Privacy Breaches and Your Business

by Calli Padilla and Jason Bonk

HackersThere is no more important time than now—perhaps even yesterday—to understand the critical importance of implementing, enforcing and training on policies reflecting best practices to protect companies against the all too real threat of cyberhacking and privacy breaches. Technology has undoubtedly evolved faster than the law, and tech-savvy culprits—often appropriately labeled criminals—have made their presence felt across an array of industries. In-house counsel are often too busy, preoccupied and/or disinterested to recognize the impact of technology, but that must change in order to adequately safeguard businesses against potentially catastrophic consequences. For better and for worse, technology has become tremendously influential in this landscape.

Cyberhacks in the retail, health care and financial service industries have been instructive—managing risk and solidifying heightened security is more important than ever. The vulnerability is highlighted by recent attacks on more high-profile sectors such as sports and—moral judgment aside—a “secret” online community with millions of users, most of whom have an interest in preventing disclosure of identifying information that extends past the basic desire for privacy. Companies small and large, and regardless of industry, must take on the challenge of protecting against cyber and privacy hacks, and must do so now. Staying with the curve or, even worse, falling behind it, could cause irreparable harm to both personnel and consumers alike. This is no longer a mere possibility; recent news stories have shown that we are now at an unprecedented level of risk. Read more ›

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Posted in Civil Procedure, Corporate Compliance, Criminal Law, Discovery, Ethics & Professional Conduct, Evidence, Litigation, Litigation Practice, Privacy, Prosecution & Defense, Social Media & Law, The Client, The Practice of Law

Ticket to Sue – Pennsylvania’s Registration Requirement for Foreign Business Entities

By:  Thomas G. Wilkinson, Jr. and Thomas M. O’Rourke

Consider the following scenario: You represent a foreign corporation in a breach of contract action in Pennsylvania state court.  Your client is seeking substantial damages for unpaid widgets that it shipped to the defendant buyer under the parties’ sales contract.  At trial, defendant admits that it failed to pay and offers no defense to your claim, except one.  Defendant denies liability on the ground that your client lacks legal capacity to maintain a lawsuit in Pennsylvania because it is “doing business” in Pennsylvania without a “certificate of authority.”  According to defendant, this precludes your client from collecting a dime.      

The Pennsylvania Superior Court recently addressed this very argument and reached a decision that may surprise many practitioners.  In Drake Manufacturing Company, Inc. v. Polyflow, Inc., the court, in an opinion written by Judge Patricia H. Jenkins, overturned a nearly $300,000 verdict in favor of the plaintiff because the plaintiff did not have a certificate of authority to do business in Pennsylvania.  2015 WL 302266 (Pa. Super. Jan. 5, 2015).  Although plaintiff secured a certificate of authority after trial in response to defendant’s post-trial motion, the Superior Court held that plaintiff’s corrective action came too late. 

As Drake makes clear, foreign corporations that are “doing business” in Pennsylvania must be registered with the Department of State to obtain relief in a Pennsylvania court.  The failure to register can operate as a complete bar to recovery.  Pennsylvania’s registration requirement, however, does have its limits.  In Generational Equity LLC v. Schomaker, the Third Circuit recently held that Pennsylvania’s registration requirement is preempted by the Federal Arbitration Act (“FAA”) and does not preclude a party without a registration from enforcing an arbitration award governed by the FAA in federal court.  2015 WL 758532 (3d Cir. Feb. 23, 2015) (non-precedential).  Aside from FAA actions, however, Pennsylvania’s registration requirement for foreign business entities remains in effect and can still preclude a plaintiff from recovering damages in both state and federal courts in Pennsylvania. 

On July 1, 2015, a new registration regime for foreign businesses will take effect.  Under the new requirements, however, foreign businesses that are “doing business” in Pennsylvania without proper authorization will still be without legal capacity to sue in Pennsylvania.  See 15 Pa.C.S. § 401, et seq.  It will remain critical, therefore, for each foreign business to ensure that it is properly registered, if necessary, before seeking recovery in Pennsylvania.

The Registration Requirement and the Legal Capacity to Sue

In Drake Manufacturing, plaintiff, a Delaware corporation, filed its contract action in the Warren County Court of Common Pleas.  2015 WL 302266 at *1-2 (Pa. Super. Jan. 5, 2015).  Drake claimed that the defendant, Polyflow, failed to pay for machinery and pipe fittings that Drake had shipped to Polyflow pursuant to the parties’ contract.  The machinery and pipe fittings were valued at $291,766. 

The case was tried before the court, without a jury.  At trial, Polyflow “did not dispute its failure to pay Drake or contend that [Drake] failed to perform its duties” under the parties’ contract.  Polyflow’s “only defense” was that Drake lacked capacity to sue in Pennsylvania because it was “doing business” in Pennsylvania without a certificate of authority under 15 Pa.C.S. § 4141(a).  Under § 4141(a), a “nonqualified foreign business corporation doing business in this Commonwealth … shall not be permitted to maintain any action or proceeding in any court of this Commonwealth until the corporation has obtained a certificate of authority.”

Polyflow asserted its defense under § 4141(a) in a motion for compulsory non-suit after the close of Drake’s case-in-chief.  In support of the motion, Polyflow submitted a certification from the Pennsylvania Department of State, stating that an examination of the Department’s records did not reveal any certificate of authority for Drake.  2015 WL 302266 at *2 & n.12.  Polyflow also elicited testimony from a Drake officer, who stated that he was unsure whether Drake had a certificate of authority and that he did not have a certificate “with [him]” to offer into evidence.  Id. at 2 n.13.

In addition, Polyflow offered evidence to prove that Drake was “doing business” in Pennsylvania.  Under Section 4141(a), “doing business” involves regular, repeated and continuing business contacts of a local nature, as opposed to a “single agreement” or an “isolated transaction.”[1]  Id. at *6.   For example, the Pennsylvania Superior Court has held that a foreign corporation that shipped lighting fixtures to Pennsylvania six times over a six month period was “doing business” in Pennsylvania.  See Leswat Lighting, Inc. v. Lehigh Valley Restaurant Group, Inc., 663 A.2d 783, 785 (Pa. Super. 1995).  Polyflow asserted that Drake satisfied this standard because it had a Pennsylvania office and had shipped machinery and pipe fittings to Polyflow’s Pennsylvania facility on several occasions. 

The trial court denied the defendant’s motion for compulsory non-suit and awarded Drake $291,766 in contract damages.  Polyflow re-raised the issue in a post-trial motion.  In its response, Drake attached a certificate of authority to do business in Pennsylvania, which it had obtained after trial.  Relying on the certificate, the trial court denied Polyflow’s post-trial motion.

The Pennsylvania Superior Court reversed, holding that Drake lacked the capacity to maintain a suit in Pennsylvania.  The Superior Court determined that Drake was required to submit a “certification of authority into evidence before the verdict[,]” at the latest, and that the trial court abused its discretion when it relied on Drake’s “delinquent” post-verdict certificate of authority to deny Polyflow’s motion.  2015 WL 302266 at *3, 8-9.   The Drake Court suggested that a trial court could keep the trial record open after the close of evidence, but before verdict, to enable a foreign business to submit a proper registration into evidence and satisfy the registration requirement.  2015 WL 302266 at *9.  “Upon the entry of the verdict, however, the window of opportunity closes[.]”  Id.

The Superior Court also determined that Polyflow had properly preserved its “lack of capacity” defense by raising the issue in its answer with new matter.  Preliminary objections were not required.  The court also noted that it was immaterial that Drake’s claims involved Polyflow’s failure to pay “for out-of-state shipments in California, Canada and Holland.”  A “foreign corporation that ‘does business’ in Pennsylvania … must obtain a certificate in order to prosecute a lawsuit in this Commonwealth, regardless of whether the lawsuit itself concerns in-state conduct or out-of-state conduct.”  Id. at *7.

The Registration Requirement and the FAA

The registration requirement, however, may not apply in cases arising under the FAA.  In a recent non-precedential opinion, Generational Equity LLC v. Schomaker, the Third Circuit considered whether a limited liability company could enforce an arbitration award in a federal district court sitting in Pennsylvania, despite the fact that the company was not registered to do business in Pennsylvania under 15 Pa.C.S. § 8587.  2015 WL 758532 at *1-2 (3d Cir. Feb. 23, 2015).  Section 8587 sets forth the current registration requirement for foreign limited liability partnerships.

In Schomaker, the parties had entered into an arbitration agreement which provided that “judgment upon the arbitration award could be entered in any federal or state court with jurisdiction[.]”  Id. at *1.  When the plaintiff sought to enforce an arbitration award under the agreement in the Western District of Pennsylvania, the defendant moved to dismiss on jurisdictional grounds, asserting that the Court was precluded from hearing the case under Pennsylvania’s registration requirement.  It was undisputed that diversity jurisdiction existed – the “only dispute [was] whether a Pennsylvania law which would preempt jurisdiction applies in this case.”  Id.   The district court denied the defendant’s motion on procedural grounds. 

The Third Circuit affirmed, but unlike the district court, addressed the jurisdictional issue.  The Third Circuit acknowledged that Pennsylvania’s registration requirement could preclude a foreign business entity from maintaining a suit in Pennsylvania, but determined that this requirement could not stand as an “obstacle to the accomplishment of the intended objectives of the FAA.”  Id. at *2.  The court, therefore, held that the Pennsylvania statute was pre-empted by the FAA to the extent that it precluded a federal district court from enforcing an arbitration provision and “exercising the authority Congress clearly intended under the FAA.”  Id.   The court also made clear that its ruling would cover motions to compel arbitration under an arbitration clause as well as motions to enforce an arbitration award.  Id.  

The Third Circuit’s reasoning on these issues should apply with equal force to Pennsylvania state courts, which are also subject to the enforcement regime imposed by the FAA.  See Southland Corp. v. Keating, 465 U.S. 1 (1984); Dickler v. Shearson Lehman Hutton, Inc., 596 A.2d 860 (Pa. Super. 1991). 

The New Registration Regime Effective July 1, 2015

Effective July 1, 2015, new registration requirements will take effect in Pennsylvania.  See 15 Pa.C.S. § 401, et seq.  Currently, foreign corporations and limited liability companies are required to obtain a “certificate of authority,” whereas limited liability partnerships are required to “register” to do business in Pennsylvania.  See Dague v. Huddler, 2008 WL 4444266 (E.D. Pa. Oct. 2, 2008); but see Generational Equity, 2015 WL 758532 at *2 (subjecting limited liability company to same registration requirement as a limited liability partnership).  The new requirements will consolidate and standardize the governing procedure for obtaining registration.  A foreign business entity, however, will still have to register with the Department of State in order to maintain an action in Pennsylvania.  15 Pa.C.S. §§ 411, 412.

Under the new requirements, “[a] foreign filing association or foreign limited liability partnership doing business in this Commonwealth may not maintain an action or proceedings in this Commonwealth unless it is registered to do business under this chapter.”  15 Pa.C.S. § 411(b).  “Foreign filing associations” include corporations, partnerships, limited liability companies and “business or statutory trust[s.]”  See 15 Pa.C.S. § 411; 15 Pa.C.S. § 105.  Each of the above-listed entities will be required to file a “registration statement” with the Department of State, unless the entity obtained proper registration under “former statutes” prior to July 1, 2015.  15 Pa.C.S. § 412(a)-(b).  Therefore, foreign corporations that are issued a certificate of authority before July 1, 2015 will be “deemed to be registered” when the new provisions take effect.   


Although the Third Circuit has limited the application of Pennsylvania’s registration requirement in actions governed by the FAA, the lack of a proper registration can still preclude a foreign business from obtaining a recovery in Pennsylvania.  This requirement will remain in effect when Pennsylvania’s new registration regime takes effect on July 1, 2015.

Accordingly, foreign businesses operating in Pennsylvania should be sure to obtain proper registration, especially if they intend to initiate an action in Pennsylvania.  Entities that fail to do so could forfeit much more than the $250 application fee for a certificate of authority or an application to register a foreign limited liability partnership with the Department of State.  These applications, as well as other relevant forms, are available on the Pennsylvania Department of State’s website, at the following address:   Once registration is complete, it does not expire and renewal is unnecessary. 

The failure to register with the Department of State, however, is not something that can sneak up on a foreign business on the eve of trial and take a verdict away.   Defendants are required to raise any lack of capacity defense based on the registration requirement in their answer, or else the defense is deemed waived.  A foreign business, therefore, should be on notice of any potential registration issue early in the case and can obtain recovery in a Pennsylvania court as long as it obtains a valid registration before a verdict is entered.  

[1] This interpretation is consistent with the statutory requirements that will go into effect on July 1, 2015.  Under these requirements, “[a]ctivities not constituting doing business” in Pennsylvania are defined as, inter alia: (i) conducting “an isolated transaction;” (ii) holding meetings of its interest holders; (iii) maintaining bank accounts; (iv) selling through independent contractors; (v) soliciting or obtaining orders of goods for out-of-state delivery; (vi) owning property, without more; and (vii) securing or collecting debts or enforcing mortgages.  See 15 Pa.C.S. § 403.  

Posted in Civil Procedure, Corporate Compliance, Evidence, Litigation, Litigation Practice, Prosecution & Defense, The Bench, The Client, The Practice of Law, Uncategorized

How to Protect Corporate Attorney-Client Privilege – Defense Fails in Sex Discrimination Case

By Thomas G. Wilkinson, Jr. and Alexa L. Sebia

Last month, a Pennsylvania federal judge rejected a company’s claim to attorney-client privilege as an obstacle to pursuit of a sex discrimination suit brought by a lawyer and former employee.[1]  The court ruled that despite her legal background, the employee was hired as a risk management insurance professional and not as in-house counsel.  While acting in a business capacity, the court held, no privilege applied to the employee’s communications.

This case illustrates the sometimes blurry line between the roles of insurance claims handler and legal professional and gives cause for concern to companies that have attorneys leading their internal risk-management departments.    Read more ›

Posted in Corporate Compliance, Ethics & Professional Conduct, Evidence, Litigation, Litigation Practice, Privilege, Prosecution & Defense, The Bench, The Client, The Practice of Law, Trial

Crime-Fraud Exception to Attorney-Client Privilege – Facebook’s Lawsuit

Hayes Hunt and Michael Zabel

The crime-fraud exception to attorney-client privilege: As an attorney, you may not anticipate it applying to your emails, your letters or your advice to your client. But even if you never see it coming, your client’s intentions in obtaining legal advice may expose your communications to disclosure. A law firm is experiencing this problem firsthand in a series of high-profile cases involving Facebook, Mark Zuckerberg and a former business partner. The cases present an interesting study in how the crime-fraud exception can operate.

But first, what is the crime-fraud exception? Simply stated, it is an exception to the attorney-client privilege that applies to communications when two conditions are met: (1) the client is committing or intends to commit a fraud or crime and (2) the attorney-client communications are in furtherance of that alleged crime or fraud. Importantly, the crime-fraud exception can apply even if counsel is unaware that the advice is being sought for an improper purpose. It is the client’s intent, not the attorney’s, that controls the analysis.

Consider this hypothetical: You represent a client who is suing a former business partner. In support of his suit, your client has produced an old written contract that appears to be signed by both the client and the former partner. As further support, he has emails between the partner and himself that appear to support the agreement’s authenticity.

But there’s also a problem: Your client’s former counsel, who withdrew from the same case, informs you that he did so because he found evidence that the old written contract was fabricated. You wind up withdrawing from the case a few months later.

Now imagine that the court hearing the civil case determines that your former client’s written agreement, as well as those supporting emails, are flat-out fakes. Federal prosecutors bring criminal fraud charges against your former client, and, invoking the crime-fraud exception, move the criminal court to compel the production of your communications with your former client.

Is the government’s position correct? Has attorney-client privilege been vitiated by your former client’s alleged fraud?

Read more ›

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Posted in Civil Procedure, Corporate Compliance, Criminal Law, Discovery, Ethics & Professional Conduct, Evidence, Litigation, Litigation Practice, Privilege, Prosecution & Defense, Social Media & Law, The Bench, The Client, The Practice of Law, Uncategorized

If You Uncover Potential Juror Bias, Do You Tell The Court? Yes

By Hayes Hunt, Thomas G. Wilkinson  & Thomas M. O’Rourke

On the eve of a criminal trial, you decide to Google the names of a few prospective jurors.   One appears to have been suspended from the practice of law due to a criminal conviction.  The next day at voir dire, however, the potential juror states that her highest level of education is a B.A. in English literature, thereby quelling your concerns that she may be a suspended attorney.  During trial, the juror submits a note to the judge, asking for an instruction on “respondeat superior” and raising questions about “vicarious liability.”  None of these legal terms were ever mentioned by a lawyer or the presiding judge.  What do you do now? 

This exact scenario presented itself in United States v. Daugerdas, a tax evasion case in which David Parse, a non-lawyer, was charged with conspiring with former Jenkens & Gilchrist PC attorneys in a $7 billion tax fraud scheme.  The government tried its case against Parse and his four co-defendants together.  After the juror’s note was circulated, Parse’s attorneys recognized the red flag and performed additional Internet research, which revealed that the juror’s address information matched the address on the attorney’s Suspension Order.  Still, they did not disclose the connection to the Court, uncertain whether the juror had lied during voir dire.

The jury ultimately convicted four of the five defendants, including Parse, of conspiracy and fraud, but acquitted Parse of four of the six counts against him.  United States District Judge William H. Pauley III sentenced Parse to 42 months imprisonment, noting that although he “wasn’t a mastermind,” he made the tax scheme possible. 

Read more ›

Posted in Criminal Law, Discovery, Ethics & Professional Conduct, Evidence, Jury, Litigation, Litigation Practice, Prosecution & Defense, Social Media & Law, The Bench, The Client, The Practice of Law, Trial

Investigating Employee Wrongdoing

By Hayes Hunt and Arthur Fritzinger

Companies in every industry—private and public—struggle with the difficult task of promptly identifying employee wrongdoing and responding appropriately. The National Football League continues to be embroiled in a controversy arising from its reaction to the off-the-field conduct of its players. Penn State University continues to make attempts to repair its reputation after the Jerry Sandusky scandal. Lloyds Banking Group recently dismissed eight employees and sought to recoup millions in bonuses after it was revealed that they, along with employees of at least two other British banks, had attempted to manipulate benchmark interest rates from 2006 to 2009. Even government organizations struggle with this issue: Last month, Philadelphia Municipal Court Judge Joseph C. Waters Jr. resigned amid an investigation by the FBI that has lasted more than a year. 

A company’s delayed reaction to potential wrongdoing can impose serious costs. Lloyds was ordered to pay 226 million pounds—more than $360 million—as part of a settlement with U.S. and U.K. authorities. The NFL has enlisted the services of ex-FBI Director Robert Mueller to investigate its disciplinary procedures, and has donated millions to domestic abuse prevention groups as a mea culpa for its handling of the Ray Rice controversy. It is difficult to calculate the damage that these scandals have had to the brand of the NFL or Penn State, or the public’s trust in the banking system or the Philadelphia judiciary.  Read more ›

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Posted in Corporate Compliance, Criminal Law, Discovery, Litigation, Litigation Practice, Privilege, Prosecution & Defense, The Client, The Practice of Law, Uncategorized

Your Client is Hacked and Personal Information is Leaked Online – Now What?

By Hayes Hunt and Jillian Thornton


You are general counsel to a company, and your CEO steps into your office, clutching his iPhone in one hand and wiping sweat from his brow with the other, and tells you that a compromising photograph of him was stolen from his phone and posted online. You start thinking not if, but when, shareholders will discover this embarrassment, how much it will cost the company and what legal action to take.

Unfortunately, such incidents are becoming more common in this digital age, a fact highlighted by the recent leak of stolen nude celebrity photographs. A few weeks ago, hackers uploaded nude photos of several dozen female celebrities to the Internet. Allegedly, the leak was made possible by software designed for use by law enforcement to pull data from iPhones in conjunction with a tool that can crack Apple iCloud passwords. With this method, hackers can impersonate a victim’s iPhone and download its full backup of data. That means a lot of personal—and possibly embarrassing or even incriminating—information can be spread across the globe via the Internet. While hackers employing this type of computer crime frequently seem to target popular celebrities, hackers have and will continue to victimize “normal” people as well.


Due to the pace at which technology advances, the deliberate cadence of the law does not match technology’s pace. However, some legal options are available to those whose personal data has been stolen by hackers and then published on the Internet.

Without a doubt, the most important thing to remember when facing a potential hacker leak online is to act quickly. The quicker the response, the better the result. The Internet seems to move at the speed of light, but a fast response can help to limit the damage. Read more ›

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Posted in Corporate Compliance, Criminal Law, Litigation, Litigation Practice, Prosecution & Defense, Social Media & Law, The Client, The Practice of Law, Uncategorized

Lawyer’s Duty to Preserve Social Media Evidence

By Hayes Hunt and Jeffrey Monhait

computer_187672427.jpgLawyers must take “appropriate” steps to preserve their clients’ potentially relevant and discoverable social media evidence. That is the key take-away from an ethics opinion recently issued by the Philadelphia Bar Association. However, lawyers may advise a client to restrict access to the client’s social media so long as the attorney neither instructs nor permits the client to permanently destroy that information.  An attorney may even instruct a client to delete information from the client’s page if the attorney preserves that information, including meta data

You Can Hide, But You Must Preserve

Changing social media settings to “private” merely restricts who may access a web page.  The opposing party can still access relevant and discoverable information through discovery or by issuing a subpoena.  The committee concluded that this position satisfied Rule 3.4’s prohibition against altering or destroying evidence.  As long as the attorney preserves the complete evidentiary record, including meta data, an attorney may advise a client to restrict access to the client’s social media evidence, or remove social media content entirely. 

shoeprint.jpgYou “Must” Produce Complete Social Media Content

To comply with discovery requests, a lawyer “must” produce the client’s complete social media content if the attorney is aware of this content’s existence. This duty arises from Rule 4.1, which prohibits attorneys from making “a false statement of material fact or law to a third person,” and Rule 8.4, which prohibits “conduct involving dishonesty, fraud, deceit, or misrepresentation.” A lawyer that purposefully omits portions of social media content, or permits or directs the client to destroy social media content, violates these rules.

Also, a lawyer must take reasonable steps to obtain relevant information from the client when the lawyer “reasonably believes” that the client possesses relevant information, such as photographs, links, or other social media content. Despite being obligated to take reasonable steps, a lawyer need not obtain information that was neither in the client’s possession nor the lawyer’s possession.

Frankly, this isn’t groundbreaking or a new duty, it merely reinforces the need for lawyers to better understand social media for purposes of litigation.

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Posted in Social Media & Law

Deposition Tactics – Obstructionist Litigation

By Hayes Hunt and Arthur Fritzinger

Boom1.jpgWith fewer trials and an increasing focus on using the discovery process to leverage a favorable settlement or resolution, it is common for litigation counsel to be obstructionist during discovery. For example, counsel may interpose depositions with unwarranted boilerplate objections or subtly (or not so subtly) coach the witness by clarifying or commenting on the pending question. While such conduct is often ignored, it has contributed to rising litigation costs throughout the last decade and, as a sanctions order issued at the end of July by a federal judge in the Northern District of Iowa demonstrates, it can severely diminish counsel’s credibility before the trial judge. In light of the impact that discovery tactics can have on the cost and success of litigation, it is increasingly important for general counsel to set clear expectations when retaining attorneys to represent the company in litigation.

In Security National Bank of Sioux City, Iowa v. Abbott Laboratories, Civ. No. 11-4017, Doc. No. 205 (N.D. Iowa Jul. 28, 2014), U.S. District Judge Mark W. Bennett of the Northern District of Iowa sanctioned defense counsel sua sponte for his actions during several depositions and ordered counsel to write and produce a “training video” explaining appropriate attorney conduct. Bennett took note of what he considered obstructionist conduct when reviewing deposition testimony to rule on objections for trial. In a 33-page opinion, Bennett criticized counsel for making unnecessary and excessive objections to form, coaching the witness by making speaking objections and seeking independent clarification of pending questions, and frequently interrupting opposing counsel. Counsel never became abusive or used profanity. Indeed, the attorney conducting the deposition never sought relief from the court or requested that any sanctions be imposed. Nonetheless, Bennett concluded that counsel had violated the Federal Rules of Civil Procedure and had substantially frustrated the discovery process. In his view, sanctions were justified and necessary to change counsel’s “obstructive deposition practices” and deter “others who might be inclined to comport themselves similarly.”

One noteworthy aspect of Bennett’s opinion is that, although clearly inappropriate, the conductjudge1.jpg described by the court is not a rarity during depositions. Perhaps baseless objections and interruptions do not normally occur as excessively as they did in this instance. However, most litigators have encountered at least a few attorneys who make vague and excessive form objections and interpose unnecessary comments during the deposition, often in an effort to control the deposition and encourage the witness to provide more favorable, limited answers. 

With trials becoming less common, discovery has become the focus of litigation. Controlling the discovery process is a necessary and important aspect of effective litigation. Only about 2 percent of federal civil cases go to trial, according to a 2010 article from The National Law Journal titled “Two Federal Judges Offer Differing Takes on Declining Trial Numbers,” and cases are often won or lost during discovery, where facts are developed for dispositive motions and settlement. Attorneys often seek to control or limit discovery by being obstructive during depositions, objecting to legitimate discovery requests and inappropriately delaying the production of relevant evidence.

Attorneys may also increase the burden and cost of discovery by requesting or producing an excessive number of irrelevant documents, expanding the scope of litigation far beyond the evidence relevant to the claims being litigated. A 2010 study titled “Litigation Cost Survey of Major Companies” estimated that 1,000 pages of documents are produced for every single page entered as an exhibit at trial or during summary judgment. Among the largest companies in America, major cases involved the production of more than 4.9 million pages of documents.

robots.jpgMany attorneys refuse to cooperate during discovery because they believe it will force their adversaries to settle or will be advantageous later in the litigation. However, Bennett identified another reason attorneys may object to legitimate discovery requests: They believe clients expect them to frustrate the adversary. Corporate counsel must consider whether it is in their interest for their attorneys to frustrate the adversary while increasing the cost and burden of discovery, and risk losing credibility with the trial judge in the event counsel’s conduct is brought to the attention of the court.

It is unclear that obstructive tactics ever prevent opposing counsel from obtaining discoverable information, but they undoubtedly increase the cost and burden of discovery. Despite the fact that the number of trials has decreased over the last decade, litigation costs have risen an average of 9 percent per year, according to the litigation-cost survey. Between 2000 and 2008, litigation costs among Fortune 200 companies nearly doubled from $66 million to $115 million, despite the fact that attorneys’ hourly rates barely changed during the same time period. Indeed, some studies have estimated that, for most companies, litigation costs match the costs paid to plaintiffs in settlement and judgments.

These excessive costs are ultimately borne by clients, and corporate attorneys must be aware of the discovery tactics being used by outside counsel. Focusing discovery on the issues necessary for settlement or trial can bring cases to an efficient resolution, while encouraging overly aggressive tactics only to settle on the eve of trial is likely not a long-term cost-effective litigation strategy.

General counsel must also consider the effect that obstructive conduct may have on a determination of the case’s merits. Bennett’s opinion is a paramount example of how courts view efforts by counsel to frustrate or abuse discovery. Deposition transcripts are often filed with the court in connection with motions or in anticipation of trial. The court’s review of thoselawyers.jpg transcripts may shape its view of the attorneys or the parties’ legal positions. Appearing to be unprofessional is poor advocacy.

As discovery has become a principal factor in the success and efficiency of litigation, it is increasingly important for general counsel to set standards for the company’s litigation attorneys. Companies should remain informed as to how their outside counsel are responding to discovery and should work with counsel to develop a clear discovery strategy for each case. Together, the company and its litigation counsel must consider discovery tactics that will reduce the cost of discovery while providing a strategic advantage for dispositive motions and settlement.

 Originally published in The Legal Intelligencer on August 20, 2014.

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Posted in Litigation

30 (b)(6) Corporate Designee Depositions – What You Need to Know

By Hayes Hunt and Joshua Ruby

30.jpgIn a world where the overwhelming majority of cases never make it to trial, depositions take on outsized importance. They will almost certainly be the only in-person testimony either party has the opportunity to elicit and the only opportunity for live cross-examination. That means every deposition requires careful preparation.

Corporations and other entities have unique obligations regarding the depositions of corporate designees pursuant to Federal Rule of Civil Procedure 30(b)(6) and its state cognate, Pennsylvania Rule of Civil Procedure 4007.1(e). An entity must prepare a designated witness to answer its adversary’s questions, and the designee’s answers bind the entity in the litigation. Avoiding costly mistakes and discovery sanctions requires that both in-house and outside counsel for such entities take care to prepare for such depositions and understand the rules that govern them.

Adversary’s Responsibilities In Noticing Deposition

The entity’s adversary has few obligations in noticing the deposition of a corporate designee. AlllowercaseB (2).jpg Rule 30(b)(6) requires is a notice directed to the entity that “describe[s] with reasonable particularity the matters for examination.”

Notwithstanding this minimal obligation, some limits do exist on the adversary’s description of the matters for examination. The qualifier “including, but not limited to,” or other language indicating that the topics listed in the notice are not exclusive renders the notice overbroad and subject to a motion to quash. (See, e.g., Reed v. Bennett, 193 F.R.D. 689, 692 (D. Kan. 2000).) 

Instead, the adversary has an obligation to define the “outer limits” of the subject matter of the deposition of the corporate designee. This limit exists to ensure that the entity is capable of designating a witness (or witnesses) who can testify about each of the topics listed, rather than facing the “impossible task” of designating a witness who can testify about all possible questions the adversary might ask.

Responsibilities Upon Receiving Rule 30(b)(6) Notice

#6.jpgUpon receiving a Rule 30(b)(6) notice, a corporation must produce a witness (or witnesses) for deposition questioning by the adversary. The witness(es) must be capable of giving “complete, knowledgeable and binding answers on behalf of the corporation” about each of the topics listed in the deposition notice, according to Marker v. Union Fidelity Life Insurance, 125 F.R.D. 121, 126 (M.D.N.C. 1989).

Accordingly, the corporation also incurs a duty to educate and prepare its designees to testify about any matter outside the designee’s personal knowledge, which the Rule 30(b)(6) notice specifies. Failure to do so “is tantamount to a failure to appear, and warrants the imposition of sanctions,” as in United Technologies Motor Systems v. Borg-Warner Automotive, Civil Action No. 97-71706, 1998 U.S. Dist. LEXIS 21837, at *4 (E.D. Mich. Sept. 4, 1998).

Who Can The Corporation Designate?

An entity is not limited to its own present employees as its corporate designees. Instead, Rule 30(b)(6) permits an entity to designate “officers, directors, or managing agents, or … other persons who consent to testify on its behalf.”

In particular, where the relevant events have long since passed, a former employee may be the most appropriate corporate designee. In Beauperthuy v. 24 Hour Fitness USA, Case No. 06-715 SC, 2009 U.S. Dist. LEXIS 104906, at *17 n.5 (N.D. Cal. Nov. 9, 2009), for example, the court held that “the text of Rule 30(b)(6) leaves no doubt that a former employee can and should be designated as a Rule 30(b)(6) deponent, if the former employee is the most knowledgeable individual and as long as the former employee consents.”

Nor does Rule 30(b)(6) limit proper designees to people employed by or otherwise affiliatedKnowledge.jpg with the entity. Any “other person who consent[s]” to testify on behalf of the entity and has the requisite knowledge and preparation may do so.

What Questions Must The Corporate Designee Answer?

As with any other deposition witness, the corporate designee must testify about facts within his or her (or, in this case, the entity’s) knowledge. But a corporate designee’s responsibilities go further; he or she must also answer questions about the entity’s “subjective beliefs,” “interpretation of documents and events,” and “position” on any of the topics in the deposition notice, as in United States v. Taylor, 166 F.R.D. at 361.

Some courts also permit the adversary to ask questions beyond the scope of the topics in the deposition notice. Even where the court so permits, the answers of the designee are treated like those of any other fact witness and do not bind the entity, according to Detoy v. City & County of San Francisco, 196 F.R.D. 362, 367 (N.D. Cal. 2000).

Other courts, such as in Paparelli v. Prudential Insurance Co. of America, 108 F.R.D. 727, 728-31 (D. Mass. 1985), have held that the adversary may not ask questions beyond the topics listed in the Rule 30(b)(6) notice. But counsel for the entity cannot enforce that limitation by instructing the designee not to answer the questions. Instead, the designee must answer the questions to the extent possible, and the adversary has no recourse if the witness disclaims knowledge of matters outside the scope of the deposition notice.

What Is Effect Of Corporate Designee’s Testimony?

buildings2.jpgWithin the scope of the deposition notice, the designee’s answers are the corporation’s answers. That is not to say that the corporation may not later alter its answers or positions, but doing so will subject its representatives to cross-examination at trial. And the deposition testimony itself of the designee may be admissible at trial as a prior inconsistent statement, a statement against interest, or on another basis.

The same rule applies “if a party states it has no knowledge or position as to a set of alleged facts or area of inquiry at a Rule 30(b)(6) deposition.” In that circumstance, “it cannot argue for a contrary position at trial without introducing evidence explaining the reasons for the change.”

The deposition of a corporate designee presents both risks and opportunities for a corporation or other entity involved in litigation. By understanding the rules that govern such depositions, both in-house and outside counsel for entities can use them to great effect while minimizing the risks to their client’s litigation positions.

Originally published in The Legal Intelligencer on July 16, 2014.

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Posted in Litigation
About the Editor
Hayes Hunt concentrates his practice in the representation of individuals, corporations and executives in a wide variety of federal and state criminal law and regulatory enforcement matters as well as complex civil litigation. Hayes is a partner in the firm's Commercial Litigation Department as well as its Criminal Defense and Governmental Investigations Group.
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