June 14, 2004

Counseling an Employee for Poor Performance?
Consider Getting a Signed Written Acknowledgement

In an age-discrimination lawsuit against American Airlines by a former employee, the court recently denied American's motion for a summary judgment dismissing the case. The court's reason offers a lesson for managers and HR personnel.

The former employee, one Walker, claimed he had been fired during a post-9/11 reduction in force because of his age. American Airlines responded with evidence that Walker had been a poor performer. Walker replied that American's performance argument was merely a pretext.

Walker supported his pretext contention in part with his affidavit that he never knew he had received low performance marks. (He also introduced evidence that other, younger employees in comparable positions had serious employment problems yet were not terminated.) The court concluded that Walker had produced enough evidence of pretext to entitle him to have a jury hear his case; it denied American's motion for summary judgment.

POSSIBLE LESSON: If you're counseling an employee because of poor performance, consider 1) writing up an accurate summary of the counseling, 2) asking the employee to sign it, 3) giving him or her a copy, and 4) keeping the signed original for the employee's personnel file. (If the employee refuses to sign, consider making a written note of the employee's refusal.) That should provide at least some ammunition to help refute a later claim that the employee never knew about the performance issues.

CITATION: I couldn't find the court's opinion on-line. The case is Walker vs. American Airlines, Inc., No. Civ.A 4:03-CV-46-Y (N.D. Tex. June 9, 2004), summarized in this BNA Corporate Law Daily report ($).

June 14, 2004 in Leadership and Management, Litigation, Record-keeping | Permalink | Comments (0) | TrackBack

March 08, 2004

Martha Stewart Juror Says Her Changing
a Phone Message Brought Her Down

This AP story reports some post-trial comments by jurors in the Martha Stewart case. It seems that one of the key pieces of evidence was testimony that Stewart had tried to change a phone message from her stockbroker:

Other jurors said Stewart's assistant Ann Armstrong, who reluctantly testified that Stewart tried to alter a phone record of a message from her stockbroker, was the key witness leading them to the domestic diva's conviction.

Armstrong testified that Stewart sat down at Armstrong's desk to change a message from her broker, Peter Bacanovic, that informed her that he thought the ImClone stock price would start falling.

"She ultimately gave the testimony that was going to bring Martha down. That was a very important piece," said juror Chappell Hartridge, one of six jurors who spoke to "Dateline NBC" in interviews that aired Sunday night.

"We all believed her 100 percent," juror Adam Sachs said of Armstrong.

This is another example of a brutal fact of legal life: In a trial, evidence can often be confusing, difficult to understand, or even contradictory. If you are accused of wrong-doing, it may not be entirely clear whether what you did was wrong. (This can be especially true in intellectual-property cases, by the way.) On the other hand, evidence-tampering is very easy to understand. If jurors conclude that you tampered with evidence, they may well seize on that as "proxy evidence" that your actions must indeed have been wrong, otherwise why would you have tried to cover your tracks?

It bears repeating: If you've been sued, or if you think you're going to be sued, or if you hear that government authorities are investigating your actions, DON'T destroy or tamper with potential evidence. The chances are you'll only be hurting yourself.

March 8, 2004 in Criminal Penalties, Litigation, Record-keeping | Permalink | Comments (0) | TrackBack

November 05, 2003

Review Your Unused Sales Tax Permits

In late 2001, a Texas lighting-fixtures vendor sued one of its customers, a California company, for breach of contract. The vendor brought the suit in, surprise, Texas. The California customer tried to get the lawsuit thrown out because of lack of "personal jurisdiction." That means the customer claimed it didn't have enough presence in, or contact with, the state of Texas to be subject to suit there.

Earlier this year, a federal magistrate judge in San Antonio denied the California customer's motion to dismiss the suit. Her principal stated reason suggests that companies might do well to periodically review their state sales- and use-tax permits. See Ergonomic Lighting System, Inc. v. Commercial Petroleum Equipment/USALCO, No. SA-02-CA-0031 (W.D.Tex. 03/05/2003).

What the Federal Judge Regarded as "Doing Business"

The federal magistrate judge listed several reasons for denying the California customer's motion to dismiss the lawsuit.

  • The first reason she listed was also the one she discussed in the most detail. The customer had obtained a Texas sales-tax permit in 1994. From 1999 to 2002 the customer had filed sales- and use-tax returns with the Texas tax authorities and had paid an aggregate of less than $1,000 in state tax. The magistrate judge appears to have taken this as tantamount to an admission of regularly doing business in Texas.
  • The California customer had "engaged in business with either Texas-based corporations or with out-of-state corporations that have locations in the state."
  • The customer had an interactive Web site that could be accessed by Texas-based companies.
  • The customer had "maintained exclusive distributorship arrangements with businesses that have distribution facilities in Texas."

The magistrate judge concluded: "This evidence, in my opinion, clearly establishes that [the customer] conducted regular business in the Texas, sufficient enough for this court to conclude that [the customer] 'purposefully availed itself of the Texas marketplace' such that it could reasonably anticipate being called into court in Texas."

Possible Lessons

1. Your company may have applied for sales- and use-tax permits in numerous states. It might be a good idea to review them periodically. Consider canceling any permits that you don't need. Of course, check with counsel -- and your sales execs -- before doing so.

2. Consider including a forum-selection clause in your contracts, especially in important deals. A forum-selection clause will typically provide that any lawsuit will be brought in a specified jurisdiction. Such clauses are usually enforced (although there are some notable exceptions to that rule).

There are downsides to proposing a forum-selection clause. Such clauses often cause pushback from the other side in contract negotiations. If the other side has the bargaining power, it might respond, fine, but the chosen forum will be our home turf, not yours. Then you might have to choose between agreeing to sue or be sued in the other side's jurisdiction, or not doing the deal.

Overall, you might decide you're better off not proposing a forum-selection clause, or, if the other side proposes one, insisting that it be deleted. Then each side would accept the risk that someday it might be sued in a foreign jurisdiction. That's a judgment call.

3. Watch out for contract clauses that say something along the lines of, "this contract is entered into in Paris, Texas, as of the date signed by the parties." (Emphasis added.) That might be used to argue that the parties were doing business in Paris, Texas, and therefore were subject to suit there.

4. To state the obvious: The more business relationships you have in other jurisdictions, the more likely you are to being subject to suit in one of those other jurisdictions.

November 5, 2003 in Litigation, Record-keeping, Sales | Permalink | Comments (0) | TrackBack

October 08, 2003

What Did Quattrone Know, and When Did He Know It?

The Frank Quattrone trial proceeds -- see this Dow Jones story, or this search in the Yahoo news files. As has been widely reported, Quattrone received a "let's clean up those files" email and forwarded it to his group at Credit Suisse First Boston. He had recently been told by a CSFB in-house lawyer that the SEC was doing an investigation into some CSFB-related matters. It's in dispute whether he was told enough to make him realize that his own group should suspend any cleaning out of their files.

The jury will have to decide -- more than 3-1/2 years after the fact -- whether Quattrone had the intent to obstruct justice when he forwarded the clean-up email to his group. Even if Quattrone is acquitted, his life and career have suffered major disruption, all because of an email.

(Continued below)

Basic Documentation-Retention Rules

The basic legal principle is simple, at least in theory: Don't destroy documents that might be relevant to impending legal action, at least not without consulting counsel.

But, you ask, when is legal action impending enough to trigger this principle? It depends. As the Quattrone case illustrates, if any legal action is impending, and you destroy documents, then the government might suddenly get very interested in you. If the jury gets the wrong impression, you could find yourself taking an extended sabbatical from your life as you know it.

Possible Lessons

If in any doubt whether you should destroy particular documents, you likely will sleep better if you consult counsel first. The mere fact that you consulted counsel, standing alone, could later help you refute any allegation of criminal intent.

You might want to get written confirmation of what counsel says, even something as simple as an email exchange. That's a little bit of extra work, but it's worth it. Months or years later, you, or your counsel, may not remember what transpired. Moreover, it's widely believed that juries tend to give credence to contemporaneous written documents, possibly more so than to after-the-fact witness testimony.

October 8, 2003 in Communications, Criminal Penalties, Record-keeping, Securities law, SEC regs / actions | Permalink | Comments (0) | TrackBack

October 01, 2003

Will Your PPT Slides' Footer Help Lose a Lawsuit Too?

Last week a court poured out * Storage Technology's corporate-raiding lawsuit against Cisco. One of the nails in the coffin was the way that Storage Tech had protected -- or more accurately, failed to protect -- the alleged trade secrets that Cisco had supposedly misappropriated. While that alone didn't lose the case for Storage Tech, it didn't help, and it likely has triggered some internal recriminations at Storage Tech.

* When a lawsuit is "poured out," it generally means the lawsuit was dismissed, in this case, by the granting of summary judgment.

Here's the story:

The Lawsuit

The parties to the lawsuit are well-known players in the tech sector. Storage Technology makes various disk- and tape storage devices, as well as equipment for storage networking and management. Cisco is "the worldwide leader in networking for the Internet," according to its Web site. In late 1999 and into 2000, several of Storage Tech's employees left to join NuSpeed, Inc., a start-up company that opened in January 2000. In September 2000, Cisco bought out NuSpeed for some $450 million in Cisco stock.

(Wait a minute -- in September 2000, long after the tech bubble had burst, the NuSpeed guys got $450 million in stock for their nine-month old company? Wow. Don't be too envious, though. As this chart shows, Cisco's stock price joined the plunge in the months following the acquisition. Depending on how long the lock-up was for -- I couldn't seem to find the acquisition agreement in Cisco's SEC filings -- the NuSpeed people probably didn't net nearly as much as they had hoped.)

Anyway, Storage Tech sued Cisco shortly after the acquisition closed. The gravamen of the lawsuit was that Cisco allegedly had interfered with the noncompete, nonsolicitation, and nondisclosure provisions in the employment contracts of the former Storage employees who had gone to NuSpeed. Three years later (viz., last week), the judge granted summary judgment for Cisco on all counts, largely because Storage Tech had failed to come forward with evidence of actual damages.

Storage Tech's Secrecy Problems

At one point, the judge zeroed in on Storage Tech's supposedly-cavalier treatment of what it was claiming to be trade-secret information:

As to the requirement of reasonable efforts to maintain the secrecy of the information, the [Minnesota Uniform Trade Secrets Act] requires neither the maintenance of absolute confidentiality nor the implementation of specific measures to maintain the secrecy of a trade secret. A plaintiff asserting a misappropriation claim must demonstrate that it undertook some effort to keep the information secret.

Here, Storage used general employee-confidentiality agreements, but such agreements are insufficient to satisfy the statutory requirement. [Editorial comment: That doesn't seem like a correct statement of the law, but maybe the judge was making a specific statement about these particular circumstances.]

Given its rejection early in the product development process, very little information about the SAN Appliance exists. What little information does exist was not the subject of reasonable efforts to maintain its secrecy. For example,

  • the author of the slide presentation did not mark it as confidential because he did not believe the design of the SAN Appliance was confidential, proprietary, or a trade secret. None of the limited documentation of the SAN Appliance was marked confidential.
  • Nor did Storage secure the documentation related to the SAN Appliance. Storage admits that it found the documentation on back-up disks left behind by departing employees. [Editorial comment: It's hard to see how this one example weighs against secrecy.]
  • Moreover, upon the resignation of the slide presentation's author, Storage did not inform him of the secrecy of the SAN Appliance. [Editorial comment: This doesn't sound right at all. It doesn't seem reasonable to expect that an employer, in every exit interview, must go through and list every trade secret that the departing employee is expected to keep secret. But again, maybe the judge was referring to the specific facts and circumstances of this case.]

In short, viewed in the light most favorable to Storage, the record reveals that Storage did not subject information about the SAN Appliance to reasonable efforts to maintain its secrecy.

(Emphasis, paragraphing, and bullets added, citations omitted.)

As you can tell from the editorial comments above, I think the judge probably goofed here. It could be that the judge didn't have sufficient evidence presented about Storage Tech's security system. From the discussion in the judge's opinion, it seems to me that if Storage Tech had the usual corporate security systems in place -- locks on the doors, passwords to access the network, etc. -- the judge should have let the secrecy claim go to the jury. But then I have yet to be appointed and confirmed as a federal judge, so my opinion counts for exactly zero.

The overall tone of the opinion suggests that the judge didn't think much of Storage Tech's trade-secret claim concerning a product proposal that it apparently had never even tried to develop. In all likelihood, he was going to pour out Storage Tech in any case.

Possible Lessons

There are several lessons to be had in this case, but here's a big one: Make an effort to label your confidential documents as "Confidential" or "Proprietary." If you don't, a judge might later use that as an excuse to deny your claim that the documents contain trade secrets -- if you didn't treat the documents like trade secrets, why should the court?

(On the other hand, don't go overboard with your confidentiality stamp -- the credibility of your secrecy assertions may well be diluted if you unthinkingly label the menu in the company cafeteria as confidential.)

October 1, 2003 in Embarrassments / Bad Career Moves, Intellectual Property, Marketing, R&D;, Record-keeping | Permalink | Comments (1) | TrackBack

September 20, 2003

Good Personnel Records Save the Day for A & F

Abercrombie & Fitch fired one of its New York City security supervisors for poor performance. She filed a lawsuit, claiming among other things that she had been fired because she was African-American.

A&F; won the case without even having to go through a trial, primarily because the fired employee's manager had kept good personnel records to document her poor performance over several years.

A&F; moved for summary judgment, which is a judgment without a trial based on undisputed material facts. The purpose of a trial is to establish the facts on which a judgment will be based. If either party can show that the "material" (outcome-affecting) facts are not genuinely disputed, then legally there's no need for a trial, and the judge can simply render judgment.

* * *

It appears that the fired security supevisor's performance wasn't stellar. According to the court's opinion, during one evaluation period the fired supervisor had busted only nine shoplifters and fingered only one employee thief, while others in the same job had busted between 109 and 317 shoplifters. Moreover, in the fired employee's store during that period, the overall theft rate was more than 9%, while the company-wide average was only 5.67%.

* * *

Poor performance, however, didn't necesarily mean that A&F; would win. To defeat A&F;'s summary judgment motion, the fired employee had merely to come forward with at least some non-trivial evidence that A&F; had intended to racially discriminate against her. That would have shown the existence of a genuine issue of material fact. This in turn would have entitled the fired employee to have a jury hear the evidence, evaluate witness credibility, and weigh the conflicting evidence. The jury then would decide whether A&F; had racially discriminated against her.

* * *

In their summary-judgment motion, A&F;'s lawyers wielded a not-so-secret weapon. For several years, the fired woman’s supervisor at A&F; had regularly met with her to review her performance. He had prepared written evaluations showing poor performance, and had provided her with copies. He had also prepared written performance-improvement plans for her, and had gotten her to sign them. All those documents presumably were in the woman’s personnel file. A&F;'s lawyers used them, along with the supervisor's affidavit, in support of A&F;'s motion for summary judgment.

A&F; thus was able to put forward solid, documentary evidence that it had indeed terminated the woman for poor performance. Note that A&F; didn't try to rely solely on its manager's hindsight recollection about the woman's performance, which her attorney doubtless would have characterized as self-serving. Instead, it brought contemporaneous documentary evidence to bear.

* * *

In rulling on A&F;'s summary judgment motion, the judge focused on A&F;'s documentary evidence and its manager's affidavit, and on the fired employee's failure to put forth any substantial evidence of discriminatory intent. The judge ruled that there was no genuine dispute concerning any material fact, and threw out the fired employee's case. (Khan vs. Abercrombie & Fitch, Inc., Sept. 17, 2003)

September 20, 2003 in Doing It Right Pays Off, Leadership and Management, Litigation, Record-keeping | Permalink | Comments (0) | TrackBack

September 17, 2003

Yet Another "You Fired Me Because I Blew the Whistle" Case Settled for Almost $1M

The press is reporting the settlement of yet another wrongful-termination case grounded on a former employee's claim that she was fired for whistleblowing. The employer paid nearly $1 million -- almost half of which goes to the fomer employee's attorney, according to the employer's Web site -- after having spent more than $300K defending the case. See this story at the law.com Web site. This story illustrates the hazards of letting an employee go if the employee had any connection at all with uncovering alleged corporate improprieties.

The story is also a nice opportunity to recall the wisdom of keeping fair and accurate written records to document employee performance. If you're a manager who wants to get rid of a worthless employee, don't believe that your cheery smile and golden voice alone will convince a jury that the employee really did deserve firing. Juries often discount witness testimony, especially by defendants seen as trying to make excuses for their actions. Juries also tend to believe written business records and other contemporaneous documentary evidence. So if you keep decent records about your employees, you'll be better armed if you ever find yourself in a lawsuit -- and good records might even help you be a better boss.

September 17, 2003 in Accounting, Leadership and Management, Record-keeping | Permalink | Comments (0) | TrackBack