The preparation of motions to seal clients’ confidential materials can be – at times – an arduous task.  In an apparent effort to streamline the procedure and reduce the duplicative, voluminous filings in support of sealing requests, the District Court has amended Local Civil Rule 5.3, entitled “Confidentiality Orders and Restricting Public Access Under CM/ECF.”

Federal Courts
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Effective September 30, 2016, the amendment makes sweeping changes to the procedure previously used to request sealing orders.  Here is what New Jersey lawyers practicing before the New Jersey District Courts need to know about the recent amendment to Local Civil Rule 5.3.

Before, the filing party submitted a motion to seal along with every filing containing information that it (or the adversary) wanted sealed.  Now, instead of filing a motion to seal along with every single filing, litigants must work together to file a single, consolidated motion to seal within 14 days after the briefing in support of the application that relies on the confidential material is complete.

Other important points to note with respect to this new sealing procedure include:

  • No briefs need to be filed “unless a party believes it will assist the Court.” However, Proposed Findings of Fact and Conclusions of Law must be submitted.  Parties are permitted to file alternative proposed orders if they oppose the movant’s sealing request.
  • If a party files redacted materials, then within 21 days of the filing, the parties must meet and confer.
  • The party that wants the materials sealed must file the motion absent agreement to the contrary.
  • Litigants must file the motion to seal even if the motion in support of which the confidential materials have been filed is resolved or terminated.
  • In support of the motion to seal, litigants are required to submit a chart, setting forth specific information with particularity. The preferred form for the chart may be found in Appendix U to the Rules.
  • In emergent situations, if the Court temporarily seals materials, either sua sponte or in response to an emergent application, then the sealing party must file its motion to seal within 14 days of the date of the Order.

There is also a new procedure that applies when anyone wants portions of a transcript or digital recording sealed.  In addition to generally following the above procedure, the movant must not file the proposed redacted transcript with the motion.  Instead, the movant must provide it directly to Chambers.  The movant must also serve a copy of the motion on the court reporter/transcription agency with a cover letter explaining the pendency of the sealing motion.  While the motion is pending, the transcription agency may not publicly release the transcript or recording.  If the Court grants the motion, then the movant must submit a Statement of Redaction and Sealing to the court reporter/transcription agency.  That form is available on the District Court’s website.

It’s fair to say that the amendments to Local Civil Rule 5.3 are a fundamental change to sealing procedures. Although time will tell whether the amendments streamline sealing applications, at first blush, the outlook is bright.

So, while the Baxter court concluded that a tortious interference claim could not survive summary judgement under the facts set forth in our previous post, those same facts supported the survival of the misappropriation claim.

Trade Secrets
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Determining whether HQ had potentially misappropriated Baxter’s trade secrets under New Jersey’s Trade Secrets Act required a very different analysis from the tortious interference claim considered by the Court.  The seminal issue on the misappropriation claim was whether HQ knew or had reason to know that the employee obtained trade secrets by improper means.

Analyzing this question, the Court noted that HQ knew that: i) the employee was involved in the development of a similar patent while he was employed by Baxter and ii) HQ had no development effort with that product prior to the hiring of Baxter’s former employee.  Based on those facts, HQ conceivably had “reason to know” that the employee may have accessed (and relied upon) trade-secret information obtained through improper means.  Significantly, the Court noted that HQ had apparently inquired about the employee’s contractual obligations to Baxter for precisely that reason– i.e., to determine if the employee had misappropriated the trade secrets. Accordingly, the misappropriation claim was not dismissed.

What is Misappropriation After Baxter?

It appears that the Court reached different results for the tortious interference and misappropriation claims because they have different “knowledge” requirements. Tortious interference requires malice to sustain a cause of action while misappropriation under the Act only requires that the defendant (here, HQ) have a “reason to know” of the improper conduct.

Because HQ inquired about the employee’s contractual obligations and received assurances that he had no outstanding obligations with Baxter, HQ lacked malice and, therefore, was not liable for tortious interference. Yet the same conduct by HQ did not necessarily bar a misappropriation claim because it suggested that HQ knew about the employee’s prior involvement with a confidential formulation and, in fact, inquired about his contractual obligations – apparently, out of concern for misappropriation.

Practice Tip:

Employers should be careful to spot the red flags of misappropriation that were highlighted in Baxter including: (1) a new employee working on the same sensitive information at both companies; (2) the new employer being aware that the employee previously worked on such information; and (3) the new employer using the sensitive information after the employee joins the new employer and begins the development of a new product.  Under Baxter, if similar warning signs exist, the new employer may not be able to avoid liability by obtaining and accepting representations from the employee that no misappropriation occurred.

While the New Jersey Trade Secrets Act has been in effect since January of 2012, there have been no reported cases interpreting the Act until this year when the Court considered Baxter Healthcare Corporation v. HQ Specialty Pharma Corporation.  In some ways, the Baxter case raises more questions than it resolves on the issue of an employer’s exposure to misappropriation claims brought by an employee’s former employer.  Given the potential for punitive damages under the Act, employers should carefully consider the Court’s analysis of the claims in Baxter when an employee from a competing organization is hired.

Trade secrets
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One month after leaving Baxter, a scientist began discussions with HQ Specialty Pharma (“HQ”) about a proposal to develop a product similar to one that he worked on during his employment by Baxter. Baxter asserted tortious interference with contractual or business relationships and misappropriation of trade secrets, based on HQ’s employment of Baxter’s former scientist who, while working for the company, assisted with a formulation of a patent. The scientist had entered a nondisclosure and employment agreement barring the disclosure or use of any of Baxter’s confidential information.

When HQ hired the scientist, HQ inquired regarding the employee’s contractual obligations to Baxter and repeatedly received assurances that the employee was not violating any contractual duties to his former employer.  This conduct of inquiry supported a dismissal of Baxter’s tortious interference claim against HQ, but also potentially supported a misappropriation claim because according to the Court’s analysis, the inquiry itself demonstrated that HQ had a “reason to know” misappropriation may have occurred.

Baxter’s tortious interference claim was subject to the four (4) prong test elucidated in Vosough v. Kierce, 437 N.J.Super. 218, 234 (App. Div. 2014), requiring Baxter to demonstrate:

  1. a protected interest – either a prospective economic or contractual relationship;
  2. malice, i.e., intentional interference without justification;
  3. a reasonable likelihood that the interference caused the loss of the (prospective economic or contractual) gain; and
  4. resulting damages.

The Court made clear that “malice” requires intentional conduct with respect to a known contractual duty of another, and that the “should have known” standard is not enough to show intent. According to the Court, the evidence did not show that HQ acted with malice – HQ had no actual knowledge of the employee’s prior agreements barring his disclosure of confidential information or subsequent employment with a competitor.   Without evidence before the Court that HQ engaged the employee with a desire to harm Baxter or otherwise to interfere with its contractual and business relationships, the Court dismissed the tortious interference claim.  But not so fast…stay tuned for the analysis of the misappropriation claim.

Most complex litigation ends with a settlement agreement and most settlements of complex litigation include an arbitration clause to address any disputes over the settlement.  New Jersey’s Supreme Court over the past fifteen years has repeatedly made clear that arbitration clauses are not automatically enforceable and has interpreted them narrowly.

Copyright: alexraths / 123RF Stock Photo
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In Garfinkel v. Morristown Obstetrics and Gynecology Associates, PA, 168 N.J. 142 (2001), New Jersey’s Supreme Court made clear that arbitration agreements will not compel the arbitration of statutory employment claims unless the agreement conspicuously states that the former employee is waiving his right to jury trial and to assert such statutory employment claims.

In Atalese v. U.S. Legal Services Group, L.P., 219 N.J. 430 (2014), the New Jersey Supreme Court again struck down an arbitration clause, this time because it was not sufficiently clear to a reasonable consumer.

In a recent decision, Morgan v. Sanford Brown Institute Career Ed. Corp., 2016 WL 3248016 (June 14, 2016), the New Jersey Supreme Court held that the court, not the arbitrator, should determine whether a dispute is arbitrable, unless the arbitration agreement clearly and unmistakably delegates to the arbitrator the authority to decide whether the claim is arbitrable.

In short, arbitration clauses must be carefully drafted particularly when statutory employment or consumer claims are implicated.  Although arbitration has been traditionally favored by the courts in most states, the modern trend in New Jersey seems to be to the contrary.

It is a familiar adage that business partnerships are like marriages, and in many instances, that saying holds true.  But, what happens when the forming members of a limited liability company offer a small slice of equity to Mary the head sales rep or Bob the head software engineer?  In a perfect world, nothing.  But, in a perfect world there would be no need for lawyers, and because we’re here, there must be trouble lurking.

It sometimes happens in the early, “feel-good” days of a new business venture that the founders reward loyal employees with small equity positions.  It is an easy thing for a founder to do, and can make good business32511428_ss sense if the employee is valuable to a young business unable to pay high salaries.  But the honeymoon does not always last.  Sometimes a competitor woos Mary or Bob away; other times personality conflicts erode an otherwise good working relationship.  This breakdown can lead to a business divorce.

I’ve dealt with these sorts of business divorces in a variety of settings.  In one, the majority owners in a company had a falling out with Mary (all names, of course, are fictional), one of their sales reps who did such a stellar job in the first few years that the owners had granted her an equity interest in the company. What otherwise may have been a simple termination of an employment agreement became complicated by the sales rep’s minority interest in the company.  The matter was complicated further by the omission from the operating agreement of a provision to deal with the termination of this co-member employee or the recapture of the former employee’s equity.

While it is often true that the parties can agree on a mutually acceptable buy-out, the lack of language in a company’s operating agreement addressing this issue can lead to protracted and costly litigation. In some cases,  the costs involved in litigating and evaluating the interest can  exceed the value of the interest at issue.  That’s not to mention the havoc litigation can wreak on a growing business.

What’s the solution?  Good planning.  There are a myriad of ways to address the issue in an operating agreement.  If you’re thinking of forming a new venture, take a look at my three-part primer on operating agreements available here, here, and here.  The message remains the same.  A good operating agreement is like a pre-nuptial agreement; regardless of its cost, it can lead to exponential savings down the road.

 

Recently, I litigated a breach of contract case brought by a lawyer against his client.  Standard contract issues, right?  Consideration, offer, acceptance?  Not quite.

Because the alleged agreement was between an attorney and his client, special rules applied.  The alleged contract was only enforceable if it complied with both contract law and the Rules of Professional Conduct governing lawyers.  Indeed, without even considering contract law, the Court held the alleged agreement was unenforceable because it did not comply with the R.P.C.’s.

Wearing many hats
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Added protections in attorney-client business transactions exist because, in such circumstances, the lawyer wears two hats – lawyer and businessman.  On one hand, the lawyer is representing the client, receiving sensitive, personal, and confidential information.  On the other hand, the lawyer is adverse to the client, sitting on the opposite side of the bargaining table.  When wearing these two hats, the lawyer can potentially overreach in the transaction – to the client’s detriment.

To protect clients in attorney-client business transactions, R.P.C. 1.8 requires that lawyers provide clients with certain disclosures, including a writing delineating all of the transaction’s terms, and a writing advising the client of the desirability of seeking the advice of independent legal counsel concerning the transaction.  Also, the client must give informed consent, in a signed writing, to the transaction and to the lawyer’s role in the transaction.

Before entering a business transaction with a lawyer, clients should consider: did the lawyer comply with this Rule?  The Rule is critical, as it ensures that the client fully understands the transaction, and that the lawyer does not take advantage of the client.

After entering a business transaction with a lawyer, clients should ask the same question.  If the lawyer seeks to enforce an agreement that fails to comply with R.P.C. 1.8, under the law, the agreement might not be enforceable.  Bad news for the lawyer, who could also face ethical sanctions for violating the R.P.C.’s.

Clients always ask: When will the Court make a decision about my motion? The general rule is that lawyers cannot predict with any certainty when the federal courts will resolve any particular pending motion.

In the federal courts, there is no requirement that judges issue an opinion within any time frame. However, the Civil Justice Reform Act (the “CJRA”) provides some guidance.  It encourages judges to resolve matters before them within a certain period of time.

Federal Courts Corner
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Among other things, the Act periodically requires the District Courts to publish a report, listing the motions that remain unresolved for more than six months, along with the judge to which the motion and matter is assigned. Colloquially, in the District of New Jersey, we refer to this as the “Six Month List.”  Similarly, the Act requires publication of all cases, and the judge to which it is assigned, that remain open three years after the filing of the initial complaint.

By virtue of the CJRA’s reporting requirements, Congress attempts to leverage the peer pressure between the federal judges to encourage productivity. Congress also attempts to capitalize on the potential public scrutiny attendant to the publication of these statistics to spur the quick and efficient administration of justice.

In a perfect world, clients could generally expect a decision about their pending motion within six months of its filing date. But our world is not perfect.  The District of New Jersey faces a judicial emergency, which has made it increasingly difficult for the Court to promptly address litigants’ motions.  Under the present conditions, litigants cannot rely on the “six month” rule of thumb with any certainty.

Clients’ concerns are grave because their unresolved motions and protracted litigation negatively affect their wallets. Next time your client wants to know when the District Court for the District of New Jersey will decide a pending motion, consider explaining the Six Month List and its parameters.  Also consider explaining that Congress has yet to confirm nominations for new judges for the District, making it increasingly difficult for the Court to timely handle its pending disputes.

The old adage “knowledge is power” proves true. Clients may be able to use information about the Six Month List and our judicial emergency to budget, forecast, and strategize.  Clients that better understand how the political battles over the judicial nomination and confirmation process directly affect them and their wallets may find it prudent to pressure their Senators to address the pending judicial nominations and to schedule a vote.

New Jersey’s federal judges are busier today than they have been before. One reason for the ever-increasing caseload is obvious.  Today, three District of New Jersey judgeships remain vacant.

Although January 2016’s confirmation and addition of the Honorable John Michael Vasquez to the District Court will undoubtedly ease some of the demands placed on the other New Jersey federal judges, the Court remains in a state of “judicial emergency.” This is a designation conferred by the federal judiciary due to the District’s heavy case load and number of vacancies that need to be filled through the judicial nomination and confirmation process.

Federal Courts Corner
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New Jersey’s “judicial emergency” is demonstrated, in part, by the number of weighted civil filings per judgeship, which has trended upward since 2006. This measure reflects the complexity and type of cases filed. In 2006, the number of weighted civil filings in the District was 417 per judgeship.  Today, it is 659.

At present, two additional nominees await confirmation: Julien Xavier Neals, nominated to take the seat formerly held by the Honorable Faith S. Hochberg, who retired on March 6, 2015, and Brian R. Martinotti, nominated to take the seat formerly held by the Honorable Stanley R. Chesler, who assumed Senior Status on June 15, 2015.

Will these nominees — and a third unnamed individual — be confirmed before President Obama’s term expires? That remains to be seen, and politics may play a significant role in answering this inquiry.

The media coverage following Justice Antonin Scalia’s recent passing, the resulting vacancy on the Supreme Court, and the debate about whether a new Justice will be confirmed during President Obama’s final year in office crystalizes an important point. Only the naïve can ignore the political undertones and overtures attendant to the judicial nomination and confirmation process.  Just as politics affects the judicial confirmation of the next Justice of the United States Supreme Court, it also affects the confirmation of District Court judges.

However fast or slow the turn of the great political wheel, the following is certain: New Jersey’s currently sitting federal judges will continue to steadfastly resolve disputes and gracefully handle New Jersey’s judicial emergency.

We are grateful – and the federal bench and bar must be too – because on January 27, 2016, the Senate voted and confirmed John Michael Vasquez, who joins the honored few to serve under Article III of the U.S. Constitution.  His confirmation fills one of the four seats that were empty prior to his nomination.  Reportedly, Judge Vasquez has been sworn in, and his chambers will be located in Newark.

Federal Courts Corner
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The confirmation of Judge Vasquez culminated after implementation of the procedures set forth in the Constitution and early acts of Congress.  Article II, Section 2 of the U.S. Constitution and various Acts of Congress bestow the President with the power to select a Nominee to fill a vacant judgeship. Once the President chooses a Nominee, that individual is referred to the Senate Judiciary Committee for evaluation.

Next, the Committee evaluates the Nominee, holds a hearing, and determines whether to report the Nominee to the full Senate. The Senate will then debate the nomination. A Senator may, at any point, request unanimous consent to end debate and move to vote on the Nominee.  A single objection to this request will result in a “hold” and require a cloture motion to be filed to end debate and move to a vote. Cloture motions require 51 votes to pass, after which the full Senate will vote on the confirmation and a majority is required for confirmation.

Why do we appreciate this recent confirmation?  Thanks to the addition of one more judge in the District, we can conclude that our clients’ motions and cases will be adjudicated a little more quickly than we would have previously expected.

There’s a connection here, I swear it.  Rumor has it that Van Halen’s 1982 tour rider contained a requirement that the venue provide the band with a bowl of M&Ms . . . less the brown ones.  But, this wasn’t an act of caprice or ego.  The band tucked their M&M requirements into the portion of the contract that contained the technical specifications for stage set-up, including some relatively important aspects of their pyrotechnics show.  If the band found brown M&Ms in the dressing room, they knew that the venue staff had not read the contract carefully enough to catch the M&M decree, and likely not carefully enough to catch the safety-related technical specifications of the band’s stage set-up either.  The M&Ms were a proxy.12458706_s

The same is true of The Bluebook (and, if you’re writing for a New Jersey court, the Manual on Style for Judicial Opinions).  Sure, The Bluebook stands on its own as a resource for formatting citations.  Certainly, The Bluebook has inherent value in its standardization of citation forms.  But, is there really a difference between “Fed. R. C. P.” and “F.R.C.P.”?

Unfortunately for the detail-averse, yes.  Like the brown M&Ms, the presence of bad Bluebook-ing is a proxy.  As a former appellate clerk, I can assure you that clerks notice.  A properly cited brief (along with the proper cover color and format) was a signal that the authors paid attention to detail.  A poorly cited brief, on the other hand, was a signal that the authors could not be bothered with what they viewed as unimportant detail, and was highly correlated with poor citations to the record, inaccurate citations to case law, and poor arguments.

To be sure, good Bluebook-ing will not make weak arguments strong, but if you are looking to stack the odds in your favor, it cannot hurt to signal the Court early that you are a good lawyer and one the Court can trust.  Who would not want to do that?