Chicago Business Litigation Lawyer Blog

Regus Sued in Class Action for Alleged Hidden Charges

January 12, 2014 | Peter S. Lubin and James V. DiTommaso

Although renters usually expect to pay through the owner of the property for utilities, they usually only expect to do so if it is specifically included in the lease. According to a recent class action lawsuit against Regus PLC and its subsidiaries, the company allegedly charged fees to its renters for kitchen amenities, use of the telephones, telecom handsets, and internet activation and access.

According to the complaint, each plaintiff was provided with an “Office Agreement” which listed the location of the office, the duration of the client’s entitlement to the office, the amount of the “Initial Payment”, the amount of the security deposit, and the monthly payment from that point forward. The agreement allegedly did not “disclose any goods, services, penalties, and/or taxes for which Regus assesses charges and the amounts or methods of calculation of Regus’ charges associated with such goods, services, penalties, and/or taxes.”

However, once the plaintiffs received their bills, they found charges for things which were never mentioned in the lease. These charges included “amounts for one or more of the following …: i) ‘Kitchen Amenities Fee;’ ii) ‘Telephone Lines;’ iii) ‘Telecom Handset;’ iv) ‘Local Telephone;’ v) Internet activation and access charges; vi) taxes; and vii) penalties”. The lawsuit refers to these charges collectively as the “Unauthorized Charges”. Because of these Unauthorized Charges, the monthly payments made by clients was regularly in excess of what the Office Agreement had provided. However, if clients failed to pay these extra charges, they were allegedly subjected to penalties by Regus.

The lawsuit further alleges that Regus had clients make payment via an automated system in which the charges were automatically applied to the clients’ debit card or credit card. This meant that customers frequently got charged by Regus before even seeing a bill or having a chance to dispute the charges.

According to the complaint that was filed, Regus is also guilty of false advertising. Contrary to the experiences of the plaintiffs, the advertisements that Regus put on its website included the following:

“With Regus, you only pay for what you need when you need it”; “No up front capital expenditure required”; and “Flexible terms and one-page agreements.”
The complaint alleges that the additional fees the plaintiffs were charged directly contradict, not only the leases which were signed by the plaintiffs, but also the advertisements provided by Regus. For example, regarding the kitchen amenities, the lawsuit alleges that “Regus assessed a $30 per person monthly charge to Plaintiff … in excess of the monthly office payment amount indicated in the Office Agreement. Neither Regus’s practice of assessing this charge nor the amount of the charge is disclosed in the Office Agreement or the Fine Print. The charge was assessed regardless of whether any kitchen amenities were used.”

As far as the use of the telecom handset for which some plaintiffs were charged, the complaint alleges that

“the retail value of the two handsets provided by Regus does not exceed $99.00, yet Regus charged … a total of $222.75 (including purported taxes) per month for the use of the handsets during the term of the Office Agreement.”

The lawsuit seeks to bring a class action which would include everyone who had an Office Agreement or similar agreement for one of Regus’s locations in California and who paid one or more of the Unauthorized Charges between May 8, 2008 and the time that the complaint was filed. The lawsuit is also petitioning for a second New York class which would consist of similarly situated renters in the state of New York. The plaintiffs are currently unaware of just how many people qualify to participate in the classes, but they believe that each class could consist of more than 100 members.

You can view the complaint in the lawsuit here
.

Bucs Pick Off Class Plaintiff in TCPA / Junk Fax Case

January 8, 2014 | Peter S. Lubin and James V. DiTommaso

One of the requirements for filing a class action lawsuit is that the representatives of the class must have a complaint or complaints against the defendant which adequately represent the complaints of the rest of the class members. If a class representative (or representatives) is offered a settlement from the defendant which covers all of the damages to which they are legally entitled, then the plaintiff can no longer represent a class, as their complaint against the defendant would be invalidated.

This was the argument made by Buccaneers Limited Partnership when they filed a motion to dismiss a lawsuit against them. The lawsuit was filed by three dentists, a pest control service, and two others, all of whom allegedly received “unsolicited facsimiles” which were sent “for the purposes of offering for sale game tickets to the Tampa Bay Buccaneers’ home football games.” Because fax recipients have to pay for the faxes that they receive, including the paper and toner used to print the faxes, solicitations such as these are illegal under the federal Telephone Consumer Protection Act.

The Buccaneers offered to pay the plaintiffs the maximum amount of damages which they would be able to collect under the Telephone Consumer Protection Act. The plaintiffs refused the money and continued with the lawsuit. The Buccaneers then filed a motion to dismiss. Regardless of whether or not the plaintiffs accepted the offer made by the defendants, the mere existence of the offer negates any complaint that the plaintiffs have against the defendant.

The fact that a defendant can invalidate a plaintiff’s claim by offering to settle runs the risk of defendants making an offer to plaintiffs to settle the case before the plaintiffs have a chance to make their case for class certification. In order to avoid this, courts have provided plaintiffs with the option of filing for class certification at the same time that they file the complaint. They can then ask the court to wait to make a decision until they have had time to provide evidence that the case should be tried as a class action.

Because the plaintiffs in this case did not file for class certification until after the Buccaneers had already filed their motion to dismiss (and after the Buccaneers had made their offer to settle), the court determined that the plaintiffs no longer had a valid complaint against the defendants. As a result, the plaintiffs were ineligible to represent a class of recipients of facsimiles from the Buccaneers.

Under the relevant statute, the TCPA or Telephone Communications Protection Act, each class member would be entitled to $500 in damages. If all potential 100,000 class members are included, this raises the potential penalty for the defendant to $50 million. If the plaintiffs are able to prove to the court that the defendant violated the TCPA “willfully or knowingly”, then the penalty triples to $150 million. As a result, the attorneys’ fees would likewise be inflated. The awards to the named plaintiffs in the lawsuit would also rise accordingly. The court therefore determined that the plaintiffs had an ulterior motive in filing the lawsuit and granted the defendant’s motion to dismiss.

The same lawyers later filed a class action on behalf of another plaintiff and moved for class certification thus barring another pick off attempt and the class action is now proceeding. This demonstrates that the pick off tactic can sometimes do nothing but delay a class case.

You can view the full court opinion here.

New Class Action Cases on the Supreme Court’s Horizon

January 5, 2014 | Peter S. Lubin and James V. DiTommaso

When the Supreme Court agrees to hear a case, the decision that the Court reaches in that case can have long-standing consequences for future rulings in similar cases made by courts all over the country. In recent years, class action lawsuits have been particularly contentious in the courts. In order to attain class certification, a class of plaintiffs is generally required to fulfill four requirements:

1. The class must be large enough to justify combining all of the claims into one lawsuit, generally, this means at least 100 class members;
2. The class must have questions of law or fact in common;
3. The claims of the representative parties must be sufficiently similar to the claims of the rest of the class; and
4. The representative parties must fairly and adequately protect the interests of the class.
Despite these clear requirements, various courts have ruled to certify classes of plaintiffs while other courts have denied certification based on a lack of ability to fulfill the above requirements.
Securities class actions in particular have faced an increasing number of challenges in recent years, leaving shareholders who have been the victims of fraud with little or not outlet for redress.

Halliburton Co. v. Erica P. John Fund

In this case, investors filed a lawsuit against the publicly traded energy company by claiming that it misled them about key information, including its liability in a recent asbestos investigation. The investors allege that such misinformation affected the company’s stock prices and ultimately harmed the company’s shareholders.

Halliburton is challenging the Supreme Court’s decision in 1988 in Basic v. Levinson, in which the Court determined the fraud-on-the-market theory, which has been the basis for most securities class actions ever since. The theory states that, when a public company makes a misrepresentation in an efficient market, that misinformation is carried through the market and affects the company’s stock price. An investor purchasing a security is thus presumed to have relied on that misinformation. However, the concept of an efficient market, while largely uncontested in the 1980s, has since come under scrutiny and has recently been questioned by some of the current justices of the Supreme Court. If the Court overturns its decision in Basic v. Levinson, each class member will have to prove that they relied on the misinformation when purchasing or selling company stock.

Plaintiffs’ attorneys fear that such a requirement will render class certification for such cases nearly impossible. Some of them have claimed that it could have consequences beyond just securities class actions. Consumer class actions, for example, might also be affected.

The “Washing Machine” Cases

Two separate consumer class actions alleging defective washing machines have made their way through the court system and are currently being petitioned to be heard by the Supreme Court. The defendants in the lawsuit, Whirlpool Corp, and Sears Roebuck & Co., are asking the Supreme Court to overrule the decisions made by lower courts to certify classes of consumers. The plaintiffs against Whirlpool allege that 21 different models of the company’s high-efficiency, front-loading Duet clothes washers sold since 2001 have a design defect that results in mold.
Both Whirlpool and Sears argue that the classes fail to meet the predominancy requirements of class certification and that most of the class members were not harmed.

If the Supreme Court agrees to hear the case and rules in favor of the defendants, the decision could have serious consequences on all issue-based class actions. It has the potential to severely limit consumers’ ability to bring their grievances against a company.

Securities Litigation Uniform Standards Act (SLUSA)

While rulings made by the Supreme Court can sometimes mean drastic changes in the law, it also frequently means simply clarifying older laws. For example, the SLUSA was enacted in 1998 as a way to prevent shareholders from evading the pleading standards of federal litigation by filing suit in state court, whose pleading standards are usually less rigorous. Specifically, SLUSA prohibits state-based suites alleging fraud “in connection with the purchase or sale” of covered securities.

The current lawsuit arose when investors bought securities which were not covered under SLUSA directly, but were certificates of deposits which were backed by SLUSA-covered securities.

When Robert Allen Standford’s $7 billion Ponzi scheme was revealed to the public, the shareholders filed a class action lawsuit alleging fraud. The law firms Proskaur Rose LLP and Chadbourne & Parke LLP were included as defendants in the lawsuit for allegedly aiding the Ponzi scheme.

A Texas federal judge ruled that the investors’ claims were precluded by SLUSA. The decision was appealed and went to the Fifth Circuit Court, which found that the claims were only “tangentially related” to SLUSA-covered securities trades. The attorneys representing the law firms are appealing the decision, arguing that the Fifth Circuit Court’s decision allows plaintiffs to avoid SLUSA.

If the Supreme Court decides to rule in favor of the defendants, the result could have far-reaching implications on shareholders’ ability to file claims.

Mississippi ex rel. Hood v. AU Optronics Corp.

Consumers who have suffered as a result of fraud are not the only ones capable of bringing a lawsuit against a company for violating consumer rights. State attorneys general also have the option of bringing a lawsuit to recover damages on behalf of consumers. These are known as parens patriae cases. At issue in this lawsuit is whether a parens patriae case in which the attorney general is seeking to represent 100 or more consumers should be treated as a class action.

Mississippi’s attorney general, Jim Hood, filed a lawsuit against a group of electronics companies for allegedly fixing the price of liquid crystal display panels.
If the Supreme Court rules that parens patriae lawsuits count as class actions, it could give defendants the option of moving such cases to federal court. If the Court rules that these lawsuits cannot be treated as class actions, then the state attorneys’ general can keep them in their home courts, which are often more disposed to be favorable to the attorney general.

Carrera v. Bayer Corp. et al.

This lawsuit was filed against Bayer by a consumer who alleges that the pharmaceutical company engaged in deceptive practices by claiming that its One-A-Day WeightSmart could enhance metabolism. Since Bayer does not sell its products directly to consumers, the company has no records of who purchased the vitamin. The defendants therefore claim that the class cannot be certified because the plaintiffs have no way of finding every single class member, despite such a limitation never having been a requirement for class action certification.
The district court certified the class, but the Third Circuit Court of Appeals reversed that decision, saying that the difficulty in determining consumers who belong to the class rendered it ineligible for certification.

If the Supreme Court agrees to hear the case and makes a ruling in line with that of the Third Circuit Court, the decision could affect consumers’ ability to file claims. The plaintiffs in the case also argue that such a decision could encourage companies like Bayer not to keep a record of customer purchases.

7th Circuit Overturns and Remands Denial of Class Certification in Fair Debt Collection Practices Act Case

January 2, 2014 | Peter S. Lubin and James V. DiTommaso

When class actions are filed, courts need to consider all aspects of the class before determining whether or not it can be certified. This includes whether class members from other states have claims similar enough to the class members of one state, particularly in cases where the lawsuit is filed under a state law. The Seventh Circuit Court of Appeals recently handled a case in which the status of the class was disputed for this reason.

Gwendolyn Phillips was sued by Asset Acceptance, LLC for some outstanding debt that she still had with the company. However, Phillips argued that the lawsuit was invalid because the statute of limitations on the debt had already passed.

Few debtors are aware that a statute of limitations on their debt exists. Even those who do know frequently find that it is cheaper and easier to simply settle the debt rather than try to fight it in court. To try and mitigate these effects, Phillips moved to certify a class action of plaintiffs consisting of debtors who have been sued by Asset Acceptance for debts resulting from the sale of natural gas who have been sued after the statute of limitations has expired. According to the records currently available, the class that Phillips is proposing can consist of as many as 793 members if they all choose to participate. 343 of which are eligible to file claims in the state of Illinois.

Which Illinois statute of limitations applies to this was case disputed between the parties. One statute gives four years as the limitation while the other statute gives five. Phillips claims that the applicable statute is the one that lasts for four years while Asset insists that the five-year statute is the proper one. Regardless, Asset sued Phillips more than five years after her debt had accrued.

The district court ruled that, because Phillips had been sued by Asset after five years, she was an inadequate representative for members of the class who had been sued after only four years. The court therefore shrunk the eligible class members down to less than thirty members, which the judge ruled was too small to justify the numerosity requirement of a class action. The judge therefore dismissed Phillips’s motion for class certification.

Phillips appealed the decision and the case went to the Seventh Circuit Court of Appeals. The appellate court rejected the lower court’s reasoning that the difference of one year was sufficient to disqualify Phillips as an adequate representative. Rather, the appellate court found that Phillips had no ulterior motive for insisting that the relevant statute lasted for only four years, as she had been sued after five. Therefore, the court found no reason that she should not be an adequate representative for the class.

Further, even if the court had found a significant difference between class members who had been sued after four years as opposed to members who had been sued after five, the court found that certifying a subclass with a second representative made more sense than decertifying the entire class.

In examining the case, the appellate court found that the relevant statute was for only four years, and as a result, Phillips is eligible to represent the entire class of 343 Illinois plaintiffs. Whether or not plaintiffs in other states can be included in the class or subclasses will need further evidence to determine. In the mean time, the appellate court remanded the case back to the district court.

You can view the entire decision here.

Indiana Car Dealer Gets Off the Hook for Most Claims in Consumer Fraud Case

December 27, 2013 | Peter S. Lubin and James V. DiTommaso

Most states have local statutes which have been put in place to protect consumers from deceptive and unfair business practices. However, courts must be careful to balance the needs of protecting consumers with the needs of sellers to market their wares. Just such a balance was considered in a recent case in Indiana in which Heather Kesling bought a used car from Hubler Nissan, Inc. The car was allegedly advertised as being a “Sporty Car at a Great Value Price,” but after buying it, Kesler discovered that the car had extensive mechanical problems which rendered the vehicle unusable. As a result, Kesler sued Hubler Nissan for fraud and violation of the Indiana Deceptive Consumer Sales Act.

Hubler Nissan moved for summary judgment which the trial court granted. Kesling appealed the decision and the appellate court reversed the trial court’s ruling. According to the appellate court, the statement that the car was a “Sporty Car at a Great Value Price” could implicitly represent that “it is a good car for the price and that, at a minimum, it is safe to operate.” The appellate court therefore ruled in Kesling’s favor, after which the case then moved to the Indiana Supreme court which reversed part of the ruling and remanded part of the ruling.

Hubler Nissan responded by petitioning to have the case moved to the Indiana Supreme Court. The Indiana Legal Foundation and Barnes & Thornburg LLP filed an amicus brief with the court in support of the petition for transfer. In the amicus brief, they argued that the assertion that the car was a “Sporty Car at a Great Value Price” was nothing more than puffery, meaning that it was an expression of the seller’s opinion and was not meant to be construed as fact. To punish Hubler Nissan for making such a statement, the amicus brief argued, would be to impose undue hardship on Indiana businesses in the future, as it would inhibit all forms of advertising.
The Supreme Court agreed that to rule in Kesling’s favor would be to force sellers to list only a product’s “name, rank, and serial number” in order to avoid a similar lawsuit. The Court concluded that sales puffery is not actionable as fraud, stating that, “[w]hile advertisements may not be deceptive, they need not refrain from any expression of the seller’s opinion.”

In its ruling, the Indiana Supreme Court further noted that Hubler Nissan’s advertisement “was puffing and not any representation of fact, and thus the advertisement was not ‘deceptive’ under the Indiana Deceptive Consumer Sales Act (IDCSA); whether a car is ‘sporty’ was a subjective assertion of opinion and could not reasonably be ascribed any significance as a representative of a car’s state of repair or drivability, and ‘great value price’ could not reasonably be understood to have any greater significance than the comparable terms ‘great price’ or ‘priced to sell’.”

The Indiana Supreme Court also pointed out that, under the Indiana Consumer Sales Act, the failure to disclose information does not constitute a representation of fact. As a result, the Court could not find Hubler Nissan guilty of fraud under that Act. This is not the case in most states such as Illinois where if a car dealer knowlingly fails to disclose or conceals material facts it can be liable under the Illinois consumer fraud act.

You can view the Court’s opinion here.

Facebook Posts Get Government Worker Fired

December 17, 2013 | Peter S. Lubin and James V. DiTommaso

Courts recognize that the government has an interest in regulating certain forms of speech. However, that interest does not cancel out each citizen’s right to free speech as granted under the First Amendment of the U.S. Constitution. When faced with a lawsuit brought under the First Amendment, the courts will therefore consider the interest of the government in regulating speech against the constitutional rights of the person who made the speech.

In a recent lawsuit which was filed under the First Amendment, a government worker filed a lawsuit against her former employer, the Oregon Department of Health Services (DHS) for alleged wrongful termination as a result of posts which she uploaded onto her Facebook page. The plaintiff, Jennifer Shepherd, worked in child protective services and determined child custody cases. As part of her job, she was regularly called in to court to testify in custody cases.
On more than one occasion, Shepherd posted to her Facebook page derogatory remarks about individuals on public assistance. These included a suggestion that those on public assistance be forbidden from owning a flat screen television, banning people who are on public assistance from having any more children, and sterilizing people who have previously had their parental rights terminated. The DHS conducted an investigation into these posts, after which it terminated Shepherd’s employment.

Firing an employee in retaliation for exercising their right to freedom of speech is against the law. To determine whether or not an employee was wrongfully terminated under the First Amendment, the courts are provided with a test consisting of five elements. The court used this test in deciding whether the DHS violated the law in terminating the plaintiff’ employment as a child protective services worker. Specifically, the court focused on the fourth element of the test, “whether the state had adequate justification for treating the employee differently from other members of the general public.”

Despite having made these negative comments, Shepherd admitted to the court that, as part of her role in child protective services, she was “to be a neutral appraiser of the settings in which the children live.” She was not supposed to consider the employment status, religious or political beliefs of the adults in the home, or concern herself with how they chose to spend money or furnish their home. Shepherd also affirmed that she was aware that the majority of the parents being assessed by the DHS were on Temporary Assistance to Needy Families, food stamps, and/or the Oregon Health Plan.

The DHS argued that, as a result of the derogatory comments that Shepherd posted onto her Facebook page, she would immediately be impeached by the defense attorney every time she was called to testify in court. This prevented her from performing an important part of her job. Another result of the Facebook posts was the fact that two coworkers expressed doubt as to Shepherd’s ability to effectively perform her job. As such, the DHS argued that the Facebook posts caused “substantial disruption” in the workplace and the court agreed.

The First Amendment provides greater freedom of speech if the speech in question is “intended to help the public actually evaluate the performance of a public agency” or if it is spread to a wider audience. The court ruled that the Facebook posts that Shepherd uploaded did not fulfill either of these requirements. Shepherd stated that the posts were meant to be humorous and ironic rather than informative. As such, the court ruled that they are not qualified for special protection under the First Amendment. As far as spreading the information, the plaintiff had customized her Facebook settings such that only her designated Facebook friends could view her posts. Therefore, the posts did not meet the second requirement for protection under the First Amendment. The court granted the plaintiff’s motion for summary judgment and dismissed the case.

You can view the Court’s full opinion here.

TCPA Texting Class Action Alleges Insurance Carriers Violate Privacy Rights Through Illegal Text Message Campaign

December 15, 2013 | Peter S. Lubin and James V. DiTommaso

In 1991, Congress enacted the Telephone Consumer Protection Act (TCPA) which specifically prohibits the use of auto-dialers in making calls to a wireless number without the prior express consent of the person being called. The only exception to this rule is in the case of an emergency. One of the main reasons for this Act is the fact that owners of wireless phones are often charged for their incoming calls as well as the calls that they make. This means that, aside from being annoying and potentially time consuming, the telemarketing calls are also costing their targets money out of pocket.

Despite the institution of this Act, companies appear to be unwilling to cooperate, as evidenced by the fact that companies which use auto-dialers to contact potential customers are still thriving. One of these companies is Variable Marketing, LLC and it has recently been hit with a class action lawsuit alleging violations of the TCPA.

Filed in the District Court for the Northern District of Illinois, the lawsuit names American Automobile Association, Inc.; Farmers Group, Inc.; Government Employees Insurance Company; Nationwide Mutual Insurance Company; State Farm Mutual Automobile Insurance Company; and Variable Marketing, LLC as defendants. All of these defendants allegedly used a lead-generator marketing company (Variable Marketing), to market their services in violation of the TCPA.

The plaintiffs are five consumers who received calls from Variable on their cell phones. When they answered or returned the calls, a pre-recorded message played before they were able to reach a live operator. According to the lawsuit, only one of the five plaintiffs had ever had any business dealings with any of these insurance companies prior to receiving the call and none of them had expressed their consent to receive these calls. The plaintiffs are seeking statutory damages and injunctive relief under the TCPA.

The proposed class is defined as “All persons within the United States who received a non-emergency telephone call from Variable, placed while Variable was acting on behalf of the Insurance Company Defendants, to a cellular telephone through the use of an automatic telephone dialing system or an artificial or prerecorded voice.”
This proposed class could end up consisting of tens of thousands of members. Under the law, each of those members is entitled to up to $1,500 for each call that they received from Variable. This brings the total award sought by the plaintiffs to over $5,000,000, not including interest and attorneys’ fees.

Despite the fact that Variable is the company which actually placed the calls using an auto-dialer, all of the companies for which Variable did this are responsible for having violated the TCPA. The Federal Communications Commission (FCC), the agency which Congress put in charge of regulating and implementing the TCPA, determined that “a company on whose behalf a telephone solicitation is made bears the responsibility of any violations.” According to the FCC, the seller and the telemarketer do not need a contract in order for the seller to be liable. All that the FCC requires is that the telemarketer have “the apparent (if not actual) authority” to make the calls.

A representative of Variable told one of the plaintiffs that he was calling on behalf of “lots of the big [insurance companies], including Geico and AAA.” This suggests that Variable was given authority to use the Insurance Company Defendants’ trade name, trademark and service marks. This fulfills the requirement of “apparent (if not actual) authority” for holding the insurance companies accountable for the damages incurred as a result of their violation of the TCPA.

Court Rejects Claims that Compaq Violated Confidentiality Agreement

December 12, 2013 | Peter S. Lubin and James V. DiTommaso

Non-disclosure agreements exist so that companies can safely have discussions about developing ideas of technology without worrying about one company stealing the trade secrets of another. However, the language involved in the non-disclosure agreement is crucial. The line between what information is confidential and what information is not confidential must be clearly defined. When a company lays out the parameters for confidential information in their non-disclosure agreement, it is advisable that the company then be sure to work within the parameters which they have set.

One company that ran into trouble with the definition of confidential information as laid out in their own non-disclosure agreement is Convolve. Beginning in the late 1990’s, Convolve and Compaq Computers began doing business together using non-disclosure agreements. Those agreements specified that confidential information was to be defined as any information which was marked as confidential at the time that it was disclosed. If it was unmarked, or if the information was disclosed in a presentation, then it had to be designated as confidential in a written memorandum following the disclosure.

In late 1999, Convolve made certain presentations to Compaq regarding computer hard-drive technology, but the two companies never reached a licensing agreement for the technology. When Company then went on to use some of the information which they had gleaned from those presentations, Convolve sued Compaq for breach of contract. However, the presentations at issue were never followed by written memos to confirm that the information presented was confidential. The lower court ruled that, without the necessary memos, as laid out in the non-disclosure agreement, the agreement did not apply to any information which was disclosed in those presentations. The court decided that the non-disclosure agreements “do not appear reasonably susceptible to the interpretation Convolve urges.”

Convolve appealed the decision, arguing that, despite the lack of written memos, Compaq had understood that all of their disclosures were confidential. The appellate court rejected this argument, pointing out that it contradicted the terms of the non-disclosure agreement.
Convolve then tried to argue that, regardless of the non-disclosure agreement, state confidentiality law still applied. The appellate court also rejected that argument, stating that a non-disclosure agreement replaced any implied duty of confidentiality which might have existed between the two companies under the law. According to the Court, Convolve could not force their business partners to abide by one set of rules as laid out in their non-disclosure agreement while simultaneously forcing them to abide by a different set of rules under the law. The Court stated that “One party should not be able to circumvent its contractual obligations or impose new ones over the other via some implied duty of confidentiality.”

The Court therefore ruled in favor of Compaq, having decided that “Convolve did not follow the procedures set forth in the NDA to protect the shared information, so no duty ever arose to maintain secrecy of that information.”

The lesson learned here is that, if you are going to specifically define confidential information in your non-disclosure agreement, you should be careful to abide by all the terms of your own contract if you wish for your information to remain safe.

Alternatives to Non-Compete Agreements Become Popular With Employers

December 11, 2013 | Peter S. Lubin and James V. DiTommaso

As this blog has discussed, non-compete agreements have become increasingly prevalent in recent years. However, they have also grown in severity in some companies, such that they frequently impose undue hardship on an employee’s search for future employment. As a result, courts in some states have grown increasingly unfavorable towards non-compete agreements. California courts, for example, are hard pressed to enforce any non-compete agreements.

If an employee breaches a non-compete agreement, the former employer can take the employee to court for breach of contract, but these lawsuits can be long and costly. While employees often rely on the allegation that the non-compete agreement imposed undue hardship, many courts rely on a three-pronged system to determine the validity of a non-compete agreement, of which undue hardship is only one consideration.

Completing the test of validity therefore requires the court to consider all the facts of the case. This can lead to very lengthy discovery, making the lawsuit even more costly. After all that, there is never a guarantee that a court will rule in the company’s favor, and even if they do, a customer lost is unlikely to come back.

For these reasons, alternatives to non-compete agreements have been proposed, although they still have yet to achieve the same popularity in American businesses. The first alternative is garden leave contracts. In these agreements, the employee agrees to give the employer notice of a certain amount of time before leaving the company. This is what is known as the garden leave period, but the employer continues the pay the employee a salary during this period. Garden leave contracts have two advantages over non-compete agreements:

1) If an employee fails to abide by the agreement it would not only prove breach of contract but also break the common law of duty of loyalty. In this case, an employer would not only be able to collect on salary paid during this period, but might be able to recover punitive damages as well.

2) It undercuts one of the main defenses that employees use when they breach their non-compete agreements: undue hardship. When an employee is still receiving a salary, undue hardship becomes significantly more difficult to prove.

As with non-compete agreements, the length of the garden leave period must be reasonable. Also, while it might be tempting for employers to reduce garden leave pay to a percentage of the employee’s normal salary, such a reduction risks inviting a court to apply higher scrutiny to the clause, which leads to the possibility of the court dismissing the agreement as invalid.

Another option is to replace the non-compete agreement with a safety net payment. Safety net payments are similar to garden leave agreements with the main difference of applying after the employee and employer have broken off all relations with one another. Once payment is made, the employee agrees to refrain from certain competitive actions, such as contacting specified customers. In this case, the safety net payment does the same thing as the garden leave payment does as far as ensuring that an employee cannot claim that the contract imposes undue hardship in their search for new employment.

Some companies have chosen to make payments like this staggered over a certain period of time, such as six months or one year. If the employee breaches the contract, the employer can then stop future installments of the safety net pay. However, employers must be careful to specify in the contract that a breach on the part of the employee will result in termination of all future payments. Otherwise, the cessation of installments could result in the employer getting taken to court for breach of contract.

The third and final alternative to non-compete agreements is client purchase agreements. These agreements do not expressly prohibit competition, but they do enact punishment in the event that the competition happens. In these arrangements, an employee agrees to pay the employer if she chooses to participate in certain competitive behaviors, such as by working with specified customers.

Settlement in Miley Cyrus Jewelry Class Action Alleging Jewelry Has Dangerous Levels of Cadmium

December 5, 2013 | Peter S. Lubin and James V. DiTommaso

Many consumers frequently rely on important information provided by the manufacturer of a product in order to determine whether or not to buy that product. If a product does not list a particular ingredient, such as gluten, which is a protein found in many processed foods, consumers will frequently assume that the protein is not present in that product. Only recently have food producers begun to label their products as specifically gluten-free.
Walmart has recently encountered a lawsuit by consumers who purchased jewelry from their stores with Miley Cyrus’s brand. The jewelry, which is made by BCBG Max Azria Group Inc., and sold in Walmart stores, allegedly contained cadmium.

Cadmium is a soft metal which is frequently used to stabilize plastics and to prevent corrosion. However, cadmium has been found to have toxic properties and it is included on the European Restriction of Hazardous Substances. This Restriction bans certain hazardous substances in electrical and electronic equipment, although it does allow for certain exemptions and exclusions. Some studies have linked cadmium with lung cancer and prostrate cancer and some people have theorized that the soft metal imitates estrogen and causes breast cancer.

In the past few years, jewelry sold at Walmart and collectible drinking glasses sold at McDonald’s have been recalled when it was discovered that these products contained cadmium. In 2010, reports of high levels of cadmium in children’s jewelry led to an investigation by the U.S. Consumer Product Safety Commission. Despite the fact that there appears to be little hard evidence available that cadmium is dangerous, there have been enough scares and warnings to make consumers wary of the metal.

The plaintiffs of the current lawsuit against Walmart regarding the Miley Cyrus-brand jewelry say that they never would have purchased the jewelry if they had known that the product contained cadmium. A settlement has been reached in the case, but the defendants continue to deny having done anything wrong and any liability. Anyone who purchased Miley Cyrus-branded jewelry from a Walmart retail store after July 1, 2005 is eligible to participate in the class. Class members have four options:

TO REMAIN IN THE SETTLEMENT: In order to remain in the settlement, purchasers of the jewelry must submit a claim form in order to receive a payment from the settlement. They must also agree to the terms of the settlement which include forfeiting their right to sue the defendants in the future.

TO GET OUT OF THE SETTLEMENT: If class members do not wish to
remain as part of the settlement, they can choose to exclude themselves from the class.

TO REMAIN IN THE SETTLEMENT AND OBJECT: Those who decide to remain in the settlement will have the opportunity to object to the settlement.

APPEAR AND SPEAK AT THE FINAL APPROVAL HEARING: Just because a settlement has been reached between the two parties does not mean that it has yet been finalized. A judge must first grant the settlement court approval. If members of the class choose to do so, they can appear at the approval hearing and speak, or they can have an attorney appear and speak on their behalf. Should they chose one or both of these options, it would be entirely at their own expense.