Blog entries

Anti-piracy in the Film Industry, Joinder, Personal Jurisdiction Issues in Copyright ...

Joseph Leon — Fri, 27 Aug 2010 02:53:31 +0100

A new study has stated that only 0.3% of files on BitTorrent file sharing services are confirmed to be legal:

http://arstechnica.com/tech-policy/news/2010/07/only-03-of-files-on-bit-torrent-confirmed-to-be-legal.ars

With such widespread illegal file sharing, some rights holders have turned to the courts looking for a remedy. Among the handful of recently filed cases, Achte/Neunte Boll Kino Beteiligungs Gmbh & Co KG and West Bay One, Inc. have filed copyright infringement lawsuits against thousands of anonymous doe defendants for the films Far Cry and The Steam Experiment a/k/a The Chaos Experiment, respectively – U.S. District Court for the District of Columbia Case Nos. 1:10-cv-00453-RMC and 1:10-cv-00481-RMC.

However, these cases recently came under attack by “amicus” organizations claiming to protect the rights of the doe defendants. The Electronic Frontier Foundation, Public Citizen, American Civil Liberties Union Foundation, and American Civil Liberties Union of the Nation’s Capital were permitted to enter the case as amici curiae in their effort to quash subpoenas served on various internet service providers that seek the identifying information of the doe defendants. These organizations argued that the plaintiffs were not entitlement to discovery of the identities of the doe defendants because (1) the court lacked personal jurisdiction, (2) all the doe defendants were improperly joined, and (3) the First Amendment required a heightened showing from the plaintiffs to obtain the discovery.

In a very unusual step the court, Honorable Judge Rosemary M. Collyer presiding, considered these arguments and held a lengthy hearing allowing amicus parties to brief the issue and appear in person presenting oral argument. In the end the court rejected all of the amicus arguments and allowed the plaintiffs to proceed with their cases as styled. The court summarily dismissed the First Amendment argument, noting that the doe defendants’ alleged conduct is not speech but rather the act of illegal copying and distribution of copyrighted material. The court considered significantly more argument when it came to the interplay of personal jurisdiction and joinder.

The court was not persuaded by the amicus organizations’ attempts to summarily determine personal jurisdiction for each doe defendant. The amicus organizations presented the same argument, and nearly identical declaration, that they supplied in Sony Music Entm’t Inc. v. Does 1-40, 326 F. Supp. 2d 556 (S.D.N.Y. 2004), where that court similarly rejected the personal jurisdiction argument. As argued by the Thomas Dunlap for the plaintiffs, the offered technique of looking up the doe defendants’ IP addresses on publicly available databases provided a “likely” venue for the doe defendants, at best, and by no means presents sufficient evidence for anyone to determine the personal jurisdiction of any given doe defendant. Despite third party Time Warner’s statements that it had no clients in the Washington, DC jurisdiction, Judge Collyer further agreed with Dunlap’s two part argument that the nature of torrent file-sharing means that computers across the country simultaneously share information on one file by the thousands thus blurring the jurisdictional lines.

Similarly, the court did not agree that the doe defendants had been improperly joined at this stage of the lawsuit. Judge Collyer followed her colleague’s opinion, Honorable Judge Colleen Kollar-Kotelly, in Arista Records LLC v. Does 1-19, 551 F. Supp. 2d 1 (D.D.C. 2008), that determination of the joinder issue is premature without first knowing the doe defendants’ identities and the actual facts and circumstances associated with their conduct.

Overall, the court recognized that the plaintiffs have a very legitimate interest in protecting their copyrighted materials and that the court has to take into account protecting the legal rights of the plaintiffs. To allay any concerns that the doe defendants would not be aware of the claims against them and that their identifying information was being sought from their ISPs, the plaintiffs agreed with the court that the ISPs would provide a standard notice.

Recruiting Highlights-Nicholas A. Kurtz

Joseph Leon — Fri, 27 Aug 2010 02:39:39 +0100

Nicholas A. Kurtz joined DGW as an associate in March 2010. Nick is a welcome addition to DGW's growing entertainment law practice area. Prior to joining the firm, Nick was a senior associate at a boutique litigation firm in Beverly Hills. There he specialized in entertainment, class actions, and complex business litigation matters and was selected for inclusion as a Rising Star in the 2009 Southern California Super Lawyers.

For example, Nick led the prosecution of federal class actions against the talent unions related to unpaid foreign levy monies (Richert et al. v. WGA; Webb v. DGA; Osmond v. SAG) and was awarded Rule 11 sanctions in securing the dismissal of a corporate defendant related to the promotional campaign of former Beach Boys artist Brian Wilson in a British newspaper. Nick also participated in arbitration cases, including against Marvel for credits on the films Ironman and The Incredible Hulk and the musical band Augustana for unpaid commissions, and previously handled intellectual property and corporate matters for the Academy of Country Music.

Nick earned a B.A. in Communications, Legal Institutions, Economics, and Government from American University in Washington, DC where he was a Presidential Scholarship recipient and a member of the School of Public Affairs Leadership Program and nationally ranked Division I varsity soccer team. He earned his J.D. from Loyola Law School, where he served as the Chief Research Editor on the Loyola of Los Angeles Entertainment Law Review and garnered a First Honors Award in his Title IX Seminar course.

HISTORIC CASE RECAP- Only Published Virginia Opinion on State Courts Jurisdiction over Federal ...

Joseph Leon — Fri, 27 Aug 2010 02:34:51 +0100

Can a plaintiff bring a claim for trademark infringement under the Federal(the "Lanham Act") in a Virginia state court? Up until 2006, no Virginia court had ever considered this issue, which involves the interplay between state and federal law.

In 2006, DGW, representing restaurant owners whose business model and brand were being copied by former employees that started up a competing restaurant, filed a lawsuit in Fairfax County asserting federal trademark infringement, state law trademark infringement, as well as other related claims. The defendant asserted that the Virginia court lacked jurisdiction to adjudicate the federal trademark claim and filed a motion to dismiss that claim.

Dunlap argued that, under federal law, state and federal courts are presumed to have concurrent jurisdiction over claims based in federal law (meaning that such a claim can be brought in either court), unless the federal law clearly states that the federal jurisdiction is exclusive. Although the federal law does provide for exclusive jurisdiction in federal copyright claims and federal patent claims, there is no such provision for federal trademark claims. The court agreed and denied the motion to dismiss, following several other states in concluding that state courts do have concurrent jurisdiction over federal trademark claims.

To date, this is the only published decision of any court in Virginia addressing this issue. This historic case is cited as a definitive statement of Virginia law in section 32:1 of Professor J. Thomas McCarthy's essential treatise on the law of trademarks and unfair competition.

DGW Overcomes EFF and ACLU s Attempt to Stifle Filmmakers Campaign against Internet Piracy

Joseph Leon — Fri, 27 Aug 2010 02:24:18 +0100

DGW recently scored a major victory in its ongoing fight on behalf of filmmakers to combat internet movie piracy. The firm, with the assistance of the intellectual property rights consortium The US Copyright Group, has filed several suits on behalf of the creators of The Hurt Locker, The Gray Man, Call of the Wild, and other titles. Because the people downloading these works on the internet can only be identified by their Internet Protocol ("IP") addresses, the only way they can be identified is by filing a "John Doe" complaint against them and then seeking their identifying information by serving subpoenas on those users' Internet Service Providers.

Although not a party to the case, the Electronic Frontier Foundation, the American Civil Liberties Union, and Public Citizen filed a brief with the DC District Court that is trying to stop these cases, seeking to prevent the filmmakers from enforcing their rights through these "John Doe" suits. The EFF asserted three reasons why they believe the suits are improper. First, they argued that all of the Doe defendants should not be grouped together in one lawsuit. Second, they argued that the District Court does not have jurisdiction over all the Doe defendants. And third, they argued that the infringers have a First Amendment right to speak anonymously on the internet and that such free speech fights should be extended to the act of piracy.

After full briefing on the issues, Judge Rosemary M. Collyer summoned the parties for a hearing to discuss EFF's arguments. Following oral argument, the Judge ruled in DGW's favor on all three points. The Judge found EFF's argument about a First Amendment right to infringe copyrights to be without merit. The Judge also dismissed EFF's personal jurisdiction argument as premature because, before the Doe defendants are identified, the Court and the parties have no way of determining whether jurisdiction is proper in this Court.

Judge Collyer spent the most time discussing the issue of joinder-whether it is proper to join numerous Doe defendants in a single case. EFF argued that each download is a discrete act of infringement that should be the subject of a separate lawsuit. DGW replied that EFF's position ignores the nuances of the BitTorrent file-sharing technology that was used by the infringers in these cases. Using BitTorrent software, an infringer connects to a group of hundreds or thousands of other users, all of whom are both uploading and downloading from one another simultaneously. Therefore, DGW argued, all of the Doe defendants were acting in concert in their infringement and were therefore properly joined in the same case. The Judge agreed and allowed DGW to proceed with its cases.

DGW Launches Catoctin Creek Distilling Company s Private Placement

Joseph Leon — Fri, 27 Aug 2010 02:16:24 +0100

Catoctin Creek Distilling Company is the first family-owned distillery in Loudoun County, Virginia since prohibition, producing award winning, high quality organic spirits and liqueurs. Catoctin Creek's products are flying off the shelves of regional VA ABC stores, and the company is struggling to meet the demand for its products. Accordingly, Catoctin Creek is currently seeking investors to raise approximately $3M for purposes of purchasing land to build a production facility that will enable it to double its production capacity. The company hopes to acquire land in Purcellville, Virginia, where it is currently located, and to construct a facility that will include a tasting room. A portion of the funds raised will also be used to acquire another still and other capital equipment.

DGW is currently assisting Catoctin Creek with a private placement offering of membership (ownership interests) in the company that will be made available to qualified investors. In short, the company is selling 49% of its ownership interests to raise the $3M, and a full business plan is ready and can be obtained from the company on a confidential basis. The legal documents for the private offering should be finalized in about 2-3 weeks. Interested investors can email info@catoctincreek.com for more information. You can read about Catoctin Creek and its products at http://www.catoctincreekdistilling.com/

DGW Helps Bring Baseball to Loudoun County

Joseph Leon — Fri, 27 Aug 2010 02:14:48 +0100

DGW is excited to be working with the newly named Loudoun baseball team to bring a minor league baseball team to Loudoun County, Virginia. The team's new stadium in Ashburn-Kincora Ballpark-has been approved by the County and is scheduled to be complete some time in 2011.

Advocates for Fundamental Property Rights of Homeowners in the Face of an Overreaching HOA

Joseph Leon — Fri, 27 Aug 2010 02:05:13 +0100

We all know that a homeowners association (HOA) can create rules regulating the uses of property within the association, but can an HOA amend its governing documents to alter fundamental property rights? This is the issue that has arisen in a litigation pending in Fairfax County, which is pending trial. DGW's clients filed suit against the HOA for implementing a discriminatory parking policy that prevented certain association members from parking in the majority of the common area parking spaces. The HOA attempted to avoid liability by amending its Declaration to allow for a discriminatory parking policy and then reenacting the policy under the amended declaration.

The problem for the HOA, DGW argued, is that all of the owners have an easement to use and enjoy all of the common areas equally. An easement is a property right that is recorded in the land records office and attaches to the property, passing from owner to owner. Unlike a rule about what colors homeowners can paint their houses, the HOA's amendment actually purported to alter this fundamental property right without the consent of the homeowners. DGW argued that, if an HOA could alter easement rights by amending a declaration, there would be nothing to prevent them from redrawing property lines or commandeering a portion of a homeowner's house or yard through such an amendment. In striking the HOA's affirmative defense based on the easement, the Fairfax Judge agreed with DGW and ruled that the amendment was unenforceable.

Firm Partner Named as Top 100 Power Lawyers by Hollywood Reporter

Joseph Leon — Fri, 27 Aug 2010 01:54:56 +0100

Tom Dunlap was recently selected by the Hollywood Reporter as one of Hollywood's 100 most powerful lawyers in litigation in the July edition of the Hollywood Reporter"2010 Top 100 Power Lawyers."

Here's what the Hollywood Reporter had to say in its profile of Tom:

Oct. 16 Casino Night Funds Cy Ranch Sports

Joseph Leon — Fri, 27 Aug 2010 01:42:33 +0100

Cypress Ranch athletic boosters are planning a “Boots & Bling” casino night 7 p.m. Oct. 16 to raise money for student athletes.

The event will include a dinner, Texas Hold ‘Em tournament, blackjack, craps and roulette. And while not at the gaming tables, guests can dance and bid on silent auction items.

Tickets are $40 and are available at the Mustang Corral, from any casino night committee member and at www.cypressranchmustangs.com.

Rescue Phone

Scott Tran — Sat, 21 Aug 2010 00:24:09 +0100

In a decision that is now often cited and which was hailed as one of the leading antitrust decisions of 2007, Thomas Dunlap successfully argued the merits of Rescue Phone, Inc's Antitrust claims against a competitor in a patent infringement case. The result, as published by the American Bar Association's Antitrust Journal was that the Attempted Monopolization Claim need not allege "market share". The substance of the ruling is detailed below as reported in the ABA Antitrust Journal.

In Rescue Phone, Inc. v. Enforcement Technology Group, Inc., 2007 WL 2045514 (E.D. Va. July 9, 2007).

The defendants argued that Rescue Phone failed adequately to plead a relevant market, for two reasons. First, the defendants argued that the difference between the "hostage negotiation telephone systems" sold by Rescue Phone and the "hostage negotiation systems" sold by ETGI caused Rescue Phone's claim to fail as a matter of law. Id. at *3. The defendants' systems allegedly include video and audio technology in addition to the standard telephone communication allegedly offered by Rescue Phone, the defendants argued, and the parties' products therefore occupy separate markets. Id. Accepting the plaintiff's allegations as true, namely that both ETGI and Rescue Phone deal in the same product, the court held that both ETGI and Rescue Phone are active in the same product market, despite Defendants' "semantic argument" regarding the omission of the word "telephone" in Rescue Phone's complaint. Id.

Second, the defendants challenged Rescue Phone's alleged geographic market. Id. The complaint alleged in some portions of the complaint that the relevant geographic market was nationwide, and in others that it was limited to Virginia. Id. The court acknowledged ambiguity in Rescue Phone's complaint, but nevertheless held Rescue Phone's relevant market allegation to suffice, because either alleged market separately would suffice. Id.

The defendants next argued that Rescue Phone failed to allege a dangerous probability of monopolization. Id. at *4. Rescue Phone had not alleged that the defendants had any particular market share. The court held, however, that the defendants cited no precedent for the proposition that Rescue Phone must allege market share as part of its attempted monopolization claim. Id. The court also held that a weak showing of market power can be offset by more compelling evidence of monopolistic intent or anticompetitive conduct. Id. (citing M & M Med. Supplies & Serv., Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 168 (4th Cir. 1992)). Here, Rescue Phone had alleged that (1) the defendants acted intentionally, fraudulently, and recklessly in obtaining the patent at issue; (2) ETGI's attempted enforcement of its fraudulently obtained patent threatened market competition by dissuading consumers from purchasing Rescue Phone's products; and (3) ETGI made statements to consumers in the relevant market that Rescue Phone does not have the right to sell its products in violation of ETGI's patent, which damaged Rescue Phone's business. Id. The court held that these allegations sufficiently pleaded anticompetitive conduct and specific intent. Id. While noting "the failure to allege market share weakens the claim considerably," the court denied the motion to dismiss. Id.

The court noted that because Otto is an employee of ETGI, Rescue Phone probably could not prove that he has any market share aside from that held by ETGI. Id. It also held, however, that a claim for attempted monopolization does not automatically fail despite alleging a particular defendant's low market share. Id. (citing M & M Med. Supplies & Serv., Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 168 (4th Cir. 1992)). The court thus concluded that Rescue Phone adequately stated a claim for attempted monopolization against Otto and denied the defendants' motion to dismiss. Id.

Are you down with Brown?

Greg Rivera — Tue, 15 Jun 2010 18:24:59 +0100

Competition between FedEx and UPS has been heating up in recent months. This is a good thing in a free market economy, promoting customer service, fair pricing, and better services, right? Well maybe, but that's not what's at issue here. This recent competition has little to do with actual services provided by the parcel delivery giants. This battle is about unionization, and is being fought in the halls of the house and senate by hired professionals. Sometimes referred to as congressman and senators, the label mercenary might fit just as well if you accept the loose definition as "someone who fights for monetary gain without regard to political principles."

The core issue is whether FedEx Express should be placed under the National Labor Relations Act (NLRA)or continues to be governed by the Railway Labor Act (RLA). Since its operations began in 1973 most FedEx Express workers have been governed under the RLA.

FedEx Express is the world's largest airline in terms of freight tons flown and the world's second largest airline in terms of fleet size. So why would a company who's business is primarily carried out in the air be governed by a "Railway" Labor Act, and why does it matter?

The answer lies in what the Railway Labor Act was originally intended to accomplish. The Act, originally passed by the U.S. Congress in 1926, was intended to govern railroad labor negotiations and limit economically crippling strikes. As transportation systems evolved, congress amended the act to cover airlines and express carriers, which are the dominant national transportation systems of today.

The original Railway Labor Act was a response to several local strikes which effectively bottle-necked the entire national railway system. In a balancing act between workers rights to unionize and the need for the uninterrupted flow of goods, Congress adopted the position that the workers could unionize on a national level, but not at a local level. This compromise would prevent companies from being held hostage by a local union which could stop the flow of goods on the entire system.

FedEx started as an air delivery company. Although it has over 40,000 ground delivery vehicles, FedEx contends, and the Courts have agreed, that these are an integral part of the air cargo business and therefore should remain under the Railway Labor Act.

On the other side, UPS started out as a ground delivery company and has been under the National Labor Relations Act, which allows for local unionization. UPS claims that FedEx Express is essentially engaged in the same business, and should be covered under the same set of rules. FedEx Express claims that their business is different. They are primarily an air carrier with ground support while UPS is primarily a ground carrier with air support.

FedEx has three main business segments, FedEx Express, FedEx Ground, and FedEx Freight. FedEx Express operates a separate and distinct network for air shipments. They are a U.S. airline and are properly governed by the Railway Labor Act.

FedEx Ground and FedEx Freight are both ground delivery providers and are under the National Labor Relations Act, just like UPS. It seems that if UPS were truly interested in playing under the same set of rules they would recognize the distinction.

But this battle isn't really about a level playing field. This battle is about using political power, an all out public relations campaign, and a FAA Reauthorization Bill to change FedEx Express' status so that their costs of doing business will increase. FedEx Express fears, and UPS apparently believes, that if FedEx Express is placed under the NLRB that local unionization could interrupt their business.

FedEx Express has threatened to cancel the delivery of 15 Boeing 777Fs if the House version of the FAA Reauthorization Bill is signed into law. Of course businesses will do what is in their best interest. Investing in aircraft may be more risky with the possibility of localized strikes, but this may be a risk FedEx Express would be willing to take.

In the FAA Reauthorization Bill the House version seeks to single out FedEx Express by including the Express Carrier Employee Protection Act. The Senate version does not have this provision. Apparently the House wants to use an "Aviation" bill to redefine the second largest airline, in terms of fleet size, as something other than an "Airline".

Congress tries spinning their bills with names like the Patriot Act, the Express Carrier Employee Protection Act, and the Affordable Health Care Act. Sadly, the list of euphemistic names for legislation could probably fill a book. Congress has also become famous for including totally unrelated items in the same bill.

Both FedEx and UPS have a lot at stake. You can bet that they have hired some of the best attorney's, lobbyist, and marketing companies they can find to protect and promote their interest. At Dunlap, Grubb, and Weaver we focus on Corporate and Finance Law. We stay abreast of current legislation so that we may provide your business with the best advice possible. We are in the business of protecting and promoting your business.

For both sides of the UPS/FedEx debate visit

http://www.pressroom.ups.com/Recently+Added/Why+the+Railway+Labor+Act+Must+Be+Amended and http://fdx.client.shareholder.com/releasedetail.cfm?releaseid=388559 or Google "FedEx Ups" .

Chapter 7 or 11, what's the right choice for your business?

Greg Rivera — Wed, 09 Jun 2010 18:30:36 +0100

The number of business bankruptcy filings in May 2010 declined slightly over the previous month. However, business bankruptcy filings were up 38% in 2009 over 2008. With the current economic situation, more and more businesses are filing. The question is, "Should your business file Chapter 7 or Chapter 11 Bankruptcy?"

Bankruptcy is one of the few business practices specifically mentioned in the U.S. Constitution. The Founding Fathers recognized that some protection for debtors was necessary in order to foster a certain degree of risk taking by entrepreneurs. In the majority of cases, the petition is filed by the debtor (voluntary bankruptcy), although creditors can file a bankruptcy petition against a business that has continuously made late payments and/or which the creditor believes has become insolvent (involuntary bankruptcy).

The primary purpose of bankruptcy is to implement a court-supervised plan to deal with debts that cannot be paid in full. There are two major types of bankruptcy available to business owners/stockholders - Chapter 7 (to close the business entirely) and Chapter 11 (to enter into a repayment plan while continuing to operate the business).

In individual bankruptcy, the debts of the petitioner are discharged. This is not true, however, for businesses. Corporations do not get a fresh start in a Chapter 7. For this reason, a debtor may choose to look to the state's dissolution statutes rather than filing Chapter 7 bankruptcy. In most cases this would be better for a business wishing to cease to exist.

There are a few instances in which a business might choose to file Chapter 7 rather than dissolution. One reason would be to protect friendly creditors from the actions of more aggressive creditors. If one creditor is essentially wrecking the asset value of the entire company through garnishment, repossession, or attachment, a Chapter 7 bankruptcy would create the climate for a more fair and orderly distribution of the remaining assets. This could be very appealing to small businesses where close friends or family members have made investments in the company.

Reorganization under Chapter 11 is primarily for businesses capable of survival if their debt overhead were drastically reduced. It is also an excellent device for businesses to free themselves from most contractual relationships (e.g., leases) that are not profitable. Chapter 11 gives the business an opportunity to reset itself free from the collection efforts of its creditors.

Reorganization will not help a failing business model. If a business' production costs exceed its gross sales, bankruptcy will not help. Bankruptcy restructures debt and terminates unprofitable business relationships. It does not allow businesses to keep their doors open to lose more money in the future. In businesses that have few assets, poor cash flow, or are merely extensions of the owner's skills and personality, it may not pay to reorganize.

If your business is facing serious financial struggles and you are wondering how to fix the problems, there are several bankruptcy and non-bankruptcy options available. An experienced attorney can explain your options and help you determine which is best for you. At Dunlap, Grubb, and Weaver we have attorneys and staff with the experience and expertise necessary to assist you in choosing the best solution for your business.

Copyright Holders Fight Back

Greg Rivera — Wed, 02 Jun 2010 20:45:52 +0100

Dunlap Grubb & Weaver was engaged by the US Copyright Group to go to battle once again against illegal Internet movie piracy. “The Hurt Locker”, a 2009 Oscar-winning war film set in Iraq and produced by Nicolas Chartier at Voltage Pictures, is at the center of this latest lawsuit.

The film had its widespread United States release in July 2009. Despite winning six of the nine Academy Awards for which it was nominated, the film grossed just $16 million. Nevertheless, there have been tens of thousands of illegal downloads of this film by Internet users, which conduct constitutes clear copyright infringement. This film was also the victim of widespread pirating within the United States five months before the film was released here. The copyright owner, Voltage Pictures, believes this is central to the movie’s lackluster performance within the U.S.

TorrentFreak.com, a site focusing almost exclusively on news about BitTorrent, reported on February 8th, 2010 that “The Hurt Locker” was the fourth most pirated movie during the previous week. This is one statistic that has the rightful owners of “The Hurt Locker” reeling. While the exact number of those illegally downloading the movie is not certain, the number could reach 50,000-75,000 across all different platforms of file sharing.

There are those who apparently believe there is nothing wrong with movie pirating. The tone on some web sites on blogs demonstrates this. They bash the RIAA, they talk about better ways to steal the movies, and they even slam the movie they just watched for free.

Some individuals would rather pirate a movie than pay for it based on their skewed “principles”. Some think it’s their right, while others pirate movies just because they can. Still others download and watch the movies because it cheaper than renting or going to the theater.

Regardless of their motivations for pirating these movies, they all have one thing in common; they are violating U.S. copyright law. It is our hope that reason will prevail when the settlement offers go out on “The Hurt Locker”. For those who don’t, we won’t hesitate to defend our client’s rights using all legal means.

This will be the 10th or 11th movie we have prosecuted for our clients. The facts are on our side, the law is on our side, and we have a team of intellectual property lawyers who are experienced in prosecuting these cases.

Victory for Virginia Co-tenants on Pro-Rated Share of Intangible Improvements

Thomas Dunlap — Sat, 08 May 2010 02:54:52 +0100

In a recent case of first impression, argued and won by Thomas Dunlap and Mike Whitticar of Dunlap, Grubb, and Weaver, the Supreme Court of Virginia handed down an opinion which, for the first time, gave co-tenants the leverage they need against their uncooperative counterparts when making intangible improvements to their joint property.

The Court ruled that a co-tenant must pay for her share of improvements to real property even if she did not agree to the improvements, as long as the improvements increased the value of the property and that increase is realized through a subsequent sale.

Our firm defended three of the four siblings against the uncooperative sister in this case.

Four siblings owned a large plot of land as co-tenants in common located in Loudoun County, Virginia. Three of the four siblings paid for plans to subdivide the land into 68 plots in an amount of approximately $700,000. With the approval for the subdivision, the property was valued $8,895,000 and at only $4,800,000 undivided. Before the subdivision was built but after the plans were approved the market declined and the property was ultimately sold to a third party for $6,000,000.

The lone holdout, a sister who spends part of her year in Paris, initially opposed plans to subdivide the property. Her preference was to divide the 350-acre family farm into four equally valued parcels through partition in kind. The other three siblings had less interest in owning a 87 acre piece of the family farm so they sought to maximize the land’s potential value.

After discovering the land had 71 approved drain fields, the three siblings hired an engineering firm to complete surveys and other engineering work necessary to move forward with a subdivision. This move proved to be a wise use of the land as it nearly doubled the value from $4,800,000 to $8,695,000, and at a cost of slightly less than $650,000.

The Circuit Court of Loudon County eventually ordered a sale of the property, which yielded $6,000,000 from a developer who planned to go forward with the approved subdivision. Even though the property sold for $1,200,000 more than it would have without the improvements, the sister refused to pay her share of the $650,000 cost of the plans. She appealed the Circuit Court’s allocation of approximately $150,000 worth of costs to her share.

She argued that she should not have to pay for the work because it did not represent a “permanent” or “tangible” improvement to the property. Our firm was able to convince the Court otherwise.

Previously, the court had held that tangible improvements, such as a barn or physical improvements to a residence are permanent improvements and, therefore, chargeable against a co-tenant in a partition suit (a sale of land ordered by a court when there is discord between co-tenants and the owners cannot agree on the use, improvement, or disposition of the property) even if the co-tenant did not assent to the improvement. This has been undisputed law for some time. The basis of these decisions was the “permanent improvement” principle.

The court has also applied the “permanent improvements” doctrine to easements over one parcel of property to another. The court determined that the easements, although not physical or tangible, were sufficiently “permanent” to require co-tenants to pay their share of the cost.

Courts have previously held that summer plowing and weeding of agricultural land, even though it could be reversed through later neglect, increased the value received during a later partition of the land, so it should be treated as an improvement and the co-tenant should be required to pay a proportionate share of the cost. The basis for this decision was the principle that the increased value was received by the co-tenants at the time of the partition sale and, therefore, the improvement became “permanent” at that time.

It is now clear that improvements need not be tangible nor do they need to be permanent to add value to the land. If the value of the improvements is realized at sale the courts will force a co-tenant to pay their share of said expenses.

Our firm was pleased to represent the Christensen’s. It would have been an injustice to allow the one sister to benefit from the engineering work without also paying for her share of that work.

eDiscovery Implications, Duties and Consequences

Thomas Dunlap — Tue, 18 Aug 2009 05:00:00 +0100

“The process of discovery is very simple.” Not so, Mr. Thoreau. While legal discovery may have been a simple matter back when the only written communications were those of an official or handwritten nature, times have changed. Before the advent of the computer things said or done were safely whispered or verbally discussed behind oak doors. In the twentieth century, things began to be recorded, stored, and often, inescapably archived on the hard drive memories of machines. This phenomenon has created a new body of evidence on which to predicate and prove or defend legal claims around the world. Bring together the electronic age with lawyers and senior executives hidebound in the tradition of pen and paper, and it transpires that many in the world legal community find themselves out of their depth.

Why understanding ESI is important

Electronic discovery, or colloquially “eDiscovery” has fast become the most expensive, most overlooked and least adapted to issue in modern commercial litigation. This paper is a brief entré for every business manager and their attorneys into the world of electronically stored information (“ESI”) and the danger it poses to the unwary in the context of litigation.

This paper is not aimed solely at businesses based or incorporated in the United States. With each passing year, a combination of political and market factors has created a global economy with fewer boundaries and greater access to US markets for foreign companies than at any previous point in US history. These factors include the global proliferation of high-speed data services, the expanding borders of the European Union, free trade agreements between the United States and an unprecedented number of foreign countries (NAFTA, CAFTA etc. ) and a weak United States currency that has created an inexpensive milieu for foreign companies. The Barrister, a publication for lawyers in England and Wales, recently discussed the issue of eDiscovery (eDisclosure) and the effect of its development in the United States legal system.

The area of E-Disclosure is growing through infiltration from the US and sheer weight of volume of documents being created within the UK and around the world. It is inevitable that the UK judicial system will need to better define practices and procedures in the area. These guidelines will be essential if legal practitioners start to challenge electronic evidence in the same way that their US brethren have since Zubulake. The number of actions filed against corporations is statistically significant. In 2007, 17 percent of surveyed companies reported litigation, while 58 percent reported 1 to 20 actions and 25 percent reported 21 or more actions. While the total number of actions filed had dropped slightly from the previous year, the cost of new litigation is much higher, with 39 percent of respondents being sued for at least US$20 million in the past year, compared to 17 percent in the previous year. For most companies, litigation is a business fact, and an annual expense, and something that appears to be increasingly costlier with each passing year. This increased cost is in no small part due to the increased expenses associated with ESI preservation, production and sanctions for failing to preserve or produce relevant evidence.
It is now necessary for the modern and organized company to understand its own ESI; have and apply a formal policy for retention of ESI under a ‘good faith’ records management programme; identify ‘not reasonably accessible’ systems, and have a litigation team prepared to manage eDiscovery issues in the legal context, including verifiably enforced formal litigation hold and data preservation procedures.
The Sedona Principles
I. The Sedona Principles

The Sedona Principles were written by a number of private attorneys as a means to deal with eDiscovery. Three versions have been issued. The first two versions of the Principles were issued in 2004 and 2005, prior to the final changes in the Federal Rules of Civil Procedure. However, the first version was issued almost simultaneously with the Proposed Federal Rules changes issued by the Civil Rules Advisory Committee in August of 2004. A post Federal Rules changes edition was issued in June of 2007. The most recent commentary on the Federal Rules of Civil Procedure was issued by the Conference in March of 2008. The initial conference and first version of these Principles were crafted and issued contemporaneously in the context of Zubulake.

The Principles consist of fourteen proposed “best practice” recommendations covering the full range of e-discovery issues, together with commentary on their application. The Principles can be located on the organization’s website at http://www.thesedonaconference.org. The Principles and commentaries are useful tools and have been cited by Federal Courts in making decisions concerning eDiscovery. However, the full range of these items are beyond the scope of this paper. The final authority and best practice requires consideration of the Federal Rules of Civil Procedure, 2006 as amended.

The rulings in various Federal jurisdictions and the way judges across the United States handle the law has differed greatly in the past, although courts have began to more fully understand the nature and importance of ESI, especially since the rewriting of the Federal Rules of Civil Procedure (‘FRCP’), effective December 1, 2007.

The FRCP changes that specifically relate to ESI include: Rule 26(a,) duty to disclose ESI and specific right to discovery ESI; Rule 26(f), requirement to meet-and-confer with opposing counsel to resolve eDiscovery issues; Rule 26(b)(5), inadvertent production of privileged information through eDiscovery (‘claims of privilege’ and ‘clawback agreements’); Rule 26(b)(2), unduly burdensome ESI with respect to discovery, and Rule 37(f), protection for inadvertent records destruction in the course of ‘good faith’ records management operations
Even before the recent changes to the Federal Rules of Civil Procedure, courts began to impose strict record protection duties on corporations and their outside counsel. This means that both in-house and outside counsel must be keenly and specifically aware of not only the duties imposed by the new Federal Rules, but also of the potential sanctions and costs to companies that are not prepared. These rules changes with respect to ESI were finalized after the Zubulake decision and owe much of their genesis to that line of decisions.

Even before the recent changes to the Federal Rules of Civil Procedure, courts began to impose strict record-protection duties on corporations and their outside counsel. This means that both in-house and outside counsel must be keenly and specifically aware of not only the duties imposed by the new Federal Rules, but also of the potential sanctions and costs to companies that are not prepared.

These rule changes with respect to ESI were finalized after the historic Zubulake decision and owe much of their genesis to that line of case law.

The importance of Zubulake
In the short space of less than two years (2003-2004), Judge Scheindlin of the Southern District of New York Federal District Court issued detailed, definitive and still relevant opinions that changed the way lawyers, businesses and judges looked at eDiscovery. The Zubulake series of decisions in the matter of Zubulake v. UBS Warburg, commonly referred to as Zubulake I to VII, serve as a foundational interpretation of the duties imposed by the Federal Rules with respect to electronic discovery both from the perspective of who owes a duty to preserve ESI, to what extent ESI needs to be preserved and importantly, who bears the costs in respect of these duties.

The issues in the first three Zubulake decisions centered around plaintiff’s request for “[a]ll documents concerning any communication by or between UBS employees concerning the plaintiff,” a fairly innocuous and common discovery request in employment discrimination cases. UBS produced approximately 350 pages of documents, of which approximately 100 pages comprised of company e-mails. Zubulake herself, in possession of at least 450 pages of e-mail, demanded additional production from the company’s archival media sources. The defendants cited the Rowe decision in the Southern District of New York, which described eight equally weighted cost-shifting factors considered in the context of the production of electronic records where unduly burdensome requests were made. The significance of Zubulake I was the modification the court made to this decision, and the fact that most courts, after Zubulake I, applied the Zubulake I version of the cost shifting analysis. Zubulake I reduced the number of factors to seven, and departed from Rowe by holding that the factors were not to be weighed equally. The factors are: (1) the extent to which the request is specifically tailored to relevant information; (2) the availability of such information; (3) the total cost of production compared to the amount in controversy; (4) the total cost of production compared to the resources available to each party; (5) the relative ability of each party to control costs and its incentive to do so; (6) the importance of the issues at stake; and (7) the relative benefits to the parties of obtaining the information. The first two factors were to be afforded the greatest weight, and the last factor to be given the least.

The court in Zubulake I did not apply the cost shifting factors, but rather ordered UBS, at its expense to produce all responsive e-mails on its optical disks or on its active servers and from any five backups tapes selected by Zubulake. The court then required UBS to prepare an affidavit with search results and a summary of the costs of the search. The court then indicated that it would review the contents of the search and conduct the cost-shifting analysis described in this important opinion. The importance of Zubulake is the in detailed explanation of the cost shifting analysis, which the Judge later applied in Zubulake III.

In Zubulake II the court reviewed the plaintiff’s ethical obligation to report alleged securities violations that may have been disclosed in a deposition from an individual with information about the defendant’s e-mail retrieval and retention policies. In another win for Ms. Zubulake, the court determined that she did not have an obligation to report the alleged violations. This decision is not particularly relevant to this line of cases, except insofar as it touches on eDiscovery. A couple of months later, the court applied the weighted cost shifting analysis it had described in Zubulake I. As required by the court in Zubulake I, UBS had completed a sampling of back-up tapes and optical drives to determine relevancy and the cost UBS would incur to restore e-mail from the tapes, arguing that the cost of production should be shifted to Ms. Zubulake. After reviewing the data the court found that cost shifting was appropriate only when inaccessible data is requested. The court determined that the parties had to share the burden of the production cost, but that UBS would absorb the lion’s share, paying seventy-five percent of such costs as well as for “any costs incurred in reviewing the restored documents for privilege.” After the order of the court in Zubulake III, requiring UBS to produce archived e-mails, and not incidentally, pay for most of the work, the plaintiff discovered that some back-up tapes and particular e-mails had been seemingly intentionally deleted and thus sought sanctions against UBS for its failure to preserve the same. Which brings us to Zubulake IV. While Ms. Zubulake did not file suit until April of 2001, Judge Scheindlin noted at 217, that “. . . everyone associated with Zubulake recognized the possibility that she might sue[.]” Based on this knowledge, the court found the Defendant had an affirmative duty to preserve potential litigation evidence and should have known the information would be relevant to future litigation. This court’s decision places a heavy burden on potential litigants.

The court found that although UBS had a duty to preserve the destroyed tapes and was therefore culpable, Zubulake could not demonstrate the tapes would have supported her claims. Nevertheless, the court ordered UBS to bear the plaintiff’s costs for new depositions of certain witnesses to inquire into the purpose of the destruction of the back-up tapes and any newly discovered emails.

Zubulake V inevitably followed. The production ordered by the court in Zubulake IV took longer than it should have. As a result, the plaintiff discovered that the defendant had actually willfully deleted e-mails in an effort to cover-up adverse evidence. Judge Scheildin granted the plaintiff’s motion for sanctions and ordered UBS to pay her costs. That is not the chilling or innovative decision of Zubulake V (depending on who you are, of course). The court also found that defense counsel was jointly liable for the document destruction as counsel had failed in its duty to locate relevant information, to preserve that information, and to produce that information in a timely manner. Judge Scheindlin stated [page number please] ‘[c]ounsel must take affirmative steps to monitor compliance so that all sources of discoverable information are identified and searched[,]’ and thus attorneys are obliged to ensure such documents are discovered, retained, and produced. The court further imposed a duty on counsel to guarantee that relevant documents are preserved through a ‘litigation hold’ on the documents, requiring attorneys to communicate the need to preserve, and arrange for the safe storage of relevant archival media.

Judge Scheindlin cited a line from the film Cool Hand Luke, ‘What we’ve got here is a failure to communicate.’ She then went on to describe in varying levels of detail, what amount to six guiding principles that counsel should abide by to avoid sanctions:

1. Actively monitor compliance so that all sources of discoverable information are identified and searched, noting that it is NOT sufficient to advise the client of a litigation hold and then expect the client to retain, identify and produce the relevant evidence; 2. Become familiar with the client’s document retention policies and computing infrastructure, speaking with the client’s key IT personnel to do so; 3. Communicate with all key players involved in litigation, inquiring as to how and where they store their information, and advising them of their preservation of evidence obligations; 4. Ensure that a “litigation hold” is implemented whenever litigation is reasonably anticipated and periodically reissue the notice; 5. Communicate directly with key players; and 6. Instruct all employees to produce responsive electronic files and ensure that relevant backup tapes or other archival media are safely stored. Zubulake V is the first time a court has explicitly detailed the requirements for lawyers in managing preservation and production of ESI.

Zubulake V is the first time a court has explicitly set out the detailed requirements for lawyers in managing the preservation and production of ESI.
There were two more Zubulake opinions, neither of which were particularly significant outside of the Zubulake case. In the final discovery ruling, the court agreed with UBS that the court’s previous ruling on imposing sanctions on UBS for its failure to produce certain e-mails were not relevant to the allegations of discrimination and would unfairly prejudice UBS. Ms Zubulake was only able to raise the discovery matter in examination in chief if UBS introduced evidence as to whether its failure to produce e-mails was reasonable.

At trial, the issue of punitive damages in the matter required the members of the jury to decide whether UBS acted with malice or reckless indifference to Ms. Zubulake’s rights, and further required the jury to consider UBS’s defense that it acted in good faith in an effort to comply with the laws prohibiting discrimination and retaliation. The crux and central supporting theme of Mr. Hubbard’s (counsel for Ms. Zubulake) closing argument for punitive damages centered around the eDiscovery abuse perpetrated by the defendant UBS, which resulted in a punitive damages award of US$20,169,081. The text of the closing speech by Mr Hubbard, (1808 – 1811) is set out below:-

Ladies and gentlemen, the purpose of this proceeding is to decide whether or not you conclude that UBS acted with malice or reckless disregard to Laura Zubulake’s rights in this case, and that is by discriminating against her on the basis of her gender and by retaliating against her.

Now, there is a different standard here. You’ve determined before intentional discrimination and intentional retaliation. The standard here now is different and that is whether or not the men whose testimony you heard here acted with malice or with intentional disregard of those rights.
How do you make that decision? Because they are big words. The judge is going to tell you how you make that decision. The defendants act with malice if you find that the employees knew that the treatment of her and that her termination on the basis of her gender and on the basis of retaliation was in violation of the laws that protect us from those things. And that’s why I asked or Mr. Batson asked every man who is on that stand, did you know when you did this that this was against the law, both federal, state, and city? And everybody said yes. You need to go no further. They acted with knowledge that they were acting in violation of these laws, and, therefore, with malice, as the law defines it in this case.

But there is a lot more than that beyond the witnesses agreeing to it. Their conduct demonstrates that they acted with awareness that they were violating the law. They destroyed the evidence that they knew would reveal their misconduct. They didn’t just inadvertently or negligently delete those e-mails or fail to serve them. They repeatedly failed to preserve those e-mails when their own lawyers told them to save them, their own lawyers. And they did that and the only fair inference from that is they did it to cover up what they were doing and, therefore, with awareness of that they were doing.

Most significantly, they covered up the two that showed the tracks to Mr. Orgill. The first one where he says exit her ASAP doesn’t put him in touch with the rest of the termination process. Okay. It’s a pity. Remember those things were not recovered until the backup tapes were recovered. So the two e-mails that linked Mr. Orgill to the entire episode were not saved, in part by Mr. Varsano. He was on both of those e-mails.
What else did they do? They take all these complaints against Ms. Zubulake that Mr. Chapin is storing, and they put attorney-client privilege on them to hide them from discovery.
What else do they do, worst of all? They come in this courtroom and they don't tell you the truth. And that, again, is part of an effort to conceal or protect themselves from their responsibility for what they did.

For all of those reasons, we say the evidence shows in this case that UBS egregiously, egregiously acted with knowledge of the wrongdoing and with malice and with reckless disregard here, and that they should be liable, therefore, for punitive damages. Laura Zubulake was also awarded US$2,241,009 in back pay and US$6,863,100 in lost future pay by a jury verdict on April 6, 2005 for her complaint alleging gender discrimination and retaliatory firing.

Zubulake and a number of subsequent decisions in US Federal Courts should change the way attorneys think about e-mail, how it is used by their clients, and how it is retained.

Conclusion

It is crucial that lawyers beware and become aware of what ESI is, and when and how it must be protected. It is also necessary to know and understand document retention policies, litigation hold protocols and the ability and willingness of company employees and IT departments to comply with the protocols. Mistakes in this realm are costly and can have significant consequences. IT personnel are highly important, and must be included in every plan, and it is necessary to plan ahead.