Archives for July 2023

July 20, 2023

On June 13, 2023, the New York Court of Appeals reversed the New York Appellate Division, First Department’s decision in The Moore Charitable Foundation et al. v. PJT Partners, Inc. et al. This decision has a significant impact on who can bring claims against employers for employee misconduct suits in New York, particularly when the employer is a financial institution or law firm doing business in New York.

Negligent supervision and retention claims typically occur when an individual takes action against an employer who failed to discipline or terminate an employee whom the employer knew was unsuitable or potentially harmful. Under already established case law, employers owed a duty of care to existing customers of a business. In Moore Charitable Foundation, however, the Court expanded the scope of the employer’s duties recognizing that an employer can be held legally responsible for injuries and damages caused by an employee’s misconduct to prospective customers, even when the employer did not have notice of previous misconduct by the employee.

The majority in Moore Charitable held that, “when an employer has notice of its employee’s propensity to engage in tortious conduct, yet retains and fails to reasonably supervise such employee, the employer may become liable for injuries thereafter proximately caused by its negligent supervision and retention”.

The Court further explained that a “defendant is on notice of an employee’s propensity to engage in tortious conduct when it knows or should know of the employee’s tendency to engage in such conduct”. The Court held the employer in this case had sufficient constructive notice because the employee had engaged “in ‘excessive high-risk securities trading’ from personal accounts during work hours” and “began drinking to excess during the workday”.

Accordingly, an employer in New York could now be found liable for a negligent supervision and retention claim if they (1) actually know of employee misconduct or (2) should have known given the individuals history/prior events showing a propensity to commit a wrongful act.

The dissent argued that the majority decision poses significant threats to financial institutions, banks, and law firms doing business in New York because “permitting all potential customers to sue employers for an employee’s fraud … would result in an unmitigated proliferation of claims”.

To read the full opinion written by Judge Cannataro in The Moore Charitable Foundation et al. v. PJT Partners, Inc. et al., click here.

To read how Castaybert PLLC can assist you with employment law matters, click here.

July 20, 2023

This May in Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Grp., Inc., the U.S. Court of Appeals for the Second Circuit ruled on the availability of damages in cases involving trade secrets under the Defense Trade Secrets Act (the “DTSA”).

The dispute in Syntel involved the theft of a trade secret related to healthcare insurance software against a rival software company. The Second Circuit affirmed the lower court’s finding that Syntel stole trade secrets from TriZetto under the DTSA, but the Second Circuit vacated the jury’s $285 million award for compensatory damages for avoided development costs, i.e., the costs the trade secret holder spent which the thief of the secret saved.

Typically, under the DTSA, avoided costs are recoverable as damages for unjust enrichment. But in Syntel, the Second Circuit vacated the jury’s award of avoided costs, reasoning that such damages are only available when a party’s injury “is not adequately addressed by lost profits”.

The Restatement (Third) of Unfair Competition and most States have adopted a rule that allows avoided costs as a damages measure in trade secret cases. New York is the only state that has not passed a version of the Uniform Trade Secrets Act (“UTSA”) that explicitly allows avoided cost damages. As New York is a major hub of nearly every industry, many are urging New York to finally pass legislation following the USTA and ensure that parties have equal access to equitable remedies.

To read the full opinion in Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Grp., Inc., click here.

To read how Castaybert PLLC can assist you in employment and IP trade secret matters, click here and here.

July 10, 2023

When a company first gets wind of a potential lawsuit, often the first step is to begin implementing a litigation hold.

A litigation hold is a mandate within a company or organization to preserve relevant information. When a company reasonably foresees a lawsuit or investigation, it must begin preserving documents and information. Ensuring a litigation hold is completed thoroughly and effectively is key to satisfying the preservation obligations of litigation.

What must be preserved?

The scope of documents that must be preserved when litigation is foreseeable is often unique to the company, the dispute, and the amount of information stored electronically. Companies usually do not need to preserve the entirety of their information forever. But, when litigation or an investigation is reasonably foreseeable, there is a common law duty to preserve evidence related to the lawsuit. This duty seeks to minimize the spoliation of evidence to ensure all potentially relevant documents are kept and can be used later in litigation.

When should a business reasonably anticipate litigation?

The most challenging aspect of initiating a litigation hold is determining when a duty to preserve arises. Courts have generally found that a business should anticipate litigation when they

Receive notice of a credible threat of litigation or an investigation.
Receive a formal complaint.
Are involved in a pre-litigation dispute (such as receiving a demand or cease and desist letter).
Become aware of an internal complaint or accident.

Implementing and overseeing a litigation hold

When a business first receives a complaint or becomes reasonably aware of a potential legal claim, it should implement a litigation hold promptly. A litigation hold usually takes the form of an instruction given to relevant employees of the company to suspend document destruction, preserve certain information, paper documents, electronic documents, and records that would be relevant to the potential investigation or lawsuit.

A typical timeline of a litigation hold is as follows:

A business receives notice of a threat of litigation or an investigation.
A team within the company is created to oversee the litigation hold.
The team develops a plan by researching the internal document preservation procedures and identifying key personnel who have had access to the relevant documents, records, and information.
Drafting and distributing the litigation hold notice.
Routinely ensuring all pertinent individuals are following the litigation hold by tracking and systematic reminders.
Modifying the hold if new issues arise and lifting the hold when there is no longer a threat of an investigation or litigation.

It is also advisable to meet with any company IT personnel to discuss the accessibility and storage locations of any relevant electronically stored information to ensure full compliance with the litigation hold.

The stakes of failing to preserve information

Even though document preservation can be expensive given the large amounts of physical and electronically stored information, a company must postpone standard destruction processes and ensure the relevant documents are preserved to protect all parties’ right to a fair trial. Failing to preserve the relevant documents exposes the company to risks of significant legal consequences such as monetary sanctions or a default judgment.

To read how Castaybert PLLC can assist you with litigation, click here.

July 5, 2023

At the beginning of a joint session, the mediator will begin with an opening statement to frame the upcoming mediation.

Typically, a mediator’s opening statements will include the following things:

An introduction of all parties in the room engaging in the mediation.
An introduction by the mediator of themselves to provide the parties with context on their background and promote credibility.
A statement to describe their role as a neutral facilitator in the process of mediation, differentiating themselves from the typical courtroom judge.
A note on the confidentiality requirement of mediation.
An overview of the forthcoming mediation process to clarify the procedures and timeline for all parties (such as upcoming joint sessions or private caucuses).
An overview of common practices during the mediation including information gathering, option exploration, and testing of alternatives to find a flexible resolution.
Motivating all parties to honestly self-disclose their goals and position to the others and the mediator.
Suggested ground rules for the joint session including keeping an open mind, letting each party speak, continuous good faith efforts and cooperation, and productive communication to actively search to find common ground.
A reminder of the overarching goals of mediation: finding a mutually beneficial solution for both parties through self-determination.
An encouraging statement on the statistics of mediation, the savings in time and cost, and the likelihood of a win/win settlement.
Taking time to ask the parties if they have any questions.

The mediator’s initial statements at a joint session helps ensure all parties have a clear understanding of the approaching session as it outlines the structure, procedures, guidelines, and goals for the mediation.

To read how Castaybert PLLC can assist you with mediation, click here.