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Protecting Confidential Business Information

Sometimes businesses face a situation where an employee has departed and taken key information that can be used to hurt the business competitively. This article focusses on steps a business can take to minimize that risk, and if information is nevertheless stolen, to seek redress under the Uniform Trade Secrets Act. The Act has been adopted in Indiana and most other States.

Identify the Information to be Protected

The first step a business should take is identifying the specific information to be protected. Customer lists may be some of the most valuable information a business has, and their theft and use by competing businesses may cause severe harm. Other information, including formulas, business processes and technology, can also be valuable trade secrets. A trade secret can be any information that derives independent economic value from not being generally known and not being readily ascertainable by other parties through proper means, i.e., means other than stealing the information from the business.

Take Reasonable Steps to Maintain Secrecy

Information does not qualify as a trade secret unless the business has made reasonable efforts to keep the information secret. These efforts can and should include physical and electronic security measures. The business should keep paper information in locked offices and filing cabinets. Electronic information should be protected through the use of computer security that limits access to the information to only those employees who need to know the information to do their jobs. In some cases, the business should require employees with access to confidential information to use only company-provided computers, phones, and portable devices to conduct company business and store company information.

A business should also maintain the secrecy of its confidential information by requiring employees with access to the information to sign non-disclosure agreements. The agreements should list the types of information the employee is barred from disclosing.

Non-competition agreements are also an important tool to maintain the secrecy of confidential information. However, non-competition agreements must be reasonable in scope. This means that the geographic area in which the employee is barred from competing must be well defined , and no broader than necessary to protect the employer’s legitimate interests. The agreement must also be limited in time, barring the employee from competing for only as long as necessary. Finally, the agreement must be limited in terms of the activities prohibited. Typically, agreements should prohibit the employee only from working for a competing business in the same or a similar capacity as the employee worked for the business with which the employee signed the agreement.

Enforcing Restrictions

Sometimes, despite the business’s best efforts, an employee may steal confidential information and use it to compete. In such cases, the only recourse may be litigation against the employee. A business might obtain a court order requiring the employee to stop using the information and return it. If there is a non-competition agreement, a court may prohibit the employee from competing in violation of the agreement’s time, geographic and activity limitations. If the business has been harmed, damages may be available.

To protect confidential business information, a business owner should consult with an attorney experienced in such matters, including litigation. Cohen & Malad, LLP’s business and litigation attorneys can assist with this process.

Third-Party Payments for Legal Services

By: Arend J. Abel, Attorney

Occasionally, a lawyer will run into a situation where someone other than the client agrees to pay the lawyer for the representation. This situation arises most frequently with insurance, but also can occur when a company pays for an employee’s defense or a relative pays for the representation of an individual. Third-party payment creates ethical issues for the lawyer, and is specifically governed by the Indiana Rules of Professional Conduct. Rule 1.8(f) provides:

A lawyer shall not accept compensation for representing a client from one other than the client unless:

(1) the client gives informed consent;

(2) there is no interference with the lawyer’s independence of professional judgment or with the client-lawyer relationship; and

(3) information relating to representation of a client is protected as required by Rule 1.6.

Los Angeles Jury Awards $45 Million to Sexual Abuse Survivor After Years of Abuse

On Thursday July 26, 2018, a Los Angeles jury awarded $45 million to a girl who endured sexual abuse at the hands of her mother and four men at a home where she was placed by the county despite evidence she was being molested. The girl, now 15, said in a lawsuit against Los Angeles County that social workers had reasonable suspicions she was being abused, but they failed to inform authorities. The girl’s mother and the men were previously convicted of abusing the girl starting in 2010.

Unfortunately, cases like this are not isolated events. However, victims of sexual abuse do have ways to hold a perpetrator accountable. Similar to the brave young woman in the Los Angeles case, a victim of sexual abuse can initiate a civil lawsuit. While a criminal case is designed to hold a defendant accountable to the State, a civil lawsuit is designed to hold the defendant accountable to the victim. In a civil case, the victim initiates and controls the case and brings the action regardless if the perpetrator has been found guilty in a criminal prosecution.

Effective Appellate Briefing

By: Arend J. Abel, Attorney

What’s the best way to write an effective appellate brief? The short answer is to use every part of the brief as an opportunity for advocacy. Here are some section-by-section tips for doing so.

The Table of Contents

The first thing the court sees when opening the brief is the table of contents. A good table of contents will be an outline of the argument, so the Court can read, understand, and hopefully be persuaded by the argument before ever reading a substantive paragraph of the brief. The best way to create such an outline is to make sure each heading in the argument is a full statement of one of the points of the argument, not just a statement of the subject of the section or subsection. So, a heading that says, for example, “The Statute of Limitations Did Not Begin to Run Until Mr. Brown Learned Smith Was Planning to Sell the Business When He Bought Mr. Brown’s Stock” is superior to one that simply says “The Statute of Limitations Has Not Run” or a subject heading “Statute of Limitations.” Worse still is the uninformative heading “The Trial Court Erred in Granting Summary Judgment.”

Home Renovation Projects: Purpose, Scope, and Notice of the Deceptive Consumer Sales Act- Part 2

By: Aaron J. Williamson, Attorney

The DCSA has three broad purposes, which are to: “(1) simplify, clarify, and modernize the law governing deceptive and unconscionable consumer sales practices; (2) protect consumers from suppliers who commit deceptive and unconscionable sales acts; and (3) encourage the development of fair consumer sales practices.” Ind. Code 24-5-0.5-1(b). The DCSA is liberally construed and applied to promote these purposes. Ind. Code 24-5-0.5-1(a).

What does the Deceptive Consumer Sales Act cover?

The scope of the DCSA is far reaching and is outlined in Ind. Code 24-5-0.5-2 (definitions) and 3 (listing deceptive acts). Deceptive acts generally include acts and omissions, as well as explicit and implicit misrepresentations, Ind. Code 24-5-0.5-3(a), made by a supplier, Ind. Code 24-5-0.5-2(a)(3), in the context of a consumer transaction. Ind. Code 24-5-0.5-2(a)(1).

“A person relying upon an uncured or incurable deceptive act may bring an action for the damages actually suffered as a consumer as a result of the deceptive act or five hundred dollars ($500), whichever is greater.” Ind. Code 24-5-0.5-4(a). This amount may be increased to three times actual damages or $1,000, whichever is greater, when the deceptive act of the supplier is found to have been done willfully. Id. Moreover, the court may award reasonable attorney fees to the prevailing party in the action under this subsection of the DCSA. Id.

Two words of caution are required here. First, if the supplier prevails under this subsection then they may be entitled to attorney’s fees (paid by you). Second, certain requirements must be satisfied before a consumer can sue under the DCSA. Specifically, the consumer must provide the supplier with notice of the deceptive act and opportunity to fix the problem or “cure” it in legal terms. (“Notice”). Id. at 4(j); see also Ind. Code 24-5-0.5-5(a).

Rules for issuing a notice to a negligent contractor

As to the Notice, there are timing and substance requirements that must be satisfied. The notice must be sent on or before six months from the initial discovery of the deceptive act, one year following the consumer transaction, or 30 days after any warranty applicable to the transaction expires, whichever occurs first. Ind. Code 24-5-0.5-5(a). The Notice, must state the nature of the alleged deceptive act and the actual damage suffered. Id.

Conclusion

As discussed in Part 1 of this series, the DCSA is a consumer protection statute, which is liberally construed for the benefit of consumers. For consumers, this statute offers robust protections against deceptive acts. Moreover, the DCSA provides remedies in the way of actual and treble damages as well as the potential recovery of attorney’s fees. For suppliers, the DCSA provides significant guidance about prohibited conduct and provides various opportunities to cure defective conduct that amounts to deceptive acts.

If you have any questions about Indiana’s Deceptive Consumer Sales Act or need representation in pressing or defending a claim under this statute please feel free to contact me.

Disclaimer: These materials are made available for educational purposes only and are not intended as legal advice. If you have questions about any matters in these materials, please contact the author directly. The furnishing of these materials does not create an attorney-client relationship with the author or entities affiliated with the author.

Permissions: You are permitted to reproduce this material in any format, provided that you do not alter the content in any way and do not charge a fee beyond the cost of reproduction. Please include the following statement on any distributed copy: “By Aaron J. Williamson © Cohen & Malad, LLP – Indianapolis, Indiana. www.cohenandmalad.com”

Home Renovation Projects: A Statutory Overview- Part 1

By: Aaron J. Williamson, Attorney

It pays to be in the know. This adage is all the more true when it comes to large and costly projects; especially when those projects concern the home. Whether you are a home improvement contractor or a homeowner, knowing the lay of the land is invaluable. And, in light of the relatively new changes in the law, a refresher seems in order.

This article will provide a quick overview of the Deceptive Consumer Sales Act, the Home Improvement Contracts Act, the Home Improvement Fraud Act, and the Statutory Home Improvement Warranties Act. It is important for consumers and renovators alike to have a general understanding of how these laws work at each stage of the renovation project. So the first key takeaway is: do not be unwary! Know the law.

A more in-depth analysis of these statutes and how they work together will be outlined in future articles.

Indiana’s Deceptive Consumer Sales Act

The purpose of Indiana’s Deceptive Consumer Sales Act (“DCSA”) is to protect consumers from deceptive and unconscionable consumer sales practices. Specifically, DCSA’s aim is to prevent those regularly engaged in consumer sales from making false or misleading statements about the goods or services sold. A person harmed under the statute can sue for, among other things, their actual damages and attorney’s fees.

Home Improvement Contract Act

Likewise, the purpose of Indiana’s Home Improvement Contract Act (“HICA”) is to prevent deceptive and unconscionable acts by, in part, requiring certain provisions and disclosures in all real property improvement contracts with an aggregate value of $150 or more. A good example of HICA in action is Warfield v. Dorey, 55 N.E.3d 887, 891 (Ind. Ct. App. 2016) (citing Hayes v. Chapman, 894 N.E.2d 1047, 1052 (Ind. Ct. App. 2008)) wherein the court said

–few consumers are knowledgeable about the home improvement industry or of the techniques that must be employed to produce a sound structure. The consumer’s reliance on the contractor coupled with well-known abuses found in the home improvement industry, served as an impetus for the passage of [HICA], and contractors are therefore held to a strict standard.

A violation of HICA constitutes a “deceptive act” under DCSA. HICA was recently amended and the changes took effect on July 1, 2017. A few highlights regarding changes to the HICA are the scope of coverage, additional required terms, and notices. As such, a contract or practice, which may have previously complied with the former version of the law may need to be revisited.

Home Improvement Fraud Act

The Home Improvement Fraud Act (“HIFA”), serves a similar purpose, i.e., forbidding home improvement contractors from making misrepresentations or false promises, giving misimpressions, acting deceptively, or the like.

In common law fraud or constructive fraud, a homeowner must show that they relied on false information from the contractor. Under the HIFA, no such reliance is required. Moreover, the statute defines what an “unconscionable contract” is and outlines what must be shown to prove it.

Home Improvement Warranty Act

The Statutory Home Improvement Warranties Act (“SHIWA”) does what its name suggests, i.e., imposes warranties related to home improvement projects. This statute deals with workmanship and materials, generally, as well as specific defects caused by faulty installation.

Conclusion

Future articles will discuss these statutes in depth, how they have been interpreted, the interplay between these statutes, and common issues that have been litigated surrounding these statutes.

If you are a home improvement contractor or a homeowner and you have questions about these statutes and how they affect your business or home, please contact me.

When can a direct action be brought in the context of a closely held company?

By: Arend J. Abel, Attorney

On June 1, the Indiana Court of Appeals addressed the circumstances in which a shareholder in a closely held limited liability company could sue another shareholder for breach of fiduciary duty arising out of alleged mismanagement of the corporation. Ordinarily, such actions must be brought derivatively, but the Court noted that Indiana law provides an exception in some circumstances.

Typically, a claim of corporate mismanagement involves harm to the corporation, and as such must be brought derivatively. However, the policies requiring a derivative action are the protection of third party shareholders and creditors. Under Barth v. Barth, 659 N.E.2d 559 (Ind. 1995), where those policies are not implicated, a derivative action is not required.

Thus, in Bioconvergence, LLC v. Menefree, the Court of Appeals found that a direct action against a majority shareholder in a closely-held limited liability was permissible, or at least non-frivolous, because the only shareholder other than the plaintiff was the defendant, and there were no creditors.

A direct action by a shareholder against a fellow shareholder may be the only effective remedy for a minority shareholder in situations where a majority shareholder is either mismanaging a business or siphoning off funds. A derivative action contains a number of procedural hurdles. Importantly, with derivative actions, the corporation may take over a derivative action, form an independent litigation committee, and on the recommendation of that committee dismiss the action, leaving a minority shareholder without a remedy.

Legal Zoom and Avvo – Attorneys Beware

By: Arend J. Abel, Attorney

In April, the Indiana Supreme Court Disciplinary Commission issued its first ever advisory opinion, and it was a doozy. It’s fair to say that the opinion puts the kibosh on the current business “lawyer consultation” models for online giants Legal Zoom and Avvo for a whole host of reasons.

Background

Not content to remain in the realm of automated preparation of legal documents, online companies such as Legal Zoom and Avvo have begun offering consultation with actual lawyers. The lawyers are not, however, employees of the online entities, but “independent” lawyers. The company establishes the fee for the service, which is typically a flat fee charged to the consumer. Say $500 for estate planning advice and preparation of a simple will. The client selects a lawyer from the company’s online database, sets up an appointment and receives the service. In addition, the lawyer pays a “marketing fee” to the company for each matter the lawyer receives.

The Commission’s Opinion

According to the Commission, such an arrangement raises a host of issues under the Indiana Rules of Professional Conduct. First, the Commission concludes, the marketing fee can be viewed as violating the rule that a lawyer may not split legal fees with a non-lawyer, a practice prohibited by Indiana Rule of Professional Conduct 5.4(a). While the Commission’s reasoning is less than clear, it appears that the fact the marketing fee is not payable unless the lawyer earns a fee is the key to seeing the fee as simply part of the overall fee that the consumer pays.

The Commission’s reasoning for its conclusion that the arrangement risks an abdication of the lawyer’s professional independence is more extensive, but less convincing. According to the Commission the abdication occurs because the client’s legal needs are “locked in” without prior consultation, and the lawyer must have a prior consultation with the client to determine the client’s needs. However, nothing in the arrangement appears to prevent a lawyer from consulting with the client (indeed consultations are part of the model) and advising the client whether the services the client selected are sufficient to the client’s needs. The Commission also concludes that the fact the online company sets the fee based on the time the company assumes the service will take to perform amounts to “direct[ing] the length of time lawyer should spend on the representation” such that the attorney may agree to provide legal services that cannot realistically be performed within the allotted time. Again, though, nothing in the arrangement prevents the lawyer from spending the amount of time the lawyer independently deems adequate to get the job done right. Finally, the Commission suggests that a “money back customer satisfaction” guarantee somehow abdicates the lawyer’s independence. The reasoning behind this concern is particularly unclear. Does it mean that individual lawyers can’t offer a money-back guarantees? If it doesn’t, what’s the functional difference, if the “satisfaction” decision is truly in the hands of the consumer? Or is the problem that the company, rather than the lawyer, will decide whether to refund the fee?

The commission also suggests that the arrangement could violate Ind. R. Prof. Cond. 1.2(c), which governs limited scope representations. The rule requires both that the limitations be reasonable, and that the client consent. While the Commission concludes that the “ ‘referral’ business model raises concerns about meeting this obligation,” the opinion does not explain why.

Unlike other passages of the opinion, that portion of the opinion stating that the marketing fee does not qualify as an advertising cost is not couched in conditional language saying the arrangement creates a risk of violation. Rather, the opinion flatly states that the marketing fee “is not reasonable cost of advertising.” That conclusion, if correct, would mean that participation likely violates Rule 7.2(b), which provides that a lawyer “shall not give anything of value to a person for recommending or advertising the lawyer’s services.” Reasonable costs of advertising are an exception from this general prohibition, as are “the usual charges of a legal service plan or a not-for-profit or qualified lawyer referral service described in Rule 7.3(d)” Rule 7.3(d) limits qualified referral services to those run by not-for-profit and government entities and bar associations, so for-profit online referral services wouldn’t qualify.

The opinion gives two reasons for its conclusion that the marketing fee is not the reasonable cost of advertising. The fees are typically “tied to the cost of the legal services” rather than the actual cost of advertising the individual lawyer’s services. In addition, because the fee is only paid after the lawyer renders the service, the opinion reasons it is more akin to fee splitting.

Finally, the opinion suggests that advertising by the online companies may falsely inflate the abilities of the lawyers to whom they make referrals, describing lawyers as highly qualified, knowledgeable, or even specialized, but allowing lawyers to take cases without prior experience.

Conclusion

In spite of the fact that much of the opinion is cast in conditional language, saying particular aspects of the arrangement “may risk” violating Indiana’s Rules of Professional Conduct, and the fact that the opinion is “non-binding,” an lawyer would have to be more than reckless to participate in the arrangements described above. It remains to be seen how the online services react, but my prediction is there will be litigation against bar authorities over these issues.

UPDATING THE CONTRAST IN PRIVATE RIGHTS OF ACTION IN INDIANA

By: David J. Cutshaw, Attorney

In May of 2016, we contrasted the ability of a private citizen to sue a doctor for a violation of the child abuse reporting statute and the right of a doctor to sue a lawyer for an inadvertent disclosure of a doctor’s name in a medical malpractice complaint. Since May of 2016, Indiana Courts have continued to refuse to imply a private right of action for violations of other statutes in the following circumstances:

Doe v. Ind. Dept. of Child Services, 81 N.E. 3d 199 (Ind. 2017): The Indiana Supreme Court refused to infer a private right of action where the identity of a confidential informant who reported child abuse was released by DCS directly to the suspected abuser, resulting in threats to and harassment of the informant and his family. The statute in that case required DCS to keep the identity of the informant confidential. The Indiana Supreme Court held the informant had no legal recourse against DCS, adding more meaning to the no-good-deed-goes-unpunished mantra and creating the danger that other informants will hesitate to report child abuse at his or her own physical peril.

Shirey v. Flenar, 89 N.E. 3d 1102 (Ind. Ct. App. 2017): The Court of Appeals refused to recognize a private right of action when a physician lost or destroyed a patient’s records contrary to the requirements of an Indiana statute that requires the doctor to preserve a patient’s records and produce them to the patient when properly requested. In this case, the patient was unable to sue her doctor who did not produce her medical records for her inability to fully document her personal injury claim due to the lost/destroyed records. Again, doctors can sue lawyers for inadvertently disclosing their involvement in a medical malpractice suit, but a patient cannot sue a doctor under the circumstances in Shirey.

First Thing We Do Is Blame the Lawyers

By: David J. Cutshaw, Partner and Gabriel A. Hawkins, Partner

Cohen & Malad, LLP has been involved in several what we call mass tort medical malpractice cases. In essence, these cases involve situations where a doctor or surgeon has performed unnecessary procedures, not for the patient’s benefit, but for the benefit of the doctor’s pocketbook or ego.

As an example, an ENT in northern Indiana was performing unnecessary sinus surgeries. He advertised that he could fix sinus problems and snoring. He would bring the patient into his office, take a sinus CT scan (an xray of the sinuses), tell the patient that he or she had extensive sinus disease (when he or she did not), and then schedule the patient for seven to eleven sinus surgeries that cost tens of thousands of dollars. He did not do the surgeries he reported and got paid for, and instead just poked a hole in the patient’s maxillary sinuses (which often made the patient worse.) When we filed several claims against the ENT Surgeon, he cashed out, converted his cash to diamonds and fled the country. He remained on the run for five and one-half years until he was apprehended in the Italian Alps in a tent. Those cases were settled for millions.

As another example, we also have claims against a group of cardiologists who were implanting unnecessary pacemakers and defibrillators—and in many cases falsifying medical records to make it appear that those devices (which have wires that are screwed into the patient’s heart muscle) were appropriate—when they were not. We are currently looking at other cases where an ENT was billing for procedures that he did not do, similar to the case of the ENT in northern Indiana noted above.

When these cases arise, doctors, medical associations, and the public blame the lawyers, claiming the lawyers are only trying to line their own pockets. But the lawyers did not perform the unnecessary procedures; the doctors did. Filing these cases often puts a stop to this predatory conduct and puts the doctor out of business, so to speak. When this occurs, the doctor cannot hurt or endanger patients anymore; and we are very proud that we have been able to stop doctors from this conduct through these mass tort medical malpractice case filings.

In the case of the northern Indiana ENT, doctors in his area knew what he was doing for at least two years before we began filing lawsuits, but did nothing to stop it. In Indiana, there is a regulation that requires doctors to report other doctors who engage in improper conduct to the Health Professions Bureau, formerly known as the Medical Licensing Board, which will investigate the matter and take action to suspend or revoke the offending doctor’s license to practice medicine. 844 IAC 5-2-8 provides: “A practitioner who has personal knowledge…that another practitioner…has engaged in illegal, unlawful, incompetent, or fraudulent conduct in the practice of medicine shall promptly report such conduct to a peer review or similar body….This provision does not prohibit a practitioner from promptly reporting said conduct directly to the medical licensing board.” (emphasis added). The doctors who knew about this unethical and harmful conduct did not report the offending doctor and the conduct continued for at least two more years.

There are also ethical standards that doctors should live by which have been issued by their professional associations. For example, the American Board of Internal Medicine Foundation (which governs Internal Medicine doctors, Cardiologists and Electrophysiologists) has issued an ethical pronouncement which states: “As members of a profession, physicians are expected to work collaboratively to maximize patient care, be respectful of one another, and participate in the processes of self-regulation, including remediation and discipline of members who have failed to meet professional standards….Physicians have both individual and collective obligations to participate in these processes.”

If doctors took these legal and ethical considerations to heart, there would be no need for mass tort medical malpractice cases or lawyers who often have to step in an put a stop to such conduct which harms patients, raises the cost of medical care, and deprives patients who actually need care from receiving proper treatment. So, the next time you are tempted to blame the lawyers, look below the surface and understand that the fault lies elsewhere.