Monday, December 27, 2010

Happy Holidays & Year End Review - Comments and Feedback are Welcome

I would like to wish everyone a belated happy holidays and a happy new year!! I've decided to take a little break for the holidays and will catch up after the new year. 

I would like to thank everyone who reads this blog for visiting my site. Since its launch, I have invested a lot of time and energy in this blog and have had no idea if it would be able to garner any attention or support to want to continue it into the long-term.  Luckily, I've gotten a lot of positive feedback from people and have seen a substantial increase in web traffic to the site since its launch. This past month the site had over 400 visits and nearly 1,300 page views.  I hope that those visiting found my posts informative and useful.  

My blog is still fairly new (about 3-4 months old) and I am still developing the site and its content. I figured that now would be a great time to reflect and to hopefully get some feedback on how YOU think my blog is doing and what you would like to see changed or improved.

After sifting through my Google Analytics results I know that there are at least a few people who visit this site on a regular basis. I would especially love to hear from You, "the regular."  Please, tell me what you think. Feel free to leave comments, e-mail me, or contact me on facebook and let me know what your thoughts and opinions are about this blog. 

Again, thank you to everyone for visiting. I hope to continue posting and offering quality content in the next year. Have a great holiday and new year!

Monday, December 20, 2010

Ohio Northern District Rules Against Allowing Redaction of Non-Responsive Information In Document Production Discovery Dispute

During litigation, information that is considered discoverable under the civil rules is quite broad. Under Federal Rule of Civil Procedure 26(b)(1), "[p]arties may obtain discovery regarding any non-privileged matter that is relevant to any party's claim or defense."

However, when involved in litigation, parties typically want to disclose as little information as possible to an opposing side. Notwithstanding disingenuous motives and disputes, the line between information that is considered discoverable and information that is not can be a fine one; the validity of various tactics and arguments to withhold and conceal information in discovery can be as well. In Arcelormittal Cleveland Inc. v. Jewel Coke Company, L.P. (N.D.Ohio Dec. 16, 2010),  a $100 million dollar breach of contract dispute involving furnace coke, the Ohio Northern District ruled on the legitimacy of one such tactic, the ability of a party to redact information from its document production that it considers unresponsive or confidential.  

In Arcelormittal, the defendant, in response to plaintiff's document requests, produced documents with many portions containing redacted information. Unsatisfied with this production, the plaintiffs filed a motion to compel, requesting the court to order production of non-redacted versions of all documents that the defendant produced. The defendant argued that redactions were allowable because the information was unresponsive and confidential. On the other hand, the plaintiff argued that "irrelevance" was not a proper ground to redact information. 

The court noted a split in authority among courts on the issue of whether redaction is an appropriate way to shield irrelevant or confidential information material from discovery.  Compare Spano v. Boeing Co., 2008 WL 1774460, at *2 (S.D. Ill, Apr. 16, 2008) (redaction is a proper way for a defendant to produce a document that contains both relevant and irrelevant information), Beauchem v. Rockford Products Corp., 2002 WL 1870050 (N.D. Ill. Aug. 13, 2002) (same), & Schiller v. City of New York, 2006 WL 3592547 (S.D.N.Y. Dec. 7, 2006) (same) with Orin Power Midwest, L.P. v. America Coal Sales CO., 2008 WL 4462301, at *2 (W.D.Pa. Sept. 30, 2008) (holding that redaction is not allowed under rule 34) & Metronic Sofamor Danek, Inc. v. Michelson, 2002 WL 33003691, at *4-5 (W.D.Tenn., Jan. 30, 2002) (same).  

In making its ruling the court relied heavily on a recent decision by Ohio's Southern District in Beverage Distributors, Inc. v. Miller Brewing Co., 2010 WL 1727640 (S.D.Ohio, April 28, 2010), which had previously analyzed the same split in authority in a similar decision. The court noted the important themes that the Beverage Distributors court recognized when reconciling the two lines of authority:
“(1) redaction of otherwise discoverable documents is the exception rather than the rule; (2) that ordinarily, the fact that the producing party is not harmed by producing irrelevant information or by producing sensitive information which is subject to a protective order restricting its dissemination and use renders redaction both unnecessary and potentially disruptive to the orderly resolution of the case; and (3) that the Court should not be burdened with an in camera inspection of redacted documents merely to confirm the relevance or irrelevance of redacted information, but only when necessary to protect privileged material whose production might waive the privilege.”

With these three general themes in mind, the court found that there was no compelling reason for the defendant not to disclose information solely on the grounds that the defendant believed that the non-disclosed materials were not relevant or responsive.  Therefore, the Northern District granted the plaintiffs motion to compel production of the redacted information. 

Discovery disputes can be tricky. While this ruling may not apply in every situation, I think that the court made the right decision in this case. I think that the ruling is in line with recent changes to the federal rules that are meant to reduce the time and expense of litigation. If courts allow parties to redact all information in its document production that it believes is irrelevant and non-responsive, this would eventually have the effect of adding additional time and expense to litigation, as parties would likely spend extra time redacting information before production, and more disputes would likely arise over whether information redacted was actually non-responsive. If parties truly have information that is highly confidential and need to protect, they can seek a protective order from the court.     

Thursday, December 16, 2010

Recent Ruling On Account Agreements By Ohio's Sixth District Highlights Account & Billing Procedures That Every Ohio Business Should Make Sure It Has Implemented

This blog posts covers a recent rulings by Ohio's Sixth Appellate District in an account collection lawsuit. The ruling addresses a business's ability to apply the terms of its customer account agreements in collection actions (for review of what "actions on account" are and some of the requirements that must be met to collect on a past due account, see this previous post). At the end of this post, I review some procedures that all businesses should make sure they have implemented in light of this ruling. 

Enforceability of the Terms of an Account Agreement

When parties engage in business transactions for property or services, an "account" is formed.  In most account transactions, a formalized contract or agreement governs the transaction and sets out the terms, conditions, obligations, and rights of the parties. Credit card "accounts" are no different.  When consumers sign up for a credit card, they agree to certain terms and conditions (the fine print) that govern the transaction. Like many businesses, credit card companies include terms in there account agreements that are very legally advantageous.  For example, it is common for account agreements to contain large interest rates, fees, and penalties for late payments, mandatory arbitration clauses, choice of law provisions, and other terms that limit a debtor's ability to dispute or settle a debt on an account.  

But are these advantageous provisions enforceable? And, are there any limitations under Ohio law that effect the general enforcement of account agreements? This is the issue addressed by Ohio's Sixth District Appellate Court in Citibank (South Dakota) v. Perz., 2010-Ohio-5890 (6th Dist. Lucas Co., Dec. 3, 2010).

In Citibank, the court had to determine the enforceability of an account agreement provision that prohibited the settlement of an overdue account balance by a business's acceptance of a late and partial payment from its customer.  The debtor, Julie Benoit (also called Julie Prez) owed Citibank approximately $13,000 on two separate Citibank credit cards. In an attempt to avoid bankruptcy, Julie tried to settle her debt with Citibank by having her attorney mail Citibank $4,000 in the form of two restrictively indorsed checks for the full settlement of her account.

Citibank accepted Julie's settlement checks, but subsequently sued her for the rest of the money due on her accounts. It claimed that its acceptance of the partial payments (the two checks for $4000) could not settle the overdue accounts because the customer account agreement that Julie signed when she opened her accounts contained a provision that specifically prohibited the settlement of accounts by late or partial payment. The trial court agreed with Citibank, but on appeal, the Sixth District reversed.

The court found that Citibank's defense failed because there was no evidence that the "customer agreements" it provided to the court were the agreements that Citibank made with Julia when she opened her accounts with Citibank. The court noted that the agreements were nothing more than "unsigned, undated, and unathenticated generic forms" that contained no evidence at all that they "applied to [Julia], had any relation to her account, or were otherwise mailed or sent to her." Therefore, the court held that the agreements were unenforceable. Subsequently, the court also found that Citibank's acceptance of Julie's $4,000 settlement checks was a valid settlement of the debt.

Account Procedures that Every Ohio Business Should Make Sure
It Has Implemented

There are lessons to be learned from the Citibank case. The Citibank case demonstrates the risks and possible consequences that a business can face if it does not keep adequate records of its customer accounts agreements and billing statements. Although the case involves credit cards, its ruling is relevant to the billing and account procedures of any business that wants to ensure that the terms of its account agreements are enforceable and that it can collect on an unpaid account. The following is a short list of some procedures that all businesses should consider implementing in light of the Citibank case:

(1)  Keep original copies of signed and dated customer account agreements
       on record. This applies whether a company is conducting business strictly
       online or has a store with a physical presence. Only keeping records of 
       generic account agreements that a company uses or has used is not 
       sufficient;

(2)  Companies that frequently update customer account agreement terms or 
       have multiple account agreements should keep track of each individual 
       account agreement and the transactions that each governs;

(3)  When updating or changing a customer account agreement, establish a 
       record of the change and evidence that customers effected by the changes 
       were notified and accepted (or acquiesced, depending on the terms of an 
       account agreement) to the new terms.

Businesses looking for more advice on customer account agreements, collection of overdue accounts, and  refinement of billing and accounting procedures should contact an attorney in their area for more assistance.

Friday, December 10, 2010

Southern District Rules on the Retroactive Application of the New Changes to Federal Rule of Civil Procedure 26

In a previous post, I discussed one of the important changes to the Federal Rules of Civil Procedure that took effect on December 1, 2010 regarding the discoverability of Attorney-Expert Communications under FRCP 26. The topic of this post covers another important change to Rule 26 that took place on December 1, the new requirement of summary disclosures for non-testifying experts. It also covers a recent ruling by Southern Districts of Ohio, which clarifies whether the new changes to Rule 26 apply retroactively.

The Old Rule

Under old and current FRCP 26(a)(2)(B), expert witnesses retained by a party specifically to testify at trial must disclose a written report containing their opinions and other information.  Under the old rule, expert witnesses testifying at trial, but not hired or employed by a party specifically to testify at trial, were not required to submit any written reports. Only the disclosure of these witnesses' identities was required. An example of an expert who would not have to disclose a report under old Rule 26(a)(2)(B) is a "treating physician" (personal injury action, the emergency doctor who treated the plaintiffs injuries after an accident).  

New Rule

Under new Rule 26(a)(2)(C), all witnesses who previously may have fallen under the non-reporting requirement, like "treating physician," are now required to provide a "summary of the facts and opinions to which the witness is expected to testify." That is the new rule. 

No Retroactive Application of New Rule 26(a)(2)(C)

An issue that had yet to be truly known until the new changes took effect on December, 1, 2010, is whether the new changes to the rules apply retroactively. For example, what happens if a party, on 10/15/2010, before the new rule changes took effect, decides to call a "treating physician" to testify in a trial, which would take place on 1/15/2011, after the rule changes occurred?  Would the party: (A) have to disclose a summary of what they expected the witness to testify to under the new rule (Rule 26(a)(2)(C), or (B) would the party only have to disclose the identity of the witness (via old Rule26(a)(2)(B))? 

The Southern District of Ohio has answered the issue in the case of William J. Lattuga v. United States Postal Service, Case No. 1:09-cv-416, Doc# 29, Decided on November 29th, 2010. In Lattuga, the Defendant sought to exclude the testimony of two physicians who had been identified as expert witnesses, but had not disclosed summary reports as required by new Rule 26(a)(2)(C). Even though the new rules have taken effect, the court denied the motion because the new rule change "was not in place at the time expert disclosure was required."  In other words, the court held that the new rule change did not apply retroactively. 

This ruling seems to be in line with what most people were expecting would happen. Although courts have not yet formally ruled on the retroactive application of other rule changes that occurred on December 1st, like the discoverability of Attorney-Expert Communications, it can only be assumed that communications that occurred between attorney's and experts before the rule changes took place remain unprivileged and discoverable. The idea of parties signing agreements to apply the rules retroactively has been suggested to try to get around this procedural loophole.   

Sunday, December 5, 2010

Enforceability of Non-Competition Agreements Under Ohio Law

Non-competition agreements (also called "non-competes" and "covenants not to compete") are contractual agreements that require employees to agree not to engage in competitive activities after termination of an employment agreement. In this post, I cover the validity of non-competes and some of the requirements and limitations that exist regarding these provisions under Ohio law. 

(1)  Covenants Not to Compete Must Be "Reasonable"

Although non-competition agreements are restraints on trade and restraints on trade are usually frowned upon, non-competes are enforceable if they are "reasonable."  In Raimonde v. Van Vlerah, 42 Ohio St. 2d 21, 325 N.E.2d 544 (1975), the Ohio Supreme Court held that non-competition agreements will only be found reasonable when an employer can demonstrate that the restriction placed on a terminated employee: (1) is no greater than what is required for the protection of the employer's legitimate business interests, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public.   

Under this three part test, Ohio courts consider several factors when determining whether a non-compete agreement is reasonable, including: (i) how long the restriction lasts and the geographic area that the restriction covers, (ii) whether the employee was the sole contact with customers, (iii) whether the employee possesses confidential information or trade secrets, (iv) whether the covenant operates to bar the employee's sole means of support, (v) whether the covenant seeks to stifle the inherent skill and experience of the employee, (vi) the likelihood that the employee can find other employment if the restriction is enforced and (vii) whether the benefit to the employer is disproportional to the detriment of the employee. Id. at 25; Westco Group, Inc. v. City Mattress, No. 12619, 1991 Ohio App. LEXIS 3878 (2nd Dist., Aug. 15, 1991); Columbus Medical Equipment Co. v. Watters, 13 Ohio App. 3d 149, 468 N.E.2d 343 (10th Dist. Franklin Co., 1983).

The determination of what is "reasonable" will depend on the factual circumstances presented in each case.  A non-compete found reasonable in one context may not be reasonable in another. Compare Proter & Gamble Co. v. Stoneham, 140 Ohio App. 3d 260, 747 N.E.2d 268 (1st Dist. Hamilton Co., 2000) (non-compete protecting employer's interests in customer relationships, good will, and trade secrets found reasonable)  to Brentlinger Enterprises v. Curran, 141 Ohio App.3d 640, 752 N.E.2d 994 (10th Dist. Franklin Co., 2001) (similar agreement found unreasonable and unenforceable).

However, even when a non-compete is found unreasonable, this doesn't necessarily mean that its void as a matter of law. Courts have the power to modify and amend unreasonable agreements so as to enforce them as to the extent necessary to protect an employer's legitimate interests.  Raimonde, 42 Ohio St. 2d at 25-26.

(2) Non-Competes are Enforceable Against Independent Contractors

As found in the Americare Healthcare Servs. case that I discussed last week, Ohio courts, including the Supreme Court of Ohio, find non-compete agreements made between employers and independent contractors to be enforceable.  For example, in Hamilton Ins. Serv., Inc. v. Nationwide Ins. Cos., 86 Ohio St.3d 270, 1999-Ohio-162 (1999), the Ohio Supreme Court held that a non-compete clause in an agency agreement between Nationwide and its independent-contractor-agent was valid and enforceable.  Similarly, in Albert v. Shiells, 10th Dist. No. 02AP-354, 2002-Ohio-7021, the appellate court affirmed a grant injunctive relief based on a non-compete clause between a beauty salon and its former independent contract.

Therefore, the enforceability of a non-compete does not depend on a person's status as an employee or independent contractor. See, also, Carl Ralston Ins. Agency, Inc. v. Nationwide Mut. Ins. Co., 9th Dist. No. 23336, 2007-Ohio-507; SJA & Assoc., Inc. v. Glider, 8th Dist. No. 80181, 2002-Ohio-3545; Burton Minnick Realty, Inc. v. Leffel, (Sept. 28, 1990), 2nd Dist. No 2680 (holding that a non-compete clause between a real estate broker and an independent contract salesperson would be enforceable if the clause was determined to be reasonable on remand).

(3) Promises of Continued Employment Are Sufficient to Support Non-Competition Agreements

The Americare Healthcare Servs. case also addressed the issue of whether an employer's promise to continue to employ an employee (or independent contractor) is sufficient consideration to support a non-competition agreement. It is a fundamental principal of contract law that "mutual consideration" (or a bargained for mutual exchange of duties) must exist between parties of a contract in order for a contract to be valid.

In Americare, the defendants argued that non-competition agreements were unenforceable because the employer offered nothing in exchange to support the non-compete agreement. However, this argument failed. The Americare court found that the employee independent contractors "were required to sign non-compete agreements and were informed that the execution of a non-compete agreement was a condition of their continued employment or contracting relationship with Americare."

The court noted that both the Ohio Supreme Court and the 1st Appellate District Court in Hamilton County have held that "consideration exists to support a non-competition agreement when, in exchange for the assent of an at-will employee to a proffered non-competition agreement, the employer continues an at-will employment relationship that could legally be terminated without cause." Americare, supra, citing Lake Land Emp. Group of Akron, LLC v. Columber, 101 Ohio St.3d 242, 2004-Ohio-786 (2004); see Financial Dimensions, Inc. v. Zifer, 1999 Ohio App. LEXIS 5379 (1st Dist., Dec. 10, 1990) (the distinction of whether a person is an "employee" or "independent contractor" is "not relevant to the issue").

Therefore, an employer's promise of continued employment of an at-will employee is sufficient to support a non-competition agreement.


(4) Covenants Not to Compete are More Difficult to Enforce Against Physicians

Although a properly drafted non-competition provision/agreement can be found enforceable against anyone, it is particularly difficult to enforce non-competes against physicians. This is because it is more difficult to show that non-competes are reasonable under the three prong test mentioned above. Specifically, it is often difficult for employers to show that they have a legitimate business interest to protect in enforcing a non-compete against a doctor.  Additionally, keeping doctors from working is viewed as being against the public interest. See Ohio Urology, Inc. v. Poll, 72 Ohio App. 3d 446, 594 N.E.2d 1027 (1991); Frederick D. Harris, M.D. v. Thomas L. Craig, III, M.D., 2002 Ohio 5063 (8th Dist. 2002).


Conclusion

Issues underlying what is "fair" competition and what is not is a central issue that courts decide in business litigation cases. Whether a non-competition agreement made between an employer and former employee is fair and reasonable under the circumstances and supported by "mutuality of obligation" is something that all employers and employees should consider before they sign employment or affiliation agreements. The above post is a short list of some of the specific legal considerations that should be taken into account before a covenant not to compete is signed.