moment to note what yourbest clients have in common (traits, characteristics, type of individual or company, from whomthey were referred). Focus on attracting the highest-caliber clients with legal work that utilizesyour best and highest levels of expertise.
b) Use this information to create a Top 10 list of prospective clients you know would be a greatfit with your expertise, your firm, and its services. Then, make it a point to call someone on yourTop 10 list to meet for lunch. Similarly, make a list of your top referral sources and call one ofthese people to schedule coffee or lunch, or just to reconnect.
c) It's also important to spend time assessing your networking and relationship-building practices.Develop a plan to become more involved in events attracting your clients, prospective clients, andreferral sources. For example, identify a trade or professional association that attracts your idealclients or referral sources and become a high-profile member of that organization. Offer to writearticles or speak to members.
d) Finally, take a few moments to reflect upon what has led to your success to date. If you foundyourself with no clients tomorrow, what would you do first? Revisit the marketing behaviors thathave led to your success. While you're at it, don't forget to keep your sales pipeline up-to-date.Who are you trying to attract as a client right now?
3. Increasing Name Recognition and Awarenessa) As you begin the process of building awareness for you and your firm, you will soon realizethat you aren't alone in your quest for more exposure. That's why it is so important to identify asubstantive area of law in which you have a high level of expertise. Then, develop an outline for apresentation you could give on the topic. Make sure to identify the ideal target audience for yourpresentation and contact the appropriate organization with your idea.
b) Along the same lines, create an outline for an article you would like to have published andidentify where you would like to see the article in print. If you're not sure where to start, reviewsome of the industry trends for your biggest clients. This should generate some ideas so you candevelop your own pitch for a story. Contact a few local business, legal, or community editors topersuade them your story idea has merit. They may ask you to write a bylined article or mayeven assign a reporter to "cover" the story.
c) Another strategy is to reflect upon where (and how) you are spending your time in thecommunity. Seek to involve yourself in organizations you are committed to and passionate about.Consider serving on a nonprofit board of directors; identify which organizations mesh with yourinterests, and begin investigating the process of becoming a board member.
4. Utilizing Targeted and Effective Communicationsa) Your professional biography is a dynamic marketing tool that helps clients discover who you areas a professional. Review and update this document regularly--enlist your assistant toautomatically add speaking engagements, pub- lished articles, new professional affiliations, andother accomplishments to keep your biography fresh and relevant.
b) Similarly, develop as many substantive examples of representative experiences as you can andadd them to your biography--for use on your Web site or in proposals, or to give to prospectiveclients and referral sources. Include topics such as: The Client's Industry, The Client's Situation(the problem), Your Approach (the solution), and The Result Achieved.
c) Keep in mind that client communications don't have to be long or contain flowery speech inorder to be effective. Case in point: send a quick e-mail to a few of your clients to let them knowof changes in their industry that may impact them. Keep it short and sweet, but let them knowyou are looking out for them.
d) While it's tempting to get sidetracked with a variety of marketing ideas, don't neglect the"housekeeping" tasks that help your firm stay nimble. For example, review your firm's Web siteand make a suggestion on enhancing the site. Or review your contact list from the database andscan it for accuracy; make corrections and additions and have your assistant enter them for you.Finally, look at what you're working on; if an associate or paralegal can do the drafting orresearch for you, delegate it.
Building strong and enduring relationships with clients and contacts takes time and needs to beimplemented consistently over time. Make sure you have a system in place to track your
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marketing efforts and to keep yourself accountable for generating results. Marketing is somethingyou must weave into the fabric of your practice—so commit to doing something each day tomarket your law practice. Remember, if you wait until you finally have time to market, it willlikely be too late. By doing something small each day, you will reap the rewards of having loyalclients who will go out of their way to refer others to you.Wheeler is founder and president of Professional Services Marketing, Inc. (PSM) in Minneapolis.Her e-mail is [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Disaster PlanningWhat We Have (and Haven't) Learned
By Gary A. Munneke
Like almost everyone in the New York City area, I knew people who died in the World TradeCenter attack on 9/11, others who narrowly escaped with the shirts on their backs, and stillothers whose lives were disrupted in significant ways. In the weeks that followed the attack,practitioners, law students, and professors came to the aid of those who had been displaced bythe economic, social, physical, and political upheaval. Law firms around the city took in lawyersdisplaced by the conflagration, and courts attempted to accommodate proceedings wheredocuments and records had been obliterated. Ironically, in media reports, the infamy of theperpetrators often overshadowed the selfless acts of heroism by countless volunteers.
Recent DisastersThe World Trade Center attack was not the first, nor will it be the last disaster humankind willface. Within the past decade, other areas in the United States have experienced their owndisasters: earthquakes in California, hurricanes in Florida, floods in the Midwest. Disasters aremuch more commonplace than most of us imagine, and yet, a positive dearth of informationexists about the need to plan for disaster. What information is available tends to be widelycirculated in places that have experienced disasters, but is more or less ignored in areas that havenot been affected directly by some recent calamity.
Sadly, the wealth of information available in Florida on how to cope with the ravages of hurricanesdid not make its way to many parts of southern Louisiana and coastal Mississippi by the summerof 2005, when a monstrous storm named Katrina forever changed the fabric of New Orleans andits environs. In retrospect, we know that such storms are inevitable along the Gulf Coast, andthat other areas of the country are equally at risk for different types of disasters.
Despite the fact that disasters do happen, most of us live our daily lives as if they will not happen
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to us. We do not plan for disaster, especially when harm is less than certain. It is easier torationalize that we will "cross that bridge when we get to it" than to prepare for a risk that maynever come to pass. For many of us, the burden of taking precautions is greater than theuncertain potential loss associated with a disaster. As lawyers, we owe ourselves and our clients aresponsibility to be ready for the worst-case scenario.
Disaster PreparednessBasic disaster planning is not only cost-effective but relatively easy to integrate with otherplanning activities. By looking at the experiences of lawyers and law firms that have surviveddisasters in recent years, it is possible to gain insights that will help us overcome such adversity.Transactional business lawyers, whose clients are frequently the victims of the same forces thatharm lawyers, have a special obligation to serve these clients in times of crisis in order to restorethese businesses to functionality and commerce to the community at large.
Examining the disaster cycle, the process can be divided into three phases: planning, response,and recovery. Planning is what happens before the fact and involves assessing the risk andmaking contingency plans about what to do when disaster strikes. The response phase involvesgetting through the disaster itself and protecting life at all costs and property interests to theextent possible. The third phase entails digging out after the storm has passed. To the extent thatthe disaster has caused an interruption of practice, recovery means reestablishing the people andresources to be able to deliver legal services to clients again.
For the business lawyer or law firm, disaster planning and response are necessary predicates torecovery because their clients may not be as nimble as they are. Companies typically createproducts, maintain production lines, retain inventory, and utilize transportation and communicationnetworks to deliver goods to customers. Law firms, by contrast, deliver legal services, which areoften much more portable and flexible. In this sense, lawyers may be in a better position thantheir clients to overcome the consequences of disaster. Moreover, it is often the case that clientsneed legal assistance in order to deal with events before they can re-enter the marketplace.
Ten Lessons About DisasterThe question then becomes: what are the most important things that business law firms can dofor themselves and their clients? The following 10 lessons drawn from the experience of lawyersaffected by recent disasters describe how law firms, especially business law firms, can prepare forand cope with future disaster. The jury is still out on the question of whether or not we havelearned from these past events, but it is clear that we have an opportunity to improve ourchances (and those of our clients) to recover from a disastrous event, even if we are unable toprevent the event from happening.
1. Law firm leaders should keep disaster on the firm's agenda. Because disasters are alwaysunexpected, in order to protect ourselves, it is necessary to anticipate them through planning. Itmay be possible to identify the general risk of disaster, such as living in Tornado Alley, but noneof the 9/11 victims had an inkling that their lives would be shattered by the random hand ofterrorism. Law firms can institutionalize discussions about how to handle disaster by including thetopic of disaster response in their management and/or planning agendas. Otherwise, complacencyand more pressing short-term crises will certainly push disaster planning to the back burner. Theresponsibility for keeping disaster on the agenda falls on law firm leadership and management.
2. For planning purposes, lawyers need to consider the various forms disasters may take, theirpotential risk, and the likely problems they might cause. Since disasters come in innumerableforms, there is no one size that fits all in terms of planning and response. Disasters may becatastrophic, with extensive loss of life and infrastructure destruction over a wide area; or theymight be more localized and less cataclysmic. The reality is that if an unanticipated event shutsdown your firm and forces the interruption of client service, it does not matter how it happened orhow many other people are impacted. You have a problem, and you need to respond.
3. Disaster planning can be as simple or extensive as the circumstances and the risks dictate. Atthe very least, every law firm or organization can provide some basic protections:
Have a contact tree so that if people need to get in touch with each other, they can. I did not use the more
popular phrase "phone tree" because in a disaster, phone service may be spotty or nonexistent, so addresses,
e-mail addresses, and emergency contact numbers out of the area might be useful.
Keep basic first-aid equipment, flashlights (with working batteries), canned goods, and water in the office in a
place that everyone knows.
Develop an escape plan. Make sure that everyone knows how to get out of the building, including alternatives if
primary exits are blocked.
Identify an assembly point at a seemingly safe spot outside the building. It might also be wise to have backup
assembly points if the first proves to be inaccessible.
Know who the disaster leader(s) will be, and remember—the person who is most effective in times of tranquility
will not necessarily be the best crisis leader.
In times of disaster, banks and ATMs are likely to be closed, so cash may be the only available currency.
4. Make sure that everyone in the firm knows what do in case of emergency. Disaster plans areuseless when they are not communicated to lawyers and staff, or, if communicated, then stuffedinto a drawer and forgotten. Once again, it is up to firm leadership to ensure that everyone in theoffice remains vigilant, that plans are reviewed and updated periodically, and that resources (e.g.,flashlight batteries) are checked and replenished as necessary. The disaster plan should be astandard part of the orientation of every new partner or employee.
5. Time is of the essence, so be prepared to act quickly and decisively. A hurricane may givemore warning than a tsunami, and civil unrest more time to plan than a terrorist attack. However,the window of opportunity to react and avoid harm is likely to be considerably shorter than youthink. There is certainly no time to plan, and there may or may not be time to react. Whateveryou have done in advance will be essentially the hand of cards you will have to play. Regardlessof your advance preparations and the timeliness of warnings, decisions will have to be made insplit seconds without second guessing. Every disaster produces poignant stories of victims whowaited too long to act, who vacillated about alternatives, or who thought that somehow theywould be spared if they waited out the storm. And it is far better to have evacuated your buildingonly to see the tornado spare the structure than to stay inside for a direct hit.
6. People come first. When disaster strikes, you must protect the lives and safety of your peopleto the greatest extent possible under the circumstances. From the immediate evacuation of youroffices, to identifying survivors and those needing assistance, to reassembling a legal servicedelivery team when it is feasible, never lose sight of this fundamental principle. The corollary isthat you can buy new furniture and equipment, but human life is sacred.
7. Back up your data. The lessons of earthquakes, fires, floods, and other disasters punctuate thefact that files, whether hard copy or electronic, can be obliterated in a moment. When they aregone, they are gone. It might be possible to reconstruct some portions of lost files by going toclients, courts, and opposing counsel, assuming that disaster has not decimated the files of thesesources as well. The far less painful, but considerably more inexpensive solution, is to takeadvance precautions to back up everything and store the records in some alternative location. Inpractice, backup may mean moving physical data to or storing electronic data at a geographicallocation far enough removed from the physical location of the law office that it will not bedestroyed by the same forces that necessitate the backup process in the first place.
8. Identify a place to work. In the aftermath of 9/11, many firms displaced by the collapse of theWorld Trade Center towers and devastation to the surrounding area were able to find space inother parts of the New York City area until permanent arrangements could be made. In NewOrleans, after Katrina, it proved to be weeks before most law firms could return to the city, andsome firms never returned. Some firms may be able to arrange in advance to have access totemporary office space, thereby avoiding the problem of having to compete for space in the post-disaster period. Even so, the nature of the disaster may be such that even the primary backupsite is unavailable. Firms with locations in multiple cities may have an advantage in shiftingpersonnel to other offices, but this solution may leave the firm without lawyers on the ground inthe disaster area, where they may be needed. All firms should periodically review their insurancecoverage to make sure that they will be able to reassemble and replace physical resources thatmay have been destroyed in the disaster.
9. Reach out to clients. Clients are just as likely as their lawyers to experience businessinterruption, displacement, and economic loss. Just as lawyers may find it difficult or impossible tomake court appearances and provide other client services, clients may be precluded fromdelivering their products and ser-vices to consumers. They may experience difficulty meeting legalobligations to their customers and clients. Law firms should have a plan for making contact withkey clients as soon as possible after a disaster to determine the clients' legal needs. Law firms
should also be able to anticipate some if not all of the assistance their clients may require in theaftermath of such events, and make plans to address these needs as soon as possible. It mightmake sense to discuss disaster recovery issues with clients before disaster strikes. This isparticularly appropriate for business lawyers who represent clients in transactional matters.Litigators depend on the availability of the courts to carry out their responsibilities, so if thecourts are closed, as was the case in much of the Louisiana and Mississippi Gulf Coast afterKatrina, trials and related activities are put on hold. At the same time, representation ofbusinesses that are trying to resurrect themselves from the effects of disaster not only benefitfrom legal assistance but must have it in order to achieve their objectives.
10. Share in community healing. Much of what has been written about disaster planning andrecovery has focused on the mechanics of coping with business interruption and getting the firmback into service as soon as possible. It is apparent, however, in looking at recent disasters thatlawyers play a major part in helping to heal the community at large. Following both 9/11 andKatrina, thousands of lawyers donated their time to help individuals and businesses deal with thelegal consequences of their losses, to protect their legal interests to the extent possible, and toadvise them as to what steps they needed to take in order to effectuate recovery. In Louisiana,where the civil and criminal justice systems were shut down by Katrina, lawyers worked to restoreorder and restart the judicial machinery. Lawyers were some of the first to return to New Orleansafter the storm, which signaled to the business community that recovery was possible. In short,lawyers frequently assume a leadership role in community efforts to recover from disaster.
ConclusionThese 10 lessons are simple enough to understand. On some level, we all know that we shouldassess the risk of disaster, plan what to do if disaster strikes, and respond to disaster decisively.The record of humankind in the face of calamity demonstrates that what we know does not alwaystranslate into effective behavior, and sometimes even the best-laid plans are no match for theforces of destruction. Advance planning cannot alter the risk or magnitude of the harm, but it canimprove significantly our chances of weathering the storm. For business lawyers, this advice isparticularly appropriate, because they represent a critical component in the return to normalcy forthe businesses/clients affected by disaster and the community as a whole.
Disaster Planning Resources
American Bar AssociationThe ABA has dedicated several resource pages to provide legal information for lawyersaffected by Hurricane Katrina. This page also provides links to several other Web sitesadvising lawyers how to deal with disaster management. www.abanet.org/katrina/lawyerspractice.html
American Red CrossRed Cross disaster relief provides shelter, food, and health and mental health services toaddress basic human needs when a disaster threatens or strikes. It also feeds emergencyworkers, handles inquiries from concerned family members outside the disaster area,provides blood and blood products to disaster victims, and helps those affected by disasterto access other available resources.www.redcross.org/services/disaster
Association of Legal AdministratorsThe ALA provides a list of disaster-planning-related articles, including "Ready for the Worst:Proper Planning Can Expedite a Law Firm's Recovery from a Disaster," "Weathering theStorm: Technology Disaster Planning," and "Building Better Fences."www.alanet.org/alasearch.aspx?UserId=1&limitLanguage=all&folderId=208&searchText=disaster
Association of Records Management AdministrationThis is a nonprofit association that offers authoritative advice for "best practices"procedures on how to manage and protect paper and electronic information.www.arma.org
DisasterPlan.comThis Web site offers sample business contingency plans and earthquake response plans inorder to facilitate a business's proactive efforts to configure its own plan. The site alsooffers substantial information on how to develop, introduce, and adopt a disaster plan withbudget analysis and cost efficiency in mind.www.disasterplan.com
Disaster Recovery Guide: Disaster Recovery Planning from A-ZThis Web site provides "one-stop shopping" for obtaining knowledge about disasterplanning. Providing links to various other helpful Web sites with the same central objective,this site offers easy-to-follow advice in starting and developing a disaster plan.www.disaster-recovery-guide.com
Disaster Recovery Planning ProcessThis comprehensive Web site outlines the specific phases of disaster planning whileexplaining the relevant methodology behind the process. It also informs the businesspersonthat disaster plans are crucial to curtail financial disaster should a disaster occur.www.drj.com/new2dr/w2_002.htm
Disaster Recovery WorldThis Web site considers all the issues related to disaster and emergency planning, such asestablishing a plan that adequately meets the needs of the business it was designed toprotect. www.disasterrecoveryworld.com
Disaster-Resource.comThis Web site serves as a hybrid portal and research bank, which allows navigators to takea proactive approach in order to locate helpful information, potential vendors, andorganizations in efforts to facilitate disaster planning and readiness.www.disaster-resource.com
FEMA Emergency Management Guide for Business & IndustryThis guide offers a step-by-step approach to emergency planning, response, and recoveryfor companies of all sizes. The Emergency Management Guide for Business & Industry isproduced by the Federal Emergency Management Agency (FEMA). It can be viewed in htmlor pdf format at www.fema.gov/business/guide/index.shtm.
Florida Bar Disaster PlanOne of the most comprehensive sites is organized by J. R. Phelps, director of the FloridaBar's Law Office Management Service. The Model Disaster Plan Outline from the siteappears in the forms section at www.flabar.org.
Law Practice TodaySeveral online-converted articles address planning, recovery, and continuity of a disaster-struck law firm, including the protection of information and clients. These articles arepublished in the ABA's Law Practice Management Section. Representative articles include:
Avert Disaster: Protect Your Practice with Online Backupswww.abanet.org/lpm/lpt/articles/tch10051.html
Disaster Planning After the Apocalypsewww.abanet.org/lpm/lpt/articles/mtt10051.html
Disaster Recovery and Business Continuitywww.abanet.org/lpm/lpt/articles/slc10051.html
Disaster Recovery Planningwww.abanet.org/lpm/lpt/articles/mgt10054.html
Lawyer Leaders: The Opportunity of Katrinawww.abanet.org/lpm/lpt/articles/mba10051.html
Protect Your Clients and Yourself: Prepare for Disaster Before it Happenswww.abanet.org/lpm/lpt/articles/mgt10057.html
Protecting Your Computerwww.abanet.org/lpm/lpt/articles/tch10052.html
Ten Tips in Dealing with Disaster Recovery and Business Continuity Issueswww.abanet.org/lpm/lpt/articles/mgt10053.html
Would You and Your Practice Survive These Common Disasters?www.abanet.org/lpm/lpt/articles/mgt10055.html
LAWPRO MagazineAn informational online-converted article titled "When Lightning Strikes . . . Are YouPrepared?" is aimed at encouraging disaster preparation by planning, preparing, andprotecting the firm's knowledge, database, property, and people. It can be found in pdfformat at www.practicepro.ca/LawPROmag/WhenLightingStrike.pdf.
State of LouisianaThe Office of Homeland Security and Emergency Preparedness "Sample Debris ManagementPlan" may be accessed through this Web site. www.loep.state.la.us
Managing Practice InterruptionsThis Web site contains an online, 36-page booklet helping lawyers organize a disasterrecovery plan. The site includes a short quiz to help determine a lawyer's or a law firm'sability to recover from an unforeseeable disaster. It also provides a step-by-stepinstructional guide to devising and instituting a plan to prepare for disaster survival in pdfformat.www.practicepro.ca/practice/Practice_Interruptions_booklet.pdf
Managing Practice Interruptions SpreadsheetThis site provides a blank spreadsheet and a sample spreadsheet to aid the lawyer or lawfirm in identifying and assessing any weaknesses in disaster readiness. www.practicepro.ca/practice/VulnerabilityWorksheet.pdf
Maryland Bar Disaster PlanThis site offers an article on "Disaster Planning: Protecting Your Firm, Your Clients and YourFamily." www.msba.org/departments/loma/articles/officemngmt/disasterplan.htm
Minnesota Historical Society Materials on Document Preservationwww.mnhs.org/preserve/conservation/emergency.html
National Fire Protection AssociationThe National Fire Protection Association provides codes and standards, research, andtraining in order to educate the public, thereby minimizing worldwide engulfing fires andpreventing grave fire loss. The 300 codes advocated on this Web site influence the design,architecture, and construction of every building erected in the United States and evenworldwide in order to protect against fires and fire damage.www.nfpa.org/index.asp?cookie%5Ftest=1
Non-Profit Coordinating Committee of New YorkThis Web site contains an all-inclusive guide to disaster readiness, offensive planningstrategies, and business continuity in Word format.www.npccny.org/info/Disaster_Planning.doc
Northeast Document Conservation Center (NDCC)The Northeast Document Conservation Center's mission is to advance conservation andpreservation efforts of libraries, museums, historical organizations, and other institutions.This site offers links to other vital disaster planning sites that outline an organized approachto disaster planning.www.nedcc.org/resources/leaflets/3Emergency_Management/03DisasterPlanning.php
Oklahoma Bar Disaster Planwww.okbar.org/members/map/articles/disaster.htm
Public Entity Risk InstituteThis organization provides governmental agencies, small businesses, and small nonprofitorganizations advice and counseling for risk management. It provides links to yearly RiskManagement Yearbooks that examine past disasters and resultant effects to achieve a"lessons-learned" proactive approach to disaster planning and hazard mitigation.www.riskinstitute.org/PERI/PTR/ptr_emergency.htm
Rothstein AssociatesThis association specializes in disaster survival consulting. Its Web site features the mostup-to-date information regarding disaster planning for businesses. Additionally, the Website provides a disaster recovery forum, where professionals and novices can share their
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ideas, ask questions, and raise issues regarding disaster strategies.www.rothstein.com
Tennessee Bar AssociationThe Tennessee Bar Association provides "Disaster Recovery: Steps to Take in RecoveryEffort," an itemized list of practical steps to be taken in the areas of damage assessmentand business continuation.www.tba.org/tnbarms/disaster.html
U.S. Department of Homeland SecurityThe U.S. Department of Homeland Security has devoted a Web site focusing on emergencypreparedness and response stemming from all natural hazards and man-made disasters.This Web site offers valuable information regarding both emergency planning and businesscontinuity planning.www.ready.gov
U.S. National Archives and Records AdministrationFrom the home page, look up emergency preparedness. You may also enter the Webaddress below. It will bring you right to "Vital Records and Records Disaster Mitigation andRecovery: An Instructional Guide."www.archives.gov/records-mgmt/vital-records/index.html
U.S. Navy Disaster Planning BibliographyThis Web site offers one of the most comprehensive, useful, and specific disaster-relatedlist of references available on the Internet.www.navy.mil
This list of online resources has been updated from one that appeared in Gary A. Munnekeand Anthony E. Davis, The Essential Formbook: Comprehensive Management Tools forLawyers, Volume IV, (American Bar Association, 2004).
Munneke is a professor of law at Pace University School of Law, White Plains, New York, and amember of the Board of Governors of the ABA. His e-mail is [email protected]. The viewsexpressed in this article are solely those of the author and do not represent the policy or positionof the ABA on the issues addressed.
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Business Law Today
Volume 17, Number 3 January/February 2008
Second This!A Personal Look Back at My Secondment
By Craighton Goeppele
My experience while on secondment, with both its risks and challenges, gave me many fresh, newperspectives that helped me grow both personally and as a lawyer. When done well, asecondment can benefit all involved: client, law firm, and lawyer.
In 1996, I was a fourth-year associate in the Seattle offices of Graham & James LLP/RiddellWilliams P.S. I enjoyed all the benefits of working in a firm--a comfortable office with a stunningview of Puget Sound and the Olympics, a secretary I shared with another attorney, easy access toa state-of-the-art library, IT, a matter management system, and seasoned, fun mentors andcolleagues. I worked hard, but life was comfortable and predictable.
I also had a strong interest in international practice and kept asking about opportunities. Thetiming was perfect as our Seattle office had recently joined the international law firm of Graham &James. The firm offered me the opportunity to go to our Tokyo office and be seconded to ITOCHUCorporation, then our firm's biggest client.
I had never heard of the term "secondment" before 1996 and could not find the term in anydictionary that I had. In the legal world, a secondment is a temporary loan by a law firm of one ofits lawyers to a client to work in-house in exchange for a fixed or reduced rate.
To my surprise, my wife, also a lawyer, agreed to leave her job and move to Tokyo with our twosmall children. Altogether, we lived and worked in Tokyo for almost two years. I worked first atITOCHU on secondment for a year and a half, and then for about six months in our firm's Tokyooffice.
Much of this article is about my own experience and what did and did not work for me. I also
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received input from my boss at ITOCHU, Kirk Maeda, and Starbucks general counsel, Paula Boggs,who have both worked with lawyers on secondment.
Benefits and What Helped MeBenefit 1: Quality Work and Broad Experience. The most immediate benefit for me was getting aready, hands-on opportunity to deal directly with clients on quality work at ITOCHU. There werenot enough hours in the day to do all of the interesting work that soon came my way. There were,for example, infrastructure projects in Asia that needed complex agreements, joint ventures,financing arrangements, privatizations, and product liability litigation, in several different countriesthroughout the region and the world.
To be successful in most secondments, you have to be willing to learn new things and to practiceoutside of your specialty. This doesn't mean that you fly solo all the time, but it does meanbreaking with the increasing trend toward specialization in our practice.
My work on secondment was also made more interesting because I had the opportunity toparticipate substantively in and provide material advice on projects at a much earlier stage than Iwould have as outside counsel. This meant that my work had greater impact on the eventualoutcome of a project, which was due in part to my proximity to the client, and partly to the factthat as my time was not being billed on an hourly basis, my business clients were not afraid toinvolve me early on.
Benefit 2: Becoming a More Mature Legal Counselor. A good secondment will help expedite yourevolution from a junior, technical lawyer into an effective legal and business counselor. In theearly years of practice, attention to detail and technical perfection are of critical importance in thelaw firm environment. Lawyers spend a lot of time honing technical skills, whether it be draftingagreements or navigating through litigation in a law firm.
When you go in-house on secondment, these skills do not become irrelevant, but they do becomepart of the overall objectives of the organization for which you are working as a secondee. Thismanifests itself in several ways.
First, your communication with your business clients becomes more abbreviated. This is necessarybecause your businesspeople are going to view you as a problem solver on their overall team, andnot as a source of lengthy, erudite memoranda.
Second, the legal aspects of a matter are often one of a number of competing considerations thatneed to be taken into account when addressing an issue. There may also be tax, customs,financial, accounting, strategic, or other reasons that are being balanced by decision makers.Obviously, the exception to this is when the legal risks involved are significant, such as whenthere is potential criminal liability or significant legal exposure, and then one needs to have thepolitical savvy to figure out how to escalate issues in a constructive manner.
Third, you need to understand your client's business. I will never forget a conversation with myboss at ITOCHU, Kirk Maeda, when I received a very big, complex business model for an Asianinfrastructure project. I groused to him as I opened it: "Well, I can't do much with this; I'm just alawyer." Maeda-san lost no time in replying: "You can't do a good job in knowing what's importantwhen you draft the agreements for this project if you don't understand the business model—it'sactually the most important thing for you to read." A simple conversation, but it captures the veryessence of the experience as a secondee. Your work is not a stand-alone legal work product butan integral part of the business objectives of your clients.
Therefore, even as the breadth of your legal work becomes less focused on a narrow legal area asa secondee, there is one area that you should be focused on learning as much as you can: theoverall business of the company to which you are seconded. This remains true even when youreturn to private practice; if you take time to know and understand your client's business, youradvice will be more focused and ultimately more useful for the client.
Finally, and most importantly, as a secondee, you will find that the scope of your advice will notbe limited to strictly legal counsel. Often, your business clients are looking not just for legalguidance but also sound commercial advice. I have found this to be one of the most satisfyingparts of my secondment, and continue to enjoy this now as an in-house lawyer.
Benefit 3: Getting the Client Perspective and Managing Outside Counsel. Perspective means a lotin life. I experienced this when I started reading newspapers while in Japan, and realized how theAmerican news media has a distinctly American point of view. Equally, I was privy to a similarshift in perspective—suddenly, with outside law firms, I was now the client obtaining services
sometimes with my firm, but more often with other law firms.
As a client, I saw a lot of things that drove me crazy with outside lawyers. For example, Isometimes received long memos from "two-handed" lawyers ("on the one hand . . ., on the otherhand") that did not recommend any preferred course of legal action. Other lawyers came up withincredibly impractical approaches to issues or were unresponsive. I even had a lawyer whorepeatedly missed deadlines, despite my e-mails and calls. When I finally did reach him, he wason the beach, enjoying a three-week Caribbean vacation that he had neglected to inform meabout before he left. Fortunately, none of the above-mentioned incidents were with my own firm.I was taken aback by these experiences, which seemed significantly below even the minimumlevels of common sense or courtesy that I thought were basic to the legal profession.
I also had great experiences with outside counsel, where the answers or advice were clear,practical, and as succinct as the subject matter allowed. Once you have had to hold outsidecounsel accountable for helping on a project, it becomes clear what providing great legal serviceis. Quite simply, it involves understanding your client's issues and communicating adviceproactively and clearly regarding how to address those matters.
Benefit 4: Becoming Resourceful (i.e., "Tips for Survival"). I did not make it through my one anda half years on secondment without any help. First, my assignment overlapped for several monthswith my predecessor secondee, Alan Ross, a very bright lawyer. I attended meetings with him andwe had lunch together regularly. He taught me about the business, the company, and the matterswe were handling, and helped me better understand what resources and tools I could use.
Second, several people at my law firm helped me in those areas that were totally new. I receivedform documents, outside counsel recommendations, and other advice, as well as invaluableperspective. The opportunities for this kind of information sharing with secondees are even greatertoday than they were in the mid-1990s when I was on secondment. For example, some firms usesecure extranet sites to facilitate sharing of tools and templates with both in-house counsel andthe secondees they work with at companies.
Third, and finally, I used outside counsel on specialized matters in different countries, budgetpermitting. This was essential, particularly when I had projects in many different countries in Asiain which legal systems were rapidly evolving.
Benefit 5: Post-Secondment: Knowing the Client Perspective or Going In-House.My secondmentexperience was also helpful to me afterward, as it gave me perspective on what clients want anddo not want from their outside counsel. It also fostered, while I continued in Tokyo with theoffices of Graham & James, a good stream of ongoing, interesting work that I did for another sixmonths before returning to our Seattle office.
A couple of years later, it also helped me adapt more quickly to working in an in-house positionwhen I joined Starbucks. I was better accustomed to the wide range of issues an in-housecounsel faces, and realized from the beginning that I needed to understand my company'sbusiness so that my advice would align with its strategic objectives.
Risks and ChallengesOverall, my experience as a secondee was positive. However, there were some risks andchallenges that I faced both during the secondment and afterward that those about to embark onsecondment should bear in mind.
Risk/Challenge 1: Fewer Resources. First, going from a law firm environment to an in-housesecondment makes you realize how many great resources you have at your fingertips in a lawfirm where you, as a lawyer, are a profit generator. In an in-house secondment, you play animportant but supporting role in a larger business universe where you are a cost. You will notlikely have a law library down the hall and may not have online research capability. Back in themid-1990s when I was at ITOCHU, our law library was in multiple languages, not always up-to-date, and had limited coverage on different subjects. (I understand that there are now onlineresources, but they remain limited compared to those at a law firm.) In those days, I also hadvery little administrative help and no IT support, so I had to mostly fend for myself in thoseareas. The flip side of this risk/challenge is that as a seconded lawyer, one becomes a lot moreresourceful.
Risk/Challenge 2: Role of the Secondee with His or Her Law Firm. A secondee is in an unclearposition with his or her law firm and company. In my case, I was working at the company full-time, without interruption for a year and a half, and could not help but identify closely with theobjectives of the company. At the same time, in most secondments, the law firm is paying the
secondee's salary. This is not easy, especially when a secondee is acting in effect as in-housecounsel on a project as well as managing a project where more senior members of his or her firmare providing assistance. To work well in these situations, two things need to happen. First, theother members of the outside law firm should not take their colleagues' insider status as secondeefor granted—they should realize they need to deliver results in order to make both the secondeeand themselves successful. Equally, the secondee needs to be direct with his law firm counterpartsregarding what's needed, regardless of law firm status. This, of course, should be done withoutinvolving the company in these conversations. All the client should see is results from thecombined efforts of the secondee and the firm.
Risk/Challenge 3: Partnership. Going on secondment meant a hiatus from being close to thosewho make law firm partnership decisions at a critical time as an associate. It also meant thatothers picked up clients with whom I had developed strong relationships before I went onsecondment.
This risk can be offset in a successful secondment because it is often the case that the companyhopes that the secondee will eventually become a partner so that the company can have an evenstronger relationship with the firm after the secondment. Accordingly, if you do a good job as asecondee, especially for an important client, it may increase your chances of becoming a partner.
Risk/Challenge 4: Connection and Reintegration. Remaining connected to the law firm was nothard when we were working on projects together, but was difficult in between projects. And,although it wasn't hard to reintegrate into the firm at the end of my secondment, I found that Iwasn't able to fully use what I had learned. While I remained in Tokyo, I continued doinginteresting work with ITOCHU. I also was welcomed back to Seattle where I received a lot ofinteresting new work with great lawyers, but my secondment experience had less relevance.Therefore, if you are planning to go on secondment, you should ask questions about reintegrationand think hard about how you want to shape the next chapter of your practice and career.
Ensuring a "Win-Win" ExperienceIn the end, the most successful secondments are those where the secondee, the law firm, andthe company benefit. As with any human relationship, the best ones do not generally happen byaccident, but require forethought and work to be successful.
Up to this point, the secondee has been the focus of this article and the benefits are clear: greatwork, maturing as a legal counselor, gaining the client's perspective, becoming resourceful, andfinally, post-secondment, being better equipped to advise clients effectively as outside counsel orsegue into in-house practice. To make the most out of a secondment, a secondee needs to beflexible, eager to learn, willing to work hard to repay the trust the law firm has put in him or her,and not view the role as that of a narrow, legal specialist.
The benefits for the law firm include the development of its lawyers and increased client loyaltyand confidence. The firm should be prepared to support its secondee with tools, advice, and otherresources to help the secondee overcome the more limited resources available at the client'soffice, and should actively discuss reintegration and career paths post-secondment.
Finally, the company benefits because it can receive, at a reduced cost, the assistance of anoutside lawyer who has become far more familiar with the company and its business than it wouldunder other circumstances. My boss at ITOCHU, Kirk Maeda, put it more succinctly: "A successfulsecondment is a true partnership among the client, the firm, and the secondee." At Starbucks, wehave had secondees as well, and our general counsel and executive vice president, Paula Boggs,believes that
[T]he seconded lawyer can be an invaluable resource. Typically, the opportunity arises because oftremendous need, and in my experience, we almost always seek a lawyer from our most valuedoutside firms. The best seconded lawyer is one with the requisite subject matter expertise, whoknows or is willing to learn our business, and who brings with him or her a "can do" spirit. Whendone right, it is a huge "win-win" for the company, lawyer, and firm. Seconded lawyers havemade great contributions to the Starbucks legal team and we will continue to deploy them wherenecessary.
Finally, would I do a secondment again? Absolutely.Goeppele is Starbucks Corporation's senior director of corporate counsel for Europe, the MiddleEast, and Africa and is based in Amsterdam. His e-mail is [email protected]. Goeppeleoffers special thanks to his assistant, Anne Jaffe, for her assistance in reviewing and editing thefirst draft of this article.
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Business Law Today
Volume 17, Number 3 January/February 2008
Coping with ChallengesLawyer Assistance and Law Office Management Assistance Programs
By Ellen Murphy
As the legal profession has evolved over the years, the focus of lawyer assistance programs(LAPs) has changed dramatically. While in the past, LAPs primarily assisted lawyers with drinkingproblems, depression is now one of the main reasons lawyers ask for help from theseorganizations.
DepressionA 1991 survey of over 100 occupations by Johns Hopkins University found that lawyers are morelikely to be depressed than those in any other profession. Lawyers are 3.6 times more likely tohave depression over the course of a lifetime and have depressive episodes more than any otherprofessional. More recent state and national studies also conclude that lawyers suffer fromunusually high rates of clinical depression. An article appearing in the ABA Commission on LawyerAssistance Programs (CoLAP) newsletter Highlights states that more than 40,000 ABA memberslikely suffered from depression within the past year.
The subject of a recent Boston Globe article, Lawyers Concerned for Lawyers (LCL) (the solelawyer assistance program in Massachusetts), has seen depression and anxiety equal or surpassalcohol and drug problems for five of the past 10 years. In 2005, 26 percent of all lawyers whosought counseling needed assistance with depression or anxiety, while 21 percent cited strugglingwith alcohol or drugs. As a result of this shift, LCL is altering its marketing program, encouraginglawyers to seek help for any personal issue, not only for substance abuse.
Causes of DepressionPrincipal reasons for depression among lawyers are:
tight deadlines;
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the conflict-driven nature of the profession, which conditions lawyers to be aggressive, analytical, and
emotionally withdrawn;
professional training that prompts lawyers to look for negative aspects in situations;
the personality type of individuals drawn to the law in the first place--high achievers and perfectionists; and
a culture that imposes arduous billable-hour requirements and little personal time.
These issues, when taken together, create enormous pressures on lawyers, which, in turn, maylead to depression.
Substance AbuseWhile depression is now being given increased attention, substance abuse among lawyers remainshigh.
An estimated 81,000 to 117,000 ABA members will have had one or more alcohol, drug, or mental (ADM)
disorders within the past year.
Over 56,000 ABA members will have a lifetime alcohol dependence disorder, and over 30,000 will have a
lifetime drug (other than alcohol) disorder.
Almost 45,000 ABA members have had a substance abuse (alcohol or drug) disorder in the past year.
Many lawyers often have both a substance abuse problem as well as depression. Jim O'Neill of theMenninger Clinic, a specialty psychiatric hospital in Houston, points out that an estimated 40 to 60percent of all adults with an alcohol or drug problem also suffer simultaneously from a psychiatricdisorder sometime in their life.
When these problems remain untreated, the affected lawyer's professional and personal lives bothsuffer. Reasons for not seeking treatment include, but are not limited to, denial that a problemexists, uncertainty about the availability of treatment, lack of adequate insurance coverage fortreatment, and the stigma involved in having a disorder.
Seeking AssistanceYou should know that expert help designed just for lawyers is nearby and readily available. Thereare two types of programs: lawyer assistance programs and law office management assistanceprograms. While these programs may work together, they in fact serve different purposes.
Lawyer Assistance ProgramsLawyer assistance programs, or LAPs, have been providing free, confidential, and professional helpto lawyers, judges, and law students for many years. While some lawyers may be familiar withLAPs, many mistakenly believe these programs are solely for lawyers dealing with addictions orsevere mental illness. Although LAPs deal with these issues, they also help lawyers handle manyother challenges, including:
work/life balance;
anxiety;
stress and burnout;
financial problems;
career concerns;
practice management; and
marital and family issues.
There is a LAP in every state (either private or public) and in many local and county bars.Confidential services are available free of charge, in most cases, to all members of the bench andbar and, in some jurisdictions, their families.
LAPs are staffed with trained professionals (e.g., lawyers, clinicians, practice managementadvisors) who provide consultation, assessment, and, if appropriate, referral to a third-partycoach, counselor, or other professional with your individual needs in mind. LAPs work especiallyhard to match all referrals based on geography, insurance providers, and other individualpreferences.
LAPs may also offer group meetings for lawyers, including ones that are recovery or nonrecoverybased. Non-recovery groups may focus on issues such as women lawyers and depression,transitioning to retirement, or the challenges facing solo practitioners, just to name a few.
It is important to keep in mind that state statutes or court rules ensure confidentiality at LAPs;check with your state LAP to find out which rule applies. Not only is your identity protected, butthe content and specifics of your call, visit, and history are as well. Your anonymity, health, andwell-being are the LAP's foremost concern.
Law Office Management Assistance ProgramsLaw office management assistance programs (LOMAPs) provide additional services in many states,either as part of a LAP or as a free-standing entity. Where a LOMAP exists within a LAP, the sameconfidentiality provisions apply. LOMAPs focus on the "business of law" and assist with practicemanagement issues, including but not limited to:
technology consulting;
calendaring and docketing systems;
billing and collecting;
time-keeping systems;
file maintenance;
trust accounting instruction; and
malpractice insurance decisions.
The goal of a LOMAP is to help lawyers establish and institutionalize professional office practicesand procedures to increase their ability to deliver high-quality legal services, strengthen clientrelationships, and enhance their quality of life. States that have a LOMAP provide this assistancethrough consulting services, reference materials, educational programs, and referrals to otherprofessionals.
For example, a typical LOMAP client would be a solo or small firm practitioner who is just startingout and wants assistance creating a business plan or partnership agreement, or a lawyer whoneeds assistance understanding the requirements of Interest on Lawyers' Trust Accounts (IOLTA).Other clients may include a lawyer who has purchased technology but doesn't know how to use iteffectively and efficiently, or one who is in the market for new equipment but doesn't want tooverbuy. LOMAPs address each of these needs.
Additional Resources
For a state-by-state directory of lawyer assistance programs, visit
www.abanet.org/legalservices/colap/lapdirectory.html.
For more information on law office management assistance programs, visit the ABA's Law Practice
Management Web site at www.abanet.org/lpm/home.shtml.
Lawyers with Depression is a Web site devoted specifically to lawyers with depression. Visit
www.lawyerswithdepression.com.
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See the Massachusetts Lawyer Assistance Program Library of Articles at www.lclma.org/contentart.htm?
sid=23.
Murphy is the former executive director of Lawyers Concerned for Lawyers, a private, nonprofitMassachusetts corporation that is the state's sole lawyer assistance program. LCL may be reachedat [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Navigating the Litigation Landscape in CanadaSecuring Evidence and Enforcing Judgments
By Stephen C. Nadler
The United States shares a lot more than a very large border with its northern neighbor--Canadais also the United States' largest trading partner, while the United States is certainly Canada'slargest trading partner as well. These business dealings, like any other, often result in disputes,and at times, the need to resort to litigation.
A question that must be asked before embarking on a lawsuit against a Canadian resident iswhere that lawsuit ought to take place and, if in the United States, whether the court's judgmentwould be enforceable in Canada (where the Canadian defendant's assets are presumably located).
On a separate front, it is common for lawyers, during the course of lawsuits taking place in theUnited States, to wish to depose and/or obtain documents from nonparty witnesses (whetherindividuals or corporations) residing or situated in Canada.
This article will provide a brief, yet practical overview of the principal considerations that comeinto play in the scenarios described above.
Securing Evidence from WitnessesIn the situation where a party seeks evidence from a Canadian nonparty witness, litigators oftenmistakenly assume that all they need to do is serve a subpoena on the Canadian resident, who isthen legally compelled to produce the requested documents and/or attend his or her deposition.However, it does not work this way. Since the subpoena powers of a U.S. court do not extendoutside the country's borders, a subpoena has no legal effect in Canada.
Instead, one must look to the Canadian courts to direct the Canadian witness accordingly. To dothis, litigation counsel in the United States first needs to apply for the issuance of letters rogatory
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(also called "letters of request") from the court in which the U.S. action is taking place.Essentially, letters rogatory is a document, signed by a judge or other court official, that simplyand politely requests the cooperation from the applicable Canadian court to compel the Canadianresident to give evidence for purposes of the pending U.S. lawsuit. Since this document is anecessary first step, the U.S. lawyer should consult, in advance, a Canadian lawyer to ensure thatthe form and content of the U.S. court's letters rogatory are sufficient for the Canadian court'srequirements.
After the letters rogatory are issued by the U.S. court, local Canadian counsel will need to beengaged to bring an application proceeding in the Canadian province in which the witness issituated, seeking an order compelling the witness to give evidence as requested by the lettersrogatory. The enforcement of foreign letters rogatory in Canada is permitted under the CanadaEvidence Act and similar applicable provincial statutes. This enforcement is based on the principleof judicial and international comity, by which the Canadian court is asked to give effect to therequest for assistance being made in the U.S. court's letters rogatory out of courtesy and respect,not because it is under legal obligation to do so.
The Canadian application proceeding to enforce the U.S. court's letters rogatory is usually broughtin a summary format, akin to a motion, with evidence submitted through affidavits. The affidavitthat is filed in support of the application is usually prepared by Canadian counsel in the name ofthe litigation lawyer handling the case in the United States. The affidavit must establish that:
(a) the evidence sought by the letters rogatory is relevant to the issues raised in the U.S. action;
(b) such evidence cannot reasonably be obtained without the assistance of the Canadian courtand that other methods for obtaining the evidence have been exhausted;
(c) the evidence sought is necessary for trial and will be adduced at trial if admissible;
(d) the enforcement of the letters rogatory would not be unduly burdensome in thecircumstances, and would not impose obligations that are not otherwise available in Canadianactions; and
(e) where the production of documents is also sought, such documents are identified withreasonable specificity.
If the above factors cannot be established to the satisfaction of the judge hearing the application,the application will likely be dismissed. With regard to (b) above, it is recommended that a letterbe sent to the proposed deponent requesting that he or she voluntarily submit to the requesteddeposition and voluntarily produce the sought-after documents, before the issuance of any lettersrogatory (and, therefore, before any court application is commenced in Canada to enforce thoseletters rogatory). A copy of that letter and a copy of any responding letter are then attached asexhibits to the affidavit to establish that the letters rogatory and court application are necessary,given the deponent's unwillingness to attend at his or her deposition and/or produce documentsvoluntarily.
A party has the right, under the Canadian court's rules, to cross-examine the other party on hisor her affidavit filed in respect of the proceeding. These cross-examinations take place before thehearing and are arranged by Canadian counsel. In the writer's experience, however, cross-examinations on affidavits are rarely done in these types of proceedings. Ultimately, if theproceeding is opposed, a court hearing takes place at which the lawyers make submissions beforea judge based on the affidavit evidence filed, transcripts of any cross-examinations that may havetaken place, and case law.
Given these steps, however, and depending on the court's availability, it can sometimes takeseveral months before the application proceeding is ultimately heard by the Canadian court. Thisoften comes as a surprise to U.S. lawyers who are frequently under the constraint of court-ordered timetables to complete all depositions within a short period of time and are, therefore,upset to learn that it will simply not be possible to obtain an order requiring the witness in Canadato attend a deposition within a few weeks. Accordingly, if it is anticipated that there will be a needto secure evidence from a Canadian witness, counsel should build a sufficient amount of time intoany timetable to accomplish this step.
Generally speaking, the deposition will take place in the county where the Canadian resident lives.This is always subject to the witness agreeing otherwise. For example, it may be possible tosecure the witness' cooperation to travel from Toronto to Florida in winter for a deposition wherethe witness will be paid for his or her hotel expenses and airfare.
Enforcing a U.S. Judgment in CanadaIf you are about to commence an action against someone living in another country, it isunderstandable for you to want to bring the action in your home court. Aside from theconvenience factor, you are presumably more familiar with your state's laws and court procedures,and may have existing relationships with local lawyers.
However, before taking the plunge, you should look further down the road to the issue of theenforcement of your judgment. As with a subpoena issued by a U.S. court, a U.S. court judgmentis not automatically enforceable in Canada. The judgment needs to be converted into a Canadianjudgment to make it enforceable against a debtor in the applicable Canadian province.
To do this, you need to have Canadian counsel commence an action in the Canadian provincewhere the debtor (or its assets) is situated for a judgment recognizing and enforcing the U.S.judgment. For ease of reference, I will use the example of a plaintiff commencing an action inMichigan against a defendant located in Ontario and obtaining a money judgment against thedefendant.
In such an action, the Ontario court will need to be satisfied that the Michigan court hadjurisdiction (also known as "personal jurisdiction" or "in personam jurisdiction") over the Ontariodefendant in the lawsuit.
Generally speaking, the Canadian courts will recognize that the U.S. court had jurisdiction over theCanadian resident in a number of ways.
For example, jurisdiction will exist if the Ontario defendant submitted to the jurisdiction of theMichigan court. In that regard, if the Ontario defendant defended or otherwise sufficientlyappeared in the Michigan action, he will be deemed to have submitted to the jurisdiction of theMichigan court. He will later not be able to argue in the subsequent enforcement action in Ontariothat the Michigan court did not have jurisdiction over him.
Accordingly, the question of whether jurisdiction existed or not really only arises where theOntario defendant elects not to defend the Michigan action and judgment is rendered against thedefendant on a default basis. In that situation, jurisdiction over the Ontario defendant by theMichigan court would have to be established in another way.
The Ontario defendant may be deemed to have consented to the Michigan court's jurisdiction if,for example, it agreed in its contract with the Michigan plaintiff that any actions arising from thecontract could take place before the courts in Michigan. It is therefore stongly recommended thatsuch "choice of forum" clauses be included in all contracts with Canadian parties. "Choice of law"clauses should also be included in any such contracts, although such clauses are not determinativeof the issue of jurisdiction.
Another basis for jurisdiction is presence-based jurisdiction. If, at the time the Michigan actionwas commenced, the Ontario defendant resided in Michigan or regularly carried on business inMichigan through a permanent office it maintained there, the Michigan court will likely be seen ashaving jurisdiction.
A further (more catchall) basis for jurisdiction is based on the Michigan court assuming jurisdictionover the Ontario defendant. In 1990, the Supreme Court of Canada, in its landmark decision ofMorguard Investments Ltd. v. De Savoye, [1990] 3 S.C.R. 1077, established the "real andsubstantial connection" test that needs to be satisfied before a court is able to assume jurisdictionover a foreign defendant. Applying that test to our example, jurisdiction may be found if there is areal and substantial connection between the state of Michigan and the subject matter of thelawsuit or the defendant.
Whether or not the real and substantial connection test is satisfied in any given case depends onthe specific facts of each case. For example, if the Michigan lawsuit against the Ontario defendantwas for breach of a contract that required the defendant to ship goods to, or perform services in,Michigan, chances are that the real and substantial connection test would be met and the Ontariocourt would recognize the Michigan court's jurisdiction over the Ontario defendant. If, on the otherhand, the contract provided for the services to be performed entirely in Ontario, and the Ontariodefendant had no ties whatsoever with Michigan, it is likely that this real and substantialconnection test would not be met and that the Ontario court would find that the Michigan courtdid not have jurisdiction over the Ontario resident. In that event, the Ontario court would notrecognize the Michigan judgment.
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Generally speaking, in the Ontario action to enforce the Michigan judgment, the defendant wouldnot be able to defend the action on the merits. It would not be able to allege, for example, thatthe products or services that the Michigan plaintiff supplied were deficient and therefore it shouldnot have to pay the judgment. So long as the Michigan court had jurisdiction over the defendantand it was given an opportunity to defend the Michigan action, the Ontario court would likely saythat it should have asserted any defenses on the merits in the Michigan action and it is simply toolate to do so at the stage of the Ontario enforcement action.
ConclusionIn summary, although anyone is free to bring a lawsuit against a Canadian defendant in one's"home court," a plaintiff should give serious thought as to whether its judgment will later beenforceable in the Canadian province in which the defendant is situated. Obtaining a legal opinionon that issue from a Canadian lawyer, before commencing action in the United States, cancertainly help you to decide where your lawsuit should take place.
Similarly, early consideration should be given to whether evidence may be needed from Canadianwitnesses so that plenty of time can be allotted to obtain letters rogatory and complete therequired proceedings in Canada to secure the desired evidence.Nadler is a partner with Toronto-based Minden Gross LLP. His e-mail [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Mediation and the Business DivorceResolving Disputes When the Business Relationship Ends
By Barry Y. Weiner
Divorces among principals in a business frequently occur due to retirement, sickness, death,internal disputes, and financial successes or reversals. Business divorces can be very disruptive,difficult, messy, expensive, and fraught with risk, particularly for an ongoing business operation.Ideally, the parties can control the circumstances and result of a business divorce by entering intoa partnership or shareholder agreement at the outset of the business relationship. However, in theabsence of such an agreement, parties typically face unpleasant options if hostilities arise, such assuing each other or a forced dissolution and liquidation. With each of these options, third partiesor circumstances, rather than the business principals, will dictate the result.
To minimize these undesirable options, warring parties to a business divorce who do not havepreexisting agreements dictating how the business separation shall be handled should seriouslyconsider mediating their dispute. Confidential and informal, mediation permits the warring partiesto take a step back from confrontation and explore a resolution of the dispute with a neutralentity. Three factors, however, can profoundly affect the quality of the mediation and the result:timing, mediator selection, and preparation. These factors are of particular importance in abusiness divorce where emotions may be running deep and wide.
While a mediation and resolution early in the dispute may result in cost savings, limit one'sexposure, and bring finality, those considerations may be outweighed by others. For instance, theparties may not have sufficient information to make decisions on settlement, in which event avoluntary exchange of such information or discovery in court/arbitral proceedings may first berequired. Similarly, if the parties emotionally or psychologically require some "blood letting" orreflective time to contemplate the situation and their settlement position, the timing may not beright. In those cases, while counsel might consider raising the prospect of mediation with clientsand perhaps opposing counsel, the better decision may be to revisit the idea at a later date. In a
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business divorce with an ongoing operation at risk, however, time may not be on anyone's side.
While the timing may be right for the mediation to proceed, if the mediator is not right, themediation may well be a waste of time. Accordingly, counsel should take the time to carefullyreview the background, experience, reputation, and availability of potential mediators. Specificallyparties should look at the following when selecting a mediator:
The mediator's training and experience with the process.
The mediator's experience in business disputes of the type and nature involved in the particular case.
A mediator who will not only facilitate discussion among the parties but will evaluate claims as well.
Someone with a background as a trial lawyer. While not an absolute pre-condition, this is helpful in fully
appreciating the trial process and the chances of success.
A mediator who is willing to adapt the process to the circumstances, parties, and counsel.
Availability on the dates selected for the session with the parties, as well as before, during, and after the
mediation. The mediator must be able to give you his or her undivided attention for the time the case requires.
In other words, don't shortcut your due diligence in selecting the right mediator. Carefully thinkthrough how the candidate matches up with the issues and the parties involved, and don't beafraid to ask questions and seek commitments. If, however, the candidate is unavailable torespond to your questions, move on to someone else. If he or she is that busy, the odds are thatyour case will not be given the kind of attention it warrants.
In order to maximize the opportunities presented by a mediation, the mediator should, prior tothe mediation session, speak with counsel, collectively and individually, to fully appreciate thefactual, legal, and practical issues that separate the parties. These pre-mediative sessions can goa long way in identifying the parties' common interests in a resolution, and substantially improvethe mediator's preparation for the upcoming sessions with the parties. Parties should also confirmthat the mediator will follow up after the mediation, as persis-tence is an important characteristic.
With the decision to mediate having been made, a mediator selected, and presession contact withcounsel completed, the mediation sessions with the parties can begin. After an initial get-togetherconsisting of the mediator's greetings, summary of the process, and whatever openings have beenagreed to, separate break-out sessions with the mediator are in order.
Following an appropriate period for venting, the mediator in these separate meetings shouldexplore with each party what that party believes is a fair basis for the split-up. The mediatorshould be prepared to explore options with the parties. In a business separation, options include(1) an internal sale by one principal to the remaining principal in the company; (2) a sale of one'sbusiness interest in the company to a third party; (3) a sale of the entire business to a thirdparty; or (4) a planned dissolution and liquidation of the business.
Ultimately, the mediator needs to identify a commonality of interest among the parties and todevelop a shared basis on which the business divorce might realistically be concluded. If expertassistance is required (e.g., market value, accounting, and tax matters), the parties should cometo the mediation with that information. Beyond the mediator leading and facilitating thediscussion, the active participation of the parties and their counsel is a critical component if anagreement is to be reached. A prepared and skilled mediator alone is not sufficient.
In the development of these discussions, most parties and counsel expect, desire, and need abalance between facilitating and evaluating from the mediator. While the process is designed forthe parties to reach agreement through the facilitation of discussion by the mediator, at somepoint, mediators should be prepared to offer evaluative comments as to positions to continuemoving the discussion along to a resolution, particularly when asked. Evaluation should nothappen too soon in the process because there can be nothing more destructive than a mediatorwith no patience who insists on offering opinions at the beginning of break-out sessions as to howto resolve the dispute; it is a sure way to adversely affect confidence in the process and themediator and to anger the parties and counsel. Conversely, if a mediator steadfastly refuses tooffer evaluative comments, the mediation will be negatively impacted as well. To effectively dealwith this issue, counsel should specifically discuss his or her expectations with the potential
mediator at the interview stage.
If an agreement is reached, the mediator, with the assistance of counsel, should prepare a writtenagreement to be signed by the parties before the session concludes that day, even if it is subjectto a more formal agreement. To the extent disputes arise with respect to finalizing the formalagreement, the parties should include a clause authorizing the mediator to be the final arbiter ofsuch dispute(s).
Three examples of business divorces follow where the above considerations are illustrated, thefirst of which involved no mediation, the second an early mediation that failed and was neverrevisited, and the last where mediation was aggressively pursued and succeeded.
Stewart and MikeThree years apart in age, brothers Stewart and Mike engaged in a successful law practice formany years. The practice operated as a partnership but without any written agreement, and thetwo brothers acted as principals, overseeing the work of two to four associates. Stewart managedthe business side and Mike the sales side of the practice; each was a capable practitioner andsplit the profits equally.
In his mid 50s, Mike became ill, requiring surgery and rehabilitation that lasted the better part ofa year. During Mike's rehabilitation, Stewart ran all aspects of the firm, providing Mike with a flatweekly draw. As reports became less frequent, Mike became increasingly depressed and openlycontemplated retirement.
As the year wound down, Stewart approached Mike with a partnership dissolution agreement thatprovided Mike with a $200,000 total amount payable over five years. In the depths of hisdepression, Mike signed the dissolution agreement. Within six months, however, Mike's healthreturned and he attempted to go back to work with Stewart. Stewart, however, refused to permitit, relying on the dissolution agreement. Mike was furious and hired counsel who promptly filedsuit seeking (1) to vitiate the dissolution agreement based on the circumstances surrounding itsexecution, (2) to dissolve the partnership pursuant to the Uniform Partnership Act, and (3) anaccounting. What then followed was a hotly contested lawsuit lasting four years, including a courttrial on the dissolution agreement issue and hearings before a master on the accounting. Mikeultimately prevailed for over $2 million and Stewart appealed. Shortly after the appeals courtaffirmed the decision, Stewart had a massive stroke and died. From the time suit was filed, thebrothers never spoke to each other again. At no time was mediation engaged in or evensuggested.
In the first instance, Stewart and Mike would have greatly benefited from a partnershipagreement, including provisions for dissolution executed well before Mike became ill. In theabsence of such an agreement, an early mediative intervention should have at least beensuggested by their counsel. Despite the enmity (indeed, because of it and the relationship), anexperienced mediator with a strong presence at the very outset of the dispute might have beenable to put the brakes on the lawsuit and thereby provide a cooling-off period. Simultaneously, orshortly thereafter, the mediator could have commenced separate discussions, at first with eachcounsel, then with each party, in a careful, patient, step-by-step approach to a resolution.Ultimately, in the absence of an agreement as to money, the assistance of an accountant jointlyselected by the parties might well have provided the final piece to an agreement.
Alpha Corp. v. Beta Inc.Alpha Corp. and Beta Inc. formed a joint venture to develop shopping malls. Alpha was to own,develop, and manage and Beta was to design and construct. The parties successfully developedtheir first project and then executed a preliminary agreement to develop a second on a differentsite. The preliminary agreement provided that Beta would assist Alpha in the permitting of themall, in return for which Alpha agreed to exclusively negotiate the final contract to design andconstruct with Beta once the permits were granted. As for the final contract, the parties furtheragreed in the preliminary agreement to build the mall for $250 million, generally using thecommercial terms and specifications as the first project, but with site-specific costs to benegotiated. Though the second project did obtain the necessary permits, the parties were unableto negotiate a final price, being some $15 million apart.
Alpha then sued Beta for breach of an agreement to build the mall, asserting that the preliminaryagreement contained all the essential material terms of the final contract, expressly, byincorporation or by formula; and for unfair and deceptive trade practices in seeking to extricateBeta from those obligations. As for damages, Alpha demanded several hundred million dollars oflost earnings, plus $5 million representing its out-of-pocket expenses incurred during thepermitting process.
Shortly after preliminary discovery uncovered e-mails among Beta management supporting Alpha'sallegation that the preliminary agreement contained essential terms of the final contract and thatBeta management wanted out of the project, the parties agreed to mediate the dispute. However,the mediation failed, with Beta offering approximately $5 million in cash and credits for futuregoods/services and Alpha demanding $50 million in cash.
Thereafter, discovery recommenced with a vengeance on both sides, with thousands of documentsrequested and produced, 50 days of depositions along with 40 witnesses, and frequent motionpractice.
After discovery was concluded, Beta filed a motion for summary judgment on all claims, which thecourt granted, finding that the unambiguous preliminary agreement did not contain all theessential material terms of the final contract as Alpha had asserted. Without a binding contract,the unfair and deceptive practice claim based on such a contract was dismissed as well. An appealunanimously affirmed the court's decision.
Counsel fees in prosecuting and defending the case totaled well over $10 million, and the mallwas never built. After the unsuccessful mediation at the beginning of the case failed, no effort wasever made by the parties or the mediator to reinitiate the mediation process.
Though hindsight is 20/20, the failure to settle at the early-stage mediation should not havedeterred the parties or the mediator from revisiting the matter at a later date. In particular, giventhe sophistication of the players, their evident level of stubbornness, and the nature of the legalissues, the mediator should have at least checked back with each side from time to time toassess the status of the case. Indeed, once discovery had ripened so as to permit further claimevaluation, mediator discussion with counsel about a resumption of mediation should have thentaken place, and in all events before motions for summary judgment were scheduled to be filed.Given the court's ultimate decision, had the parties revisited mediation at or near the conclusionof discovery, a resolution might well have been achieved. The lesson to be learned is for themediator and the parties to practice good follow-up and persis-tence; it certainly will improve thechances for success.
George Talbot & SonsGeorge Talbot & Sons was a high-end furniture and accessory design and manufacturing firm. Thepresent-day principals were George Talbot's 39-year old son, Frank, the president and CEO, and68-year old Edwin Church, a longtime investor originally brought in by Frank's father. Frank andEdwin each owned 50 percent of the stock in the company.
The company and its principals had been highly successful over the years and well rewarded fromthe profits. Frank was also the recipient of a handsome salary and benefit package. The companywas approached by a European conglomerate that wanted to purchase the company for 10 timesits annual gross revenue, an unusual and very substantial offer for a manufacturing firm of thisnature. The offer, which was to remain open for 90 days only, did not include an employment orconsulting agreement for Frank. Frank did not want to accept the offer; Edwin was enthusiasticallyin favor of doing so. The corporate documents of the company did not contain a mechanism orformula for breaking the deadlock, only a mandatory mediation clause. As the clock on the 90days began to tick, the discussion between Frank and Edwin became very hot and acrimonious,and each wisely sought separate counsel. When counsel could not quickly resolve the dispute,they pointed out the mandatory mediation clause to the clients and the risks of inaction (amongthem, loss of the offer, an expensive lawsuit, potential dissolution, and liquidation).
As a result, a mediator was selected by the parties. He promptly obtained position papers fromeach counsel, including settlement positions, and then spoke privately with each lawyer to fleshout their concerns and issues, both legal and personal. He learned that Edwin insisted on a 50/50split, and that Frank might consider selling but only if the split was on an 80/20 basis toaccommodate his lost earned income and to recognize his contribution. In joint discussions withcounsel, they reached agreement on how the mediative process should proceed and theimportance of reaching a quick compromise. Counsel also agreed with the mediator to promptlybring the corporate tax accountant into the loop with a view toward analyzing any potentialresolution.
In the formal mediation sessions that followed with the parties, their counsel, and the accountant,the mediator explained that opening statements would be dispensed with. The mediator thenarticulated for both sides in a clear, concise, and professional manner the facts, the concerns ofeach side as he understood them, and the substantial risks to both parties if a compromise wasnot reached. He then pledged his commitment to stay with them as long as it took that day and
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the succeeding ones to resolve the matter.
In private sessions with each side, the mediator first explored the potential for rejecting the offerand resuming the association. This was quickly rejected by both sides. The mediator then exploredthe option of Edwin selling his interest to Frank; but given the richness of the conglomerate'soffer, the cost (with the accountant's input) was simply not affordable. The mediator thenexplored the sale to the conglomerate and the concept of an unequal division of the proceeds.
After much discussion, Edwin finally agreed to consider the concept. After an additional day ofnegotiations and shuttle diplomacy, the parties agreed to sell to the conglomerate with theproceeds to be split 60 percent to Frank, 40 percent to Edwin. All accounting and tax concernswere considered and disposed of with the assistance of the corporate accountant. At the end ofday one, the mediator also worked into the night with both counsel to begin drafting a settlementagreement, which was finalized and signed early evening on day two.
In this instance, the mediative process worked, starting with the careful selection of a committedmediator, followed by solid communication and preparation, including a sensitively designedprocess, and the persistent pursuit of a commonality of interests.
With some variations as to facts and identity, the three cases detailed above represent real peopleand actual disputes. The sad conclusion to Mike and Stewart's story occurred many years ago,well before mediation as an ADR process was developed and utilized. The Talbot matter took placein the mid-90s, while the Alpha/Beta dispute was of recent vintage. Despite the very differenttime periods and circumstances, however, each case illustrates the opportunities a well-preparedmediation can present, even for disputes as difficult as a business divorce.Weiner is a partner in the Boston-based law firm Ruberto, Israel & Weiner, P.C. He can bereached at [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Private Equity TransactionsUnderstanding Some Fundamental Principles
By Jeffrey A. Blomberg
Private equity investing has generated worldwide attention over the last few years. Many reasonsare cited for its proliferation, including an abundance of cheap debt financing as well ascompanies with publicly traded securities seeking to escape the burdens of Sarbanes Oxley.Similar to what occurred in the late 1990s with respect to venture capital investing, manyinexperienced players are arriving on the private equity scene. In particular, hedge funds, whichhave access to sizable amounts of capital, are diverting their attention from short-term trades andseeking to make private equity-type investments. This article provides a brief review of somebasic elements of a private equity transaction and some key considerations that distinguishprivate equity deals from more traditional mergers and acquisitions.
Basic ElementsPrivate equity sponsors (also referred to as financial sponsors) seek to acquire companies thatthey can grow or improve (or both) with a view toward eventual sale or public offering. In termsof growth, the financial sponsor will usually acquire a platform company in a particular industryand then seek to add additional companies to the platform through acquisition. These add-onsmay be competitors of the original platform company or may be businesses with some link to it,but they will be added with the goal of increasing the overall revenues and earnings of theplatform investment.
Strategic buyers, on the other hand, are companies that are already in the target company'sindustry or in a similar industry. While strategic buyers use acquisitions for growth, they may havedifferent goals than a financial sponsor. For example, a strategic buyer may not be concernedabout an exit strategy for an acquired business because it expects a seamless integration of thetarget into its own operations.
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The next essential ingredient for a private equity target is EBITDA (or earnings before interest,taxes, depreciation, and amortization). Private equity investors generally acquire new companiesthrough leveraged buyouts. The use of leverage distinguishes financial sponsors from strategicbuyers engaged in more traditional merger and acquisition transactions. A private equity sponsorneeds the assets of the target company as collateral to borrow the funds necessary to acquire thecompany. Therefore, private equity investors seek target companies that can generate sufficientcash to service the debt that is incurred to acquire them. Sufficient cash is also needed to payongoing management fees to the private equity sponsor's own management company to cover thesponsor's overhead expenses. The amount of debt used to finance the transaction compared tothe amount of equity capital infused differs in each deal. The variance in the amount of leverageemployed in each transaction is often indicative of the experience and deal sophistication of theprivate equity sponsor.
In contrast, because strategic buyers often can fund acquisitions from cash on hand, theygenerally do not need to incur debt and can consummate transactions more quickly. In addition,unlike financial sponsors, strategic buyers will consider acquiring businesses with negative EBITDAbecause they may not be concerned about debt service. Moreover, strategic buyers are notrelying on management fees to cover overhead expenses. Therefore, the spectrum of acquisitiontargets is broader for strategic buyers.
Private equity investors also are looking for a particular type of seller (references to "seller" referto the owners/operators of the target company). Since the private equity sponsor will not run thetarget company's day-to-day operations following the closing, it is imperative that the seller bewilling and desirous of continuing to run the company. Ideally, the target must have a founder orprincipal who will remain with the business and partner with the private equity sponsor toimplement its strategy for growth and eventual exit. This is in stark contrast with the desire ofstrategic buyers who often do not want members of the target's management to continue with thebusiness following the closing. More traditional merger and acquisition transactions usually lead tojob eliminations to maximize efficiency. Strategic buyers in the same industry as the target usuallyhave personnel in their organization who can run the target's business.
Equity Participation by the SellerFinancial sponsors not only need to retain senior management but also need to incentivize themto perform. Because the seller will have received potentially "life-changing" money at closing, theprivate equity investor needs to have mechanisms in place to ensure the seller will be motivatedto maximize value for the new enterprise. As a condition to closing, a private equity buyer mayrequire that the seller reinvest some of the proceeds received at closing into the new company sothat he or she has "skin in the game." The buyer will also require the principal to enter into along-term employment agreement with the new operating company. These measures are designedto align the interests of the seller with that of the financial sponsor.
In a traditional acquisition, stock options are generally used to incentivize new employees. Absenta situation involving employees with unique skills (like a designer with a famous label), thestrategic buyer may not believe that any additional incentives are necessary for its newemployees. However, keeping the seller motivated is of principal concern to the private equityinvestor. While the financial sponsor is technically the seller's new "boss" as the employer, therelationship is portrayed as more of a partnership. It is for this reason that the financial sponsorinsists that the seller have an equity interest in the new company through either a rollover ofexisting stock or reinvestment of some of the proceeds received at closing into the new parentholding company.
The nature of the stock that sellers are permitted to buy is usually a function of what the privateequity investor believes is necessary to achieve its desired rate of return on its investment. Insome deals, the seller will be able to buy the same stock that the private equity investor holds.However, in other transactions, the seller may only be permitted to acquire junior securities, oftenfor a nominal price. Obviously, the latter scenario may not provide the same "skin in the game"as having the seller's capital standing side by side with that of the financial sponsor. In eithercase, the stated goal is to give the seller a "second bite of the apple" when the private equitysponsor builds the business and then experiences a liquidity event. The seller must wait for aliquidity event to be able to realize the benefits of his or her shares. In a more traditionalacquisition made by a strategic buyer, the seller might get stock of the buyer or options topurchase shares of stock that when exercised can be sold in the open market (assuming thecompany's stock is publicly traded).
Restrictions on the Seller's Stock Regardless of what is paid for the stock received by the seller and whether it is a security of equalvalue (i.e., pari passu) with, or subordinate to, that of the private equity investor, it will be
subject to multiple restrictions. First, the seller may not own the stock free and clear regardless ofits purchase price. Such stock may be subject to vesting over time and may also be subject toperformance vesting criteria that are only tested at such time as the issuer experiences a liquidityevent such as a sale or an initial public offering. These conditions seem similar to a traditionalstock option plan whereby options vest over a four- or five-year period but differ in that the sellerwill not be able to reap the benefits of the stock until the financial sponsor is exiting theinvestment.
The stock will also be subject to repurchase in the event the seller is no longer employed by thecompany or its subsidiaries. There are two reasons for this. If the parties are no longer workingtoward the same goal and business plan, the financial sponsor will see no benefit in allowing theseller to retain the shares. Second, the stock held by the seller is usually needed for the next CEOor senior manager to be hired by the company. To permit the original tranche of stock to remainoutstanding and a new block to be given to a new CEO or senior manager would dilute the privateequity investor's investment and adversely affect its financial returns upon a sale. The nature ofthis repurchase is often the subject of intense negotiation. Both the price (that is, whether it willbe bought back at cost or fair market value) and form (that is, whether the purchase price will bepaid in cash or over time with a promissory note) will likely be negotiated.
In addition to being subject to repurchase, the stock held by the seller will be subject torestrictions on transferability. Measures must also be taken to ensure that the financial sponsordoes not end up partnering with anyone other than whom it has chosen, i.e., the seller. Astockholder's agreement will be put in place that restricts the transferability of the shares issuedby the company. Other than transfers for estate planning purposes, the shares held by the sellerwill not be transferable except upon a liquidity event. Typical restrictions include having theseller's shares subject to rights of first offer and/or first refusal and co-sale rights. Rights of firstoffer require the stockholder to offer his or her shares to certain current stockholders and/or thecompany prior to seeking a third-party buyer. Rights of first refusal require a stockholder to offerto sell his or her shares to the company and/or other stockholders on the same terms as a third-party offer it receives. Co-sale rights permit a stockholder to "tag along" and have his or hershares purchased as part of another stockholder's sale to a third party. The private equity investordoes not want to have stockholders who may cause problems or interfere with its business plan.Additionally, the private equity investor wants to partner with people who understand its business,share its strategies, and are likely to want to exit the investment when the private equity groupso determines.
Typical Structure of a TransactionIn order to implement the goals described above, private equity transactions must be structureddifferently than traditional mergers and acquisitions transactions. Unlike many strategic buyers,private equity sponsors keep their portfolio companies separate. Instead, the financial sponsor willcreate a new "platform" holding company that will serve as the parent for the new target and anyoperating companies subsequently acquired. The holding company's sole purpose is to hold thesecurities of the operating company(ies) that are acquired by the financial sponsor. Differentplatform portfolio companies are not merged with one another to avoid being exposed to eachother's liabilities. The financial sponsor will purchase a majority of the capital stock of the holdingcompany. In order to consummate the platform's initial acquisition, that holding company will forma wholly owned subsidiary to act as the acquirer in the transaction. The private equity fund willcontrol the board of directors of both the new holding company and the new operating company.To the extent that add-on investments are made for the platform, they will be made under theumbrella of the new holding company either through a newly formed subsidiary into the originaloperating company or as one of its subsidiaries.
In addition to the shares issued to the financial sponsor for its investment, any other equitysecurities to be issued in the transaction, whether to the seller for his or her rollover investmentor by way of stock options, will be done by the holding company. There are several reasons forthis. From a structuring perspective, it ensures that the equity securities in the operating companycan be pledged to the lender at closing of the transaction without any person having the right tohold up the deal by refusing to pledge his or her securities. The holding company owns 100percent of the outstanding equity securities in the operating company and therefore can pledgethose securities to the lender at closing. This may also prevent the investors from having topledge their shares in the holding company since the lender may deem itself fully secured byholding the equity securities of the operating company. Additionally, by having shares in theholding company, sellers can benefit from additional acquisitions to the extent they are madethrough newly formed subsidiaries of the holding company even if the seller does not participatein that particular acquisition. This structure also makes it easier to sell off or discontinue certainoperating companies without affecting the rest of the platform.
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It is possible that strategic buyers might seek to segregate an acquired business to avoid havingits liabilities taint its existing business. However, it is more likely that a strategic buyer willintegrate a target's business into its own to benefit from the synergies created by consolidatingthe operations of both companies.
ConclusionThe formula for success is not that complex: leverage the target company's assets to borrowsufficient cash to buy out the position of the principal and leave enough for working capital needs.Then the goal is to grow the business at the same time it services its own debt out of cash flow.The barriers to entry are fairly low provided that viable acquisition targets can be identified andthere is available debt financing. However, as was the case during the dot-com boom and bust,those who delve into private equity investing without understanding some of these basic principlesmay not be satisfied with their results. The general strategies, philosophies, and structuresoutlined above have proven to be very successful over a long period of time for many differentinvestors. These principles should be considered by any new private equity investor not justbecause they work, but also because when bidding on deals this is likely what the competition willbe offering to a potential seller. This structure is also one that will make the other players, likepotential lenders and co-investors, more comfortable with the transaction.Blomberg is a member of Pullman & Comley, LLC, in Stamford, Connecticut. His e-mail [email protected].
BUSINESS LAW TODAY Our seventh index, 2006–2007 This marks the seventh time that Business Law Today presents an index of articles and columns published in the magazine. So as to not consume an unwieldy amount of space, whenever we publish an index, it covers about a two-year period and is not cumulative. However, you can see a full-history index on the Web at the magazine s home page, www.abanet.org/buslaw/blt. The magazine began in March/April 1992. Its first index was published in March/April 1994. This latest update covers feature articles and departments published from January/February 2006 through November/December 2007. Of course, we owe a big debt of gratitude to our compilers, Constanze Carlson and Bonnie Melton, staff members at Nelson Mullins Riley & Scarborough LLP. CONTENTS Feature articles by topic: • Alternative dispute resolution • Antitrust • Bankruptcy • Career & training • Cyberspace • E-discovery • Employee benefits and executive compensation • Environmental • Franchising • Immigration • Insurance • Intellectual property • International • Law firms • Law schools • Mergers & acquisitions (M&A) • Miscellaneous • Pro bono • Professional responsibility • Real estate • Securities • Small business • Spoliation • Taxation • Telecommunications • White-collar criminal liability
Department articles by topic: • Business letters • Keeping current • Meeting morsels • Nonbinding opinion • Pro bono in action • Speaking volumes • Train for the future Feature articles by topic: Alternative dispute resolution Getting to yes abroad Arbitration as a tool in effective commercial and political risk management Michael S. Greco and Ian Meredith March/April 2007 Vol. 16, No. 4, p. 23
Antitrust Antitrust s new big brother Feds now can wiretap suspected offenders Mark D. Alexander and Peter A. Barile III July/August 2006 Vol. 15, No. 6, p. 55
Bankruptcy Time to reorganize: But how? A look at the new bankruptcy law Elizabeth M. Bohn March/April 2006 Vol. 15, No. 4, p. 43 How about bankruptcy? Uh, no Why it s not the best solution Michael Feder May/June 2006 Vol. 15, No. 5, p. 19 How secure is that lease? Beyond deposits and guaranties, don t forget about letters of credit Christopher Combest November/December 2006 Vol. 16, No. 2, p. 11 New law, new tools for creditors A fresh look at the involuntary bankruptcy petition David A. Samole and Lisa B. Keyfetz November/December 2006
Vol. 16, No. 2, p. 17 What about my pension? Bankruptcy invades what was once a secure world Babette Ceccotti November/December 2006 Vol. 16, No. 2, p. 22 But there s no money A tale of management and pensions Carol Connor Flowe November/December 2006 Vol. 16, No. 2, p. 23 Fobian Rule is a casualty of Travelers The Supreme Court s decision raises new questions for bankruptcy attorneys William P. Weintraub July/August 2007 Vol. 16, No. 6, p. 61 Faster, but not cheaper Trends and decisions in business bankruptcies under BAPCPA Elizabeth M. Bohn September/October 2007 Vol. 17, No. 1, p. 61
Career & training Turning the firm into a school Help your associates learn to draft contracts—the right way Charles C. Lewis January/February 2006 Vol. 15, No. 3, p. 25 Natural resources Help is here for transactional training Tina L. Stark January/February 2006 Vol. 15, No. 3, p. 49 When theory meets practice Tweaking business-law education Darhiana Mateo March/April 2006 Vol. 15, No. 4, p. 57 Calling the young! The Section knows where its future lies Darhiana Mateo May/June 2006 Vol. 15, No. 5, p. 59 Shining in the golden years Making use of your legal skills after retirement Francesca Jarosz May/June 2007 Vol. 16, No. 5, p. 61
Cyberspace
Welcome to the blogosphere A primer for business lawyers Patrick Robben May/June 2006 Vol. 15, No. 5, p. 43 Security before and after a data breach Ronald I. Raether Jr. November/December 2006 Vol. 16, No. 2, p. 57 When a business begins a blog It s easy, but is it safe? John E. Ottaviani, John W. Bagby, and Kristie D. Prinz January/February 2007 Vol. 16, No. 3, p. 49 The “agreement” that sparked a storm A “click-through” goes bad Elizabeth Bowles and Eran Kahana January/February 2007 Vol. 16, No. 3, p. 55 Virtual worlds alongside the real world Do you know where your clients are? D. Benjamin Beard and Christina L. Kunz November/December 2007 Vol. 17, No. 2, p. 19 Cybercrime havens Challenges and solutions Susan W. Brenner and Joseph J. Schwerha IV November/December 2007 Vol. 17, No. 2, p. 49
E-discovery E-discovery and electronic evidence in the courtroom A primer for business lawyers Timothy J. Chorvat September/October 2007 Vol. 17, No. 1, p. 13 Avoiding the preservation predicament Preparing for e-discovery obligations before disputes arise Kevin F. Brady and Chad Breckinridge September /October 2007 Vol. 17, No. 1, p. 21 Responding to the “e-discovery alarm” Planning your response to a litigation hold Arthur L. Smith September/October 2007 Vol. 17, No. 1, p. 27 The risks of e-mail communications A guide to protecting privileged electronic communications Brenda R. Sharton and Gregory J. Lyons
September/October 2007 Vol. 17, No. 1, p. 31 Communications between counsel and corporate IT Bridging the cultural divide Karl R. Wetzel September/October 2007 Vol. 17, No. 1, p. 37 The tech side of e-discovery Understanding electronically stored information Robert L. Kelly September/October 2007 Vol. 17, No. 1, p. 43
Employee benefits and executive compensation Disney directors survive attack on Magic Kingdom Learning from the trial court s opinion Mark R. High January/February 2006 Vol. 15, No. 3, p. 19 What about my pension? Bankruptcy invades what was once a secure world Babette Ceccotti November/December 2006 Vol. 16, No. 2, p. 22 But there s no money A tale of management and pensions Carol Connor Flowe November/December 2006 Vol. 16, No. 2, p. 23 Is the future more secure? A look at pensions, retirement and changes in the law Donald J. Myers, Michael B. Richman, and Sonia A. Chung January/February 2007 Vol. 16, No. 3, p. 61
Environmental Water and the law A guide to what matters Bill Staudenmaier March/April 2006 Vol. 15, No. 4, p. 13 Whose water is it? It s crucial out West Jamie M. Morin March/April 2006 Vol. 15, No. 4, p. 19 High and dry in Nevada When water rights trump development Dan Reaser, Shawn Elicegui, William McKean, and Douglas Cannon March/April 2006 Vol. 15, No. 4, p. 35
Environmental disclosure due diligence The next step in environmental due diligence C. Gregory Rogers May/June 2007 Vol. 16, No. 5, p. 31 Air quality regulation in the United States A complicated system yields laudable results Erich Birch July/August 2007 Vol. 16, No. 6, p. 13 Emission trading initiatives Responding to climate change through market forces Nadia Zakir July/August 2007 Vol. 16, No. 6, p. 19 Wind power A lawyer s guide to representing landowners Mustafa P. Ostrander July/August 2007 Vol. 16, No. 6, p. 24 Green construction Initiatives and legal issues surrounding the trend J. R. Steele November/December 2007 Vol. 17, No. 2, p. 13
Franchising Digging into franchises The due diligence minefield Barry Kurtz March/April 2007 Vol. 16, No. 4, p. 51 But it doesn t walk or talk like a duck The perils of the hidden franchise William L. Killion and Sarah J. Yatchak September/October 2007 Vol. 17, No. 1, p. 55
Immigration Immigration: What s an employer to do? People want to work: Help them out or turn them in? Francesca Jarosz November/December 2006 Vol. 16, No. 2, p. 49 The immigration crackdown on employers The government steps up work site enforcement Roger Tsai July/August 2007 Vol. 16, No. 6, p. 45
Insurance
An ill wind blows no good The nuances of business-interruption claims Patricia McHugh Lambert and Jennifer L. Kleeman March/April 2006 Vol. 15, No. 4, p. 49
Intellectual property Resist cease and desist A lighter approach may work better with trademarks Deborah A. Wilcox May/June 2006 Vol. 15, No. 5, p. 27 The “agreement” that sparked a storm A “click-through” goes bad Elizabeth Bowles and Eran Kahana January/February 2007 Vol. 16, No. 3, p. 55 Protecting trade secrets Dealing with the brave new world of employee mobility Bradford K. Newman November/December 2007 Vol. 17, No. 2, p. 25
International Pro bono goes global A look at Lawyers Without Borders Darhiana Mateo January/February 2006 Vol. 15, No. 3, p. 35 Get on board Yes, maritime law is different B. Otis Felder March/April 2006 Vol. 15, No. 4, p. 25 Are you ready for China? The world economy has a new player Paul W. Boltz Jr. January/February 2007 Vol. 16, No. 3, p. 27 Getting to yes abroad Arbitration as a tool in effective commercial and political risk management Michael S. Greco and Ian Meredith March/April 2007 Vol. 16, No. 4, p. 23 Unique problems with FCPA compliance in the People s Republic of China Judith A. Lee and James D. Slear May/June 2007 Vol. 16, No. 5, p. 15 Complexities of China s M&A reforms are well worth it Clifford Ng, Jennifer Earnshaw, and Yeung Ng May/June 2007
Vol. 16, No. 5, p. 21 How the English courts can assist U.S. victims of international fraud Segun Osuntokun and Laurence Lieberman May/June 2007 Vol. 16, No. 5, p. 25 Is your cross-border deal the next national security lightning rod? Identifying potential national security issues and navigating the CFIUS review process Ilene Knable Gotts, Leon B. Greenfield, and Perry Lange July/August 2007 Vol. 16, No. 6, p. 31 More than an ocean separates us What you might not know about EU competition law Porter Elliott July/August 2007 Vol. 16, No. 6, p. 55 Canadian class actions and federal judgments Recognition of foreign class actions in Canada Todd J. Burke September /October 2007 Vol. 17, No. 1, p. 49 Doing business with foreign sovereign entities Who are they and what are the risks? Michael L. Morkin, Ethan A. Berghoff, and Richard S. Pike November/December 2007 Vol. 17, No. 2, p. 43
Law firms Turning the firm into a school Help your associates learn to draft contracts—the right way Charles C. Lewis January/February 2006 Vol. 15, No. 3, p. 25 Natural resources Help is here for transactional training Tina L. Stark January/February 2006 Vol. 15, No. 3, p. 49 What to do? Nothing It can be as simple as that Stacie E. Tobin May/June 2006 Vol. 15, No. 5, p. 11 Calling the young! The Section knows where its future lies Darhiana Mateo May/June 2006 Vol. 15, No. 5, p. 59 Turning away clients A look at problematic representations
Marty Robins July/August 2006 Vol. 15, No. 6, p. 59 Teaching can help Diversity training at your law firm Jane DiRenzo Pigott September/October 2006 Vol. 16, No. 1, p. 11 At last: You re in charge The concept of a minority-owned law firm Ferdinand Alvaro Jr. September/October 2006 Vol. 16, No. 1, p. 21 Where are they? The legal profession reaches out for future minority lawyers Mary Ann Hynes and Cie B. Armstead September/October 2006 Vol. 16, No. 1, p. 29 The new classroom Learning how to draft contracts in the real world Susan J. Irion September/October 2006 Vol. 16, No. 1, p. 49 In search of an ethics guide The author owns up: He s a nerd on the subject Lucian T. Pera November/December 2006 Vol. 16, No. 2, p. 37 No, a paralegal is not a lawyer A few things to keep in mind Frances P. Kao January/February 2007 Vol. 16, No. 3, p. 11 What paralegals can do And the list goes on R. Thomas Howell Jr. and Eric G. Orlinsky January/February 2007 Vol. 16, No. 3, p. 17 Getting legal with paralegals A look at state regulations Catherine R. Durgin January/ February 2007 Vol. 16, No. 3, p. 21 Culture, culture and more culture A recipe for thriving environments Keith Halleland March/April 2007 Vol. 16, No. 4, p. 12
Tipping back the scales Law firms in search of work-life balance Francesca Jarosz March/April 2007 Vol. 16, No. 4, p. 13 The financial institution lawyer Four flavors of failure Thomas C. Baxter Jr. and Brian T. Baxter March/April 2007 Vol. 16, No. 4, p. 29 Training for effective paralegal utilization Heather V. Edes May/June 2007 Vol. 16, No. 5, p. 37 Toward civility in civil practice Robert D. Kraus May/June 2007 Vol. 16, No. 5, p. 55 Outsourcing legal services overseas Choosing the solution that s best for you Ken Wollins November/December 2007 Vol. 17, No. 2, p. 61
Law schools When theory meets practice Tweaking business-law education Darhiana Mateo March/April 2006 Vol. 15, No. 4. p. 57 None of your business? No Law schools need to bring their business law teaching up to date Francesca Jarosz September/October 2006 Vol. 16, No. 1, p. 35
Mergers & acquisitions (M&A) When boilerplate gets hot The saga of a business lawyer who glossed over the language Darren Van Puymbrouck and Christopher J. Zinski November/December 2006 Vol. 16, No. 2, p. 43 Complexities of China s M&A reforms are well worth it Clifford Ng, Jennifer Earnshaw, and Yeung Ng May/June 2007 Vol. 16, No. 5, p. 21 The answer (not the Devil) is in the details Mitigating risks of post-transaction M&A disputes Gregory Wolski November/December 2007 Vol. 17, No. 2, p. 53
Miscellaneous When a test turns into a trial Things to keep in mind about psychological testing Larry R. Seegull and Emily J. Caputo January/February 2006 Vol. 15, No. 3, p. 13 Get on board Yes, maritime law is different B. Otis Felder March/April 2006 Vol. 15, No. 4, p. 25 What to do? Nothing It can be as simple as that Stacie E. Tobin May/June 2006 Vol. 15, No. 5, p. 11 Insider trading . . . or not? Lessons learned from an acquittal Frank C. Razzano May/June 2006 Vol. 15, No. 5, p. 34 On the record How music connects with law John M. Rolfe Jr. and John E. Murdock III July/August 2006 Vol. 15, No. 6, p. 17 The promotion that went south A look at the hazards of product sweepstakes and contests Tsan Abrahamson July/August 2006 Vol. 15, No. 6, p. 25 They call it gaming . . . . . . and you can bet it s changed a lot Sean McGuiness July/August 2006 Vol. 15, No. 6, p. 34 Take a break, make some wine Who said lawyers can t be vintners? R. Paul Beveridge July/August 2006 Vol. 15, No. 6, p. 43 It s a new world for banks, too They have to beware of terrorists and money laundering Darhiana Mateo July/August 2006 Vol. 15, No. 6, p. 49 Get it in writing
A few nuances of book publishing Monica Patraglia McCabe September/October 2006 Vol. 16, No. 1, p. 43 So long, mortgage A primer on loan defeasance Timothy J. Boyce September/October 2006 Vol. 16, No. 1, p. 57 When boilerplate gets hot The saga of a business lawyer who glossed over the language Darren Van Puymbrouck and Christopher J. Zinski November/December 2006 Vol. 16, No. 2, p. 43 Veni, vidi, vici How hedge funds have stormed the capital markets Mark R. Kirsons and Samantha B. Good May/June 2007 Vol. 16, No. 5, p. 45 Doing business with Alaska native corporations A new model for Native American business entities E. Budd Simpson July/August 2007 Vol. 16, No. 6, p. 37 Green construction Initiatives and legal issues surrounding the trend J. R. Steele November/December 2007 Vol. 17, No. 2, p. 13 Virtual worlds alongside the real world Do you know where your clients are? D. Benjamin Beard and Christina L. Kunz November/December 2007 Vol. 17, No. 2, p. 19 Confusion in the courts Gender stereotyping and effeminacy discrimination Jon D. Bible November/December 2007 Vol. 17, No. 2, p. 31
Pro bono Pro bono goes global A look at Lawyers Without Borders Darhiana Mateo January/February 2006 Vol. 15, No. 3, p. 35 Shining in the golden years Making use of your legal skills after retirement
Francesca Jarosz May/June 2007 Vol. 16, No. 5, p. 61
Professional responsibility In search of an ethics guide The author owns up: He s a nerd on the subject Lucian T. Pera November/December 2006 Vol. 16, No. 2, p. 37 Professionalism It s no joke Charles E. McCallum January/February 2007 Vol. 16, No. 3, p. 43 Toward civility in civil practice Robert D. Kraus May/June 2007 Vol. 16, No. 5, p. 55
Real estate How secure is that lease? Beyond deposits and guaranties, don t forget about letters of credit Christopher Combest November/December 2006 Vol. 16, No. 2, p. 11 Before you grab that property States take a close look at eminent domain Francesca Jarosz January/February 2007 Vol. 16, No. 3, p. 37 Wind power A lawyer s guide to representing landowners Mustafa P. Ostrander July/August 2007 Vol. 16, No. 6, p. 24
Securities A (very brief) encyclopedia of securities fraud M. Owen Donley III March/April 2007 Vol. 16, No. 4, p. 35 A FOIA blitzkrieg Company documents provided to the SEC are under attack Michael J. Rivera and Kimberly A. Cain March/April 2007 Vol. 16, No. 4, p. 44 Securities class actions and derivative litigation Issues that keep corporate counsel awake at night Thomas O. Gorman, Robert J. Tannous, and William P. McGrath November/December 2007 Vol. 17, No. 2, p. 37
Small business Appraising a business Ethics and standards are in the mix Terri A. Lastovka January/February 2006 Vol. 15, No. 3, p. 43 Outsourcing legal services overseas Choosing the solution that s best for you Ken Wollins November/December 2007 Vol. 17, No. 2, p. 61
Spoliation E-discovery and electronic evidence in the courtroom A primer for business lawyers Timothy J. Chorvat September/October 2007 Vol. 17, No. 1, p. 13 Responding to the “e-discovery alarm” Planning your response to a litigation hold Arthur L. Smith September/October 2007 Vol. 17, No. 1, p. 27
Taxation A taxing question The nexus quagmire strikes again Andrew W. Swain and John D. Snethen May/June 2006 Vol. 15, No. 5, p. 51
Telecommunications The risks of e-mail communications A guide to protecting privileged electronic communications Brenda R. Sharton and Gregory J. Lyons September/October 2007 Vol. 17, No. 1, p. 31 Communications between counsel and corporate IT Bridging the cultural divide Karl R. Wetzel September/October 2007 Vol. 17, No. 1, p. 37
White-collar criminal liability Insider trading . . . or not? Lessons learned from an acquittal Frank C. Razzano May/June 2006 Vol. 15, No. 5, p. 34 Antitrust s new big brother Feds now can wiretap suspected offenders
Mark D. Alexander and Peter A. Barile III July/August 2006 Vol. 15, No. 6, p. 55 New Department of Justice guidelines on corporate prosecution Does the song remain the same? Erich W. Sitarchuk and Gina M. Smith July/August 2007 Vol. 16, No. 6, p. 49
Department articles by topic:
Business letters About that letter Orville Lefko March/April 2006 Vol. 15, No. 4, p. 10 About those minority interests Christopher C. Kendall March/April 2006 Vol. 15, No. 4, p. 10 An author responds Kenneth A. Adams July/August 2006 Vol. 15, No. 6, p. 9 Better, but still not great Ross McLeod March/April 2007 Vol. 16, No. 4, p. 8 Involuntary bankruptcies are alive and well George H. Singer March/April 2007 Vol. 16, No. 4, p. 8 A resource for working with paralegals Art Garwin March/April 2007 Vol. 16, No. 4, p. 9 Certification gives legal professionals an edge Tina Boone March/April 2007 Vol. 16, No. 4, p. 9 Civility codes not the same as ethics codes Art Garwin
July/August 2007 Vol. 16, No. 6, p. 8
Keeping current Antitrust Supreme Court confirms viability of predatory bidding claims Peter A. Barile III May/June 2007 Vol. 16, No. 5, p. 10 Bankruptcy States: Get ready for litigation on bankruptcies Kay Standridge Kress and Hanna Mufson May/June 2006 Vol. 15, No. 5, p. 25 Bankruptcy Workers comp and bankruptcy Linda J. Casey and Kay Standridge Kress November/December 2006 Vol. 16, No. 2, p. 8 Bankruptcy Bad faith debtors can t convert from Chapter 7 Kay Standridge Kress and James C. Carignan May/June 2007 Vol. 16, No. 5, p. 8 Bankruptcy Delaware high court clarifies directors fiduciary duties Matthew A. Feldman and Jessica S. Etra September/October 2007 Vol. 17, No. 1, p. 59 Canada Federal capital tax is eliminated north of the border Martin Fingerhut January/February 2007 Vol. 16, No. 3, p. 35 Contracts Incorporation by reference may get harder Lisa R. Lifshitz May/June 2007 Vol. 16, No. 5, p. 2 Copyright From concert hall to coffee table: “What a long, strange trip it s been” Eric Sherbine March/April 2007 Vol. 16, No. 4, p. 63 Corporate Governance Delaware raises the bar for pleading stock option manipulation Brian L. Levine September/October 2007
Vol. 17, No. 1, p. 65 International Foreign law or U.S. law? Danielle S. Barbour November /December 2006 Vol. 16, No. 2, p. 63 Legislation All Internet bets are off, offshore Anthony Cabot March/April 2007 Vol. 16, No. 4, p. 61 Limited Liability Companies What s your opinion on Delaware opinions? Norman M. Powell May/June 2007 Vol. 16, No. 5, p. 50 Punitive Damages Philip Morris further limits punitive damages Kendyl T. Hanks July/August 2007 Vol. 16, No. 6, p. 10 Securities Accountant s liability for securities fraud Joel C. Haims and Ruti Smithline May/June 2007 Vol. 16, No. 5, p. 5 Securities Catching the e-proxy wave Karen Dempsey and Linda DeMelis September/October 2007 Vol. 17, No. 1, p. 10 Securities Supreme Court clarifies scienter pleadings Patrick Berarducci and Larry J. Obhoff November/December 2007 Vol. 17, No. 2, p. 10 Securities Seventh Circuit s test for inadvertent investments Thomas A. Harman, Monica L. Parry, and Holly Hunter-Ceci November/December 2007 Vol. 17, No. 2, p. 64
Meeting morsels Ray DeLong July/August 2006 Vol. 15, No. 6, p. 8
Ray DeLong November/December Vol. 16, No. 2, p. 35
Nonbinding opinion Another view on reps and warranties Tina L. Stark January/February 2006 Vol. 15, No. 3, p.8 Involuntary bankruptcy: The end has come Maria Ann Milano January/February 2007 Vol. 16, No. 3, p. 8
Pro bono in action Law school clinic joins pro bono Allyn M. O Connor November/December 2006 Vol. 16, No. 2, p. 64 In the business of doing good Allyn M. O Connor March/April 2007 Vol. 16, No. 4, p. 59 A paralegal discusses pro bono work Ralphaelita M. Upshaw July/August 2007 Vol. 16, No. 6, p. 53 Helping veterans who ve helped us all Cem Kirgiz November/December 2007 Vol. 17, No. 2, p. 59
Speaking volumes Greatness to infamy––a Silicon Valley cautionary tale Brian J. Burt May/June 2006 Vol. 15, No. 5, 49 A solid reference on basic patent issues Marcia Tuten Greci September/October 2007 Vol. 17, No. 1, p. 53
Train for the future None of your business? No Law schools need to bring their business law teaching up to date Francesca Jarosz September/October 2006 Vol. 16, No. 1, p. 35 The new classroom Learning how to draft contracts in the real world
Susan J. Irion September/October 2006 Vol. 16, No. 1, p. 49
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Business Law Today
Volume 17, Number 3 January/February 2008
Keeping current: antitrustBy Jonathan S. Gowdy
China passes comprehensive anti-monopoly law
On August 30, 2007, the Standing Committee of the People's Republic of China National People'sCongress enacted a new, comprehensive competition statute, the Anti-Monopoly Law (AML),which will become effective August 1, 2008. This article briefly summarizes the key provisions ofthe AML and potential implications for firms doing business in China.
Similarities with Other LawsThe AML is similar in many ways to the antitrust and competition laws of other jurisdictions;indeed, it is modeled in large part after European Union and German law. For example, the AMLprohibits anticompetitive "monopoly agreements" among competitors, such as price-fixingagreements, group boycotts, and market allocation arrangements. Agreements to fix or limit theresale price of commodities are also prohibited.
The AML also bans firms from abusing a dominant market position by engaging in certain acts,such as selling below cost or entering into tying arrangements that condition the sale of adominant product on the purchase of another product. Furthermore, mergers or acquisitions that"have the effect of eliminating or restricting competition" in China may be prohibited or subjectto "restrictive conditions to reduce the adverse effects of the concentration."
Unique and Controversial ProvisionsDespite these similarities, certain aspects of the AML address issues that are unique to China asit moves from a centrally planned to a more market-oriented economy. For instance, the AMLplaces restrictions on the conduct of state-owned enterprises (SOEs) and prohibits administrativeagencies from using governmental power (e.g., discriminatory taxes, fees, or licensingrequirements) to restrict or eliminate competition.
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The AML also contains some restrictions and exceptions that are likely to be controversial andthat vary from the standards and policy goals of U.S. law. For example, the AML prohibits adominant firm from selling products at "unfairly" high or low prices, and outlaws unilateralrefusals to deal and discriminatory trading practices by dominant firms that are not justified by avalid cause. Similar provisions in other jurisdictions have been criticized because such practicesmay not actually result in harm to competition or consumers (as opposed to individualcompetitors) and could potentially have pro-competition benefits.
Furthermore, the AML contains several "block exemptions" that could permit Chineseenforcement agencies and courts to allow otherwise anticompetitive agreements or unlawfulconduct to go unpunished. For instance, if a Chinese enforcement agency or court determinedthat an agreement or conduct serves the "public interest" or promotes "fair" competition or"legitimate interests in foreign trade or foreign economic cooperation," then a seemingly per seunlawful agreement or restraint could be deemed lawful.
Likewise, although SOEs and administrative agencies are technically subject to the AML, theChinese antitrust enforcement agency will not have authority to control or limit their activities;indeed, "legitimate activities" of SOEs are expressly protected in the AML. Instead, the Chineseantitrust agency will merely have the power to make proposals to the state authorities havingauthority over an agency or SOE that is violating the AML in some fashion. Any future relianceon such exceptions is likely to generate concerns that the AML is being used to protect China'sSOEs or other industrial or foreign policy goals (rather than competition or consumer welfare).
UncertaintiesWhile companies doing business in China are likely to be familiar with some of the AML'srestrictions on competitive activity, firms will continue to face uncertainty in the near futureabout the AML's scope and potential application. The law does not clearly define the precisemeaning of certain prohibited practices, and while the AML calls for the creation of a newenforcement agency, it is unclear what steps that agency will take to promulgate regulations orenforce the law. Companies will need to monitor the level and type of enforcement andcontinually evaluate whether legal developments in this area warrant any changes to theirongoing business practices.
Gowdy is a partner at Morrison & Foerster LLP in Washington, D.C. His e-mail [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Keeping current: bankruptcyBy Christopher Combest
Omission of "Inc." from financing statement
The songwriters tell us that "little things mean a lot." Little errors in a UCC-1 financingstatement can mean a great deal--none of it good--to a creditor's security interest. Recently, aVirginia bankruptcy court determined that the absence of the abbreviation "Inc." from thedebtor's name in a financing statement rendered that statement ineffective to perfect a creditor'ssecurity interest and, in the debtor's bankruptcy case, left the would-be secured creditorcompletely unsecured. (In re Tyringham Holdings, Inc., 354 B.R. 363 (Bankr. E.D. Va. 2006).)The good news, however, is that, with the right kind of diligence, you can protect yourselfagainst this result.
In the case at issue,Suna Bros. Inc. (Suna) consigned for sale to debtor Tyringham Holdings,Inc. (Debtor), a Virginia corporation, goods worth almost $311,000. Under Article 9 of theUniform Commercial Code (UCC 9), Suna's interest in the consigned goods was a securityinterest, which Suna sought to perfect by filing a UCC-1 financing statement with the correctVirginia state filing office.
The Debtor's name, as contained in Virginia's corporation records, was "Tyringham Holdings,Inc." However, Suna's financing statement listed the Debtor's name as "Tyringham Holdings"--omitting the "Inc."
In the Debtor's bankruptcy case, the court authorized the Debtor to sell its assets, including itsinventory. To free as many of those assets as possible for unsecured creditors, the creditors'committee sought to invalidate Suna's security interest, under section 544 of the BankruptcyCode. This section provides that a security interest that is unperfected on the date a bankruptcycase is commenced may be avoided--i.e., nullified--and the formerly secured creditor may then
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be treated as entirely unsecured.
Therefore, for Suna, only one question mattered: Was the financing statement it filed in theVirginia filing office sufficient to give it a perfected security interest in its collateral as of thecommencement of the Debtor's bankruptcy case? UCC 9 provides specific guidance regarding theeffectiveness of financing statements. According to the statute:
(a) A financing statement is not effective to perfect a creditor's security interest unless itsufficiently provides the debtor's name.
(b) For a debtor-corporation, the debtor's name in the financing statement is sufficient if it isthe same as the name listed in the debtor's articles or certificate of incorporation.
(c) With one exception, a financing statement that fails to sufficiently provide the debtor's nameis, in the par-lance of UCC 9, "seriously misleading" and is, for that reason, not effective toperfect a security interest.
(d) The exception is as follows: if a search of the state's UCC records under a debtor's correctname, using the filing office's standard search logic, would reveal the financing statement withthe incorrect name, then the financing statement is not "seriously misleading" and is effective toperfect the security interests.
So, did a search in the Virginia UCC filing office for "Tyringham Holdings, Inc."--the Debtor'scorrect legal name— reveal Suna's filing under the incorrect name "Tyringham Holdings"?Unfortunately for Suna, the search logic used by the Virginia filing office considered "Inc." asignificant word, and a search under the Debtor's proper name--with "Inc."--did not turn upSuna's actual, erroneous filing, which was without the "Inc."
Therefore, the bankruptcy court held that Suna's financing statement was "seriously misleading"within the meaning of UCC 9. Suna was, therefore, unperfected as of the commencement of theDebtor's bankruptcy case, and it lost its security interest in its collateral.
Although the result in this case was harsh for the creditor, it is also easy to avoid, and ithighlights the wisdom of post-closing due diligence. Before making a loan or providing othervalue to a debtor, creditors are well advised to use private search firms to try to turn up allextant UCC filings, tax liens, judgments, and similar items. Creditors should also obtain certifiedcopies of their debtor's organizational documents--e.g., articles or certificate of incorporation forcorporations; articles of formation for limited liability companies. However, after the creditor filesa financing statement to perfect its interest in collateral, it may be prudent to obtain a certifiedsearch for that single filing from the state filing office itself, in order to ensure that little things--like the omission of "Inc.," or of "Co.," or of the periods in an abbreviation--don't mean a lot ofpain for the creditor.
Combest is a partner at Quarles & Brady LLP in Chicago. His e-mail is [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Keeping current: securitiesBy Stanley Yorsz
10b5-1 plans under increased scrutiny
The SEC has recently made very plain its intention to more closely scrutinize plans contemplatedby Rule 10b5-1. That rule was enacted in October 2000, and since then corporate insiders haveextensively used plans authorized by the rule to establish trading programs that might not havepreviously been entered into for fear of insider trading liability. While often termed a "safeharbor," section (c) of the rule actually provides an affirmative defense to an allegation ofinsider trading. Rule 10b5-1 prohibits the purchase or sale of a security on the basis of material,nonpublic information. However, the purchase or sale will not be deemed to be made on thebasis of material, nonpublic information if the person making the transaction demonstrates thatbefore becoming aware of the information, he or she had (1) entered into a binding contract topurchase or sell the security, (2) instructed another person to purchase or sell the security forthe instructing person's account, or (3) adopted a written plan for trading securities. The rulethen describes the essential characteristics of such a plan, including the requirement of a writtenformula to be used to determine the amount of securities to be purchased or sold.
However, comments made in late 2007 by Linda C. Thomsen, the director of the SEC's Divisionof Enforcement, indicate that the commission will be reviewing these plans with a much morecritical eye than it has in the past. The commission has previously charged individuals withabusing the protection afforded by 10b5-1 plans (witness the prosecutions of Ken Lay and JoeNacchio), but those were relatively small issues in much larger prosecutions. Ms. Thomsen'scomments now raise the much greater possibility of informal or formal commission investigationsinto several aspects of these plans, coupled with subsequent enforcement actions.
This reported commission action comes on the heels of Ms. Thomsen's comments in March 2007that the SEC was, in fact, taking a hard look at several issues surrounding these plans, a
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sentiment she repeated in a speech on October 10 to the National Association of Stock PlanProfessionals.
The SEC's enforcement interest in these plans accelerated following the publication of a study byAlan Jagolinzer, an assistant professor at the Stanford University Graduate School of Business.His paper analyzed a significant number of transactions carried out pursuant to 10b5-1 plans(information mostly taken from SEC Form 4 and 8-K filings). The study found that, on average,sales by participants generated "abnormal trade returns," and that "a substantive proportion ofselected 10b5-1 plan initiations are associated with pending adverse news disclosure, and thatparticipants terminate sales plans before positive shifts in firm returns." While the study stressesthat the evidence it presents is not necessarily indicative of illegal behavior, there seems littledoubt that his findings have generated a significant amount of interest in possible abuses of10b5-1 plans.
Using 10b5-1 plans to reduce the risk of potential liability makes sense, but given its publicpronouncements, it would be naive to think that the commission will ignore actions that fly inthe face of plan requirements. Constant modifications and terminations, trading very shortly afterthe establishment of a plan, significant trading outside of the plan, and other activities couldwell, in the current atmosphere, trigger an SEC inquiry or result in a loss of the protectionprovided by the rule. Indeed, a focus on these plans might be a natural progression from thecommission's well-publicized campaign with regard to option backdating. If an inquiry istriggered, of course, it is imperative to have counsel versed in dealing with the commission toassist. Even absent such oversight, it is crucial for a participant to be well versed in therequirements set out by the rule.
Yorsz is a shareholder and chair of the Securities Practice Litigation Group at the Pittsburgh officeof Buchanan Ingersoll & Rooney PC. His e-mail is [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Keeping current: securitiesBy Paul E. Gutermann
Climate change disclosure obligations
Publicly traded companies faced with potential climate change obligations are facing increasingscrutiny of their securities disclosures. New York Attorney General Andrew Cuomo recentlysubpoenaed five energy companies to determine whether they adequately disclosed financialrisks likely to arise from climate change regulation. On the heels of that action, state officialsand environmental organizations petitioned the SEC for clarification that companies are obligatedto disclose the financial risks posed by impending climate change regulations.
Attorney General Cuomo is investigating whether the five subpoenaed corporations disclosedsufficient information regarding the financial risk posed by likely future climate changeregulations in connection with the companies' plans to build new power plants. Cuomo issued thesubpoenas under New York's Martin Act, which grants the attorney general broad powers toinvestigate and prosecute any "fraudulent practices" in connection with securities trading.
To establish liability under the Martin Act, the state must show only a material misrepresentationor omission and may seek injunctive relief and restitution of any money or property obtained.The New York Court of Appeals has held that "an omitted fact is material if there is a substantiallikelihood that a reasonable shareholder would consider it important in deciding how to vote . . .It does not require proof of a substantial likelihood that disclosure of the omitted fact wouldhave caused the reasonable investor to change his vote." (State v. Rachmani Corp., 71 N.Y.2d718 (N.Y. 1988).)
Days later, a consortium of state and municipal officials, environmental groups, and institutionalinvestors petitioned the SEC to issue guidance requiring greater disclosure of climate changerisks. Petitioners simultaneously requested that the SEC examine the adequacy of climate
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change-related disclosures to ensure that regulatory filings meet existing requirements.
Publicly held corporations are required to disclose facts about their performance and operationsthat would be material to a reasonable shareholder's investment decisions. The petition arguesthat concerns about climate risk are now highly relevant to a reasonable investor, and generallyare not disclosed adequately in corporate filings. The petition identifies three specific areas ofrisks related to climate change:
physical risks;
financial risks and opportunities associated with present or probable regulation; and
legal proceedings.
Physical risks include risks to personnel, physical assets, and supply and distribution chains.They can result from changes in weather patterns, rising sea levels, loss of permafrost, or theunavailability of clean water. Financial risks apply both to emitters of greenhouse gases likely tobe impacted directly by new regulations and to other entities facing indirect impacts, such aswhen regulation increases the costs or decreases the supply of a service on which a businessdepends, or decreases the demand for a business's own products or services. Finally, numerousclimate change lawsuits have already been filed alleging, for example, personal injury andproperty damage from emission of greenhouse gases and the failure of regulatory agencies toconsider the greenhouse gas impacts of projects ranging from shopping centers to new powerplants.
The petition seeks only "interpretive guidance," not new regulations. It also asserts that thedisclosure requirements currently in force, primarily FAS 5 and Regulation S-K, already requiregreater disclosure than is typically being made. Accordingly, the petition urges the SEC to clarifythat companies subject to periodic mandatory public disclosures must carefully review theimplications of climate change and disclose material climate risks.
Publicly held corporations therefore should review their internal procedures for gatheringinformation about and assessing climate risk and confirm that they have established mechanismsnecessary to ensure careful review and appropriate disclosure of potential climate risks.
Governor Cuomo's letters to the energy companies can be found atwww.oag.state.ny.us/press/2007/sep/sep17a_07.html. The joint petition to the SEC can be foundat www.ceres.org/pub/docs/Full%20Petition.pdf.
Gutermann is a partner at Akin Gump Strauss Hauer & Feld LLP in Washington, D.C. His e-mail [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Keeping current: securitiesBy David J. Baum and Paul D. Hourigan
New SEC rules on bank broker-dealer activities
Recently, the SEC and the Board of Governors of the Federal Reserve System jointly adoptednew Regulation R. This regulation implements the banking and brokerage provisions of theGramm-Leach-Bliley Act (GLB Act) and represents the culmination of a nearly decade-longprocess in which the SEC, in conjunction with several other federal agencies, has attempted tobring the legislative promise provided by the GLB Act to fulfillment. Specifically, Chairman Coxstated that Regulation R will finally provide customers with the synergies expected by the GLBAct, fortify competition among service providers, and generally lower the cost of brokerageservices for investors.
The passage of the GLB Act in 1999 sought to foster competition among banks, securitiescompanies, and insurance companies, primarily by repealing the Glass-Steagall Act. In doing so,the GLB Act subjected the securities activities of banks to the existing broker-dealer regulatorysystem and SEC oversight unless those activities fit within certain specifically excluded traditionalsecurities-related banking activities. Rather than work out the details, Congress left it to the SECto define exactly what constituted such "traditional" banking activities.
After several failed attempts gave rise to vehement dissatisfaction within the banking industryand among banking regulators, Congress, in 2006, mandated that the SEC work jointly with theFederal Reserve to ensure that consensus between the banking and securities regulators couldbe reached. Taking the hint, the SEC and the Federal Reserve proposed Regulation R inDecember 2006 and stated that it would supersede all other proposed or final rules issued bythe commission with regard to the definition of "broker" under the Securities Exchange Act.
The final rules adopted in September 2007 are substantially similar to the rules as originally
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proposed in December 2006, with only some technical changes to address commentators'concerns. Accordingly, Regulation R provides banks with exemptions from broker-dealerregistration for the following limited bank securities transactions:
Networking Exception--allows banks to receive compensation for referring bank customers tobroker-dealers if certain conditions are met.
Trust and Fiduciary Activities Exception--permits a bank to effect securities transactions in atrustee or fiduciary capacity if it is "chiefly compensated" for those transactions, consistent withfiduciary principles and standards, on the basis of specifically enumerated types of fees.
Sweep Accounts and Transactions in Money Market Funds Exception--permits a bank tosweep deposits into no-load, money market funds.
Safekeeping and Custody Exception--permits banks to perform specified services inconnection with the safekeeping and custody of securities.
Transactions in Investment Company Securities Exemption--permits banks to effect certaintransactions in mutual funds and in certain variable insurance products that are registered andfunded by a separate account, through the National Securities Clearing Corporation, directly witha transfer agent, or directly with an insurance company or a separate account that is excludedfrom the definition of transfer agent.
Transactions in Company Securities Exemption--permits a bank to effect a transaction in thesecurities of a company directly with a transfer agent acting for the company as long as certainconditions are met.
Securities Lending Exemption--provides an exemption for noncustodial securities lendingactivities that would have been otherwise voided by the Regulatory Relief Act.
Regulation S Securities Exemption--provides an exemption to allow banks to effect certainagency transactions involving Regulation S securities.
Section 29 Exemptions--provides banks with a transitional 18-month exemption to preventtheir contracts from being void or voidable under section 29(b) of the Exchange Act.
Regulation R provides banks with a transitional exemption until the first day of their first fiscalyear commencing after September 30, 2008. This transition period is designed to give bankstime to make any necessary changes to ensure compliance with the Exchange Act provisionsrelating to the definition of broker.
Baum is a partner and Hourigan an associate in the Washington, D.C., office of Alston & Bird LLP.Their respective e-mails are [email protected] and [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Pro bono in actionBy Monin Ung
Rewards and challenges of pro bono in China
With the practice of law becoming more and more globalized, business lawyers in the UnitedStates are increasingly seeking pro bono opportunities abroad. A U.S. business lawyer looking tothe People's Republic of China for such opportunities should be prepared for a challenging butvery rewarding professional experience. As an associate in the Hong Kong office of TroutmanSanders LLP, I have the privilege of providing pro bono legal services to Operation Smile ChinaMedical Mission Limited (Operation Smile HK), the Hong Kong chapter of the Norfolk-basedOperation Smile International. Operation Smile HK provides free medical treatment for childrenin China born with a cleft lip and/or a cleft palate.
Operation Smile HK was incorporated in Hong Kong in 1991. At the time, there was no legalframework under which a foreign nonprofit could operate in China. Fortunately, that changed inJune 2004 with the enactment of the People's Republic of China's Regulations on theAdministration of Foundations. Since then, the Chinese government has been allowing domesticnonprofit organizations to be set up in China. It still can be a challenge, however, for U.S.-headquartered charities to establish themselves in China as foreign nonprofits. Lawyers assistingforeign nonprofits must cut through red tape, work with the various ministries and Chineseauthorities, and always be aware of the prevailing political climate. It can take time for a foreignnonprofit organization to build trust with local Chinese governments.
I found this to be especially true while helping Operation Smile HK prepare for its missions.Before Operation Smile HK conducts a medical mission at a new site, its medical, logistical, andadministrative coordinators must carry out thorough fact-finding with the designated localhospital. The partnership with local hospitals is important, as they provide the hardware for themedical mission--hospital beds, operating theatres, and other necessities. Terms of agreement, a
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timeline, and an action plan need to be prepared at least six months before a mission takesplace. The terms of agreement require a delineation of responsibilities between the local hospitaland Operation Smile HK, with the hospital providing its facilities and Operation Smile HK beingresponsible for the medical operations and the expenses of the entire medical mission.
Besides negotiations with the local hospital, extensive discussions with various governmentaldepartments at both the local township and the provincial level are also necessary. For instance,counsel must work with local authorities to ensure that Operation Smile HK's standard medicalequipment, donated medical supplies, and gifts are shipped into China on a timely basis. In onecase, a shipment of Operation Smile HK medical supplies was held up for 12 months at Liaoningport due to local red tape. Certain donated pharmaceuticals were refused entry as they were notcategorized in accordance with Chinese medical practice. On another occasion, a hefty customscharge was levied on a container with donated toys. These types of incidents stem from asystem inexperienced with nonprofit work, especially nonprofit work that originates fromoverseas. The pro bono lawyer must strive to understand how the existing Chinese systemworks, be able to read between the lines in interpreting Chinese rules and regulations, be adeptin negotiating with various governmental departments, and be politically sensitive at all times.
Although China has had a late start in the area of nonprofit regulation, it is learning quickly, andofficials are gaining a better understanding of volunteerism and nonprofit activities each day.Troutman Sanders is now helping Operation Smile HK become a domestic nonprofit organization,which should greatly improve its ability to bring medical services to the children of China. In thefirst 16 years of its existence, Operation Smile HK sent medical teams to 24 cities in China, andprovided necessary medical or surgical treatment to over 9,000 children. As China's nonprofitlegal framework matures and the cultures of volunteerism and charity develop, I look forward toseeing Operation Smile HK reach more children in need and change their lives for the better.
Ung is an associate in the Hong Kong office of Troutman Sanders LLP. Her e-mail [email protected].
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Business Law Today
Volume 17, Number 3 January/February 2008
Snap JudgmentsBy Peri Hughes
Working from home . . . all it's cracked up to be?
If you're thinking of approaching your firm about telecommuting even on a semi-regular basis,you might want to think twice. It may seem like a great idea--you can increase your productivityby eliminating time spent commuting and the inevitable interruptions at the office. However, astudy by Lexmark International, Inc., which included 1,000 respondents who work from home invarying degrees, reports mixed responses about telecommuting. Respondents felt positivelyabout working from home for the obvious reasons: almost half cited flexible working hours, whilethe next two most popular responses included saving money on gas and being more productive.The top three drawbacks reported included working more hours overall, dealing with frustratingtechnology issues, and feeling isolated from coworkers.
Law firm addresses domestic violence
The statistics are staggering. The New York Times reports that 20 percent of all adults employedfull-time are or have been victims of domestic violence, according to a survey by the CorporateAlliance to End Partner Violence. The newspaper also reports that almost 8 million days of workare lost by women annually as the result of some form of domestic violence, according to astudy by the Centers for Disease Control. However, many employers do not seem to be awarethat domestic violence affects their employees and their business.
Greenberg Traurig is trying to combat this problem by training its employees to identify victimsof domestic violence. Cesar Alvarez, chief executive officer at Greenberg Traurig, hopes thatmaking employees more aware of the crisis will open the door for victims to come forward.Alvarez said, "[W]hen [employees] have an issue, they can come and discuss it with theGreenberg Traurig people we have trained around the office. We want to encourage them to
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seek help." The firm offers expanded benefits that include referral networks and leaves ofabsence for employees in need of help. It also provides guidance to other companies on how toprotect their employees from domestic violence.
The piano man
The Connecticut Law Tribune reports on the ingenuity of one lawyer who found a way to bringhis hobby to the office. Rather than wait until the end of the day to unwind at home and indulgein his favorite pastime, Ridgefield lawyer Harvey Kulawitz brought his passion to work: hiselectric piano is now housed behind his desk. The personal injury attorney need only swivel hischair around when he needs a break from his practice. The inspired Kulawitz said playing jazzmusic on his piano "helps spark creative thoughts. It's a relief from the constant battles andtension of the law practice." He finds his hobby also helps clients relate to him on a morepersonal level and often ignites conversation. His clients appreciate having a lawyer with anartistic side, and some even enjoy his music while meeting with him.
Online networking exclusively for lawyers
If personal injury attorney Steven Choi has his way, lawyers will have an easy, exclusive way tonetwork socially and professionally with other lawyers across the globe. As reported in TheRecorder (a daily legal newspaper in Northern California), Choi has started LawLink.com, anetworking site exclusively for lawyers. The site is free to join and allows only lawyers toregister (state bar registries are checked for authentication purposes). Comparing the site toother popular networking sites such as LinkedIn, Facebook, and MySpace, Choi explains LawLinkis targeted specifically to lawyers and their unique needs. He also notes that the professionalnature of LawLink sets it apart from other sites for lawyers such as Lawbby.com. LawLink aimsto be more than just a site where lawyers network socially; it also serves as a place for lawyersto communicate with other lawyers professionally--a place to pose questions, seek referrals, postclassified ads, and share information. "I think attorneys are going to want their own sitespecifically for them, because everything is targeted toward the practice of law . . . it's aboutgiving and getting legal business," said Choi.
Law departments spending more on inside counsel
Trends in how corporate law departments are spending their dollars indicate more companies areutilizing inside counsel rather than outsourcing legal work. Hildebrandt International's 2007 LawDepartment Survey reports that, on average, law departments are spending 6 percent moreoverall than last year. Of this increase, spending on inside counsel increased by 8 percentcompared to just a 3 percent increase in spending on outside counsel. Of note is the rate atwhich spending on outside counsel has slowed, dropping from between 5 and 6 percent over thepast two years. The survey attributes large increases in compensation for inside counsel as thedriving factor in the gap in spending. Compensation rates, including cash bonuses, across alllevels of lawyers have increased by 10 percent, compared with just 7.5 percent last year. As aresult, law departments are spending more than 80 percent of their inside counsel dollars oncompensation alone. The survey also reports on the areas of greatest demand for legal servicesin law departments. According to the report, the highest demand comes from international (36percent), followed by commercial contracts (35 percent), mergers and acquisitions andregulatory (both at 34 percent), IP and patent (31 percent), and general corporate andcommercial rounding out the list (30 percent).
Law firms moving away from affiliate businesses
Though once the rage in the 1980s and 1990s, affiliate businesses seem to have lost theirallure. While many law firms ventured into affiliate businesses hoping to add to their revenuestreams and expand their reach, the dream more often than not proved less than fruitful, andmany firms are now selling off these entities. The National Law Journal reports that of the firmswho started affiliate businesses, few actually reaped the financial benefits they had hoped for.Fewer and fewer affiliates have been born in recent years, and the trend toward selling off thesebusinesses has increased. Rather than dedicating more to running these businesses that havelittle or no impact on their bottom lines, firms are choosing to sell them off and focus on whatthey do best: practicing law.
The salary myth deflates . . . but not that much!
A November/December entry in Snap Judgments based on a National Law Journal article pointedout that starting salaries of $160,000 for recent law school grads are not widespread and thatmost lawyers in private practice can expect to start out between $40,000 and $45,000. The
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latter figures seemed a little too low, prompting us to research the NALP 2007 Associate SalarySurvey, which reflects salary figures reported by law firms (rather than by law school graduates)for jobs in private practice. The survey reports that the median starting salary for recent gradsis $68,000 in firms between two and 25 lawyers, and increases progressively as law firm sizeincreases, up to $130,000 in firms of 251 lawyers or more. However, the median starting salaryfor non-firm lawyer jobs ranges between $38,000 and $46,000 (2006 figures). The NALP surveycan be found at www.nalp.org/content/index.php?pid=543.