September 2006

Does the Attorney for a Close Corporation Owe the Minority Shareholders a Fiduciary Duty?

September 28, 2006

Fiduciary Duty. As a recent case shows, the answer is: it depends. Assume that you are the attorney for a closely-held corporation (a privately held corporation with a small number of active shareholders), and you have interacted with and provided corporate legal advice to the shareholders over the years. Even though you did not represent them personally, the shareholders placed their trust and confidence in you. A dispute then arises between one of the shareholders (who has a minority position) and the corporation. Can you represent the corporation in this dispute, or do you have a fiduciary duty to the minority shareholder that presents a conflict of interest, and precludes you from the representation? An article by Massachusetts Bar Counsel written in 2003, Closely Held Conflicts, reviews the case law on this issue (which has developed mostly in the context of motions to disqualify counsel), and sends a clear warning that attorneys who have represented a closely held corporation most likely do owe a fiduciary duty to the shareholders. However, a recent decision by Superior Court Judge Francis R. Fecteau draws an important distinction to keep in mind when this issue arises. In that case, Bensetler v. Data Plus, Judge Fecteau found that attorneys who represented a closely held corporation did not have a fiduciary duty to a minority shareholder with whom they had never interacted. Thus, at least according…

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A Discussion with Pam Woodall, Asian Economics Editor of The Economist

September 27, 2006

This interview, which can be accessed here, provides some fascinating observations on emerging markets and their impact on the world economy. Ms. Woodall notes that emerging markets now represent one-half of world output and world energy consumption. She states: The integration of China, India and other emerging economies are providing the biggest economic boost in world history, bigger than the industrial revolution. The first decade of 21st century will see the fastest growth ever in average world income. An extensive series of articles from the September 16, 2006 issue of The Economist, titled A Survey of the World Economy and focusing on emerging markets, can be accessed from this page (lengthy PDF file).

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So Much for Early Retirement

September 26, 2006

Courts. Judge Jack B. Weinstein is a legend in the federal judicial system. A district court judge from 1967 to 1993, he has been on “senior status” (but with a full case load) for the last 13 years. Yesterday, this 85 year old judge issued one of the longest decisions ever published: the 540 page decision certifying a class action in Schwab v. Philip Morris USA, a case alleging that smokers were defrauded into believing that “light” cigarettes were less dangerous than regular cigarettes. A link to this exhaustive and carefully reasoned decision, which may be the most significant by Judge Weinstein in his forty years on the bench, is here. Proponents of “early retirement” should take a look.

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Class Action Crazies Attack Wal-Mart

September 22, 2006

What were they thinking? David Fish at Collins Law, passed on this case: Acree et al v. Wal-Mart Stores, Inc. (Complaint in pdf format) This class action lawsuit alleges that Wal-Mart claims that music CDs it sells do not contain explicit language when in fact some of them do. Quoting from the suit: Wal-Mart violated its practice and policy by allowing CDs to be sold that contained explicit content but that did not contain an ‘explicit content’ or ‘parental advisory’ warning label. This worked to dupe the very consumers who have come to trust and rely on Wal-Mart as a ‘family friendly’ store. The case was filed in state court in Chicago. Too bad the plaintiffs didn’t file it in PRC, Massachusetts. That would have led to some amusing courtroom scenes. I’ll let you draw your own conclusions on the merits of this one, but I’m confident that the attorneys who filed this suit have the best interests of the injured class in mind and do not, I repeat do not, have attorney’s fees in mind.

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Do Software Patents Discourage Innovation?

September 21, 2006

Patents. Over the last 20 years the conventional wisdom has been that patents are inimical to software innovation in the U.S. Many prominent software developers and industry luminaries have argued this position. Here is a link to a paper by Professor Robert Merges of the University of California Law School at Berkeley arguing the contrary view: that software patents have had a negligible impact, if any, on innovation in the industry. Here is the abstract: In the late 1980s and early 1990s, people in the software industry often said that the coming of patents would spell doom, particularly for small companies. The entry of new firms – the seabed of growth in the industry – would dry up, and only large, bureaucratic and decidedly non-innovative firms would remain. This paper concludes that these predictions were wrong. New firm entry remains robust, despite the presence of patents (and, in some cases, perhaps because of them). Successful incumbent firms have adjusted to the advent of patents by learning to put a reasonable amount of effort into the acquisition of patents and the building of patent portfolios. Patent data on incumbent firms shows that several well-accepted measures of “patent effort” correlate closely with indicators of market success such as revenue and employee growth. Whatever the effect of patents on the software industry, this paper concludes, they have not killed it. Here is a…

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Mix One Cup of Law, a Tablespoon of People Magazine, and You Get …

September 19, 2006

Low Brow Lawyer Gossip! Yes, it astounds me that there can even be such a thing. When I graduated from law school all those many years ago, if you had been able to explain to me what the Internet would be, and what a blog would be, and told me that someday there would be a blog devoted solely to lawyer gossip (things like what law students have been selected as Supreme Court clerks, lawyer weddings, lawyer sex, lawyers coming out of the closet, summer associate faux pas, interview faux pas, judges’ vacation haunts, rich lawyers, ugly lawyers, obnoxious lawyers, and more, seemingly ad infinitum … ), I would have thought you were barking, drooling mad. Sadly, I would have been wrong. There is such a thing, at a blog called Above The Law, A Legal Tabloid. Jump at your own risk.

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The Sum of All Knowledge

September 19, 2006

Technology. Do you know what Wikipedia is? Did you know that this open source encyclopedia covers 1,391,807 topics (in the English version, as of this writing)? That it may be (or soon become) the greatest collaborative knowledge gathering effort the world has ever known? That it is the 17th most popular site on the Internet, receiving 14,000 hits per second? That you can find a topic in Wikipedia by simply entering “wiki” at the end of a Google search? (e.g., Lost TV show wiki)? If you’re interested in understanding the origins, goals and inner-workings of this astonishing phenomenon, I recommend these two articles from The Atlantic and The New Yorker, respectively: The Hive: Can thousands of Wikipedians be wrong? How an attempt to build an online encyclopedia touched off history’s biggest experiment in collaborative knowledge, by Marshall Poe (The Atlantic, September 2006) Know It All: Can Wikipedia conquer expertise?, by Stacy Schiff (The New Yorker, July 2006)

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Judge Gants Issues Decision on Waiver of Attorney-Client Privilege When Client Uses Password-Protected, Web-Based Email on a Company Computer

September 18, 2006

Litigation. Lawyers love to argue about attorney-client privilege. What could be juicier than to find out what your adversary in litigation said to his or her attorney, believing it to be covered by this privilege, a privilege that is so sacrosanct that the Supreme Court has ruled that it extends beyond the grave? Nevertheless, the attorney-client privilege can easily be lost or waived. For example, if the communication is revealed to a non-attorney third party, it risks waiver. The world of computer technology and email has given rise to new grist for the waiver doctrine. Most companies inform their employees (in employee manuals, for example) that communications utilizing the company’s internal email system are open to review and examination by the employer. According, it is established law that an employee who uses her employer’s email system to communicate with an attorney has waived the privilege. Most lawyers, aware of this, instruct their clients who wish to communicate from work to use an Internet-based email system, such as Google’s Gmail or Yahoo Mail. The theory is that since the employer doesn’t have access to these emails and the emails are protected by a user name and password, they retain their privilege. This assumption was challenged in a recent case before Judge Gants, sitting in the Massachusetts Business Litigation Session. In this case, NERA v. Evans, the former employer argued that since,…

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Lying About Your Education Can Get You Into Trouble In More Ways Than One

September 15, 2006

Litigation. In Pease v. Tyco Electronics Corp., decided on September 7, 2006, Massachusetts Federal District Court Judge Ponsor dismissed wrongful termination claims by a former employee of Tyco, based on evidence that the employee had lied to Tyco regarding his education (an MBA), and then modified and destroyed files on his computer to cover up his actions during the litigation. Among other things, this case shows how effective forensic examination of a computer can be in litigation, as well as the fact that federal judges simply won’t tolerate this kind of conduct. Of course, the case also shows that when an employee brings a suit like this he had better make sure that he has no skeletons in the closet.

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The "Work for Hire" Trap

September 15, 2006

Copyright. Sometimes it just seems like the law is full of traps. Miss a filing deadline, fail to make the proper objection or motion in court, leave the many forms of “magic language” out of an agreement – any of these, and countless more, can result in disaster. Our firm has recently seen two clients pay over $500,000 to buy their way out of what I call the “work for hire” trap. Both clients are software companies. In the first case, the client hired an independent contractor to develop its product, and failed to get a written assignment of ownership from him. After leaving under adversarial circumstances, the contractor claimed that he, not the company, owned the product. The second case involved similar facts, but the independent contractor/programmer worked for a small agency, and after several years the agency asserted ownership of the programmer’s work. Again, no written assignment, and again, a multi-hundred thousand dollar settlement to avoid litigation and get what the company should have owned outright. In both cases the companies could have argued that they had an “implied license” to use and sell the software (since in neither case did the contractor warn the company of his ownership claim while the work was being done), but the implied license doctrine is messy, to say the least. What investor or purchaser wants to be told that the company…

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Do We Have a Deal, or Not?

September 11, 2006

Litigation. “Of course, this letter is not intended to create, nor do you or we presently have any binding legal obligation whatever in any way . . ..” In 1991 those words played a major role in the Massachusetts Appeal Court’s reversal of a $32 million trial judgment against Federal-Mogul Corp. in the case (infamous to Massachusetts business lawyers of the time) of Schwanbeck v. Federal-Mogul. The plaintiff in that case claimed he had a deal to buy a division of Federal-Mogul, and FM had breached that agreement. While the trial court agreed (resulting in the $32 million judgment), the Appeals Court reversed, in part on the language quoted above. That case was an object lesson to attorneys in our firm involved in M&A transactions that it was essential to include “no legal obligation” language in every transaction, unless and until our client was prepared to be legally bound. An article that I wrote in 1991 discussing this case in more detail is linked here. However, this problem is not limited to contracts – it arises surprisingly often in settlement discussions in litigation. Not too long ago our firm had a case in which the attorneys for the other side insisted that a verbal conversation with an attorney in our firm, followed by a confirmatory letter that outlined a settlement at a high level of generality, was enough to result…

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Geeks on the Beach

September 6, 2006

Ok, my family is a little geeky, I admit it.  We watch documentaries together more than we watch family friendly movies.  What do I discuss with my beautiful wife and exceptional 12 year old daughter as we walk along the beaches of Cape Cod?  They both love astronomy, and every year I remind my lovely daughter that there are more stars in the Universe than grains of sand on all the beaches of Earth. However, I’ve always had a nagging doubt about this – is it true? It seems just, well, inconceivable. This year, upon returning to civilization (and a computer) I googled “are there more stars in the Universe than grains of sand on all the beaches of earth?” It turns out that scientists think about this stuff too. The first hit is an authoritative appearing article from North American Skies which reads – In my astronomy classes I have often used the claim that there are “more stars in the heavens than all the grains of sand on all the beaches on Earth.” The claim is certainly not original with me, but I had always accepted it without question. Then one day began to wonder if it is really true. After all, there must be a really big number of sand grains on all the planet’s beaches! The discussion concludes, after much mathematical calculation and many “to the…

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