1 An Advertising Supplement to the Orange County Business Journal November 19, 2012 LAW SPECIALTIES Sponsored by
2 B-64 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 T he year 2012 has seen a brisk upturn in the number of government and commercial buildings in Orange County that have achieved LEED (Leadership in Energy and Environmental Design) Platinum Certification, the highest level in sustainability excellence awarded by the United States Green Building Council (USGBC). Recent noteworthy examples include UC Irvine s Medical Education Building (Platinum Certification for New Construction) and Jacobs Irvine Office at 3161 Michelson in Irvine (Platinum Certification for Commercial Interiors). In addition, a number of high-profile projects slated to open in 2013, including PIMCO s new headquarters in Fashion Island and the new City of Newport Beach Civic Center on Avocado, also will likely qualify for LEED Certification. At the same time, 2012 has seen a brisk upturn in the number of laws and regulations as well as litigation affecting sustainable building design and environmental marketing. Chief among these is the Federal Trade Commission s newly-revised Guides for the Use of Environmental Marketing Claims, issued on October 11, (16 Code of Federal Regulations Part 260). These laws present new challenges for a building owner and the owner s design team seeking to navigate the changing legal landscape. Basics of LEED LEED s mission is to provide a framework for implementing practical and measurable green building design, construction and maintenance. LEED consists of rating systems, such as LEED Platinum, LEED Gold or LEED Silver. Currently, LEED offers certification for New Construction, Existing Buildings, Commercial Interiors, Core & Shell, Schools and Homes. Advantages of LEED Certification LEED-certified buildings are designed to: Be healthier and safer for occupants Conserve energy and water Reduce greenhouse gas emissions Use building materials with reduced environmental impacts; and Reduce waste sent to landfills Occupants of LEED-certified buildings may enjoy any number of benefits from working in a sustainable building, such having the freedom to open the windows to let in fresh air and greater control of office temperatures. LEED-certified buildings are also often intended to enhance indoor air quality by using fewer building materials containing toxic chemicals. Employers may see locating in LEED-certified buildings as socially responsible and good business, especially when their customers include environmentally aware companies. Employers also may believe that providing a healthy workspace may result in increased employee retention. Owners of LEED-certified buildings may find they have an asset that is able to operate more efficiently, and thus less expensively, and one that may have increased tenant or customer satisfaction. Owners also may be eligible for financial incentives, including tax-exempt bonds and tax credits. LEED-certified buildings also may fetch higher rents. New Federal Trade Commission Regulation Partly in response to concerns about unfounded marketing claims involving LEED certification, the FTC recently promulgated its new Guides for the Use of Environmental Marketing Claims, issued on October 11, This regulation includes a new section on Certifications and Seals of Approval, and cautions that the regulation prohibits not only misleading statements made to the public but also misleading statements made in the course of obtaining the certification. LEED Litigation A claim that LEED-certification was improperly granted to a school in Wisconsin was LEED Legal Alerts by Rick McNeil, Partner and Colin Higgins, Associate, Snell & Wilmer 2012 has seen a brisk upturn in the number of laws and regulations as well as litigation affecting sustainable building design and environmental marketing. the precise issue presented in an appeal filed to the USGBC challenging the LEED Gold Certification awarded to the Northland Pines High School. In that case, the certification was challenged by several concerned citizens as being based on improper energy and indoor air prerequisites. Although the certification ultimately was upheld by the USGBC, the case raised significant questions regarding both the USGBC s review process and the independence of the USGBC. The Northland Pines High School case led to industry concerns that the USGBC nevertheless could decertify a building that had obtained LEED certification, which, in turn, could lead to lawsuits. In California, that concern is particularly acute because of the state s Unfair Competition Law (Business & Professions Code Section 17200), as well as the False Advertising Law (Business & Professions Code Section 17500), the Environmental Marketing Claims Act (Business & Professions Code Section ), common law fraud and other theories of relief. In Hill v. Roll International Corp., 195 Cal. App. 4th 1295 (2011), a consumer brought claims under these laws alleging that Fiji Water had violated the FTC regulation and state law by making false and misleading claims suggesting that Fiji Water had been endorsed as environmentally superior by a third party organization. The Court of Appeal upheld the dismissal of the plaintiff s claim in that case but, in so doing, it reaffirmed the applicability of the Unfair Competition Law to environmental marketing claims based on violations of the FTC regulation. Clearly, claims that LEED certification was improperly obtained or granted could form the basis of a similar claim. Minimizing LEED Liability There are a number of mechanisms an owner can employ to minimize liability for claims related to seeking or obtaining certification under LEED, including the following: Address sustainability certification and continued building performance in contracts with the design and construction professionals Engage a team with experience and expertise in LEED compliance and certification Carefully analyze the claims to be made by the owner s representatives or brokers in marketing the building Consider including appropriate language in leases; and Consider obtaining insurance that will cover claims for negligent misrepresentation Rick McNeil Rick McNeil is a partner in Snell & Wilmer s Orange County office and represents businesses in the defense, aerospace, chemical, energy, waste disposal, manufacturing, food processing, printing, dry cleaning, real estate development and other industries against environmental claims. He has litigated environmental cost recovery (including CERCLA), CEQA, Clean Air Act, Clean Water Act, RCRA and state common law actions, as well as toxic tort cases, environmental insurance actions and environmental criminal matters. Rick has successfully defended parties in cases involving federal Superfund sites, groundwater contamination, product liability and Proposition 65. He counsels clients in air quality, energy, climate change, water quality and hazardous waste compliance. Rick can be reached at or Colin Higgins Colin Higgins is an associate in Snell & Wilmer s Orange County office and concentrates his practice on business litigation in state and federal courts and environmental law. He represents clients in matters involving breach of contract, fraud and other business torts, California s Proposition 65, and various intellectual property litigation cases, including trademark, copyright and patent claims. Colin can be reached at or
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4 B-66 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 The Case for In-Building DAS by William Meehan, Partner and Andrew Lamming, Associate, Rutan & Tucker LLP A s we move well into the second decade of the 21st century, it is clear that wireless communications are not just a modern convenience or trendy gadget, but rather an integral part of the way we live, work and interact. Wireless service is as critical to modern society as other basic services such as electricity, natural gas, water and wired telephone service (perhaps now even more so than wired telephone service). In the 1870s, Alexander Graham Bell had a vision of bringing telephone service to every home and business in America. He recognized that such an elaborate system of wires connecting the country and eventually the planet was impracticable at the present moment but that such grand system would eventually be realized. Though Bell was correct, he faced much opposition for infrastructure investment. That same skepticism and adversity plagued the early pioneers of electricity distribution, such as Thomas Edison. But with time and investment in infrastructure (both private and public), electricity and phone service have become utilities without which no individual or business in America could live or work. Without question, the utility of the 21st century is wireless communications service. Just as the telephone began as a luxury and quickly became a necessary utility, in the near future all Americans will view wireless communication services as a necessary utility. For office buildings, corporate campuses, retail centers and industrial facilities, the best way for an owner or operator to provide this utility is to install a DAS network. What is DAS? DAS is an acronym for distributed antenna system. A DAS network is a group of small antennas working together to transmit wireless signals to improve coverage and reliability in areas where traditional cell towers have trouble reaching users. This type of system is perfect for a building, facility, or campus. Most DAS networks, however, are located in sports arenas, congested downtown areas or rail and subway systems (for example, the New York subway system has its own DAS). Whereas, a cell tower antenna broadcasts over a large geographic area providing limited coverage to a multitude of users, each antenna in the DAS network serves as a mini cell tower broadcasting exceptional signal strength and bandwidth over a much smaller area to only a few users. Why Should Property Owners Install a DAS? There are a number of reasons to have a DAS installed in your building, facility or campus. Among other things, (i) having a DAS improves the marketability of the property by increasing connectivity, (ii) in-building wireless coverage is historically difficult and getting worse with LEED certified buildings, and (iii) a DAS improves the safety of the building s occupants by enhancing emergency services. Better Connectivity Means More Business For a retail shopping center or plaza, a DAS network will dramatically increase connectivity for customers. Heightened connectivity will attract consumers and, therefore, more and better retail tenants. For an office building, we expect that in the next few years no major office tenant will take occupancy of new space without a DAS in place to ensure its employees will have mobile device coverage during the workday. Providing In-Building Coverage is Difficult for Cell Towers Most wireless calls are made indoors, and with the growth of smart phones, the need for data availability is increasing exponentially. In contrast to a car or outdoor area, wireless coverage inside buildings is historically difficult to obtain from a traditional cell tower. Further, more and more buildings are being constructed or retrofitted to Leadership in Energy and Environmental Design (LEED) specifications, which results in the usage of certain materials such as low-emission glass that are less conducive to a wireless signal. As such, unless the building has a DAS on-site, inbuilding wireless signal strength will be progressively weakened in the months and years to come. Better Connectivity May be Required by Law An in-building DAS increases the safety of the building s occupants. In cases of emergency, a DAS network facilitates indoor 911 calls and is better equipped to handle the multitude of simultaneous calls that would otherwise overwhelm the available wireless coverage. It also provides first responders with improved communication. Public safety personnel such as firefighters and policemen require a reliable wireless network to communicate whether by voice or by data content. This is especially true in critical areas such as stairwells, where unaided radio frequency signals are weakest. For these reasons, in-building amplification systems are already being required in certain municipalities. In 2009, two national fire codes the National Fire Protection Association s NFPA-1 and the International Fire Code addressed the need for an inbuilding system such as a DAS network. These codes are adopted in municipalities across the country. One notable example is Clark County, Nev., which last year adopted and expanded on Appendix J of the IFC to require amplification systems, such as a DAS network, to achieve the required level of radio coverage. We expect this trend to continue and ultimately become a requirement under all municipal fire codes. Will the Wireless Carriers Come Calling to Pay for Your DAS? No time soon unless you own an airport, a large shopping center or sports arena. Carriers have demonstrated an increased reluctance to finance the installation of DAS in office buildings, retail locations and corporate campuses, as they seek to concentrate their efforts only on the most high-profile targets. The costs to install and operate the DAS networks are significant and typically cannot be justified by the wireless carriers from a return on investment perspective. As a result, although the carriers may install and operate a DAS in stadiums and airports, the costs cannot be justified for those locations where people live, work and shop daily. As a result, the major carriers will not agree to broadcast on your DAS network unless the cost to them is minimal. If Not the Carriers, Who Will Pay for the Installation, Operation and Maintenance of This Much Needed Infrastructure? Under the terms of most commercial leases, the tenants. Most commercial leases permit the owner to pass through the cost of operating and maintaining the building to the tenants in the form of additional rent. Despite the infinite variety of pass-through arrangements, as well as the fact that such clauses are often heavily negotiated, there are remarkably few appellate cases interpreting pass-through clauses. Commentators have attributed this to the fact that the parties, knowing they are bound to a long-term lease relationship, elect to negotiate rather than litigate. Nonetheless, with careful structuring, building owners should be able to install, operate and maintain a DAS at little or no out-of-pocket cost by passing the costs onto their tenants (who are the real beneficiaries of the improved wireless service). Many existing leases will define common area maintenance (CAM) expenses broadly enough to include an ongoing expense of a DAS. Under the terms of the AIR Standard Multi-Tenant Office Lease Net (2012), Lessee shall pay to Lessor...Lessee s Share of all Operating Expenses. The term Operating Expenses includes all costs incurred by Lessor relating to the ownership and operation of the Project,...including, but not limited to...communication systems and other equipment used in common by, or for the benefit of lessees or occupants of the Project. In addition, there is a catch-all provision that sweeps in the costs of maintaining all other areas and improvements that are within the exterior boundaries of the Project but outside of the Premises. Such language is broad enough to include the ongoing expenses of a DAS network incurred by a building owner. Leases with larger landlords may be even more specific by explicitly naming the costs of maintaining and replacing intrabuilding cabling and wiring as CAM expenses. There May be Some Limitations Even under well structured DAS purchase or financing arrangements, if the lease is a so called gross lease, there may be limitations on the pass-through nature of DAS expenses. In some gross leases, the tenant may have negotiated a provision where new categories of expenses that arise in subsequent years are added to the base year rather than treated as an increase over the base year (the argument being that increases are designed only to account for inflationary increases). This may prevent the landlord from passing through DAS costs without first obtaining tenant approvals. There may also be certain exclusions and limitations that need to be carefully considered. Many of these limitations, however, will not apply if the DAS transaction can be structured such that the costs are classified as a utility charge. Are DAS Costs a Utility Charge? We believe they can be, under certain structures. If the DAS infrastructure is paid for by the DAS provider, and the wireless communication service is sold back to the building as a utility, we believe substantially all commercial leases would cover this charge as a tenant utility expense. Utilities are sometimes handled under separate sections in the lease but are nonetheless treated as pass-through expenses. In order to appropriately structure the transaction, the DAS provider would ideally be a licensed competitive local exchange carriers (CLECs) with the transaction structured as a utility easement in gross, coupled with a utility service agreement provided by the CLEC for a fixed term (with optional renewals). Under this arrangement, the costs of installation, maintenance and provision of the system can be paid over a period of years to deliver the DAS provider its required return on investment and the property owner its desired in-building DAS as a current utility charge. Not only does this structure further reinforce the pass-through nature of the expense by characterizing it as an ongoing operational expense, but also it better tracks the real characterization of wireless communication service as a utility. continued on page B-72 William Meehan William Meehan is co-chair of the Banking and Finance Group and a partner in the firm s Corporate Section where he has extensive experience in finance transactions. He represents institutional lenders, finance companies, debt funds and private equity funds in a variety of both debt and equity transactions. Mr. Meehan is also a partner in the firm s Real Estate Section and his practice includes all aspects of real estate transactions, including acquisitions, sales, development, joint ventures. He can be reached at or Andrew Lamming Andrew Lamming is an associate in the firm s Real Estate Section. His practice includes representing developers and lenders in many aspects of real estate transactions, including real estate secured financings, acquisitions, title review and due diligence analysis. He can be reached at or
5 NOVEMBER 19, 2012 LAW SPECIALTIES Advertising Supplement ORANGE COUNTY BUSINESS JOURNAL B-67
6 B-68 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 Forty-Five Days and Counting: Should You Gift Now or Wait for Congress to Act on the Estate & Gift Tax Laws? by Renee M. Gabbard, Partner and Megan S. Acosta, Associate, Paul Hastings LLP T he estate and gift tax laws are scheduled to change on January 1, 2013 reducing the lifetime estate and gift tax exemption amount from its 2012 level of $5,120,000 per person ($10,240,000 per married couple) to $1 million ($2 million per married couple). The exemption for the generation-skipping transfer tax will also decrease from its 2012 level of $5,120,000 ($10,240,000 per married couple) to a base level of $1 million per person ($2 million per married couple), indexed for inflation from While Congress could still act to avert some or all of the changes, the current political landscape makes the likelihood of any action before January 1, 2013, uncertain. This article offers a last-minute checklist approach for individuals to determine whether they should be taking steps to mitigate the potential impact of the scheduled changes to the estate and gift tax laws. Can I Afford to Make a Gift Now? It is important to understand the specific urgency surrounding the estate and gift tax laws. The opportunity to transfer greater than $1,000,000 per person ($2,000,000 per married couple) tax-free may expire on December 31, Beginning January 1, 2013 (assuming no changes to the law), individuals will be able to transfer up to $1,000,000 per person ($2,000,000 per married couple) tax-free during lifetime. Thus, while it is generally advantageous to remove an asset from your estate earlier than later so the appreciation on such asset grows outside of your estate, it is not necessarily urgent for you to make a gift less than $1,000,000 per person ($2,000,000 per married couple) prior to year-end. Under the current law, you will still have the opportunity to transfer up to $1,000,000 per person ($2,000,000 per married couple) tax-free in We often advise clients not to allow the tax tail to wag the dog. Before making a decision to transfer a significant portion of your wealth, you should consult with a financial advisor regarding your balance sheet to determine that you have sufficient assets to maintain your desired lifestyle for the remainder of your lifetime, taking into account the risks of inflation, rising health care costs, among other considerations. The Time-Efficient Gift Plan: The All Cash Gift in 2012 Followed By an Asset Substitution in 2013 The simplest way to take advantage of the current high gift and estate tax exemption is to make a significant gift to a grantor trust created for a spouse, child or grandchild, other beneficiary or a combination of beneficiaries. Transactions between an individual (the grantor ) and a grantor trust are ignored for income tax purposes, but a grantor trust is still a separate legal entity for estate and gift tax purposes. Thus, a grantor trust provides an estate planning benefit because the income tax consequences are similar to the grantor making a gift-tax free transfer of the income taxes to the grantor trust each year thus allowing the assets in the grantor trust to grow undiminished by income tax payments. While assets expected to highly appreciate are best for outright gifts to grantor trusts, a gift of such assets may require significant planning time and the involvement of several third parties such as independent appraisers. Given the short period of time to effectuate a gift before year-end, a gift of cash or publicly traded securities to a grantor trust may be the best option, or, in fact, your only option at this time. continued on page B-70 Renee Gabbard is a partner in the Tax practice of Paul Hastings, leads the West Coast Private Client practice serving clients in Orange County, Los Angeles, San Diego, San Bernardino and the Bay Area, and is based out of the firm s Orange County office. Her areas of practice include all aspects of income, capital gains, gift and estate tax planning, charitable planning, advanced wealth and business succession planning, capital gains tax deferral techniques, acquisition, sale and liquidity planning, private corporate structuring, asset freeze techniques, family office planning, insurance planning, trust tax planning and trust administration. Contact Renee at or Megan Acosta is an associate in the Tax practice of Paul Hastings and is based in the firm s Orange County office. Ms. Acosta provides advice to small to large business owners, high net worth individuals and families, privately held businesses, philanthropists and tax-exempt organizations on income, capital gains and gift and estate tax issues; tax deferral techniques; acquisition, sale and liquidity planning; asset freeze techniques; family office planning; insurance planning; trust tax planning as well as probate and trust administration matters. Much of her practice involves business succession and wealth planning for high net worth individuals and families with concentrated stock and/or real estate positions in the U.S. and abroad. Contact Megan at or
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8 B-70 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 There s a New Cop in Town! by John J. Giovannone, Shareholder, Greenberg Traurig LLP F or many years, transactions known as SWAPS have been largely unregulated. Those days are gone. One of the many things the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act ) did was to give jurisdiction over SWAPS to two agencies. Jurisdiction over interest rate and foreign currency swaps was delegated to a little known (at least in Orange County) federal agency, the U.S. Commodity Futures Trading Commission (the CFTC ). 1 If you have taken out a significant loan from a bank in the past few years, you probably know what an interest rate swap is because your bank has probably required you to enter into one to protect yourself from interest rate fluctuations. And if you raised money in any type of syndication to provide the equity base to obtain that loan, you are now more than likely subject to regulation by the CFTC. And regulate you they will. Under the Commodity Exchange Act (the CE Act ), a commodity pool is defined to mean any syndicate or similar form of enterprise operated for the purpose of trading in commodity interests regulated by the CFTC, which now include interest-rate or foreign currency swaps. The CFTC takes a very expansive view of this definition, and the use of a single swap can make a real estate investment fund or syndication a commodity pool in the eyes of the CFTC. A real estate developer or other sponsor who sets up and manages a fund is a commodity pool operator (a CPO ) if the pool uses interest rate swaps. Those who advise commodity pools and their CPOs are commodity trading advisers ( CTAs ). Both CPOs and CTAs are generally required to register with the CFTC through the National Futures Association ( NFA ). Registration triggers a host of additional CFTC rules regarding such things as disclosure and reporting obligations to their investors, how a pool must calculate and report its performance, filing of the fund s private placement memorandum electronically with the NFA at least 21 days in advance of its use, and detailed record-keeping. The rules that apply to the required content of a fund s offering documents are themselves many pages long. There are a variety of exemptions which the CFTC has made available from these registration requirements, but unlike some SEC exemptions, a filing is necessary to claim the exemption. The most flexible exemption that most private pools relied upon in the past, Rule 4.13(a)(iv), was repealed by the CFTC in April of this year. 2 The remaining exemptions are much more restrictive and, because they are not self-executing, funds and their CPOs and CTAs must file notice that they are claiming the exemption. For example, under CFTC Rule 4.13(a)(3), a person is not required to register if the only fund they manage satisfies the following criteria and they file a claim for the exemption provided by that rule: 1. Participations in the fund are exempt from registration under the Securities Act of 1933 and not marketed to the public in the U.S.; 2. At all times the aggregate net notional value of the fund s swaps do not exceed the liquidation value of the fund; 3. The person reasonably believes that all of the investors in the fund are accredited investors under SEC Regulation D or meet certain other criteria. The person who manages the fund must also observe certain marketing restrictions and make certain disclosures to prospective investors in the fund. The person seeking exemption must file a notice of exemption with the NFA and annually renew that notice. Unfortunately, this exemption is only available to managers of funds which have a loan to value ratio at the time the put their interest rate swap in place of no more than one to one. This is due to the net notional value ceiling listed in item #2 above. The CFTC publicly announced that it would not take action against fund sponsors who fail to register as CPOs until October 12, That no-action position was extended recently to December 31, 2012 for fund managers and advisors who would fall within the definition of a CPO or a CTA solely because of their use of swaps if, among other things, the manager or advisor files for registration by that date. Note that this no-action relief only applies if the manager or advisor ultimately applies for registration and not another exemption. At the same time, the CFTC granted interpretative relief to publicly traded real estate investment trusts, but that relief does not extend to private offered real estate funds. In short, CFTC regulation is less than two months away for real estate funds which use swaps to protect against interest rate fluctuations. So all real estate syndicators should determine whether they use swaps, and if they do, then either file for exemption from registration with the NFA (which may well require restructuring of their debt to equity ratios and their relationships with their banks), or apply for registration with the CFTC through the NFA before the end of the year. 1 Regulation of securities-based SWAPS has been given to the U.S. Securities and Exchange Commission. The two agencies are required to work together to adopt uniform rules governing SWAPS. 2 A CPO which had claimed the exemption under 4.13(a)(4) prior to its repeal has until 12/31/2012 to comply with the new registration requirement or file for another exemption. Funds formed after 7/10/12 may also be eligible for no action relief until 12/31/12 under certain conditions. John J. Giovannone John J. Giovannone, a GT shareholder located in Orange County, has more than 30 years of legal experience in a wide range of corporate and securities matters. His experience spans several public and numerous private securities offerings, venture capital financings, fund formation, including hedge funds and commodity pools, a large number of public and private mergers and acquisitions, the representation of foreign investors in U.S. businesses, securities workouts and rescission offers, bankruptcy, franchise matters, securitizations, derivative instruments (including commodities transactions) and REIT representation. One of the main areas of his practice is representing clients before the SEC, the Commodity Futures Trading Commission, FINRA and the National Futures Association, both on regulatory compliance and enforcement matters. Contact John at or About Greenberg Traurig LLP Greenberg Traurig LLP is an international, full-service law firm with approximately 1,750 attorneys serving clients from 35 offices in the United States, Latin America, Europe, the Middle East and Asia. In the U.S., the firm has more offices than any other among the Top 10 on The National Law Journal s 2012 NLJ 250. For additional information, please visit FORTY-FIVE DAYS AND COUNTING... continued from page B-68 One of the many benefits of using a grantor trust is the ability of the grantor to substitute the assets of the grantor trust with property of equal value without any income tax consequence. Thus, an individual who makes a gift of cash to a grantor trust in 2012 may substitute the cash of the grantor trust with highly appreciating assets in the future. Such flexibility affords individuals the opportunity to take advantage of the current expiring gift and estate tax laws while providing them with additional time to determine how to properly leverage their gift and estate tax exemptions. Conclusion Because of these unique circumstances, an individual could, in 2012, take advantage of what is possibly a one-time opportunity to transfer over $5,120,00 in wealth without incurring either gift or generation-skipping transfer taxes. Further, these gifts could save estate taxes because they remove post-gift appreciation on and possibly income from the gifted assets from the donor s estate. If you are interested in discussing the options for a year-end gift, please do not hesitate to contact us. Circular 230 Disclosure: To ensure compliance with the U.S. Treasury Regulations governing tax practice, you are hereby advised that any written tax advice contained herein was not written or intended to be used (and cannot be used) by any taxpayer for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.
9 NOVEMBER 19, 2012 LAW SPECIALTIES Advertising Supplement ORANGE COUNTY BUSINESS JOURNAL B-71 Ensuring a Silent Night: Reducing the Risks of the Office Holiday Party by Michael J. Studenka, Esq., Partner, Newmeyer & Dillion LLP C ompanies throughout the county are busy planning their holiday office parties. While holiday parties can be great for developing camaraderie and celebrating annual accomplishments, they can also expose the company to increased employer liability. By understanding where those risks lie, and what steps can be taken to mitigate them, an employer can better protect itself during this holiday season. Too Much Egg Nog: Alcohol-Related Liability It s hard to separate alcohol from holiday parties. Unfortunately, it s also hard to separate diminished judgment from intoxication. This foreseeability becomes relevant under California law when an intoxicated employee driving home from a holiday party injures a third party. California law exposes an employer to liability for tortious conduct of its employees when the tortious conduct is committed within the scope of the employee s work. The employer s liability exists whether or not the employer is negligent or has control over the employee at the time of the injury. California cases have already found a sufficient nexus between an employer s holiday party and an employee s automobile accident for the purposes of holding the employer liable for the injuries sustained by a third party in the accident. Employees injured in the course of their employment are also entitled to receive workers compensation benefits. Off-duty social activities (e.g., the holiday party) that are expressly or impliedly required by the employer are covered by these benefits. In fact, the California Supreme Court has previously determined that an employee killed while driving home drunk from an office holiday party entitled the employee s wife to workers compensation benefits. Faced with liability to its employees and third parties as well, employers planning to conduct a holiday party should take proper steps to mitigate the risks related to alcohol. The employer should disseminate its policy regarding alcohol and substance abuse to all of its employees in the weeks leading up to the party. Supervisors should not only be reminded of the policy, but re-trained on the proper handling of violations of the policy. Rehearse the most-likely scenarios with your supervisors so that they are well prepared to address them at the time of need. Employers should consider designating certain senior supervisors to oversee the event, remaining sober and vigilant during the party. Employers should also consider holding the event at an off-site location such as a restaurant or hotel. Taking the employer out of the role of bartender helps minimize liability. To help limit consumption, an employer should consider the use of drink tickets (i.e., two per attendee) if they plan on having an open bar. Consider hosting the event during the day. However, if the holiday party is to be an evening event, the employer should make sure that there is a set ending time which will be enforced (nothing good happens after midnight ). The schedule should include closing the bar an hour or more before the end of the event. There should also be plenty of food and non-alcoholic beverages available. Employers should consider offering taxi vouchers or a shuttle service to reduce the number of attendees getting behind the wheel. Lose the Mistletoe: Sexual Harassment Holiday parties typically generate a surge of sexual harassment complaints, as employees too often lose their inhibitions while drinking alcohol in a festive environment. It is well established that the office holiday party is part of the working environment when analyzing a hostile work environment claim. Thus, unwelcome sexual conduct at an office party that is sufficiently severe or pervasive can constitute sexual harassment. And in California, an employer is strictly liable for sexual harassment committed by a supervisor. The threat of sexual harassment occurring during the holiday party is real. To avoid a sexual harassment complaint, employers should consider the following ideas for their holiday parties. It starts with proper training on the company s sexual harassment policy. In the weeks leading up to the holiday party, employers should re-publish and train all employees on its sexual harassment policy. The training should include a discussion of the upcoming holiday party, reinforcing the idea that the same rules regarding harassment will apply at the event. To help curb inappropriate behavior at the party, employers should consider inviting spouses and significant others to the event. Secret Santa gifts exchanges can be problematic, especially without established rules prohibiting sexually charged gifts. Employers should refrain from putting up the mistletoe it is likely to incite unwelcome sexual behavior. And finally, the employer should promptly investigate any complaint of harassment that is made. Michael Studenka Michael Studenka is a litigation partner in Newmeyer & Dillion LLP s Newport Beach headquarters. His employment practice centers on defending employers in matters relating to wrongful termination, discrimination, harassment, retaliation, wage and hour complaints, and employee embezzlement. Mr. Studenka also advises employers on proper employee handbooks and personnel policies, employment contracts, reductions in force, wage and hour issues, and employee terminations. He frequently trains employers in many areas of employment law, including California s required AB 1825 sexual harassment training. Mr. Studenka can be reached at or via at
10 B-72 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 An Inconvenient Truth for California Corporations by Daniel J. Kessler and Joshua A. Waldman, Burkhalter Kessler Clement & George LLP T his article poses a simple question does California law permit an entity to recover damages for inconvenience it suffers due to another s tort. California law certainly permits an individual to recover damages for the inconvenience that he or she suffers due to another s tort. By way of example, if your plumber s negligence caused your house to flood, you would have a right to compensation from your plumber for both the cost to fully repair your home, as well as for the inconvenience you suffered for merely having to deal with the flood. However, what if that same plumber s negligence caused a flood at a corporation s facility? Is that corporation entitled to the same inconvenience damages as a person? Kessler To illustrate, consider the following case Burkhalter Kessler Clement & George recently tried in Los Angeles Superior Court. BKCG s client owns and operates a car dealership in Southern California. This car dealership stored its new vehicle inventory on an off-site lot next door to an oil company that operates oil rigs. One day, a the oil company s negligence caused a rig to spew an oily pollutant in the air and all over the dealership s storage lot, drenching 149 new vehicles awaiting sale. The pollutant geyser wreaked tremendous havoc on the dealership and forced its employees and managers to devote hundreds of hours to cleaning and repairing the 149 vehicles so they could ultimately be sold. This process required the dealership s employees to diagnose the vehicles damage, order replacement parts, transfer the vehicles to and from the dealership s service bays from the off-site lot, repair the vehicles, and transport the vehicles to and from a body shop for paint work. As a result, the entire focus of the dealership shifted away from selling and servicing cars to cleaning up the enormous mess caused by the oil company s geyser. To put it lightly, the geyser caused the dealership s employees and managers to suffer an enormous amount of inconvenience. Of course, California law enabled the dealership to recover damages from the oil company under several tort theories of liability, including nuisance and trespass and recover all of its out of pocket costs caused by geyser, such as the cost to buy replacement parts and the additional labor expense incurred to repair the vehicles. The law also allowed the dealership to recover its lost profits suffered as a result of the geyser. But, the question remains may the dealership, owned by a corporation, recover anything to compensate it for the inconvenience it endured when the geyser turned its business operations upside down for months? Surprisingly, the answer to this question under California law is that there is no answer. Presently, no California case or statute has ever addressed whether an entity may recover damages to compensate it for inconvenience caused by another s tort. The absence of authority on this issue in California does not mean that no court has ever addressed the question. To the contrary, courts in Arkansas, Oklahoma, and West Virginia uphold a corporation s right to recover damages for inconvenience. Notably, so did the highest court in the land way back in In the case of Baltimore & Potomac R.R. Co. v. Fifth Baptist Church, 108 U.S. 317, , 2 S.Ct. 719 (1883), the U.S. Supreme Court addressed this question and concluded that a corporation has the right to recover damages for annoyance, which is akin to inconvenience, because corporations are but Waldman associations of individuals The issue is not settled, however. Lower courts in Louisiana and Texas concluded that corporations may not recover damages to compensate them for inconvenience. As one federal district court put it, [a]s an entity designed to produce profits, the only type of loss a corporation can suffer is economic. A corporation cannot be inconvenienced. Walle Corp. v. Rockwell Graphics, 1992 WL (E. Dist. LA, 1992). Given the absence of controlling authority in California and the inconsistent rulings among the jurisdictions that have opined on this issue, it is difficult to predict whether a California trial court would allow a corporate plaintiff to seek inconvenience damages or not. In BKCG s case, BKCG persuaded the trial court that inconvenience damages were appropriate, despite the absence of controlling California law, and the jury awarded BKCG s client substantial inconvenience damages. Whether other California courts would rule similarly in future cases remains an open question. Daniel J. Kessler Partner Dan Kessler is the head of the firm s litigation department and one of the firm s founding partners. Mr. Kessler has litigated and tried a wide variety of business cases ranging from development disputes to fraud to water rights. Mr. Kessler has secured multiple million-dollar jury verdicts for his clients, including significant punitive damage awards. In 2008, Mr. Kessler prevailed on a motion to dismiss the opposition s case in its entirety in a high-profile Orange County development trial. Mr. Kessler is a strong advocate for alternative dispute resolution, as well, participating both as an advocate, and a neutral mediator. Mr. Kessler has lectured on mediation at the Straus Institute for Dispute Resolution at Pepperdine University School of Law. Mr. Kessler also serves as an adjunct professor of law at Whittier Law School, teaching trade secrets. Joshua Waldman Associate Joshua Waldman is an associate in BKCG s litigation department. Mr. Waldman represents clients in all aspects of business litigation, and has experience in a variety of matters including breach of contract, tortious interference claims, and intellectual property disputes, among other legal issues. He can be reached at or THE CASE FOR IN-BUILDING DAS continued from page B-66 Will Tenants Object? We don t think so. Tenants are unlikely to object to the increase in pass-through charges because (i) such increases are likely to be marginal and (ii) they are the direct beneficiaries of improved coverage. Don t Go It Alone Owners should consider installing a DAS through a well-established wireless network infrastructure provider, as this offers several advantages over contracting directly with technicians. For one, direct contracting is more likely to be characterized as a capital improvement, which may require the consent of tenants and may require the costs to be amortized when passing them through. In addition, a DAS is only valuable to the extent carriers agree to use it, and carriers have strict requirements regarding signal strength and reliability. An experienced wireless network infrastructure provider will have existing relationships with the major carriers to ensure that those carriers join the DAS network to maximize its effectiveness. The wireless network infrastructure provider will also maintain the DAS, ensure certain levels of performance required by the carrier agreements, and cover incremental staffing costs to perform monitoring, maintenance and optimization work. Lastly, property owners should consult counsel familiar with DAS networks and commercial leasing to ensure their existing leases permit them to pass through DAS costs and to further understand the risks and advantages of an in-building DAS.
11 NOVEMBER 19, 2012 LAW SPECIALTIES Advertising Supplement ORANGE COUNTY BUSINESS JOURNAL B-73
12 B-74 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 Computer Software: Owned or Licensed? by David Sugden, Managing Shareholder, Call & Jensen I ntroduction During the summer of 1787, James Madison and Charles Pinckney worked on proposals to address the enumerated powers of Congress over intellectual property rights. While there is no record to explain how the exact words were selected, it is safe to assume that the Framers did not have ebay or executable source code on their minds when they settled on the following: To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries. U.S. Const. art. I, 8, c. 8. Still, in the simplicity of the language chosen, the words express an intended balance between the conflicting interests of copyright holders, who want exclusive rights over their creations, and the public, who want to promote an efficient exchange of information. As technology has advanced over the years, lawmakers and judges have wrestled with how to adequately strike this balance. In the case of computer software, this endeavor has proven to be especially difficult. In the paragraphs that follow, this article provides a broad overview of how copyright law has been applied to computer software and how today, there is tension (some might say inconsistency) among the various circuit courts in their application of various copyright doctrines to copyright law. Copyright Holders Rights To easily understand the policy behind the rights of a copyright holder, put yourself in the shoes of John Grisham. While his success as novelist is well known today, Grisham was not an overnight success. His first book, A Time To Kill, was picked up by a small publisher and Grisham himself tried to sell unsold copies at flea markets and from his car. It was not until his second novel The Firm that Grisham enjoyed success. As the author, John Grisham is the copyright holder of his stories. As a result, he holds various exclusive rights, including the right to distribute his works and create derivative works. For example, Scott Turow could not write his own sequel to The Firm without infringing Grisham s rights. The reason for this is obvious: The law wants to adequately incentivize authors and inventors to promote the progress of science and useful arts. Exception to These Rights: The First Sale Doctrine. One exception to a copyright holder s exclusive rights is the first sale doctrine. The doctrine was first articulated by the Supreme Court in 1908 in Bobbs-Merrill v. Straus. See 210 U.S The publisher, Bobbs-Merrill, had inserted a notice in its books that any retail sale under $1.00 would constitute an infringement. The defendants, who owned Macy s department store, disregarded the notice and sold the books for 89 cents. The Court held that copyright law, did not create the right to impose...a limitation at which the book shall be sold at retail by future purchasers, with whom there is no privity of contract. Id. at 350. The Court s ruling established what came to be known as the first sale doctrine, which was later codified as 109(a) of the Copyright Act of Exception to These Rights: The Essential Step Doctrine. With the advent of computer software, courts struggled to determine the adequate level of protection. In very general terms, copyright law protects computer software; such protections have been expanded to include operating systems and nonliteral elements of software. See Apple Computer Inc. v. Franklin Computer Corp., 714 F.2d 1240 (3d Cir. 1983); Computer Assocs. Int l Inc. v. Altai, Inc., 982 F.2d 693 (2d Cir. 1992). One of the challenges that computer software presents is analyzing a copyright holder s exclusive right to reproduce their work. See 17 U.S.C. 106(1). The policy behind such protection is to ensure that an author is adequately rewarded for his effort. Using the Grisham example above, it would be an obvious injustice for a shopper to buy a single Grisham novel, make several thousand copies at a local Kinko s, and then sell copies of that Grisham novel on ebay. While the first sale doctrine would preclude Grisham from having any control over this shopper selling his purchased book (at any price), Grisham would have an infringement claim over the Kinko s-produced copies. When it comes to software, however, the exclusive right to reproduce becomes a little tricky. The Ninth Circuit case of MAI Systems Corp. v. Peak Computer Inc., 991 F.2d 511 (1993) examined the issue in the context of a computer repair company. Peak was a computer-servicing company that maintained computer systems for its clients by performing routine maintenance and emergency repairs. When it provided such services for owners of MAI computers, it caused MAI s operating system to be loaded from the hard disk into the computer s random access memory ( RAM ). MAI alleged that Peak infringed MAI s copyrights because it unlawfully reproduced copies of its software. Because the mere operation of a computer can copy software, 17 U.S.C. 117 allows for such copies so long as they are made as an essential step in utilizing the software. Peak lost its case because could not avail itself of the essential step doctrine because (1) the defense only applies to owners of software, and (2) it did not own the MAI software (section 117 was later amended to apply to computer maintenance copies like Peak). License Versus Ownership Because the first sale doctrine and the essential step doctrine apply only to owners of copies, a threshold question in software cases is whether the defendant is an owner of software or whether he is a mere licensee. The method in which courts have answered this threshold question is not consistent and has led to differing results. For example, in Krause v. Titleserv Inc., 402 F.3d 119 (2005), the Second Circuit considered whether the plaintiff Krause was an owner or licensee of software he wrote. Specifically, Krause was a consultant that developed software for defendant Titleserv. Before terminating the consulting relationship, Krause entered into an oral agreement with the CEO of Titleserv that the software would remain his, that Titleserv would have a license, and that Titleserv could not transfer it. There were other restrictions and, to ensure compliance, Krause retained the source code of his program. When Titleserv wanted to make changes by adding names to the database and cleaning up bugs, Krause sued based on the alleged copying of his programs and its production of derivative works. In analyzing whether Titleserv could avail itself of the essential step doctrine, the court examined whether Titleserv owned the copy or was a mere licensee. The Krause court examined the totality of circumstances and held that Krause had indeed transferred ownership. The Court reasoned that seem[ed] anomalous for a user whose degree of ownership of a copy [was] so complete that he may lawfully use it and keep it forever, or if so disposed, throw it in the trash, to be nonetheless unauthorized to fix it when it develops a bug, or to make an archival copy as backup security. Id. at 123. There was a different holding in Vernor v. Autodesk Inc., 621 F. 3d 1102 (9th Cir. 2010). In Vernor, the plaintiff used ebay to sell copies of the defendant Audodesk s copyrighted software program. The plaintiff had purchased his copies from an architecture firm. After Autodesk invoked the take-down provisions of the Digital Millennium Copyright Act ( DMCA ), Vernor sued, alleging that the first sale doctrine protected his conduct. The Ninth Circuit announced a three-part test to determine whether the architecture firm owned or licensed the software (if it was a mere licensee, it had no right to transfer ownership to Vernor): (1) whether the copyright owner specifies that a user is granted a license, (2) whether the copyright owner significantly restricts the user s ability to transfer the software, and (3) whether the copyright holder imposes notable use restrictions. Applying this test to the facts, the Ninth Circuit concluded that the architecture firm was a mere licensee and therefore Vernor could not avail himself of the first sale doctrine. While Vernor mentioned the holding of Krause, it did not acknowledge the contrasting analysis. For example, if the Ninth Circuit applied its test to the facts in Krause, it would have reached a contrary result. Perhaps the way to reconcile the holdings is to limit each case to the defense raised. In other words, Krause makes sense in the context of the essential step doctrine while Vernor makes sense when considering the first sale doctrine. Until this ambiguity is resolved, it is important to consider the language and factual backdrop of license agreements. David Sugden David Sugden is the managing shareholder of Call & Jensen. Mr. Sugden specializes in intellectual property litigation and was recently recognized as one of California s Top Twenty Attorneys Under Forty by California s Daily Journal. Mr. Sugden is also the author of Gray Markets: Prevention, Detection & Litigation (Oxford 2009). Mr. Sugden can be reached at or
13 NOVEMBER 19, 2012 LAW SPECIALTIES Advertising Supplement ORANGE COUNTY BUSINESS JOURNAL B-75 The Pitfalls of Boilerplate Commercial Arbitration Agreements by Dean Zipser, Becca Wahlquist and Adina Witzling; Partners; Manatt, Phelps & Phillips LLP W hen it comes to commercial arbitration agreements, there is no one size fits all. Yet, frequently, such provisions are simply copied from contract to contract. As commercial litigators, we see this at the back-end, after a party needs to employ the arbitration provision. That is a bad time to find out that the agreed-upon arbitration is far from ideal. The effectiveness, speed and expense of any commercial arbitration will turn on the provisions in the parties arbitration agreement. This article discusses six important considerations for crafting that provision. Number One: Is Arbitration Desirable? The primary question to be considered is, of course, should there even be arbitration. There are many factors here, including the following: 1. Cost. Arbitration can be, but isn t always, less expensive than court litigation; oftentimes it depends on the provisions of your arbitration agreement. 2. Confidentiality. If confidentiality is important to you, that consideration would weigh in favor of including an arbitration provision. 3. Scope. You may only want arbitration for certain claims; e.g., arbitrate claims for damages but carve out injunctive claims. 4. Finality. You need to decide how important it is to preserve appellate rights, as there are very limited challenges available to an arbitration award. These and other basic considerations should inform whether you want to arbitrate some or all of the parties disputes. The question then becomes: How best to construct a commercial arbitration provision? additional provisions could elongate the time to resolution, they could also moot the need for formal arbitration altogether, thereby truncating the process. Number Four: Consider Arbitration Logistics It is also important to draft any desired logistical elements into the arbitration provision, including the following: The number of arbitrators. Generally, parties specify a single arbitrator, or three arbitrators, as well as the selection process. Why have three arbitrators for a $25,000 dispute? Consider assigning multiple arbitrators only at certain price points. Qualifications or identity of the arbitrator. Do you want to require the arbitrator to have special training? Would you prefer a retired judge? If so, say so in your provision. The arbitration provider. You may want to select a particular arbitration provider (which does not have to be the same provider as your chosen arbitration rules). Don t blindly pick a provider without ensuring that they can provide services within your geographic location without additional travel expenses. continued on page B-84 Number Two: Do You Want to Use Different Procedures for Different Issues or Price Points? It is very important to be familiar with the procedures of the arbitration provider you specify. If, for example, you simply invoke the Commercial Arbitration Rules of the American Arbitration Association ( AAA ), then the AAA automatically uses different rules depending on the amount at stake. You may want to use your own different price points; e.g., you might want to carve out disputes under $20,000 and specify that they will be heard in a telephonic, twohour hearing with limited briefing. Or you might want to specify that if any arbitrator awards a party in excess of $100,000, then the dispute can be challenged through appellate arbitration. Or you may decide that you would like disputes under $300,000 heard by one arbitrator, while disputes over $300,000 are heard by a three-arbitrator panel. There are many possibilities to consider but they must be considered when the arbitration provision is being negotiated. Number Three: Should You Include Informal Dispute Procedures? Another thing to consider is whether or not you want to require any specific dispute resolution procedures before binding arbitration. Arbitration provisions frequently include a pre-demand notice procedure before an arbitration demand can be filed, thereby allowing the parties time to attempt to work things out informally. But you could add other required steps that must be taken prior to initiating arbitration, such as a conference call between specified party executives. While such Dean Zipser, Becca Wahlquist and Adina Witzling Dean Zipser, Becca Wahlquist, and Adina Witzling are partners in Manatt s Litigation Division and they represent clients in complex commercial litigation. They also regularly counsel clients in connection with efforts to avoid or minimize the risks of litigation and have extensive experience in alternative dispute resolution procedures. They can be reached at: Dean, Becca, and Adina,
14 B-76 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 What to Consider with New Hires by Charlene Nichols, President/CEO, Loan Administration Network Inc. (LANI) W hen preparing to hire new employees, having a clear understanding of your company s strategy and utilizing specific processes as tools may help in selecting the most qualified candidates. Although easy to claim, the task of isolating only those candidates who excel is not easily done. Questions to consider before beginning the process of sourcing, recruiting, screening and hiring new employees are: What is our team s individual experience? After assessing your expertise, you may find that you need the help of specialty recruiters with more in-depth industry knowledge to locate betterqualified candidates. What is our company s focus/strategy? If your strategy is to be a great place to work where people are inspired to be the best they can be, the skill set for this type of candidate may be different than if your strategy is to be a highly effective, lean and fast-moving organization. What is our policy and procedure for the hire process? Topics to consider include recruiting and sourcing, screening and interviewing, a streamlined method of conducting testing of candidates, referencing that gets beyond the standard employment verification, orientation, training to assist with upgrading skills of new hires, quality assurance and compliance. What, if any, candidate screening is performed? Various processes are utilized to screen candidates, including reviewing the employee s resume and application packet, reviewing gaps in employment, reviewing present and past salary history, career goals and commute time to work. In addition, specialty staffing companies utilize proprietary screening tools and skill assessment forms that enable more indepth screening, as these tools were developed based on their vast industry knowledge and expertise. What is our policy and procedure for employee background checks? The background check process may include a variety of reports, including criminal, credit, drug testing, education, compliance with the U.S. Department of Homeland Security and Social Security Administration E-Verify Program and I-9 Employment Eligibility Verification. Charlene Nichols Charlene Nichols is the founder and president/ceo of Loan Administration Network Inc. (LANI). LANI is a specialty staffing company, providing staffing, training and consulting services to the finance industry (banks, mortgage, title/escrow, credit unions) in the areas of Lending, Loan Documentation, Compliance, Loan Servicing, Operations, Accounting, Mortgage and Title/Escrow. LANI is certified as a WBE (Women Business Enterprise). Charlene can be reached at or The Public Law Center Providing Hope, Access and Justice by Kenneth Babcock, Executive Director & General Counsel, Public Law Center T he Public Law Center, Orange County s nonprofit pro bono law firm, is committed to providing access to justice for low-income residents. Now in its 31st year of service, PLC works with nearly 1,200 Orange County lawyers, paralegals and law students who volunteer their time and expertise to assist low-income and vulnerable residents. PLC s work is a mix of direct representation, brief counsel and advice, recruitment, training and mentoring of lawyers and law students, training of staff at nonprofit organizations, law enforcement and other governmental agencies, advocacy before local, state and federal policy makers and strategic impact litigation to challenge societal injustices. In 2011, PLC staff and volunteers provided 52,240 hours of free legal services in handling 3,387 cases, benefitting more than 20,000 low-income children, adults and seniors in Orange County. The estimated value of these free legal services is $15.8 million. PLC s staff of 28 (16 of whom are lawyers) provides direct services to clients and also makes certain that our volunteers have the tools necessary to properly assist those clients referred to them. Our volunteers include partners and associates at major law firms, in-house corporate counsel, solo and small firm practitioners, young lawyers, law students, college students and an array of others concerned about ensuring access to justice. For most lawyers and law students in Orange County, PLC is the place to turn when they think of volunteering to provide legal services. PLC s clients come from across Orange County, mostly through legal clinics our staff and volunteers conduct at various nonprofits, community centers, courthouses and community health clinics. These include clinics at Share Our Selves, a homeless service provider in Costa Mesa; at community or family resource centers in Santa Ana, San Clemente and La Habra; at the Little Saigon Cultural and Community Center in Westminster; at St. Joseph Health System facilities in Orange, San Juan Capistrano and Fullerton (as part of a medical legal partnership with the Health System); and at courthouses in Santa Ana (covering bankruptcy and general civil litigation) and Orange (covering guardianships). During the winter months, PLC conducts weekly clinics at the Santa Ana and Fullerton armories when they become temporary homeless shelters operated by Mercy House. Our clients cases cover a wide range of issues including domestic violence, human trafficking, guardianship, housing, health, bankruptcy, asylum, family law, consumer fraud and immigration. Some clients come to us through speciality projects, like our AIDS Legal Assistance Project, serving those living with HIV/AIDS, or our Community Organizations Legal Assistance Project, by which we provide free legal advice and representation to Orange County nonprofit organizations, so they can meet their legal obligations and focus on providing services. Learn more at Bisnar l Chase Personal Injury Attorneys & Defective Products Experts by John Bisnar, Founder, Bisnar Chase R ecently, I sat down with my staff at Bisnar Chase Personal Injury Attorneys to review the results of client exit interviews. Evaluating what clients have to say after their cases are resolved is a critical part of our firm s success in representing future victims and their families in catastrophic injury and wrongful death cases. The word passion appeared in many of the evaluation forms. It was gratifying to see just how many clients recognized and commented upon our passion about their cases. Above everything else, passion and personal investment gives a client s case the best chance for success. Enthusiasm for our client s cause is what drives our passion to win for our clients. When it comes to people who are catastrophically injured or killed due to someone s negligence, passionate legal representation is imperative. In the recent auto defects case of Jaklin Romine, a jury awarded her $24.7 million in a trial against a major auto parts manufacturer after a defective car seat rendered her a quadriplegic. Our team s personal investment in getting Jaklin the compensation she needed to live independently with quality medical care was reflected in the results. After Gloria Levesque was rendered an incomplete quadriplegic in a rollover crash, her case against Enterprise Rent-A-Car and Ford was settled after years of litigation and a trial. My sense is that the defendants in Gloria s case recognized our passion for doing whatever it took to win and that recognition contributed to a settlement. Julie Farris won a $1.5 million judgment against the City of Azusa for dangerous condition of public property after she was struck by a trolley on her way to school and suffered permanent brain injuries. Maybe the reason the previous law firms weren t successful is because they didn t have the passion to hold a negligent municipality accountable. Successes like these are what caused California s trial lawyers association, Consumer Attorneys of California, to recently name two of our trial team members Attorneys of the Year for their representation of Jaklin s case. Call us at if you want passionate, enthusiastic representation by a legal team who is personally invested in the outcome of your personal injury case. We are located at 1301 Dove Street, Suite 120, Newport Beach, CA. John Bisnar John Bisnar is a 35-year law veteran and founder of Bisnar Chase Personal Injury Attorneys in Newport Beach. Throughout his professional career, he s been named an Orange County Super Lawyer, a Top Attorney in Southern California and a Community Hero by the United Way. A war veteran and frequent lecturer on law office management and marketing, Bisnar is also the author and co-author of a number of personal injury legal guidebooks. Under his direction, Bisnar Chase has been instrumental in helping local charitable organizations feed the poor in Orange County.
15 NOVEMBER 19, 2012 LAW SPECIALTIES Advertising Supplement ORANGE COUNTY BUSINESS JOURNAL B-77 It s About Time (and Money): How Legal Outsourcing is Transforming America s Law Firms Legal fight over practice still being waged in some states T he American Bar Association (ABA) recently issued an ethics opinion firmly endorsing the practice of attorneys outsourcing legal services such as paralegal work and other back-office support. The opinion, made public in August 2012, described legal outsourcing as a salutary trend in a global economy. In other words, the outsourcing of legal services can be viewed as more than the mere reallocation of time-consuming duties, it is itself a benefit to the health of the legal profession. The ABA made this clear in its final report: Lawyers have found that the same technology-driven efficiencies that have led to an increase in outsourcing throughout the global economy are also making outsourcing an appealing option within the legal profession for certain work. In particular, lawyers have found that, if they exercise proper care in the selection of a provider, work can be completed with greater speed and lower costs without sacrificing quality. The critical component of any relationship between an attorney and a legal support services provider is that the attorney must be calling the shots. While outsourcing by law firms has gone as far as offshoring to workers in India, Morgan Drexen is dedicated to keeping the efficiencies of outsourcing with California workers. The Costa Mesa-based company, which provides administrative and paraprofessional support to attorneys nationwide, works with law firms in multiple practice areas. However, the company s genesis has been in assisting attorneys who provide debt settlement and bankruptcy representation to their clients. As a result, Morgan Drexen recently found itself the target of a complaint by the Colorado Attorney General s office. The case focused on Morgan Drexen s support of a Colorado-licensed attorney. Colorado s debt management practice statute requires providers to be registered. The statute, however, exempts attorneys from registration. The Attorney General argued that Morgan Drexen was in violation of the statute because it was not registered. Morgan Drexen countered that as the outsourced paralegal of a Colorado attorney, the exemption flowed to the company and its 325 employees. The Colorado District Court judge agreed, stating that the evidence proved Morgan Drexen was the support company working under the direction of the attorney, not unlike a paralegal working down the hall. Morgan Drexen is forging ahead. The legal challenge highlighted here is typical in the evolutionary process. Company CEO Walter Ledda anticipates that outsourcing of a variety of non-legal services will become ubiquitous in the next five to ten years, allowing attorneys to focus on what they have been trained to do practice law. Jeffrey Katz Jeffrey Katz received his juris doctorate from Hastings College of the Law at the University of California where he was a member of the National Moot Court team. His legal career spans over 20 years and his work was recently recognized when he was nominated for the Orange County Business Journal s General Counsel Awards. Katz has been a litigator for a large Los Angeles-based law firm, where his practice followed in employment, business transitions, and music law. He was also a director of regulatory affairs for two years with an HMO that created consumer-oriented health benefit plans and services in 20 states. He s worked for Morgan Drexen for three years. Contact Jeffrey at or Walter Ledda Morgan Drexen CEO Walter Ledda saw a demand in the financial market for the automation of complex documentation and the outsourcing of paraprofessionals to America s law firms. He has been involved in the financial world for almost two decades and has implemented complex automation to keep up with society s ever-changing needs. Ledda s charity work has landed him on the Development Committee for the local chapter of Make A Wish, and his work as a classically trained violinist has drawn the attention of the Pacific Symphony, which recently appointed him to the Marketing Committee. He has also made sizable donations to CHOC Children s and is involved in various other charity events in the Orange County community. Contact Walter at or ext About Morgan Drexen Morgan Drexen designs and delivers integrated support systems to attorneys across the United States. Its revolutionary software creates a virtually paperless workflow for law offices, thereby reducing costs and allowing attorneys to focus their attention where it matters most: helping their clients. Morgan Drexen also provides critical back-office paralegal and paraprofessional services. Based in Costa Mesa, Morgan Drexen is a fast-growing and dynamic company which employs more than 340 people. The company is committed to providing toplevel customer service and responding quickly and nimbly to the needs of its law firm clients. More than 100 lawyers across the country depend on Morgan Drexen to streamline their operations.
16 B-78 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 R ecently, as I watched an episode of BBC s Top Gear in the living room with my teenage son, who loves cars, I felt a myriad of emotions. At first, it was a hilarious comedic routine on counterfeiting in China. How could a Hongda knockoff compete with the real Honda that people know and trust? Yet as I watched the episode again, my humor faded and was replaced with fear at this growing, uncontrolled phenomenon. Gradually, my fear subsided as I took a step back to look at the bigger picture. The real question seemed to be, what couldn t the Chinese make? In the last 30 years, China s car industry has progressed from a Frankenstein hybrid of the Toyota, Austin Maestro and Austin Montego to the present day Hongda. According to Top Gear s Jeremy Clarkson, China currently produces 1.3 million cars annually, which is more than all of Europe combined. Jokes aside, Top Gear touched upon a real issue for global businesses today. A recent ABC News article estimated that, Chinese counterfeiting now costs foreign companies an estimated $20 billion a year in lost profits. Counterfeiters also play havoc with international trade by pushing out local businesses that cannot compete with cheaper counterfeit products. This article will lay out the most effective countermeasures to reduce piracy and counterfeiting. Fighting piracy in China is very different than in the United States. While the U.S. is more focused on civil remedies, in China, effective countermeasures should include and emphasize What Can t Be Made in China? Wu administrative enforcement and criminal enforcement in addition to civil remedies. This combination of internal clean-house management and proactive action in external strike-force type enforcement will help foreign corporations suffering from counterfeiting to substantially eradicate the piracy of their products. Step 1: Infrastructure Foreign companies can strengthen their infrastructure from within by implementing robust internal anti-piracy policies. In China, we have seen counterfeiters take original discarded packaging, and then re-use the genuine packaging for counterfeit products. To prevent this, foreign companies should monitor and enforce the destruction of all discarded packaging. It is also important to have a solid agreement with your vendors, so that you can require compliance among their distributors and sales representatives that provide for control and destruction of all original packaging. As another preventive strategy, businesses should plan unannounced routine inspections of their manufacturing facilities to ensure that counterfeiters cannot act undetected. Step 2: Keep it Confidential Foreign companies in China should also apply other internal protocols for controlling and defeating piracy, such as strict confidentiality policies and practices. For example, a foreign company should not allow local employees to know which counterfeit operator or locations are being targeted or even what actions the company is taking against counterfeit operations. Only a trusted few and the company s lawyers should be aware of the company s anti-piracy tactics. Step 3: Guanxi or Good Relationships and Community Outreach To utilize local resources for strong external enforcement against counterfeiters, foreign businesses must develop good relations or guanxi with their local law enforcement agencies. Contrary to the common misconception, guanxi is not built on bribery, but is rather akin to being a good standing member of the community. A good analogy can be found in your local neighborhood. If you are known to reach out to help the community on a regular basis, your neighbors are much more likely to share their information with you. As the saying goes, good relationships are not built in one day. As China does not yet have an integrated legal system, the implementation of Chinese law can vary from one province to another. Many decisions, in fact, are made at the regional jurisdiction. Having a good relationship with your local law enforcement agencies will determine the ability to obtain their enthusiastic cooperation. It is also important for foreign companies to understand how these agencies function within the Chinese legal system, so that the foreign company can take swift and appropriate action against counterfeiters. Step 4: Act Fast When faced with a counterfeit problem, the foreign business should first conduct a thorough private investigation to gather relevant information, including detailed information on plant locations and shipping schedules. Gathering the necessary information and delivering it to the appropriate agency is a way to ensure that the local authority will be able to act quickly and effectively. Counterfeit plants, like most secretive operations, are extremely mobile. To catch them in action, you want to make sure that your information is as complete and up-to-date as possible before you release it to the authorities. If the counterfeiters catch wind of your investigations before you can act, they will immediately pack up and relocate or destroy all evidence, and the company investigation will have to start over again. Step 5: Choose Your Representative Carefully For any foreign company in China, establishing a successful global brand requires an understanding of its culture, business customs and legal system. However, this means more than simply knowing the language. China and the U.S. are fundamentally different countries, and it is crucial for foreign businesses to hire a legal representative who has the knowledge and skill to navigate between the two. Foreign businesses must choose a representative that can further their objectives on a different playing field. When issues arise, careful selection of your legal representative can save your company time, resources and place your company in a position to resolve issues as swiftly as possible. Step 6: Find the Silver Lining in Creative Countermeasures Although counterfeiting in China is an undeniable issue to brands and businesses, strategic counterfeit enforcement is possible. The combination of strict in-house, anti-counterfeit policies and proactive external enforcement can significantly improve the outlook of many businesses who are struggling to protect their brands and products in our increasingly one-world market. As Jeremy Clarkson from Top Gear observes, the Chinese seem to be very good at this type of thing [counterfeiting], and they re only getting better at it. Indeed, some may agree that the prevalence of counterfeiters is an indication that Chinese manufactured brands are ready to compete with Western brands, and simply lack the legitimacy to do so in the open. Some foreign businesses might consider turning their negative situation into an opportunity. Instead of going after counterfeiters, foreign companies may consider co-opting this outside talent to develop a stripped down, low-cost version of the product to sell in Asia. As we ve all heard, Every storm has a silver lining. This article is contributed by WHGC Law Firm: Elaine L. Wu, Business Development Director and Connie Chow, Marketing Assistant
17 NOVEMBER 19, 2012 LAW SPECIALTIES Advertising Supplement ORANGE COUNTY BUSINESS JOURNAL B-79
18 B-80 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 C-Suite Employment Update How are executives strategically networking & landing their next jobs? I nterviewer Samantha McDermott spoke with four industry leaders about everything from networking and social media to employment contracts and new hire negotiations for executives. McDermott: How do you advise busy executives who are just starting to build their personal networks? Sven Johnston: To start, I suggest making sure that they have a complete and professional looking LinkedIn profile, as it is their first impression in the online world. Networking is the true key and I encourage them not to over think the process and start attending local networking events to get more comfortable with the process. Networking is not a skill that most people are born with, but it certainly is a skill that can be learned with proper guidance and practice. Most importantly, networking is not about collecting business cards, but rather about meeting people and trying to build long-term relationships. Last, but not least, it is important to be proactive and diligent in following up with the people you meet through LinkedIn and from personal meetings. Brad Remillard: Few executives spend any time building a solid network except when they find themselves in need of a network. Start by making it a priority. This doesn t take a lot of time, just a commitment. This can be done by investing only one or two hours a month. Begin with LinkedIn by building a compelling profile so people want to connect with you. Secondly, get involved in at least one networking group. Laura Fleming: Networking should be enjoyable, not a chore. Attend events that appeal to you, and have lunch and coffee with people that you genuinely like. That way, you will be at your personal best, and you will be motivated to continue networking. I also believe networking should serve a higher purpose, where possible. Perhaps you are interested in a nonprofit organization or charitable cause. That may be a better investment of your time than another rubber chicken dinner. Brandon Biegenzahn: Many of the executives with whom I work tell me that they have their noses down working and are too busy to network. While proactive networking may be a challenge, fostering existing relationships shouldn t be as difficult. Set a daily, or weekly performance metric i.e., four outbound calls/ s a week and then simply reach out (birthdays and other milestones are easy to set in your PC s calendar). McDermott: For the working executive, what s the most important use of their time as it relates to social media? Brad Remillard: Build a compelling profile on LinkedIn. Executives should think of this as their professional homepage. CEOs can share their vision for the company and why it is a great company. When hiring people, top talent will look at the hiring manager s LinkedIn profile. Often they discover an executive with many years of experience as a manager, yet not one person who has worked for the executive has endorsed or recommended them. What does this say to the candidate seeking to work for a great boss? Sven Johnston: I always tell people that LinkedIn is compulsory and everything else is optional. If you work in Sales, Marketing or Customer Service you really should be actively present in at least the core social media channels such as Facebook and Twitter. As these tools are used more and more as part of the day-to-day interaction with customers, it is also important to have a good understanding of the different communities and styles of communications. Think of social media like traveling through Europe, with different languages and cultures that have diverse individualized attention. If your main goal is to be a subject matter expert in your field, I would highly recommend setting up a personal or company blog and sharing your expertise in written or video blog posts. Brandon Biegenzahn: LinkedIn. Period. LinkedIn has become the most widely leveraged professional social networking tool used by just about everyone recruiters, your competitors and hiring managers. What s great about LinkedIn is that people can never lose track of you (nor you of them) if there is a career change. LinkedIn also helps you network and allows you to understand how few degrees of separation you are from someone you might want to meet. Perhaps your one new person a month networking quota is someone I know. I d introduce you if you knew to ask me. Laura Fleming: LinkedIn is a powerful tool. At minimum, when I meet new people at an event, I invite them to connect on LinkedIn. This is often faster and less intrusive than following up via . As I have time, I also use LinkedIn to comment on news or events that may be of interest to my network. McDermott: What obligations do executives have to their current or former employers when making a transition? Laura Fleming: Executives have a duty of loyalty to their employer for the duration of their employment, up to the separation date. In addition, executives must never take proprietary information or trade secrets from a former employer to a new employer. Make sure there is a clean break before starting a competing business or going to work for another company. Many times, executives sign agreements placing additional restrictions on their post-employment activities. These can include non-solicitation or non-compete provisions for a period of time (for example, 12 months). Some restrictions are enforceable and some are not, depending on state law. I recommend consulting with an attorney before accepting a position with a competing company. Brandon Biegenzahn: Two cliché responses come to mind in response to this question: (1) The Golden Rule Treat others how you want to be treated; and (2) never burn a bridge. How you treat your former employer says more about you as a person and as a member of a team than it does about your job title. I recently closed a CFO search for a pre-ipo company who needed a new CFO in the seat quickly. We found their guy, but the candidate needed to give his then-current employer 30 days notice. My client thought the CFO s actions spoke volumes about him as a team player and it increased his value within the company before he had to put together a single deal memo. Brad Remillard: The easy answer is handling any transition in a professional manner. Unless renegotiated, the executive must abide by any legal agreements outlined in an employment agreement. They also have a moral obligation to live up to any implied obligations they have committed to even if these obligations aren t in writing. After that, every executive or employee currently employed and making a transition must continue to perform at the highest level. Their first obligation is to their current employer and the people that rely on them for leadership. That doesn t mean the executive can t take time off to interview, attend networking groups or other search activities. It does mean that these activities cannot diminish the level of performance they provide to their current employer. McDermott: How do you advise executives who are negotiating an employment agreement? Laura Fleming: Employment agreements can be lengthy and contain a lot of legalese. There is no substitute for attorney review. Typically, the executive will be excited about the new venture and eager to begin. An experienced attorney can help the executive step back and consider, what happens when the employment relationship ends. Is the executive s career capital adequately protected? The attorney will also make sure the executive understands, and is comfortable with, all of the terms of the agreement. This is cost-effective insurance against nasty surprises down the road. Brad Remillard: Employment agreements vary greatly. As the employment agreement increases in complexity it is critical for the executive to seek legal counsel. It is not uncommon for a complex agreement to include severance terms, equity issues, relocation, define cause as it relates to termination and non-compete terms, just to name a few. I believe the executive can negotiate these themselves, but only with the ongoing advice and close counsel of an attorney. I also recommend using an attorney that is very familiar with employment agreements. Brandon Biegenzahn: Remember who you are negotiating with your new boss. You have every right to get best deal you deserve, but don t forget that after you get the deal you were looking for, you now need to go to work with this person. Try not to muddy the waters right off the bat. In order to do this, find ways to leverage other resources (i.e., recruiters and attorneys), but only to a point. In connection with a recent search I just completed, my candidate did a great job of getting his points across through me and his counsel. We got about 85 percent of the way done. But when the candidate realized that he could best represent what he wanted, and why he wanted it, he had me set up a faceto-face meeting with the hiring manager. Sixty minutes later, the deal was sealed and both parties were happy. McDermott: Employees who are in the process of giving notice, often receive counter offers. What impact could accepting a counter offer have on an executive s career? Brandon Biegenzahn: Be wary of the counter offer. If a counter offer has been presented, a few things have already happened you ve interviewed for another job and already received an offer. You ve just informed your boss and current company that you re willing to entertain new opportunities and once someone starts looking for new opportunities, they re now in play and actively searching. When a company gives a counter offer it s because they were caught off guard and need to do damage control meaning, pay you just enough extra to keep you around while they start searching for your replacement. Brad Remillard: Few good things result when an executive accepts a counter offer. Accepting a counter is a question of integrity and honesty. Executives rarely tell the hiring company the reason they are leaving is for more money. They generally offer up a list of non-monetary reasons why they want to join another company. Yet the vast majority of counter offers are accepted based on more money. The executive is perceived as saying one thing and doing something different. This translates into lack of integrity. Accepting a counter offer is particularly risky in the same industry. Brandon Biegenzahn Brandon Biegenzahn is a principal consultant at McDermott & Bull and is co-chair of the firm s finance practice. He can be reached at Laura Fleming Laura Fleming is a shareholder in Stradling s Labor and Employment practice. She can be reached at Sven Johnston Sven Johnston is the senior vice president of Business Development at GigaSavvy, which specializes in online marketing including websites, social consulting and search marketing. He can be reached at Brad Remillard Brad Remillard is an executive recruiter, speaker, author and hiring expert with more than 30 years of experience hiring and recruiting. He can be reached at
19 NOVEMBER 19, 2012 LAW SPECIALTIES Advertising Supplement ORANGE COUNTY BUSINESS JOURNAL B-81 How Will the California Homeowner Bill of Rights Impact Our Struggling Economy? by Rachel S. Opatik, Houser & Allison I n responding to the foreclosure crisis, the California legislature recently passed a series of bills known as the California Homeowner Bill of Rights ( CHBR ). The CHBR, which goes into effect on January 1, 2013, is focused on mortgage and foreclosure reform. Although well intentioned, the CHBR may have a negative impact on California s struggling economy. The CHBR is consumer-based legislation, which applies to owner-occupied residential properties with one to four units. At its core, the CHBR is based on an assumption that by making the foreclosure process more difficult for lenders, homeowners will be protected from predatory lending and will receive increased foreclosure prevention options. The CHBR stalls foreclosure by prohibiting dual tracking, whereby a lender reviews a homeowner for a loan modification while advancing a foreclosure. If a loan modification is denied, a lender will be required to provide a homeowner with written notice of the denial and 30 days to appeal the decision before proceeding to foreclosure. A lender will also be required to assign a homeowner with a single point of contact to explore foreclosure prevention alternatives. In addition, a lender may be subject to civil penalties of up to $7,500 per loan for recoding unverified documents. The CHBR grants homeowners with a right of action to sue for damages and enjoin a foreclosure sale for procedural violations. As well, it allows a homeowner to recover attorney s fees. Overall, the CHBR creates a number of procedural hurdles and exposes lenders to substantial new liability. The CHBR is based on a notion that homeowners will be able to catch up on their loan payments or seek foreclosure prevention alternatives if the process is slowed down. A 2012 study by Beacon Economics, however, found no empirical evidence to suggest that states with a longer foreclosure process have greater rates of loan modifications or a lower share of delinquent borrowers moving into foreclosure. 1 Like a broken crutch, the CHBR may instead aggravate injuries. By lengthening the foreclosure timeline, the CHBR removes the immediate threat of home loss which pushes homeowners to explore options to avoid foreclosure. By increasing the length of non-payment, the CHBR creates an incentive for strategic defaults and increases foreclosure rates. Moreover, by removing the threat of foreclosure, the CHBR erodes incentives to explore short-sales and other options which are favorable to economic recovery. The CHBR does not focus on the real problems at hand the inability of certain homeowners to meet their debt obligations and eliminate negative home equity. The CHBR artificially slows down foreclosures, keeping properties off the market that are legitimately in foreclosure. In California, many homeowners are locked into homes with no equity, have already lost their down payments, and are occupying properties that will lack equity for years to come. For many who purchased properties at the peak of the housing market, an option is to simply walk away from a property with negative equity and re-enter the housing market at a later point. A homeowner s damaged credit may recover quicker than the value of his/her home. Legislation, such as the CHBR, which increases costs and creates liabilities, does nothing when homeowners are unable to cure deficiencies and homes lack equity. In effect, the CHBR may actually take away the best long-term economic solution allowing properties to go to non-judicial foreclosure so that homeowners can start anew. The CHBR may also cause lenders to pursue judicial foreclosure, instead of non-judicial foreclosure. In the context of a judicial foreclosure a lender may be able to seek a judgment against a residential homeowner s other assets. A switch to a judicial foreclosure system could chill the economy by discouraging individuals from using their home equity to start or expand a business out of fear of a personal judgment for the unpaid dept. The CHBR leaves lenders vulnerable to those whose only goal is delaying foreclosure. Under the CHBR, any small violation of due process, no matter how minor, may warrant litigation and hefty penalties. The CHBR also contains a one-sided attorney s fees provision favoring borrowers based on an overly broad definition of prevailing party. The CHBR creates an incentive for plaintiff attorneys to advance lawsuits, even if the homeowner has continued on page B-83 Rachel S. Opatik Ms. Opatik graduated from the University of Michigan in 2001, where she received her Bachelor of Arts degree. She subsequently obtained her Juris Doctorate from California Western School of Law in While in law school, Ms. Opatik clerked for an Equal Employment Opportunity Commission administrative law judge. She also received the State Bar of California Wiley M. Manual Award for her pro bono legal work with the California Innocence Project and San Diego Legal Aid Society. Ms. Opatik was admitted to practice law in the State of California in June Contact Ms. Opatik at or
20 B-82 ORANGE COUNTY BUSINESS JOURNAL LAW SPECIALTIES Advertising Supplement NOVEMBER 19, 2012 Trial Lawyers Make Better Litigators by Edward Susolik, Partner, Callahan & Blaine Y our company has just been served with a complex business litigation lawsuit filed by a competitor. The plaintiff is seeking millions of dollars in damages. You have 30 days to respond to the complaint, and the clock is ticking. Getting together with your general counsel, you begin the process of selecting a defense lawyer. After going through initial due diligence, your decision comes down to two law firms. One firm has over 1,000 lawyers and offices all over the world. The other is a litigation boutique firm with 30 senior litigation attorneys and one office. While the larger firm has an excellent reputation and history, you immediately notice that the boutique litigation firm has a number of attorneys who are highly experienced and exceptional trial attorneys. Further, the lawyer who will be responsible for your case is known and respected as one of the leading trial attorneys in the community, with over 25 complex business litigation trials to his name. The thesis of this article is that corporations should choose experienced trial attorneys to handle their complex business litigation matters, as opposed to lawyers who have never tried complex business litigation cases, or who have only minimal trial experience. The following are some of the reasons why. 1.Your Case May Actually Go To Trial The general mantra in business litigation is that you do not need an experienced trial lawyer to handle your case because, after all, most business litigation cases settle before trial. This is a risky proposition to accept in the context of a multi-million dollar litigation. While it is true that over 90 percent of business litigation cases settle before trial, a significant number of such cases do in fact go to trial. In fact, many business litigation cases go to trial every week in California state and federal courts. Thus, if your case turns out to be one of the many of business cases that does actually go to trial, you will be faced with some very difficult issues if your lead attorney has zero or minimal trial experience. Hiring a real trial attorney in the first instance eliminates the risk and uncertainty of being unprepared if your case ultimately goes to trial. 2. Trial Lawyers Are Better at Discovery and Depositions A litigator who does not have a track record of conducting actual trials in front of a jury cannot be as effective of an advocate in the discovery phase. The best example is depositions. It is axiomatic that what a witness says at deposition is what that witness must say at trial good, bad or indifferent. Thus, the deposition of key witnesses will frequently decide who wins or loses a case. The critical nature of depositions works in two different ways: taking depositions and defending them. First, a litigator must be able to conduct an aggressive and effective deposition. Most importantly, the attorney taking a deposition must be able to obtain key admissions against interest that are harmful to the opponent s case. This skill is akin to effective cross-examination at trial. However, it is difficult to take an effective deposition if one has never has actually been to trial, or used a deposition at trial in front of a jury. Using deposition testimony and video depositions at trial is both a science and an art. If you have never been in the laboratory, you cannot call yourself a scientist. Second, defending depositions, especially senior executives, is equally critical to the success or failure of a case. Again, having personally handled depositions at trial is essential to understanding how to properly protect your clients during their depositions. For example, in preparing a witness for his deposition, an attorney must properly explain to the witness how his anticipated testimony will sound to the jury. Litigators who counsel their clients to repeatedly testify I don t recall, are giving bad advice. Put simply, a jury will not believe that an otherwise intelligent and wellinformed senior manager has no purported recollection of the matters at issue in the litigation. This is just one example of how not having actual jury and trial experience can be prejudicial to the client s case. Ultimately, most large law firms conduct few trials and have very few attorneys who have real trial experience. While each firm will have a handful of partners who have conducted one or more trials, those lawyers will virtually never conduct the pre-trial phase of the case. Thus, the actual deposition phase of the case will likely be conducted by lawyers who have no trial experience. 3. Trial Lawyers Settle More Cases It is a truism that trial dates settle cases. What this means is that the pressure brought about by an impending trial date frequently creates a dynamic for settlement, for both plaintiffs and defendants. The most dramatic example of this phenomenon is the proverbial settlement on the courthouse steps. This same dynamic arises from the leverage created by an expert trial lawyer. As trial approaches, the opposing party and their counsel are sizing up the respective positions of the parties. If your attorney is a highly experienced and accomplished trial attorney, you will have a significant advantage in settlement negotiations. The fact that you have a decorated trial attorney representing you will put significant settlement pressure on the other side. By way of example, the managing partner of my boutique litigation firm Callahan & Blaine is Daniel J. Callahan, one of the most respected trial attorneys in the United States. Among his numerous accomplishments, Dan has obtained the largest jury verdict in the history of Orange County, a $934 million jury verdict on behalf of a large corporation after three months of trial. Dan, however, settles most of his cases on extremely favorable terms to his corporate clients. Put simply, based on his track record, Callahan & Blaine s adversaries have significant concern in going to trial against Dan Callahan, and therefore settle their cases rather than risk going to trial. Conversely, if your trial attorney lacks significant trial experience, your adversary will not fear going to trial against them, and your settlement position will be compromised. Your opponent will feel no intimidation or pressure to settle if they believe your lawyer has minimal trial experience. Settlement is a powerful weapon in the arsenal of the trial lawyer. It is one of the true ironies of litigation that the best settlements come from the lawyer who is an expert at trials and has prepared his case for trial. 4. Conclusion Perhaps the most important question to ask when hiring a defense attorney is whether that lawyer or law firm has a track record of conducting actual trials in front of a jury. There is a huge difference in the level of advocacy between a real trial attorney and a lawyer who has never been to trial or has done so only once or twice. That type of courtroom experience is invaluable to understanding the litigation process and winning cases. Edward Susolik Edward Susolik is a partner at Callahan & Blaine, a boutique litigation firm with 28 attorneys. Mr. Susolik specializes in complex litigation of all types, including business litigation and insurance litigation. Mr. Susolik is an adjunct professor at USC Law School, and has been honored as one of the Top 100 Attorneys in Southern California by Super Lawyers for 2010, 2011, 2012 and Mr. Susolik can be reached at or Callahan & Blaine s website is found at About Callahan & Blaine Callahan & Blaine is California's Premier Litigation Firm. Founded in 1984, Callahan & Blaine has been achieving record-breaking verdicts and settlements for over 28 years in all areas of complex litigation. For example, Callahan & Blaine has the highest jury verdict in Orange County history, a $934 million jury verdict achieved after a three-month trial in Beckman Coulter v. Flextronics, a complex business litigation case. Likewise, in a complex municipal liability case, Callahan & Blaine obtained a $50 million settlement that has been certified by West Trial Digest as the largest personal injury settlement in the history of the United States.