Articles Posted in Commercial Litigation

In today’s business climate we cannot seem to go a few weeks without the next big company fraud that has been foisted upon the public. The current scandal du jour is Volkswagen and tomorrow it will be who knows. At some point however, either as a result of a whistleblower or anonymous tip, a corporation will conduct an internal investigation to (1) uncover the facts surrounding the current problem and (2) advise management, including the board of directors, of the potential liability and suggest a course of action. It is a “best practice” that when conducting an internal investigation, that a company retain an outside law firm specifically for the investigation to show that the directors of the company are zealously discharging their fiduciary duties to investigate suspected wrongdoing. While these outside attorneys will undoubtedly have access to all company documents and emails, including servers, a large part of the investigation will center upon these attorneys and their interviews with company employees.

If you find yourself in the situation where you are about to be interviewed in connection with a company investigation you need to ask yourself two questions. Do I need a lawyer? Who pays? If you truly played no role in what the company is investigating you don’t need a lawyer. However, if you are a key insider who has information that will shed important details on what transpired you certainly would want to retain your own lawyer. There are many reasons why and I will address them below.

First, consider that earlier this year the Department of Justice set forth a Memorandum that identified that it would go after the individuals responsible for corporate wrongdoing and work its way inward towards the corporate hub. In addition, Justice conditioned any corporate cooperation credit that a corporation could hope to receive would be conditioned upon the disclosure of all corporate wrongdoings and all of the individuals that performed them. Think about this for a second. If the company you are working for is the subject of an investigation and wants in effect what is leniency in its “corporate sentence,” it must turn you over to Justice.

Second, before any interview begins, you must understand that the lawyer is NOT YOUR LAWYER. The lawyer is the company lawyer and therefore there is no guarantee that what you say will remain confidential. To avoid an employee raising an allegation that the interviewing attorney has a conflict of interest because the employee believed that the attorney was also representing him, all interviews begin with the Upjohn Warning.

The Upjohn Warning originated from a case before the United States Supreme Court. The Court found that while there is an attorney client privilege covering communications between counsel and the employee, the privilege belongs to the employer and not the employee. Therefore, the employees or key insiders always run the risk that the company will waive the privilege and share the results of the interview with government investigators and/or prosecutors. In fact, based upon the recent DOJ Memo discussed above, you can almost be certain that what you say will be turned over to the appropriate authorities.

In 2009 the ABA White Collar Crime Committee produced a sample Upjohn Warning. It reads as follows:

I am a lawyer for or from Corporation A. I represent only Corporation A, and I do not represent you personally.

I am conducting this interview to gather facts in order to provide legal advice for Corporation A. This interview is part of an investigation to determine the facts and circumstances of X in order to advise Corporation A how best to proceed.

Your communications with me are protected by the attorney-client privilege. But the attorney–client privilege belongs solely to Corporation A, not you. That means that Corporation A alone may elect to waive the attorney-client privilege and reveal our discussion to third parties. Corporation A alone may decide to waive the privilege and disclose this discussion to such third parties as federal or state agencies, at its sole discretion, and without notifying you.

In order for this discussion to be subject to the privilege, it must be kept in confidence. In other words, with the exception of your own attorney, you may not disclose the substance of this interview to any third party, including other employees or anyone outside of the company. You may discuss the facts of what happened but you may not discuss this discussion.

Do you have any questions?

Are you willing to proceed?

Now, very simply put, if you are a key employee and receive this warning placed in front of you and are asked to sign it, don’t you think you might want your own attorney present during this interview?

Obviously retaining your own independent lawyer can be expensive. However, in certain instances the company may or even be required to advance you the attorneys’ fees you incur. For instance, the company by-laws might require the advancement of your legal fees if you are an officer or director subject to repayment if it is found that you committed fraud. Other times such advancement of legal fees might be required under your employment agreement. Understandably it is certainly better to have an advancement of legal fees subject to repayment rather than a reimbursement of legal fees after a determination that you did not commit fraud. Whether or not you have one outcome or the other may very well depend on if you had competent counsel assisting you at the times these documents were created.

There are countless more issues to consider that are beyond the scope of this short article. If you should find yourself in the situation where you are going to be interviewed in connection with a company investigation, please feel free to call Doug Leavitt at Danziger Shapiro & Leavitt, P.C. We would be happy to discuss your situation and develop a plan to minimize your exposure.

This entry is presented for informational purposes only and is not intended to constitute legal advice.



Last month a friend reached out and in passing told me things were going great with the technology he was developing. He also mentioned that he was in the process of raising $5M in exchange for an equity interest in his company. “Great”, I said and casually asked if he had filed anything with the Securities and Exchange Commission (SEC). My friend told me, “No, this is a private placement so I don’t need to register.” I then asked him how he found the investor. The response- “I used a consultant and he gets a small percentage of the money raised.”

This short conversation raises two of the most common mistakes made by early stage companies when they try and raise money. First, a company may not offer or sell its securities to third parties unless the securities have first been registered with both the SEC or there is an exemption from registration that applies. If you don’t make the required filings, you are exposing yourself to serious consequences that include not only an investor’s right to rescission (get their money back) but also fines, penalties and criminal actions against you on an individual basis. Most start-up or early stage companies can avoid this by making the appropriate filing under Section 4(2) of the Securities Act of 1993 and the corresponding safe harbor provisions under Regulation D. There are also corresponding state law security filings too under state “Blue Sky” laws. The point here is that the security laws are complicated and you should not play “security lawyer.”

The second problem mentioned in the scenario described above is that my friend paid a finders’ fee to an unregistered broker-dealer. If the “consultant” was a registered broker-dealer and my friend otherwise made the appropriate Reg D filings he would have been fine. However, by providing compensation to an unregistered broker-dealer, my friend was also violating Section 29 of the Exchange Act which also provides for among other things, the right of rescission. Paying finders’ fees to unregistered broker-dealers has been a recent hot topic for the SEC and the Reg D form filing was updated in 2008 to specifically request information directly to this point (See Item 12 of Form D).

The take away here is that raising capital requires compliance with complicated securities laws. Entrepreneurs can avoid running into these issues by focusing on what they know best, their company, and allowing their lawyers to assist them so they do not make mistakes that are all too common in the capital raising world. If you have any questions regarding this or any other aspect affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

Bank of New York Mellon recently learned the hard way that doing a favor for a client can run afoul of the Foreign Corrupt Practices Act (“FCPA”). How hard was the lesson? The SEC entered an Order that imposed, among other sanctions, a 14.8 million dollar fine merely for the bank hiring three interns who were relatives of foreign officials. In a nut shell, two unnamed officials of a foreign wealth fund put pressure on BNY Mellon to hire three interns who were not otherwise qualified for the BNY Mellon intern program. The bank understood that if they failed to hire these interns, the fund’s investments with the bank would be at risk. It apparently did not matter that the interns did not otherwise meet the requirements for the internship or that they were paid more than the other more qualified interns.

While this may be common practice stateside to grant a favor to a valuable customer by employing his son or daughter, to do so when a foreign official is involved violates the FCPA. The FCPA does not allow a company to influence a foreign official by giving the official “anything of value”. Value is broadly defined and includes cash, gifts, favors and apparently, internships too. While at first blush, this may seem to be a “small favor”. However, the FCPA does not distinguish between “small” or “large” favors only that anything of value were given. In addition, the broadly written FCPA covers any “department, agency or instrumentality” of a foreign government. The foreign wealth fund identified above fell under the “agency or instrumentality” rubric because it was controlled by a foreign government notwithstanding that it operated like any other investment company.

Once again this shows the importance that it is not enough just to have Code of Conduct Policy or an Anti-Corruption Policy without the proper training of the right people in your organization. Training needs to focus not only on the basics but also on the hidden dangers. For example, do changes to the employment application process need to be made? Should an applicant certify that he or she has not been employed as a foreign official or that they do not have a relative or a close personal friend who is a foreign official? If the answer to the foregoing is yes, a strong anti-corruption policy will flag the applicant for further in house review (or legal department) to make the correct determination. This is not a question of discrimination against certain applicants but rather that the correct questions or sensitivities are being looked into so your company does not run afoul of the FCPA. In any event, the point is that your employees need to be trained to look between the trees and make the right determinations when a more nuanced review is needed. The cost of failing to do this is too high and the SEC is bringing the heat.

If you have any questions regarding this entry or the FCPA in general, please feel free to contact Doug Leavitt and the attorneys at Danziger Shapiro & Leavitt. We will be happy to discuss your concerns and assist you with this or any other matter affecting your business.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

A woman living in Staten Island must pay her flooring contractor $1,000. What did she do wrong; a negative review on While the first amendment (freedom of speech) generally lets you critique your home improvement contractors (and anyone for that matter) and comment upon their quality of work and professionalism, the Judge in this case stated that the home owner went too far when she called her contractor a “con artist” and that he “robs” his customers and it is a “scam”.

Under Pennsylvania tort law, libel is defined as “a maliciously written or printed publication which tends to blacken a person’s reputation or expose him to public hatred, contempt or ridicule, or injure him in his business or profession.” Specifically, in an action for libel a plaintiff in Pennsylvania has the burden of proving each of the following:

  1. The defamatory character of the communication;
  2. Its publication (communicated to a third person) by the defendant;
  3.  Its application to the plaintiff;
  4. The understanding by the recipient of its defamatory meaning;
  5. The understanding by the recipient of the communication as intended to be applied to the plaintiff;
  6. Special harm resulting to the plaintiff from its publication; and
  7. Abuse of a conditionally privileged communication.

I don’t want to get into the intricacies regarding each above element and corresponding defenses and privileges (for example, truth is an absolute defense to any defamation claim or that defamatory statements are allowed in company employee reports). However, I think it is important to recognize that the Judge in this contractor case merely applied the tried and true law of defamation of character in written form and found that the customer defamed her contractor. The mere fact that her “opinion” was posted online did not relieve her of any responsibility for not violating the laws of libel.

In his ruling, the Judge said that her post was “opinion and protected speech,” but several of her comments crossed the line from opinion to libel. “Terms such as ‘scam,’ ‘con artist’ and ‘robs’ imply actions approaching criminal wrongdoing rather than someone who failed to live up to the terms of an agreement,” the Judge said.. While I am sure this case will be appealed, the take away here is be sure not to cross the line when you post anything online. Your opinion is protected free speech but if you go too far, you may be held responsible for your actions. From a business owner perspective, have someone regularly review Yelp and FaceBook and other online forums to see if anyone is posting reviews that might damage your reputation. However, remember that if a review is negative does not mean it is defamation if it is couched as an opinion instead of as a fact.

If you have any questions regarding this topic or any other issue affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice

On September 18, 2015 the New Jersey Appellate Court issued a decision that should make all employers review their employee handbooks if it contains a mandatory arbitration provision. In the beginning of almost every employee handbook there is a disclaimer provision that says something along the lines that the employment relationship is at-will and that the “provisions of this handbook is not intended to create a contract between the Company and the employee with regard to the matter set forth in the handbook”.

In this case, the New Jersey Appellate Court refused to enforce the mandatory arbitration provision in the employee handbook and stated in part, “the plain language in the handbook the defendant drafted shows, with unmistakable clarity, that Employer did not intend the handbook to create a binding agreement”. The Court went on to state “The employee handbook cannot be a binding agreement with respect to the arbitration provision, and an unenforceable document merely containing “management guidelines” for the rest of its provisions.” Click here to read a copy of this opinion.

In addition to the wording of the handbook being one of the main reasons the Court refused to enforce the arbitration provision, the Court also set forth other “problems” with the handbook that should serve as a guide to HR and in-house legal departments so their handbooks don’t suffer the same fate.

The arbitration waiver must spell out the rights that are being waived. Courts look closely when the constitutional right to bring an employment matter in court is being waived by an employee. Does the waiver spell out the rights being waived? Does the employee understand that he or she is giving up the right to have the case heard by a jury or whether this covers discrimination and other types of claims?

Additionally, there is the matter of the procedure set up by the employer being sufficient to show that the employee unmistakably agreed to arbitrate. Email consent is not enough – where the employee just clicks or agrees that he or she has received a copy of the handbook. Get the employee’s signature to show the employee agreed to the mandatory arbitration provision – assuming you have cured the other issues set forth above.

This case has broad reaching implications and not just in New Jersey. The provisions that caused this failure are common boilerplate protective provisions that are found in most employer handbooks (even if it was drafted by counsel) and therefore makes this cautionary tale relevant to every employer. I also believe this provision will may apply to covenants not to compete and non-solicitation agreements to the extent they too are set forth in employee handbooks and not in separate employment agreements signed by the employee. Be careful however, because merely placing such an agreement in front of your already employed employees to rectify the handbook issue will not work. While the reasons why are beyond the scope of this post, please click here to review an earlier post that addresses these issues.

If you have any questions regarding this employment issue or any other matter affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

I was driving into work this morning and I heard on the radio a caller complaining that the secret service cancelled her wedding just 8 days short of the big day because of the Pope. So I started thinking, what happened to all the deposit money? Did she lose it all-the money-not her mind. What about the caterer or the photographer? Did she owe more than just the deposit money? And then I thought-is this the ultimate Act of God defense?

In contract law, when party fails to perform according to the terms of the agreement it is viewed as a breach of contract. However, sometimes there are justifiable reasons that will allow or excuse a party from performing according to the terms of their agreement. For example, when Hurricane Sandy destroyed most of the hotels along the Jersey Shore, these hotels were excused from liability based upon their failure to provide accommodations or being able to host wedding receptions. In essence, an act of God may be interpreted as a defense for failure to perform based upon impossibility or impracticality. So I ponder, is the Pope being in Philly the ultimate Act of God defense.

If you have any questions regarding your legal obligations under a contract you are a party to or any other issue affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

EMV stands for EuroPay, Mastercard and Visa and starting next week, it will be important for business owners to consider how they employ this payment method. On October 1, 2015 the liability for credit card fraud will shift to the business entity that employs the least effective security technology. In other words, in disputes between the merchant (store front owner) and the credit card issuer (for example a Citizens Bank Visa), the party that uses non-compliant EMV technology will assume the liability for credit card fraud if the other party uses EMV technology. If both parties do not use EMV technology then the liability issues remains unchanged.

So what is EMV technology and how does it work? Have you ever noticed on your new credit card that there is shiny silver square? This is a computer chip and it produces a code that EMV compliant credit card terminals must receive in order to authorize the trasaction. You will no longer “swipe” your card but rather insert it into the terminal. The code will be constantly changing making fraud much harder to occur. In addition, some issuers will also require a PIN to confirm the transaction as well. If either your credit card or the merchant’s terminal is not EMV compliant, the card, for now, will work as before by the swipe method. The only thing that has changed is the potential shift of liability. This is not new technology. Europe has been using this technology for years. For more information on EMV technology, click here.

While it makes sense for brick and mortar stores to switch to EMV compliant terminals it is less clear for on-line retailers. Right now major credit card companies are using two different systems for EMV online technology. MasterCard uses its “Chip Authentication Program” or CAP and Visa offers its “Dynamic Passcode Authentication” or DPA.  It is very similar to the choice between VHS and Betamax all over again. Which technology will prevail is anyone’s guess at this point. In the meantime, it’s best to understand what’s out there and make an informed decision for your business’ individual needs.

If you have any questions regarding this or any other aspect affecting your business, please feel free to contact Doug Leavitt at Danziger Shapiro & Leavitt.

This entry is presented for informational purposes only and does not constitute legal advice.

It is not uncommon for a company to have a board meeting and have its attorney present to render legal advice. What happens though when in litigation the other side requests production of the minutes for this meeting? Can you successfully claim the attorney client privilege? What if an attorney was present but only in his capacity as a board member? These issues were raised again in a recent opinion authored by our appellate court.

The Pennsylvania Superior Court was faced with a hospital appealing the order of the trial court to produce minutes of a board meeting where there was a discussion of the malpractice claim that was the subject of the lawsuit. The hospital claimed that its lawyer was present to render legal advice. However, in its response to the production requests, the hospital failed to provide information sufficient to establish if the attorneys were there merely as board members or as legal advisors. Based on this, the trial court ordered production of the minutes. The appellate court reversed the trial court’s decision and gave the hospital another chance to properly invoke privilege for each document it claimed was privileged. The Court specifically stated that it was necessary to identify the attorney by name so that a determination could be made relative to whether the attorney was there as a board member or attorney. If an attorney is there only in the capacity as a board member then the privilege does not apply.

The take away from this case is that when attorneys are present at board meetings it is critical that the minutes document the capacity in which the lawyers are present. Minutes should specifically identify attorneys who are present for the purpose of rendering legal advice. The minutes should also identify when information is being conveyed to obtain legal advice. In this way, even if the entirety of the minutes cannot be claimed as privileged, then a portion of the minutes can still be redacted.

The attorneys at Danziger Shapiro & Leavitt are well versed with how to properly document board meetings and understand that minutes drafted today might be the subject of discovery in tomorrow’s litigation. Please feel free to contact Doug Leavitt to discuss this or any other issue concerning corporate governance or pending litigation that might be troubling you.


This entry is presented for informational purposes only and does not constitute legal advice.

The Securities and Exchange Commission reported its first enforcement action earlier this month against a company that inserted restrictive language in an employee confidentiality agreement to impede the whistleblower reporting process. In this action, the SEC charged that engineering firm KBR, Inc. violated whistleblower protection rule 21F-17 under the Dodd-Frank Act. (Click here for Order).

The SEC uncovered certain employees who were subject to the internal investigation process were required to sign confidentiality agreements. Among other things, the agreements included language that required the employee to first discuss what they were going to say to the SEC with in-house counsel and that violation of the confidentiality agreement could result in termination of employment.

As a result of this agreement, the SEC imposed a relatively modest fine of only $130,000. The Director of Enforcement for the SEC stated that, “By requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us. SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC. We will vigorously enforce this provision.”
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New Jersey’s “Ban the Box” law goes into effect next week on March 1, 2015. Employers in New Jersey may no longer have an employment application that contains either a box that must be marked or a question asked that relate to an applicant’s criminal record or lack thereof. Employers also cannot ask about an applicant’s criminal history or even run a criminal background check at the early stages of the employment process. A more thorough analysis of this new law can be found by clicking here to see a previous blog post.
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