For The Defense, March 2012 - DRI Today

On The RecordIn Combination, We Become StrongerIdeas, Words, and the DRICenter for Public PolicyBy Mary Massaron Ross, DRI President-ElectEudora Welty said, “A good snapshot stops a momentfrom running away.” The boxes of photographs that Ihave stashed away in my house hold dozens of black andwhite snapshots showing my parents and some combinationof my eight brothers and sisters and me sittingaround the breakfast room table in my parents’ housein Detroit. These were not formal posed pictures; theywere taken to commemorate some dinner or brunch orevening, perhaps on a holiday weekend or someone’sbirthday or when some of my many aunts and unclesand cousins were in town to visit. The table in front ofus is characteristically piled with newspapers and journals—onany given day, they might have included thelocal newspapers, the Detroit Free Press and the DetroitNews, and national magazines and newspapers that werethen on the market, such as Look, Life, Time, Newsweek,the National Geographic, Commentary, the AtlanticMonthly, the New Yorker, the Christian Science Monitor,the National Catholic Reporter, and the Sunday editionof the New York Times.Those photos remind me of literally hundreds of conversationswith my family, sitting together over coffeetalking about the issues of the day. In our house, welearned at an early age that ideas have consequences, andthat words have power. But the idea was only the beginning;Pablo Picasso said it best when he said, “An idea isa point of departure and no more. As soon as you elaborateit, it becomes transformed by thought.” My parentsemphasized this notion, through their example andthose many hours of talk; our ideas were important, andcould have consequences in the world, but that wouldrequire thought so that the ideas that we tried to expressin words would be well-formed, based on facts, logic, andthe values we held.At a time when a cacophony of ill-thought-out ideasfill the media, and the Internet offers an all- too- availablesource of misinformation, the need for thoughtful personsof good will to be engaged with the issues of the dayis even more critically important. But how do we bestdo that? Alexis de Toqueville observed that “[a]s soon asseveral of the inhabitants of the United States have takenup an opinion or a feeling which they wish to promotein the world, they look out for mutual assistance; and assoon as they have found one another out, they combine.”Lawyers representing businesses and individuals in civillitigation look for mutual assistance as members of DRI,the largest organization of lawyers who represent businessesand individuals in civil litigation.DRI’s organizational structure reflects the belief that incombination, we are stronger than any of us can be alone.The DRI Board of Directors includes national directors,regional directors selected by the many state and localdefense organizations affiliated with DRI, and representativesfrom the sister groups, ADTA, IADC, and FDCC.As Toqueville pointed out, from the moment individualscombine into an organization “[t]hey are no longerisolated men, but a power seen from afar, whose actionsserve for an example and whose language is listened to.”DRI has been a powerful voice in the judicial arenathrough its outstanding amicus program. Last year,DRI fielded 58 requests for amicus support, and filed 20briefs, 15 in the United States Supreme Court. The briefsthat DRI files are grounded in the law, and offer a uniqueperspective to the courts in which they are filed based onwhat we know as an organization of lawyers representingour clients in litigation and advising them about risksand solutions. DRI’s voice has been heard in such importantdefense victories as Wal-Mart Stores, Inc. v. Dukes,U.S. . 131 S. Ct. 2541 (2011), Daubert v. MerrellDow Pharmaceuticals, Inc., 509 U.S. 579, 113 S. Ct. 2786,125 L. Ed. 2d 469 (1993), and American Elec. Power Co.,Inc. v. Connecticut, U.S. , 131 S. Ct. 2527 (2011).DRI has been a powerful voice with respect to otherpublic policy issues. DRI’s Judicial Task Force created ascholarly report on judicial independence, Without Fearor Favor: A New Decade of Challenges to Judicial Independence,which has become an important contributionto the current public debate on issues relating to the judiciary.DRI has also focused its efforts on issues arisingout of the Medicare Secondary Payer Act, by preparing areport and by participating in a coalition with others totry to solve the problems created by the Act. DRI’s workdeveloping ideas of consequence, and articulating themin powerful language, can be seen in other reports andwhite papers it has published including Alternative FeeArrangements (2011–2012), Women in the Courtroom BestPractices Guide (2007), Women in the Courtroom (2004),On The Record, continued on page 72For The Defense ■ March 2012 ■ 1

DRI—The Voiceof the Defense BarVol. 54, No. 3 March 2012PresidentHenry M. SneathPittsburgh, PennsylvaniaImmediate Past President R. Matthew CairnsConcord, New HampshireIn This Issue1 On The RecordIn Combination, We Become Stronger: Ideas, Words, and the DRI Center for Public PolicyBy Mary Massaron Ross, DRI President-Elect4 DRI NewsMembers on the Move • DRI Calendar • 2012 Regional Meetings Kick Off withNorthwest/Pacific and North Central Gatherings • Volunteering for the Troops!President-Elect1st Vice President2nd Vice PresidentSecretary-TreasurerMary Massaron RossDetroit, MichiganJ. Michael WestonCedar Rapids, IowaJohn Parker SweeneyBaltimore, MarylandLaura E. ProctorNashville, TennesseePretrial Litigation8 New RulesFederal Court Jurisdiction, Venue, and RemovalBy Alison C. Finnegan and Jonathan M. SternTrial Tactics12 A Study in Juror PsychologyMaking Up Minds Early and Not Keeping Them OpenBy Alan TuerkheimerExecutive DirectorJohn R. KourisDeputy Executive Director Tyler HowesDirector of PublicationsEditorProduction ManagerContributing EditorsJay LudlamMichelle ParriniJulia BergerudMarge MotluckCheryl L. PalombizioSarah M. VlcekCommercial Litigation16 From the ChairAn “Excellent Adventure”By Peter E. Strand18 Uncover Knowledge andAvoid SurprisesUsing 30(b)(6) Depositionsto Bind CorporationsBy C. Bailey King, Jr. and Evan M. Sauda23 What’s Exceptional Got to Do with It?Attorneys’ Fees in Lanham Act CasesBy Joseph L. Kish37 Hope Meets RealityLoan Modification Under HAMPBy Michael Steinlage41 I Wish They All Could Be CaliforniaWhy Noncompetes Critics AreSinging the Wrong SongBy Phillip C. Korovesis, Bernard J. Fuhs,and Marc W. Oswald46 Trade DressAn Overlooked Opportunity?By Ryan J. AaronAdvertisingRepresentativeLaurie P. MokryFor The Defense, March 2012, Vol. 54, No. 3 (ISSN 0015-6884). Copyright ©2012, DRI. All rights reserved.Published monthly by DRI, 55 West Monroe Street ~Suite 2000, Chicago, Illinois 60603. Telephone: (312)795-1101. Fax: (312) 795-0747.Periodicals postage paid at Chicago, Illinois, and atadditional mailing offices. Subscription price is $65.00per year, and, for DRI members, is included in the membershipdues. Individual copies are $7.00 for DRI membersand $12.00 for non-members, plus postage andhandling.POSTMASTER: Send address changes to For TheDefense, DRI, 55 West Monroe Street ~ Suite 2000, Chicago,Illinois 60603.Correspondence and manuscripts should be sent tothe Editor.All views, opinions and conclusions expressed in thismagazine are those of the authors, and do not necessarilyreflect the opinion and/or policy of DRI and itsleadership.28 Non-retained ExpertsAdding Credibility to Your CaseBy Tammy B. Georgelas34 Competition and LawfulnessThe Dickens About the FTCand Hospital MergersBy Kip D. Nelson52 Canadian Contract LawTermination of DistributionAgreementsBy Steven F. Rosenhek60 Writers’ CornerHeadline! Headline! Read All About It! Persuasive IntroductionsBy Edwin B. Brown62 Think GloballyVioxx Victory Down Under: A Reversal of Fortune in AustraliaBy Andrew Klein and Christopher G. Campbell57 The Case for MediationOptimization OrdersThe Litigator’s Guide to SuccessfulMediation AdvocacyBy David W. Henry63 Defense Ethics and ProfessionalismThey’re Not Just for [Name Your Commoditized Service or Product Here] Anymore:Ethics Opinions Say Groupons for Legal Services OKBy Thomas A. Gilligan71 Advocates and New Members2 ■ For The Defense ■ March 2012

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DRI Services55 West Monroe StreetSuite 2000Chicago, Illinois 60603Phone (312) 795-1101Fax (312) 795-0747Internet www.dri.orgE-mail dri@dri.orgHours8:30-4:30 CSTMonday-FridayDRI Staff Contacts (direct-dialnumbers in area code 312).■ Membership Services■ Change of Address■ Group Life Insurance■ Disability andMajor Medical■ Accidental Deathand Dismembermemt■ Professional LiabilityInsurance■ DRI Credit Card Programe-mail: membership@dri.orgCheryl Palombizio, 698-6207Marge Motluck, 698-6237Sarah M. Vlcek, 698-6258■ DRI Committeese-mail: committees@dri.orgLynn Conneen, 698-6221Char Graczyk, 698-6243■ Meeting ServicesLisa M. Sykes, 698-6233Beth DeMars, 698-6234Sandra Galindo, 698-6254■ Annual Meetinge-mail: annualmeeting@dri.org■ Advertising/Marketing/Sponsorshipe-mail: marketing@dri.orgKatie Malinich, 698-6256Laurie P. Mokry, 698-6259Megan O’Neil, 698-6244■ Expert Witness Database■ DRI Online■ Website Content Mgmte-mail: ewd@dri.orgJohn Hovis, 698-6218■ For The Defensee-mail: ftd@dri.org■ In-House Defense Quarterlye-mail: idq@dri.orgJay Ludlam, 698-6210■ The Voicee-mail: thevoice@dri.orgBarb Lowery, 698-6219■ Legislatione-mail: legislation@dri.org■ Publication Orderse-mail: publ-orders@dri.org■ Seminarse-mail: seminars@dri.orgJennifer Cout, 698-6205Stefanie R. Favia, 698-6241■ Webconferences/CLEJamie Rocks, 698-6212■ Customer Servicee-mail: custservice@dri.orgTiffany Caldwell, 698-6230Angelique Diaz-Rodriguez,698-6257Shnese Ingram, 698-6255■ Website■ Discussion Listse-mail: webmaster@dri.orgDRI News4 ■ For The Defense ■ March 2012Members on the MoveGoldberg Segalla LLP is pleased to announce theaddition of Lisa M. Robinson as special counselin its Syracuse office. Ms. Robinson concentratesher practice on the areas of catastrophic injury andwrongful death, commercial litigation, product liability,general and municipal liability litigation, andasbestos litigation.Goldberg and Segalla LLP is also pleased to announcethe admission of Seth L. Laver and SarahJ. Delaney to the firm’s partnership. From the firm’sPhiladelphia office, Mr. Laver focuses his practice onemployment and labor law and professional liabilitydefense, including the representation of lawyers, realestate and insurance professionals, architects, andparticularly accountants. He has been selected for inclusionfor the past two years as a Pennsylvania SuperLawyer Rising Star by Philadelphia Magazine.Resident in the firm’s Buffalo, New York, office, Ms.Delaney is a member of the Global Insurance ServicesTeam. Her practice concentration is on insurancecoverage analysis and litigation, professional liability,and appellate practice. She is the editor of CaseWatchInsurance, the firm’s bi-weekly insurance coveragenewsletter, as well as publisher of the firm’s Life,Health, Disability and ERISA Quarterly newsletter.Hollingsworth LLP is pleased to announce thatJames M. Sullivan has been elected to the firm’spartnership. Mr. Sullivan has a wide range of experiencehandling litigation matters before numerouscourts, including the United States Supreme Court,U.S. courts of appeals, and various federal and statetrial courts. Mr. Sullivan presently works primarilyon the case- specific defense of the serial bisphosphonatecases centralized in the Middle District of Tennesseeas multidistrict litigation.The global firm of Thompson & Knight LLP isproud to announce Scott P. Stolley has been appointedto the Texas Supreme Court Advisory Committee.Mr. Stolley will serve a three-year term, whichbegan in January 2012. Mr. Stolley is a partner inThompson & Knight’s Appellate and Supreme CourtPractice Group in Dallas. He focuses his practice onthe representation of appellants and appellees in stateand federal courts, including evaluation of appeals,drafting briefs, and arguing to appellate courts.Carlock, Copeland & Stair congratulates Lee C.Weatherly on being selected to join the firm’s partnership.Mr. Weatherly’s practice focuses on complexcivil cases involving medical malpractice, automobileand motor carrier accidents, correctional healthcare, constitutional law, premises liability, classaction claims, commercial litigation, contract disputes,and HOA liability. He has been lead counsel inover 60 jury trials and is an active member of boththe South Carolina and Kentucky Bars.Birmingham, Alabma, law firm Christian & SmallLLP announced that partner Kenneth O. Simon hasbeen selected to serve on the firm’s Executive Committee.The Executive Committee, with the managingpartner, monitors the firm’s economic performanceand provides the overall long-range planning policyand direction. Service on the committee is for threeyears. Mr. Simon replaces Sharon D. Stuart, whorolled off the Executive Committee in December.Foley & Mansfield is pleased to announce thatKeith Michael Ameele has been elected as an equitypartner and appointed as managing partner of thefirm’s Los Angeles office. In addition, Timothy J.Ferguson has been elected as partner in the firm’sMiami, Florida, office. Mr. Ameele concentrateshis practice entirely on litigation with an emphasison product liability, toxic tort, premises liability,personal injury, and business litigation. He representsnumerous manufacturers, suppliers, contractors,and premises owners in high-risk toxictort and product liability matters. Mr. Ameele alsodefends business owner in matters alleging environmentalcontamination and general business liability.Mr. Ferguson has focused his practice in theareas of product liability, toxic tort litigation, constructionand premises liability litigation, personalinjury litigation, and medical malpractice. Over theDiversity and Inclusion in DRI: A Statement of PrincipleDRI is the largest international membership organization of attorneys defending the interestsof business and individuals in civil litigation.Diversity is a core value at DRI. Indeed, diversity is fundamental to the success of theorganization, and we seek out and embrace the innumerable benefits and contributions that the perspectives,backgrounds, cultures, and life experiences a diverse membership provides.Inclusiveness is the chief means to increase the diversity of DRI’s membership and leadership positions. DRI’smembers and potential leaders are often also members and leaders of other defense organizations. Accordingly,DRI encourages all national, state, and local defense organizations to promote diversity and inclusion in theirmembership and leadership.

DRI News2012 Regional Meetings Kick Off with Northwest/Pacific and North Central GatheringsThe joint meeting of DRI’s Northwestand Pacific Regions was held on January12–14, 2012, at the Hilton Los CabosGolf & Beach Resort in Los Cabos,Mexico. Patrick J. Paul, DRI Pacific RegionalDirector, and John J. Burke, DRINorthwest Regional Director, led themeeting. DRI Second Vice PresidentJohn Parker Sweeney was the officer inattendance. The meeting was attendedby representatives from state and localdefense organizations (SLDOs) in Arizona,California, Hawaii, Idaho, Oregon,Washington and Wyoming.After gathering on Thursday eveningfor a networking reception, Mr.Sweeney began the substantive portionof the meeting on Friday morningwith an update on DRI, a discussionof current DRI initiatives, and a review ofthe resources that the organization makesavailable for SLDOs. Each DRI state representativethen provided a report on currentevents in his or her respective state. KristinBaldwin, Executive Director of the WashingtonDefense Trial Lawyers, presentedAttendees of DRI’s North Central Regional Meetinggather on the steps just outside their meeting room atthe Hilton Naples in Naples, Florida.6 ■ For The Defense ■ March 2012Leaders from DRI’s Northwest and Pacific Regions take a break from their joint annual meeting,held at the Hilton Los Cabos Golf & Beach Resort in Los Cabos, Mexico.to the group on using social media to benefitan SLDO. After breaking for the day,attendees enjoyed dinner and socializingat The Office on the Beach.The meeting reconvened Saturday morningand Mr. Sweeney provided an overviewof the National Foundation for JudicialExcellence and the 2012 DRI Annual Meeting.California lobbyist MikeBelote provided an update on theCalifornia legislature. The meetingconcluded with an all-attendeesopen discussion on SLDO hottopics, publications, and membershipissues.The DRI North Central RegionalMeeting was held on January12–14, 2012, at the Hilton Naples inNaples, Florida. Steven R. Schwegman,North Central RegionalDirector, presided over the meetingand Mary Massaron Ross, DRIPresident-Elect, was in attendance.Hosted by Minnesota, the meetingwas attended by representativesfrom the SLDOs in Illinois, Indiana,Minnesota, North Dakota,South Dakota, and Wisconsin.The substantive portion of themeeting kicked off on Friday witha DRI update from Ms. MassaronRoss detailing DRI’s standing committees,branding and image enhancementefforts, and resources available to SLDOs.R. Howard Jump, Illinois Association ofDefense Trial Counsel (IDC) President-Elect, presented on “Past SLDO Successesand Failures” and Mr. Schwegman alongwith Sandra J. Wulf, IDC Executive Director,completed the day by leading a groupdiscussion on ways that DRI can assist theSLDOs. The group gathered for a networkingdinner at the Ridgway Bar & Grill onFriday night.On Saturday morning, Thomas R.Schultz, DRI Indiana State Representative,and Paul A. Rajkowski, DRI MinnesotaState Representative led a group discussionon “How to Raise Your SLDO Profile.”Lisa Marso, DRI South Dakota StateRepresentative and Lisa Mortier, DefenseTrial Counsel of Indiana Executive Director,presented on “New SLDO Board Member,Officer and Committee LeadershipTraining.” Matthew E. Yde, , and Larry L.Boschee, DRI state representatives for Wisconsinand North Dakota, respectively, ledthe participants in a discussion on “Howto Increase SLDO Members’ Participationin DRI Leadership Roles.” The meetingconcluded with Ms. Massaron Rosspresenting on the 2012 DRI Annual Meetingand the National Foundation for JudicialExcellence.Cheryl L. Palombizio and Sarah M. Vlcek

DRI NewsVolunteering for the Troops!Claims Executives Can AttendDRI Seminars at No CostAny member of DRI employed as a claims professional by a corporationor insurance company, who spends a substantial portionof his or her professional time hiring or supervising outside counselin the representation of business, insurance companies or theirinsureds, associations or governmental entities in civil litigation willbe entitled to free attendance at any DRI program.Any nonmember lawyer eligible for free DRI programmingemployed as a claims professional by a corporation or insurancecompany, who spends a substantial portion of his or her professionaltime hiring or supervising outside counsel in the representationof business, insurance companies or their insureds,associations or governmental entities in civil litigation, may attendone free DRI program provided that such lawyer is sponsored bya DRI member and accompanied at the seminar by the sponsoringDRI member. A nonlawyer, vice president or manager in charge ofhiring or supervising outside counsel nationally or regionally (multistate)for a corporation, third party administrator or insurance companyis eligible to attend one free seminar annually provided thatsuch individual is sponsored by a DRI member* and accompaniedby the sponsoring DRI member at the seminar.Offer excludes DRI Annual Meeting.UPDATE COMING!On Saturday, February 11, over 30 attendeesof the DRI Toxic Torts and EnvironmentalLaw Seminar in Miami Beach, Florida, volunteeredtheir time to prepare packages tosend to U.S. troops and their children. In conjunctionwith Operation Gratitude, attendeesstuffed 300 teddy bears to give to the childrenof deployed soldiers and prepared hundredsof gift bags to be sent to troops in Afghanistan,sailors and marines stationed on Navyships, and to Wounded Warrior TransitionUnits throughout the United States.In addition, several DRI member firmssponsored “Jeans Days,” which raisedover $9,000 for Operation Gratitude.Participating firms included:• Akerman Senterfitt LLP• Bowles Rice McDavid Graff & Love LLP• Fontainebleau Miami Beach• Greenberg Traurig LLP• Steptoe & Johnson LLP• Thompson Hine LLP• Tucker Ellis & West LLP• Womble Carlyle Sandridge & Rice LLPDRI Defense Practitioner’sGuide to MSP IssuesNew mandatory reporting obligationsunder Section 111 of theMedicare, Medicaid and SCHIPExtension Act (MMSEA) andthe long-standing obligation toreimburse Medicare under theMedicare Secondary Payer Act arecomplex and sometimes confus-ing. Use this resource to learnhow these laws impact claims andlitigation involving claimants who may be Medicare beneficiaries.••••• The DRI Defense Library SeriesDRI DefensePractitioner’s Guide toMedicare SecondaryPayer IssuesChicago, IllinoisPlease contact DRI Customer Service at 312.795.1101 toupdate a subscription, order a CD, or for more information.* Must be an active Individual Member and registered for the seminar.Sponsorship is limited to one nonmember claims executive per memberper seminar.For The Defense ■ March 2012 ■ 7

Pretrial LitigationNew RulesBy Alison C. Finneganand Jonathan M. SternFederal CourtJurisdiction, Venue,and RemovalFederal courtpractitioners need tounderstand the impact ofrecent legislation on theirday-to-day practices.Changes are afoot for attorneys practicing in the UnitedStates federal courts. Effective with all state and federallawsuits commenced on or after January 6, 2012, the FederalCourts Jurisdiction and Venue Clarification Act of2011, H.R. 394, P.L. 112-63, makes changesto the federal statutory provisions on diversityjurisdiction, 28 U.S.C. §1332, venue, 28U.S.C. §§1390–92, 1404, and removal, 28U.S.C. §§1441, 1446, 1454. House of RepresentativesReport 112-10, submitted by the■ Alison C. Finnegan is a partner of Schnader Harrison Segal & Lewis LLP in the firm’s Philadelphia office,where she is a member of the firm’s Litigation Department, Aviation Group, and Financial Services Group.She is admitted to the bar in Pennsylvania and New Jersey. Jonathan M. Stern is a partner of Schnader HarrisonSegal & Lewis LLP in the firm’s Washington, D.C., office, where he co-chairs the firm’s Aviation Group.A member of the District of Columbia, Maryland, Pennsylvania, and Virginia bars, he is a past chair of DRI’sAerospace Law Committee.8 ■ For The Defense ■ March 2012

U.S. House of Representatives Committeeon the Judiciary, which accompanied thehouse bill, explains at length the purposesand effects of this legislation. This articleprovides a synopsis of the key changes andthe implications for day-to-day practice.Resident Alien Treatmentfor Diversity PurposesThe Federal Courts Jurisdiction and VenueClarification Act (the “Act”) changes thetreatment of resident aliens, meaning aliens“admitted to the United States for permanentresidence,” for diversity jurisdictionpurposes, effectively closing the federalcourthouse doors to disputes betweenaliens whether permanent residents or not.According to House Report 112-10, thesechanges constitute a “modest[ ]” jurisdictionalrestriction while leaving state courtsavailable to resolve disputes between suchparties. H.R. Rep. No. 112-10, at 7 (2011).Diversity jurisdiction exists when a matterin controversy exceeds $75,000 and isbetween citizens of different states. The federalcourts have long required “completediversity” between the parties: no plaintiffand no defendant can have citizenship inthe same state. Under the revisions to section1332(a)(2), federal district courts donot have jurisdiction of an action “betweencitizens of a State and citizens or subjectsof a foreign state who are lawfully admittedfor permanent residence in the UnitedStates and are domiciled in the same State.”Formerly, the federal courts did not havejurisdiction over a dispute that involvedonly aliens. See H.R. Rep. No. 112-10, at 6(2011) (“Alienage jurisdiction exceeds thelimits of Article III unless a citizen of theUnited States also appears as a party. SeeHodgson v. Bowerbank, 9 U.S. (5 Cranch)303 (1809)). But the closing paragraph ofsection 1332(a) formerly contained “deeming”language specifying that “an alienadmitted to the United States for permanentresidence shall be deemed a citizenof the State in which such alien is domiciled.”H.R. Rep. No. 112-10, at 6 (2011).This language, added in 1988 by the JudicialImprovements and Access to JusticeAct, Pub. L. No. 100-702, precluded federaljurisdiction in lawsuits between a citizenof a state and an alien who permanentlyresided in the same state. House ReportNo. 112-10 recognizes that the 1988 amendment“curtailed alienage jurisdiction in onesetting” but “created an arguable basis forexpansion of alienage jurisdiction in othersettings.” H.R. Rep. No. 112-10, at 7 (2011).Namely, two resident aliens domiciled indifferent states each could be “deemed” aresident of the state of domicile thus claimingaccess to federal courts in violation ofthe rule in Hodgson v. Bowerbank.The Act removes the resident alien provisionand the deeming language. Instead,section 101 of the Act, codified at §1332(a)(2), now creates an exception to diversity ofcitizenship jurisdiction and accomplishes“the goal of modestly restricting jurisdiction,which Congress sought to accomplishwhen it first enacted the residentalien proviso” in 1988. H.R. Rep. No. 112-10, at 7 (2011). The report further notes that“[s]tate court forums would remain availableto aliens if Federal court forums wereforeclosed.” Id.Notably, the Act adds this restrictiononly to section 1332(a)(2). Section 1332(a)(3) remains unchanged. Thus, citizens orsubjects of a foreign state may continueto appear as additional parties to disputesbetween citizens of different states.Citizenship of Corporationsand Insurance CompaniesThe Act, by broadening the deemed citizenshipof corporations and, in directactions, insurance companies, probablywill slightly reduce the frequency withwhich these entities will appear before federalcourts in diversity jurisdiction cases.Section 102 of the Act changes the waythat courts will treat corporations andinsurance companies in direct actions indiversity jurisdiction cases under 28 U.S.C.§1332(c)(1). According to House Report No.112-10, the “purpose [of the amendmentto that section] is to clarify how foreigncontacts should affect the determinationof whether diversity of citizenship existswhen a case involving these entities is filedin or removed to Federal court.” H.R. Rep.No. 112-10, at 8 (2011).Formerly, when one of the parties to acivil action was a corporation, the corporationwas deemed a citizen of “any State”in which it had been incorporated and thestate in which it had its principal place ofbusiness. Congress added these provisionsto 28 U.S.C. §1332(c)(1) in 1958 to “expandThe Act changes theway that courts willtreat corporations andinsurance companies indirect actions in diversityjurisdiction cases.the concept of corporate citizenship… topreclude diversity jurisdiction over a disputebetween an in-state citizen and a corporationincorporated or primarily doingbusiness in the same state.” H.R. Rep. No.112-10 at 8 (2011) (emphasis added).According to House Report No. 112-10,federal courts struggled to apply the formerversion of the statute in actions involvingUnited States corporations with foreigncontacts or foreign corporations operatingin the United States. H.R. Rep. No.112-10, at 8 (2011). The difficulty apparentlystemmed from the word “State” in§1332(c)(1). Did “State” mean a state withinthe United States, or did it include a foreignstate? Section 1332(e) defined “States”as including “the Territories, the Districtof Columbia and the Commonwealth ofPuerto Rico.” House Report No. 112-10noted that several courts had held that theword “States” applied only to the 50 statesand other places specified in the definitionbecause it began with a capital “S.” E.g.,Torres v. Southern Peru Copper Corp., 113F.3d 540, 543 (11th Cir. 1997); Cabalcetav. Standard Fruit Co., 883 F.2d 1553, 1559(5th Cir. 1989). One federal district courtexpressed the following reasoning:Throughout Chapter 85 of Title 28,which are the sections of the law dealingwith the jurisdiction of district courts,the term “foreign state” is used to referto foreign states, but the word “State” isused to refer to states within the UnitedStates. Additionally, section 1332(e) clarifiesthat “State” is referring to Americancitizens by saying: “The word ‘States’ asused in this section includes the Territories,the District of Columbia, andFor The Defense ■ March 2012 ■ 9

Pretrial Litigationthe Commonwealth of Puerto Rico.” 28U.S.C. §1332(e).Wu v. Ryder Truck Rental, Inc., 561 F. Supp.2d 1061, 1063 (E.D. Mo. 2008)Other courts, however, held that theword “States” meant foreign states and thestates of the United States. E.g., Nike, Inc.v. Comercial Iberica de Exclusivas Deportivas,S.A., 20 F.3d 987 (9th Cir. 1994). This,of course, conforms to the jurisdictionlimitingpurpose of the 1958 amendment.In Nike, the Ninth Circuit declined to drawa distinction between foreign and domesticcorporations when determining the corporations’citizenship for purposes of diversityjurisdiction, instead deeming eacha citizen of both its place of incorporationand its principal place of business.Id. at 990. Because Nike, the plaintiff, wasincorporated in Bermuda and none of thedefendants was a U.S. citizen, the NinthCircuit held that the federal district courtlacked diversity jurisdiction. Id. at 991.Under the recently amended section1332(c)(1), the language “any State” has beenabandoned in favor of “every State.” Thus,courts will regard all foreign and domesticcorporations as citizens of both their placesof incorporation and their principal placesof business, which will eliminate diversityjurisdiction when (1) a foreign corporationwith its principal place of business in a statesues or is sued by a citizen of the same state,and (2) a citizen of a foreign country sues aU.S. corporation with its principal place ofbusiness abroad. H.R. Rep. No. 112-10, at 9(2011). House Report No. 112-10 notes thatstate courts of general jurisdiction remainavailable to parties blocked from the federalcourts by the amendment. Id. The reportfurther notes that this clarification brings28 U.S.C. §1332(c)(1) in line with the definitionof corporate citizenship in the Multiparty,Multiforum Trial Jurisdiction Actof 2002, Pub. L. No. 107-273, which deems acorporation a “citizen of any State and a citizenor subject of any foreign state, in whichit is incorporated or has its principal placeof business.” 28 U.S.C. §1369(c)(2). See alsoJonathan M. Stern, Terrible Twos or DoingWhat It’s Supposed to Do? The Multiparty,Multiforum Trial Jurisdiction Act, For TheDefense (May 2005).The same broadened definition of citizenshipapplies to insurance company partiesin direct action lawsuits. As described10 ■ For The Defense ■ March 2012by House Report No. 112-10, in a directaction case “the plaintiff sues the liabilityinsurance company directly without namingas a defendant the insured party whosenegligence or other wrongdoing gave riseto the claim.” H.R. Rep. No. 112-10, at 10(2011). Formerly, section 1332(c)(1) deemedan insurer in such a lawsuit a citizen of anystate by which the insurer had been incorporatedand of the state in which it had itsprincipal place of business. Now under section1332(c)(1) in direct actionsagainst the insurer of a policy or contractof liability insurance, whether incorporatedor unincorporated, to which actionthe insured is not a party defendant,the insurer shall be deemed a citizen of(A) every State and foreign state of whichthe insured is a citizen; (B) every Stateand foreign state by which the insurerhas been incorporated; and (C) the Stateor foreign state where the insurer has itsprincipal place of business.Amended Section 1441(c)—“Sever and Remand”Amendments to 28 U.S.C. §1441(c) “clarifythe right of access to Federal court uponremoval for the adjudication of separateFederal law claims that are joined withunrelated state law claims.” H.R. Rep. No.112-10, at 12 (2011). Formerly, this sectionof the statute appeared to permit removalof an entire case whenever a “separate andindependent” federal question claim wasjoined to one or more claims over which thefederal courts did not have original jurisdiction.The federal district court wouldeither retain the entire case or remand allmatters in which state law predominated.H.R. Rep. No. 112-10, at 12 (2011). Accordingto House Report No. 112-10, “[s]omeFederal district courts have declared theprovision unconstitutional or raised constitutionalquestions because… subsection1441(c) purports to give courts authority todecide state law claims for which the Federalcourts do not have original jurisdiction.”H.R. Rep. No. 112-10, at 12 (2011).The Federal Courts Jurisdiction andVenue Clarification Act establishes a “severand-remand” approach: a defendant canremove a case to a federal court to have afederal forum resolve federal claims, but thefederal district court must remand unrelatedstate law matters. H.R. Rep. No. 112-10,at 12 (2011). The Act does not explain whatmakes a state law matter “unrelated” to afederal claim, so we assume that the jurisprudencedeveloped by the courts under theprevious version of the statute still stands.See, e.g., Nesbitt v. Bun Basket, Inc., 780 F.Supp. 1151 (W.D. Mich. 1991) (remandingto state court an employee’s contract claimagainst an employer but retaining the employee’sFair Labor Standards Act claim becausethe contract claim was insufficientlyrelated to the statutory overtime claim, thetwo claims were not part of a single ongoingwrong, and they did not arise from a commonnucleus of fact).Removal Procedures Changesand ClarificationsPerhaps the most significant changes madeby the Federal Courts Jurisdiction andVenue Clarification Act have to do withremoval procedures. In particular, the Actclarifies removal timing and consent toremoval.The Act provides that each defendantshall have 30 days after service of the initialpleading or summons to file a noticeof removal. 28 U.S.C. §1446(b)(2)(A). Previously,the federal courts differentlyapproached removal timing in multidefendantcases: some courts held thatthe date of service on the last-served defendantactivated the 30-day period whileothers held that the date of service onthe first-served defendant activated the30-day period. Other courts adhered towhat is the new statutory standard. HouseReport No. 112-10 lists several cases demonstratingthese divergent approaches. SeeH.R. Rep. No. 112-10, at 13–14 (2011). Thereport notes that “[f]air ness to later- serveddefendants, whether they are brought inby the initial complaint or an amendedcomplaint, necessitates that they be giventheir own opportunity to remove, even ifthe earlier- served defendants chose notto remove initially.” H.R. Rep. No. 112-10,at 14 (2011). Moreover, now earlier- serveddefendants may join in and consent toremoval by a later- served defendant evenif the earlier- served defendant did not previouslyinitiate or consent to removal. 28U.S.C. §1446(b)(2)(C).Section 1446(c)(2), a completely newsubsection, will allow a defendant to assertan amount in controversy in the removal

notice if a plaintiff’s initial pleading seeksnon- monetary relief or a money judgmentwhen the state practice either does not permita plaintiff to demand a specific sumor permits a plaintiff to recover damagesin excess of the amount demanded. Subsection1446(c)(2) allows a defendant touse discovery from the state court actionto determine for removal purposes theamount in controversy. Information in thestate court action record that shows a sufficientamount in controversy is deemed“other paper” under 28 U.S.C. §1446(b)(3),starting the 30-day removal period anew.Further, under the Act, when litigating partiesdispute the amount in controversy, thetrial judge must apply the preponderance ofthe evidence standard to his or her jurisdictionalfact finding.Additionally, the amendment to section1446(c)(3) lifts the one-year limitation onremoval of diversity actions if a plaintiffhas “acted in bad faith” to prevent removal.The federal district court has the discretionto allow removal at any time if bad faith isfound. We believe that this more than anyother aspect of the Act will lead to the mostlitigation. House Report No. 112-10 importantlynotes that, if a plaintiff deliberatelyfails to disclose the amount in controversyto prevent removal, that would constitutebad faith. H.R. Rep. No. 112-10, at 16 (2011).See 28 U.S.C. §1446(c)(3)(B).Finally, the Act separates the provisionsfor removal of civil and criminal proceedingsinto two statutes, codifying the processfor removal of criminal proceedings in28 U.S.C. §1454 and leaving the civil provisionsin 28 U.S.C. §1446.“Venue” and “Residency” DefinitionsSection 201 of the Federal Courts Jurisdictionand Venue Clarification Act redefinesthe term “venue” asa geographic specification of the appropriateforum for litigation of a civilaction that is within the subject- matterjurisdiction of the district courts in generaland does not refer to any grant orrestriction of subject- matter jurisdictionproviding for a civil action to be adjudicatedonly by the district court for a particulardistrict or districts.28 U.S.C. §1390(a).House Report No. 112-10 characterizesthis change as providing a “general definition”that distinguishes venue from otherprovisions of federal law that operate asrestrictions on subject- matter jurisdiction.H.R. Rep. No. 112-10, at 17 (2011).The Act also clarifies that, consistentwith current case law, the removal statute—notthe venue statute—governs theproper venue for cases removed from stateto federal courts. See 28 U.S.C. §1390(c).The Act also establishes a “unitaryapproach” to venue requirements thatremoves distinctions between federal questionjurisdiction and diversity jurisdictionin section 1391, the “general venue statute.”H.R. Rep. No. 112-10, at 19 (2011). Specifically,1391(b)(1) explains venue rules forvenue based on residency of the defendants;section 1391(b)(2) explains venuerules for venue based on where the eventsleading to an action took place; and section1391(c) establishes a “fallback venue” whenthere is no appropriate district in which anaction may otherwise be brought. The Actdefines “fallback venue” as any judicial districtin which any defendant is subject topersonal jurisdiction in the action.The Act amends 28 U.S.C. §1391(c) by defining“residency” for all venue purposes inthe United States Code. This subsection formerlydefined residency but only for purposesof venue under Chapter 87 and onlyas applied to corporations. The amendedversion of section 1391(c) now defines residencyfor natural persons, incorporatedand unincorporated entities, and nonresidentdefendants. 28 U.S.C. §1391(c).The Act now specifies that “residency”for natural persons means “the judicialdistrict in which that person is domiciled.”28 U.S.C. §1391(c)(1). According to HouseReport No. 112-10, this amendment adoptsa rule followed by a majority of appellatecourts; in lawsuits involving multiple defendantsnot domiciled in the same state,it requires courts to situate lawsuits foradjudication in claim-based venues. Alienslawfully admitted for permanent residencealso are covered by section 1391(c)(1).The Act also clarifies the appropriatevenue for nonresident defendants. Formerly,a person could sue an alien defendantunder section 1391(d) in anydistrict, which meant that aliens could notraise venue as a defense to the place of litigation.The Act focuses on defendants “notresident in the United States,” so personsdomiciled abroad, whether aliens or UnitedStates citizens, cannot raise a venue defenseto the litigation location. H.R. Rep. No. 112-10, at 22 (2011) (emphasis added). Objectingto personal jurisdiction in the UnitedStates’ courts, however, remains availableto aliens as well as to United States citizensdomiciled abroad. 28 U.S.C. §1391(c)(3). Theamended statute further requires courts toCourts will regard allforeign and domesticcorporations as citizensof both their places ofincorporation and theirprincipal places of business.disregard United States citizens who resideabroad in determining the proper venue inactions with multiple defendants. Id. Note,however, that permanent resident alienshave a venue defense under section 1391(c)(1), which treats them as “natural persons”for residency purposes.Changing VenueThe revisions to 28 U.S.C. §1404(a) will permita federal district court to transfer a civilaction to any district or division to whichall parties have consented if convenient forthe parties and witnesses and in the interestof justice. This expands the authority of28 U.S.C. §1404, which previously allowedtransfer only to another district or divisionin which a case might have been brought,meaning to a district proper in terms ofboth venue and subject- matter jurisdictionrequirements. Section 1404(d), however,expressly prohibits transfers from ArticleIII district courts to the district courts ofGuam, the Northern Mariana Islands, andthe Virgin Islands. 28 U.S.C. §1404(d).Federal court practitioners will wantto familiarize themselves with these newrules before filing a new action or respondingto an action filed in state court. As mentioned,they apply to actions filed afterJanuary 6, 2012.For The Defense ■ March 2012 ■ 11

Trial TacticsA Study in JurorPsychologyMaking Up Minds EarlyBy Alan TuerkheimerPractitioners can improvetheir voir dire strategiesby understanding howpro-plaintiff and prodefense“leaning” jurorsprocess information.12 ■ For The Defense ■ March 2012■ Alan Tuerkheimer is a litigation consultant at Chicago- based Zagnoli McEvoy Foley LLC (ZMF). He has extensive experienceconducting jury research including focus groups, mock trials, and venue attitude surveys and has worked with trial teams acrossthe country on voir dire and jury selection, trial observation, shadow juries and post-trial interviews. Mr. Tuerkheimer is a memberof the State Bar of Wisconsin, the American Society of Trial Consultants, and the American Association of Public OpinionResearch. ZMF is a corporate member of DRI.

and Not Keeping Them OpenPeople interested in jury decision making continuallyquestion whether jurors form opinions very early in a caseand then cling to those perspectives without consideringopposing viewpoints during deliberations, or whether theyfollow instructions to keep open minds,evaluate the evidence without prejudice,and treat each side fairly. Duringthe judge- conducted part ofvoir dire, judges, in unambiguousterms, beseech juries to keepopen minds until they haveheard all of the evidence.Y e tsocial psychologyliterature is repletewith the notion thatjurors form opinionsduring the very earlystages of trials, andthese opinions remainunbending throughout.Both the literature andexperts have suggestedthat a high number of prospectivejurors interpret evidenceand case informationin ways that are consistentwith their initial slant towardone of the parties in the litigation.Donald E. Vinson & David S. Davis,Jury Persuasion: Psychological Strategies &Trial Techniques 199 (3d ed. 1996).Jury psychology reveals that jurors, thesame as people in general, do not necessarilybelieve what they see but see what theybelieve. Once a juror has a predetermined,firmly rooted viewpoint on a case and hasvested some cognition maintaining thatoutlook, the juror will interpret and assimilatesubsequent information so that it isconsistent with the juror’s initial outlook.Conversely, a juror will marginalizeor ignore new evidencethat is at odds with his or her preexistingbelief or mental structure.Social psychologists definean organized pattern of thoughtthat often draws from preconceivedbias as a “schema.”At the core, when confrontedwith new, complex, and adversarialinformation, jurors need ways tomake sense of it all since they have limited,short-term memories, as we all do. Aschema comes into play here. A schema,or mental framework, enables jurors tomake sense of the comprehensive “story”of a case. It helps jurors organize casespecificinformation and is critical to howjurors interpret evidence, witness testimony,and the thematic arguments thatfollow. A schema is so critical that it tendsto remain unchanged even in the face ofconcrete, contradictory information. Thatis why jury selection is so important—itoffers the parties insight into how jurorswill process case information. And, as juryresearchers have suspected for a long time,once a juror forms a fundamental belief—even very early in the life of a trial—thatbelief can remain intact throughout thetrial. Recently, the author’s firm set outto explore this in a study that forms thebasis for this article: how often does closemindednessreally occur? And, are proplaintiffor pro- defense jurors more likelyto make up their minds early, remainingfixed in their mindsets?Mock Trials and Juror “Leanings”A number of national trial consulting firmsconduct mock trials in a variety of casesand venues. The methodology described inthis study discussed below reflects strategiesimplemented by the author’s firm.During a typical mock trial, the participants,(i.e., the mock jurors for a day,) providefeedback during the exercise aboutwhich side of the case they tend to favor.Usually, before hearing the adversarialcase presentations during a mock trial,jurors hear a brief neutral overview of thecase which approximates the informationthey would have after voir dire takes placein a real trial. Then, the researchers ask themock jurors which side of the case they currentlytend to favor. In a typical mock trialformat, the plaintiff’s attorney then presentsthe plaintiff’s case, and the mock jurorscomplete a questionnaire similar to thefirst, which again asks them which side theycurrently favor. Those who favor the plaintiffare considered pro- plaintiff jurors, whilethose favoring the defendant are, for classificationpurposes, considered pro- defense.This process also happens after the defendant’sattorney presents the defendant’scase, after rebuttal, and after deliberations.This methodology allows jury researchersto track how jurors “lean” from (1) thevery early stages of the mock trial whenthey know a minimal amount of informationabout a case neutrally presentedand essentially will make snap judgments;(2) after both sides present evidence, whichoften includes witness testimony andgraphics; and (3) just before and just afterdeliberations take place.The data set analyzed for this articlecame from civil mock trials conducted during2010 that featured either an individualor a set of individuals suing a corporation.The mock jurors were read a neutral caseFor The Defense ■ March 2012 ■ 13

ideally, you would not seat anyone whostarts out favoring the plaintiff. But realistically,you won’t have that option. Evenmiddle- of- the- road jurors who lean slightlyin the direction of the plaintiff are problematic,since roughly half of those jurorsin our study favored the plaintiff throughoutthe day-long exercise and never consideredsiding with the defendant. Returningto the example above, if you have to seatfour jurors with a pro- plaintiff inclination,the research suggests that two of them willremain pro- plaintiff during a trial, which isessentially your margin of error in a jurisdictionthat requires 10 of 12 for a verdict.Why are nearly half of plaintiff- leaningjurors so uncompromising? Perhaps it iseasier to cling to beliefs and propound argumentsthat envision compensating an injuredperson or party. While pro- defendantjurors can feel extremely adamant that acompany shouldn’t have to pay someonejust because it can, social forces may leadthat juror to back off such a defense of acompany. Human nature suggests that prodefendantjurors, standing in the way of arecovery by an injured person, feel morepressure to appease and compromise. Thisis a common observation of mock juries:a particular pro- plaintiff juror digs in hisor her heels and publicly indicates that heor she will in no way accept a zero verdictand have this plaintiff or family walk awayempty-handed. Anecdotally, and now scientifically,we see that an initially plaintiffleaningjuror is more likely to hold to hisor her initial belief about a case and be lessopen to alternative viewpoints than an initiallydefendant- leaning juror.Voir Dire StrategiesSo what can you do to try to seat peoplewho will wait until they hear all of the evidencebefore rendering a decision, or atleast who will have the capacity to changetheir outlooks along the way? While frequentlyreminding potential jurors duringvoir dire and openings that “you mustwait until you hear the rest of the story”can have some effect, those admonitionsonly go so far. Roughly half of all plaintiffleaningjurors ignore this, and all you cando is to hope that pro- defendant jurors useit during deliberations to put forward theirperspectives on a case. The best approachis to identify the implacable jurors duringjury selection and do your best to keepthem off a panel.In voir dire, jurors want to talk, especiallyif an attorney asks them the rightquestions at the right time in the rightway, and if the attorneys asking the questionsactually listen to their answers. Jurorswon’t comfortably talk if they feel thatan attorney is being argumentative, tryingto pin them down on their answers, orworst of all, not listening to their responses.Thinking about your next question in voirdire is important, but it’s not more importantthan listening when a juror respondsto one of your questions. After all, whywould the juror you’re questioning, or otherjurors, offer candid and thoughtful answersif they think that you will not listen orhaven’t listened to them? They won’t.Using effective communication techniquesduring the jury selection process,you should ask certain questions of thepanel to determine whether the panelincludes people with pro- plaintiff tendencies,a leader, a contrarian, and someonewho won’t budge.When asking standard questions, fromthe defense perspective, determine whowill argue a plaintiff’s case in deliberations,and of those, who will not yield. Whensomeone tells you right off the bat that heor she would tend to side with an individualin a lawsuit against a corporation, watchand listen carefully to understand why thatperson has such a tendency. The follow-up,open-ended question “why” is very useful,yet attorneys are frequently uncomfortablerelinquishing control of the conversationwith such a question. Some advice to you:relinquish it. It yields more reliable information,and it is better to learn during voirdire if a juror has a major issue with you oryour case than during a posttrial interviewwhen a jury has already rendered an unfavorableverdict. As someone answers yourfollow-up questions, does he or she appearstrident and excessively confident to theextent that it seems he or she would disregardan opposing viewpoint completely?How adamant is he or she about his or herbeliefs? Listen to the language that someoneuses. Does he or she use words suchas “absolutely,” “certainly,” “inevitably,” ordoes he or she tend to use qualifiers such as“usually,” “often,” and “occasionally”? Alsonotice a person’s body language.It is important to hold back from becomingargumentative in voir dire. Perhapsspend 75 percent of your voir dire time askingquestions and gathering juror information,leaving most of the questionsopen-ended. Use the remaining time tointroduce your case themes and to try topreview jurors’ reactions. Do not challengea juror head-on in a combative way duringNumbers show that bothplaintiff and defendantsupporters are aboutequally likely to changetheir positions, but theychange at different times.the process, but listen to his or her responseand use his or her own words to determinewhether this juror has dogmatic tendenciesor perhaps can give a competing viewpointdue consideration.Many jurors will respond to questionswith socially acceptable answers duringthis phase, and we cannot fault them forit. This is a new environment for virtuallyall of them, they already have unfavorableimpressions of lawyers, and when someoneasks them about fairness in front ofan entire jury pool and a judge, many willsay that they can be fair and impartial andwill view all of the evidence before makingdecisions. Don’t take them at their words.This is not to suggest that jurors respondingthat way have fabricated responses.Many jurors honestly believe that theycan and will remain fair and keep an openmind when in reality they won’t.ConclusionOverall, our system relies on the objectivityof the people seated as jurors to rendera decision. But jurors are human, andhumans bring with them to jury selectionvarious attitudes, experiences, and biasesthat will in one way or another predisposethem to favoring one party over the other.For The Defense ■ March 2012 ■ 15

Commercial LitigationFrom the ChairAn “ExcellentAdventure”By Peter E. StrandOur group offers you thetools needed to increaseyour knowledge, improveyour practice, and developyour business network.16 ■ For The Defense ■ March 2012■ Peter E. Strand, the senior partner in the Washington, D.C., office of Shook, Hardy & Bacon L.L.P., practices at the uniqueintersection of the firm’s intellectual property litigation and complex commercial litigation groups. He has more than 30 years ofexperience litigating and trying complex commercial cases, and obtained his LLM in Intellectual Property law in 2001. In additionto DRI, he is a member of the IADC, IPO, LCA, and AIPLA.

Warmest greetings from DRI’s Commercial Litigation Committee. The1,500 members of our committee have embarked on our 2012 DRI excellentadventure! As you know, family vacations are full of “teachable moments,”when you and your “kin” head out on the open road. For our DRI committeefamily adventure, we’re committedto remembering “KIN”: Knowledge,Improvement, and Networking:Knowledge: ExceptionalCLE Is a Core Purpose ofDRI and Our CommitteePut two “can’t miss” events on your2012 calendar right now.DRI’s Business Litigation andIntellectual Property Seminar,May 16–18, Sheraton Hotel,New York, New YorkYou can expect great speakers in agreat city. The program chair, KathyLang of Dickinson Wright, and vicechair, Jeff Dyess of Bradley ArantBoult Cummings, have been strongleaders, attracting blockbusterspeakers such as David Leitch, GeneralCounsel of Ford Motor Company,and Dennis Archer, formerMayor of Detroit, Michigan SupremeCourt Justice, and the first AfricanAmerican President of the ABA,among others. Other highlightsinclude meetings of specialized litigationgroups (SLGs) on Wednesdayafternoon and top-drawer networkingopportunities throughout theseminar. We’re putting together aspecial spouse/guest program, too!You can check out the program brochureand register now at www.dri.org.We look forward to seeing you there!2012 DRI Annual Meeting, October24–28, New Orleans Marriott,New Orleans, LouisianaPlan to attend the Commercial LitigationCommittee meeting at thisyear’s Annual Meeting. We had over180 committee members at the 2011Annual Meeting, and we’d love to seeeven more of you attend next year!In addition to the CommercialLitigation Committee superb liveeducational and networking offerings,subject matter experts from theCommercial Litigation Committeeregularly publish scholarly pieces inone or more of the following:• The Business Suit• The Voice• For The Defense• DRI Defense Library SeriesDon’t miss all that you can learnfrom your colleagues in DRI!Improvement: PuttingNew Knowledge to UseLeads to Improvement ofYour Legal PracticeWho doesn’t want to improve theirpractice? Think about your practice—whereyou are and where youwant to go. You likely face commerciallitigation issues in virtuallyevery case. Members of the CommercialLitigation Committee havethe legal expertise to help you outon even the most complex commerciallitigation issues.Just consider the breadth of substantivelaw covered by our committeeSLGs. Look at the following listand call or contact me or the SLGchair if you are interested in one ormore of the following SLGs, and thenplan to get active:• Antitrust & Trade Regulation—James M. Burns, jmburns@williamsmullen.com• Business Torts—Cynthia P.Arends, carends@nilanjohnson.com• Class Actions—Jason Rankin,wjr@ heplerbroom.com• Dealer/Franchise Litigation—Billy Jones, billy.jones@moyewhite.com• D&O and E&O—Robert BruceWallace, bwallace@nexsenpruet.com• Financial Institutions andCreditors’ Rights—Darren A.Craig, dcraig@fbtlaw.com andKerry McInerney, kmcinerney@sirote.com• Intellectual Property—SteveLieb, slieb@flhlaw.com• Securities Litigation—J. TimothyMast, tim.mast@troutmansanders.com• Sports Law—William A. Starr,wstarr@morrisonmahoney.com• UCC/Contracts—Mark E.Porada, mporada@pierceatwood.comNetworking: The Lifebloodof Practice DevelopmentThe DRI Commercial LitigationCommittee is committed to helpingeach member make the most ofhis or her association membership.Here are a few of the great ways youcan get involved:• Attend seminars and meetings(and bring your spouse orguest for special spouse/guestprograms);• Publish early, publish often;• Participate in a Commercial LitigationCommittee webcast;• Actively participate in one ormore of our SLGs; and• Refer cases to fellow DRI committeemembers whenever possible.If all this sounds good, go to www.dri.org right now and sign up for theCommercial Litigation Committeeand the SLGs that interest you themost.I have the privilege this year ofleading the DRI Commercial LitigationCommittee as chair, andKathy Lang of Dickinson WrightPLLC is committee vice chair. Tojoin the adventure today, or if youhave questions about committeeinvolvement, please feel free to contactme at pstrand@shb.com or Kathy atklang@dickinsonwright.com to check outoptions.For The Defense ■ March 2012 ■ 17

Commercial LitigationUncover Knowledgeand Avoid SurprisesBy C. Bailey King, Jr.and Evan M. SaudaUsing 30(b)(6)Depositions to BindCorporationsTo maximizeeffectiveness, youshould integrate thistool into your overalldiscovery strategy.Commercial litigation by definition usually doesn’t involveindividuals; it involves corporations suing one or morecorporations or other corporate entities. However, a corporationcan only act through its employees. Thus, for dis-covery purposes, a lawyer must attempt todetermine which documents are relevantand which people within a corporationhave relevant information. Two risks ofcommercial litigation are that an attorneycan learn at the end of a discovery periodthat relevant documents exist that someonefailed to request or that every corporateemployee deposed answered “I don’tknow” to a critical question.Federal Rule of Civil Procedure 30(b)(6)and comparable state rules provide commerciallitigators with a tool to minimizethese risks by allowing them to depose acorporation or other organization that isactually a party to a litigation. To maximizethis discovery tool, though, a litigator mustuse Federal Rule of Civil Procedure 30(b)(6) or the state equivalent depositions strategicallyas part of overall discovery plans.The purpose of this article is to providesome insight into how a litigator can usea 30(b)(6) deposition to uncover a corporation’sknowledge and to avoid litigationsurprises. In doing so, this article will discusscases decided under Federal Rule ofCivil Procedure 30(b)(6). Most states, however,have enacted comparable rules so theprinciples articulated here will probablyapply in either a federal or a state court. See,e.g., Mo. R. Civ. P. 57.03(b)(4); Ark. R. Civ. P.30(b)(6); N.C. R. Civ. P. 30(b)(6).Deciding Whether toUse Rule 30(b)(6)Of course, before seeking a 30(b)(6) depositionyou first need to determine whetherit is a proper tool for a particular case. Theadvantages of a 30(b)(6) deposition are thatit allows a deposing party seeking discoverysimply to provide a list of depositiontopics shifting the burden to the corporationto designate one or more suitablespokespersons on those topics, and thosespokespersons’ testimony will bind thecorporation.Federal Rule of Civil Procedure 30(b)(6) follows:(6) Notice or Subpoena Directed to anOrganization. In its notice or subpoena,■ C. Bailey King, Jr. and Evan M. Sauda are both attorneys in the Charlotte, North Carolina office of SmithMoore Leatherwood LLP. Their practices are both focused in the area of commercial litigation, includingcontract disputes and business torts. Both Mr. King and Mr. Sauda are active members of the DRI CommercialLitigation Committee.18 ■ For The Defense ■ March 2012

a party may name as the deponent a publicor private corporation, a partnership,an association, a governmental agency,or other entity and must describe withreasonable particularity the mattersfor examination. The named organizationmust then designate one or moreofficers, directors, or managing agents,or designate other persons who consentto testify on its behalf; and it mayset out the matters on which each persondesignated will testify. A subpoenamust advise a nonparty organization ofits duty to make this designation. Thepersons designated must testify aboutinformation known or reasonably availableto the organization. This paragraph(6) does not preclude a deposition by anyother procedure allowed by these rules.Fed. R. Civ. P. 30(b)(6).The purpose of the rule, which wasenacted in 1970, was to “reduce the difficultiesnow encountered in determining,prior to the taking of a deposition, whethera particular employee or agent is a ‘managingagent.’” See Fed. R. Civ. P. 30(b)(6) advisorycommittee’s note (1970). The rule alsointended to “curb the ‘bandying’ by whichofficers or managing agents of a corporationare deposed in turn but each disclaimsknowledge of facts that are clearlyknown to persons in the organization.” Id.Conversely, the rule protects a corporationfrom unnecessary depositions sought byanother seeking knowledge on a particulartopic. Id.Having the ability to list deposition topicswith a notice or subpoena to deposea corporation has a trade-off: the partyseeking information cannot also requestthat a particular designee testify. If youneed the testimony of a particular officeror employee, a 30(b)(1) deposition will sufficeto obtain that person’s testimony; however,if you take that route, you don’t havea guarantee that that particular deponentwill have knowledge about specific topics.You may not need a 30(b)(6) depositionfrom a corporate designee from asmall corporation because one particularindividual probably would have therelevant knowledge; however, in a largecorporation information tends to becomedispersed among a large number of individuals,for instance, among members ofa large department. In sum, you likely willfind 30(b)(6) depositions more useful whenyou need discovery from larger organizationswhere information relevant to casestends to become scattered among multipleemployees or departments. A 30(b)(6)deposition offers the opportunity to takea wide- ranging deposition on a variety oftopics germane to a case at the “cost” ofonly one deposition—a particularly importantconsideration given the presumptivelimits on depositions under the FederalRules of Civil Procedure; more than 10 typicallyrequires leave of the court. See Fed.R. Civ. P. 30(a)(2)(A)(i). However, note thata corporation doesn’t have an obligationto put a person with direct knowledge ofthe facts forward as its corporate designee,although after completing a 30(b)(6) depositionan attorney could depose the personwith such direct knowledge under FederalRule of Civil Procedure 30(b)(1).Timing a 30(b)(6) DepositionThe next consideration is when is the besttime in the “life” of a case to take a 30(b)(6) deposition. The two schools of thoughtare to take it either at the beginning of thediscovery period to survey the “lay of theland,” or to take it at the end of discoveryto tie up loose ends.Taking a 30(b)(6) deposition at thebeginning of a case can give you a senseof the knowledge possessed by a corporationso that you can formulate focusedwritten discovery requests and target thekey employees with knowledge of the relevantfacts. You can then depose those individualsonce an opponent has produced allthe relevant documents. This is especiallyuseful if the other party’s original documentproduction does not seem to providethe relevant communications or identifythe key employees with knowledge of therelevant facts. During an early 30(b)(6)deposition you can also learn about a company’sdocument- retention policy to findout which documents the company maystill have that you could ask it to producein a discovery request. When used for thispurpose, a 30(b)(6) deposition can serveas a roadmap for the remainder of discoveryin a case.Alternatively, taking a 30(b)(6) depositionat the end of a case can fill gaps.The deposition would notice those topicsfor which previously deposed individualslacked knowledge or did not addressadequately. When used for this purpose,a 30(b)(6) deposition can provide testimonyon those unexplored areas eliminatingfishing expeditions requiring multipledepositions to find someone in a companywith actual knowledge of particular topics.Either way, you should consider the timingof a 30(b)(6) deposition as part of yourHaving the ability tolist deposition topics witha notice or subpoena todepose a corporationhas a trade-off: the partyseeking informationcannot also request that aparticular designee testify.overall case strategy rather than as afterthoughtto other discovery.Noticing a 30(b)(6) Depositionand Designating the LocationA 30(b)(6) deponent must receive a formalwritten notice that adheres to Federal Ruleof Civil Procedure 30(b)(1) that complieswith the other Federal Rule 30(b) requirements,as well as with the Federal Rule30(a) requirements that apply when a partymust secure leave of a court for a deposition.Basically, noticing for a 30(b)(6) depositionmostly will proceed the same as fora regular deposition with two importantexceptions.First, as with a regular deposition notice,a 30(b)(6) deposition notice must supplythe deposition location. But while the rulesof civil procedure presume that deposingparties will take 30(b)(6) depositionsat the deponents’ principal places of business,courts adjudicating pending actionshave discretion to order that these depositionstake place in other locations, anddeposing parties do urge courts to use thatdiscretion. See, e.g., Nat’l City ReinvestmentFor The Defense ■ March 2012 ■ 19

Commercial LitigationCoalition v. Novastar Fin., Inc., 604 F. Supp.2d 26 (D.D.C. 2009). Second, 30(b)(6) depositionnotices must supply a list of the topicsthat the deposing parties will cover. Thisfeature distinguishes 30(b)(6) depositionnotices from regular deposition notices.Deposition LocationAs mentioned, as with most depositionsCourts have interpreted“reasonable particularity”differently when determiningwhether a deposing party’snotice met this requirement.the rules of civil procedure presume thata deposing party will take a 30(b)(6) depositionat the corporation’s principal placeof business rather than wherever the caseis pending. See In re Outsidewall Tire Litigation,267 F.R.D. 466, 473 (E.D. Va. 2010)(“courts have generally recognized a presumptionthat Rule 30(a)(1) or 30(b)(6)depositions of a foreign defendant corporation’sofficers or managing agents should betaken at the corporation’s principal place ofbusiness”). For example, in United States exrel. Barko v. Halliburton Co., 270 F.R.D. 26(D. D.C. 2010), the plaintiff sought a 30(b)(6) deposition of a defendant headquarteredin Amman, Jordan, but attempted totake this deposition in the U.S. District ofColumbia. Barko, 270 F.R.D. at 27. The defendantobjected, offering to appear voluntarilyfor the 30(b)(6) deposition, butin Jordan. Id. at 29. The plaintiff sought tocompel the deposition in the United Statesarguing that, among other things, Jordanlacked proper procedures for a depositionand taking the deposition therewould put a greater burden on plaintiff. Id.at 29–30. The District Court for the Districtof Columbia ordered that the depositiontake place in Jordan at the company’sprincipal place of business noting that thecompany consented to the deposition, andJordan did not outright prohibit such depositions.Id. at 29.20 ■ For The Defense ■ March 2012A court adjudicating an action, however,has discretion to order that a 30(b)(6) deposition take place in another location.See, e.g., Nat’l City Reinvestment Coalitionv. Novastar Fin., Inc., 604 F. Supp. 2d26 (D. D.C. 2009). In the National City case,the court noted four relevant factors citedWright, Miller & Marcus’s Federal Practiceand Procedure: Civil 2d: the location of thecounsel; the size of the corporation and thefrequency of the travel; resolution of disputesby the court; and the nature of theclaim and the parties’ relationship. Id. at31–32. The National City court consideredthese factors, and after noting the generalrule, required a defendant with its principalplace of business in Kansas City to appearfor its deposition in the District of Columbia.Id. See also e.g., Custom Form Mfg., Inc.v. Omron Corp., 196 F.R.D. 333, 336–338(N.D. Ind. 2000) (ordering that a depositionof a Japanese corporation occur in UnitedStates) and In re Honda American MotorCo., 168 F.R.D. 535 (D. Md. 1996) (same).In short, if the involved parties do notsite a 30(b)(6) deposition by consent, theparties should have a hardship analysis todetermine the location. This is much lesscrucial when a deposition does not involveinternational travel; however, in that situation,courts appear more inclined to holddepositions within their jurisdictions.Deposition TopicsThe rules of civil procedure require that thetopic list—the distinguishing feature of a30(b)(6) deposition notice—state the topicswith “reasonable particularity.” Fed. R.Civ. P. 30(b)(6). This raises two questions.First, what does “reasonable particularity”mean? And second, if a notice fails to statethe topics to this standard, how can a courtdeal with it?Courts have interpreted “reasonable particularity”differently when determiningwhether a deposing party’s notice met thisrequirement. In Alexander v. FBI, 186 F.R.D.137 (D.D.C. 1998), the plaintiffs sought a30(b)(6) deposition on “the computer systemscommonly known as or referred to as‘Big Brother’ and/or ‘WHODB.’” Alexander,186 F.R.D. at 140. The court held thatthe notice was proper, stating that the defendant“was on sufficient notice of whatdiscoverable matters the plaintiffs wouldinquire into on the WhoDB deposition”since the “parties are well aware of the discoverableissues in this case.” Id. The Alexanderholding contrasts with the ruling inReed v. Nellcor Puritan Bennett & Mallinckrodt,Inc., 193 F.R.D. 689 (D. Kan. 2000), inwhich the court found that a 30(b)(6) noticewas not reasonably particular. Reed,193 F.R.D. at 692. The inadequate notice includedlanguage that the deposition would“include, but not [be] limited to” the topicsgiven, and, the court held, this would submitthe company to an “impossible task.” Id.The Reed court held that when a deponent“cannot identify the outer limits of the areasof inquiry,” it could not properly designatewitnesses to respond. Id. Furthermore,although not all courts are as stringent, thebest practice is to include a topic list with adeposition notice. Bank of New York v. MedidienBiao Bank Tanzania, Ltd., 171 F.R.D.135, 145–146 (S.D.N.Y. 1997) (Francis, M.J.)(finding that informal requests contained inletters between counsel did not constituteproper notice under 30(b)(6)); but see Alexander,186 F.R.D. at 140 (finding it sufficientto clarify in later communications the depositiontopic only vaguely described duringnoticing).As to the remedy for an insufficientnotice, that involves a simpler analysis. Acourt may quash or modify a notice thatfails to state the topics with reasonableparticularity, consistent with its discoverypowers to regulate other discovery. See FedR. Civ. P. 26(c), Fed. R. Civ. P. 37; Reed, 193F.R.D. at 692.Responding to Objectionsto the List of TopicsIn responding to a 30(b)(6) depositionnotice, a corporation’s duties are as follows:(1) the [corporation’s representative]must be knowledgeable on the subjectmatter identified as the area of inquiry;(2) the [corporation] must designatemore than one deponent if necessary inorder to respond to the relevant areasof inquiry…; (3) the [corporation] mustprepare the [deponent] to testify on mattersnot only known by the deponent,but those that should be known by the[corporation]; and (4) the [corporation]must substitute an appropriate deponentwhen it becomes apparent that the previousdeponent is unable to respond tocertain relevant areas of inquiry.

7 James Wm. Moore et al., Moore’s FederalPractice 30.25[3] (3d ed. 2011).In fulfilling these duties, a corporationmust prepare a designee to testify onall matters within the scope of the areasof inquiry known to or reasonably availableto the corporation, including the corporation’ssubjective beliefs and opinions.Id. This obviously significantly burdens acorporation.In light of this burden, most lawyerswill respond to a 30(b)(6) deposition noticewith a litany of objections similar to thoseasserted when they object to written discoveryrequests. The purpose of theseobjections is usually two-fold: (1) to limit acorporation’s duty to prepare a witness to amanageable scope, and (2) to limit the testimonythat will bind a company. If a partyobjects to a topic and refuses to produce awitness on that topic, a court could precludethat party from offering testimony onthat topic during a trial. See United States v.Taylor, 155 F.R.D. 356, 360 (M.D.N.C. 1961).Thus, most lawyers use the objections tonegotiate the scope of the topics rather thanto avoid producing corporate designee witnessesaltogether.A lawyer taking a 30(b)(6) deposition,therefore, needs to determine whether acorporation’s testimony will provide sufficientinformation if the corporation objectsto some topics. For example, a deposingattorney may view it as acceptable for alarge corporation to limit its testimony onits document- retention policy to the divisionof the corporation involved in the litigationin some circumstances but not inothers. For instance, if a deposing attorneyneeds to elicit information related to a corporation’ssize for the purpose of showinginequality of bargaining power betweenthe parties, the attorney may not view thatlimitation as acceptable.If litigating parties cannot agree on thescope of the deposition topics, the partyresponding to the 30(b)(6) notice has theonus to file a motion for a protective orderbefore the deposition. See Fed. R. Civ. P.;Moore’s Federal Practice §30.25[3]. If acorporation does not move for a protectiveorder, and the witness cannot provide testimonyon a topic, as mentioned, a court maysanction the corporation and preclude itfrom offering testimony on that topic duringa trial. See Taylor, 155 F.R.D. at 360.However, the lawyer taking the depositionmust respond to the objections to preventmisunderstanding at the time of the depositionon the scope of the deposition topics.Otherwise the deposing lawyer mayhave to file a motion to compel testimonyunder Federal Rule of Civil Procedure 37if he or she views the level of preparationor knowledge of the 30(b)(6) deponent asunsatisfactory.The Experts & Research ToolsYou Need to Succeed— All in One PlacePrecise Expert referralsin virtually all fields, withongoing personal assistance24-hour turnaroundfor most referralsNO CHARGE unlessyou designate orengage an expertResearch reports onExperts, revealingchallenged testimonyand disciplinary sanctionsFree Expert-led Webinarson case-relevant topicsMore than 5 decadesof unparalleledexperienceMake TASA part ofyour case strategy today.Technical Advisory Service for Attorneys800-523-2319experts@tasanet.comTASAnet.comFor The Defense ■ March 2012 ■ 21

Commercial LitigationTaking a 30(b)(6) DepositionIn general, a 30(b)(6) deposition proceedsjust as any other deposition with two exceptions.First, a corporation’s testimony duringa 30(b)(6) deposition is limited to thetopics identified with the deposition notice.Paparelli v. Prudential Ins. Co., 108 F.R.D.727, 730 (D. Mass. 1985). Second, unlikeindividual depositions, in many instancesUnlike individualdepositions, in manyinstances deposinglawyers won’t accept “Idon’t know” as answers.22 ■ For The Defense ■ March 2012deposing lawyers won’t accept “I don’tknow” as answers. These two differencescan lead to disputes between a deposinglawyer and the defending lawyer regardinghow a deposition should proceed.Because the deposition scope is limitedto the previously identified topics, a corporation’scounsel will likely object if a deposinglawyer asks questions about topics otherthan the noticed topics. It is not proper,however, for counsel to instruct a witnessnot to answer a question merely because itisn’t about the designated deposition topics.To the contrary, a deposing attorney ordinarilymay question a 30(b)(6) deponentas broadly as any other deponent. See, e.g.,King v. Pratt & Whitney, 161 F.R.D. 475, 476(S.D. Fla. 1996). However, a 30(b)(6) witness’answers to questions beyond the scope ofthe 30(b)(6) topics will not bind a corporation.Instead, they are treated as the witness’individual answers only. See, e.g., Flachenbergv. New York State Dep’t of Educ., 567 F.Supp. 2d 513, 521 (S.D.N.Y. 2008). Thus, ifa question exceeds the noticed depositionrange, the defending lawyer should object tothe question, note on the record that it exceedsthe range of the topics, the corporationhas not prepared the witness to answerthat question on behalf of the corporation,and the witness can answer the questionbased on his or her individual knowledgebut the answer will not bind the corporation.See EEOC v. Caesars Entertainment,Inc., 237 F.R.D. 428, 432 (D. Nev. 2006).Similarly, sometimes a deposing lawyerwill need to clarify that a witness hasanswered a question as a corporation’sdesignee so that the answer will bind thecorporation. For example, if a 30(b)(6)witness answers “I don’t know” to a question,sometimes a deposing lawyer shouldfollow up that answer by asking a questionto clarify that the witness has testifiedon behalf of the corporation, such as“Is it your testimony that the corporationdoes not know?” A deposing lawyer alsocan accomplish this by asking questions atthe beginning of a deposition to confirmthat the witness understands that he or shewill testify on behalf of the corporation onthe noticed topics and asking what he orshe did to prepare to answer questions.Although a deposing attorney doesn’t needto take these steps to establish binding corporationtestimony, they can help if a disputearises over whether a 30(b)(6) witness’answer should bind the corporation.The other question that often arises in a30(b)(6) deposition is, what should lawyersand courts do if a 30(b)(6) witness does notknow the answer to a question that is clearlywithin the range of the deposition topics?The obligation to prepare a witness for a30(b)(6) deposition “does not mean thatthe witness can never answer that the corporationlacks knowledge of a certain fact.”Chick-Fil-A v. ExxonMobil Corp., Case No.08-61422, 2009 U.S. Dist. Lexis 109588, at*37–38 (S.D. Fl. Nov. 10, 2009); see also Costv. County of Burlington, 254 F.R.D. 187, 190(“Simply because defendant’s witness couldnot answer every question posed to him doesnot equate to the fact that defendant did notsatisfy its obligation to prepare its 30(b)(6)witness”). Indeed, the “absence of knowledgeis, by itself, a fact that may be relevantto the issues in a given case.” Id. For example,it is possible that the only employeeswho have knowledge of a specific fact mayhave left the company. A corporation does,however, have a duty to prepare its 30(b)(6)witness to testify on all information knownto or reasonably available to the corporationabout the specific topics. See, e.g., Bankof New York v. Meridien Biao Bank Tanzania,Ltd., 171 F.R.D. 135, 151 (S.D.N.Y. 1997)(finding that a deponent must prepare a designeeto that extent reasonably available,whether from documents, past employees,or other sources). If during the course of adeposition it becomes clear that a 30(b)(6)witness is not prepared to answer questionson the noticed topics, the corporation mustsubstitute another witness. See, e.g., DravoCorp. v. Liberty Mut. Ins. Co., 164 F.R.D. 70,75 (D. Neb. 1995).With this in mind, a deposing lawyershould ask questions to determine whethera 30(b)(6) witness doesn’t know somethingbecause the corporation inadequately preparedhim or her or because the corporationtruly does not have the requestedinformation. In addition, a deposing lawyershould consider whether a corporation’slack of knowledge is strategically advantageous.For example, if a deposing lawyer’stheory of a case is that the corporation hadits “head in the sand,” the deposing lawyermay not want the corporation to substituteanother witness who may testify morehelpfully for the corporation.If, on the other hand, a deposing lawyerby covering a particular topic aims tolearn information that a corporation shouldknow and that the deposing lawyer needs,the deposing lawyer will need to create arecord that establishes that the corporationhas not prepared the witness to answerquestions about the topic and shouldrequest that the corporation substitute anothercorporate designee to address it. Forinstance, a deposing lawyer should probablyask a corporation to substitute anotherdesignee if the lawyer needs to uncover theexistence of a key corporate policy. Further,under Federal Rule of Civil Procedure 30(b)(6), failing to produce a prepared and educatedcorporation witness is “tantamountto nonappearance at a deposition, meritingthe imposition of sanctions.” Pioneer Drive,LLC v. Nissan Diesel Am., Inc., 262 F.R.D.552, 555 (D. Mont. 2009). Accordingly, if acorporation does not agree to make a substitutewitness available, the deposing lawyercan move to compel the corporation todesignate a witness under Federal Rule ofCivil Procedure 37(a)(3)(ii) and seek sanctions.That said, courts typically only awardmonetary sanctions in egregious circumstances.See, e.g., Commodity Futures TradingComm’n v. Noble Metals Int’l, Inc., 67F.3d 766, 771 (9th Cir. 1995) (finding thatthe trial court properly sanctioned a cor-Depositions, continued on page 66

Commercial LitigationWhat’s ExceptionalGot to Do with It?By Joseph L. KishAttorneys’ Feesin LanhamAct CasesThe court in exceptionalcases may awardreasonable attorney feesto the prevailing party.15 U.S.C.A. §1117.While seemingly clear and concise, the circuit courts havevery differently interpreted a provision in the Lanham Actpermitting a court to award reasonable attorneys’ fees tothe prevailing party in exceptional circumstances, somuch so that “exceptional” remains elusiveto define and therefore difficult to avoid ordemonstrate. If we can spot a trend, it is onlythat there does not appear to be any unifyingthread among the circuits nor any desireto head toward one. Because Congress orthe Supreme Court ultimately would need tounify the circuits, it seems unlikely that wewill have an exact definition to work with inthe near future. Thus, practitioners need toknow the law in their circuits, the underlyingfactors that make up the basis for or againstexceptionality, and the strategies to succeedin making these arguments. This article willexplain the historical underpinnings of 15U.S.C.A. §1117, the section of the Lanham Actgoverning attorneys’ fees awards, its basic tenets,the exceptionality requirement, and thedifferent standards for exceptionality appliedby different circuit courts.Historic UnderpinningsOriginally, the Lanham Act, which governstrademark infringement, trademarkdilution, false advertising, and unfair competition,did not have a provision allowingparties to recover attorneys’ fees underany circumstance. The Supreme Court asrecently as 1967 noted that constructionof the Lanham Act, which at that time wasover 30 years old, did not permit modifyingthe American rule for attorneys’fees allocation. See Fleischmann DistillingCorp. v. Maier Brewing Co., 386 U.S.714, 18 L. Ed. 2d 475, 87 S. Ct. 1404, 153U.S.P.Q. 432 (1967). Then in 1975 Congressamended the Lanham Act to include thelanguage contained in section 35(a). ApparentlyCongress wanted to address and punishconduct rising to the level of malicious,fraudulent, deliberate, or willful. See 5McCarthy, McCarthy on Trademarks andUnfair Competition, §30.99 (citing SenateRep. No. 93-1400 (Dec. 17, 1974), reprintedin 1974 U.S.C.C.A.N. 7132, 7133.Basic TenetsSimilar to section 285 of the Patent Act,section 35(a) of the Lanham Act states that“[t]he court, in exceptional circumstances■ Joseph L. Kish is a partner of Synergy Law Group in Chicago and Los Angeles. He concentrates on complex commercial, financial,and intellectual property litigation. Over his 23 years as an attorney, he also has amassed extensive experience in product liabilityand class action defense. A longtime DRI member, Mr. Kish is licensed to practice in Illinois and California, and admitted tothe United States Courts of Appeals for the Seventh and Ninth Circuits and federal courts in Illinois, California, and Colorado.For The Defense ■ March 2012 ■ 23

Commercial LitigationSome courts havefound that a plaintiff doesnot need to have actedin bad faith to warrantawarding attorneys’ fees adefendant, although courtsdo consider bad faith anappropriate factor in makingthese determinations.may award attorney fees to the prevailingparty.” 15 U.S.C. §1117(a). As one courtwrote, “Congress had two classes of litigantsin mind when it enacted the fee provision ofSection 35. First, the legislature envisioned‘make whole’ compensation for certain victimsof infringement; second, Congress endeavoredto afford protection to defendants‘against unfounded suits brought by trademarkowners for harassment and the like.’”Noxell Corp. v. Firehouse No. 1 Bar-B-QueRest., 771 F.2d 521, 524, 248 U.S. App. D.C.329, 332 (D.C. Cir. 1985) (citing S. Rep.No. 93-1400 (1974)). Section 35 applies tocases involving registered and unregisteredtrademarks alike. IMAF, S.P.A. v. J.C. PenneyCo., 810 F. Supp. 96, 98 (S.D.N.Y. 1992)(citing Centaur Communications, Ltd. v.A/S/M Communications, Inc., 830 F.2d 1217,1223 (2d Cir. 1987), aff’g, 652 F. Supp. 1105(S.D.N.Y. 1987).One of the few unifying features amongthe different standards for “exceptional”under the Lanham Act is that the standardsshare a purpose: to shift the litigationexpenses, specifically attorneys’ fees, of theprevailing party to the loser in derogationof the American rule. The Seventh Circuitin 2010 explained the rationale in NightingaleHome Healthcare Inc. v. AnodyneTherapy, LLC: “‘the public interest in theintegrity of marks as a measure of qualityof the products’” is so great that it would be“unconscionable not to provide a complete24 ■ For The Defense ■ March 2012remedy including attorney fees for Actswhich courts have characterized as malicious,fraudulent, deliberate, and willful,”and awarding fees “would make a trademarkowner’s remedy complete in enforcinghis mark against willful infringers, andwould give defendants a remedy against unfoundedsuits.” 626 F.3d 958, 962 (7th Cir.2010) (citing S. Rep. No. 93-1400 (1974)).Attorneys would still have difficultywith this provision even if all the circuitcourts stuck to a cognizable standard tomeasure acts constituting malicious, fraudulent,deliberate, and willful conduct whenthey determined whether exceptionalityexisted. They have not. This article onlyaddresses what “exceptional” means inLanham Act cases when courts considerpermitting parties to recover attorneys’fees, but the other terms that courts invokewhen analyzing exceptionality such as“willful infringer” and “unfounded suits”need clarifying as well.A quick word about “prevailing parties”is appropriate. Just because a party,either a plaintiff or a defendant, “prevails”in a Lanham Act case does not necessarilymean that a court will award attorneys’fees: “The Lanham Act permits, but doesnot mandate, an award of attorneys’ feesto a prevailing party in ‘exceptional circumstances.’”15 U.S.C. §1117(a); Gracie v.Gracie, 217 F.3d 1060, 1071 (9th Cir. 2000).And although a court would award attorneys’fees to a prevailing party only, thataward requires an independent determinationby a court that the case in which aparty prevailed was exceptional. Further, acourt would consider a party a prevailingparty if it entirely prevails in a Lanham Actlawsuit, or if it wins one Lanham Act claimalthough it might not prevail on the otherclaims in the same lawsuit. See, e.g., NoxellCorp. v. Firehouse No. 1 Bar-B-Que Restaurant,771 F.2d 521, 248 U.S. App. D.C.329 (C.A.D.C. 1985) (deeming a party theprevailing party for purposes of awardingattorneys’ fees when the court found thedefendant’s chosen venue unreasonableand did not find it in the interest of justiceto transfer the case and also remandingthe lawsuit with instructions to dismiss it);Neva, Inc. v. Christian Duplications Intern.,Inc., 743 F. Supp. 1533 (M.D. Fla. 1990)(deeming a party the prevailing party forpurposes of §1117(a) even though the partydid not prevail on certain counterclaimcounts because the party was the prevailingparty on its Lanham Act infringementclaim). In short, the numerous permutationsthat a prevailing party can take incommercial litigation involving the LanhamAct affect exceptionality analyses justas much as the varying standards used bythe circuits to analyze exceptionality.ExceptionalitySome courts have found that a plaintiff doesnot need to have acted in bad faith to warrantawarding attorneys’ fees to a defendant,although courts do consider bad faith an appropriatefactor in making these determinations.Cairns v. Franklin Mint Co., 292 F.3d1139, 1156; S. Indus. v. Centra 2000, Inc.,249 F.3d 625, 627; Door Systems, 126 F.3dat 1032. Other courts require a party seekingattorneys’ fees to establish bad faith.Conopco, Inc. v. Campbell Soup Co., 95 F.3d187, 194–95 (2d Cir. 1996) (requiring a defendantto show the plaintiff’s bad faith).Federal courts have consistently heldthat “a district court must make a findingof culpable conduct on the part of the losingparty, such as bad faith, fraud, malice, orknowing infringement, before a case qualifiesas ‘exceptional.’” Ferrero U.S.A., Inc. v.Ozak Trading, Inc., 952 F.2d 44, 47 (3d Cir.1991); see also Cairns v. Franklin Mint Co.,292 F.3d 1139 (9th Cir. 2002) (finding thatthe requirement of exceptionality under 15U.S.C. §1117(a) is met when a case is eithergroundless, unreasonable, vexatious, or pursuedin bad faith); Aromatique, Inc. v. GoldSeal, 28 F.3d 863, 877 (8th Cir. 1994) (concludingthat “an exceptional case is one inwhich the plaintiff’s action was groundless,unreasonable, vexatious, or pursued in badfaith”); Badger Meter, Inc. v. Grinnell, Corp.,13 F.3d 1145, 1159 (7th Cir. 1994) (concludingthat exceptional behavior for purposes of theLanham act is “malicious, fraudulent, deliberate,or willful” conduct); Eagles, Ltd. v.Am. Eagle Found., 356 F.3d 724, 728 (6th Cir.2004) (concluding that a case is not exceptionalfor purposes of the Lanham Act unless“the infringement was malicious, fraudulent,willful, or deliberate”); Gracie v. Gracie,217 F.3d 1060, 1071 (9th Cir. 2000) (concludingthat “[e]x cep tional circumstances can befound when the non- prevailing party’s case“is groundless, unreasonable, vexatious, orpursued in bad faith”).

Courts have refused to award attorneys’fees under the Lanham Act when eitherparty defends its trademark in good faith.See Fuji Photo Film Co. v. Shinohara ShojiKabushiki Kaisha, 754 F.2d 591, 602 (5thCir. 1985) (explaining that a trademarkowner has a right to “police his mark”);InterState Net Bank v. NetBank, Inc., 221F. Supp. 2d 513, 527 (D.N.J. 2002) (denyingfees to the plaintiff when the defendant wasprotecting its mark).As with the Patent Act, the prevailingparty in a Lanham Act case must prove theexistence of exceptional circumstances withclear and convincing evidence. Conopco,Inc. v. Campbell Soup Co., 95 F.3d 187, 194(2d Cir. 1996). As will become apparent,courts have many ways to decide what theyconsider malicious, fraudulent, deliberate,or willful acts sufficient to prove exceptionalityunder the Lanham Act. Hoping tooffer a useful framework to attorneys wholitigate Lanham Act cases, particularly inmore than one jurisdiction, below you willfind a circuit- by- circuit overview of eachcircuit’s exceptionality standard. Generally,the applicable standard will depend onwhether the prevailing party is the plaintiffor the defendant.First CircuitThe First Circuit does not use a differenttest for prevailing plaintiffs and prevailingdefendants. A district court may awardattorneys’ fees in any “exceptional case” inwhich a party’s action was willful, deliberate,malicious, or fraudulent. Tamko RoofingProducts, Inc. v. Ideal Roofing Co., Ltd.,282 F.3d 23, 32–33 (1st Cir. 2002). A districtcourt doesn’t need to find bad faith orfraud as a necessary precondition to awardingattorneys’ fees; “willfulness short of badfaith or fraud will suffice when equitableconsiderations justify an award.” Id. at 32.In making this determination, a districtcourt may use the following factors, whichwork against an attorneys’ fees award:(1) whether the area of law is unclear anda defendant might reasonably think that itdid not infringe, (2) whether a defendantviolated a trademark was a close legal question,(3) whether a defendant intended todeceive or confuse the public, (4) whethera defendant made a concerted effort to createa non- infringing mark, and (5) whethera plaintiff suffered actual damage. Id. Thedistrict court should ultimately look at thetotality of the circumstances in making adecision about awarding attorneys’ fees.Id. at 33.Finally, courts in the First Circuit haverefused to deem a case “exceptional” whena plaintiff’s “arguments, while not strong,were respectable; were made in areas wherethe law of this circuit was unclear; andhad some reason to them.” Tamko RoofingProds., Inc. v. Ideal Roofing Co., 294 F.3d227, 231 (1st Cir. 2002).Second Circuit“Exceptional cases” under the Lanham Actexist in the Second Circuit when a prevailingparty, whether a plaintiff or a defendant,proves fraud, bad faith, or willful infringement.Patsy’s Brand, Inc. v. I.O.B. Realty,Inc., 317 F.3d 209, 221 (2d Cir. 2003). This includesnot only fraud or bad faith in infringingbut also fraud or bad faith in the courseof conducting trademark litigation. Id.Third CircuitBefore a case qualifies as “exceptional”warranting an award of attorneys’ fees in atrademark infringement case in the ThirdCircuit, a district court must find culpableconduct on the part of the losing partysuch as bad faith, fraud, malice, or knowinginfringement. Shields v. Zuccarini, 254F.3d 476, 487 (3d Cir. 2001).When a plaintiff is a prevailing party,courts in the Third Circuit determinewhether the defendant willfully and deliberatelyinfringed the plaintiff’s trademark.See Ferrero U.S.A., Inc. v. Ozak Trading,Inc., 952 F.2d 44, 49 (3d Cir. 1991) (deemingthe circumstances exceptional whenthe defendant willfully and deliberatelyinfringed the plaintiff’s trademark so thatthe defendant could try to pass off its goodsas those of the plaintiff “in order to freeride on the good will built up by the plaintiff”).The Third Circuit also views culpableconduct that extends beyond LanhamAct violations in a case and views how alosing party “handle[s] himself during thelitigation” a relevant basis for an attorneys’fees award. Green v. Fornario, 486 F.3d100, 103 (3d Cir. 2007). But the Third Circuitregards such conduct as particularlypertinent when a defendant is the prevailingparty because the losing plaintiff wasnever accused of trademark infringementand consequently could not have violatedthe Lanham Act willfully and deliberately.See Securacomm Consulting, Inc. v. SecuracomInc., 224 F.3d 273, 280 (3d Cir. 2000)(holding that when a defendant is the prevailingparty the “culpable conduct willnecessarily center on plaintiff’s act of filingthe lawsuit” and on the plaintiff’s “litigationconduct”).Courts in the First Circuithave refused to deem acase “exceptional” whena plaintiff’s “arguments,while not strong, wererespectable; were made inareas where the law of thiscircuit was unclear; and hadsome reason to them.”On finding culpable conduct, a districtcourt in the Third Circuit would generallynext decide whether the circumstances“are ‘exceptional’ enough to warrant a feeaward.” Green, 486 F.3d at 103. And findingculpable conduct is a precondition toan attorneys’ fees award; however, a courtstill may decline to award those fees. Id.Additionally, the Third Circuit considersa plaintiff’s failure to show damages a relevantfactor in denying a fees award. Ferrero,952 F.2d at 47. And courts in the ThirdCircuit have found cases “exceptional”when a plaintiff “presented more than isolatedincidents of litigation abuse[,]… [bypresenting evidence demonstrating thatabuse] involved a sweeping attempt to beata financially weaker opponent through theuse of vexatious litigation.” Securacomm,224 F.3d at 283.Fourth CircuitIn following some of the other federal circuits,the Fourth Circuit Court of Appealsdefines an “exceptional case” as one inFor The Defense ■ March 2012 ■ 25

Commercial Litigationwhich the defendant’s conduct was malicious,fraudulent, willful, or deliberatein nature. Retail Services, Inc. v. FreebiesPubl’g, 364 F.3d 535, 550–51 (4th Cir. 2004).Once a district court has found that aparticular case is “exceptional,” the court“imposes a dual standard of proof uponprevailing plaintiffs and defendants. Aprevailing plaintiff seeking attorneys’ fees“Exceptional cases”under the Lanham Act existin the Second Circuit whena prevailing party, whethera plaintiff or a defendant,proves fraud, bad faith,or willful infringement.must demonstrate that the defendant actedin bad faith.” Id. However, if a defendant isthe prevailing party, it can earn an awardof attorneys’ fees based on showing “somethingless than bad faith by the plaintiff.”Id. In that case, a district court wouldconsider whether the plaintiff engagedin economic coercion, the plaintiff madegroundless arguments, or the plaintifffailed to cite controlling law. Id. The decisionto award attorneys’ fees thus tends tocenter on a plaintiff’s litigation conduct orprelitigation assertion of rights when a defendantprevails in the Fourth Circuit. Id.Fifth CircuitThe Fifth Circuit regards an “exceptionalcase” as one in which a party has actedin bad faith. A court would consider theobjective merits of a lawsuit either when aplaintiff or and when a defendant prevails.Procter & Gamble Co. v. Amway Corp., 280F.3d 519, 527 (5th Cir. 2002). When a plaintiffprevails, a district court in the FifthCircuit would evaluate whether it can characterizea defendant’s trademark infringementas malicious, fraudulent, deliberate,or willful with a high degree of culpability.Rolex Watch USA, Inc. v. Meece, 158 F.3d26 ■ For The Defense ■ March 2012816, 824 (5th Cir. 1998). For a prevailingdefendant, the merits and substance of theaction are relevant to a bad-faith inquiry.Procter & Gamble, 280 F.3d at 528. But aparty has not acted in bad faith “simply bypredicating its legal claim on a controversialand unsettled legal theory.” Scott FetzerCo. v. H. of Vacuums Inc., 381 F.3d 477, 490(5th Cir. 2004).Sixth CircuitThe Sixth Circuit applies a differentstandard depending on which party prevails.When a plaintiff prevails, a courtgenerally would not find a case exceptionalunless the defendant’s infringement wasmalicious, fraudulent, willful, or deliberate.Eagles, Ltd. v. Am. Eagle Found., 356F.3d 724, 728 (6th Cir. 2004). When a defendantprevails, however, a court in theSixth Circuit generally would award attorneys’fees when a trademark owner pursuesan unfounded harassing lawsuit. Id. at729. The Sixth Circuit would view an exceptionalcase as one in which “‘the plaintiffbrings a suit that can fairly be describedas oppressive.’” Id. at 728 (quoting BalanceDynamics Corp. v. Schmitt Industries,Inc., 208 F.3d 212, 2000 WL 226959 (6thCir. 2000) (unpublished). As explainedby the Sixth Circuit, “The test requires anobjective inquiry into whether the suit wasunfounded when it was brought and a subjectiveinquiry into the plaintiff’s conductduring litigation.” Id. at 729. And “[t]he‘oppressive’ test is similar to the standardapplied to prevailing plaintiffs where anaward is appropriate if the infringement is‘malicious, fraudulent, willful, or deliberate.’”Id. (quoting Hindu Incense v. Meadows,692 F.2d 1048, 1051 (6th Cir. 1982). Butwhen a plaintiff merely sues under a colorablebut losing argument, a court cannotappropriately award attorneys’ fees.Id. at 728.Seventh CircuitIn the Seventh Circuit, a court views a caseunder the Lanham Act as “exceptional”and “warranting an award of reasonableattorneys’ fees to the winning party, ifthe losing party was the plaintiff and wasguilty of abuse of process in suing, or if thelosing party was the defendant and hadno defense, yet persisted in the trademarkinfringement or false advertising for whichhe was being sued, in order to imposecosts on his opponent.” Nightingale HomeHealthcare, Inc. v. Anodyne Therapy, LLC,626 F.3d 958, 963–64 (7th Cir. 2010). Id.As the Seventh Circuit pointed out, “[t]hisapproach captures the concerns that underliethe various tests” that different circuitsuse and “can account for most of the caseoutcomes in the various circuits with theexception of those that make it easier forprevailing defendants to obtain attorneys’fees than prevailing plaintiffs.” Id.Door Systems, Inc. v. Pro-Line Door Systems,Inc., 126 F.3d 1028, 1031 (7th Cir.1997), preceded Nightingale. In that casethe Seventh Circuit articulated the test as“whether the conduct of the party fromwhich the payment of attorneys’ fees wassought had been ‘oppressive,’ and that‘whether the plaintiff’s suit was oppressive’turned on whether the suit ‘was somethingthat might be described not just as alosing suit but as a suit that had elements ofan abuse of process, whether or not it hadall the elements of the tort.’” Nightingale,626 F.3d at 961 (paraphrasing and quotingDoor Systems, 126 F.3d at 1031). The SeventhCircuit noted that this “‘would not bethe right question if the plaintiff had prevailedand was seeking the award of attorneys’fees. In such a case the focus wouldbe on whether the defendant had lacked asolid justification for the defense or had putthe plaintiff to an unreasonable expense insuing.’” Id. (quoting Door Systems, 126 F.3dat 1031). The Seventh Circuit in the Nightingaledecision noted that the quoted DoorSystems passage actually had discussedawarding attorneys’ fees under the IllinoisConsumer Fraud and Deceptive BusinessPractices Act, “[b]ut fees were also soughtunder the Lanham Act, and the [Door Systems]opinion—seeking to make senseof one of the definitions of ‘exceptional’(namely, ‘malicious, fraudulent, deliberate,or willful’) that is found [in other cases discussedby the Nightingale court] suggeststhat the test is the same under both statutes:‘oppressive,’ in the sense expoundedin Door Systems.” Id. (citing Door Systems,126 F.3d at 1031–32).In later cases the Seventh Circuit definedoppressive conduct by a plaintiff that mightjustify awarding reasonable attorneys’ feesto the defendant as conduct that “lackedmerit, had elements of an abuse of pro-

cess claim, and plaintiff’s conduct in thelitigation unreasonably increased the costof defending against the suit.” S. Industries,Inc. v. Centra 2000, Inc., 249 F.3d625, 627 (7th Cir. 2001); see also CentralMfg., Inc. v. Brett, 492 F.3d 876, 883–84(7th Cir. 2007) (concluding that oppressiveconduct by a defendant not only includedwillful infringement of a plaintiff’s trademarkbut also “vexatious litigation conduct”);TE-TA-MA Truth Found.-Fam. ofURI, Inc. v. World Church of the Creator,392 F.3d 248, 261–63 (7th Cir. 2004) (concludingthat a court could find that a lawsuitwas oppressive “based solely on theweakness” of a plaintiff’s claims); S. Industries,Inc. v. Centra 2000, Inc., 249 F.3d at627 (concluding that a court could find thata lawsuit was oppressive based solely on aplaintiff’s “vexatious litigation conduct”);TE-TA-MA Truth Found.-Fam. of URI, Inc.v. World Church of the Creator, 392 F.3d at263. So “vexatious litigation conduct” by alosing party can justify an award of attorneys’fees to the winner regardless of whichside engages in such conduct as long as it’sthe losing side.The Seventh Circuit thus has attemptedto boil down its analysis to this: “a caseunder the Lanham Act is ‘exceptional[ ]’…warranting an award of reasonable attorneys’fees to the winning party, if the losingparty was the plaintiff and was guiltyof abuse of process in suing, or if the losingparty was the defendant and had nodefense yet persisted in the trademarkinfringement or false advertising for whichhe was being sued, in order to imposecosts on his opponent.” Nightingale HomeHealthcare, Inc. v. Anodyne Therapy, LLC,626 F.3d at 963–64.Eighth CircuitAn exceptional case in the Eighth Circuitis one in which a plaintiff brings a groundless,unreasonable, or vexatious, action oran action that a plaintiff pursues in badfaith. Hartman v. Hallmark Cards, Inc.,833 F.2d 117, 123 (8th Cir. 1987). However,“[b]ad faith is not a prerequisite to a LanhamAct fee award” because one purposeof the attorneys’ fees provision is to “provideprotection against unfounded suits…brought for harassment and the like.”Id. (quoting S. Rep. No. 93-1400 (1974),reprinted in 1974 U.S.C.C.A.N. 7132, 7136).In the Eighth Circuit a defendant’s willfuland deliberate unlawful conduct may speakto the exceptionality of a case, but when aplaintiff prevails in a case a court does notneed to find bad faith first before it findsexceptionality for a fees award. Communityof Christ Copy Corp. v. Devon Park RestorationBranch of Jesus Christ’s Church, 634F.3d 1005, 1013 (8th Cir. 2011).Ninth CircuitIn the Ninth Circuit, if a district court concludesthat a defendant acted maliciously,fraudulently, deliberately, or willfully in atrademark case, a court will always find thecase exceptional. Earthquake Sound Corp.v. Bumper Indus., 352 F.3d 1210, 1216–1217 (9th Cir. 2003). Bad faith by eitherparty also supports finding exceptionality,but not finding bad faith does not renderthe other party ineligible for attorneys’fees. Stephen W. Boney, Inc. v. Boney Servs.,Inc., 127 F.3d 821, 827 (9th Cir. 1997). Forexample, an exceptional case exists when aplaintiff’s claim is “groundless, unreasonablevexatious, or pursued in bad faith.” Id.Courts in the Ninth Circuit have refused todeem a case “exceptional” when a plaintiff’s“case was not frivolous and raiseddebatable issues of law and fact.” Id. at 867.And if a district court fails to articulate thefindings underlying an award of attorneys’fees that failure can constitute an abuse ofdiscretion. Earthquake Sound Corp., 352F.3d at 1216.Tenth CircuitPrevailing in a case does not by itself warrantan award of attorneys’ fees under theLanham Act in the Tenth Circuit. Nat’lAss’n of Prof’l Baseball Leagues, Inc. v. VeryMinor Leagues, Inc., 223 F.3d 1143, 1146–47 (10th Cir. 2000). And even in exceptionalcases, a district court has the discretion toaward or deny attorneys’ fees in the TenthCircuit. Id. Moreover, the Tenth Circuitapproaches prevailing plaintiffs and prevailingdefendants differently. A prevailingplaintiff can receive attorneys’ fees onlywhen a defendant commits infringing actsin bad faith. Id. at 1148.According to the Tenth Circuit, the statute’slegislative history suggests that a districtcourt needs to analyze two centralissues when awarding attorneys’ fees. Id.at 1146. First, a court would determinewhether a lawsuit was unfounded usingwell- established objective standards. Id.Second, a court would ask whether a trademarkowner sued a defendant to harassthe defendant by evaluating the trial strategiesused during litigation using standardsthat the Tenth Circuit characterizedas “subjective.” Id. In addition, a prevailingdefendant may receive attorneys’ feesThe Sixth Circuit wouldview an exceptional caseas one in which “‘theplaintiff brings a suit thatcan fairly be describedas oppressive.’”when a district court finds that equitableconsiderations justify an award. Id.To make a decision, a district court mayconsider a broad range of factors otherthan bad faith, including whether a trademarkaction lacked foundation, whether aplaintiff pursued the lawsuit in bad faith,whether a plaintiff acted in an unusuallyvexatious and oppressive manner, or otherfactors that a court views as relevant. Id. at1147. Obviously this inquiry requires morethan merely acknowledging or reviewingwhether a defendant prevailed because aplaintiff can lose a legally legitimate lawsuitbrought for a proper purpose. Id.Eleventh CircuitThe Eleventh Circuit standard views exceptionalcases as those in which an infringingparty acts in a malicious, fraudulent,deliberate, or willful manner or cases evidencingfraud or bad faith. Tire Kingdom,Inc., v. Morgan Tire & Auto, Inc., 253 F.3d1332, 1335 (11th Cir. 2001). Although a trialcourt in the Eleventh Circuit may concludethat a case is exceptional, that court hasdiscretion to grant or deny a request forattorneys’ fees. Burger King Corp. v. Pilgrim’sPride Corp., 15 F.3d 166, 168 (11thCir. 1994).Attorneys’ Fees, continued on page 68For The Defense ■ March 2012 ■ 27

Commercial LitigationNon-retained ExpertsBy Tammy B. GeorgelasAddingCredibility toYour CaseExperts outside yourclient’s control can testifywithout the burdenof perceived bias andincrease a fact finder’sconfidence in yourversion of the story.Non-retained experts are valuable weapons for defendingcases. Similar to retained experts, they can educate on scientificor other principles providing fact finders with thebuilding blocks to draw inferences and conclusions. Theycan testify in support of your argumentsas long as they did not develop their opinionssolely for purposes of litigation. Theycan be central actors in the events in dispute,or they can be third parties who knowlittle about a case history. But most importantly,they can impart in-depth knowledgeand convey impartiality that adds credibilityto your case in a way that few paidexperts can do.An employee, for example, is often a precisionexpert in a relevant field. A stockbrokercan explain the intricacies of investmenttrading and explain his or her company’sprotocol for managing the risks associatedwith trading. He or she can instill confidencein fact finders that a company made reasonabledecisions by explaining how marketvolatility affected all investments during arelevant time period. And as the face of hisor her employer, a well- prepared stockbrokercan use his or her firsthand knowledgeto persuade a jury that his or her employer’sversion of the facts is the most reliable.Third-party non- retained experts canenhance defense theories with neutral analysesof general principles or by recountinghow relevant facts affected them personally.A competitor, for instance, can describehow commercial real estate developersassess potential properties for improvement.After educating fact finders on howcommercial real estate developers make aprudent decision on whether to develop, heor she could explain how the recent recessionaffected his or her project, which sitsadjacent to your client’s land. Because therival formed his or her opinions independentlyof the litigation, his or her testimonywill not carry the burden of bias.The Quest to Define “Retained”Federal Rule of Civil Procedure 26 distinguishesbetween retained and non- retainedexperts when delineating disclosurerequirements. See Fed. R. Civ. P. 26(a)(2)(B) and 26(a)(2)(C). If an expert is “retainedor specially employed to provide expert tes-28 ■ For The Defense ■ March 2012■ Tammy B. Georgelas, lead author, is a shareholder with Snow, Christensen & Martineau, P.C., in Salt Lake City, Utah. She is atrial attorney who focuses on commercial litigation, real estate disputes, and bankruptcy and creditor’s rights. Melinda K. Bowenand John S. Treu, contributing authors, are associates with Snow, Christensen & Martineau. Ms. Bowen’s practice focuses oncommercial litigation, professional liability defense, and white collar defense. Mr. Treu’s practice areas include commercial litigation,tax, and general business law.

timony in the case or one whose duties asthe party’s employee regularly involve givingexpert testimony,” then he or she mustsubmit a written report containing(i) a complete statement of all opinionsthe witness will express andthe basis and reasons for them;(ii) the facts or data considered by thewitness in forming them;(iii) any exhibits that will be used tosummarize or support them;(iv) the witness’s qualifications, includinga list of all publicationsauthored in the previous 10 years;(v) a list of all other cases in which,during the previous 4 years, the witnesstestified as an expert at trial orby deposition; and(vi) a statement of the compensation tobe paid for the study and testimonyin the case.Fed. R. Civ. P. 26(a)(2)(B) (2010).By inference, all other experts, commonlyreferred to as “non- retained”experts, do not have to file detailed writtenreports. Instead, Federal Rule of CivilProcedure 26 requires counsel for nonretainedexperts to provide “(i) the subjectmatter on which the witness is expected topresent evidence under Federal Rule of Evidence702, 703, or 705; and (ii) a summaryof the facts and opinions to which the witnessis expected to testify.” Fed. R. Civ. P.26(a)(2)(C) (2010).While the rule appears to provide discretedisclosure parameters for both kindsof experts, in practice the distinctionbetween retained and non- retained is notso simple. Because Federal Rule of CivilProcedure 26 does not define “retainedor specially employed,” courts have spentyears outlining the boundaries of theseterms. As it turns out, it’s wrong to assumethat a retained or specially employedexpert is someone who is paid for his orher work: “Although evidence that a partywas not paid to testify suggests he was notretained, this fact alone is not dispositive ofthe issue.” Brown v. Best Foods, 169 F.R.D.385, 388 n.3 (N.D. Ala. 1996). Instead,courts have found that the critical issue indetermining whether an expert is “retainedor specially employed” is the scope of theproposed testimony. Amos v. W.L. Plastics,Inc., 2009 WL 3854980 (D. Utah 2009).Accord Wreath v. United States, 161 F.R.D.448, 450 (D. Kan. 1995) (discussing Fed. R.Civ. P. 26(a)(2)(B) disclosure requirementsin the context of a treating physician).In Amos v. W.L. Plastics, Inc., the courtwas asked to determine whether the plaintiffs’witness was indeed an expert and, ifso, whether she was a “retained” expertobligated to submit an expert report. Amos,2009 WL 3854980, at *1. The witness, Ms.Crabtree, was an employee of a majorpipe manufacturer who intended to testifyabout the procedure for banding andloading HDPE pipe. The plaintiffs arguedthat Ms. Crabtree was a fact witness whoshould be allowed to testify during thetrial. The defendant disagreed, arguingthat she was an expert witness who shouldbe precluded from testifying because theplaintiffs untimely disclosed her, and shedid not provide a written report. The courtfound that because Ms. Crabtree was offeringtestimony on the industry standardfor banding and loading HDPE pipe shewas in fact an expert. Moreover, the courtdeclined to exclude Ms. Crabtree from testifyingduring the trial because the partieshad ample time to cure prejudice due to thelate disclosure. Id.The defendant then moved to compel anexpert report from Ms. Crabtree. The plaintiffsargued because she was not “retainedor specially employed” by them she did notneed to provide report. Id. at *2. In support,the plaintiffs asserted that they had no feearrangement with Ms. Crabtree, she “hasnot relied on any facts of this case to offerher testimony,” and her testimony wouldbe “limited to how her company bandsand chocks pipes prior to transport andwhether she believes it is industry standardor a safety standard to do so.” Id. at *1.Analyzing case law discussing factorsthat transform a treating physician from anon- retained expert into a retained expert,the Amos court found that Ms. Crabtreewas not a “retained or specially employed”expert. In addition to the fact that theplaintiffs hadn’t paid her, her testimonywas limited to her personal knowledgeand experience and was not developed forthe purpose of a trial. However, the courtnoted that if Ms. Crabtree intended to offertestimony whether the defendant breacheda standard of care, industry standard, or asafety standard, or to analyze the specificfacts of the case, then her testimony wouldexceed the limits of Federal Rule of CivilProcedure 26, and she would need to submitan expert report. Id. at *2.The Amos ruling, and similar others, arebased on the contention that an expert isnot “retained or specially employed” if hisor her testimony is grounded in facts thathe or she learned during the course of his orher regular work rather than through theThird-party non-retainedexperts can enhancedefense theories withneutral analyses of generalprinciples or by recountinghow relevant facts affectedthem personally.pending litigation. See Full Faith Churchof Love West, Inc. v. Hoover Treated WoodProducts, Inc., 2003 WL 169015 (D. Kan.2003) (holding that general contractorshired to repair a defective roof could testifyas non- retained experts regarding degradationof the wood, which repairs were necessaryand why, and the reasonableness ofthe costs). However, a court may considerthat same expert “retained or speciallyemployed” if his or her testimony extendsbeyond the facts learned during his or herregular work and he or she developed theknowledge expressly for purposes of testifying.Amos, at *1. Thus, courts generallyconsider experts to be non- retained ifthey limit their proposed testimony to factslearned and opinions formulated prior to,or regardless of, the pending litigations.Opportunities Abound toBolster Your CaseAside from scope, a non- retained expertneeds to have the same basic qualificationsas a retained expert. By definition, he or sheneeds sufficient “knowledge, skill, experience,training, or education” in a particularfield to form an opinion that will assista fact finder. Fed. R. Evid. 702; Kumho TireFor The Defense ■ March 2012 ■ 29

Commercial LitigationCo., Ltd. v. Carmichael, 526 U.S. 137, 147(1999). An attorney sometimes can use anon- retained expert best to provide factfinders with the basis from which to drawtheir own conclusions. The drafters of FederalRule of Evidence 702 acknowledgedthat in some cases it is important that anexpert educate a fact finder about generalprinciples without forming conclusionsBecause [FRCP] 26does not define “retainedor specially employed,”courts have spent yearsoutlining the boundariesof these terms.regarding litigation: “For example, expertsmight instruct the factfinder on the principlesof thermodynamics, or bloodclotting,or on how financial markets respondto corporate reports, without ever knowingabout or trying to tie their testimony intothe facts of the case.” Fed. R. Evid. 702 advisorycommittee’s note (2000 amendments).In fact, Federal Rule of Evidence 702expressly contemplates expert testimonyin a form other than opinion: “A witnesswho is qualified as an expert by knowledge,skill, experience, training, or educationmay testify in the form of an opinionor otherwise.” Fed. R. Evid. 702.Elaborating, the advisory committee onthe 1972 amendments wrote:Most of the literature assumes thatexperts testify only in the form ofopinions. The assumption is logicallyunfounded. The rule accordingly recognizesthat an expert on the stand maygive a dissertation or exposition of scientificor other principles relevant tothe case, leaving the trier of fact to applythem to the facts. Since much of the criticismof expert testimony has centeredupon the hypothetical question, it seemswise to recognize that opinions are notindispensable and to encourage the useof expert testimony in non-opinion form30 ■ For The Defense ■ March 2012when counsel believes the trier can itselfdraw the requisite inference.Fed. R. Evid. 702 advisory committee’s note(1972 amendments).The rules governing such foundationaltestimony are less stringent than thosegoverning retained expert testimony: “Forthis kind of generalized testimony, Rule702 simply requires that: (1) the expert bequalified; (2) the testimony address a subjectmatter on which the factfinder can beassisted by an expert; (3) the testimony bereliable; and (4) the testimony “fit” the factsof the case.” Id.Acknowledging this need to providebackground information on unfamiliartopics, the drafters of the rule contemplatedtestimony by “not only experts in thestrictest sense of the word, e.g., physicians,physicists, and architects, but also the largegroup sometimes called ‘skilled’ witnesses,such as bankers or landowners testifying toland values.” Id. The broad phrasing of FederalRule of Evidence 702 allows a witnessqualifying as a non- retained expert to testifyon a vast range of topics.Take, for example, the lovely but brashMona Lisa Vito (Marisa Tomei) testifyingfor the defense as a non- retained expertwith “general automotive knowledge” inthe classic comedy My Cousin Vinny. Thecapital case hinged on whether the defendant’smint-green 1964 Buick Skylark hadbeen properly identified as the real getawaycar. After being called to the standagainst her will by fiancé Vincent Gambini(Joe Pesci), Ms. Vito sailed through examinationand cross- examination, regalingthe jury with a seemingly endless descriptionof her experience as a mechanic andbesting the prosecutor with a meticulouslythorough answer to his trick question.Reviewing photographs of the tire tracksleft at the scene of the crime, Ms. Vito usedher encyclopedic knowledge of automobilesto discern that the car leaving the scene ofthe crime must have had both positractionand independent rear suspension tohave left tracks over both the road and thecurb. She then testified that only two carsmade during the relevant time period hadboth of these features: the Corvette and the1963 Pontiac Tempest, which just happenedto resemble a 1964 Buick Skylark. And,because they were both made by GM, theywere both available in mint green.With Perry Mason panache, Ms. Vito deliveredconvincing, unbiased testimony tothe jurors, allowing them to draw the clearlylogical conclusion that the prosecutor’s expertwas wrong, and the defendant’s carcould not have made the tire marks at thescene. While it may be hard to find anotherMs. Vito in the real world, we can neverthelesstake advantage of other knowledgeable,non- retained experts to teach fact findersabout relevant background and principlesin support of our cases.In-House Employees Havea Wealth of KnowledgeIn the world of commercial litigation, aparty’s own employees are often some ofthe most knowledgeable and cost- effectiveexperts that can provide the essential Vitotypeeducation for a fact finder. See In ReWorldcom, Inc. Securities Litig., 2005 WL375315 (S.D.N.Y. 2005) (permitting bankersand analysts to testify as non- retainedexperts); Cicero v. The Paul Revere Ins. Co.,2000 WL 656666 (N.D. Ill. 2000) (permittingan employee- expert accountant to testifyregarding chiropractor’s business costsduring disability); Addison v. Medway AirAmbulance, Inc., 2005 WL 2738309 (N.D.Tex. 2005) (permitting a defendant’s presidentand CEO, a former employee, and acurrent employee to testify as non- retainedexperts).In the Worldcom securities litigation theunderwriter defendants disclosed approximately60 current or former employees whowould opine on topics such as “the operationof the capital markets, due diligencerelated to bond offerings, corporate disclosurepractices, financial analysis, industrystandards, customs and practices, and therole of research and rating agencies andcounsel in an underwriting.” Worldcom,2005 WL 375315, at *3. Arthur Andersen,a codefendant, noticed its intent to offerexpert testimony through its former employees“on the requirements of GAAS andAndersen’s compliance with GAAS.” Id.Each of these employees had participatedin the events that the litigation focused on.The plaintiff sought to exclude all testimonyby the employees based on thedefendants’ failure to comply with the FederalRule of Civil Procedure 26(a)(2)(B)reporting requirements. Id. The Worldcomcourt denied the plaintiff’s motion

and allowed the employee experts to testifydespite the fact that none of them hadfiled expert reports. Id. Referencing thetreating physician example from the advisorycommittee’s notes to Federal Rule ofCivil Procedure 26, the court held that “theexpert testimony from each of the identifiedwitnesses relates to the very topics onwhich the same witnesses will testify asparticipants in the events at issue in thistrial.” Id. at *4. The court also noted thatthe defendants had properly designated theemployee- experts in accordance with FederalRule of Civil Procedure 26(a)(2)(A) sothat the plaintiffs would not be blind-sidedby their testimony. Id. However, the courtissued its ruling without prejudice, recognizingthe plaintiff’s right to cross- examineany witness during the trial that it believedwas unqualified. Id.When defending a case, presentingemployees as knowledgeable experts to ajury is an excellent way to provide it with acomprehensive understanding of your client,in support of both your defense andthe case in general. You can dispel jurors’initial assumption of bias by carefully vettingand preparing your witnesses. Chooseapproachable and sincere people and makesure that they do their homework. Justbecause someone was present at an importantmeeting two years ago doesn’t meanthat he or she will remember every significantdetail without looking back at his orher notes or the meeting minutes. By askingtough questions during a mock deposition,you can ensure that he or she isprepared and can handle surprise questions.Jurors assess credibility the same aseveryone else: if they think that a witness ishiding the ball or does not know as much ashe or she should, they will likely discounthis or her testimony in general.During a recent trial, our client’s seniorexecutive spent days on the stand describinghis company’s history, philosophy, andbusiness decisions over the past decade.He was intelligent, knowledgeable, patient,and sincere. He never made the jurors feelthat they were not smart enough to understandcomplex subjects. He refused to letthe opposing counsel’s questioning rufflehim, taking the high ground instead. Heconcentrated when listening to questionsand then significantly turned and lookeddirectly at the jury when providing his answers.Every five-year-old knows that it’shard to look someone in the eye while lying.He made it clear to the jury that he tookthe case seriously and had faith in its abilityto make the right decision. These subtlebut deliberate actions demonstrated to thejury that the executive was credible, despitethe fact that he was testifying on behalf ofhis own employer. The jury likely assignedgreater weight to his convincing testimonybecause he lived with the disputed factsand concerns every day, much as a treatingphysician who sees a patient in a real worldsetting. The executive’s job was to make educateddecisions to ensure the vitality of hiscompany, not to convince a jury that they hewas right. See Holbrook v. Lykes Bros. SteamshipCo., 80 F. 3d 777, 782–83 (3d Cir. 1996)(“The rationale for giving greater weight toa treating physician’s opinion is that he isemployed to cure and has a greater opportunityto know and observe his patient.”).Third-Party Experts Convey CredibilityIn addition to using testimony from withinyour client’s walls, you have extensive opportunityto use independent non- retainedexpert testimony. Creatively reflecting oneach element of your defense may help identifypotential third-party experts. If valuationis relevant, consider whether a priorappraisal was performed on the propertyin question. In McSweeney v. Kahn, 2008WL 6875018 (N.D. Ga. 2008), the partiesdisputed the valuation of real estate held ina liquidating trust. The defendants soughtto introduce the testimony of Alex Howard,a non- retained expert who had valued theland for gift-tax purposes nearly a decadebefore the onset of the litigation. The plaintiffmoved to exclude Mr. Howard and hisoriginal valuation report arguing that thedefendants untimely disclosed him, andhis testimony would confuse the jury becausehe was a business valuation expertrather than a real estate expert. The courtdenied the motion finding that the defendantscould cure the delayed disclosure, thedefendants’ retained expert had relied onthe valuation report, and the appraisal wasnot irrelevant simply because it addressedgift-tax consequences. Id. at *3. The courtpermitted the defendants to use the gifttaxappraisal, which was especially beneficialbecause such appraisals generally valueproperty as low as possible.Third-party non-retained experts mayalso prove helpful in increasingly commonbreach of contract cases involving delayedor aborted real estate developments. In thesecases each side generally hires a damagesexpert to testify about the intricacies of lostprofits or about how one party didn’t loseprofits. You sometimes can bolster your retainedexpert’s calculations or theories withThe Amos ruling… [is]based on the contention thatan expert is not “retained orspecially employed” if his orher testimony is grounded infacts that he or she learnedduring the course of his orher regular work rather thanthrough the pending litigation.testimony from a third-party developer, orbetter yet, a client’s competitor who builton a nearby parcel. Perhaps the competitordid finish his or her development but wentbankrupt within a year because the marketfor the property took a dive after the recessionhit. By telling his or her story, the developerwould educate the fact finders aboutthe state of the market from firsthand experience.He or she would have had every incentiveto make a profit, and the fact thathe or she could not supports your argumentthat a plaintiff was not damaged as much ashe or she claims. The competitor’s testimonyalso furnishes a third party’s perspective onthe dispute without presenting an opinionon the actual litigation.Third-Party Disclosure RequirementsYou may have difficulty providing opposingcounsel with a summary of a third-partynon- retained expert’s facts and opinionsbecause he or she is not under your client’scontrol. Luckily, the Federal Rule of CivilProcedure 26 drafters took this into consid-For The Defense ■ March 2012 ■ 31

Commercial LitigationCreatively reflectingon each element of yourdefense may help identifypotential third-party experts.eration and noted that “[c]ourts must takecare against requiring undue detail, keepingin mind that these witnesses have notbeen specially retained and may not be asresponsive to counsel as those who have.”Fed. R. Civ. P. 26(a)(2)(C) advisory committee’snote (2010 amendments). Courts haveallowed a simple statement of who will testifyand the subject matter of that testimonyto fulfill the disclosure requirements.See Chesney v. Tennessee Valley Authority,2011 WL 2550721 (E.D. Tenn. 2011). However,the statement must refer to specificfacts. In Nicastle v. Adams County Sheriff’sOffice, 2011 WL 1674954 (D. Colo. 2011), thecourt held that referring to a large volumeof documents containing the facts underlyingthe expert’s testimony was insufficient.The expert was ordered to supplement hisdisclosures and provide a summary ofparticular facts within the documents onwhich he would rely. The key to determininghow much to disclose essentially is toprevent trial by ambush.You also will want to give thought todocumenting third-party experts’ intendedtestimony early because they may forgetimportant facts or initial opinions by thetime that you need their testimony. Oneway to ensure that you have enough informationfrom an expert to provide the necessarydisclosures and to prepare for a trialis to interview the expert early in the discoveryprocess. Ask questions that developa full understanding of a witness’ backgroundand relationship to the parties, andbe sure to obtain his or her full opinion, aswell as the basis for it. Take extensive notes,or record the interview with permission.Within a day or two, draft a detailed affidavitincluding all of the information andhave the expert review and sign it.Be cognizant that a third-party witnessmay change his or her opinion, whether32 ■ For The Defense ■ March 2012simply because time passes or because heor she perceives some advantage. One practicaltip to help prevent this is to make oneor two purposeful, innocuous mistakes inan affidavit and then, when reviewing itwith the witness, point out the mistakesand have him or her correct and initial thechanges. Producing the corrected affidavitwill remind the witness that he or she notonly signed the document but thoroughlyreviewed it beforehand.Employee Disclosures—Not as Simple as You ThinkA plain reading of Federal Rule of Civil Procedure26 dictates that employees who donot regularly offer expert testimony neednot provide expert reports. Yet in practice,a majority of the courts have been reticentto interpret the rule strictly because theybelieve that relieving employees from thedisclosure requirements flouts the spiritof full disclosure and would create a categoryof experts exempt from substantivedisclosures. See National R.R. PassengerCorp. v. Railway Express, LLC, 268 F.R.D.211 (D. Md. 2010) (justifying a broad interpretationof Fed. R. Civ. P. 26(a)(2) becausethe “point” of the rule is “to minimizeunfair surprise and prejudice resultingfrom ‘sketchy and vague’ disclosure priorto trial.”). Accord, Day v. Consolidated RailCorp., 1996 WL 257654 (S.D.N.Y. 1996); Prietov. Malgor, 361 F.3d 1313 (11th Cir. 2004).But compare Navajo Nation, 189 F.R.D. 610(E.D. Wash. 1999) (strictly interpretingthe rule and holding that “those employeeswho do not regularly testify for theemployer but are doing so in a particularcase need not provide the report”).The basis for the majority of the courts’liberal interpretation is that before December2010 the Federal Rules of Civil Proceduredid not include disclosurerequirements for experts who fell outsideof the definition of expert witnesses in Rule26(a)(2)(B). In response to this discoveryconcern, Federal Rule of Civil Procedure26 was amended to include specific disclosurerequirements for “witnesses who donot provide a written report.” Fed. R. Civ. P.26(a)(2)(C) (2010). As the advisory committeeexplained, “This amendment resolvesa tension that has sometimes promptedcourts to require reports under Rule 26(a)(2)(B) even from witnesses exempted fromthe report requirement. An (a)(2)(B) reportis required only from an expert describedin (a)(2)(B).” Fed. R. Civ. P. 26 advisorycommittee’s note (2010 amendments).Only time will tell whether the majorityof courts will rely on Federal Rule ofCivil Procedure 26(a)(2)(C)’s increased disclosurerequirements and require expertreports only when an employee providesexpert testimony on a regular basis. Courtsstill have leeway: “The 2010 amendment toRule 26(a)(2) does not explicitly overrulethe majority view in Day and Prieto andthere is, as yet, no indication that courtswhich follow the majority view will nowadopt the Navajo Nation position.” See AllstateIns. Co. v. Nassiri, 2011 WL 2975461*9 (D. Nev. 2011). In fact, at least one courthas continued to follow Day and requireexpert reports despite the additional disclosurerequirements set forth in the 2010amendments. In D.G. v. Henry, 2011 WL2746180 (N.D. Okla. 2011), the court consideredthe 2010 amendment but held thatthe employee in question must provide anexpert report because[w]hen an employee is not performinghis or her usual employment functionsbut has been assigned the job ofan expert witness in the case, the term“specially employed” is an accuratedescription of the employee’s role….This construction does not require anexpert report from every employee of aparty who offers expert testimony, onlythose who are specially tasked to performan expert function outside theusual employment role.Id. at *1.Because of this split in reportingrequirements, practitioners should takecare when determining whether to filean expert report for an in-house expert.Understanding your jurisdictional requirementsis essential to avoid Federal Rule ofCivil Procedure 37 sanctions for failing tomake timely disclosures; sanctions whichmay include prohibiting your witness fromtestifying during a trial.Daubert Is Still a FactorKnowing your experts and their testimonyas early as possible is critical not onlyto meet the disclosure requirements butalso to ensure that you can use their testi-Non-retained, continued on page 67

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Commercial LitigationCompetition andLawfulnessBy Kip D. NelsonThe DickensAbout the FTC andHospital MergersAssist your clientswho are undertakingproposed transactions bydeveloping a thoroughunderstanding of theFTC’s enforcementhistory and practice.In the early twentieth century, President Woodrow Wilsonand his supporters touted the creation of the Federal TradeCommission (FTC) “as an indispensable instrument ofinformation and publicity, as a clearing house for the factsby which both the public mind and themanagers of great business undertakingsshould be guided, and as an instrumentalityfor doing justice to business.” H.R. Doc.No. 625, 63d Cong., 2d Sess. 5, 6 (1914). TheFTC has taken that role seriously and hasexpanded enforcement actions into variousindustries, more successfully in somethan in others. The past year has seen asurprising shift in attention to the healthcare industry as the FTC has reinvigorateda practice of the past—challenging hospitalmergers and acquisitions.For example, citizens of Rockford, Illinois,may be surprised to learn that Rockfordfor the second time is the center ofa major dispute between the health careindustry and the FTC. The area has threemajor hospitals, and the FTC recently initiatedan action to prevent two of them frommerging. This action reaches far beyondRockford, though, and exemplifies theFTC’s approach to the health care industry’sattempts to combine facilities as wellas its approach to mergers more generally.On November 18, 2011, the FTC announcedthat it had filed an administrativecomplaint against two of the major healthcare systems in Rockford. According to theFTC, this action is “part of its ongoing effortto protect U.S. health care consumers.”The FTC complaint alleges that theproposed merger of the two systems would“substantially lessen competition for criticalhealth care services in the Rockford, Illinoisarea.” In re OSF Healthcare System, No. 9349(F.T.C. Nov. 17, 2011). The FTC argues thatthe merger of the two systems would leaveonly one competitor in the area, and the resultingdiminished competition would increasehealth care costs, reduce the qualityof care, and restrict the range of health carechoices for consumers.The FTC based the complaint on informationprovided by “health plans, localemployers and physicians, third partyhospitals, and the merging parties themselves.”These sources, according to thecomplaint, confirm that the current competitionamong the three largest hospitalsis vigorous and robust. In addition, thiscompetition is buttressed by local health34 ■ For The Defense ■ March 2012■ Kip D. Nelson is a litigation associate in the Greensboro, North Carolina, office of Smith Moore Leatherwood LLP, where he isa member of the firm’s litigation group. An abbreviated version of this article appeared in the January 2012 edition of AntitrustNews, published by the Antitrust & Complex Business Disputes Law Section of the North Carolina Bar Association.

care plans that usually consider two, butnot three, of the hospitals “in- network”providers.Thus, the FTC argues, eliminating oneof those players would hinder competitionand have several negative effects. Thecombined entity would have significantlyhigher market leverage. The merged healthcare system would no longer compete overnonmonetary advantages, such as access tocare and scope of services. Finally, and perhapsmost importantly, the merger wouldresult in a situation in which only twomajor players would have incentive “toengage in coordinated interaction.”The hospitals wishing to merge haveresponded to the complaint by allegingthat the proposed merger would createoperational efficiencies, generate cost savings,and enhance the quality and scope ofhealth care in the area. Rockford HealthSystem’s Answer to Complaint, In re OSFHealthcare, available at http://www.ftc.gov/os/adjpro/d9349/111212rockfordanswertocmplt.pdf. But the FTC has rejected the hospitals’arguments. According to the FTC, leavingone major competitor would not sufficientlyguarantee the advantages thatcompetition affords consumers to meet thestandard for lawfulness. Furthermore, significantbarriers to entering that marketwould prevent another competitor frompenetrating it, at least in the near future.Finally, the damaging effects would outweighwhatever efficiency the hospitalswould gain by the merger, which apparentlythe hospitals have not explained wellin answering the FTC’s allegations.The Spirit of Mergers PastThe FTC’s arguments are not entirely novelsince this is neither the first dispute involvingRockford’s hospitals nor the first actionagainst hospital mergers. Rockford hasthree main hospitals, and a federal courtenjoined a different combination of two ofthem from merging over 20 years ago. InUnited States v. Rockford Memorial Corp.,the Seventh Circuit affirmed an injunctionagainst the merger. 898 F.2d 1278 (7th Cir.1990). Even though patients and insurerswould have had some alternatives forhealth care, the court ruled that the hospitals’“immense shares in a reasonablydefined market create a presumption ofillegality.” Therefore, the court affirmed thetrial court’s injunction against the merger.The Eleventh Circuit reached a similar conclusionin a similar situation the followingyear in FTC v. University Health, Inc., 938F.2d 1206 (11th Cir. 1991).Although the situations today and in thepast have similarities and the health carelandscape in Rockford has not changed dramaticallyin the intervening time period,one interesting aspect of the OSF Healthcarecomplaint that could create a wrinkleinvolves the grounds on which the FTC hasbased the prosecution. In the 1990 RockfordMemorial decision, the Seventh Circuit heldthat the proposed merger would violate section1 of the Sherman Act. Yet the FTC complaintagainst OSF Healthcare System andRockford Health System in OSF Healthcaresolely alleges that the merger would violatesection 7 of the Clayton Act. Perhaps giventhat courts interpreting the two sectionshave found them nearly identical, the FTCheld onto its traditions and attacked themerger under the Clayton Act.Rockford is not the only place wherethe FTC has sought to prevent mergersof health care systems. Indeed, the FTChas been challenging hospital acquisitionssince 1981. In that year, the FTC attackedthe acquisition of a hospital in San LuisObispo, California. The administrative lawjudge ruled in favor of the FTC, and aftermodifying the order twice, so did the fullcommission. Am. Med. Int’l v. FTC, 104F.T.C. 1 (1984), as modified by 104 F.T.C.617 (F.T.C. 1984) and 107 F.T.C. 310 (F.T.C.1986). More recently, the FTC successfullychallenged another hospital merger in Illinois,although the FTC filed the action afterthe hospitals completed the merger so theFTC ordered the merged entity to establishindependent negotiating teams ratherthan unwind the merger itself. In re EvanstonNW Healthcare Corp., No. 9315 (F.T.C.Aug. 6, 2007).Of course, not all courts have believedthat the FTC proved that health care industrymergers failed a lawfulness test. Forexample, six months before the SeventhCircuit granted the FTC broad authorityin Rockford Memorial, the Fourth Circuitrejected a similar argument in anothercase. See United States v. Carilion HealthSystem, No. 89-2625, 1989 WL 157282 (4thCir. Nov. 29, 1989) (unpublished). As theSeventh Circuit did, the Fourth Circuitanalyzed a proposed merger of two hospitalsunder section 1 of the Sherman Act.Unlike the Seventh Circuit, however, theFourth Circuit rejected the FTC’s arguments.Instead, the court accepted the districtcourt’s findings that the merger wouldproduce significant efficiencies and that asingle, large competitor would still exertsufficient competitive pressure. Therefore,In 2007, the FTC took abreak from enforcementactivity related to hospitalmergers. But recentlythe agency expandedits presence in theindustry once again.the proposed merger passed the rule of reason.And the Fourth Circuit was not theonly court to rule this way. The FTC subsequentlylost all seven cases it broughtagainst hospital mergers from 1994 to 2000.Still, given the relevant precedent fromthe Seventh Circuit, the current OSF Healthcareaction probably will not fail. With suchstrong language directly on point fromJudge Posner in the Seventh Circuit case,898 F.2d 1278 (7th Cir. 1990), the FTC tookcare to include several references to it in thisrecent complaint. Thus, Rockford citizenscan probably count on having three healthcare providers in the foreseeable future.This recent action is not much of a surprise.What is a surprise, however, is whatthe complaint reveals about the FTC’s currentthought processes and what the complaintportends for the future of antitrustenforcement in the health care industry.The Spirit of Mergers PresentAfter Evanston, No. 9315 (F.T.C. Aug. 6,2007), in 2007, the FTC took a break fromenforcement activity related to hospitalmergers. But recently the agency expandedits presence in the industry once again. Ofthe five administrative complaints filed inFor The Defense ■ March 2012 ■ 35

Commercial Litigation2011, three of them challenged health caresystems acquisitions. In fact, the complaintsagainst hospital mergers in bothGeorgia and Ohio are remarkably similarto the recent Rockford complaint, OSFHealthcare System, No. 9349 (F.T.C. Nov.17, 2011).In re Phoebe Putney Health System, Inc.involves a merger between the two mainAlthough the FTC hasproceeded as if health caresystems are the same asany other service providingsystem, some have arguedthat the health care industryis sufficiently distinct torequire different standards.hospitals in Albany, Georgia. No. 9348(F.T.C. Apr. 19, 2011). According to the FTC,the merger would create a “virtual monopoly”and thereby increase health care costsfor local residents. As in OSF HealthcareSystem, No. 9349 (F.T.C. Nov. 17, 2011), theFTC argues that the current landscape isone of healthy competition that the mergerthreatens. The FTC also cites similar leveragingand barrier- to- entry concerns tothose cited in OSF Healthcare System, No.9349 (F.T.C. Nov. 17, 2011). The proceedingsare currently stayed while the hospitalsawait a ruling from the Eleventh Circuit ona tangential issue of state action immunity.The FTC made similar argumentsregarding a merger in Lucas County, Ohio,although there it brought the complaintafter the transaction occurred. In re Pro-Medica Health System, Inc., No. 9346 (F.T.C.Jan. 6, 2011). The FTC used the same rationaleand made the same arguments as inthe other two cases. As the Ohio case wasinitiated in January 2011, the parties havehad more time to fight over the details ofthe allegations. Still, the case has not beenfully resolved.36 ■ For The Defense ■ March 2012What could account for this expandedFTC activity? The FTC and the U.S. Departmentof Justice issued revised HorizontalMerger Guidelines on August 19, 2010.Originally adopted in 1968, the HorizontalMerger Guidelines intended “to acquaintthe business community, the legal profession,and other interested groups and individualswith the standards currently beingapplied by the Department of Justice indetermining whether to challenge corporateacquisitions and mergers.” The federalgovernment revised them significantlyin 1982, revised them next in 1984, andthen again in 1992. Except 1997 revisionsregarding efficiencies, the guidelines hadnot changed until 2010. The most recentversion is three times longer than the 1968version and approximately 50 percent longerthan the revised 1992 version. As onedrafter explained, the 2010 guidelines“reflect the ongoing evolution of mergerenforcement that has taken place since theDOJ first issued merger guidelines in 1968.”Carl Shapiro, The 2010 Horizontal MergerGuidelines: From Hedgehog to Fox in FortyYears, 77 Antitrust L.J. 701, 702 (2010).The 1982 Horizontal Merger Guidelinesfocused on the “coordinated effects” ofa merger, meaning “the danger that themerger would increase the likelihood ofcollusion, either express or tacit.” Shapiro,supra, at 705. This danger apparentlystill concerns the FTC greatly. The 1992Horizontal Merger Guidelines introducedthe concept of “unilateral effects,” arguing“that eliminating competition betweenthe merging firms could itself constitute asubstantial lessening of competition, evenwithout post- merger coordination betweenthe merged firm and its remaining rivals,”and it more fully emphasized barriers toentry. Shapiro, supra, at 706. The 2010guidelines built upon these ideas to reflect“the ascendency of unilateral effects as thetheory of adverse competitive effects mostoften pursued by the [federal] Agencies.”Id. at 712. These guidelines apply to virtuallyall hospital mergers. Although certainsmall hospitals have a “safety zone” underthe guidelines, the safety zone does notapply to larger health care systems.The Spirit of Mergers Yet to ComeThe introduction of a section labeled “Evidenceof Adverse Competitive Effects” inthe 2010 Horizontal Merger Guidelinesreveals the most significant change in thoseguidelines. The section, notably the firstsubstantive material, begins with the caveatthat the FTC and DOJ will “consider anyreasonably available and reliable evidenceto address the central question of whethera merger may substantially lessen competition.”The agencies then clarify that theywill examine various types of evidence,such as actual post- merger effects, comparisonsto similar mergers, the marketsituation, and the competitive landscape.They will gather information, as seen inOSF Healthcare, from the merging parties,customers, and other industry participants.Declaring these principles does notnecessarily reflect a monumental change inthe federal government’s decision- makingabout taking enforcement action. Theseagencies have used these principles foryears. Enunciating the specific policies upfront in the guidelines, however, exemplifieshow the FTC views itself and its role inthe American marketplace.According to the FTC, “most hospitalmergers and acquisitions do not presentcompetitive concerns.” The recent enforcementactions, however, lead someone towonder how much the FTC believes thatstatement. At least some commentatorshave indicated that the FTC routinely hasput such transactions under a “virtualmicroscope.” Robert Pear, Trade CommissionChallenges a Hospital Merger, N.Y.Times, Aug. 21, 2011. The increase in activityprobably stems from the FTC’s conclusionthat “imperfections in the healthcare system have impeded competitionfrom reaching its full potential.” Fed. TradeComm’n & U.S. Dep’t of Justice, HealthCare Report (Aug. 2004). The FTC does recognize,however, that extensive regulationcan actually limit competition.More generally, the FTC takes pride inviewing itself as the benevolent guardianof competition. According to the FTC’spress materials, “competition in America isabout price, selection, and service. It benefitsconsumers by keeping prices low andthe quality and choice of goods and serviceshigh. Competition makes our economywork.” Thus, the FTC has a responsibility“to ensure that our markets are open andfree.” Although courts and commentatorsHospital Mergers, continued on page 70

Commercial LitigationHope Meets RealityBy Michael SteinlageLoanModificationUnder HAMPThis governmentimposedright to loanmodification fails tostrike a balance betweenlenders’ rights to insist onadherence to the termsof loan agreements withborrower’s and the public’sinterests in avoidingthe destructive effect oframpant foreclosures.The economic decline and resulting mortgage crisis of thepast several years has placed unprecedented strain on thetraditional relationships between lenders and borrowers.Government programs designed to mitigate the effects ofthe crisis and encourage lenders to considerdifferent approaches to loan defaults havein some instances only complicated theproblem by altering homeowners’ expectationsof their rights and obligations underthe loan arrangements that they committedto in better times. The federal government’sHome Affordable ModificationProgram (HAMP) perfectly demonstratesthese conflicts.HAMP’s OriginsOn October 3, 2008, in the early days of thefinancial crisis, Congress passed the EmergencyEconomic Stabilization Act (EESA).12 U.S.C. §5201 (2008). The EESA allocated$700 billion to restore liquidity to the financialsystem and support and “preservehomeownership.” Id. The EESA establishedthe Troubled Asset Relief Program (TARP),which made money available to help achievethese goals. 12 U.S.C. §§5211, 5225 (2008).HAMP was created on February 18, 2009,under the discretionary authority granted■ Michael Steinlage is a partner with Larson King LLP in St. Paul, Minnesota,and leads the firm’s defense of financial services companies in individualand class-action litigation relating to mortgage origination and servicingissues in state and federal courts throughout the Midwest. Mr. Steinlage is amember of the DRI Commercial Litigation Committee.to the secretary of the treasury to “facilitateloan modifications to prevent avoidableforeclosures,” and it was implementedthrough a series of supplemental directives.See 12 U.S.C. §5219(a)(1); Williams v.Geithner, Civil No. 09-1959 ADM/JJG, 2009WL 3757380, at *2 (D. Minn. Nov. 9, 2009);U.S. Treasury, Making Home AffordableProgram Handbook for Servicers of Non-GSE Mortgages, version 3.3, at 1 (Sept. 1,2011). HAMP aimed to assist millions ofhomeowners financially who defaulted ontheir mortgages or faced imminent risk ofdefault by reducing their monthly paymentsto affordable and sustainable levels throughinterest rate reductions, term extensions,principal forbearance, and principal forgiveness.Geithner, at *4; U.S. TreasuryDep’t, Handbook, supra, at 1. In institutingHAMP the federal government soughtto provide lenders with incentives to modifyan eligible loan permanently when aborrower’s income would support the targetpayment and when—from an investor’sperspective—modification would havemore advantage than foreclosure. Supp.Treas. Dir. 09-01.HAMP’s ApplicabilityContrary to common belief, HAMP doesnot apply to all loans and lenders. If Fan-For The Defense ■ March 2012 ■ 37

Commercial Litigationnie Mae, Freddie Mac, or another governmentsponsored entity (GSE) owns orguarantees a loan, then HAMP pertains.When a GSE neither owns nor guaranteesa loan, servicers may participate voluntarily.Servicers that agree to participatein HAMP do so through a servicer participationagreement. A servicer that commitsto the program in this manner agreesServicers may, at theirdiscretion, refuse to grantpermanent modifications fora number of reasons evento borrowers who meet thethreshold requirements.to reconsider all loans that may be eligiblefor a modification.For those loans and lenders subject toHAMP, eligibility requirements limit itsapplicability. The minimum requirementsto determine bottom- line eligibility to participatein the program are (1) the propertymust be the borrower’s primary residence;(2) the principal balance of the loan mustbe less than $729,750; (3) the borrower’sloan must be a first lien originated on orbefore January 1, 2009; (4) the borrower’stotal mortgage payment must exceed 31percent of his or her gross monthly income’and (5) the loan must not have been previouslymodified under HAMP.If a borrower meets these thresholdrequirements, the lender or servicer thenmust determine whether the borrowermeets additional eligibility standards. Thethreshold criteria for the HAMP programare just that: servicers may, at their discretion,refuse to grant permanent modificationsfor a number of reasons even toborrowers who meet the threshold requirements.See Supp. Treas. Dir. 09-01 (detailingreasons for a servicer’s decision toreject a borrower under HAMP). The reasonsmay include the borrower failed tosubmit required trial plan payments andfailed to provide necessary documentation.38 ■ For The Defense ■ March 2012Servicers may also refuse to modify loansbased on economic calculations: “[S]ervicersmust apply a net present value (NPV)calculation to each eligible modificationrequest. Based on the NPV calculation, servicersmust modify loans that would resultin a greater return with modification thanwithout modification. Servicers need notmodify loans for which a greater returnwould result without modification.” McInroyv. BAC Home Loan Servicing, 2011 WL1770947, at *2 (D. Minn. 2011) (citing Supp.Treas. Dir. 09-01, at 4) (citations omitted).The U.S. Treasury Department has reiteratedthese reasons as a basis for denyingeligibility for a loan modification in subsequentHAMP directives. See Supp. Treas.Dir. 10-02.Challenges to Implementing HAMPDespite the best intentions of regulatorsand companies that participated in theprogram, HAMP has not had the broadand consistent impact that many hoped itwould. Through October of 2011, HAMPhas resulted in 883,076 homeowners receivingpermanent loan modifications thatmade their loans more affordable and improvedtheir ability to avoid foreclosures.USA Today, What Went Wrong with ForeclosureAid Programs, Dec. 12, 2011, availableat http://www.usatoday.com/money/economy/housing/story/2011-12-11/foreclosure-aid-programwhat-went-wrong/51815400/1.However, manymore homeowners continue to succumb toforeclosures.These mixed results are not surprisingconsidering the crucible of economicdistress in which HAMP was created andforced to operate. HAMP was announcedjust weeks after President Obama took officeat a time when home prices had fallen for 30months in a row. Id. Given how quickly theObama administration launched HAMP,members of the administration knew that“[it] wouldn’t be perfect.” Id.A recent Government AccountabilityOffice (GAO) survey of housing counselorshelping borrowers seeking HAMP modificationschronicle these imperfections:“Almost 60 percent complained that servicerslost documents, 54 percent said trialmodifications took too long, and 42 percentsaid borrowers felt that they were wronglydenied modifications, according to theGAO report.” Id.While many blame these problems onthe servicers that participate in the program,such arguments fail to account fullyfor the problems and challenges inherentin HAMP. The U.S. Treasury Departmentknew when it launched HAMP in early2009 that servicers were not fully equippedto handle the flood of loan modification requests.Id. Servicers have observed that theprogram’s changing guidelines made it difficultto implement. Servicers noted that inone three-month period the U.S. TreasuryDepartment made 100 changes to HAMP,which required servicers to adjust their ownprocedures, which, in the words of one servicer,made it “‘impossible’ for servicers tokeep up.” Id. Documentation requirementsunder HAMP were also considered onerousby some and often contributed to delays. Atdifferent points, the U.S. Treasury Departmentissued program directives that preventedservicers from canceling active trialperiod plan modifications, creating the appearanceof further delays for some borrowers.See, e.g., Supp. Treas. Dir. 09-10.HAMP-generated LawsuitsWith all the problems inherent in HAMPand the expectations that it created in borrowersit was only a matter of time beforeborrowers and consumer advocates beganto test the litigation waters. One of the firsttests came in a class action in 2009 againstthe U.S. Treasury Department and GSEscharged with implementing HAMP andseveral prominent loan servicers. See Williamsv. Geithner, Civil No. 09-1959 ADM/JJG, 2009 WL 3757380 (D. Minn. Nov. 9,2009).The plaintiffs in Geithner had beendenied loan modifications under HAMPand claimed that such actions deprivedthem of their constitutional right to proceduraldue process. Id. at *4. The plaintiffsargued that the history and requirementsof HAMP demonstrated that Congressintended to provide particular benefits tohomeowners that constituted protectedproperty interests. The benefits claimedby plaintiffs included (1) the suspensionof foreclosure pending a determination onthe homeowner’s loan modification application,and (2) the right to receive a loanmodification. The plaintiffs claims thatthe defendants were required to honor certainalleged constitutional rights associated

with those protected interests in providingthose benefits to the plaintiffs, includingwritten notification of adverse decisionsand opportunities to appeal them. Id. Theplaintiffs sought an injunction of all foreclosuresconducted by the defendants inMinnesota until these constitutional infirmitieswere resolved. Id.In denying the plaintiffs’ request forthe preliminary injunction, the court inGeithner focused on the likelihood of successon the merits and concluded that “theregulations at issue here did not intend tocreate a property interest in loan modificationsfor mortgages in default.” Id. at*6. The court reasoned that loan modificationswere not a “right” or an “entitlement,”and HAMP permitted servicers touse discretion in administering the program.See id. at *6. The federal districtcourt therefore concluded that the “Plaintiffsdo not have a legitimate claim of entitlementto a loan modification. Thus, theHAMP does not provide Plaintiffs with a‘protected property interest,’ the denial ofwhich must comport with due process protections.”Id. at *7. Accordingly, the courtdenied the plaintiffs’ motion for a preliminaryinjunction. Id.Despite the clear lines drawn in Geithner,homeowners continue to use HAMP as abasis for opposing foreclosure. Some borrowersargue the failure to consider themfor loan modification or representationsmade regarding the status of their modificationpreclude lenders from pursuingforeclosure. Others premise their claimson errors and delays in the processing ofHAMP applications and lost documentation.The most aggressive borrowers assertthat they have actual rights to loan modifications.All these iterations reflect severalfundamental misunderstandings regardingHAMP and the limited rights that itconfers. The remainder of this article willaddress the most prominent arguments fordismissal of HAMP- related claims.HAMP Does Not Confer a Private Right ofAction to Enforce Program ProceduresDespite the preponderance of decisions onthis issue, many borrowers fail to recognizethat HAMP does not provide a privateright of action if a servicer fails to adhere toHAMP procedures. As the court in Marksv. Bank of America, N.A., observed,Nowhere in the HAMP Guidelines, norin the EESA, does it expressly providefor a private right of action [to enforceprocedures]. Rather, Congressional intentexpressly indicates that complianceauthority was delegated solely to FreddieMac. By delegating compliance authorityto one entity, Freddie Mac, Congress intendedthat a private cause of action wasnot permitted.2010 WL 2572988 (D. Ariz. June 22, 2010),at *6 (citation omitted) See also Supp. Treas.Dir. 09-01, at 25.The rationale for this approach is soundbecause a servicer would not agree to participatein HAMP if doing so exposed itto private lawsuits and damages based onHAMP’s requirements. See Marks, 2010WL 2572988, at *4.Courts also consistently have rejectedclaims for breach of contract premised onthe servicer participation agreement thatgoverns a servicer’s participation in HAMP.See, e.g., Nafso v. Wells Fargo Bank, NA,Engineers, Architects, Scientists & Fire InvestigatorsAdmiralty / MaritimeArchitecture / Premises SafetyAviationBiomechanical EngineeringConstruction Claims / InjuriesCrash ReconstructionDram Shop / Liquor LiabilityEducation / SupervisionElectrical EngineeringEnvironmental / Toxic TortsNo. 11-10478, 2011 WL 1575372, at *4–5(E.D. Mich. Apr. 26, 2011); Rivera v. Bank ofAm. Home Loans, No. 09-cv-2450, 2011 WL1533474, at *3–7 (E.D.N.Y. Apr. 21, 2011);Orcilla v. Bank of Am., N.A., No. C10-03931,2010 WL 5211507, at *3 (N.D. Cal. Dec. 16,2010); Speleos v. BAC Home Loans Servicing,L.P., No. 10-11503, 2010 WL 5174510,at *3–5 (D. Mass. Dec. 14, 2010); Phu VanNguyen v. BAC Home Loan Servs., No. C-10-01712, 2010 WL 3894986, at *4 (N.D. Cal.Oct. 1, 2010); Marks v. Bank of Am., N.A.,No. 03:10-cv-08039, 2010 WL 2572988, at *5(D. Ariz. Jun. 22, 2010); Escobedo v. CountrywideHome Loans, Inc., No. 09-cv-1557, 2009WL 4981618, at *3 (S.D. Cal. Dec. 15, 2009);Hoffman v. Bank of America, Civ. No. 10-2171SI, 2010 WL 263573 (N.D. Cal. June 30, 2010).These courts recognize that homeowners areat most incidental beneficiaries of these contractsand as such they may not sue as thirdpartybeneficiaries to those contracts.The Hoffman case illustrates how courtsare likely to view a claim of alleged neglectFire / ExplosionHuman FactorsHVAC / PlumbingOccupational Health / SafetyOil & Gas DrillingProduct LiabilitySports and RecreationStructural EngineeringToxicologyVehicle EngineeringWith 175 experts at one firm, Robson Forensic provides expertise in morethan 75 unique disciplines. Visit us online for expert bios and CVs.www.robsonforensic.com | 800.813.6736For The Defense ■ March 2012 ■ 39

Commercial Litigationin the processing of a HAMP loan modification.In Hoffman, the plaintiff claimedthat the lender “delayed him for more thana year by, among other things, going longperiods of time without communicating,[and] repeatedly telling plaintiff his documentationwas lost with requests to resendit.” Hoffman, 2010 WL 263573, at *1.The borrower in Hoffman sued for breach ofMany borrowers failto recognize that HAMPdoes not provide aprivate right of action ifa servicer fails to adhereto HAMP procedures.contract claiming that he was a third-partybeneficiary of the obligations assumed underHAMP. Id. (“Plaintiff complains thatdefendants breached their contractual dutiesby failing to provide the opportunityto accept loan modifications to eligibleborrowers.”). In response to these claims,the Hoffman court held that “[l]end ers arenot required to make loan modificationsfor borrowers [even if they] qualify underHAMP nor does the servicer’s agreement[confer] an enforceable right on the borrower.”Id. at *5. The court in Hoffman heldthat the plaintiff did not have a private rightof action to enforce HAMP and dismissedthe plaintiff’s breach of contract claim. Id.40 ■ For The Defense ■ March 2012U.S. Treasury Directives andHAMP Standardized Forms Do NotEstablish a Reasonable Expectationof Receiving a ModificationBorrowers also often fail to show their relianceon alleged promises of a loan modificationis reasonable based on the languageof the HAMP documents and the federalguidance implementing the program,which make clear that HAMP does not obligatea servicer to modify a loan. See Williamsv. Geithner, Civil No. 09-1959 ADM/JJG, 2009 WL 3757380 (D. Minn. Nov. 9,2009); Cox v. Mortgage Electronic RegistrationSystems, Inc., Civil No. 10-4626 (DSD/SER) (D. Minn. June 20, 2011); Brisbin v.Aurora Loan Services, LLC, Civ. No. 10-2130(RHK/JJK), 2011 WL 1641979 (D. Minn.May 2, 2011); Lucia v. Wells Fargo Bank,N.A., Civ. Nos. 10-04749 JSW, 10-056073JSW, 2011 WL 3134422 (N.D. Cal. Apr.11, 2011). Even courts that recognize thatHAMP does not preclude state law claimsgrounded on modification- related conductgenerally recognize that modificationrelatedclaims premised on the right toa loan modification under HAMP fail tostate a claim as a matter of law. See, e.g.,Scott v. Wells Fargo Bank, N.A., Civil No.10-3368 (MJD/SER), 2011 WL 3837077 (D.Minn. Aug. 29, 2011); Olivares v. PNC Bank,N.A., Civil No. 11-1626 ADM/JJK, 2011 WL4860167 (D. Minn. Oct. 13, 2011). The argumentis even stronger in states that requirethat credit agreements be in writing. See,e.g., Olivares v. PNC Bank, No. 11-1626, 2011WL 4860167, at *5 (D. Minn. Oct. 13, 2011)(recognizing heightened writing requirementson credit agreements, includinghome loan modifications, under Minn.Stat. §513.33); Shetney v. Shetney, 49 Wis.2d 26, 38–39, 181 N.W.2d 516 (1970) (“Itis not enough that the parties think thatthey have made a contract; they must haveexpressed their intentions in a manner thatis capable of understanding. It is not evenenough that they have actually agreed, iftheir expressions… are not such that thecourt can determine what the terms of thatagreement are.” (quoting 1 CORBIN Contracts§95, at 394)).A Trial Period Plan Does NotGuarantee a Loan ModificationBorrowers that recognize the problemsassociated with claims based solely onoral representations often point to the trialperiod plan document as evidence of a rightto a loan modification. However, the languageof the trial period plan mandated byHAMP expressly rejects this argument. Thestandard trial period plan states:I understand that the Plan is not a modificationof the Loan Documents andthat the Loan Documents will not bemodified unless and until (i) I meet allof the conditions required for modification,(ii) I receive a fully executed copy ofa Modification Agreement, and (iii) theModification Effective Date has passed.I further understand and agree that theLender will not be obligated or bound tomake any modification of the Loan Documentsif I fail to meet any one of therequirements under this Plan.In Lucia v. Wells Fargo Bank, the courtheld that this language supported dismissingthe plaintiffs’ breach of contract claim:Under the language of the TPP Contract,a binding modification would not resultunless and until [the lender] determinedthat plaintiff complied with the requirements.If [the lender] so determined,then it would send plaintiff a modificationagreement, including a newmonthly payment amount, which bothplaintiff and defendant would execute.Nos. C 10-04749 JSW, C 10-05073 JSW,2011 WL 3134422, at *6 (N.D. Cal. April22, 2011) (quoting Grill v. BAC Home LoansServicing LP, Civ. No. 10-CV-03057-FCD/GGH, 2011 WL 127891, at *4 (E.D. Cal. Jan.13, 2011)).In Lucia, the plaintiff alleged thatalthough he complied with the requirementsof the trial payment plan, “he wasnever offered a permanent mortgage modification.”Id. After reviewing the decisionsof other courts addressing similarclaims, the court in Lucia granted the lender’smotion to dismiss the breach of contractclaim based on the plaintiffs’ failureto allege “that they met all the conditionsset forth in the TPP Contract… includingreceipt of a ‘fully executed copy of a ModificationAgreement.’” Id. at *7.Implied Duty of Good Faith and FairDealing Arguments Will FailBorrowers frequently claim that errors anddelays in connection with their attemptsto qualify for loan modification constitutea breach of the implied duty of goodfaith and fair dealing. In most states, “allcontracts include an ‘implied covenant ofgood faith and fair dealing’ that preventsone party from ‘unjustifiably hindering theother party’s performance of the contract.’”See, e.g., McInroy v. BAC Home Loan Servicing,LP, No. Civ. 10-4342 (DSD/SER), 2011WL 1770947, at *3 (D. Minn. May 9, 2011)(quoting Midwest Sports Mktg., Inc. v. Hillerich& Bredsby of Can., Ltd., 552 N.W.2d254, 268 (Minn. Ct. App. 1996)). However,a court may not use the duty of good faithHAMP, continued on page 65

Commercial LitigationI Wish They All CouldBe CaliforniaBy Phillip C. Korovesis,Bernard J. Fuhs,and Marc W. OswaldWhy NoncompeteCritics Are Singingthe Wrong SongArguments criticizingnoncompete agreementsstem from flawedanalyses and fail to takeinto account their fullbeneficial economic effect.Noncompete agreements are facing a steady attack fromvarious circles in the business, legal, political, and academiccommunities. Those attacks are often coupled withcalls on state legislatures to ban or to limit the agreements■ Phillip C. Korovesis is a shareholder andBernard J. Fuhs and Marc W. Oswald areassociates in the law firm of Butzel Long inDetroit. Mr. Korovesis’ trial, litigation, andconsultation practice is focused on commercialdisputes. He is an active member ofDRI Commercial Litigation, Product Liabilityand Insurance Law Committees and currentlyserves as the president of the MichiganDefense Trial Counsel. Mr. Fuhsconcentrates his practice in the areasof business and commercial litigation.Mr. Oswald’s practice includes counseland advice to management onemployment and labor law issues andrelated litigation.drastically. Individuals argue that banningor limiting such agreements will helpinnovation and economic developmentto flourish. As facially appealing as thosearguments might appear in a depressedeconomic environment, they ignore thepositive effect noncompete agreements haveon the economy. Reasonably tailored noncompeteagreements do protect legitimatebusiness interests and can exist withoutimpeding innovation. In fact, noncompeteagreements, as well as other types ofrestrictive covenants, promote and cultivateinnovation and serve vital roles in aknowledge- based economy by protectingentrepreneurs’ ideas, investments, goodwill,and other legitimate business interests.The degree of criticism directed to noncompeteagreements may be relatively new,but noncompete agreements themselvesare not. In fact, they have been around andenforced for hundreds of years. See HarlanM. Blake, Employee Agreements Notto Compete, 73 Harv. L. Rev. 625, 625–46 (1960) (discussing the history of noncompeteagreements and explaining thatsuch issues have been before the courts formore than 500 years). Indeed, based onthe recent intensity with which noncompeteagreements have been attacked, someonemight think that current employmentpractices resemble those used long ago toprotect commercial interests in Venice, asignificant center of economic developmentduring the middle ages. See, e.g., LeoHuberman, Man’s Worldly Goods: The Storyof the Wealth of Nations (Harper & BrothersPublishers 1936) (discussing a 1594 Venetianlaw: “‘If a workman carry into anothercountry any art or craft to the detriment ofthe Republic, he will be ordered to returnit; if he disobeys, his nearest relatives willbe imprisoned, in order that the solidarityof the family may persuade him to return;For The Defense ■ March 2012 ■ 41

Commercial Litigationif he persists in his disobedience, secretmeasures will be taken to have him killedwherever he may be.’”). Although someemployers in the current century mightprefer the methods available in 15th centuryVenice to those currently available,the authors of this article certainly do notsuggest that we return to those measures.Nearly every state honors a restrictiveReasonably tailorednoncompete agreements doprotect legitimate businessinterests and can existwithout impeding innovation.covenant in some form as long as the restriction’sduration, geography, and scopeare reasonable. However, just as every rulehas its exception, public policy on enforcingnoncompete agreements does too. Californiaand North Dakota generally prohibitnoncompete agreements. See Cal. Bus. &Prof. Code §16600 (West 1941) and N.D.Cent. Code §9-08-06 (1943). Clearly, statelaws treat noncompete agreements differentlyacross the nation, and as illustratedby recent legislative developments in Georgiaand Massachusetts, individual state policiesabout noncompete agreements change.Georgia has long had a history as an unfriendlyterritory for noncompete agreementenforcement. However, in 2010 votersoverwhelmingly approved an amendmentto the Georgia Constitution that permittedthe state legislature to pass laws makingit significantly easier to enforce noncompeteagreements. See Randy Southerland,New Non- Compete Laws Could Lead to Litigation,Atlanta Business Chronicle, May20, 2011. Conversely, other states have introducedlegislation to make it more difficultto enforce noncompete agreements.See H.B. 0016, 97th Gen. Assem. (Ill. 2011);H.B. 2293, 187th Gen. Ct. (Mass. 2011); H.B.2296, 187th Gen. Ct. (Mass. 2011); S.B. 932,187th Gen. Ct. (Mass. 2011). The bills introducedin Massachusetts have drawn a significantamount of attention because two of42 ■ For The Defense ■ March 2012the bills—House Bill 2296 and Senate Bill932—would follow California’s lead and effectivelyprohibit noncompete agreements ifenacted. See also H.B. 1187, Va. Gen. Assem(Reg. Sess. 2012). The Virginia bill wouldmake unlawful any contract that serves torestrict an employee or former employeefrom engaging in a lawful profession, trade,or business of any kind. It provides for exceptionsfor persons selling a business, formerpartners in a partnership, and formermembers in a limited liability company.Should other jurisdictions take California’slead and make noncompete agreements unenforceable?A careful review indicates thatthe answer is an emphatic “NO.”Flawed California Dreamin’Critics of noncompete agreements oftenpoint to California, particularly SiliconValley, as an example of the economicdevelopment that is possible when employeesare free from the shackles of noncompeteagreements. According to thisargument, California companies and employeesare “thriving” because of California’sban on noncompete agreements. SeeScott Kirsner, Some Common Sense onNoncompete Clauses, Boston Globe, July 3,2011 (stating that “California seems to dopretty well creating large and small companieswithout the protection of non- competeagreements.”). The ban theoretically creates“high- velocity labor markets” with “greateremployee mobility, ease of start-up, flow oflawful, nonproprietary information, acrossfirm lines, patenting, and growth.” AlanHyde, Should Noncompetes Be Enforced,Regulation, Winter 2010–2011, at 6, 10–11.In other words, banning noncompete agreementspromotes innovation.Critics in Massachusetts have been particularlyinterested in this argument dueto recent suggestions that “the main reasonfor the success of the high technologyindustrial district in Silicon Valley and thefailure of the one in Massachusetts’ Route128 was the differential enforcement of[covenants not to compete].” Franco andMitchell, Covenants Not to Compete, LaborMobility, and Industry Dynamics, 17 J.Econ. & Mgmt. Strategy 581 (2008). However,notably and consistently absent fromthis argument are the following facts andstatistics about California. First, as of October2011, unemployment in California wasapproximately 40 percent higher than Massachusetts.California’s unemployment ratewas 11.4 percent while Massachusetts’swas 7.2 percent, and California had thesecond highest unemployment rate in thecountry. Regional and State Employmentand Unemployment—October 2011, NewsRelease, Bureau of Labor Statistics. Second,California had more venture- capitalflameouts, outdueling Massachusetts. SeeRobert Buderi, Silicon Valley Beats Bostonin VC-Backed Flame-Outs, Too, xconomy,Oct. 2, 2009, http://www. xconomy.com/boston/2009/10/02/silicon-valley-beats-bostonin-vc-backed-flameouts-too/.Overlooking the facts that California hasthe nation’s second highest unemploymentrate, a significant level of venture- capitalflameouts, and a well- publicized budgetdeficit, what would lead anyone to believethat California has done it right? Nothing,as it turns out. Companies increasinglyhave decided not to commit resourcesto business operations in California dueto its unfriendly business climate. TamiLuhby, California Companies Fleeing theGolden State, CNNMoney.com, July 12,2011. In addition, some legal scholars suggestthat Silicon Valley is not easily replicatedand that its success is attributable“to factors beyond the legal framework ofcovenants not to compete.” Norman D. Bishara,Covenants Not to Compete in a KnowledgeEconomy: Balancing Innovation fromEmployee Mobility Against Legal Protectionfor Human Capital Investment, 27 BerkeleyJ. Empl. & Lab. L. 287, 309, 318 (2006).Even Californians have questioned thewisdom of the state’s laid-back approachtoward noncompete agreements. BrandonR. Blevans, Thou Shalt Not Compete!(Unless You Want To), North Bay Biz.com,March 2010 (describing California’s businessclimate as “almost comical when yourealize that one set of our laws so promotescompetition that it allows your employeesto engage in almost unfettered competitionwith you—even to go so far as to set up acompeting business right next door, usingthe know-how, contacts and informationthey gained from working with you”).The Common MisconceptionAbout Noncompete AgreementsNoncompete agreements are commonlyperceived as completely barring individ-

uals from earning livelihoods. That simplyis not true. An enforceable noncompeteagreement in most states can only reasonablylimit competition by narrowlytailoring duration, geography, and scoperestrictions, and it also must protect thelegitimate business interests of the partyseeking its enforcement. See, e.g., Rehmann,Robson & Co v. McMahan, 187 Mich.App. 36, 46; 466 N.W.2d 325 (Mich. Ct.App. 1991); Lowry Computer Products, Inc.v. Head, 984 F. Supp. 1111, 1113 (E.D. Mich.1997). To the extent that a court deems anoncompete agreement unreasonable, itwill not enforce the restrictions.A real-world example will illustratethese points. A male employee works fora staffing company as a sales manager.He has a noncompete agreement that prohibitshim from competing against thatstaffing company for a period of one yearafter he no longer works for the companywithin the market area for which he offeredservice—the state of Texas. This prohibitionis restricted to a narrow and focusedindustry—the staffing industry. The prohibitionis further limited to the marketarea in which the employee worked and forwhich he or she had responsibility—Texas.The employee, therefore, has many opportunitiesto work for other companies in aplethora of other industries inside of therestricted market area and even for competitorsin areas outside of the restrictedmarket area. He could even work in a trulynoncompetitive position for a competitorin the restricted market area. The employeeis not unduly restricted from earning alivelihood by the noncompete agreement.The employee just has to move or ply hisor her trade in a territory outside of a limitedterritory that his former employerseeks to protect. See, e.g., Kelly Services v.Marzullo, 591 F. Supp. 2d 924 (E.D. Mich.2008) (“[former employee]” will only beprecluded for working for [competitor] inthe Texas market for one year. He can stillwork in the Colorado market and any otherarea where he did not work for [the formeremployer]”).In the Massachusetts debate, critics havedrawn attention to Zona Corp. v. McKinnon,28 Mass. L. Rptr. 233 (Mass. Super.Ct. Mar. 14, 2011) as a “prime example”of why the state should ban noncompeteagreements. However, this case actuallyshows how a reasonably tailored and effectivenoncompete agreement can permissiblyprotect a legitimate business interest.In Zona Corp., a company operating twohair salons hired a recent graduate of a cosmetologyschool as a licensed hair stylist.The company required the hair stylist tosign a noncompete agreement that prohibitedhim from competing against the salonwithin the salon’s market area, a seventownarea, for a period of one year after hestopped working for the salon. The noncompeteagreement did not completelyprevent the employee from earning a livelihood.The employee only would need tomove his services to an area outside of theseven-town restricted area. Id. (“[formeremployee] is free to work anywhere in Massachusettsso long as it is not in the sevenspecified towns that [his former employer]serves…. [and such] restrictions are consistentwith protecting the [former employer’s]good will.”).The above examples show that reasonablytailored and effective noncompeteagreements do not completely restrain anemployee’s ability to earn a livelihood;rather, they reasonably restrict workoptions.Noncompete AgreementsAre VoluntaryStates vary widely in their enforcement ofnoncompete agreements. In some states anemployer may require that certain employeessign noncompete agreements as a conditionof employment, but an employee cancertainly refuse to sign the agreement andseek employment elsewhere. See, e.g., KellyServices v. Marzullo, 591 F. Supp. 2d 924(E.D. Mich. 2008) (discussing the potentialharm suffered by the employee by notbeing able to compete in Texas the judgenoted “this is certainly a risk he calculatedand undertook both when he first signedthe Agreement and when he decided toleave [the former employer] and go workfor a competitor.”). If you don’t like it, asthe saying goes, you can certainly leave it.Nearly every statehonors a restrictivecovenant in some form aslong as the restriction’sduration, geography, andscope are reasonable.How Does Banning NoncompeteAgreements Affect Innovationand Investment?The primary argument advanced by criticsof noncompete agreements is that byrestricting employee mobility, noncompeteagreements inhibit innovation. Inother words, “How many start-ups werenever created… because the would-befounders were tied to existing companiesby non- competes?” Alison Loborn, FreeLabor Market, Commonwealth, Summer2009, 33. However, that argument focusesonly on the would-be innovator, and completelyoverlooks the established entrepreneur.Any valid discussion of noncompeteagreements requires the consideration ofeach perspective.Many areas of innovation and businessdevelopment take considerable amountsof time, trial and error, and cost. Entrepreneursand their investors invest andrisk time, blood, sweat, tears, and a significantamount of money taking ideasfrom conception to reality. An entrepreneurwouldn’t have incentive to invest inan idea and train and develop employees ifone of those employees could take the idea,the customer base, or both, move across thestreet, and unfairly compete against theentrepreneur. Without adequate protectionfrom such blatant theft of an entrepreneur’sbusiness, a former employee could unfairlystep into the entrepreneur’s shoes and reapthe benefits without having to put in thetime, money, and effort to develop an ideaor business, as well as without any of theassociated risks.An entrepreneur and his or her investorswould undoubtedly be reluctant to investin a project or an idea that someone elsecould copy or otherwise undermine withabandon. Although investors complainabout the lost opportunities that can resultwhen innovators sign noncompete agreements,those same investors frequently andFor The Defense ■ March 2012 ■ 43

Commercial LitigationAn enforceablenoncompete agreement…can only reasonably limitcompetition by narrowlytailoring duration, geography,and scope restrictions,and it also must protectthe legitimate businessinterests of the partyseeking its enforcement.hypocritically require noncompete agreementsfrom employees of all of the projectsthat they fund. See Alison Loborn, FreeLabor Market, Commonwealth, Summer2009, 35–36. Noncompete agreements createan important incentive to innovate andprotect an entrepreneur’s and his or herinvestors’ innovation. Banning noncompeteagreements would remove that incentiveand protection and stifle innovationby abandoning protections for innovation.Banning NoncompeteAgreements Would NegativelyImpact “Other” EmployeesCritics of noncompete agreements often failto look at how banning noncompete agreementsmight potentially affect a large numberof workers. If a former employee canimmediately go to a direct competitor, takethe former employer’s information or customercontacts or base, and directly competewith the former employer because theemployer didn’t have a noncompete agreementin place or only had a nonsolicitationor nondisclosure agreement in place, whatprotects a business and its other employeesfrom the associated business losses?See, e.g., Lowry Computer Products, Inc. v.Head, 984 F. Supp. 1111, 1116 (E.D. Mich.1997) (noting that if a former employee “isworking for a direct competitor in a similar44 ■ For The Defense ■ March 2012area, their knowledge is bound to have a significantimpact on [the former employer’s]business.”); Kelly Services, Inc v. Noretto, 495F. Supp. 2d 645, 659 (E.D Mich. 2007) (“[I]tis entirely unreasonable to expect [a formeremployee] to work for a direct competitorin a position similar to that which he heldwith [the former employer], and forego theuse of the intimate knowledge of [the formeremployer’s] business operations…. Absentan order for preliminary injunction, itappears that [a former employee’s] expansiveknowledge of [the former employer’s]business systems and operations will resultin a loss of the customer goodwill developedby [the former employer]. Furthermore,[the former employer] will be forced to laborunder the burden of unfair competitionresulting from the informational asymmetrypresented by its direct competitor havingan employee with intimate knowledgeof its operations”).Simply put, without adequate noncompeteprotection a company could lose businessor go out of business and numerousother employees could potentially lose theirjobs, which would obviously have a negativeeconomic impact. Indeed, the founderof one Massachusetts electronics companyhas stated that the effect on his companyof losing his employees to a rival or havinghis employees start their own competingcompanies “could be devastating. Itcould put [my entire company] out of business.”Scott Kirsner, Some Common Senseon Non- Compete Clauses, Boston Globe,July 3, 2011.Studies Suggesting a “BrainDrain” Are InconclusiveNoncompete agreement critics have citedsome recent economic studies to supporttheir challenges to restrictive agreements.One such study “examined” the effect ofnoncompete agreements on employeemobility. See Marx, Strumsky, and Fleming,Mobility, Skills, and the Michigan NoncompeteExperiment, 55 Mgmt. Sci. 875(2009). The study focused on employeemobility after the Michigan legislatureenacted the Michigan Antitrust ReformAct (1985), which seemingly inadvertentlyrepealed a long- standing statute that hadmade noncompete agreements illegal;shortly after passing the bill the legislatureamended it, establishing a reasonablenessstandard for noncompete agreementsin the state. Problematically, much of thestudy centered on patent filings in Michigansince 1985, which the authors acknowledgedhad drawbacks. The authors did, forinstance, note that their statistical analysiswas based on imperfect matching of inventorsacross patents and imperfect observationsof job changes.Based on that imperfect analysis, theMarx study “cautiously” suggested thatnoncompete agreements discouragedemployee mobility and that such agreementsinadvertently created a “brain drain”of the workers needed to create and buildsuccessful new firms. Importantly, though,the Marx study did not directly concludethat noncompete agreements thwartedinnovation and economic growth; it concludedthat they only impeded workermobility. However, it appears to suggestindirectly more to the casual reader. See,e.g., Bluestein and Barrett, Stop EnforcingNoncompetes, Inc.com, http://www.inc.com/magazine/20100701/stop-enforcing- noncompetes.html, July 1, 2010 (citing the study by Marx,Strumsky, and Fleming and suggestingthat non- compete agreements should notbe enforced “[b]e cause we need to promotecompetition for labor and talentamong start-up companies in fast- growingindustries”).While the Marx study is interestingand an admirable undertaking given theinherent difficulty of analyzing noncompeteagreements and their effects on innovationand economic growth, the studyhas too many flaws to be instructive, muchless convincing. First, using patent filingsas a basis to measure the MARA’s effect onemployee mobility fails to account for variousother factors that could affect patentfilings, such as the automobile industry’scontinuous outsourcing during the studyperiod, for example.Second, while noncompete agreementsand patents are sometimes gathered underthe same general “protection of intellectualproperty” umbrella, they simply do notgo hand-in-hand in practice as the studysuggests. Indeed, the authors of this articlehave handled hundreds of noncompeteand trade secret cases and only a handfulof them have directly involved patentclaims or issues.Noncompetes, continued on page 64

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Commercial LitigationTrade DressBy Ryan J. AaronAnOverlookedOpportunity?A look at the advantagesof trade dress, as well asregistration requirements,enforcement challenges,and remedies availablefor infringement.Everyone knows that businesses continually search forways to distinguish their goods and services from those oftheir competitors. We observe this everyday in brandingand marketing efforts. Trademarks and service marks,both of which, for the sake of simplicity, Iwill refer to here as “trademarks,” offer protectableand enforceable rights that enablebusinesses to prevent others from imitatingtheir source identifiers that businessesincorporate into branding initiatives suchas trade names, logos, and slogans. Trademarkseffectively can prohibit the sale ofgoods or services in a manner that createsconfusion in the marketplace about thesources of those goods or services. Trademarksenable businesses exclusively to capitalizeon their established and well-earnedgood will and trade recognition. This makestrademarks very valuable to businesses.Trademarks, by definition of the LanhamAct, includeany word, name, symbol, or device, orany combination thereof—(1) used bya person, or (2) which a person has abona fide intention to use in commerceand applies to register on the principalregister established by this Act, to identifyand distinguish his or her goods,including a unique product, from thosemanufactured or sold by others and toindicate the source of the goods, even ifthat source is unknown.15 U.S.C. §1127.While “trade dress” originally referredto a product’s packaging or labeling, itsmeaning has expanded significantly. Today,trade dress is known as a broadly focusedform of trademark rights that relates tothe overall appearance or impression createdby elements of a product’s design orpackaging or a service’s manner of presentationthat identifies the product’s or theservice’s source. McCarthy on Trademarksand Unfair Competition §8:1 (4th ed. Nov.2011). Thus, the concept can encompassa wide range of things, and the TrademarkTrial and Appeal Board and courtstoday have found a number of disparateitems constitute protectable trade dress.For example, courts have found that all ofthe following things constituted protectabletrade dress: a magazine cover design,46 ■ For The Defense ■ March 2012■ Ryan J. Aaron is an associate in the Corporate and Business Practice Group of Jackson Kelly PLLC in Charleston, West Virginia.Mr. Aaron routinely advises the firm’s clients on intellectual property protection, management, and enforcement strategiesrelating to patents, trademarks, copyrights, and trade secrets. He is a registered patent attorney authorized to practice beforethe United States Patent and Trademark Office, a member of the Intellectual Property Specialized Litigation Group within DRI’sCommercial Litigation Committee, and a member of West Virginia Defense Trial Counsel.

a restaurant atmosphere, a golf-course holedesign, a flashlight design, a classic automobiledesign, a handbag design, a shape ofa cracker, and a series of colored bands on ashoe. See, e.g., respectively, Reader’s DigestAss’n v. Conservative Digest, 821 F.2d 800, 3U.S.P.Q.2d 1276 (D.C. Cir. 1987); Two Pesos,Inc. v. Taco Cabana, Inc., 505 U.S. 763, 23U.S.P.Q.2d 1081 (1992); Pebble Beach Co. v.Tour 18 I, Ltd., 942 F. Supp. 1513 (S.D. Tex.1996), aff’d, 155 F.3d 526, 48 U.S.P.Q.2d1065 (5th Cir. 1998); Black & Decker Corp. v.International Sales & Mktg., 36 U.S.P.Q.2d1851 (C.D. Cal. 1995); Ferrari S.p.A. EsercizioFabriche Automobili e Corse v. Roberts,739 F. Supp. 1138, 14 U.S.P.Q.2d 2013(E.D. Tenn. 1990), aff’d, 944 F.2d 1235, 20U.S.P.Q.2d 1001 (6th Cir. 1991); Louis VuittonMalletier v. Dooney & Bourke, Inc., 454F.3d 108, 79 U.S.P.Q.2d 1481 (2d Cir. 2006);Nabisco, Inc. v. PF Brands, Inc., 50 F. Supp.2d 188 (S.D.N.Y. 1999), aff’d, 191 F.3d 208,51 U.S.P.Q.2d 1882 (2d Cir. 1999); In re Dassler,134 U.S.P.Q. 265 (T.T.A.B. 1962). Whilea wide variety of things are protectable astrade dress, certain things are not, such asmarketing themes, styles of doing business,and ideas, concepts, or generalized types ofappearances that are “generic” in nature.See, e.g., Woodsmith Pub. Co. v. Meredith,904 F.2d 1244 (8th Cir. 1990); Revlon, Inc.v. Jerell, Inc., 713 F. Supp. 93 (S.D.N.Y. 1998);Prufrock Ltd. v. Lasater, 781 F.2d 129 (8thCir. 1986); Jeffrey Milstein, Inc. v. Greger,Lawlor, Roth, Inc., 58 F.3d 27, 35 U.S.P.Q.2d1284 (2d Cir. 1995).The Advantages of Trade DressSo why should businesses, that is, your clients,concern themselves with trade dress,particularly, as discussed in greater detailbelow, when it is very difficult to obtain federalregistration with the United States Patentand Trademark Office and to enforcetrade dress rights? The reason is that tradedress offers significant protections that clientscannot obtain elsewhere from otherintellectual property rights. First, tradedress provides a valuable weapon againstknock-offs of goods and services sold bycounterfeiters that siphon revenue from atrade dress owner. Other intellectual propertyrights, such as utility patents, designpatents, other trademarks, and copyrights,may not adequately prevent infringing orunfairly competitive activity. For example,a counterfeiter easily may create and sell aknock-off product that does not infringethe claims of an existing and enforceableutility patent by deviating from a claim element,does not use the identical, or nearlyidentical, ornamental design protectedunder a design patent, does not implicatethe expression of an idea in a tangible formprotected under a copyright, or does notuse another’s trade name, logo, or othertrademark. Trade dress protection, however,which extends to the overall appearanceor impression created by a number offeatures of a product’s or a service’s designor packaging, may deny a knock-off accessto the market and enable recovery of thecounterfeiter’s unlawfully gained revenues.In addition, trade dress, because it is aform of trademark, is protectable as longas it is used commercially, whether for fiveyears, 10 years, 50 years, or longer. Conversely,utility patent holders can enforcethose patents only for a period of 20 yearsfrom the application filing date. Design patentholders can enforce those patents onlya period of 14 years from the date of registration.Copyrights, generally speaking, extendfor only a period of 70 years after thedeath of an author or, with corporate authorship,95 years from publication or 120years from creation, whichever occurs first.Therefore, when a business develops valuablebrand recognition in the market witha highly distinctive trade dress, the durationof protection associated with that tradedress depends solely on how the trade dressowner manages that protection rather thanon a statutorily imposed duration.Finally, trade dress, fulfilling the verypurpose of trademarks, serves to differentiatebusinesses from the goods and servicesof their competitors. Recognizable, protectablevisually appealing product packagingor product design attract consumersfrom what often is a homogenous blend ofcompeting goods and services. Trade dressprotection can reliably prevent others frommimicking a business’ successful productdesign or packaging in a manner that confusesconsumers.Despite these benefits, which clearlyhave the potential to create enormous competitiveadvantages, businesses frequentlyforget to use trade dress and assert thisintellectual property right. Many businessesdo not realize that it is the uniquecombinations of features forming the overallappearances of their goods or servicesthat create protectable trade dress. Theydo not realize that a protectable trade dressdoesn’t require that every feature of theirproducts’ packaging or products’ designbe unique. In fact, some features may evenbe generic or descriptive in the industry aslong as the overall appearance of the goodTrade dress, becauseit is a form of trademark,is protectable as long asit is used commercially,whether for five years, 10years, 50 years, or longer.or service creates a commercially distinctimpression in the mind of a consumer.So, to take advantage of these opportunities,the best times for a business to considertrade dress are when it forms a business ordevelops a new product, product packagingdesigns, or business “themes” encompassingphysical site appearances or decor.Considering trade dress at these timespermits a business to evaluate the opportunitiesbefore incurring costs associatedwith manufacturing, acquiring specificallydesigned products or packaging, or constructingphysical sites creating a particularatmosphere. For example, businessesshould seek to distinguish their goods orservices from those of their competitorsby providing not only superior qualityor lower prices, but also through creatingunique commercial impressions in theminds of their consumers through distinctgoods, services, or packaging designs.Although this process involves ornamentation,to warrant trade dress protection, theornamental features actually must serve toidentify the source of the good or serviceand distinguish it from those provided bycompetitors, rather than merely to serve asornamental or decorative features. McCarthyon Trademarks and Unfair Competition§7:24 (4th ed. Nov. 2011).For The Defense ■ March 2012 ■ 47

Commercial LitigationThus, a business should develop a tradedress that is unique in its field or industry.Also, a business should avoid usingsymbols that are commonly recognized orgeneric. In addition, a business should takegreat care to select a trade dress, or certaintrade dress features, that the business canincorporate consistently and prominentlyin its marketing materials. The designsAn applicant needs tosubmit a drawing withthe right amount of detailthat accurately defines thedistinctive features anddoes not simply depictthe overall design.contemplated and ultimately selected cannotbe functional in order to qualify asappropriate features of a protectable tradedress. Once a business selects a distinctive,nonfunctional design, the business shouldpursue protecting the design by extensivelymarketing the product or service campaignsand applying to the U.S. Patent andTrademark Office for federal registration.The Advantages of Registrationof Trade DressWhile trade dress rights generally areenforceable under federal, state, and commonlaw through unfair competition laws,federal registration offers several advantages,and a business can attain thoserights by applying to the U.S. Patent andTrademark Office. First, federal registrationensures nationwide priority, meaningthat a trade dress secures prior user rightsacross the entire nation against subsequentusers. Conversely, state protection, to theextent trade dress rights are recognizedunder state- specific law, which a businessgenerally may obtain by submitting anapplication to the appropriate Office of theSecretary of State, is limited to the respectivestate’s boundaries in which a trade48 ■ For The Defense ■ March 2012dress is registered, while common law protectionis restricted to the geographic areain which the trade dress is used. Second,only federally registered trademarks, includingtrade dress, can use the “® ” symbol.This symbol places third parties onconstructive notice that exclusive, federallyprotected rights are associated witha trade dress, precluding infringers fromclaiming that they unknowingly infringedand potentially making them liable formonetary damages. Third, once a tradedress is federally registered, the U.S. Patentand Trademark Office will deny registrationto any trade dress that is confusinglysimilar to any registered mark. Fourth,infringement of a federally registered tradedress raises a federal question providingthe registrant with easy access to the federalcourts. Fifth, a registrant may recovertreble damages and attorney fees in theinstance of willful infringement of tradedress rights. Sixth, a registrant can applyfor incontestability status after five yearsof continuous commercial use of a tradedress. If granted, incontestability preventslater legal findings that the trade dressis functional, is confusingly similar toanother’s trade dress, or has yet to acquiresecondary meaning. Seventh, registeringfederally permits a registrant to record aregistration with the U.S. Customs Serviceto prevent others from importing counterfeitor gray market goods. Additionally,federal registration has other advantages,including, but not limited to, deterring othersfrom using a protected trade dress andshifting the burden to an alleged infringerto prove a trade dress’s invalidity.The Federal RegistrationApplication RequirementsAn application for registration of a trademark,including a trade dress, must includecertain information. 15 U.S.C. §1051. Forinstance, an application must be filedunder the name of the owner of the tradedress; it must identify the goods or servicesassociated with the trade dress’s use; itmust state that the registrant actually currentlyuses the trade dress commerciallyin association with the identified goods orservices; it must include a drawing of thetrade dress, if applicable; it must includean example (referred to as a “specimen”)evidencing the commercial use of the tradedress in association with the identifiedgoods or services; and it must include therequired filing fee. See 15 U.S.C. §1051; 37C.F.R. §2.52; 37 C.F.R. §2.21(a)(3); 37 C.F.R.§§2.34(a)(1)(iv), 2.56(a).If a trade dress owner wishes to file anapplication for federal registration but isn’tcurrently using a trade dress commercially,the owner may file an intent- to- use application,which must include a statement bythe owner of the owner’s bona fide intent touse the trade dress commercially in associationwith the identified goods or services.15 U.S.C. §1051. The owner must have documentaryevidence supporting these goodfaithintentions. Spirits Int’l B.V. v. S.S. TarisZeytin Ve Zeytinyagi Tarim Satis KooperatifleriBirligi, Opposition No. 91163779, 99U.S.P.Q.2d 1545 (T.T.A.B. 2011). Later, if andafter the application clears the examinationprocess, the applicant will receive a notice ofallowance that specifies that within a limitedtime period the applicant must submitan example evidencing commercial use ofthe trade dress, and the government will notgrant a registration without that evidence.15 U.S.C. §1051.Among all of the federal registrationapplication filing requirements, the drawingis particularly important because theU.S. Patent and Trademark Office examinesthe drawing rather than the examplesubmitted by the applicant when decidingwhether to grant a trade dress, and itappears on any trademark registration.Therefore, an applicant needs to submit adrawing with the right amount of detailthat accurately defines the distinctive featuresand does not simply depict the overalldesign. An applicant must also providea brief description of the configuration ofthe trade dress that notifies competitorsof the features shown in the drawing coveredunder the registration and makingapparent the remaining features that competitorsmay use freely. Trademark Manualof Examining Procedure §1202.02(c)(ii). An applicant also may want to explainin the description certain trade dress featuresthat may be difficult to depict in thedrawing. These efforts can help avoid afinding later that an applicant cannot registera trade dress on functionality groundsif the applicant submitted a drawing thatsimply depicted the overall design ratherthan depicting the specific features that

an applicant claims should have protection.In re R.M. Smith, Inc., 219 U.S.P.Q. 629(T.T.A.B. 1983). Or it may prevent a findingthat a registration drawing fails to protecta trade dress actually used in commercebecause it fails to “create a trademark onthe entire [product or package] as depictedin photographs accompanying the trademarkapplication.” Gibson Guitar Corp. v.Paul Reed Smith Guitars, LP, 423 F.3d 539,546 (6th Cir. 2005).The Challenges to Obtaining andEnforcing a Federal RegistrationTo receive federal registration, a tradedress needs to be both nonfunctional anddistinctive. See Wal-Mart Stores, Inc. v.Samara Brothers, Inc., 529 U.S. 205, 210(2000). These requirements create difficulthurdles for applicants to overcome thatmake the path to registration challenging.FunctionalityThe key question for the Trademark Trialand Appeal Board or a court regardingfunctionality is whether a trade dress isde facto functional, which will not prohibitregistration, or de jure functional,which will bar federal registration. De factofunctionality means simply that a tradedress performs some function or has someidentifiable utility that does not involvea “superior design essential for competition[.]”In re Ennco Display Systems, Inc.,56 U.S.P.Q.2d 1279, 1282 (T.T.A.B. 2000).For example, the Coca-Cola bottle configurationfunctions to contain the beverage.This, alone, however, does not make theoverall design of the bottle with its commerciallydistinct shape and appearance“functional” and ineligible for trade dressprotection. These features don’t enable thebottle to perform its intended function andare not essential to Coca-Cola’s competitors.In essence, a functionality inquiryfocuses not on an article’s overall usefulnessbut rather on the utility of theexact feature or combination of features forwhich someone claims trade dress protection.McCarthy on Trademarks and UnfairCompetition §7:70 (4th ed. Nov. 2011).Conversely, the Trademark Trial andAppeal Board or a court will consider tradedress de jure functional “if it is essentialto the use or purpose of the article or if itaffects the cost or quality of the article.”Traf Fix Devices, Inc. v. Marketing Displays,Inc., 532 U.S. 23, 32, 58 U.S.P.Q.2d1001, 1006 (2001) (quoting Inwood Laboratories,Inc. v. Ives Laboratories, Inc., 456U.S. 844 (1982)). To the extent that a product’sdesign is essential to its very performanceor function, then it cannot have tradedress protection: the design’s impact oncompetition isn’t important. When, however,a design is simply aesthetically functional,a court or the Trademark Trial andAppeal Board must consider whether protectionof the design as trade dress wouldnegatively impact the ability of others tocompete effectively on cost or quality orotherwise place them at a “significant nonreputation-relateddisadvantage.” Id. at 33.Courts or the Trademark Trial andAppeal Board often consider four factorsidentified in In re Morton- Norwich Prods,Inc. to determine whether a trade dressis de jure functional. 671 F.2d 1332, 213U.S.P.Q. 9 (C.C.P.A. 1982). The four factorsare “(1) the existence of a utility patentdisclosing the utilitarian advantagesof the design; (2) advertising materials inwhich the originator of the design toutsthe design’s utilitarian advantages; (3) theavailability to competitors of functionallyequivalent designs; and (4) facts indicatingthat the design results in a comparativelysimple or cheap method of manufacturingthe product.” Id. at 15–16. More often thannot if a court or the Trademark Trial andAppeal Board finds these facts, it will denythat a protected trade dress exists.Despite these challenges, however, whena business uses a unique, commerciallydistinct product design or packaging andthe facts don’t preclude trade dress underMorton- Norwich, a business can secureand enforce valuable and enforceable tradedress rights. For example, in NewbornBros. and Co. v. Dripless, Inc., the TrademarkTrial and Appeal Board found that abusiness could register applying the coloryellow to caulking guns as a source identifier.The board based the decision onthe fact that neither utility patents norother evidence indicated that making orusing yellow caulking guns had utilitarianadvantages. Opp. No. 91113471 (T.T.A.B.Aug. 16, 2002) (not citable). The applicanthad not touted any utilitarian advantagesto the yellow guns; competitors could usecolors other than yellow, meaning thatthey had functionally equivalent alternativedesigns available to them; and makingthe guns yellow did not involve a comparativelysimple or cheap method of manufactureso assigning protection to theapplicant would not unfairly deny applicant’scompetitors of a competitive advantage.Id.Nonetheless, a finding of de facto or non-The key question for theTrademark Trial and AppealBoard or a court regardingfunctionality is whethera trade dress is de factofunctional, which will notprohibit registration, or dejure functional, which willbar federal registration.functionality, alone, does not mean that abusiness can successfully register a productdesign or packaging or make it protectableas trade dress.DistinctivenessTo be considered distinctive, a productdesign or product packaging must identifyits source or origin to consumers. Whenit comes to satisfying the distinctivenessrequirement, however, product design andproduct packaging are treated differently.In particular, product packaging may beinherently distinctive or may acquire distinctivenessthrough secondary meaning,whereas, product design, including color,can only acquire distinctiveness throughsecondary meaning and, by law, cannot beinherently distinctive. See Wal-Mart Stores,529 U.S. 205.A mark, including trade dress, “is inherentlydistinctive if ‘[its] intrinsic natureserves to identify a particular source.’” Id.(quoting Two Pesos, Inc. v. Taco Cabana,Inc., 505 U.S. 763, 768, 112 S. Ct. 2753, 120For The Defense ■ March 2012 ■ 49

Commercial LitigationL. Ed. 2d 615 (1992)). More particularly,trade dress is inherently distinctive when ithas a design, shape, or combination of elementsso unique or unexpected that it willautomatically be perceived by customersas indicia of origin. McCarthy on Trademarksand Unfair Competition §8:13 (4thed. Nov. 2011).On the other hand, “a mark has acquiredIf a trade dress ownerdoes achieve registration,then… the trade dressowner must consistentlyand continuously use thetrade dress to maintainthe registration andthe benefits of it.distinctiveness, even if it is not inherentlydistinctive, if it has developed secondarymeaning, which occurs when, ‘in theminds of the public, the primary significanceof a [mark] is to identify the sourceof the product rather than the productitself.’” Wal-Mart, 529 U.S. at 210 (quotingTwo Pesos, 505 U.S. at 768). A businesscan establish secondary meaningthrough direct or indirect or circumstantialevidence. Direct evidence includes customertestimony, declarations, and surveysrevealing recognition by consumers of thetrade dress as identifying a business asthe source of particular goods or servicesor actual confusion in the minds of consumersabout the source. Evidence of thesetypes can be costly to gather and very difficultto establish, particularly for newerbusinesses attempting to garner trade dressrecognition. Indirect evidence includes thelength of time that a trade dress has beenused, the length of time that the trade dresshas been used exclusively, attempts to plagiarizethe trade dress by competitors,how widespread the trade dress has beenused, the amount invested in advertising50 ■ For The Defense ■ March 2012the trade dress, the sales volume associatedwith the trade dress, how consistentlyand prominently the trade dress is used inadvertising materials, and other evidenceindicating wide exposure of the trade dressin the market. In Campbell Sales Group,Inc. v. Gramercy Park Design, LLC, a federaldistrict court made the importance ofsuch evidence apparent finding that a tradedress lacked secondary meaning whena plaintiff asserting trade dress rights inornamental furniture designs engaged invery limited advertising of the trade dressand failed to pursue potentially infringinguses of the trade dress by other parties.Civil Action No. 1:10cv55, 2010 WL3945350 (M.D.N.C. Oct. 6, 2010). Therefore,because the trade dress hadn’t takenon secondary meaning, the court concludedthat the public probably would notconfuse product sources so the defendantshadn’t infringed a protected trade dress. Id.Post-Registration RequirementsIf a trade dress owner does achieve registration,then, as with all other trademarks,the trade dress owner must consistentlyand continuously use the trade dress tomaintain the registration and the benefitsof it. For example, if a trade dress changespost- registration, then, arguably, the registrationdoes not apply to the new tradedress and would not receive the same orequal protection. Further, if a trade dressowner no longer uses a trade dress as registered,the registration lapses.If, however, a trade dress owner uses thetrade dress consistently and continuously,to prevent the registration from lapsing andto continue receiving the protection andbenefits that come with federal registration,under section 8 of the Lanham Act theowner must file a declaration affirming thatit has continually used the trade dress commerciallywithin the fifth and sixth yearanniversaries of the date of registration. Inaddition, to obtain incontestability statusa trade dress owner may submit a section15 affidavit stating that the owner has usedthe trade dress continuously since the dateof registration for a period of at least fiveyears. As described earlier, incontestability,while not required to maintain a registration,provides significant benefits, which,if granted by the U.S. Patent and TrademarkOffice, include that the TrademarkTrial and Appeal Board or a court cannotlater find the trade dress functional, confusinglysimilar to another mark, or lackingsecondary meaning. Further, if a tradedress owner continues to use the tradedress commercially and the owner desiresto maintain a federal registration, then theowner must submit a section 8 declarationand a section 9 application for renewalto the U.S. Patent and Trademark Officewithin the ninth and tenth year anniversariesof the date of registration or renewal.If the U.S. Patent and Trademark Officeaccepts and acknowledges the filings, thesections 8 and 9 filings will renew the registrationfor an additional 10-year period.InfringementBusinesses can enforce both registeredand unregistered trade dress rights underthe Lanham Act to stop infringing activity.15 U.S.C. §§1114, 1125. A party assertinga claim of trade dress infringement,must plead and prove the following threeelements: (1) the claimant owns a protectabletrade dress that either is inherentlydistinctive or has acquired distinctivenessthrough secondary meaning; (2) the tradedress that the claimant seeks to protect ifunregistered is not functional, although ifthe trade dress is registered, then the burdenof proof shifts to the alleged infringerto show that the trade dress is functional;and (3) the allegedly infringing trade dresscreates a likelihood of public confusionabout the source of the associated goods orservices due to a similar shape or design.See Wal-Mart, 529 U.S. at 210–211, 120 S.Ct. at 1343, 146 L. Ed. 2d 182.Thus, once a party proves the distinctivenessand functionality requirementsby a preponderance of the evidence, thetest of trade dress infringement falls towhether the allegedly infringing tradedress’ impression poses a likelihood ofcreating confusion in the mind of the ordinaryconsumer. If the two trade dresseshave enough dissimilarity so that confusionwould not likely occur, then the competingtrade dress wouldn’t infringe on aclaimant’s trade dress. On the other hand,a claimant doesn’t have to present evidenceof actual consumer confusion to achieve afinding of a likelihood of confusion. Withoutsuch evidence, however, a judge mustTrade Dress, continued on page 68

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Commercial LitigationCanadian Contract LawBy Steven F. RosenhekTerminationof DistributionAgreementsIn the absence of anexpress provision in adistribution agreementthat deals with thetermination of thecontract, Canadian courtswill adhere to establishedcontractual principles thatgovern the relationshipbetween the parties.Considering the extensive integration of the U.S. andCanadian economies, it is not surprising that Americanmanufacturers frequently have distribution agreementswith Canadian distributors to sell their products inCanada. However, as in all contractualarrangements, relations can deteriorate,and manufacturers may need to terminatethese agreements. When distributioncontracts involve Canadian distributors,American manufacturers imperativelyneed to understand the Canadian legalprinciples that govern the terminationof distribution agreements. This articlewill provide an overview of Canadian lawrelated to this topic. Quebec is a civil lawjurisdiction and is unlike all the otherCanadian provinces, which have adoptedcommon law principles. So some importantdifferences result from the provisions of theCivil Code of Quebec that governs distributionagreements, and this article will discussthese differences later.How Difficult Is It toTerminate for Cause?Without an express agreement betweenthe parties regarding the termination of adistribution agreement, the parties mustgive reasonable notice before terminatinga contract under Canadian law. Hillis Oil& Sales v. Wynn’s Canada, [1986] 1 S.C.R.57, para. 16. See also 11934430 Ontario Inc.v. Boa-Franc, 2005 CanLII 39862 (ONCA),paras. 44–45. The concept of reasonablenotice of termination will be discussedfurther below. However, under certain circumstancesparties can terminate a distributionagreement for cause without notice.Under Canadian contract law, partiesare free to negotiate express conditionswhich, if breached, provide one or bothparties an excuse not to perform their obligationsunder the contract. John Swan,Canadian Contract Law, LexisNexis Butterworths455 (2006). Thus, if a distributionagreement expressly specifies that theoccurrence of certain events permits terminatingit, a Canadian court will likely permitthe termination of the contract withoutnotice should those events occur.Further, in limited situations a partycan terminate a distribution agreement52 ■ For The Defense ■ March 2012■ Steven F. Rosenhek is a senior litigation partner of Fasken Martineau DuMoulin LLP in Toronto, Ontario. His practice encompassesall aspects of civil and administrative litigation including complex commercial litigation, class actions, franchise and distribution,commercial arbitration, and product liability. He is a past president of the Ontario Bar Association and has taught TrialAdvocacy and Advanced Trial Advocacy at both university law schools in Toronto. Mr. Rosenhek acknowledges with thanks thevaluable contribution of Noah Boudreau, associate, and Dylan Chochla, student- at- law.

for cause without notice even when thedistribution agreement failed to addressthis issue expressly. However, in this context,Canadian common law establishes ahigh threshold for terminating the agreementfor cause without notice. The OntarioCourt of Appeal considered this issue in11934430 Ontario Inc. v. Boa-Franc holdingthat “the cause must amount to a fundamentalbreach of the contract beforethe innocent party can terminate and berelieved of its obligations to continue toperform.” Boa-Franc, 2005 CanLII 39862(ONCA), para. 48. Fundamental breach hasbeen characterized as a breach that “goesto the root of the contract” or a breach thatdeprives the innocent party of substantiallythe whole benefit that the parties hadintended the contract to confer. HunterEngineering Co. v. Syncrude Canada Ltd.,[1989] 1 S.C.R. 426. To determine whethera breach of contract meets the threshold forfundamental breach, Canadian courts willconsider the following factors:• The ratio of the obligation that a failed toperform to the obligation as a whole;• The seriousness of the breach to theinnocent party;• The likelihood of repetition of thebreach;• the seriousness of the consequence of thebreach; and• the relationship of the part of the obligationperformed to the whole obligation.Shelanu Inc. v. Print Three FranchisingCorp. 2003 CanLII 52151 (ONCA), paras.117–118.As such, a mere breach of a distributorshipagreement does not entitle the innocentparty to terminate the contract forcause unless a court would characterize itas a fundamental breach of the contract asevaluated by the factors listed above. Withouta fundamental breach, a party to thedistribution agreement can only terminatethe agreement for cause without notice ifthe agreement expressly specifies that theymay terminate it if certain events occur orif a party fails to perform in certain ways.How Does a Court Evaluate andView an Unwritten Agreement?Canadian courts will consider unwrittendistribution agreements valid if they findsome evidence that the parties intendedto be bound by a distribution contract.1248671 Ontario Inc. v. Michael Foods Inc.,2005 CanLII 32926 (ONSC), para. 14. However,a failure to reduce the agreement towriting will affect the parties’ ability togovern the terms upon which they canterminate the agreement. As previouslynoted, without a provision that deals withhow the parties can terminate a contract,or when and how the parties can terminatethe contract is ambiguous, a court willimply a term of reasonable notice of termination.Hillis Oil, [1986] 1 S.C.R. 57, para.16. See also Boa-Franc, 2005 CanLII 39862(ONCA), paras. 44–45. What constitutesreasonable notice will depend on the factsand circumstances of each case. This topicis discussed in further detail below.However, if a party to a contract challengesthe existence of an unwritten distributionagreement, the party seeking toenforce the agreement will have to submitevidence before the court to establishthe existence of an oral contract. DurotestElectric Ltd. v. Floralight Gardens CanadaInc., [1996] O.J. No. 1165, para. 12. Failingto prove that the parties had agreed to theessential terms of a distribution agreementmay doom a plaintiff’s claim for reasonablenotice of termination. In Durotest Electric,the court rejected the plaintiff’s assertion ofan oral distribution agreement:Too many of the essential terms of adistribution agreement with respect toguaranteed price and discount, minimumproduct purchase, assured supplyof product, restriction on competitiveproducts, minimum sales level to beachieved […] payment terms, advertisingand marketing plans, and contributionsby Durotest to advertising,were not dealt with between the partieseven on the evidence of the plaintiff’switnesses.Id. at para. 8.As such, the court found that the allegeddistribution agreement was unenforceableand that providing notice of terminationwas not required. Further, the mere existenceof an ongoing business relationshipin which one party manufactures productssold by another, probably would not sufficientlyestablish that a distribution agreementexisted without other evidence. Inthese circumstances, a plaintiff seekingto uphold a distribution agreement riskshaving the relationship characterized as aseries of independent sales contracts thatthe other party can terminate withoutnotice on the expiration of each transaction.Atec Marketing Limited v. Heart andStroke Foundation of Canada, 2005 Can-LII 44381 (ONSC), paras. 32–33, aff’d onother grounds in Atec Marketing Limitedv. Heart and Stroke Foundation of Canada,2007 ONCA 1.Failing to prove thatthe parties had agreedto the essential terms ofa distribution agreementmay doom a plaintiff’sclaim for reasonablenotice of termination.Thus, manufacturers clearly have greaterability to maintain a degree of controlover their distributors’ obligations whenthey have written distribution agreementsand expressly include provisions governingagreement termination in them.What Constitutes Reasonable Notice?When Canadian courts consider a distributionagreement to include implicitly a terminationterm of reasonable notice, theywill look to the circumstances of each caseto determine what is “reasonable.” Factorsconsidered in determining the appropriateamount of notice include• The length of the association betweenthe parties;• The dependency of a distributor on aprincipal’s line of business;• The level of investment made by a distributorto distribute a principal’s productand the volume of business derivedfrom the sale of the principal’s product;and• The established practice, if any, in thetrade or the business.JMT Phillips (1986) Inc. v. Medieval GlassIndustries Ltd., 2002 CanLII 20782 (ONSC),paras. 47, 52.For The Defense ■ March 2012 ■ 53

Commercial LitigationFurther, courts will consider previouslyunexecuted draft agreements that had proposeda notice of termination period asone relevant factor in determining whatis reasonable in the circumstances. Id. atpara. 53. Without an express and bindingagreement regarding the appropriate noticeof termination, courts can view previousnegotiations as relevant, and they may useManufacturers clearly havegreater ability to maintaina degree of control overtheir distributors’ obligationswhen they have writtendistribution agreements andexpressly include provisionsgoverning agreementtermination in them.54 ■ For The Defense ■ March 2012them to determine what the parties hadcontemplated as a reasonable notice period.Exchange Corporation Canada v. SwytchDelivery Solutions Inc., 2007 CanLII 30661(ONSC), paras. 15–16.Additionally, notice periods that havebeen negotiated between a manufacturerand other third party distributors mayalso guide a court’s analysis when attemptingto discern what constitutes reasonablenotice under an ambiguous terminationprovision. In Inno- vite Inc. v. Rowland,2003 CanLII 32162 (ONSC), the manufacturerterminated its distribution agreementwith the plaintiff. The distribution contractcontained an ambiguous termination provision,and the court needed to determinewhat constituted reasonable notice of terminationunder the circumstances. Thecourt considered the notice period in thenew distribution agreement that the manufacturerhad with the replacement distributorand used it as a base to determinewhether the plaintiff distributor receivedreasonable notice. In reaching the conclusionthat the plaintiff distributor wasentitled to a significantly longer noticeperiod, the court compared the substantialinvestments that the original distributorhad made over 13 years with the fledglingoperations of the new distributor whenmanufacturer executed the new distributionagreement with the distributor thatreplaced the plaintiff. Id. at paras. 35–38.Determining what constitutes reasonablenotice depends highly on the facts of eachcase, and as such, implied reasonable noticeperiods can vary widely. The case lawindicates that without an express agreementbetween the parties, Canadian courts willconsider any relevant factors to assist themin determining the appropriate amount ofnotice under the circumstances. The jurisprudencereveals that Canadian courts mostfrequently view a reasonable notice periodas 12 months. See, e.g., Western EquipmentLtd. v. A.W. Chesterton Co., 46 B.C.L.R. 64,paras. 22–42 (summarizing several suchcases). The high watermark is two years.Id. at para. 32. See also Weram (1975) Inc.v. EMCO Ltd. 2 B.L.R. (3d) 183, para. 44.Does a Contractual RelationshipInvolve an Obligation of Good Faith?Canadian courts have recognized the existenceof a duty of good faith in a varietyof contractual relationships requiring theparties to exercise their contractual rightshonestly and fairly. Arton Holdings Ltdet al. v. Gateway Realty Ltd., 1991 CanLII2707 (NSSC), aff’d in Arton Holdings Ltd.v. Gateway Realty Ltd., 1992 CanLII 2620(NSCA). In TSP-Intl Ltd. et al. v. Mills etal., the court reviewed the jurisprudenceregarding an implied duty of good faith andidentified two categories of cases in whicha duty of good faith would apply to contractexecution:• Contracting parties will owe a dutyof good faith regardless of the specificterms of a contract when the contractingparties’ relationship has an inherent vulnerabilityor a power imbalance; and• A duty of good faith may arise from theparameters of the parties’ contractualrelationship and conduct.TSP-Intl Ltd. et al. v. Mills et al., 2005 Can-LII 3945 (ONSC), paras. 60–64.Some other courts have decided thatan implied duty of good faith exists inexecuting distribution agreements underthe first relationship category, an inherentlyvulnerable relationship. In AgribandsPurina Canada Inc. v. Kasameka,the court held that Purina breached animplied duty of good faith by selling its animalfeed to another distributor within theexclusive geographical area of the plaintiffdistributor, effectively putting the plaintiffout of business. The court analyzedthe nature of the relationship and citedthe weaker bargaining position of the distributorand the continuing power imbalancebetween the parties as justificationfor imposing an implied duty of good faith.2010 Carswell Ont. 98, para. 103. The trialjudge awarded $30,000 in punitive damagesagainst Purina for breaching its dutyof good faith and unlawful conspiracy. Onappeal, the Ontario Court of Appeal dismissedthe claim of unlawful conspiracybut upheld the $30,000 punitive damagesaward against Purina for breachingits implied duty of good faith. AgribandsPurina Canada Inc. v. Kasamekas, 2011ONCA 460, paras. 75–84. Purina did notcontest that an implied duty of good faithexisted but instead contesting that it hadn’tbreached the duty, so the Ontario Court ofAppeal proceeded on the basis that it wasrightfully implied.Moreover, the Ontario Court of Appealhas recognized that the ongoing nature ofdistributorship agreements might obligethe parties to act in good faith toward eachother. See Boa-Franc, 2005 CanLII 39862(ONCA), para. 35. Hence, it appears thatCanadian courts may find that a distributionagreement includes an implied dutyof good faith due to the parties’ relationshipunder the second relationship categoryeven if an inherent vulnerability or a powerimbalance does not exist between the parties.In TSP-Intl, the court identified someindicia that would identify when a breachof a duty of good faith may arise under thesecond relationship category:• If one party by its actions eviscerates ordefeats the objectives of the contract;• If the parties’ conduct fails to meetobjective, legitimate expectations andcommunity standards of honesty, reasonableness,and fairness;• If one party unilaterally nullifies contractualobjectives or causes significantharm to the other contrary to the originalexpectations of the parties; or

• If one party benefits from a conflict ofinterest.TSP-Intl, 2005 CanLII 3945 (ONSC), para81.Consequently, a distribution agreementterminated on bad faith premises has thepotential to attract judicial scrutiny in Canada.In some instances Canadian courtshave held a manufacturer liable for thewrongful termination of a dealership agreementbecause the contract was terminatedin bad faith. Valley Equipment Ltd. v. JohnDeere Ltd., [2000] N.B.J. No. 28, paras. 208–221. See also Great Lakes Harvestore SystemsLtd. v. A.O. Smith Engineered Storage ProductsCo., [1998] O.J. No. 873, para. 7.However, Canadian courts have hesitatedto recognize a stand-alone duty ofgood faith that operates independentlyfrom the express terms of a contract. Asstated in Transamerica Life Canada Inc. v.ING Canada Inc.,Canadian courts have not recognizeda stand-alone duty of good faith that isindependent from the terms expressedin a contract or from the objectivesthat emerge from those provisions.The implication of a duty of good faithhas not gone so far as to create new,unbargained- for, rights and obligations.Nor has it been used to alter the expressterms of the contract reached by the parties.Rather, courts have implied a dutyof good faith with a view to securing theperformance and enforcement of thecontract made by the parties, or as it issometimes put, to ensure that partiesdo not act in a way that eviscerates ordefeats the objectives of the agreementthat they have entered into.Transamerica Life Canada Inc. v. ING CanadaInc., 2003 CanLII 9923 (ONCA), para. 53.A recent decision of the Ontario Courtof Appeal has emphasized that an impliedduty of good faith cannot alter the expressterms of a contract, including the rightto terminate a distribution agreement onnotice. Agribands, 2011 ONCA 460, para51. See also Allarco Entertainment 2008Inc. v. Rogers Communications Inc., 2011ONSC 5623, paras. 150–156. In light of thisjudicial pronouncement, a manufacturerthat terminates a distribution agreementin accordance with an express contractualprovision that permits the termination ofthe agreement likely would have protectionagainst wrongful contract terminationallegations based on bad faith principles.However, given that courts generally wishto protect the interests of distributors inthe face of arbitrary or high-handed conductby manufacturers, a prudent manufacturerwill want to consider good-faithprinciples when terminating a distributionagreement. The standard of good faith doesnot prevent a manufacturer from acting inits own self- interest as long as the manufacturershows regard for the legitimateinterests and expectations of a distributor.Rogers & Rogers Inc. v. Pinehurst WoodworkingCo., 2005 CanLII 45977 (ONSC),para. 116. See also Allarco Entertainment,2011 ONSC 5623, para. 155.When May a DistributorSecure an Injunction?A distributor that disputes the circumstancesunder which a manufacturer terminatesa distribution agreement may seekan injunction to restrain the manufacturerfrom terminating the contract until a trialcan resolve the dispute. The availability ofan interlocutory injunction will dependon whether the applicant can establishthat it meets the three-part test outlinedby the Supreme Court of Canada in R.J.R.-MacDonald Inc. v. Canada (Attorney General),[1994] 1 S.C.R. 311. Specifically, thetest requires that an applicant demonstratethe following:• There is a serious issue to be tried;• The party seeking the injunction willsuffer irreparable harm if the injunctionis not granted; and• The balance of convenience favors grantingan injunction.Id.The Supreme Court of Canada hasdescribed the threshold to establish a serioustrial issue under the test’s first prong asa low one. Id. However, in subsequent casescourts have held that the standard willvary depending on whether the injunctionsought is a mandatory injunction or a prohibitoryinjunction. A mandatory injunctionis an order that establishes a newright that the parties had never agreed to,whereas a prohibitory order is simply anorder requiring the parties to act in accordancewith their agreement. TDL GroupLtd. v. 1060284 Ontario Ltd., [2001] O.J. No.3614, para. 9. When a court characterizesa sought- after injunction as a mandatoryorder, the applicant must demonstrate ahigher standard of a strong prima facie caseunder the first prong of the test. Barton-Reid Canada Ltd. v. Alfresh Beverages CanadaCorp., 2002 CanLII 34862 (ONSC),para. 9. See also Cana International DistributingInc. v. Standard Innovation Corporation,2010 ONSC 6273, para. 16. To meetWithout an express andbinding agreement regardingthe appropriate notice oftermination, courts can viewprevious negotiations asrelevant, and they may usethem to determine what theparties had contemplated asa reasonable notice period.this higher standard, an applicant willneed to establish that it clearly is right andalmost certain to succeed at trial. Barton-Reid, 2002 CanLII 34862 (ONSC), para. 9.With distribution agreements the jurisprudencehas divided regarding the applicablestandard under the first prong of thetest. Thus, in Barton- Reid Canada, thecourt held that when a distributor soughtan injunction that would have the effect offorcing the parties to continue to do businesstogether in accordance with the distributionagreement terms a court wouldconsider that order mandatory. Id. at para.7. See also Natrel Inc. v. Four Star DairyLtd., [1996] O.J. No. 1145, paras. 1, 9. Canadiancourts have also held that when thedisputed issue is whether or not a distributionagreement exists, a court shouldcharacterize a sought-after injunction asa mandatory order, and the court shouldapply the strong prima facie case standard.Cana International, 2010 ONSC 6273, 17.However, in another line of decisions thecourts have held that an order restrainingFor The Defense ■ March 2012 ■ 55

Commercial LitigationCanadian courts havehesitated to recognizea stand-alone duty ofgood faith that operatesindependently from theexpress terms of a contract.a manufacturer from terminating a distributionagreement pending a trial simplymaintained the rights to which that themanufacturer and distributor had agreedunder the existing agreement, and therefore,the injunction would constitute a prohibitiveorder. 674834 Ontario Ltd. (c.o.b.Coffee Delight) v. Culligan of Canada Ltd.,[2007] O.J. No. 979, para. 37. See also ErinwoodFord Sales Limited et al. v. Ford MotorCompany of Canada Limited, 2005 CanLII16616, para. 61 (holding in the context of adealership agreement that “notwithstandingthat it can be argued that there is a mandatorynature to the order sought by theplaintiffs, in that it requires the defendantto continue to comply with the terms of theDealership Agreement, there is no questionthat granting the injunction creates no newrights. The plaintiffs seek to preserve thestatus quo pending trial and in my view,as a result, the order sought is not a mandatoryinjunction.”) In these decisions thecourts held that they appropriately woulduse the lower standard of a “serious issueto be tried.” Obviously, a manufacturer opposingan application for an interlocutoryinjunction will seek to characterize the orderas a mandatory order. In doing so themanufacturer will attempt to dispute that adistribution agreement exists, characterizethe agreement as having come to an end, orargue that the manufacturer properly terminatedthe agreement in accord with theterms of the contract. In any event, a courtwill need to examine a case’s factual matrixin detail to determine whether an order ismandatory or prohibitory because the linebetween positive and negative covenantsis not clear cut. TDL Group, [2001] O.J. No.56 ■ For The Defense ■ March 20123614, para 4. See also Culligan, [2007] O.J.No. 979, para 4.Under the second prong of the test, aparty seeking an injunction must demonstratethat it will suffer irreparable harm ifa court does not grant the injunction. Irreparableharm is harm that cannot be quantifiedin monetary terms or which damagescannot cure. R.J.R.- MacDonald, [1994] 1S.C.R. 311. In Vivitar Canada Ltd. v. VivitarCorporation, the Ontario Superior Courtconsidered the following factors in holdingthat the distributor would suffer irreparableharm if it did not grant an injunction:• The distributor would have to shut downits entire business if it could not sell themanufacturer’s products, which comprised75 percent of the distributor’sbusiness;• The distributor had a high level of inventoryon hand and in transit representingnearly one full year’s worth of products;• If the distributor was forced to dishonorits commitments to sell the manufacturer’sproducts to its customers, it couldseverely damage the distributor’s credibilitywith those customers;• The distributor had renewed its warehouselease for an additional five yearsbased on the distribution agreement;• The distributor had hired a new salesmanager to market the manufacturer’sproducts;• The distributor had declined offers todistribute products on behalf of otherlarge-scale manufacturers because of itscommitments under the current distributionagreement;• The distributor made substantial investmentsto develop the market for themanufacturer’s products; and• The distributor would have to lay off atleast eight employees if the distributionagreement was terminated.Vivitar Canada Ltd. v. Vivitar Corporation,2003 CanLII 13974 (ONSC), paras 27–37.Considered together, the court believedthat the above factors sufficiently establishedthat the distributor would have sufferedirreparable harm. However, a courtprobably would not view losing sales andlosing market share without additional factorsas sufficient to constitute irreparableharm that damages could not compensate.Barton- Reid, 2002 CanLII 34862 (ONSC),para. 18. See also Cana International, 2010ONSC 6273, paras 18–20. Further, any evidenceadvanced to demonstrate irreparableharm needs to be clearly established. Speculationof harm will not suffice. Barton-Reid, 2002 CanLII 34862 (ONSC), para. 18.Finally, the third prong of the test requiresa court to determine which partywill suffer the greater harm if the court eithergrants or denies an interlocutory injunctionuntil a trial resolves the disputes.R.J.R. MacDonald, [1994] 1 S.C.R. 311. Thefactors considered at this stage of the analysiswill vary. In the context of exclusive distributionagreements, Canadian courts havebeen sensitive to the vulnerable position ofa manufacturer that relies on a single distributorto sell its products in a region. Forexample, in Cana International DistributingInc. v. Standard Innovation Corporation,the Ontario Superior Court of Justicedismissed the plaintiff distributor’s applicationfor an interlocutory injunction out ofconcern that enforcing the exclusive distributorshipwould “unfavourably submit thebusiness of the Defendant [manufacturer]to the power of the Plaintiff [distributor].”Cana International, 2010 ONSC 6273, paras.21–24. See also Saan Stores Ltd. v. Effigi Inc.,2006 CanLII 39315 (ONSC), paras. 87–95.Further, the courts have hesitated to binda manufacturer to a distribution contractwhen the relationship between the partieshas clearly deteriorated making it unlikelythat the distribution agreement would benefiteither party. Natrel Inc., [1996] O.J. No.1145, para 13. See also Healthy Body ServicesInc. v. Muscletech Research and DevelopmentInc., [2001] O.J. No. 3257, paras.20–23. However, in cases in which a distributor’sbusiness has relied almost entirelyon a manufacturer’s products andwhen the distribution agreement has beenexecuted profitably over a number of years,the manufacturer may have difficulty tippingthe balance of convenience in its favor.Vivitar, 2003 CanLII 13974 (ONSC), paras.38–40. See also Culligan, supra, at paras.44–47; Barton- Reid, 2002 CanLII 34862(ONSC), para. 20.How Does the Province ofQuebec Differ from OtherCanadian Provinces?As mentioned, unlike all other Canadianprovinces, which have adopted commonDistribution, continued on page 64

Commercial LitigationThe Case for MediationOptimization OrdersBy David W. HenryThe Litigator’sGuide to SuccessfulMediation AdvocacyThoughtful and timelypreparation can moreoften than not helpavoid the commonpitfalls that lead tosettlement impasses.Mediation undoubtedly will continue to serve as a frequentif not mandatory feature of commercial litigation innearly every state. In 2010 more than half of the states andover 94 federal districts had mandatory or court- annexedmediation programs. D. Peters, It TakesTwo to Tango, And to Mediate, 9 Rich. J.Global L. & Bus. 381, 386 n.24 (Fall 2010).While some states have already embracedmediation as a routine practice, some jurisdictionsinexplicably fail to use it consistentlyin the state and the federal courts.Where mediation is uncommon, the “lawyering”attendant to that process generallyis inconsistent. This is partly becausecivil mediation advocacy is, in the Hogwartssense, a dark art. It is difficult toteach and not well appreciated as a lawyer’sart or skill, and some factions of thejudiciary and trial bar even view it skeptically.As one commentator notes, “legallytrained advisors tend to be inherently suspiciousof informal and unstructured resolutionprocesses, in which the neutral partyis not required to adhere to strict legal principles.”S. Corbett, Mediation of IntellectualProperty Disputes: A Critical Analysis,17 New Zealand Bus. L.Q. 51 (Mar. 2011).Litigators often need to improve theirmediation preparation and advocacy skillspartly because the mediation process doesnot depend on applying fact to the law, rulesof procedure, or precedent—the bread andbutter material of a typical law school education.Mediation does not depend on theart of lawyering in the ordinary sense. Mediationsits far too often in the “dark shadows”of trial. See L. Riskin and N. Welsh,Is That All There Is—The Problem in CourtOrdered Mediation, 15 Geo. Mason L. Rev863, 900 (June 2008). Mediation is a darkart in large measure because of confidentialityand privilege rules. Brilliant advocacyin mediation is not and cannot be recordedor memorialized by transcript, video, ornarrative. Careers and the reputation ofcounsel are not made or broken based onmediation results. Mediation by its natureis private and confidential, stabilizing andnormalizing; great gains and losses areavoided by negotiation. No heroes emerge inthe process. Unlike the big budget productionthat is a trial, mediation is more akinto unscripted improvisation without elaboraterule- driven staging, dialogue, and le-■ David W. Henry is an attorney with Alvarez Sambol & Winthrop, P.A. in Orlando and a Florida Supreme Court Certified CivilMediator. He is a member of the DRI ADR Committee and the immediate past chair of the ADR Committee of the Florida DefenseLawyers Association. Mr. Henry is a frequent presenter for DRI and to state and local bar and insurance organizations across theUnited States on topics involving mediation advocacy and ethics. He can be reached at dhenry@aswpa.com.For The Defense ■ March 2012 ■ 57

Commercial Litigationgal analysis. The mediation process will notbe value affirming. Although it certainly offersmore “healing.” F. Yee, Mandatory Mediation:The Extra Dose Need to Cure theMedical Malpractice Crisis, 7 Cardozo J. ofConflict Resolution 393, 418 (2007). Mediationwill not reveal justice publicly. No onewill witness a stinging cross- examination,and no one will hear memorable closingUnlike the big budgetproduction that is a trial,mediation is more akin tounscripted improvisationwithout elaborate ruledrivenstaging, dialogue,and legal analysis.arguments. A trial offers the public spectacleof high theatre; mediation is private, sequestered,trapped in a black box.But this black box is powerful! What ofthis cloistered environment that has thecapacity to resolve even the most complexcases in a day or two? What of this processthat is so magnificently simple on the onehand but also full of analytic, emotional,and psychological layers? Mediation, forpurposes of this article, means puttingthe key decision- makers in a room witha trained mediator who operates as facilitator,nay- sayer, truth-tester, and championfor settlement. The mediator asks theparties to share information, explores variedand often contrary or conflicting interests,separates needs from wants, and helpsstructure deals. It is a remarkably low-techand comparatively low-cost process in contrastto commercial cases that involve substantialinvestments of time and money,information technology, and support.Lawyers spend much of their careersfirst learning, then mastering, then billingclients on all matters antecedent to trial,such as dismantling experts, coordinatingthrough electronic discovery, preservingprivileges, developing effective openings58 ■ For The Defense ■ March 2012and closings, and engaged in the applicationof fact to law in time consuming andultimately costly ways. This author believesthat a a lawyer’s reluctance to embrace andchampion mediation is on one level notsurprising—he or she may be uncomfortablewith the emotional content, irrationaloutbursts, and nonlinear decision- makingprocess. Additionally, the confidentialityinherent in mediation makes it difficultto teach and appreciate on an intellectual,moral, and value- centered plane. Becauseit does not require the same proceduralchoreography and analytical preciseness,nor by custom or rule require the same investmentof time and money, lawyers andclients might naturally view it as less importantthan the more commonly understoodlawyering practices. See Corbett, supra. Thesecluded nature of mediation restrains laypersons and lawyers from witnessing itstrue greatness. Whereas churches, temples,and mosques visually and verbally reinforcethe power, strength, and benefits of a spirituallife, mediation sessions do not havepublicly accessible pews.Mediation OptimizationOrders Make SenseOne way for litigators to improve theirmediation practice is to intellectuallyaccept the importance of this process toclients. A calendar and court and ruleimposeddeadlines drive, in large measure,a litigator’s practice and attention. On theother hand, mediation is less rigid and lessrule- oriented and informal and so in thecontext of a litigated dispute, mediationwill not command the attention of a lawyeror client in the same way that a trial datewill. To begin to achieve intellectual paritybetween mediation and litigation andto force litigators to become better mediationadvocates, courts can and increasinglywill mandate mediation in nearly everycivil case. See, e.g., Fla. Sta. 44.102; Peters,supra, at 386. Courts should only rarelygrant exceptions to mandatory mediation.Because mediation simply does not commandthe same attention as trial and doesnot have rule-based procedural and evidentiarycomponents, some litigators do notknow how to prepare themselves and clientfor mediation. There is no manual, proceduralrule, or established premediationschedule. To fix this, one solution is to borrowfrom the trial process and create whatis in effect a “pretrial” order for mediationor what this author would title a “mediationoptimization order.”A mediation optimization order wouldrequire the parties and counsel to communicatewith one another and the opposingside(s) frequently and meaningfully beforemediation. The order itself serves a purpose.A detailed mediation optimization orderworks psychologically on a litigator, insurancecarrier, or corporate counsel by elevatingthe mediation process because it hasthe look and feel of a trial order. By makingthe requirements for “premediation” outwardlyand superficially more akin to thetrial preparation process, this necessarilygarners the attention of a lawyer and client.A mediation optimization order worksto identify and eliminate commonly occurringimpediments to settlement that acourt, mediating parties, and a mediatorcan fix when possible before the mediationsession, and jump starts the settlementthought process before the formal mediationsession. The mediation optimizationorder is aimed at creating a fertile environmentfor deal- making. A busy and tasksaturatedlitigator often treats mediation asa relief, considering it on one level a respitefrom the litigation, a break. This is becausea litigator assumes that during a mediationhe or she will not need to do a lot of “lawyering,”at least in the conventional sense.But viewing mediation as a break is an unproductiveand self- defeating mindset—amindset that may lead to inadequate preparationand focus, which may adverselyimpact the likelihood of settlement. A mediationoptimization order aims to preventattorneys and mediating parties from treatingmediation as a “holiday” from the rigorsof a case. And a lawyer’s skill and preparationcan significantly impact the likelihoodof resolution at mediation.Mediation was never intended as a vacationfrom litigation. It is an entirely differentprocess that rotates on a different axis.If we treated a mediation impasse as theemotional and legal equivalent of a mistrial,wouldn’t lawyers work a lot harder toavoid that result? Surely they would. Oncewe start thinking in these terms we beginto appreciate that we need to prepare morethan superficially for a mediation session.Perhaps we do not prepare with a consis-

tent level of effort. The want of rules and thecomparative informality of the mediationprocess indirectly work against a lawyerand a client by making it easier not to prepare.Neither courts nor the rules of civilprocedure impose premediation requirementson litigating parties, and no onesuffers an immediate penalty if a mediatordeclares an impasse.So what can we do? We might start by“case managing” the mediation process toelevate its importance in the eyes of a litigatorand a client. This would include establishingdates and deadlines that involve theclient directly in the process. The partieswould engage the mediator early in the processbefore any formal session took placethrough a mediation optimization order.The mediation optimization order wouldaddress the following 12 points.First, a mediation order would identifysuitable and experienced mediators andreach consensus that the mediator may usefacilitative, evaluative, and collaborativetechniques during the process.Second, it would establish a date for disclosingthe name, address of each attendee,and their relationship to each party.Third, it would set a date by which attorneyswould provide written certificationthat high-level decision makers will attendthe mediation and include a short statementexplaining the reasons why the particularrepresentative was chosen.Fourth, a mediation optimization orderwould require the mediating parties andtheir attorneys to hold a conference call todiscuss whether all of the necessary partiesare joined and if there are non-joined partieswhose presence might be necessary fora comprehensive and effective settlement.Additionally the lawyers could be askedto at least cursorily explain the mediationprocess to the parties.This may seem pedantic on one levelbut not all litigants share the same levelof litigation savvy. It is a very useful exercisebecause it begins to teach the mediatingparties that achieving a settlement isa collaborative not adversarial process. Ifall lawyers contribute to the explanationof the process for all they begin to psychologicallymove from advocate to teacheror collaborator—which is a very small buthelpful transformative step anticipatingthe kind of discussion that often unfoldsin the mediation session. The conversationin part would aim to humanize the processby sharing limited personal informationabout the participants such as wherethey live, where they were educated, theirinterests, and their roles in their companieswhen a case involves corporate clients.The conversation might also framethe non- monetary issues relevant to a comprehensivesettlement. One side may wishto elicit a premediation demand. Each sideshould assure the other once again thatkey decision- makers will attend the mediation.If someone has to “appear” by phone,which is undesirable on many levels, thenthat side’s attorney should explain that inadvance and make arrangements for telephoniccommunication at the mediationsite.Fifth, a mediation optimization orderwould require each attorney to supply astatement that the pleadings, motions, andmaterial court orders, factual discovery,and testimony have been substantially disclosedto each attorney’s client or madeavailable for reading.Sixth, the order would require the attorneysto confer to discuss the timing ofmediation and whether there is additionalinformation that any other party needsinformally or via discovery before themediation session.Seventh, a mediation optimization orderwould oblige the parties to disclose all nonpartiesthat may attend the mediation asexperts, advisors, or consultants. As longas these participants formally consent toconfidentiality terms, attorneys and courtsshould permit them to appear, althoughmediation rules differ in jurisdictionsregarding participation by nonparties. Ifan opposing party challenges the appearanceof a non-party, there would be timeto bring that issue to the attention of thecourt. There are few things more disruptivethan disputes over attendees that onlybecome known once the parties and attorneysare assembled. This is to be avoided.Eighth, a mediation optimization ordershould require each attorney and his or herclient to meet both 90 days and 10–14 daysbefore the mediation session, and the lawyerto explain fully in writing the mediationprocess, role of the mediator, the confidentialityrules, and in the broadest terms possibleall the nonjudicial business interests andjudicial issues that a mediation frameworkcould encompass. In short, a mediation optimizationorder would require an attorneyand his or her client to brainstorm beforethe mediation session to identify the intereststhat they need to address in the frameworkof a settlement.Ninth, a mediation optimization orderwould require a lawyer to confer with hisTo begin to achieveintellectual parity betweenmediation and litigation andto force litigators to becomebetter mediation advocates,courts can and increasinglywill mandate mediation innearly every civil case.or her client to determine if any personal,emotional, financial, religious, or other factorsmight impede the ability of that participantto meaningfully engage, listen, andresolve the case. We want to liberate a clientfrom any disabilities, sources of duress,or extraordinary stressors. If third partiessuch as board members or senior managersmust approve a deal, they should physicallyattend the mediation. If they will not, thenan attorney must make every effort to havereal-time access to them during the mediationand make it clear to the other side thatany deal is subject to some other level ofapproval. This is often the case for governmentalbodies, utilities and associations.Tenth, a mediation optimization orderwould require attorneys for the defendantsin multiparty cases to meet and conferwith the clients, and insurers if applicable,before the formal mediation session to considerlitigation funding arrangements andpro rata contributions that the defendantsmay require to resolve the case.Eleventh, a mediation optimizationorder would require each attorney to sub-Mediation, continued on page 65For The Defense ■ March 2012 ■ 59

Writers’ CornerHeadline! Headline! Read All About It!Persuasive IntroductionsBy Edwin B. BrownThe trial’s court’s order in this case confirming the jury’s award of $2 millionin punitive damages violates the Due Process Clause of the FourteenthAmendment to the United States Constitution. In a long line of cases beginningwith BMW of North America v. Gore, 517 U.S. 559 (1996), the UnitedStates Supreme Court has made clear that a trial court does not have unfettereddiscretion to award whatever amount of punitive damages it sees fit.In State Farm Mutual Auto Ins. Co. v. Campbell, 538 U.S. 408 (2003), theSupreme Court stated that “in practice, few awards exceeding a singledigitratio between punitive and compensatory damages, to a significantdegree, will satisfy due process.” Here, the trial court blew past the singledigitratio stop sign and awarded punitive damages that were 50 timescompensatory damages. This award was neither reasonable nor proportionateto the wrong and must therefore be reversed.No, this is not an article on punitive damages or theDue Process Clause of the United States Constitution.The foregoing paragraph is an example of how to placethe crux of your argument foursquare in the introductionof your brief: grab a reader’s attention.The introduction is the most important part of yourbrief. Similar to you, judges and court attorneys readbriefs until they are bleary-eyed. Do they read everything?Sometimes. One thing is sure: most carefully readthe beginning of every brief. Whether they skim the restdepends on how engaging the introduction is.First, here’s what not to do. Too often we begin withthe history of the dispute in painstaking chronologicalorder. By the time those readers who are still awake getto the punch line, they are not sure why we are takingtheir valuable time.For example, if you have recited a series of dates inthe beginning of a brief, a reader may not know whichof those dates are important to remember and whichdates are just history. If you plan to argue that the statuteof limitations has expired, then the dates may be veryimportant. But a court does not know that unless you tellit right up front that a lawsuit is time-barred.Sometimes we feel tempted to place a dispute in contextby reciting the other side’s arguments. Why wouldyou begin your arguments by presenting theirs? Instead,begin with your own strong arguments then refute youropponent’s.■■Edwin B. Brown is a partner in the Irvine, California, office of Crandall, Wade &Lowe and chairs the firm’s appellate and law and motion departments. Mr. Brownis a member of DRI’s Appellate Advocacy and Insurance Law Committees.Give a court a headline. We have heard it said that“[h]e [or she] who frames the issue, wins the argument.”Tell a reader up front what the issue is from your vantagepoint. Make your argument compelling. Your introductionshould be short but contain the essentials of yourside of the equation.Instead of boring a reader, offer him or her a reason toread on. A brief’s introduction should explain why yourargument is really, really interesting rather than run ofthe mill. Give your reader a “headline.” The little boy onthe corner would not sell many newspapers if the newspapereditor did not creatively write headlines so thatpeople would want to “read all about it.”This is an election year. Listen as the candidatesdevelop sound bites. These short but compelling phrasesare headlines. The candidates will surely fill in the detailsif asked, but they know that no one will ask if a headlineis not interesting. The introduction to your brief is yoursound bite, your headline.Sometimes you can effectively ask a rhetorical questionin an introduction that requires a court to answerthe question in your favor. For example, using the punitivedamage paragraph above, you could end the introductionwith the question, “Is it really fair to reward theplaintiff with a multi- million dollar punitive damageaward when her compensatory damages were a mere$40,000?”Revise, revise, then revise again. Making the mostof your introduction involves viewing it as more than avanilla statement of facts or an orientation to a case thatprecedes the meat of your argument below. Writers oftenspend little time on an introduction because they mistakenlybelieve that they need to expend the most effortbriefing the law instead of realizing that a court has preciouslittle time to digest a brief.Instead of excessively reworking the body of yourbrief, take the time to prepare your introduction carefully.The better the introduction, the more likely areader will want to read the substantive arguments thatyou make later. You will want to revisit your introductionseveral times. Let it sit for a minute. Try differentapproaches. Let colleagues or even family read yourintroduction. It is appropriate to spend more time on anintroduction than on other parts of a briefAs you develop your ability to grab a reader’s attentionwith the introduction to your brief, you will find morejudges reading “the rest of the story.”60 ■ For The Defense ■ March 2012

In the Battle of Experts—Why Not Be Fully Armed?Has your expert witness ever been disqualified?Are there any past depositions of the opposing expert available?Is everything in the expert’s CV accurate? How would you know?You are about to be fully armed with the answers.Order the most comprehensive background profile onyour expert witness, and that of your opponent’s.Log on to www.dri.org and click on Expert Witness Profiler.It is practically malpracticenot to havethe Expert Witness Profiler.Win the battle of experts with DRIand the Expert Witness Profiler.

Think GloballyVioxx Victory Down UnderA Reversal of Fortune in AustraliaBy Andrew Klein and Christopher G. CampbellIt may seem odd to compare the Vioxx litigation to TupacShakur, Notorious B.I.G., or Michael Jackson. But similarto musicians who somehow manage to release songs evenafter their deaths, the hits keep on coming for Merck longafter the Vioxx litigation settled. In August 2011, we hadGarza v. Merck & Co., 347 S.W.3d 256 (Tex. 2010), whichthe Drug & Device Law Blog called the “best Daubert decisionof the year.” Drug & Device Law Blog, Jan. 2012. Thedecision reversed an earlier jury verdict against Merck.Recently, Merck won another Vioxx victory. Thistime, it won in Australia. Just like their counterparts inthe United States, plaintiffs’ law firms in Australia filedlawsuits alleging that Vioxx caused their clients to sufferheart attacks, strokes, and other injuries. Given thatsome 300,000 Australians used Vioxx, these actionsappeared likely to bear substantial fruit when a singlejudge of the Federal Court of Australia found last yearthat Merck had breached the primary Australian consumerprotection legislation, the Commonwealth TradePractices Act 1974, when it sold Vioxx.The court found, among other things, that Vioxx doubledthe risk of heart attack in a Mr. Peterson who hadtaken the drug between 2001 and 2003. The court wenton to find that because Vioxx substantially increased Mr.Peterson’s risk of heart attack it was not, as required underthe Trade Practices Act, “reasonably fit for the purposeof being used for the relief of arthritic pain.” Thecourt also found that Vioxx was not of “merchantablequality,” and it was “defective” because it increased therisk of heart attacks. As a result, the court awarded Mr.Peterson the equivalent of approximately US$300,000,and his lawyers warned that they knew of 600 other individualsin Australia who had suffered similar heart attacksafter taking Vioxx, which would result in potentialliability of equivalent to approximately US$180 million.After this decision, however, Merck put the brakes onits potential liability through an appeal that resulted ina decision by the Full Federal Court of Australia, which■■Andrew Klein is a senior associate in DLA Piper’s Canberra, Australia, office,where he specializes in a wide range of litigation matters, including employmentand administrative law. Christopher G. Campbell is a partner in DLA Piper’sNew York office, where he represents a wide array of international and domesticclients in product liability and commercial litigation. He is the publication chairof DRI International and the editor of the “Think Globally” column. If you wouldlike to contribute a column to “Think Globally,” please e-mail Mr. Campbell atchristopher.campbell@dlapiper.com.set aside the initial decision. Although the Full FederalCourt of Australia’s ruling was specific to Mr. Peterson’scase, the decision is instructive.The Full Court concluded that the facts did not afforda sufficient basis to conclude that it was more probablethan not that Vioxx consumption was a necessary conditionthat lead to Mr. Peterson’s heart attack. Particularly,the Full Court found that the statistical evidencewas seriously diminished in strength by Mr. Peterson’spersonal circumstances, meaning his age, gender, obesity,high blood pressure, and history of smoking, whichafforded a “ready explanation” for his heart attack independentof Vioxx. As the Full Court ruled, “[a] conclusionthat Mr. Peterson would not have had his heartattack but for the consumption of Vioxx… is a matter ofconjecture rather than [a matter of a] reasonable inferenceon the balance of probabilities.”The Full Court further questioned the usefulness ofa purely mathematical “relative risk” analysis to decidecausation issues, stating, “The predominant position inAustralian case law is that a balance of probabilities testrequires a court to reach a level of actual persuasion.This process does not involve a mechanical applicationof probabilities.” In other words, the Full Court foundthat establishing that Vioxx increased risk of injury wasnot sufficient to prove causation without evidence thatthe risk actually caused the injury.Regarding Mr. Peterson’s claim under the Trade PracticesAct that Vioxx was “unfit for purpose,” meaningthe purpose for which he acquired it, to treat his arthritispain, the Full Court found that the Trade PracticesAct requirements did not permit “inferring some qualityof absolute safety or complete absence of adverse sideeffect” as necessary to Vioxx for the purpose for whichMr. Peterson acquired it. Rather, the Full Court foundthat Vioxx was fit for the purpose for which Mr. Petersonacquired it, as medication for the treatment for arthriticpain, irrespective of the potential side effects. And in anycase, Mr. Peterson had failed for the reasons discussedabove to demonstrate that consuming Vioxx actuallycaused his heart attack. The Full Court also found thatMr Peterson had failed to establish that he suffered hisheart attack because Vioxx was not of merchantablequality, so his claim on that point also had to fail.So, while Vioxx litigation will probably continue inAustralia, Merck’s string of hits is continuing DownUnder.62 ■ For The Defense ■ March 2012

Defense Ethics and ProfessionalismThey’re Not Just for [Name Your CommoditizedService or Product Here] AnymoreEthics Opinions Say Grouponsfor Legal Services OKBy Thomas A. GilliganIn November of last year, Chicago- based daily dealssite Groupon went public at a valuation of $13 billon.Shayndi Raice, Groupon and Its ‘Weird’ CEO, Wall St. J.,Jan. 31, 2012, at B1. Groupon uses collective buying tooffer consumers substantial discounts on products andservices in a local market. Deborah L. Cohen, Virtual“tipping point” leverages group deals, Reuters (Jun. 10,2009), http://www.reuters.com/article/2009/06/10/us-grouponidUSTRE5592K720090610.The site sends out a specializeddaily coupon to subscribers in each market that it servesaround the world—with a significant discount and a significantcaveat: The deal will only go through if enoughpeople sign up and agree to use the coupon. Geoff Williams,Getting on Groupon: 5 Things You Need to Know,AOL Small Business (June 28, 2010), http://smallbusiness.aol.com/2010/06/28/how-to-get-on-groupon/. For example,a consumer could purchase a $150 singing telegramfor $75, then Groupon and the retailer, to which GrouponChief Executive Andrew Mason refers as his “merchantpartner,” would split the $75. Raice, supra, at B5.So why should lawyers care about sites such as Groupon?Although Groupon won’t feature things such as shootingranges, strip clubs, or liposuction, it will feature legalservices. Geoff Williams, Groupon’s Andrew Mason:The Unlikely Dealmaker, AOL Small Business (Aug.9, 2010), http://smallbusiness.aol.com/2010/08/09/grouponsandrew-mason-the-unlikely-dealmaker/1#c29811638/.The currentGroupon format may be best suited, if at all, to legalservices for which flat fees may already have becomethe norm. But perhaps the confluence of alternative feearrangements and the Groupon concept is nearer onthe horizon than we might think. As a result of lawyers’interest in the Groupon format, various state and localbar associations have taken note and have weighed in onthe ethical implications of Groupon- type arrangements.The primary concern regarding the ethics of thesearrangements for lawyers has been whether they constitutefee splitting. Model Rule 5.4(a) prohibits lawyers,with few exceptions, from sharing legal fees with nonlawyers.Model Rules of Prof’l Conduct R. 5.4(a). Thepolicy underpinnings of this fee- splitting prohibitioncome from the interest in protecting a lawyer’s independentprofessional judgment from outside interference.Model Rules of Prof’l Conduct R. 5.4 cmt. 1. In theGroupon arrangement, however, a lawyer’s professionalindependence does not appear subject to compromise—irrespective of the Groupon founder’s characterizationof a Groupon- merchant partnership. The North CarolinaState Bar Association’s Ethics Board determinedthat a Groupon arrangement is not prohibited fee splitting.North Carolina State Bar Ass’n Ethics Board, FormalOp. 10 (2011) (“There is no interaction between thewebsite company and the lawyer relative to the legal representationof purchasers at any time after the fee is paidon-line other than the transfer of the proceeds of the‘daily deal’ to the lawyer.”). It also compared Groupon toan advertisement and noted that as long as the percentagecharged against the revenues generated was reasonablecompensation for advertising service, a lawyer mayparticipate. Id. Although the board had other concernsabout these arrangements in practice, including whetherthe Groupon was misleading, whether the lawyer woulddeposit the funds in a client trust account, and whethera lawyer could competently provide the representation,its overall conclusion was that Groupon was an acceptableform of advertising, assuming that the board’s otherconcerns were met. Id. See also South Carolina Bar EthicsAdvisory Comm., Advisory Op. 11-05 (2011).The New York State Bar Association Committee onProfessional Ethics also considered whether marketinglegal services using “deal of the day” websites was ethical,but it did not address the fee- splitting issue, insteadevaluating whether the money retained by a website constitutedan improper payment for a referral. New YorkState Bar Ass’n Comm. on Professional Ethics, Op. 897■■Thomas A. Gilligan, Jr., is a shareholder with Murnane Brandt in St. Paul, Minnesota.Mr. Gilligan’s trial and appellate practice focuses on product liability,employment, and personal injury litigation in Minnesota and Wisconsin. Mr. Gilliganserves as publications chair of the DRI Lawyers’ Professionalism and EthicsCommittee and is a former investigator for the Ramsey County District Ethics (2011). The committee concluded that the fee did notCommittee. Ethics, continued on page 65For The Defense ■ March 2012 ■ 63

Noncompetes, from page 44Third, as the Marx study recognizes, wemust consider the economic effect of noncompeteagreements on employers alongsidethe economic effect on individuals.This point seems lost on those that woulduse the study in efforts to bar noncompeteagreements.Noncompete agreements can protectconfidential and proprietary business information,trade secrets, and customer relationshipsin a variety of industries, manyof which do not file patents. Patents do offerprotection to inventors and entrepreneurs,but disputes over noncompete agreementsdo not typically also involve patent disputes.Accordingly, suggesting that patent filings,noncompete agreements, and employeemobility significantly correlate misunderstandswhat noncompete agreements do, asdoes indirectly suggesting that they correlatewith innovation and economic growth.ConclusionReasonably tailored noncompete agreements,along with other types of restrictivecovenants, promote and nurture innovationand serve to protect entrepreneurs’ideas, investments, goodwill, and otherlegitimate business concerns. The argumentspresented by critics of noncompeteagreements fail to take into account the fullbeneficial economic effect of such agreements.These arguments stem from flawedanalyses, and the empirical evidence usedto support the arguments is unconvincing.Reasonably tailored noncompete agreementsdo not prevent individuals fromearning livelihoods. Proposing that statesoutlaw or limit such agreements fails toaccount for their potential benefits to businessesand employees generally. Further,arguing that California companies andemployees are thriving due to a businessclimate free of noncompete agreementslacks merit as evident from California’schronically woeful economic condition.Noncompete agreements have playedimportant roles in market economies forcenturies, and there is no legitimate basisto change the legal landscape today.Distribution, from page 56law principles, Quebec is a civil law jurisdiction,so some important differences emergein Quebec from the Civil Code of Quebec,which govern distribution agreements.As in the rest of Canada, parties in Quebecare free to negotiate express conditionswhich, if breached, provide one orboth parties with excuses for failing toperform their obligations under their contracts.Under Quebec civil law, despite therelevant contractual provisions, a manufacturermay not terminate a distributionagreement unilaterally without cause.In Quebec, the duty of good faith governsthe right to terminate a distribution agreement.Pursuant to article 2805 of the CCQ,the duty of good faith is presumed. As such,the duty of good faith governs all distributionagreements in Quebec. Articles 6 and7 of the Civil Code of Quebec specify that“every person is bound to exercise his civilrights in good faith” and “no right may beexercised with the intent of injuring anotheror in an excessive and unreasonable mannerwhich is contrary to the requirementsof good faith.” Furthermore, article 1375 ofthe Civil Code of Quebec mandates that theparties “shall conduct themselves in goodfaith both at the time the obligation is createdand at the time it is performed or extinguished.”(emphasis added).Hence, the parties’ relationship under adistribution agreement necessarily impliesa duty of good faith in Quebec. More particularly,the courts will look for a materialreason, referred to as a “serious reason”64 ■ For The Defense ■ March 2012in the language of the Civil Code of Quebec,for termination, such as a fundamentalbreach of the contract by a distributor.Moreover, as in the rest of Canada, the partiesmust supply reasonable notice of terminationin Quebec. This too derives from theobligation to exercise rights in good faith.However, in certain circumstances partiesto a distribution agreement can terminatethe distribution agreement without notice,such as when an agreement specificallyincludes a provision to permitting it. RogersCantel inc. c. Elbanna Sales Inc., [2003]R.J.Q. 745 (C.A.). Determining whether aparty has to supply reasonable notice andwhat constitutes reasonable notice willdepend on the facts and circumstances ofeach case.Consequently, terminating a distributionagreement in bad faith, whether themanufacturer or the distributor does it,will attract judicial scrutiny in Quebec. Acourt will hold the party which has actedin bad faith liable as a result of the termination.In numerous instances Quebeccourts have held a manufacturer liablefor the wrongful termination of a dealershipagreement because the manufacturerterminated the contract in bad faith.For example, the courts have frequentlyfound that a manufacturer abusively terminateda distribution contract and actedwith bad faith when the reasons and noticesupplied for the termination were insufficientgiven the nature of the relationshipbetween the parties. Richman c. AdidasSportchuhfabriken, J.E. 97-480; ThalassoP.D.G. inc. c. Laboratoires Aeterna inc., J.E.97-1115 (C.S.); Bertrand Équipements inc.c. Kubota Canada ltée, REJB 2002-32020(C.S.), par. 33; Bussières (Véhicules récréatifsGascon enr.) c. Yamaha Motor CanadaLtd., J.E. 2006-806 (C.S.). Terminating distributionagreements in Quebec can thereforebe somewhat trickier matters than inthe other Canadian provinces, and manufacturersmust deal with those terminationswith care.ConclusionIn the absence of an express provision ina distribution agreement that deals withthe termination of the contract, Canadiancourts will adhere to established contractualprinciples that govern the relationshipbetween the parties. Examples of varioustools that inform the analysis are thedoctrine of fundamental breach, impliedreasonable notice of termination, and animplied duty of good faith. Many of thesedoctrines will protect a distributor by preventinga manufacturer from terminatinga distribution agreement on its own terms.Not surprisingly, the applicability of each ofthe above doctrines and the impact it willhave on the ability to terminate a distributionagreement will depend highly on thefacts of the specific case. To avoid uncertaintyand to maintain a greater degreeof control over the contractual relationship,manufacturers will want to clearlyand expressly delineate the circumstancesunder which they can terminate their distributionagreements.

HAMP, from page 40and fair dealing to modify the existing contractualobligations of the parties. See, e.g.,Tele-Port, Inc. v. Ameritech Mobile Communications,Inc., 637 N.W.2d 782 (Wis.Ct. App. 2001). In addition, the duty ofgood faith often does not apply to the parties’conduct in negotiating or forming contracts.See, e.g., Hauer v. Union State Bankof Wautoma, 532 N.W.2d 456 (Wis. Ct. App.1995) (citing W.S.A. 401.203). Thus, whena mortgage agreement does not provide aright to modify the mortgage, the impliedduty of good faith and fair dealing cannotcreate such a right.ConclusionContract law at its core “permits partiesto bargain for obligations to one anotherrather than having obligations based onsocial interests imposed by law.” PrentCorp. v. Martek Holdings, Inc., 238 Wis.2d 777, 618 N.W.2d 201 (Wis. Ct. App.2001). In creating HAMP, Congress andthe U.S. Treasury Department sought tostrike a balance between lenders’ rightsto insist on adherence to the terms of loanagreements with borrowers’ and the public’sinterests in avoiding the destructiveeffect of rampant foreclosures. But agovernment- imposed right to loan modificationwould not achieve this balance andpremising claims on the argument thatthe government created a right to modificationthrough HAMP overstate the rightthat HAMP confers.Ethics, from page 63violate the New York corollary to ModelRule 7.2(a), which prohibits referral fees.Id. See also Model Rules of Prof’l ConductR. 7.2(a). Instead, the committee treated thefee retained by a website as “the reasonablecost of advertisements, ” similar to the waythat the South Carolina Bar Ethics AdvisoryCommittee treated these arrangements.Id. See also Advisory Op. 11-05,supra. The committee noted thatthe website has no individual contactwith the coupon buyers other than collectingthe cost of the coupon. The websitehas not taken any action to refer apotential client to a particular lawyer—instead it has carried a particular lawyer’sadvertising message to interestedconsumers for a referral in violation ofRule 7.2.Id.Each ethics body that has issued an opinionon Groupon- like offers made by lawyershas emphasized that lawyers must complywith the local rules regulating advertising,making clear that legal services redeemedthrough coupons offered Groupon- styleare subject to conditions such as a conflictscheck, the lawyer’s competency to handlethe matter, and what to do with earnedand unearned fees. Although the SouthCarolina Bar Ethics Advisory Committeeacknowledged that “effectiveness andtaste in advertising are matters of speculationand subjective judgment,” the trendappears that ethics committees will tend toapprove using website deals such as thoseoffered by Groupon to market legal services.See Advisory Op. 11-05, supra.Mediation, from page 59mit a premediation statement to the mediatorapproved by the client that addressesthe client’s needs and concerns. The attorneyswould be permitted to confer withthe mediator before the mediation afterthe mediator had received all of the positionstatements. Because mediators are notdecision- makers, there is nothing wrongwith allowing communication with themediator before the formal mediation sessionand it should be encouraged.Twelfth, a mediation optimization orderwould require each attorney to provide hisor her client with an update of any materialdevelopments and to review the existingbudget and disclosure of anticipated litigationcosts going forward no less than tendays before the formal mediation session.The particularities of each case will necessarilyshape the premediation work andthe dates and scope of a mediation optimizationorder. As our mediation practicesevolve and experience with premediationpractice matures, we will continue to refinethe elements of mediation optimizationorders. A mediation optimization orderintends to engage the mediating parties inthe preparation process, to require themto think about resolution, and to obligethem to communicate with each other andtheir attorneys before a formal mediationsession happens. In essence, a mediationoptimization order helps a lawyer evolvefrom a litigator to settlement facilitator bypromoting the necessary intellectual andemotional transition from litigation- modeto settlement- mode. This process starts amediation dialogue before the formal sessiontakes place so that the valuable hoursduring the mediation session are savedby avoiding the necessity of educating theparties about the process or educating themediator about the facts and legal issues.The timing of the activities suggestedabove will change according to the complexityof a case, geography, the number ofparties, and the interests at stake in the litigation.Sometimes a mediator or a courtwill prudently schedule two mediationdates—one early and one later in the litigationprocess. Sometimes an early mediationis useful before significant litigationcosts are incurred.ConclusionMediation advocacy as a dark art is notsomething easily learned. Settlementsat mediation do not happen by accident.A well- designed mediation with partiesreceptive to the process will increase thelikelihood of settlement. Thoughtful andtimely preparation can more often thannot avoid poorly planned mediations andthe common pitfalls that lead to settlementimpasses. Mediation has the power toresolve complicated disputes expeditiouslyand efficiently. Cases that might take yearsto resolve by litigation can end in a day. Amediation optimization order supplies abusy litigator with a game plan that he orshe can execute, prepares a client, and elevatesthe process to its rightfully importantstate. Litigators who embrace mediation asa useful and flexible tool for dispute resolutionand who can perform well in thatarena will engender client confidence andafford clients the best possible opportunitiesto resolve cases in ways that comportwith economic and business goals andobjectives.For The Defense ■ March 2012 ■ 65

Depositions, from page 22poration when it failed to send representativesto the first deposition, sent officerwho invoked the privilege against selfincriminationin the second deposition,and later ignored the court’s order to designatea person who would not invoke theprivilege against self- incrimination).Using a 30(b)(6) Deposition TranscriptObviously, the way that you use a 30(b)(6)deposition will depend on the purposesfor which you took it. If you take a 30(b)(6) deposition early for the purpose of getting“the lay of the land,” the transcript canserve as a roadmap for future discovery,identifying the key documents that as thedeposing party you should request and thekey individuals whom you should depose.You probably would not use it for substantivepurposes. If you take a 30(b)(6) depositionlater during the discovery period forthe purpose of filling in gaps in testimony,however, the transcript may become criticallyimportant to a summary judgmentmotion and during a trial.As discussed above, one of the advantagesof 30(b)(6) deposition testimony isthat the corporation is bound by it. Ingeneral, this means that a corporation“cannot present a theory of the facts thatdiffers from that articulated by the designatedRule 30(b)(6) representative. Moore’sFed. Pract. §30.25[3]. During the summaryjudgment stage this means that a corporationcannot defeat a motion for a summaryjudgment by submitting an affidavit thatconflicts with its 30(b)(6) testimony. Hydev. Stanley Tools, 107 F. Supp. 2d 992, 992–93 (E.D. La. 2003).Federal Rule of Evidence 801(d)(2), however,does not treat 30(b)(6) deposition testimonyas an admission that absolutelybinds a corporation. See, e.g., A.I. CreditCorp. v. Legion Ins. Co., 265 F.3d 630, 637(7th Cir. 2001). Instead, the Federal Rules ofEvidence govern the admissibility of 30(b)(6) deposition testimony for trial purposes.That said, the testimony does constitute anadmission by a party opponent and thereforeis not inadmissible hearsay, althoughtestimony about statements by others mayconstitute hearsay. Norwest Bank, N.A.v. Kmart Corp., No. 3:94-CV-79RM, 1997U.S. Dist. Lexis 3422, at *12–13 (N.D. Ind.Jan. 23, 2997). In addition, an attorney canuse the deposition transcript in a trial inthe same manner as any other deposition.Thus, if a corporate witness offers testimonyduring an actual trial that contradictsthe corporation’s 30(b)(6) depositiontestimony, an opponent can use the depositiontranscript for impeachment purposes.See, e.g., State Farm Mut. Auto Ins. Co. v.New Horizons, Inc., 250 F.R.D. 203 (E.D. Pa.2008). Then the jury would weigh the credibilityof the corporate witness’ testimony inlight of the conflicting 30(b)(6) testimony.A.I. Credit Corp., 256 F.3d at 637. In eithercase, the party using a 30(b)(6) depositiontranscript will probably want to request aninstruction explaining to a jury the significanceof 30(b)(6) deposition testimony.ConclusionWhen used strategically, 30(b)(6) depositionscan become extremely effectivediscovery tools. To maximize a 30(b)(6)deposition, though, an attorney shouldintegrate it into an overall discovery plan.Regardless of whether an attorney takesa 30(b)(6) deposition at the beginning ofdiscovery or the end, a well-planned 30(b)(6) deposition results in the same thing: itoffers the lawyer an opportunity to exhaustthe corporation’s knowledge and minimizesurprises during a trial.Your membership in DRI is as unique as you are…Your searchable member profile(My DRI Profile) now includes:➀ ➂ ➃➄➄➀ Your articles that have beenpublished in For The Defense andIn-House Defense Quarterlymagazines➁ Your areas of practice➂ Your DRI speaking engagements➃ Your DRI “Defense Wins”➄ Your firm contact information,biography and much moreLogin today at www.dri.orgThe enhanced MyDRI Profile offers you a unique and compelling opportunity to demonstrate yourexpertise to your clients and is a great way to maximize your DRI membership.66 ■ For The Defense ■ March 2012

Non-retained, from page 32mony fully during a trial. A non- retainedexpert is still an expert and must qualifyas such to pass the gatekeeping standard ofDaubert. See Kumho Tire Co. v. Carmichael,526 U.S. 137, 152 (1999) (making clear theDaubert standard applies to all experts, notjust those providing “scientific” testimony).To establish your expert’s qualificationsand preempt a Daubert challenge,you should prepare for a deposition of anon- retained expert just as you would for aretained expert. Address a non- retained expertwitness’ training, education, licensing,and experience. Highlight the reliability ofhis or her testimony by asking questionsthat establish that he or she is qualified totestify about the designated subject matter.See Daubert v. Merrell Dow Pharms., Inc.,509 U.S. 579, 590, 592–94 (1993) (providingfactors for determining reliability).At the same time, do not overlook anopportunity to set up a Daubert motion toexclude an opposing party’s non- retainedexpert. Challenge the expert’s qualificationsto testify about the designated subjectmatter. Question the expert’s methodsand the authority on which he or she relies.And of course, force the expert to committo the specific issues and facts about whichhe or she will testify.Timing ConsiderationsIn many cases you could and should disclosenon- retained experts early in discoveryas fact witnesses. This may causeproblems if you are unsure of the exact testimonyyou want, or will be able to elicit,from the witness. To comply with the rules,and thwart a motion in limine to restrict awitness, take care to update your disclosuresin suitable time. Understand that thewitness may need to endure multiple depositionsif he or she is disclosed twice. It hasbeen my experience that judges are willingto grant additional deposition time ifan opposing counsel could not have anticipatedthe new subject matter or opinionsbefore the first deposition happened.If you know that you will disclose a witnesstwice, be sure to limit the first depositionto factual questions. Doing this willeliminate the pressure of making sure thathis or her testimony remains the same fora second deposition. It will also preventan opposing counsel from eliciting expertopinions before you fully understand whatthose opinions will be.Take Advantage of the BenefitsNon-retained experts can provide distinctopportunities in many commercial litigationcases. Employee experts can relay theirfirsthand knowledge of the relevant factsand circumstances to enhance the plausibilityof their opinions. Fact finders oftenassign greater weight to the person wholived and breathed the problems that led tolitigation and who can explain why decisionswere made in the heat of the moment.And although pretrial practice frequentlyfocuses on the minutiae of a case, whenit comes to a trial, jurors want to hear thewhole story. The right employee can providethis background and win the confidenceof fact finders along the way.Experts outside of your client’s controlcan testify without the burden of a preconceivedbias. That third party can bolsteryour case with opinions formed separatelyfrom any litigation. His or her mantle ofindependence can increase a fact finder’sconfidence in your version of the story,which is especially important in a worldwhere jurors often feel tasked with choosingbetween competing “hired guns.”Log in and start making it work for you today.Use the new (private) MemberDashboard on the DRI website—a oneof a kind tool that enables you to viewand track activities tied to your DRImembership. You can securely accessthe following information:■ DRI Seminar Materials (brochuresand course materials)■ DRI Activities■ DRI Membership Details■ DRI AdvocatesOnly at www.dri.org■ ENGAGE ■ CONNECT ■ GROW ■ LEARN ■The DRI CommunityFor The Defense ■ March 2012 ■ 67

Trade Dress, from page 50evaluate the impressions created by thecompeting trade dresses from the perspectiveof an ordinary consumer.A court or the Trademark Trial andAppeal Board may evaluate several factorsin determining the likelihood of confusion,including “(1) the degree of similaritybetween the owner’s mark and the allegedinfringing mark; (2) the strength of owner’smark; (3) the price of the goods andother factors indicative of the care andattention expected of consumers whenmaking a purchase; (4) the length of timedefendant has used the mark without evidenceof actual confusion arising; (5) theintent of the defendant in adopting themark; (6) the evidence of actual confusion;(7) whether the goods, though not competing,are marketed through the same channelsof trade and advertised through thesame media; (8) the extent to which thetargets of the parties’ sale efforts are thesame; (9) the relationship of the goods inthe minds of the public because of the similarityof function; (10) other facts suggestingthat the consuming public might expectthe prior owner to manufacture a productin the defendant’s market.” Scott Paper Co.v. Scott’s Liquid Gold, Inc., 589 F.2d 1225,1229 (3d Cir. 1978).RemediesIf a court finds that the likelihood of confusionexists between two competing tradedresses and finds that the alleged infringerviolated the rights of an enforceable tradedress under the Lanham Act, then a claimantis entitled to injunctive relief, to recoverits damages, and to receive an award basedon the infringer’s profits associated withthe infringing trade dress. 15 U.S.C. §§1114,1116, 1117. When a court finds an infringeracted maliciously, fraudulently, deliberately,or willfully, then the wronged partymay receive treble damages and attorneyfees as well. 15 U.S.C. §1117.Concluding RecommendationsA few recommendations follow for businessesalready using trade dresses or thoseconsidering developing them for use in thefuture. First, when creating a trade dress,combine nonfunctional features makingsure that several are unique in the industryor field. Completing market and Internetresearch can help identify appropriatelyunique features. Second, a business shouldpresent its trade dress uniformly and consistently.Consistency and uniformitystrengthen the legal, marketing, and economicvalue of a trade dress. Further, uniformlyand consistently presenting a tradedress continually reinforces in the mind ofconsumers the commercial impression ofthe association between a good or serviceand its sources. See McCarthy on Trademarksand Unfair Competition §7:38.50(4th ed. Nov. 2011). Third, incorporate asmany features of a trade dress as possi-ble into advertising campaigns and informationalmaterials as well as throughoutthe entire organization. Advertising usingthe “look for” strategy, such as “look forthis mark” or “look for this color scheme,”can particularly effectively attract consumers’attention to specific trade dressfeatures as source identifiers. Fourth, abusiness should always use the applicabletrademark notices its advertisementssuch as “® ” and “ .” Fifth, a businessshould maintain copies of advertisementsthat incorporate features of its trade dress,records of the costs associated with theadvertisements, and reports of the mediaoutlets used, the number of times that theadvertisements ran, and the sales associatedwith the advertisements. The Campbelldecision referenced above highlightsthe importance of tracking this informationfor purposes of establishing secondarymeaning. Sixth, a business should notfile utility- related patent applications orotherwise promote the utilitarian advantagesof the features of a trade dress. Seventh,a business must keep detailed recordsof reports that consumers have confused itstrade dress and that of another. Eighth, abusiness should consider filing an applicationwith the U.S. Patent and Trade Officefor federal trade dress registration. Lastly,a business should record any federal registrationswith the United States CustomsOffice.Attorneys’ Fees, from page 27When a defendant prevails, the districtcourt evaluates the “plaintiff’s conductin bringing the lawsuit and the mannerin which it was prosecuted” in determiningexceptionality. Welding Services, Inc.v. Forman, 301 F. App’x 862, 862 (11th Cir.2008) (citing Nat’l Ass’n of Prof’l BaseballLeagues, 223 F.3d at 1148). Applying thisstandard, a court may justify granting afees award to a defendant when a plaintiffbrings an “obviously weak” Lanham Actclaim and acts with an improper motive.Id. at 862–863.D.C. CircuitThe D.C. Circuit assumes “that Congressdid not intend to limit recovery of fees tothe rare case in which a court finds that68 ■ For The Defense ■ March 2012the plaintiff ‘acted in bad faith, vexatiously,wantonly, or for oppressive reasons.’” NoxellCorp. v. Firehouse No. 1 Bar-B-Que Rest.,771 F.2d 521, 526, 248 U.S. App. D.C. 329,334 (D.C. Cir. 1985). Therefore, for a prevailingdefendant, demonstrating thatthe plaintiff acted with something lessthan bad faith would render a case “exceptional”;more specifically, the D.C. Circuitinterprets “exceptional” in the LanhamAct “to mean what the word is generallyunderstood to indicate—‘uncommon’ or‘not run-of-the-mill.’” Id. However, the D.C.Circuit Court carefully has noted that Congressalso aimed to protect certain victimsfrom infringement by enacting the attorneys’fees provision of the Lanham Act.Id. at 524. A prevailing plaintiff thus couldreceive attorneys’ fees when a court findswillful or bad-faith infringement. Reader’sDigest Ass’n, Inc. v. Conservative Dig., Inc.,821 F.2d 800, 808, 261 U.S. App. D.C. 312,320 (D.C. Cir. 1987).ConclusionOne word in one sentence in one statute hascreated quite a stir among the circuits, somuch so that attorneys cannot draw simpleconclusions from reviewing the lawassociated with attorneys’ fees awards in“exceptional” Lanham Act cases. Each circuitapplies its own standard, and onlysome of them bear similarities to othercircuits’ standards. Generally, the standardstreat plaintiffs differently than theytreat defendants. Although we could suggestthat each circuit views an exceptionalAttorneys’ Fees, continued on page 70

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Attorneys’ Fees, from page 68case as involving some kind of malicious,fraudulent, deliberate, or willful conduct,either unlawfully infringing conduct orprocess abusing conduct, each circuit in itsown sometimes subtle and sometimes notso subtle way defines these terms differently.The varied definitions result in separateand distinct standards. Dependingon a case’s venue, an attorney might needto define malicious, fraudulent, deliberate,and willful conduct for the purpose ofdefending a case in the context of a multiparttest, varying degrees of culpable conduct,an abuse of process, or even degreesof exceptionality.Nothing currently seems to unify the circuitcourts’ analyses flowing from the word“exceptional” that Congress used in section35 of the Lanham Act, or even the other conceptsembedded in the statute. Two points,however, do percolate from this overview.First, an attorney needing to understandwhat a court would deem an “exceptional”case entitling a prevailing party to attorneys’fees should first and foremost focuson the law in the home circuit. Second, relyingon the law of other circuits than thehome circuit can imperil a request for attorneys’fees, or defeat a request if an attorneyopposes it, if the respective standardsfor exceptionality do not mesh.Because the United States SupremeCourt probably will not accept a LanhamAct “exceptionality” case anytime soon,and because it is even more unlikely thatCongress will legislate a workable standardby amending the Lanham Act, an attorney’sbest bet is to know the standard in hisor her case’s circuit and to adapt argumentsfor or against the recovery of attorneys’ feescreatively based on the standard.Hospital Mergers, from page 36still debate whether the FTC has antitrustauthority over nonprofit hospitals, mostagree that the agency has the authorityto regulate the health care system in general.The more difficult question, though,is whether the FTC has completed properresearch to direct its oversight efforts inthe health care industry. The Seventh Circuitindicated more than 20 years ago thatjudges “would like to see more effort putinto studying the actual effect of concentrationon price in the hospital industry asin other industries.” Rockford Memorial,898 F.2d at 1286. Yet nothing in the OSFHealthcare complaint indicates that theFTC has conducted many studies beforetaking action. Indeed, the general evidenceon the effects of such acquisitions on competitionis conflicting at best. For example,one of the FTC’s case studies found that amerger produced significant price increasesfor some insurers and significant pricedecreases for another. Aileen Thompson,Bureau of Economics, Fed. Trade Comm’n,For the complete list of currentofferings and to register, visithttp://dri.org/Events/WebcastsThe Effect of Hospital Mergers on InpatientPrices: A Case Study of the New Hanover-Cape Fear Transaction, Working Paper No.295 (Jan. 2009), available at http://www.ftc.gov/be/workpapers/wp295.pdf. Studies of othertransactions have yielded similarly varyingresults. See, e.g., Deborah Haas- Wilson& Christopher Garmon, Bureau of Economics,Fed. Trade Comm’n, Two HospitalMergers on Chicago’s North Shore: A RetrospectiveStudy, Working Paper No. 294(Jan. 2009), available at http://www.ftc.gov/be/workpapers/wp294.pdf.Although the FTC has proceeded as ifhealth care systems are the same as anyother service providing system, some haveargued that the health care industry is sufficientlydistinct to require different standards.Unique facets of the contemporaryhealth care industry, including that theindustry’s revenue often comes from thegovernment rather than individuals, confusethe conventional supply and demandanalyses. Others have argued that hospitalsdo not behave the way that ordinary com-mercial entities do so we cannot assumethat they maximize profit.If, however, the FTC is the harbingerof the future of the health care industry, aview that the FTC expresses and to whichmany courts have apparently acquiesced,hospitals and health care providers mayneed to look closely at their business developmentmodels. At least according to theFTC, the “bottom line” is that “hospitalmergers in some markets can lead to higherprices, preclude future price reductions,reduce quality, and diminish the incentivesfor hospitals to operate more efficientlyand to participate in innovative financialarrangements.” Robert F. Leibenluft,Assistant Director, Health Care, Bureau ofCompetition, Fed. Trade Comm’n, Addressat the First Friday Forum, Alliance forHealth, Grand Rapids, Michigan, AntitrustEnforcement & Hospital Mergers: ACloser Look, available at http://www.ftc.gov/bc/hmerg1.shtm. Thus, attorneys defendingsuch mergers should take special care torebut these predictions. These attorneysshould provide specific and detailed informationabout the competition- inducingeffects of such mergers or acquisitionsIn short, “hospitals contemplating mergerswill want to assess the likely sourcesof challenges to such transactions.” ScottBecker, Ronald Lundeen Jr. & Alison VratilMikula, Health Care Law §9.04 (2011).Knowing about the FTC’s enforcement historyand practices is an important step totake to assist clients undertaking proposedtransactions. In addition, those who practicein the antitrust field more generallyshould monitor the FTC’s evolving policiesand analyze their implications.70 ■ For The Defense ■ March 2012

advocatesDaniel Alvarez, Miami, FLAdam L. Appel, Atlanta, GAM. Lauree Barreca,Baltimore, MDMichael S. Beaver,Greenwood Village, COJeremy R. Berger,Princeton, NJLaura K. Binford,Indianapolis, INTillman J. Breckenridge,Washington, DCRobert M. Browning,Houston, TXButler Buchanan III,Philadelphia, PADonna Burden, Buffalo, NYRichard D. Butler, Toronto, ONCharles G. Carluccio,Cranbury, NJRalph E. Cascarilla,Cleveland, OHKevin D. Case,Kansas City, MODavid E. Chamberlain,Austin, TXRobert M. Chemers,Chicago, ILJohn J. Delany III,Woodbury, NJN. Karen Deming, Atlanta, GARandy Donato, Houston, TXPeter H. Dworjanyn,Columbia, SCMatthew S. Foy,San Francisco, CAJennine Gerrard,New York, NYWilliam E. Godbold III,Chattanooga, TNKelley M. Haladyna,Detroit, MIMark P. Harty, Boston, MAMatthew D. Haydo,Charleston, WVJosh Johanningmeier,Madison, WIJulye Johns, Atlanta, GAJohn T. Johnson, Jr.,Knoxville, TNChristopher A. Koester,Effingham, ILPeter C. Kopff, New York, NYLaurence H. Leavitt,Portland, MEDavid A. Lester,Birmingham, ALJoshua Edward Mackey,Poughkeepsie, NYAdvocates and New MembersEach month, DRI welcomes new members from the United States and Canada and abroad. Some of these newmembers have been recommended by current members actively involved in advancing goals shared by DRI. Anyindividual who recommends a new member is recognized as an “Advocate” for DRI.Kim Irene Mandelbaum,Las Vegas, NVJames Rollin Miller,Denver, COMary Clay W. Morgan,Jackson, MSEugene P. Murphy,Sarasota, FLChristian W. Nelson,Salt Lake City, UTEdward P. Perdue,Grand Rapids, MIScott M. Petersen,Salt Lake City, UTJoseph P. Postel,Waukegan, ILJohn R. Prew, Troy, MIStephen M. Prignano,Providence, RICharles E. Riley IV,New Orleans, LARobert Henry Rogers,Hamilton, ONMalcolm D. Schick,San Diego, CAPatrick L.W. Sefton,Montgomery, ALWilliam A. Sherman II,Cincinnati, OHTodd C. Stanton,Saint Louis, MORobert H. Stellwagen, Jr.,South Pasadena, CAPatricia A. Stone,Waukesha, WIKyle N. Sweet,Oklahoma City, OKAnne M. Talcott,Portland, ORSarah J. Timberlake,Oklahoma City, OKSara M. Turner,Birmingham, ALQuentin F. Urquhart, Jr.,New Orleans, LAMichael B.T. Wilkes,Spartanburg, SCEric Larson Zalud,Cleveland, OHNew MembersAlabamaKristopher Anderson,BirminghamTimothy Michael Davis,BirminghamTimothy Gallagher,MontgomeryDustin Brent Hargett,MontgomeryArizonaJonathan A. Dessaules,PhoenixArkansasAmber Wilson Bagley,Little RockDebbie S. Denton, Little RockDonna Smith Galchus,Little RockZachary Steadman,Little RockRegina A. Young, Little RockCaliforniaAndrew D. Herold, EncinitasLinda L. Sager, EncinitasJason R. Bendel, Los AngelesLindsay Carlson, Los AngelesMichael B. Giaquinto,Los AngelesCatherine La Tempa,Los AngelesKristan L. Ruggerello,Newport BeachGarrett WilliamBrandenburger, SacramentoAmanda Benedict, San DiegoKendall Brower, San DiegoKirsten McNelly Bibbes,San FranciscoDavid Streza, San FranciscoErin Dunkerly,South PasadenaColoradoNancy L. Cohen, DenverEmily Hobbs-Wright, DenverThomas H. Wagner, DenverConnecticutDeborah Vennos, HartfordDistrict of ColumbiaPhilip M. Busman, WashingtonChristopher M. Dougherty,WashingtonBrian Matsui, WashingtonG. Branch Taylor, WashingtonFloridaLouis Carrillo, Boca RatonLaurence M. Krutchik,Coral GablesTrevor George Hawes,JacksonvilleJacqueline Alexis Cook, MiamiJoseph Alexander Suarez,MiamiJessica Hunter Austin,Winter ParkGeorgiaMarquetta J. Bryan, AtlantaEvan Cline, AtlantaAaron M. Danzig, AtlantaErica Jansen, AtlantaMyrece Rebecca Johnson,AtlantaWilliam D. Meyer, AtlantaMichael Thomas Rafi, AtlantaShannon Coleman Shipley,AtlantaErnest L. Beaton, BrunswickTerry E. Williams, BufordJames Pope Langstaff, MaconIllinoisWilliam W. Elinski, ChicagoEmily Jean Fitzgerald,ChicagoJoshua P. Lauby, ChicagoDonald G. Machalinski,ChicagoKelly McDermott, ChicagoLe Gia Trieu, ChicagoAaron C. Jones, EffinghamIndianaRobert C. Brandt, IndianapolisApryl E. Underwood,IndianapolisLisa Marie Dunkin, WarsawIowaKathryn Rose Evans,DavenportLouisianaEdward Jude Laperouse II,Baton RougeGregory Thomas Stevens,Baton RougeLooking for a new wayto create exposure foryour firm?Submit DRI memberauthoredcontent toDRI Today (www.dritoday.org)features DRI member-authoredcontent, which is a greatopportunity to create exposurefor you and your firm to a largeand diverse audience.Submit content in a Worddocument (100–1,500 words, no footnotes or endnotes) to JayLudlam at jludlam@dri.org. DRI will review the content and postmaterials of most interest to our members.Make DRI Today your homepage today!For The Defense ■ March 2012 ■ 71

C. David Vasser, Jr.,Baton RougeJ. Bradley Duhe, LafayetteVictoria E. Emmerling,New OrleansStephen G.A. Myers,New OrleansEdwin Robert Noland III,ShreveportMaineFrancis David Walker,PortlandMassachusettsKip Joseph Adams, BostonAndrea Studley Knowles,BostonLisabeth Ryan Kundert,BostonEdwin F. Landers, Jr., BostonMichiganThomas D. Isaacs, DetroitJeffrey M. Wesselhoff,KalamazooJodi Davis, SaginawStephanie I. Anderson, TroyMinnesotaJonathan D. Miller,MinneapolisKenneth W. Pearson,MinneapolisForrest G. Hopper, OakdalePaul F. Carlson, WadenaMississippiAmanda Mullins, FlowoodDenise Wesley, JacksonMissouriDavid V. Cascio, Kansas CityKathryn Anne Regier,Kansas CityKathryn Lynn Hurie,Saint LouisNebraskaRonald E. Bucher, OmahaNevadaRobert Kade Baird, Las VegasSean M. Kelly, Las VegasEileen Mulligan Marks,Las VegasFranchesca V. Van Buren,Las VegasLoren S. Young, Las VegasNew JerseyPatricia Livia Carbone,CranburyPatricia A. O’Byrne, CranburyWilliam J. Riina, Florham ParkWendy M. Crowther,HackensackAnthony J. LaPorta,HackensackSuzanne Iazzetta, LivingstonArthur J. Clarke, MorristownOle Wendler Pedersen,PrincetonAndrew J. Gibbs, WestfieldJay Lavroff, WestfieldNew MexicoLucas M. Williams, RoswellNew YorkJohn F. Queenan, AlbanyScott Middleton, BohemiaKelly J. Philips, BuffaloGary E. Dvoskin, FarmingdaleRondiene E. Novitz,FarmingdaleJeffrey Coyle, Garden CityKenneth C. Beehler, New YorkCarolyn Davis, New YorkJoseph Francoeur, New YorkWayne L. Gladstone,New YorkMarc J. Lust, New YorkKeith Markel, New YorkAnina H. Monte, New YorkStevi Alyse Raab, New YorkB. Michael Wright, New YorkJanice J. DiGennaro,UniondaleMax Gershenoff, UniondaleBrian S. Schlosser, UniondaleDavid Stephen Wilck,UniondaleNorth CarolinaChristopher GrafflinBrowning, RaleighOhioColleen P. Lewis, CincinnatiSara Ravas Cooper,ClevelandMolly Moran Lukenbill,ClevelandMathew J. Dougherty,ColumbusJames R. Carnes, ToledoOklahomaDaniel Charles Hays,Oklahoma CityElaina Marie Osteen,Oklahoma CityBenjamin Saunier,Oklahoma CityOregonMatthew R. Wilmot,PortlandPennsylvaniaCarol Steinour Young,HarrisburgSheryl L. Axelrod, PhiladelphiaNancy Mancheski, PhiladelphiaWilliam Thomas McBride,PhiladelphiaChristian Wrabley, PittsburghMary Dombrowski Wright,PittsburghRhode IslandMatthew Murphy, ProvidenceSouth CarolinaJames Joshua Grissom,AndersonWesley B. Sawyer, ColumbiaLogan Wells, GreenvilleLindsay Builder, SpartanburgTennesseeBenjamin T. Reese,ChattanoogaJ. Britt Phillips, FranklinNickolas E. Schimmel,HenderonvilleRaymond Granville Lewallen,KnoxvilleAdam Garrison Russell,KnoxvilleKatherine M. Anderson,MemphisFrankie N. Spero, NashvilleTexasJennifer Motwani Hurley,DallasRyan Geddie, Flower MoundRobert D. Brown, HoustonHarry Miles Klaff, HoustonTodd Mensing, HoustonGeorge W. Vie III, HoustonAmanda Lewis, IrvingUtahDavid N. Kelley, Salt Lake CityNathan Smith Morris,Salt Lake CityVirginiaJames W. Akridge, Fort EustisMark Exley, NorfolkChristina Ding, RichmondRobert Forest Friedman,RichmondKevin W. Holt, RoanokeWashingtonDavid Soderland, SeattleRaymond S. Weber, SeattleWest VirginiaCharity Kathryn Flynn,CharlestonEric R. Holway, CharlestonBrett N. Mayes, CharlestonGlen A. Murphy, CharlestonJulie Ann Arbore, MorgantownWisconsinTristan S. Breedlove,MilwaukeeNicholas K. Rudman,WaukeshaCanadaOntarioEric C. Nanayakkara,HamiltonRene Zanin, MarkhamAntonio Di Domenica, TorontoIrelandMichael Byrne, DublinOn The Record, from page 1DRI Judicial Task Force Report—WithoutFear or Favor (2011), Law Firm Diversity RetentionManual (2005), It’s Jury Service NotDuty (2009), and DRI Judicial Task Force Report—WithoutFear or Favor (2007). AndDRI in combination with other groups, suchas Lawyers for Civil Justice, has also spokenout on the need for balance and reform inthe civil justice system, such as in the recentreport, Reshaping the Rules of Civil Procedurefor the 21st Century (2010).If, as Antonio said in The Tempest,“what’s past is prologue,” DRI and its manyconstituent members can look forwardto even more power to act as an exampleand to speak so that our ideas have consequencesand our words are listened to.72 ■ For The Defense ■ March 2012Under the leadership of President HenrySneath and the Executive Committee, DRIhas created a new entity, the DRI Centerfor Law and Public Policy. The Centerwill bring DRI’s Amicus, Public Policy,and Public Relations Committees togetherunder a single umbrella organization tobetter coordinate their work and to betterassure that DRI’s voice will be heard in thepublic arena.When he toured America, Alexis deToqueville lauded its citizens’ willingnessto combine into associations for mutualbenefit and the benefit of the public as awhole. While DRI’s history does not extendback to the days of Toqueville’s visit toAmerica, it represents an influential organizationtoday for lawyers doing thosesame things. Through DRI, the lawyerswho represent businesses and individualsin civil litigation are no longer “isolatedmen”—and I would add “and women.” Incombination, we become stronger. Andour organization can and will speak for usin the public arena, and assure that publicdiscourse is enriched by the articulationof our ideas in powerful thoughtful wordsthat can truly make an impact. Victor Hugosaid “There is one thing stronger than allthe armies in the world, and that is an ideawhose time has come.” DRI is dedicated tosearching out and developing those importantideas for the issues of today and takingthem into the world through its work in theCenter for Law and Public Policy.

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DRI connects you with your peers andgives access to education like no other.Claims Executives* can attend DRI seminars at no cost.* See page 7 in this issue for qualifying information.www.dri.org