Connecticut Business Litigation Blog : Connecticut Business Lawyer & Attorney : N. Kane Bennett : Aeton Law Partners LLP : Hartford, Middletown, Glastonbury

Thank you to Advanced Copy for nominating me for Best Use of Blogs for the Hartford Business Journal's Strateg E Awards for 2010.  Thank you to the Hartford Business Journal for selecting this Blog as a finalist and putting on a great event yesterday. 

Congratulations to Thomas Clifford who won for his Blog, Bringing Brands to Life.  Tom is a big fan of Daniel Pink who has some revolutionary ideas for business management.  I just read Pink's latest book "Drive: The Surprising Truth About What Motivates Us."  Great read. 

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

In the recent federal district court decision of Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities (download here) ,  Judge Shira Scheindlin clearly explained  and amplified the obligations to preserve and produce electronically stored evidence in litigation cases.  The case was brought by a group of investors seeking to recover 550 million dollars in losses from a hedge fund liquidation. 

The defendants in the case alleged that the plaintiffs failed to preserve electronically stored documents and filed misleading statements regarding discovery.  In deciding against the plaintiff's on discovery issues, Judge Scheindlin summarized discovery obligations and stated:

the courts have a right to expect that litigants and counsel will take necessary steps to ensure that relevant records are preserved when litigation is reasonably anticipated, and that such records, are collected, reviewed, and produced to the opposing party....when this does not happen, the integrity of the judicial process is harmed and the courts are required to fashion a remedy...By now, it should be abundantly clear that the duty to preserve means what is says and that a failure to preserve records - paper or electronic - and to search in the right places for those records, will inevitably result in the spoliation of evidence. 

Judge Scheindlin's decision is very lengthy and detailed.  You might ask, why should a company doing business in Connecticut care about what Judge Scheindlin says in a New York federal district court case?  Well, for starters, Judge Scheindlin is perhaps the most quoted and cited trial judge in the United States concerning electronic evidence following her series of decisions in the now famous case of Zubulake v. UBS Warburg.  Another reason is that Connecticut state court rules on obligations to preserve and produce electronically stored information are not well established or defined.  As such, a state court trial judge in Connecticut is very likely to be persuaded by anything Judge Scheindlin says on the issue of electronic discovery and, in particular, on obligations to preserve and produce electronic evidence, sanctions for failure to do so properly, and the cost and expense of producing such evidence.

Anyone facing potential litigation or reasonably anticipating litigation in Connecticut should understand the obligations to preserve and produce evidence.  Although Judge Scheindlin stated that these obligations should be abundantly clear, the fact is, they either are not clear or they are often ignored.  Every week, there are numerous case reports from across the country involving spoliation, destruction, and mishandling of electronic evidence.  Many times, the failure to preserve critical evidence happens well in advance of the litigation because the duty to preserve is overlooked, ignored, or not understood.

The full scope and extent of discovery obligations is too in depth for a blog post.  Nevertheless, Judge Scheindlin's decision provides a framework for understanding some basic obligations and rules.  Here is my summary take away from the case:

•  Any individual or business that reasonably anticipates litigation must issue a "timely" litigation hold in writing.  This means steps must be taken to preserve evidence and to stop its destruction. This also means that the duty to preserve evidence arises before litigation ever happens.  The duty to preserve arises when litigation is "reasonably anticipated."
• Failure to initiate a written litigation hold may constitute gross negligence.
• Failure to properly collect evidence from key players in the dispute is gross negligence or willfulness.  This means that evidence must be collected from the individuals that are most involved in the dispute. This type of conduct is more culpable and likely to lead to sanctions.
• Destruction of emails or backup tapes after the duty to preserve arises may also consitute gross negligence and willful misconduct.
• Failure to obtain evidence from "all" employees, as opposed to key players, is likely ordinary negligence and a lower degree of culpability.
• Failure to take all appropriate measures to preserve electronically stored information is negligence and less culpable.

Failure to follow the above framework may result in sanctions ranging from fines and cost shifting to dismissal, preclusion of evidence, or an adverse inference instruction to the jury at the time of trial.  The sanction will depend on the degree of culpability ranging from negligence to gross negligence to intentional conduct.  The scope of sanctions will also depend on the relevance of the missing evidence and the prejudice to the innocent party.

The obligation to preserve evidence must be taken seriously once litigation is "reasonably anticipated."  The sanctions that can result from failure to abide by these obligations can dramatically impact the result of a lawsuit and can cause a party to lose an otherwise meritorious claim or defense.  Improper handling of electronic discovery can also cause an expensive detour in a litigation case that can be avoided with proper care and attention to discovery obligations.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Each state generally has some type of consumer protection or trade protection law that seeks to prohibit and punish unfair conduct and deceptive acts in trade or commerce.   Most states, including Connecticut, model their laws after section 5 of the Federal Trade Commission Act.  Section 5 of the FTC Act prohibits unfair or deceptive acts and unfair competition in the marketplace. 

Connecticut's Unfair Trade Practices Act (commonly referred to as CUTPA by attorneys and judges), is codified at Connecticut General Statutes section 42-110b.  CUTPA states, in relevant part, that:

(a) No person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.

(b) It is the intent of the legislature that . . . the courts of this state shall be guided by interpretations given by the Federal Trade Commission and the federal courts to Section 5 . . . .

(c) The commissioner may . . .establish by regulation acts, practices or methods which shall be deemed to be unfair or deceptive. . . Such regulations shall not be inconsistent with the rules, regulations and decisions of the federal trade commission and the federal courts . . .

(d) It is the intention of the legislature that this chapter be remedial and be so construed.

CUTPA's provisions can be far reaching for businesses and consumers.  For example, under section 42-110g, attorneys who successfully prove a CUTPA violation in Connecticut business litigation may be able to recover attorneys fees, punitive damages, and costs for their clients.  CUTPA's provisions also provide for the ability of attorneys to bring class action lawsuits in Connecticut for unfair or deceptive acts. Additionally, courts can order injunctive relief or other equitable remedies for CUTPA violations.

CUTPA's provisions may be enforced by the various State's Attorneys and the Attorney General, such as the AG's recent lawsuit against Net Health over its loss or exposure of personal identifiers (date of birth, social security number) of Connecticut residents.  Private citizens and businesses may also bring actions for unfair competition or deceptive acts under CUTPA, including class action lawsuits such as the recent case against AT&T over Internet access.

To establish a violation of CUTPA, attorneys in Connecticut have to prove that their clients suffered "any ascertainable loss of money or property, real or personal, as a result of the use or employment of a method, act or practice prohibited by section 42-110g. . ." Generally speaking, this requirement means Connecticut attorneys have to show that their clients sustained damages as a result of an unfair or deceptive act in trade or commerce. 

To determine what constitutes an unfair or deceptive act, Connecticut courts specifically refer back to the Federal Trade Commission and what is commonly referred to as the "cigarette rule."  The cigarette rule defines what type of conduct may qualify as unfair and deceptive justifying an award of compensatory or punitive damages.   This rule dates back to 1964 and comes from legislative policy making by the Federal Trade Commission concerning requirements for warning labels on cigarette packages. 

 The three prongs of the cigarette rule are as follows:

1. whether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise-in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness;
2. whether it is immoral, unethical, oppressive, or unscrupulous;
3. whether it causes substantial injury to consumers, [competitors or other business persons]. . . .

All three criteria do not need to be satisfied to support a finding of unfairness. A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three.

It is important to note that not every act or conduct that might seem to fit the criteria will be a violation of CUTPA. For example, generally speaking, mere negligent acts or simple breaches of a contract do not constitute unfair or deceptive acts under CUTPA. It is also important to note that some conduct automatically violates CUTPA or is considered a per se violation, such as failure to follow the Home Improvement Act or to register a trade name.

There are many nuances to CUTPA and the above is only a brief summary. Any business or consumer trying to determine whether they were damaged by conduct constituting a violation of CUTPA should contact a business litigation attorney or the Attorney General's office.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Here are some quick hits on business blogs:

The Wall Street Journal blog reports on two restaurants involved in a lawsuit to determine who is most harmful to your health.  Well, sort of.  The Heart Attack Grill, an Arizona eatery, filed a federal lawsuit against the owners of Heart Stoppers Sports Grill, a Florida restaurant, accusing them of stealing the idea for an unhealthy menu.  

Victoria Pynchon of the Settle It Now blog is trying to decide on a cover for her conflict resolution book entitled "A is for Asshole, the ABC's of Conflict Resolution."  If the cover is anything like the title, it should be a hit seller.

Edward McNally of the Delaware Business Litigation Blog has a helpful post that links to a new Delaware case for anyone looking for ways to calculate money damages or breach of a non-compete agreement.  Many times, these cases are resolved with injunctions or temporary restraining orders.  It is not very common to actually get to the issue of monetary damages for breach of a non-compete agreement.   This new case provides some ideas on how to calculate damages.

Megan Erickson's Social Networking Blog discusses Facebook's concerns over identifying its responsibilities for privacy of its 350 million users.

 Maxwell Kennerly's Litigation and Trial Blog digests recent Third Circuit law in two different cases involving first amendment and privacy rights for students creating fake MySpace pages.

 The Business Law Prof Blog has an interesting post about turning a simple contractual relationship into a fiduciary relationship.  Once a fiduciary relationship is established, it can have significant implications on the outcome of litigation.  A mere contractual relationship is not significant enough to form a fiduciary relationship absent other special factors.  One of my prior posts covers breach of fiduciary duty in Connecticut.

• Email This
• Print
• Comments
• Trackbacks
• Share Link