Holiday Travel & Gift Guide 2006 Attorney Obstruction
by user
Comments
Transcript
Holiday Travel & Gift Guide 2006 Attorney Obstruction
f s y o ng er di ov or sc ec 46 Di io R PAGE d Au 2006 Holiday Travel & Gift Guide December 2006 / $4 Los Angeles lawyer Miriam Claire Beezy advises intellectual property owners to adopt more aggressive trademark strategies E A R N MCLE CR E D I T Attorney Obstruction of Justice page 27 GOOD MARKSMANSHIP page 20 PLUS Discovery of Interview Notes page 12 Rescission of Insurance Contracts page 15 Accidental Franchises page 34 Tired of wrestling with your schedule? Get New Time Matters® 8.0 Get your day under control with the newest generation of seamless front office support. In the office or on the go, new Time Matters 8.0 makes it easier than ever to manage your firm’s information and activities to meet critical deadlines and organize client and matter details. Tame unruly calendars, to-do lists, research and billing. Conquer e-mail with enhanced Microsoft® Outlook® synching. Even save critical documents as Adobe® PDFs. All through one system. Password restrictions and time-stamped documents are part of the unparalleled protection Time Matters 8.0 offers your firm. Please enjoy the Paperless Office whitepaper at: A MEMBER BENEFIT OF www.lexisnexis.com/tm8 Or, for more information, call 800.328.2898 Information and Document Management • Client Communication • Calendaring and Scheduling • Billing and more LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. Time Matters is a registered trademark of LexisNexis, a division of Reed Elsevier Inc. Other products or services may be trademarks or registered trademarks of their respective companies. © 2006 LexisNexis, a division of Reed Elsevier Inc. All rights reserved. AL9416 California Aon Attorneys’ Advantage Insurance Program Building the Foundation for Lawyers’ Protection ONE BLOCK AT A TIME The Sponsored Program is Back... And Better Than Ever • A.M. Best “A” rated carrier • Administered by Aon, a long-standing leader in professional liability • Sponsored by the LACBA • Preferred lawyers’ professional liability policy • Secure online application to obtain a quick rate quote Superior Features** Exclusive to LACBA Members • Aggregate & loss only deductible options • Free retiring “Tail” coverage to qualified attorneys • Supplementary payments for defense and loss of earnings • Claims Expense Outside the Limits (CEOL) option • 1, 2, 3, 5, and 6 year and unlimited tail options • 50% Deductible reduction for arbitration ** See policy for complete detail Aon Insurance Solutions A Wide Selection Of Business and Personal Products Available To LACBA Members • Court Bonds Products • Businessowners’ Insurance • Employed Lawyer Coverage • Employment Practices Liability • Personal Umbrella Insurance • Auto & Home Insurance • Health Insurance Aon Attorneys’ Advantage Benefits • Local and regional offices • Complimentary newsletter: The Quarter Hour • Private access Risk Management Resources website • Fax-On-Demand Solutions papers Brought to you by: You can now APPLY ONLINE for a quick and convenient no-obligation professional liability insurance rate quote. Simply visit the Aon Insurance Solutions website today. www.aonsolutions.com/lacba2 To speak with an Aon representative, call toll free 800-634-9134 Some insurance products in this program may be underwritten by carriers not licensed in California. CA Insurance License #: 0795465 Sponsored By: 4B1BB006 Mobility. Security. Speed. Simplicity. BroadbandAccess gives you high-speed Internet access without hotspot limitations on America’s most reliable wireless network. Get a FREE PC Laptop Card. With any new 2-year business agreement and BroadbandAccess plan activation. BroadbandAccess 5740 PC Card Contact your local Verizon Wireless Business Sales Representative or visit a Verizon Wireless Communications Store. ce by calling 1.800.VZW 4 BIZ. UNLIMITED 59.99 monthly access $ and qualifying voice plan. “Once you start using Verizon Wireless BroadbandAccess, you can’t be without it.” – from WNBC, 5/7/06, Mark Spoonauer, Editor in Chief, LAPTOP Magazine VERIZON WIRELESS IS THE NETWORK FOR LAW c End-to-End Solutions • Leading-Edge Voice and Data Technologies L December 2006 20 Good Marksmanship Vol. 29, No. 10 BY MIRIAM CLAIRE BEEZY The entertainment industry should move more aggressively to provide trademark protection for its intellectual property 27 Walk the Line BY MARK MERMELSTEIN AND CHARLOTTE DECKER Even in civil litigation, attorneys must steer carefully between zealous advocacy and obstruction of justice Plus: Earn MCLE legal ethics credit. MCLE Test No. 154 appears on page 29. 34 Franchise Player BY ROCHELLE B. SPANDORF Courts are not hesitant to deem a trademark license to be a franchise agreement when statutory requirements are met LosAngelesLawyer 42 Special Section 2006 Holiday Travel & Gift Guide The magazine of The Los Angeles County Bar Association DEPARTMENTS 10 Barristers Tips Serving the community as a volunteer PVP attorney 46 Computer Counselor New tools in the discovery of sound recordings BY STEVEN I. AWAKUNI BY DAVID FISHEL AND CAROLE LEVITT 12 Practice Tips Discoverability of attorney interview notes 52 Closing Argument To settle or not to settle? BY MICHAELBRENT COLLINGS BY JON D. MEER AND ERIC S. BEANE 15 Practice Tips Exercising rescission after commencement of a lawsuit 49 Classifieds 50 Index to Advertisers BY ANDREW S. WILLIAMS AND VIVIAN I. ORLANDO Cover photograph: Tom Keller 51 CLE Preview LosAngelesLawyer VISIT US ON THE INTERNET AT www.lacba.org/lalawyer E-MAIL CAN BE SENT TO [email protected] EDITORIAL BOARD Chair JACQUELINE M. REAL-SALAS Articles Coordinator CHAD COOMBS To sign up for our free electronic newsletter CASE DEVELOPMENTS IN EMPLOYMENT & BUSINESS LAW visit our web site at www.socalmediator.com or call us at (949) 852-0550 JERROLD ABELES DANIEL L. ALEXANDER HONEY KESSLER AMADO ETHEL W. BENNETT R. J. COMER ANGELA J. DAVIS KERRY A. DOLAN GORDON ENG DANIEL A. FIORE STUART R. FRAENKEL MICHAEL A. GEIBELSON TED HANDEL JEFFREY A. HARTWICK STEVEN HECHT LAWRENCE J. IMEL SCOTT KLOPERT JOHN P. LECRONE PAUL MARKS SEAN MORRIS ELIZABETH MUNISOGLU RICHARD H. NAKAMURA JR. DENNIS PEREZ GARY RASKIN DAMON RUBIN KURT L. SCHMALZ DAVID SCHNIDER HEATHER STERN GRETCHEN D. STOCKDALE TIMOTHY M. STUART KENNETH W. SWENSON CARMELA TAN BRUCE TEPPER PATRIC VERRONE MICHAEL WISE STAFF Publisher and Editor SAMUEL LIPSMAN Senior Editor LAUREN MILICOV Senior Editor ERIC HOWARD Art Director LES SECHLER Director of Design and Production PATRICE HUGHES Advertising Director LINDA LONERO Account Executive MARK NOCKELS Account Executive PATTY MEDINA Marketing and Sales Coordinator VICTORIA PUA Advertising Coordinator WILMA TRACY NADEAU Administrative Coordinator MATTY JALLOW BABY LOS ANGELES LAWYER (ISSN 0162-2900) is published monthly, except for a combined issue in July/August and a special issue in the fall, by the Los Angeles County Bar Association, 261 S. Figueroa St., Suite 300, Los Angeles, CA 90012, (213) 896-6503. Periodicals postage paid at Los Angeles, CA and additional mailing offices. Annual subscription price of $14 included in the Association membership dues. Nonmember subscriptions: $28 annually; single copy price: $4 plus handling. Address changes must be submitted six weeks in advance of next issue date. POSTMASTER: ADDRESS SERVICE REQUESTED. Send address changes to Los Angeles Lawyer, P. O. Box 55020, Los Angeles CA 90055. Copyright ©2006 by the Los Angeles County Bar Association. All rights reserved. Reproduction in whole or in part without permission is prohibited. Printed by Banta Publications Group, Liberty, MO. Member Business Publications Audit of Circulation (BPA). The opinions and positions stated in signed material are those of the authors and not by the fact of publication necessarily those of the Association or its members. All manuscripts are carefully considered by the Editorial Board. Letters to the editor are subject to editing. 4 Los Angeles Lawyer December 2006 LOS ANGELES LAWYER IS THE OFFICIAL PUBLICATION OF THE LOS ANGELES COUNTY BAR ASSOCIATION 261 S. Figueroa St., Suite 300, Los Angeles, CA 90012-1881 Telephone 213.627.2727 / www.lacba.org ASSOCIATION OFFICERS: President CHARLES E. MICHAELS President-Elect GRETCHEN M. NELSON Senior Vice President DANETTE E. MEYERS Vice President DON MIKE ANTHONY Treasurer JULIE K. XANDERS Assistant Vice President ALAN K. STEINBRECHER Assistant Vice President LINDA D. BARKER Assistant Vice President JOHN D. VANDEVELDE Immediate Past President EDITH R. MATTHAI Executive Director STUART A. FORSYTH Associate Executive Director/Chief Financial Officer BRUCE BERRA Associate Executive Director/General Counsel W. CLARK BROWN BOARD OF TRUSTEES P. PATRICK ASHOURI NICOLE C. BERSHON GEORGE F. BIRD JR. DANIEL S. BISHOP JOHN M. BYRNE JOHN CARSON ANTHONY PAUL DIAZ STACY L. DOUGLAS ALEXANDER S. GAREEB ANTONIO J. GONZALEZ BRIAN S. KABATECK KARL H. KNICKMEYER JR. ROBERT N. KWAN PHILIP H. LAM DAVID A. LASH LAWRENCE E. LEONE RICHARD A. LEWIS CINDY J. MACHO ELAINE W. MANDEL DAVID F. MICHAIL JEFFREY P. PALMER ELLEN A. PANSKY THOMAS F. QUILLING SUSAN ERBURU REARDON ROGER D. REYNOLDS KELLY RYAN DEBORAH CRANDALL SAXE MARGARET P. STEVENS KIM TUNG GAVIN HACHIYA WASSERMAN ERIC A. WEBBER AFFILIATED BAR ASSOCIATIONS BEVERLY HILLS BAR ASSOCIATION BLACK WOMEN LAWYERS ASSOCIATION OF LOS ANGELES, INC. CENTURY CITY BAR ASSOCIATION CONSUMER ATTORNEYS ASSOCIATION OF LOS ANGELES CULVER-MARINA BAR ASSOCIATION EASTERN BAR ASSOCIATION GLENDALE BAR ASSOCIATION IRANIAN AMERICAN LAWYERS ASSOCIATION ITALIAN AMERICAN LAWYERS ASSOCIATION JAPANESE AMERICAN BAR ASSOCIATION OF GREATER LOS ANGELES JOHN M. LANGSTON BAR ASSOCIATION JUVENILE COURTS BAR ASSOCIATION KOREAN AMERICAN BAR ASSOCIATION OF SOUTHERN CALIFORNIA LAWYERS' CLUB OF LOS ANGELES COUNTY LESBIAN AND GAY LAWYERS ASSOCIATION OF LOS ANGELES LONG BEACH BAR ASSOCIATION MEXICAN AMERICAN BAR ASSOCIATION PASADENA BAR ASSOCIATION SAN FERNANDO VALLEY BAR ASSOCIATION SAN GABRIEL VALLEY BAR ASSOCIATION SANTA MONICA BAR ASSOCIATION SOUTH ASIAN BAR ASSOCIATION OF SOUTHERN CALIFORNIA SOUTH BAY BAR ASSOCIATION OF LOS ANGELES COUNTY, INC. SOUTHEAST DISTRICT BAR ASSOCIATION SOUTHERN CALIFORNIA CHINESE LAWYERS ASSOCIATION WHITTIER BAR ASSOCIATION WOMEN LAWYERS ASSOCIATION OF LOS ANGELES 6 Los Angeles Lawyer December 2006 63(&,$/%8//(7,1 PDUNVWKHWKVWUDLJKW\HD URI GLYLGHQGSD\PHQWVWRRXUSROLF\ KROGHUV 9OUR"OARDHASVOTEDTOISSUEANDIVIDEND TOALLPOLICYHOLDERSOFRECORDASOF.OVEMBE R 4HEDIVIDENDWILLBEBASEDONTHEPREMIUM PAIDBYTHEPOLICYHOLDERONA ONEYEARPOLICYWITHANEFFECTIVEDATEBETWEEN .OVEMBERAND/CTOBER 6RDUH\RXWKLQNLQJ´:KHQGR,JH WP\PRQH\"µ 4XHVWLRQ :KDWGRHV " $QVZHU \HDUVRI 'LYLGHQGV )FYOUAREANELIGIBLEPOLICYHOLDEROFRECORDASO F.OVEMBER YOURCHECKWILLARRIVEDURINGTHE$ECEMBERHOLID AYS)TISALSOWORTHREMEMBERINGTHAT ,-)#HASBEENAPROVIDEROFBENElTSFORSEV ERALDECADES -#,%!SA3TATE"AROF#ALIFORNIAAPPROVED#,%PROVIDERWEAREPIONEERS INLOSSPREVENTIONEDUCATIONANDOFFERARAN GEOFSEMINARSSELFSTUDY ANDONLINEPROGRAMSEXCLUSIVELYFOROURMEMBE RSATLITTLEORNOCOST AVALUEOFOVER #LAIMS&REE,ONGEVITY#REDITSCANSTARTAF TERTHElRSTYEARANDh0REFERREDv STATUSCANBEEARNEDAFTERJUSTCONSECUTIV EYEARSnRESULTINGINA ORMORE0REMIUM#REDIT !-"ESTS2ATINGOFh!v%XCELLENT WEAREINSURANCESPECIALISTS 0ROFESSIONAL,IABILITYCOVERAGEFOR#ALIFORNIALAW YERSISTHEONLYPRODUCTWEOFFER 4HROUGHSOUNDANDDISCIPLINEDUNDERWRITING OUR3TANDARD0ROGRAMRATES HAVEBEENTHESAMEFOROVERYEARS IMAGINETHAT 6ISITUSATWWW,-)#COMORCALL /$:<(56·0878$/,1685$1&(&203$1<:HVW(PSLUH$YHQXH%XUEDQN&$ $IVIDENDSAREPAIDATTHESOLEDISCRETIONOFTHE#OMPANYS"OARDOF$IRECTORSANDPASTDIVIDENDSDONOTGUARANTEETHEPAYMENTOFFUTUREDIVIDENDS (310) 849-8653 [email protected] Karen Natapoff Divorce Mortgage Specialist “It is a rare mortgage broker with the skill and ability to bring to the dissolution table the expertise of a mortgage broker in combination with an in-depth understanding of related family law matters.” -Nancy A. Kearson Certified Public Accountant “She has my highest endorsement, and I would recommend her, without reservation, as a professional in her field.” -Steven Knowles, Esq. Trope and Trope Metrocities Mortgage, LLC is a Delaware limited liability company licensed by the California Department of Corporations under CRMLA. Information is subject to change without notice. This is not an offer for extension of credit or a commitment to lend. 0706-150B 20 Years Blue Chip Experience Resolving the World’s Most Complex Disputes Reginald A. Holmes, ESQ. Arbitrator - Mediator - Private Judge Intellectual Property • Entertainment International • Employment Business THE HOLMES LAW FIRM 626-432-7222 (Phone) 626-432-7223 (Fax) [email protected] www.TheHolmesLawFirm.com Also available through the Amercian Arbitration Association 213.362.1900 or www.adr.org 8 Los Angeles Lawyer December 2006 From the Chair BY JACQUELINE M. REAL-SALAS he one thing we lawyers all have in common is that we rely on others to deliver our work to our clients. Some of us are fortunate enough to have associates who perform a great deal of our legal work. Others have staff members that assist us in whatever we consider to be secretarial or administrative work. The rest of us, while not so fortunate as to have our own associates or staff, still rely on help available through services offered by our office suites. The assistance we get from others—to whom, for the sake of this column, I will respectfully refer to as “staff”—ranges from doing complex work to taking our phone messages. Often, when the staff we rely upon are out of the office, our world stops, or at best slows down. Many of us do not know how to accomplish the basic tasks involved in running a law office. By way of example, and with some admitted shame, I confess that I do not know how to operate the mail meter. Therefore, when my alwayswilling assistant is out, my mail stays in. In sum, without the people who help us do our work, we may be lost—at least temporarily. Working with clients and opposing counsel is challenging. But sometimes the real challenge lies in working with staff. There is no law school course that I know of that teaches us how to work effectively with staff—“effectively” meaning getting the best performance from the people we work with. Yet somehow we lawyers seem to find our bumpy way and accomplish all that we need to do, despite the fact that sometimes our own clumsiness undermines our overall productivity. Still, most of us would like to be more productive, and this involves working more effectively with our staff. In today’s business world, where the greatest expense is human capital, getting the most out of our staff can really boost our bottom line. In my role as “personnel partner” in a very small firm, always dreaming up ways to maximize our modest resources, I have come to understand that properly delegating assignments translates into getting more for the firm’s money. Having no formal delegating skills of my own, I tapped into the knowledge of my husband, a business executive who has read most if not all of the management books ever written. I asked him to teach me about the art of delegating. This he did, and even though what I learned is not a particularly novel approach, I am passing his suggestions along for those of you who, like myself, would like to become more effective. In delegating work to others, ask yourself a series of questions. First, does the person being delegated the assignment have the skills to carry it out? If he or she does not have the necessary skills, can resources to acquire these skills be identified? Second, has the objective been clearly defined? This is a key aspect of delegating work. If the person delegating the assignment is not clear about the objective, the person at the receiving end cannot be expected to deliver. Third, has a quality standard for the expected work product been established? Setting a quality standard will avoid disappointment and frustration at both ends of the assignment. Fourth, do adequate resources for completing the assignment exist? And fifth, has a timeline been set for making progress reports and delivering the final work product? It is important to reach a meeting of the minds about what the assignment entails and whether it can be reasonably achieved within the designated time for completion of the work. Although there is obviously no need to think through these five steps of delegation when the assignments are routine tasks, using these steps may help staff complete more elaborate projects in a productive and efficient manner. In turn, a wellplanned delegation process may lead to maximized resources, a better quality work product, and a motivated, happier, and less frustrated staff. ■ T Jacqueline M. Real-Salas is a partner at Calleton, Merritt, De Francisco & Real-Salas, LLP, where she specializes in estate planning, trust administration, probate, and elder law. She is the chair of the 2006-07 Los Angeles Lawyer Editorial Board. Powerful Client Development resources … Such as Martindale-Hubbell®, the #1 service for identifying expert counsel exclusive Research Solutions … Including Shepard’s ® and The Wall Street Journal Online in association with LexisNexis ® customizable Practice Management tools … Fully integrated services to drive productivity and profitability the only NITA® endorsed Litigation Services … Covering the litigation process in the way that litigators work Where do you find them? LexisNexis® Total Practice Solutions A MEMBER BENEFIT OF lexisnexis.com/tps LexisNexis, the Knowledge Burst logo, Martindale-Hubbell and Shepard’s are registered trademarks of Reed Elsevier Properties Inc., used under license. Other products or services may be trademarks or registered trademarks of their respective companies. © 2006 LexisNexis, a division of Reed Elsevier Inc. All rights reserved. AL9154 Barristers Tips BY STEVEN I. AWAKUNI Serving the Community as a Volunteer PVP Attorney As the PVP attorney your first duty is to represent the interests of FOR QUALIFIED BARRISTERS with an interest in representing some of our most vulnerable citizens, the Probate Volunteer Panel repre- your client. The relationship with your client can be difficult. In the sents a unique opportunity. The Los Angeles Superior Court appoints case of a proposed conservatee, your client may not have the capacPVP counsel in a variety of cases, including trust and probate admin- ity to form an attorney-client relationship or may object to the petiistration, special needs trusts, litigation, Medi-Cal planning, estate tax- tion for conservatorship and your involvement in the case. The level ation, tuberculosis detention, and conservatorship and guardian- of cooperation that you receive from each client and the interested ship. The clients include the elderly, young adults with developmental parties may vary greatly. Some matters may not be contested, and you may find that it is disabilities, or persons of any age alleged to lack the capacity to care for themselves, to manage their finances, or both. To serve as a PVP in the best interests of your client to recommend approval of the petiattorney, applicants must meet specific experience, education, and con- tion. Other cases may be very contentious and may proceed to trial. tinuing education requirements, described in Appendix E of Chapter 10 of the Los Angeles Superior Court Rules (www Those you help may be facing the loss of the right to control .lasuperiorcourt.org/courtrules). Attorneys who do not have the required number of completed cases to meet the their finances, make medical decisions for themselves, decide experience requirements may take a training class and volunteer to take pro bono guardianship cases. There are also agencies where to live, vote, or get married or enter into a civil union. that provide pro bono assistance with conservatorships that may offer training or a mentor in exchange for pro bono work. Applicants must complete a training program conducted by the Trust To determine the best interests of the client, the PVP attorney must and Estates Section of the Association. The section works closely with review all pleadings and reports that are filed. Personal interviews with probate court bench and probate department staff to provide education the proposed conservatee, the proposed conservator, and the petitioner and training. Interested attorneys should check the section’s pages on will provide the PVP with valuable insight. Counsel should also speak with family members, physicians, caregivers, friends, and the Association site (www.lacba.org) for more information. Applications for the Probate Volunteer Panel can be obtained by neighbors as appropriate. The PVP attorney is in a unique and often challenging position. calling the probate office in the Central Division or by accessing the Probate section of the Los Angeles Superior Court Web site. Applicants PVP counsel must inform the court of their clients’ desires. After the may request appointment in areas in which they are qualified and have PVP attorney evaluates the issues, he or she must report observations an interest. If you are selected for the panel, you may get a call from and recommendations to the court about what is in the best interest one of the clerks in the probate office or a clerk from one of the branch of the client. PVP attorneys are provided with sample reports in courts. It is important to check for client and calendar conflicts their training manuals. For limited conservatorships, there is an before accepting an assignment. Not only is it important that you online form for PVP attorney reports on the court’s Web site. Additional guidance is available. For example, in one article, attend the hearing but that you have time to meet with the person whose interests you will be representing, conduct the appropriate inves- probate attorney Carmen Alberio discusses drafting readable petitions tigation, and write a report to the court. Probate judges make approx- for court review.1 This article provides insight into how the courts imately 100 appointments per month. According to Ron Cyger, man- review petitions and pleadings that advocates submit. The main ager of the probate department, those appointments account for audience of the PVP report is the court, but a well-written report may approximately a third of the PVP appointments in California. also provide guidance to the interested parties. You may be asked to represent the interests of an individual facPVP cases are not for the fainthearted. It can be very difficult work ing the prospect of losing civil rights that we take for granted. Those for which counsel may receive limited compensation. But as PVP counyou help may be facing the loss of the right to control their finances, sel you may be the only person willing to represent the best interests make medical decisions for themselves, decide where to live (e.g., not of our most vulnerable citizens. ■ in a secured facility), vote, choose social and sexual relationships, or get married or enter into a civil union. Your “client” may be a senior 1 Carmen Alberio, Drafting Readable Petitions for Court Review, CAL. TRUST AND citizen living in a nursing home, a young adult incapacitated by an ESTATES Q., Spring 2004, at 30, available at http://calbar.ca.gov. accident, someone with a developmental disability, or a child in need of a guardian. Clients may be the victims of physical or financial abuse. Steven I. Awakuni is a partner with Torii and Awakuni LLP in Torrance. 10 Los Angeles Lawyer December 2006 My FindLaw Web site is a work of art. With FindLaw® on my side, I have: • • • • Keith P. More Berman & More Completed my favorite painting Orange County, CA Secured 12 cases in 12 days www.ocseriousinjury.com Time to showcase my paintings at local charity auctions Started collecting vs. paying fees for attorney referrals “FindLaw has optimized my firm’s process for finding new clients. Instead of depending on attorney referrals, my firm now uses its new FindLaw Web site to attract highly-qualified, potential clients. Like a great painter at the canvas, FindLaw meticulously constructs and designs each Web page based on a comprehensive understanding of the legal industry. I am proud to call my FindLaw Web site a true masterpiece!” To see more of Keith More’s story, or to learn how FindLaw can help you gain new clients, call 1-866-347-6748 or visit LawyerMarketing.com/CM/Clients/More.asp. © 2006 FindLaw, a Thomson business 11/06 Practice Tips BY MICHAELBRENT COLLINGS RICHARD EWING Discoverability of Attorney Interview Notes ATTORNEYS ARE MORE THAN MERE LEGAL ANALYSTS. A significant portion of their job involves fact-finding, which may involve poring over thousands of documents produced by opposing counsel or reviewing hundreds of stilted interrogatory responses. Sometimes the investigation involves more private interactions, such as when an attorney interviews percipient witnesses. If those witnesses are clients, the conversations are protected, and the notes of the attorney regarding those conversations are rarely discoverable. But the question of discoverability becomes more difficult when an attorney has interviewed nonparty witnesses he or she does not represent. Clearly, such conversations are not protected by an attorney-client relationship. So what will happen when an attorney interviews a nonparty witness and takes notes of that interview? Though the underlying facts of an event are not protected, can the attorney be forced to turn over his or her notes in discovery? And what happens when the attorney interviews two or more people at once? Clearly, this type of interview can provide helpful or even critical information that interviewing attorneys would prefer to keep to themselves. But can they be forced to turn over their notes of those interviews? The answer is probably not. In Nacht & Lewis Architects, Inc. v. Superior Court,1 employees brought an action against their former employer and others. The plaintiffs propounded form interrogatories asking for “the identity of and information regarding individuals concerning the incident” and “individuals from whom written or recorded statements were obtained concerning the incident.” The defense attorneys issued a reply: “Counsel for the Defendants has conducted interviews of employees of Nacht & Lewis Architects [a defendant]. The information collected from the interviews is protected by the attorney-client privilege and work product doctrine.” The trial judge granted an order to compel answers to the interrogatories. The appellate court reversed, distinguishing between cases in which the attorney merely is collecting information (such as statements by witnesses who had previously offered written or recorded recollections) and those in which the attorney is engaged in an ongoing evaluation of the case and is interviewing witnesses to aid in that effort. The court stated: The distinction is significant. A list of the potential witnesses interviewed by defendants’ counsel which interviews counsel recorded in notes or otherwise would constitute qualified work product because it would tend to reveal counsel’s evaluation of the case by identifying the persons who claimed knowledge of the incident from whom counsel deemed it important to obtain statements. Moreover, any such notes or recorded statements taken by defendants’ counsel would be protected by the absolute work product privilege because they would reveal counsel’s “impressions, conclusions, opinions, or legal research or theories” within the meaning of Code of Civil Procedure section 2018, subdivision (c).… On the other hand, a list of potential witnesses who turned 12 Los Angeles Lawyer December 2006 over to counsel their independently prepared statements would have no tendency to reveal counsel’s evaluation of the case. Such a list would therefore not constitute qualified work product. Moreover, unlike interview notes prepared by counsel, statements written or recorded independently by witnesses neither reflect an attorney’s evaluation of the case nor constitute derivative material, and therefore are neither absolute nor qualified work product.2 In Nacht, the witnesses interviewed by defense counsel were employees of the defendant. However, the standing or status of a witness does not seem to matter in the determination of whether attorney notes are discoverable. An example of this can be found in Southern Pacific Company v. Superior Court (Shasta County).3 In that case, a defendant railroad in a wrongful death action petitioned for a writ of mandate to compel the plaintiff’s answers to interrogatories requesting detailed facts regarding the basis of the plaintiff’s allegations of negligence. The appellate court held that the facts were discoverable by the railroad. It concluded that the plaintiff’s attorney had failed to establish that the information gathered by the attorney or a private investigator employed by the attorney was protected: The trial court erred in classifying the information as work product. The interrogatories did not seek derivative material in the Michaelbrent Collings is a litigation associate at Kamine Ungerer LLP, where he focuses on construction contract disputes. attorney’s possession such as statements of witnesses, investigative reports or technical data; did not seek the attorney’s legal theories, research or calculations; did not seek information which would not ultimately be disclosed at the trial.4 The inference is that recordings and notes of interviews conducted by the attorney and not a product of the witness’s own volition are afforded work product protection, regardless of the witness’s relationship to the lawsuit. Similarly, the case implies that any attempt to ask about the content of the interviews will be seen merely as an attempt to circumvent the protection provided by the work product doctrine—as if the seeker of the information were saying, “Okay, don’t provide the writings to me, just quote them out loud.” The Presence of Third Parties If an attorney’s interview notes are protected, does the fact that an interview is conducted with two people present at the same time waive the attorney work product protection? The answer to this question is maybe. This is an issue of first impression in California. Those who wish to argue that the interview notes are discoverable will state that an attorney’s disclosure of work product to a third party operates as a waiver of the doctrine just as disclosure to a third party can waive the attorney-client privilege. This argument appears plausible in light of several cases in which disclosure of an attorney’s work product operated as a waiver of the protection. For example, in McKesson HBOC, Inc. v. Superior Court, 5 a corporation involved in the lawsuit was also the target of a government investigation. The plaintiffs moved to compel the corporation to produce an audit committee report and interview memoranda, which had been prepared by attorneys retained by the corporation to perform an internal review of alleged securities fraud. The corporation had shared the materials at issue with the government. The trial court granted a motion to compel the production. The court of appeal held that the corporation waived the attorneyclient privilege and work product protection with regard to shared documents. The court stated: As Merrill Lynch points out, McKesson did not need to disclose the audit report and interview memoranda to prepare its case for trial, and McKesson’s adversaries are not taking undue advantage of [counsel’s] efforts because the documents would have remained protected had not McKesson disclosed them to third parties.6 Another line of cases has reached a contrary result, stating that mere disclosure will not waive the work product protection. These include Laguna Beach County Water District v. Superior Court,7 which held that disclosure of an attorney’s work product operates as a waiver of the work product doctrine only when otherwise protected information is divulged to a third party who has no interest in maintaining the confidentiality of a significant part of the work product. Similarly, in Eddy v. Fields,8 the court held that an attorney’s disclosure of work product to an attorney who represents a mutual client or a client with common interests does not necessarily operate as a waiver of the work product protection as to third parties. Tellingly, however, the first line of cases probably has no application to the issue of the discoverability of an attorney’s notes of interviews of one or more percipient witnesses. Those cases uniformly deal with a writing that has already been turned over to a third party who has no interest in maintaining the confidentiality of the writing. But what if the attorney has not provided the writing or recording to anyone? The argument persists that the mere presence of a third party during the interview is enough to waive the work product protection. While no California case is directly on point, one cites a federal case with helpful language. In BP Alaska Exploration, Inc. v. Superior Court,9 an oil exploration company brought suit against another for bad faith arising from the defendant’s alleged use of confidential information provided by the plaintiff in entering into an exploration agreement with a third party from which the plaintiff was excluded. The trial court issued a discovery order compelling the defendant to produce documents and answer questions concerning an internal investigation it performed with respect to the third-party agreement. That investigation culminated in allegedly fraudulent correspondence and statements made to the plaintiff with the intent to dissuade it from pursuing its legal claims. The defendant asserted that the communications were protected by the attorney-client privilege and the work product doctrine. The trial court, however, granted the plaintiff’s motion to compel, based on its finding that the plaintiff made a prima facie showing of fraud and its conclusion that the attorneyclient privilege and the work product doctrine therefore did not apply. The court of appeal granted the defendant’s petition for a writ directing the trial court to vacate its earlier discovery order, holding that the crime-fraud exception of Evidence Code Section 956 does not apply to materials protected by the work product doctrine. The court also discussed the effect of an attorney providing work product to the client and to others. It pointed out that the attor- ney work product protection generally is complete and subject only to a waiver. The court then discussed the differences between the attorney-client privilege and the work product doctrine, citing a federal case, United States v. American Telephone & Telegraph Company, holding that the delivery of work product documents does not necessarily constitute a waiver of the attorney work product protection.10 The court of appeal quoted extensively from American Telephone & Telegraph Company, pointing out that the attorneyclient privilege exists solely to protect confidentiality between attorney and client. Therefore, “[a]ny voluntary disclosure by the holder of such a privilege is inconsistent with the confidential relationship and thus waives the privilege.”11 Nevertheless, according to American Telephone & Telegraph Company: [T]he work product privilege does not exist to protect a confidential relationship, but rather to promote the adversary system by safeguarding the fruits of an attorney’s trial preparations from the discovery attempts of the opponent. The purpose of the work product doctrine is to protect information against opposing parties, rather than against all others outside a particular confidential relationship, in order to encourage effective trial preparation….We conclude, then, that while the mere showing of a voluntary disclosure to a third person will generally suffice to show waiver of the attorney-client privilege, it should not suffice in itself for waiver of the work product privilege.12 This rationale appears to be followed by California treatise authority: Sharing with others information that is entitled to qualified work product protection does not waive the protection unless the circumstances are inconsistent with safeguarding the privacy of the attorney’s trial preparations.13 Thus the compelling question for a practitioner will be whether the circumstances of the witness interviews were inconsistent with the intent to safeguard the attorney’s trial preparations. Attorneys would be welladvised to remember this when conducting their interviews and be prepared to argue that the interviews were conducted in a way that was reasonably necessary to the litigation process. For example, attorneys interviewing two witnesses who were employees of the same entity should be able to assert that the witnesses had to consult one another to uncover information requested by the attorney, and thus there was no intent to waive the work product protection. Los Angeles Lawyer December 2006 13 Nevertheless, attorneys should seek to avoid interviewing multiple witnesses at once. Otherwise, attorneys face the risk not only of finding that the information may be discoverable but also of losing the essential and important element of surprise. ■ WE ARE A LAW FIRM. WE FORM AND MAINTAIN ENTITIES. THAT’S ALL. Incorporation Service Companies California Incorporation Determine Name Availability and Reserve Name Prepare and File Articles All Secretary of State Filing Fees Custom Bylaws Custom Organizational Minutes, authorizing the election of officers and directors, establishment of bank accounts, issuance of stock, and other matters Preparation and Issuance of Share Certificates Statement of Information and Filing Fees Preparation of 25102(f) Certificate and Filing Fees* Prepare IRS Form SS-4 and Obtain Tax Identification Number Prepare and File IRS Form 2553 to make “S” Election Ancillary Documents, including Promissory Notes, Medical Expense Reimbursement Plan, Employment Agreement Resident Agent Services for one year Follow up to make sure that all documents are properly signed, filed, fees are paid, and formation is properly completed Experienced Attorneys handling every formation and available to consult on all aspects of the process Corporate Kit, Seal, and duplicate Set of Documents on CD-ROM Accountant Copy of All Documents Delivered on CD-ROM eMinutes Entity Management System (with online document library, real-time monitoring of corporate deadlines) accessible from personalized Online Minute Book via secure web-based interface Automatic Enrollment in Annual Minutes System Cost $1,000 *For capitalization up to $100,000 Los Angeles 310.772.7700 San Diego 858.550.0191 www.eminutes.com 14 Los Angeles Lawyer December 2006 San Francisco 415.876.6210 www.ungerlaw.com Toll-Free 866.JEFF UNGER 1 Nacht & Lewis Architects, Inc. v. Superior Court, 47 Cal. App. 4th 214 (1996). 2 Id. at 217-18 (internal citations omitted). 3 Southern Pacific Co. v. Superior Court (Shasta County), 3 Cal. App. 3d 195 (1969). 4 Id. at 198-99 (emphasis added). 5 McKesson HBOC, Inc. v. Superior Court, 115 Cal. App. 4th 1229, 9 Cal. Rptr. 3d 812 (2004). 6 Id. at 1241. 7 Laguna Beach County Water Dist. v. Superior Court, 124 Cal. App. 4th 1453, 22 Cal. Rptr. 3d 387 (2004). 8 Eddy v. Fields, 121 Cal. App. 4th 1543, 18 Cal. Rptr. 3d 487 (2004). 9 BP Alaska Exploration, Inc. v. Superior Court, 199 Cal. App. 3d 1240, 245 Cal. Rptr. 682 (1988). 10 United States v. American Tel. & Tel. Co., 642 F. 2d 1285 (D.C. Cir. 1980). 11 BP Alaska Exploration, 199 Cal. App. 3d 1240, 1256 (quoting American Tel. & Tel. Co., 642 F. 2d 1285). 12 Id. 13 W EIL & B ROWN , C ALIFORNIA P RACTICE G UIDE : CALIFORNIA CIVIL PROCEDURE BEFORE TRIAL ¶8:263.10 (2005). The treatise, however, cites a case of limited usefulness for the purpose of the issue of the discoverability of an attorney’s notes from an interview with two or more witnesses. See Raytheon Co. v. Superior Court, 208 Cal. App. 3d 683, 689 (1989). The majority of the holding addressed whether the attorney-client privilege was waived when information was circulated among codefendants. In the only part of the decision addressing the work product doctrine, the Raytheon court stated: As for the work product privilege, language in at least one California decision strongly suggests that privilege is not waived except by a disclosure wholly inconsistent with the purpose of the privilege, which is to safeguard the attorney’s work product and trial preparation. (See Fellows v. Superior Court (1980) 108 Cal.App.3d 55, 65-66 [166 Cal.Rptr. 274]; see also 2 Jefferson, Cal. Evidence Benchbook (2d ed. 1982) § 41.2 [work product is waived by disclosure to one with no interest in maintaining its confidentiality]; and see BP Alaska Exploration, Inc. v. Superior Court (1988) 199 Cal.App.3d 1240, 1261 [245 Cal.Rptr. 682].) Normally, disclosure to a litigation adversary would be inconsistent with those policies. But again, because the trial court relied exclusively on inapposite authority, there is no evidence developed in the record by which that court could determine whether work product was here disclosed under circumstances inconsistent with claiming the privilege. There is no detailed description of the nature of the administrative investigation and the various interests each party had at stake during its progress; yet these facts are crucial to determining whether disclosure could reasonably be made with an expectation of confidentiality. The trial court’s conclusion that mutual disclosure here constituted waiver rests on no evidentiary basis. Thus, the court never reached the question of whether the work product protection is waived when documents are circulated among codefendants. Practice Tips BY ANDREW S. WILLIAMS AND VIVIAN I. ORLANDO Exercising Rescission after Commencement of a Lawsuit select those whom it will insure and to rely upon him who RESCISSION IS AN IMPORTANT and powerful remedy available to would be insured for such information as it desires as a basis insurers that have issued insurance policies based upon an applicafor its determination to the end that a wise discrimination may tion for coverage containing material misrepresentations or omissions. be exercised in selecting its risks.12 The effect of a proper rescission is drastic, voiding the insurance policy from its inception and thus relieving the insurer of all obligations In other words, an applicant for insurance has an unalterable duty under the policy while simultaneously depriving the insured of the abil- to communicate, in good faith, every fact within his or her knowlity to sue the insurer for failing to pay policy benefits. edge that is material to the risk the applicant seeks to insure.13 In California, a unique issue arises when an insurer seeks to Moreover, an insurer is entitled to take an insured’s application rescind an insurance policy after the insured files a lawsuit against the answers at face value in determining whether to issue insurance and insurer based on a failure to pay benefits. With increasing frequency, need not investigate an application to determine if the applicant lied the plaintiff-insured claims that rescission is inappropriate under California Insurance Code Section 650, which provides that an insurer Courts that have discussed Section 650 have not applied it may not exercise its right to rescind after an insured has commenced “an action on the contract.” While, on its face, this statute to deprive insurers of the ability to rescind. appears to present a seemingly insurmountable hurdle for insurers who fail to rescind before being sued, case law demonstrates that a plaintiff-insured seeking to avoid rescission faces, at a minimum, an uphill or omitted material information.14 battle in precluding an insurer from obtaining rescission that is warResure v. Superior Court ranted by the facts. When, after issuing a policy, an insurer discovers that the insured Fueled by the harsh consequences of rescission, insureds are challenging made material misrepresentations or omissions on the application for the timing of the purported rescission with increased frequency. coverage, the insurer may elect to rescind the policy or may continue Relying on Section 650, plaintiff-insureds often argue that rescission coverage and sue for damages.1 An insurance policy may be rescinded is inappropriate after the insured files a lawsuit. Section 650 provides: Whenever a right to rescind a contract of insurance is given to 1) for material misrepresentations or the concealment of material inforthe insurer by any provision of this part such right may be exermation made in procuring the insurance,2 2) on any basis for resciscised at any time previous to the commencement of an action sion specified in the California Civil Code, including fraud and on the contract. The rescission shall apply to all insureds duress,3 3) for breach of a material warranty,4 or 4) by mutual agreeunder the contract, including additional insureds, unless the conment of the parties to the policy.5 tract provides otherwise. When misrepresentation is the basis for rescission, rescission is On its face, Section 650 appears to support the argument that an appropriate only when the representation is false in a material way.6 An applicant’s misrepresentation is material if the misrepresenta- insurer may not, under any circumstances, rescind an insurance poltion would have resulted in any of the following: 1) rejection of the icy after an insured files a lawsuit to challenge denial of policy (i.e., application, 2) a higher premium, or 3) an amendment of the terms contract) benefits. Accordingly, relying on this language, a plaintiffof the contract.7 An insurer need not prove that the applicant intended insured will typically claim that unless rescission is effectuated before to deceive in order to rescind.8 A single material misrepresentation the filing of his or her lawsuit, rescission is improper and may not be raised in conjunction with defending a lawsuit seeking policy beneor omission in an insurance application is ground for rescission.9 In order to effectuate rescission, notice must be given to the fits. In other words, under the plain language of Section 650, the insurer insured, and all premiums must be restored or offered to be restored.10 is barred from rescinding the insurance policy after a lawsuit is filed, When grounds for rescission exist, and the insurer properly exercises even though grounds for a valid rescission might have existed at the its right to rescind or rescission is effectuated by mutual agreement, time the lawsuit was filed or were discovered during the course of litthe contractual rights of the insured and insurer are extinguished ab igation. Nevertheless, presumably recognizing the harsh result of such a initio—it is as if the policy had never existed.11 The basic rationale underlying rescission was clearly stated in rule on insurers who have a legitimate basis for rescission, and mindImperial Casualty & Indemnity Company v. Sogomonian: Andrew S. Williams is a partner and Vivian I. Orlando is an associate in the Los [A]n insurance company is entitled to determine for itself Angeles office of Barger & Wolen LLP. They specialize in commercial litigation, what risks it will accept, and therefore to know all the facts including the defense of insurance companies and healthcare service plans. relative to the [risk insured]. It has the unquestioned right to Los Angeles Lawyer December 2006 15 PERSONAL INJURY LAW GROUP We pay referral fees pursuant to the Rules of the California State Bar Areas of specialty: • Wrongful Death Claims • Aviation/Train/Bus Accidents • Dog Bites • Spinal Cord/Brain Injuries • Vehicular Accidents • Pedestrian Injuries • Slip and Fall • Premise Liability Toll Free 877.999.5529 www.personalinjurydefenders.com PERSONAL INJURY LAW GROUP expert4law The Legal Marketplace NEED? Expert Witnesses ● Investigators Legal Consultants ● Arbitrators Mediators ● Private Judges Special Masters and other legal support service providers FIND THEM HERE. Established in 1996, expert4law–The Legal Marketplace is the best on-line directory for finding expert witnesses, legal consultants, litigation support, lawyer-to-lawyer networking, dispute resolution service providers, law office technology, and research and publishing. This comprehensive directory is the one-stop site for your legal support needs. Available 24 hours a day! www.expert4law.org 16 Los Angeles Lawyer December 2006 ful of the potential that the literal application of Section 650 could result in sanctioning fraud, courts that have discussed Section 650 have not applied it to deprive insurers of the ability to rescind. For example, the Second District Court of Appeal in Resure, Inc. v. Superior Court15 rejected a literal interpretation of Section 650 and, in fact, read and interpreted the statute to allow insurers to raise rescission even after the plaintiff-insured wins the race to the courthouse. In Resure, the insurance company discovered facts that led it to suspect that the plaintiff-insureds lied or concealed material facts in their application for insurance.16 The insurer’s notice to rescind and offer to restore the premiums were stated only in its complaint for rescission and declaratory relief against its insureds.17 In opposition to the insurer’s motion for summary judgment, the insureds argued that the insurer’s lawsuit was, in and of itself, an “action on the contract,” and therefore, was barred under Section 650. The trial court agreed and, citing Section 650, held that “since [the insurer] had not noticed or attempted to rescind the policy prior to the filing of the complaint,” the action for rescission was barred.18 The court of appeal reversed, first noting that in interpreting the plain language of Section 650, the phrase “an action on the contract” was ambiguous, and concluded that it meant “an action brought at law to enforce the insurance policy.”19 It also found that the statute as a whole was ambiguous because, at the time it was enacted, there were two distinct types of rescission. The court therefore looked to the state of the law at the time Section 650 was enacted to determine the meaning and purpose of the statute.20 When Section 650 was enacted in 1874, the court explained, there were separate courts of equity and law, and the distinction between an action on the contract at law and an action for equitable rescission was of great significance. At that time, equity would not assume jurisdiction when a plaintiff had a clear remedy at law.21 According to the Resure court, “It followed that once an action to enforce a contract was commenced at law, the party holding a right to rescind was expected to raise that as a defense rather than bring a new action in equity” because of the equitable nature of rescission. Thus, the Resure court concluded, the point of Section 650 “was merely to guarantee that resort to equity was not needlessly made where the insurer had ample opportunity to raise the same issues in defense of the action on the policy.”22 The Resure court went on to hold that while the statute precludes a “new” action for rescission when one commences “an action on the contract,” it does not deprive the party entitled to rescind from defending an action on the contract by raising the grounds for rescission as an affirmative defense or by way of a cross-complaint: Established law clearly affords the insurer the right to avoid coverage by way of cross-claims and affirmative defenses when the insured files an action on the contract before the insurer can file its action for rescission.23 The Resure court’s affirmation of an insurer’s right to raise the grounds for rescission or seek rescission by way of an affirmative defense to an action on the contract is consistent with case law. For example, in Maddini v. West Coast Life Insurance Company,24 the court of appeal upheld as correct a jury instruction that provided that the insurer in the case could defend against the insured’s claims on the insurance contracts at issue on the basis of material misrepresentations in the insured’s applications. According to that court, “[T]hough the insurer had the right to rescind the contracts upon discovery of false representations, it was under no obligation to do so but might elect to await action upon the part of the beneficiary and defend upon that ground.”25 Similarly, the Resure court’s statement that an insurer can “avoid coverage” by way of a cross-claim is consistent with the idea that while Section 650 precludes a separate or “new” action when the insured files first, it should not prevent the insurer from raising rescission in a cross-complaint filed in connection with the insured’s already-filed contract action. This year, a federal court in the Northern District of California reached a conclusion concerning the application of Section 650 that was consistent with that of the Resure court. In Atmel Corporation v. St. Paul Fire & Marine Insurance Company,26 the insured filed a lawsuit against its insurer for breach of contract and breach of the implied covenant of good faith and fair dealing.27 The insurer counterclaimed, asserting claims for rescission, breach of contract, intentional misrepresentation/concealment, negligent misrepresentation, and breach of the implied covenant of good faith and fair dealing. It also asserted rescission as an affirmative defense. After the complaint was filed, the insurer also notified the insured it was rescinding the policy and offered the insured a check for the premiums it had paid.28 In response, the insured in Atmel raised Section 650, arguing that rescission was improper. The court concluded that the insured was correct that the plain language of Section 650 precluded the insurer from unilaterally rescinding the policy after the insured filed suit but, relying upon Resure, found that “although an insurer is precluded from unilaterally rescinding once an insured has filed suit, the insurer may raise ‘the same issues’ by asserting rescission as an affirmative defense and counterclaim.”29 In addition to the fact that Section 650 does not preclude an insurer from raising rescission as an affirmative defense to an action on the contract initiated by the insured or as a cross-claim, case law is clear that an insurer may also raise other affirmative defenses based on facts that would commonly support rescission. For example, in Williamson & Vollmer Engineering, Inc. v. Sequoia Insurance Company,30 even though the defendant insurer did not seek rescission, the court held that the plaintiff’s failure to disclose material information as requested on the application constituted misrepresentation and concealment of material facts, and that such misstatements could be raised as a defense to an action on the contract.31 The court rejected the insured’s argument that the only option the insurer had was to seek rescission or affirm the contract and sue for fraud.32 The Practical Impact of Section 650 While a plaintiff-insured may choose to focus his or her argument on the plain language of Section 650 to argue that the right to rescind a contract can only be exercised prior to the commencement of an action on the contract, that argument is likely to fail based on the holdings in cases such as Resure, Maddini, and Williamson & Vollmer Engineering. Indeed, based on the current state of the law in California, Section 650 has little or no value to insureds who file an action on the contract before the insurer decides to rescind coverage, except that the statute would preclude an insurer from unilaterally rescinding outside the context of the lawsuit.33 The best approach for plaintiff-insureds when an insurer raises rescission, even though it did not rescind prior to litigation, is to evaluate whether the general requirements of rescission have been met and to be cognizant of asserting any counter-defenses that might exist to rescission. For example, the insured may want to focus on whether the purported misrepresentations or omissions on which the insurer’s rescission argument is based are, in fact, material to the insured risk. He or she should also determine who took the application for coverage. For example, if the application was taken over the telephone by an agent for the insurer, and the agent made an error in completing the application, rescission might be inappropriate. Moreover, depending on the circumstances, an insured may be able to argue that the insurer waived the right to rescind by not ■ RISK ANALYSIS seeking rescission earlier, although proving waiver is often difficult.34 Likewise, generally speaking, an insurer’s right to obtain information of material facts in the application process may be waived “by neglect to make inquiries as to such facts, where they are distinctly implied in other facts of which information is communicated.”35 Thus, an insurer may be found to have waived the right to disclosure of material facts by its failure to investigate obvious leads in the application process that would have disclosed that the application contained misrepresentations or omissions.36 On the other hand, insurers seeking to rescind an insurance policy after an insured has filed suit on the policy must plead grounds for rescission through an affirmative defense for rescission or by way of cross-complaint if the facts support what appears to be a legitimate basis to rescind. If facts are discovered during the course of litigation that suggest rescission is appropriate, an insurer should, at a minimum, promptly seek leave from the court to amend its answer to assert an affirmative defense based on rescission. As an additional protective measure, the insurer may also want to seek leave to file a crosscomplaint for rescission. Additionally, insurers may assert affirmative defenses for misrepresentation of fact and suppression of fact as permitted by Williamson & Vollmer One of the Daily Journal’s “Top 50 Neutrals in California.” ■ FINANCIAL MODELING ■ VIDEO PARTICIPATION ■ ONLINE CONFERENCE FACILITIES VIGGO BOSERUP M O R E T H A N 4 , 0 0 0 C A S E S M E D I AT E D BOSERUP MEDIATION TEL (310) 829-0099 | FAX (310) 829-0909 | [email protected] | www.boserup.com THE WATER GARDEN • 2425 OLYMPIC BOULEVARD, SUITE 155E, SANTA MONICA CA 90404 Los Angeles Lawyer December 2006 17 – Dale A. Eleniak – Expert Witness/Litigation Analysis Real Estate/Commercial & Residential • Standards of Care, Standards and Practices • Broker Supervison • Agency and Disclosure Attorney, RE broker, C.A.R. panel attorney, DRE Approved Instructor, over 3,000 real estate inquiries per year since 1991, author of “The Six Page Deposit Receipt” and over 400 R/E related articles published as “Dales Legal Corner.” TEL 805-579-7834 ■ Dale A. Eleniak, PLC ■ FAX 805-579-7845 633 BRECKENRIDGE PLACE, SIMI VALLEY CA 93065 [email protected] 18 Los Angeles Lawyer December 2006 Engineering based on the same facts supporting a defense of rescission.37 In asserting these defenses and crossclaims, whether by leave or in the first instance, insurers should rely on the Resure court’s reasoning—that is, the purpose of Section 650 was to guarantee that resort to equity (by the filing of a “new” action) was not needlessly made if an insurer could raise the matter defensively in an already-filed action on the contract.38 In this regard, insurers can argue that based on the rationale of Resure, a cross-complaint, which was asserted in the action in response to a complaint, is not a “new” action and is consistent with the Resure court’s analysis of the purpose underlying Section 650—efficient resolution of contract disputes in one action. An insurer may further wish to note that the Resure court’s reasoning makes sense. If one were to accept that Section 650 stripped insurers of the right to raise rescission when they were misled into issuing insurance that would otherwise not have been issued, it would result “in absurd consequences which the Legislature could not have intended.”39 ■ 1 De Campos v. State Comp. Ins. Fund, 122 Cal. App. 2d 519, 527-28 (1954). 2 California Insurance Code §§331 and 359, enacted in 1935, explicitly authorize an insurer covered by the rules to rescind a policy for concealment or misrepresentation in an application. Sections 331 and 359 provide that an applicant’s omission or misrepresentation of material facts entitled the insurer “to rescind the contract from the time the representation becomes false.” See also INS. CODE §332 (noting required disclosures). 3 De Campos, 122 Cal. App. 2d at 529. 4 See INS. CODE §447. 5 See Stevenson v. Sun Ins. Office, 17 Cal. App. 280, 288 (1911). 6 Thompson v. Occidental Life Ins. Co., 9 Cal. 3d 904, 916 (1973). 7 Imperial Cas. & Indem. Co. v. Sogomonian, 198 Cal. App. 3d 169, 181 (1988). Materiality is determined solely by the probable and reasonable effect that truthful answers would have on the insurer. Id. at 916; INS. CODE §334. The fact that an insurer has demanded answers to specific questions in an application for insurance is, in itself, usually sufficient to establish materiality as a matter of law. Thompson, 9 Cal. 3d at 916; Sogomonian, 198 Cal. App. 3d at 179. 8 Cohen v. Penn Mut. Life Ins. Co., 48 Cal. 2d 720, 725 (1957); Thompson, 9 Cal. 3d at 915-16; Telford v. New York Life Ins. Co., 9 Cal. 2d 103, 105 (1937); INS. CODE §331. 9 Old Line Life Ins. Co. v. Superior Ct., 229 Cal. App. 3d 1600, 1604 (1991). 10 CIV. CODE §1691. See also Sogomonian, 198 Cal. App. 3d at 184. Note, however, CIV. CODE §1693: When relief based upon rescission is claimed… such relief shall not be denied because of delay in giving notice of rescission unless such delay has been substantially prejudicial.…A party who has received benefits by reason of a contract that is subject to rescission and who in an action of proceeding seeks relief based upon rescission shall not be denied relief because of a delay in restoring or in tendering restoration of such benefits before judgment unless such delay has been substantially prejudicial to the other party; but the court may make a tender of restoration a condition of its judgment. 11 See, e.g., Sogomonian, 198 Cal. App. 3d at 182; Thompson, 9 Cal. 3d at 916. 12 Sogomonian, 198 Cal. App. 3d at 180-81. 13 Thompson, 9 Cal. 3d at 916; Lunardi v. Great-West Life Assur. Co., 37 Cal. App. 4th 807, 826 (1995). 14 See Robinson v. Occidental Life Ins. Co., 131 Cal. App. 2d 581, 585 (1955); Mitchell v. United Nat’l Ins. Co., 127 Cal. App. 4th 457, 476 (2005). 15 Resure, Inc. v. Superior Court, 42 Cal. App. 4th 156 (1996). 16 Id. at 160. 17 Id. at 161. 18 Id. 19 Id. at 163, 167. 20 Id. at 162-63. 21 Id. at 166. 22 Id. 23 Id. at 162-63. 24 Maddini v. West Coast Life Ins. Co., 136 Cal. App. 472, 476 (1934). 25 Id. at 476-80. 26 Atmel Corp. v. St. Paul Fire & Marine Ins. Co., 416 F. Supp. 2d 802 (N.D. Cal. 2006). 27 Id. at 804. 28 Id. 29 Id. at 805. 30 Williamson & Vollmer Eng’g, Inc. v. Sequoia Ins. Co., 64 Cal. App. 3d 261, 275 (1976). 31 Id. 32 Id. at 274. 33 Generally, an insurer is advised to rescind when it becomes aware of facts supporting rescission. The danger associated with waiting and continuing to collect premiums is that the insurer may later be found to have waived the right to rescind. 34 “Waiver requires the insurer to intentionally relinquish its right to deny coverage.” Monteleone v. Allstate Ins. Co., 51 Cal. App. 4th 509, 517 (1996); Anaheim Builders Supply, Inc. v. Lincoln Nat. Life Ins. Co., 233 Cal. App. 2d 400, 410 (1965). “To constitute a waiver, there must be an existing right, a knowledge of its existence, and an intention to relinquish it, or conduct so inconsistent with the intent to enforce the right as to induce reasonable belief that it has been relinquished.” Silva v. Nat’l Am. Life Ins. Co., 58 Cal. App. 3d 609, 615 (1976). “The burden is on the party claiming a waiver of a right to prove it by clear and convincing evidence that does not leave the matter to speculation, and ‘doubtful cases will be decided against a waiver.’” CBS Broadcasting Inc. v. Fireman’s Fund Ins. Co., 70 Cal. App. 4th 1075, 1085 (1999) (finding no waiver). 35 INS. CODE §336. While “waiver” and “estoppel” are often used interchangeably, they are different doctrines. Waiver always rests upon intent: “Case law is clear that ‘waiver’ is the intentional relinquishment of a known right after knowledge of the facts.” Waller v. Truck Ins. Exch., Inc., 11 Cal. 4th 1, 31-32 (1995) (internal quotes omitted). An insurer may be estopped to assert a policy right or defense when, by words or conduct, the insurer has caused the insured reasonably to change its position to its detriment. See EVID. CODE §623; Chase v. Blue Cross of Cal., 42 Cal. App. 4th 1142, 1157 (1996). 36 Old Line Life Ins. Co. v. Superior Ct., 229 Cal. App. 3d 1600, 1605 (1991). This concept is embodied in the Insurance Code, which prohibits “post-claims underwriting.” See INS. CODE §10384. 37 Williamson & Vollmer Eng’g, Inc. v. Sequoia Ins. Co., 64 Cal. App. 3d 261, 275 (1976). 38 Resure, Inc. v. Superior Ct., 42 Cal. App. 4th 156, 166 (1996). 39 Id. at 164. Employment Dispute Mediation Center • Flat Fee/Full day mediation • Evaluation of strengths, weaknesses and case value based upon extensive trial experience. • No additional charge regardless of time expended or locale. • All employment matters: discrimination, harassment, contract, hour & wage, class claims, 17200, 12940, etc. • Our office in historic San Juan Capistrano (adjacent to rail transportation) or your facility. • Call to book a session or to receive our brochure with rates and c/v. • Ask to be added to our mailing and e-mail list. ROBERT D. COVIELLO (949) 429-7500 [email protected] For your employment disputes...settle on us. Los Angeles Lawyer December 2006 19 by Miriam Claire Beezy GOOD MARKSMANSHIP New technologies require the implementation of creative trademark protection strategies the entertainment industry has essentially protected only half its valuable intellectual property assets. Budget concerns have focused the majority of the content-driven industry’s resources on comprehensive copyright registration policies while at times giving short shrift to trademark rights. All too often, assumptions that common law rights would provide adequate trademark protection on an as-needed basis prevailed. The same faith was placed in the protective reach of the “well-known marks” or “famous marks” doctrine1—a part of the Lanham Act and promulgated worldwide through the Paris Convention—even though the doctrine is not applied consistently. As digital trends continue and the industry’s attention increasingly turns to global branding and merchandising, these companion rights must be given the same careful consideration as copyrights. Given 20 Los Angeles Lawyer December 2006 the difficulties that arise when protection is left to haphazard registrations, common law rights, and the unpredictable application of the well-known marks doctrine, the industry is being confronted with the reality that developing a comprehensive trademark registration policy is crucial to protecting intellectual property. With another copyright term extension unlikely,2 a comprehensive trademark registration policy makes sense from an economic standpoint. While copyrights have a fixed lifespan and will ultimately fall into the public domain, trademarks can last indefinitely if properly maintained and provide the cornerstone for exploitation and enforcement. As new media continue to give rise to new brands, global financial opportunities for exploiting these intellectual property assets will increase as well. As a result, companies need to take appropriate steps to retain own- ership and control of their rights to their properties and combat the unauthorized uses of those properties over the Internet. The cost of building and maintaining a solid trademark program should be a priority to companies as a whole and should not degenerate into budget feuds between company divisions. From counterfeiting and cybersquatting to cobranding and merchandising, trademarks remain the key to brand power and are Miriam Claire Beezy, a partner in the Los Angeles office of Foley & Lardner LLP, is chair of the firm’s Trademark, Copyright and Advertising Practice Group and cochair of the Entertainment and Media Industry Team. She would like to thank Jeffrey A. Kobulnick and Brian P. Kinder, associates in Foley’s Los Angeles office and members of the Trademark, Copyright and Advertising Practice Group and Entertainment and Media Industry Team, for their assistance with this article. RON OVERMYER For the last several decades, Los Angeles Lawyer December 2006 21 certain to play an increasingly central role in the portfolios and strategic plans of companies worldwide. Evolution of Entertainment Trademark Use A review of the history of trademark use in the entertainment industry is important to fully understand the range of trademark rights. There is no question that companies considered trademarks to be valuable assets long before the Harry Potter character was born—although with 30 federal registrations and another 10 applications still pending with the United States Patent and Trademark Office (USPTO), Harry’s still tender age certainly has not precluded him from being well protected as a trademark.3 In the early days of show business, however, many companies tended to register only the most obvious marks, such as their studio names (for example, Universal Films 4 and Paramount Pictures5) and logos (such as the lion’s head design mark of Metro Goldwyn Mayer6). The subsequent advent of television brought about similar trademark registrations for network acronyms such as NBC7 and CBS8 as well as certain early radio and television shows.9 Walt Disney was particularly prescient, as he was one of the earliest, if not the earliest, person to register the name of a character when he registered Mickey Mouse for motion pictures in 1928.10 While these early marks were used and registered in connection with core entertainment products and services such as motion picture films and broadcasting, the extension of branding to merchandise was limited. For example, according to USPTO records, Warner Brothers began using the Looney Tunes11 and Merrie Melodies12 marks in connection with a series of animated films in 1929 but did not register either mark for use with merchandise until almost a half century later.13 Likewise, the Bugs Bunny character has been bouncing around in comic books since 1944,14 but the mark was not used or registered in connection with much in the way of merchandise until the 1970s, when it was used with vitamins,15 toys,16 towels,17 and sleeping bags.18 The Flintstones mark was not used with vitamins until 1969, just one year after Hanna Barbera released its Pebbles brand breakfast cereal.19 Even Disney did not register the Mickey Mouse mark for merchandise until recently.20 The same holds true for other comic character favorites such as Superman and Batman (originally The Bat Man), both of which first appeared in comic books in the late 1930s. Not until decades later did DC Comics register both of these marks for children’s clothing, lunch kits, and various other merchandise. Similarly, although the heart-shaped I 22 Los Angeles Lawyer December 2006 Love Lucy design mark was in use since 1951 in connection with the well-known television program, the registration of the mark was not extended to goods until the late 1980s and early 1990s.21 Today there are many I Love Lucy brand collectibles, and the mark is used in connection with a video slot machine game found in some Las Vegas casinos. I Love Lucy is a mark protected by broad registrations of its standard character and stylized logo. Where did this merchandising frenzy in the entertainment industry all begin? Perhaps not surprisingly, many sources attribute credit to Walt Disney with the 1937 release of the full-length animated film Walt Disney’s Snow White and the Seven Dwarfs. The Snow White film was a huge endeavor for Disney, taking nearly four years and more than $1.5 million to complete and going well over the original budget of $150,000.22 As the film was nearing completion, Herman “Kay” Kamen, Disney’s first licensing representative, made preparations to launch an aggressive merchandising campaign unlike anything seen before, including the mass production and release of dolls of Snow White and each of the seven dwarfs as well as comic, paint, coloring, and picture books. Soon after the film’s release there were millions of collectible character items marketed in connection with the Snow White mark. From a full line of clothing to high-end collectible items like porcelain and bisque figurines and jewelry sold at Cartier of Fifth Avenue, Kay Kamen took the concept of merchandising to a whole new level.23 The mark also was used in connection with food products—for example, Snow White sliced bread featured the Snow White mark and images of Snow White and all seven dwarfs on the packaging.24 The product also contained picture cards and endpaper stickers that were collected and traded by children. Snow White and Dopey were the most popular characters in the film, which explains why they have been seen on more merchandise than the other characters from the film to this day.25 Ever since the first release of Snow White, the flood of animated films that followed in its wake has been increasingly accompanied by similar large-scale merchandising campaigns and licensing programs. For instance, in the early 1990s, the merchandising realm reaped the benefits of another major promotion from Disney’s release of The Little Mermaid. The film prompted the launch of an even more aggressive marketing campaign than its predecessors and featured products from cosmetics and food to toys and clothing, all depicting characters from “Under the Sea.” Given this growing merchandising trend, it was no surprise that soon after Disney released its 60th anniversary edition of Snow White in 1997, it applied to register the mark with the USPTO in 10 International Classes for use in connection with an even wider range of products and services.26 The entertainment industry’s attitude toward the registration of trademarks has clearly evolved over the years and now reflects an understanding of the value in protecting trademark rights in artistic works. Titles and Characters Today, studio and character names as well as film and television show titles remain among some of Hollywood’s most valuable marks. Companies are not only using these marks in more creative ways but also registering marks that would have otherwise received little attention in years past. The availability of “intent to use” applications with the 1989 enactment of the Trademark Law Revision Act27 also has enabled companies to seek registration of their marks beyond the traditional entertainment products and services of films and broadcasting. New opportunities through character image licensing and celebrity branding continue to emerge. As a result, enforcement and expansion efforts from a trademark perspective—both offensive and defensive—are flourishing. Having engaged in battles with opportunistic third parties, the industry is relying less on common law and the well-known marks doctrine and beginning to register marks both earlier and in broader ranges of categories than in years past. Television show titles, for example, which entertainment companies have traditionally registered as trademarks, are now being registered and enforced on a broader scale. With each new popular television series comes merchandising opportunities using the title as a mark. The importance of securing early registration has been underscored in recent years as companies have had to defend actions when popular television shows branched out into marketing campaigns. For instance, in Surfvivor Media, Inc. v. Survivor Productions,28 the owner of the registered mark Surfvivor for beach-themed products brought suit against the producers of the Survivor television show, alleging trademark infringement resulting from the use of the Survivor mark on consumer merchandise. Likewise, in Playmakers, LLC v. ESPN, Inc.,29 the Playmakers sports agency asserted its registration for its name against the cable television company producing a program with the name as its title, alleging a likelihood of confusion. Similarly, when Viacom rebranded the cable channel TNN as SpikeTV, it was met with an action for a preliminary injunction by director Shelton “Spike” Lee.30 Although the Surfvivor and Playmakers suits were decided in favor of the television show producers, and the Spike TV action was settled on undis- closed terms, each of these cases is a reminder that early clearance and registration are necessary for the protection of entertainment properties. Indeed, when Twentieth Century Fox first launched the popular series Buffy the Vampire Slayer in 1997, it did so without filing to register the television show’s title as a trademark for entertainment services, much less merchandising categories. Fox waited three years before filing an application to register the show’s title in multiple classes. This is in stark contrast to the strategy Fox employed with its recent hit comedy series My Name Is Earl. Fox applied to register the title as a mark in three classes (entertainment, clothing, and printed publications) more than five than actors in the movie industry, who have tended to focus on product endorsements. Dolly Parton, for example, registered her name in connection with entertainment services in 1982, whereas John Travolta did so in 2003. One of the exceptions to this trend is Elizabeth Taylor, who has registered her name in connection with numerous products once thought to be beyond the realm of the entertainment industry. Moreover, there is an increasing interest in branding programs featuring the names of deceased celebrities, as demonstrated by currently pending applications and registrations for Marlon Brando and James Dean. Nevertheless, celebrities in the music industry seem to be expanding their brands through registration of their names as online all types of media and merchandise featuring their favorite stars. This convenience has allowed production studios, distribution companies, and licensees to reap huge financial benefits. However, not all trademark use on the Internet has been favorable for trademark owners, especially those who have not had a policy of registering their marks. For instance, through Uniform Dispute Resolution Policy (UDRP) proceedings, the industry has contended with third parties who have registered the domain name equivalents of everything from company names and show titles to character and celebrity names. UDRP proceedings have for the most part produced favorable decisions for individual celebrities and the entertainment industry in With past and present trends as guidance, there is no question that trademarks will continue to be valuable assets. They will also persist as enticing targets for opportunistic third parties seeking to capitalize on the goodwill belonging to others. months before the show even aired. Just as show titles have garnered attention, so have many of the characters featured in films. The types of toys and other merchandise on which certain character names have been used as trademarks cover a wide range. Buzz Lightyear, for example, is a Disney character that really has gone “to infinity and beyond” since his debut in the 1995 animated film Toy Story. Consumers can buy a host of Buzz Lightyear items, from action figures or Halloween costumes to full bathroom and bedroom sets. Buzz Lightyear joins many of his fictional colleagues by having his name used in connection with various video games and on screen savers and party supplies, including plates, napkins, and cups featuring the star commander. The Buzz Lightyear mark also has been registered as a domain name. Visitors to www.buzzlightyear .com are automatically redirected to a Web site for Buzz Lightyear’s Astro Blasters, an attraction at Disneyland. Just as brand expansion based on animated films and their characters has become well established, so too have celebrity branding campaigns seen tremendous growth. It is interesting to note, however, that artists in the music industry have been more cognizant of trademark rights and branding campaigns marks in more classes of goods and services than actors, as exemplified by singer Justin Timberlake, who has four registrations and four more applications pending for his name in eight classes of goods and services. In addition to using a single mark in connection with a wide variety of goods and services, cobranding has afforded even greater opportunities to trademark owners in the entertainment industry. Examples of cobranding have included Disney collectible figures made by Lenox and the Disney Rewards Visa Card. Another example was the appearances of Bugs Bunny and Michael Jordan (whose name is a registered mark)31 in the motion picture Space Jam and the wide array of consumer products in association with that film. A more recent example is the cobranding of the Motorola and Phat Farm marks. These types of cobranding opportunities allow lesserknown marks in the entertainment industry to develop a strong presence in a relatively short amount of time and also allow already famous marks to gain even more strength and visibility.32 Domain Name Issues The Internet has also provided portals for broadening the scope of trademark rights, with consumers able to search for and order general. The panels in these proceedings have ordered the transfer of disputed domain names to the trademark owner in the majority of cases, such as in one well-known dispute in 2000 involving the domain name juliaroberts.com.33 In that UDRP proceeding, the respondent had also registered more than 50 other domain names—including madeleinestowe.com and alpacino.com.— that incorporated other celebrity names. Fortunately for Julia Roberts, although her name was not registered as a trademark, the panelist in the UDRP proceeding found that her name was entitled to protection as a service mark under common law because it had acquired secondary meaning. That same year, a different UDRP panel came to a similar conclusion in a dispute involving the domain name jimihendrix .com. 34 Like the respondent in the Julia Roberts case, the respondent in the Jimi Hendrix dispute had also registered various other domain names incorporating celebrity name marks, including elvispresley.com and jethrotull.com. The respondent also offered vanity e-mail addresses for sale that included the jimihendrix.com domain name (such as [email protected]). Recognizing both common law and registered trademark rights in the Jimi Hendrix mark and concluding Los Angeles Lawyer December 2006 23 that the respondent had registered and was using the jimihendrix.com domain name in bad faith, the UDRP panelist ordered the transfer of the domain name to the complainant. More recently, in July 2006, Tom Cruise successfully acquired the tomcruise.com domain name via a UDRP proceeding, which was also based on his common law rights to his name as a mark. 35 Likewise, several domain names—warneremi.org, warneremi .net, emiwarnermusic.com, emiwarner.org, and emiwarner.net—were ordered to be transferred to Time Warner, Inc.,36 in a UDRP proceeding brought by that company and EMI Group. Those with celebrity status, however, do not always prevail in domain name disputes. Consider Reverend Jerry Falwell, for example. Falwell has recognized common law rights to Falwell and Jerry Falwell as well as a federal registration for the mark Listen America with Jerry Falwell. His Web site, located at www.falwell.com, reportedly receives more than 9,000 hits per day. In February 1999, Christopher Lamparello registered the domain name “fallwell.com” and put up a Web site expressly criticizing Falwell’s views on homosexuality. Lamparello was not the ordinary cybersquatter in that he did not own any other domain names that featured names of famous people, did not make commercial use of the site, and even included a disclaimer on the home page indicating that his Web site was not affiliated with Falwell or his ministry. The disclaimer was placed next to a link to Falwell’s site for those who wished to visit it.37 Although Falwell successfully asserted his rights at a UDRP proceeding, in which the panel found in his favor and ordered the domain name to be transferred,38 his victory was short-lived. Lamparello filed suit in the Eastern District of Virginia seeking a declaratory judgment of noninfringement. Falwell counterclaimed, and the district court entered summary judgment in his favor. The Fourth Circuit Court of Appeals reversed, finding that although the fallwell.com domain name closely resembled Falwell’s mark, the two Web sites did not look alike in any way. The Fourth Circuit also found that Lamparello’s use of his site was noncommercial and the public was not likely to be confused into believing that Falwell authorized the Web site’s critical content. Moreover, the court found that Lamparello did not have a bad faith intent to profit from using the domain name fallwell.com and that Lamparello’s noncommercial use of the domain name did not violate the Anti-Cybersquatting Protection Act (ACPA).39 Instead, the court found that the site constituted protected speech under the First Amendment.40 Lamparello’s anti-Falwell 24 Los Angeles Lawyer December 2006 site still remains accessible through the domain name fallwell.com. The Lamparello v. Falwell decision is a warning to the entertainment industry of the importance of registering their valuable trademark rights both with trademark offices worldwide and on the Internet as domain names. Strategic Considerations Entertainment and media companies will continue to face many of the same issues they have faced in the past. But with increasing technological advances and a relentlessly expanding global marketplace, the amount of infringement is certain to grow exponentially. The trademark battlefields will require trademark owners and their counsel to grapple with disputes of evolving complexity and geographic scope. With past and present trends as guidance, there is no question that trademarks will continue to be valuable assets. They will also persist as enticing targets for opportunistic third parties seeking to capitalize on the goodwill belonging to others. The best way to ensure ownership and control of these assets is to protect them from their inception and not as a mere afterthought once copyright registrations are secured. Trademark protection policies and the best practices of companies in the industry must keep up with new technological and marketing developments. New merchandising ideas and brand expansion hasten the need to register marks on a larger scale in connection with a wider array of goods and services. The reach of the Internet should compel trademark owners to protect marks online and vigorously use mechanisms like the UDRP and ACPA to do so. New media and distribution channels and a convergence of the advertising and entertainment industries make it imperative for entertainment and media companies to register their marks earlier and with a more worldwide focus than in years past. Long gone are the days when a company could test the waters by waiting to see if a film, television series, or video game would be successful domestically before launching a trademark filing campaign abroad. Technologically savvy and legally sophisticated opportunists will invariably file trademark applications with the hope of tying up merchandising rights or extorting settlements. This practice is particularly troubling in most foreign countries, which have a first-to-file priority system and may not permit cancellation on grounds of nonuse for more than five years. A growing trend among trademark offices around the world is to offer online filing. Just as the registration of domain names has become easier over time, the same is true for opportunists seeking to file trademark appli- cations in foreign countries without the need or expense of hiring local counsel. No matter whether these third-party applications stand up to formal scrutiny, they will undoubtedly present obstacles to a company seeking to expand the use of its mark. To insulate against this deleterious activity, entertainment and media companies should evaluate and adjust their budgets as needed to allow for early filing of applications in key geographic areas worldwide. This assumes, of course, that a company knows which marks will offer the best merchandising opportunities at an early stage in the development of an entertainment property. There are situations, however, in which merchandising opportunities are speculative, such as when a new series debuts and the host uses a distinctive catch phrase (such as Donald Trump’s “You’re Fired” from The Apprentice). While the filing of national and regional applications worldwide should remain the standard for a company’s core marks, the Madrid Protocol might present a viable solution for these more speculative scenarios, particularly when a company faces budgetary concerns.41 This international treaty does carry significant drawbacks, including requirements for a more narrow description of goods, the risk of a central attack, and the absence of North and South American accession. Nevertheless, these factors may still present a reasonable risk when balanced against the decrease in filing costs by as much as 70 percent in some countries if the trademark is filed under the protocol. By filing applications around the world at a greatly reduced cost without the initial need to retain local counsel, companies can provide their assets with a layer of insulation in the event that merchandising opportunities later present themselves. If a company ultimately decides to move forward with a full-scale merchandising campaign, broader follow-up applications may be filed. Alternatively, should opportunities fail to emerge or not succeed, then costs can be minimized. Companies need to be selective and targeted in their enforcement strategies, from a defensive and offensive stance. To accomplish this, entertainment and media companies must forge early and strong alliances between their marketing and legal departments to develop sound approaches for protecting and enforcing trademark rights at an early stage in the development and exploitation of an entertainment property. In light of Lamparello, the distinction between cybersquatter and cybergriper—that is, the difference between bad faith registration and the use of a domain name that incorporates another’s mark and permissible registration and use, albeit unauthorized, of another’s mark—will become difficult to dis- cern. Relying on First Amendment or fair use42 defenses, sophisticated cybersquatters are certain to create visually impressive gripe sites in a manipulative attempt to blur the line between free speech and trademark infringement. Moreover, due to the availability of confidential or anonymous domain name registration, it will become more difficult to determine if the third party has a legitimate gripe or is merely a known cybersquatter with predatory objectives. Indeed, cybersquatters are already mounting free speech and fair use defenses. For example, in the dispute involving the domain names marthastewartfoundation.com and marthastewardfoundation.org,43 the registrant of those domain names contacted Martha Stewart’s company the same day the names were registered with an offer to sell them. When the company did not purchase the domain names, the registrant posted a Web site listing the political contributions made by Martha Stewart’s company. During the UDRP proceeding that ensued shortly thereafter, the registrant argued that his use was protected free speech since he was merely using the Martha Stewart domain names as part of a Web design school project. Although the panel in the UDRP proceeding acknowledged the complainant’s rights to several registrations for the name Martha Stewart and found the registrant acted in bad faith in that case, if the student had not initially offered to sell the domain names the outcome could have been very different.44 Another continuing problem is the socalled fan site that is actually used for commercial profit by a domain registrant. For example, in the Tom Cruise UDRP proceeding, the respondent claimed it registered the domain name as a fan site notwithstanding the fact that it derived commercial benefit from paying advertisers. To combat the trend toward gripe site and fan site abuses, the entertainment industry must not only register the identical domain name equivalents of their marks but as many reasonable variations as possible, top level extensions, and country codes. For domain names used only as a portal rather than for hosting the main Web site, companies can decrease the annual expense of these domain portfolios by relying on bulk registration registrars that offer fewer bells and whistles. Also, companies can reduce the annual costs by committing to longer term registration periods with discounted rates. Video games will continue to be assets to monitor. Popular films have been made into video games since the early days of gaming consoles. Not until the early 1990s, however, did a new genre begin to emerge in the opposite direction. Films based on video games have generated significant amounts of revenue for the entertainment industry, including box office sales and associated merchandise. While many sources indicate that only one film—Lara Croft: Tomb Raider—has achieved more than $100 million in sales, the genre will no doubt continue to make more appearances in the coming years. As the distinctive names and characters in video games give rise to trademark rights, owners should continue to take steps to adequately protect their assets and control their use through technology and by contract. The impulse to register copyrights alone for these properties should be resisted. Trademark owners should take steps early to identify, clear, and apply to register those marks that will be used on a large scale with merchandise. Perhaps the traditional approach of registering the title of a video game in only one International Class of goods (such as Class 9) should no longer be followed. A better approach may be to file applications in several fields to secure the trademark rights that may emerge from the variety of ways that a video game will be exploited. Finally, owners ought to look beyond the obvious, such as the title of the game, and identify key characters and other properties with potential merchandising appeal. It may not always be easy to predict the course of brand extensions, but filing applications before actual use and in protected areas of expansion will put trademark owners in a better position to avoid potential opposition proceedings and resulting litigation costs down the road. Invariably, it is more cost effective to put resources into protecting trademarks at an early stage. Since trademarks are valuable to the entertainment company as a whole and not necessarily just one division, the cost of building and maintaining a solid trademark portfolio need not fit under one department’s budget. The Internet will continue to be a doubleedged sword for trademark owners in the entertainment industry. As technological advances provide increasing sources of revenue, trademark owners will find it more difficult to monitor the use of their marks online. Further complicating the issue is the fact that in many cases it is not always clear whether the use is authorized, a fair use, or one that is likely to cause consumer confusion and thus constitute an infringement. Though laws are being amended to address these issues, as quickly as the legal landscape changes, opportunists modify their activities to take advantage of exceptions and loopholes. For instance, within weeks of the Napster decision, new peer-to-peer file-sharing sites emerged that were entirely passive as a means to circumvent the monitoring requirement necessary for users to be found liable for contributory copyright infringement. Among the many developments that will continue to facilitate infringement are peer-to-peer file-sharing networks and Web sites with user-created content such as MySpace, Wikipedia, and YouTube. Also, an increase in the number and breadth of Web 2.0 45 sites will consume a great deal of resources earmarked for trademark enforcement activities. Monitoring the unauthorized use of marks has already become a standard expense in many budgets within the entertainment industry. Indeed, watch services can assist trademark owners in keeping track of newly registered domain names and marks worldwide. These services are constantly changing to keep up with new technology, but they will likely prove to be insufficient in the future given the sheer volume of user-created content. As a result, some trademark owners are looking for more creative solutions. Walt Disney went to work on his first full-length animated film nearly 70 years ago. It is useful to imagine what that film would look like and how it would be distributed to the public if it were created today. Trademark protection strategies must keep pace with technology. Trademark owners must register their marks for a broader range of goods and services and on a global scale. With the advent of a new generation of trademark use online and in new media, retaining as much control over trademark rights as possible is more crucial than ever. It is a tireless job, but someone has to do it. Walt would be proud. ■ 1 See Lanham Act §43(c). The well-known marks doctrine is described in Article 6bis(1) of the Paris Convention. Under that article, countries that are members of the Paris Union may refuse or cancel a mark registration and prohibit the use of a trademark that is confusingly similar to a mark considered by the competent authority of the country of registration or use to be well-known in that country as being already the mark of a person entitled to the benefits of the Paris Convention and used for identical or similar goods. Though the well-known marks doctrine is law in many countries, its application is inconsistent among the various jurisdictions. 2 The most recent copyright term extension, the Sonny Bono Copyright Extension Act of 1998, was met with contention. 3 Those applications and registrations are just for the Harry Potter marks. Warner Brothers also owns numerous other registrations and pending applications for various Hogwarts and Dumbledore marks, just to name a few of the terms introduced in J. K. Rowling’s Harry Potter book series. 4 Registered June 29, 1915, as U.S. Registration No. 105,030. 5 Registered March 23, 1915, as U.S. Registration No. 103,248. 6 Though not registered until January 7, 1941, U.S. Registration No. 384,224 notes the use by predecessors of Metro since July 1916, Goldwyn since about January 1917, and the roaring lion since on or about September 9, 1917. 7 Registered January 17, 1956, as U.S. Registration No. Los Angeles Lawyer December 2006 25 619,641, with a date of first use in commerce in 1927. 8 The current registration for the CBS word mark (U.S. Registration No. 2,758,242) was granted only a few years ago in 2003. However it was based on prior registrations and use dating back to 1933. 9 For example, the Meet The Press (television show) and Sports Eye (radio program) marks were registered in 1954. 10 Registered September 18, 1928, by Walter E. Disney, U.S. Registration No. 247,156. 11 U.S. Registration No. 597,341. 12 U.S. Registration No. 597,342. 13 U.S. Registration No. 1,081,450. 14 See U.S. Registration No. 950,381. 15 U.S. Registration No. 1,235,144. 16 U.S. Registration No. 1,065,358. 17 U.S. Registration No. 1,280,778. 18 U.S. Registration No. 1,280,759. 26 Los Angeles Lawyer December 2006 19 See U.S. Registration Nos. 936,474 and 879,594. See, e.g., U.S. Registration No. 3011935 (use of Mickey Mouse for various clothing items) and U.S. Registration No. 3007745 (use of Mickey Mouse for jewelry and watches), both of which registered in 2005; see also U.S. Application Serial No. 78/163,587 for use of Mickey Mouse in connection with entertainment services. 21 See U.S. Registration No. 1,715,262 (which covers many types of I Love Lucy merchandise and collectibles). 22 ROBERT HEIDE & JOHN GILMAN, DISNEYANA: CLASSIC COLLECTIBLES 1928-1958 (Hyperion 1994) [hereinafter HEIDE & GILMAN]. 23 Id. 24 Id. The sliced bread idea was not new with Snow White. Kamen exploited Mickey Mouse in the same way in 1934, with posters featuring the character 20 exhorting boys and girls to buy bread with the Mickey Mouse image on the wrapper. 25 See HEIDE & GILMAN, supra note 22. 26 Pursuant to the Nice classification system, goods and services are classified into one of 45 international classes. For instance, U.S. Registration No. 2891463 for the Snow White and the Seven Dwarfs design marks includes, among other things, bubble bath, jewelry, stationery, calendars, party supplies, wrapping paper, travel bags, backpacks, wallets, luggage, umbrellas, glassware, dishes, kitchen utensils, tea kettles, soap dishes, towels, table linens, sweaters, shirts, pants, footwear, hats, baseball caps, masquerade costumes, plush toys, action figures, board games, dolls, puzzles, golf balls, children’s play cosmetics, coffee, tea, pastry, breakfast cereals, candy, chocolates, cookies, frozen dairy desserts, ice cream, pasta, and ready-to-serve meals. 27 Trademark Law Revision Act of 1988, Pub. L. No. 100-667, codified in the Lanham Act, 15 U.S.C. §1(b). 28 Surfvivor Media, Inc. v. Survivor Prods., 406 F. 3d 625 (9th Cir. 2004). 29 Playmakers, LLC v. ESPN, Inc., 376 F. 3d 894 (9th Cir. 2004). 30 Lee v. Viacom, Inc., 2003 WL 22319071 (N.Y. Sup. Ct. 2003). 31 See, e.g., U.S. Registration No. 1487719. 32 Cobranding is particularly useful as it allows production studios to reach consumers at all levels of sophistication, from low-cost merchandise to higher priced specialty collectible items. For a more in-depth discussion on cobranding, see Miriam Claire Beezy, CoBranding: A Popular Form of Strategic Alliance, in IP VALUE: BUILDING AND ENFORCING INTELLECTUAL PROPERTY VALUE (2005). 33 Julia Fiona Roberts v. Russell Boyd, Case No. D2000-0210 (WIPO, 2000). 34 Experience Hendrix, L.L.C. v. Denny Hammerton & The Jimi Hendrix Fan Club, Case No. D2000-0364 (WIPO, 2000). The complainant in that case, a company formed by Jimi Hendrix’s family, owns the rights to several Jimi Hendrix marks. 35 Tom Cruise v. Network Operations Center/Alberta Hot Rods, Case No. D2006-0560 (WIPO, 2006). 36 Time Warner Inc. & EMI Group plc v. CPIC Net, Case No. D2000-0433 (WIPO, 2000). 37 Lamparello v. Falwell, 420 F. 3d 309 (4th Cir. 2005). 38 Falwell v. Lamparello Int’l, Claim No. FA0310000198936 (National Arbitration Forum, 2003). 39 The Anti-Cybersquatting Protection Act (ACPA), 15 U.S.C. §1125(d). 40 Lamparello, 420 F. 3d 309. 41 See Paul D. Supnik, Protecting Trademarks under the Madrid Protocol, LOS ANGELES LAWYER, Apr. 2004, at 26. 42 The issue has also plagued other industries, as noted by other cases cited by the Fourth Circuit in Falwell that involved online criticism of homebuilder and landscaping companies by dissatisfied customers. See, e.g., TMI, Inc. v. Maxwell, 368 F. 3d 433, 438-39 (5th Cir. 2004) (court found use was noncommercial and designed only “to inform potential customers about a negative experience with the company”); Lucas Nursery & Landscaping, Inc. v. Grosse, 359 F. 3d 806 (6th Cir. 2004) (no bad faith intent to profit found when domain name was registered and used to share a consumer’s negative experience with a company). 43 Martha Stewart Living Omnimedia, Inc. v. Josh Gorton, Case No. D2005-1109 (WIPO, 2005). 44 Id. 45 The term “Web 2.0” frequently refers to next-generation Web sites that have made the transition from an isolated information storage model to a source of user-created content and interactive functionality. W MCLE ARTICLE AND SELF-ASSESSMENT TEST By reading this article and answering the accompanying test questions, you can earn one MCLE legal ethics credit. To apply for credit, please follow the instructions on the test answer sheet on page 29. by Mark Mermelstein and Charlotte Decker Walk theLine Attorneys will find statutory language of limited use in determining what constitutes obstruction of justice Some careers are known to be risky, but the practice of law typically is not one of them. Yet lawyers are exposed daily to the scary risk of criminal consequences for the practice of law. Terry Christensen, a respected member of the California bar, hired a private investigator, Anthony Pellicano, for a client’s divorce case. Christensen now finds himself charged in a criminal indictment, which alleges that the investigator conducted illegal wiretaps and Christensen used information gleaned from the wiretaps to secure a litigation advantage.1 Christensen faces two counts of conspiracy and wiretapping.2 Whatever the outcome of the case, Christensen—a civil attorney litigating a civil case—has been charged with crimes, and the fact that he may be vindicated at trial will do little to remedy the damage to his reputation. Unfortunately, situations like Christensen’s are not unique. More typically, civil litigators, whose very role some consider to be obstructionist, are charged with obstruction of justice rather than conspiracy. This is so because under current law, the line between laudable, ethically mandated, zealous advocacy and criminal obstruction of justice is not always clearly demarcated. Consider a scenario in which a lawsuit challenges a drug manufacturer’s advance knowledge of risks posed by one of the company’s drugs. A subpoena calls for production of all studies conducted by the company regarding the drug. The manufacturer’s lawyer knows the company created an affiliate company expressly to study the effects of the drug, and that the affiliate, but not the named party defendant, is in possession of the study. Should the lawyer obtain a copy of the study from the affiliate and produce it? Alternatively, should the lawyer direct an associate to send a letter to opposing counsel indicating that the manufacturer possesses no documents responsive to the subpoena request? Or consider the situation in which a lawyer is defending a corporate client on civil fraud allegations. The opposing party has issued a deposition subpoena to an employee of the corporate client. The corporation’s Mark Mermelstein is associated with the law firm of Beck, De Corso, Daly, Kreindler & Harris, where he specializes in criminal defense and related civil litigation. Charlotte Decker is a law student at the University of Southern California and cowrote this article while a summer law clerk at Beck, De Corso. Los Angeles Lawyer December 2006 27 lawyer does not realistically think the employee has any criminal fraud exposure and therefore concludes that the employee does not need representation separate from corporate counsel. Later, however, a question is posed in the employee’s deposition, the answer to which may be harmful to the company. Should the corporate attorney counsel the employee to invoke his Fifth Amendment right to remain silent and not answer the question, or even advise the employee of the existence of that right? Suppose another attorney is hired by the corporation’s lawyer to represent the employee and to advise him whether to assert his Fifth Amendment right in the deposition. The new lawyer’s fees are paid by the corporate client. The new lawyer recognizes that if the corporation’s lawyer is pleased with his performance, further referrals of business will likely follow. The witness’s lawyer also recognizes that his client’s testimony will be harmful to the corporation’s legal interest but his client is unlikely to suffer criminal prosecution. Should the new lawyer advise his client to assert his Fifth Amendment right and decline to answer? As these scenarios and many others illustrate, even lawyers whose practice is limited entirely to civil litigation may find themselves enmeshed in situations calling for a nuanced understanding of criminal law. The legal ethics rules in many states are silent or vague on a number of topics, including the dilemmas posed by these scenarios.3 Compounding the problem is the fact that all attorneys are ethically required to zealously represent their clients.4 As a result, an attorney may, in some instances, be ethically bound to approach the line between ethical and unethical conduct. Because most states’ ethical codes are silent as to the precise location of that line, or define the line by reference to the criminal code, the de facto or de jure ethical line is drawn when the attorney’s conduct becomes criminal.5 This may mean that ethically representing a client requires attorneys to strive for the best result for their clients using all methods just short of committing a crime.6 A conservative approach advocated by some commentators is to never communicate to a nonclient witness anything that could be perceived as legal advice.7 That approach, however, leaves unresolved many questions for a corporate attorney like the one in the second scenario, defending a corporate client and pondering how to counsel a corporate employee witness, unless he or she is prepared to recommend that the corporate client hire an attorney for every potential employee-witness in the lawsuit. In addition, adopting a conservative approach to challenging ethical questions may result in the lawyer’s representation falling below the stan28 Los Angeles Lawyer December 2006 dards of zealous advocacy. Indeed, in the context of criminalizing attorney conduct, Justice Antonin Scalia has warned of the dangers of chilling legitimate advocacy.8 Nuts and Bolts of Obstruction of Justice Law Criminal practitioners refer to “obstruction of justice” as a collective term for a series of federal crimes. Conduct by a lawyer may constitute obstruction of justice in violation of Title 18 United States Code Sections 1503 or 1512, if the following elements are present: 1) The existence of a “pending proceeding.” 2) The defendant must know or have notice of the proceeding. 3) The defendant must endeavor to obstruct justice. 4) The defendant must act corruptly with the specific intent to obstruct or interfere with the proceeding. 5) The defendant’s conduct must have the natural and probable effect of interfering with the proceeding.9 No specific methods of obstruction are enumerated in the statutes. This means that any actions can constitute obstruction if done with the requisite intent.10 Indeed, the statutes cover conduct that is otherwise entirely legal. For example, the First Circuit upheld a conviction of an attorney who advised his client to invoke his Fifth Amendment right.11 In so doing, the court soundly rejected the notion that for attorneys, a corrupt motive may not be found in the absence of an independently illegal act.12 As a result, no act, not even traditional litigation tasks, are excluded from the realm of prosecutable conduct. When lawyers retained to defend a client in a civil lawsuit respond to a document subpoena, talk to a prospective witness, or advise their client, these actions presuppose a pending proceeding and the lawyers’ knowledge of the proceeding. Because a lawyer’s goal is typically, at least in part, to impede his or her adversary’s search for the truth, and because limiting access to the truth can be seen as obstructing justice, almost by definition a lawyer’s conduct may approach obstruction of justice. The critical question is whether the conduct was committed with the requisite intent. Accordingly, there is no lawyerly conduct, no matter how “traditional,” that is, ab initio, clearly exempt from the purview of criminal obstruction of justice law. Given the fine line between zealous advocacy and obstruction of justice, attorneys facing criminal prosecution have advocated for a special privilege due to the unique nature of their ethical duty.13 Courts have resoundingly rejected such arguments, holding that as long as an attorney acts with the requisite intent, he or she can be prosecuted for obstruction of justice.14 Far from recognizing a privilege, some courts have held attorneys to an even higher standard than other parties in obstruction of justice proceedings, explaining that attorneys possess a “heightened awareness” of the law and have a “sophisticated understanding of the type of conduct that constitutes criminal violations of the law…more so than an ordinary individual.”15 Congress recently passed a statute containing a defense uniquely available to attorneys. Under the statute, attorneys do not commit a crime when they “provid[e] lawful, bona fide, legal representation services in connection with or anticipation of an official proceeding.”16 However, this defense suffers from the same basic problem as the criminalizing statutes—it does not define or enumerate any specific legal representation services. This defense requires the legal services to be “lawful,” that is, done without corrupt intent. Accordingly, if a legal service is done with corrupt intent, it cannot be a “lawful legal representation service.” As a result, this defense merely returns the focus of the inquiry to whether the act was done with the requisite intent. To understand obstruction of justice as applied to the legal profession, it is crucial to understand that the whole issue comes down to the intent element: If the lawyer was acting “corruptly” while practicing law, he or she is guilty; if the lawyer was acting in good faith, he or she is not. Looking to how courts have defined “corruptly,” neither the Ninth Circuit’s definition—“the specific intent to obstruct justice”17—nor the Fifth Circuit’s definition—“acting with an improper motive”18—sheds much light on what conduct falls within and without the confines of the law. For lawyers, the scariest holding was the one in which the Seventh Circuit stated that the fact that an attorney’s actions were “motivated by his attempt to protect his client from prosecution” was of no significance because those same actions demonstrate that the defendant-lawyer “clearly intended and corruptly endeavored to obstruct justice.”19 Clearly, the definition of the intent element leaves something to be desired. A review of some fact-specific cases sheds a little more light on the definition. In United States v. Cintolo, during a grand jury investigation an attorney advised his client to invoke his Fifth Amendment right and suffer contempt charges even though he had immunity.20 The First Circuit found that the attorney’s advice was motivated not by a desire to protect his client but for the purpose of shielding other individuals—those who would be inculpated by the client’s testimony.21 As a result, the First Circuit affirmed the finding that the attorney-defendant had acted corruptly and was therefore guilty of obstructing justice.22 MCLE Test No. 154 The Los Angeles County Bar Association certifies that this activity has been approved for Minimum Continuing Legal Education legal ethics credit by the State Bar of California in the amount of 1 hour. 1. The crime of obstruction of justice is limited to specific behaviors, such as threatening a witness or discarding documents. True. False. 2. Attorneys are no longer at risk for being charged with obstruction of justice because Congress passed 18 USC Section 1505(c). True. False. 3. Courts have recognized a special privilege for attorneys in obstruction of justice law. True. False. 4. In some circumstances an attorney can counsel a client not to testify even if it would result in the suppression of evidence. True. False. 5. The court in United States v. Rasheed defines “corruptly” in relation to obstruction of justice as “acting with an improper motive.” True. False. 6. Attorneys in California have a duty derived from case law to zealously advocate for their clients. True. False. 7. In United States v. Cueto, the Seventh Circuit upheld attorney Cueto’s conviction because he: A. Counseled his client to invoke his Fifth Amendment right. B. Entered into a business transaction with his client. C. Gave legal advice to a nonclient. D. A and B. 8. A prosecution for obstruction of justice is based exclusively on an attorney’s conduct in a criminal proceeding. True. False. 9. A literal truth defense to obstruction of justice charges is uniquely available to attorneys. True. False. 10. In obstruction of justice law, a corrupt motive may not be found in the absence of an independently illegal act. True. False. MCLE Answer Sheet #154 WALK THE LINE Name Law Firm/Organization 11. A lawyer engaged in a state litigation can be held liable for federal obstruction of justice. True. False. Address 12. It is possible for a lawyer to be charged with obstruction of justice for conduct that is otherwise entirely legal if the lawyer has the requisite intent. True. False. Phone 13. Who bears the burden of proof at trial regarding mens rea in an obstruction of justice case? A. The defendant. B. The government. 14. For a lawyer to be found guilty of obstruction of justice, the lawyer must know about or have notice of a federal proceeding. True. False. 15. Attorneys who advise their own clients to invoke their Fifth Amendment rights are safe from prosecution for obstruction of justice. True. False. 16. Attorneys whose sole motive is to protect their clients from prosecution are always shielded from obstruction of justice charges. True. False. 17. Obstruction of justice charges for a civil attorney require a parallel criminal investigation. True. False. 18. California law defines obstruction of justice as “misleading conduct with the intent to obstruct or hinder…justice.” True. False. 19. In the Third Circuit, 18 USC Section 1515(c) is: A. An element of the crime alleged in the indictment. B. An affirmative defense. 20. Encouraging witnesses to invoke their Fifth Amendment right in return for a benefit is legal under federal obstruction of justice statutes. True. False. City State/Zip E-mail State Bar # INSTRUCTIONS FOR OBTAINING MCLE CREDITS 1. Study the MCLE article in this issue. 2. Answer the test questions opposite by marking the appropriate boxes below. Each question has only one answer. Photocopies of this answer sheet may be submitted; however, this form should not be enlarged or reduced. 3. Mail the answer sheet and the $15 testing fee ($20 for non-LACBA members) to: Los Angeles Lawyer MCLE Test P.O. Box 55020 Los Angeles, CA 90055 Make checks payable to Los Angeles Lawyer. 4. Within six weeks, Los Angeles Lawyer will return your test with the correct answers, a rationale for the correct answers, and a certificate verifying the MCLE credit you earned through this self-assessment activity. 5. For future reference, please retain the MCLE test materials returned to you. ANSWERS Mark your answers to the test by checking the appropriate boxes below. Each question has only one answer. 1. ■ True ■ False 2. ■ True ■ False 3. ■ True ■ False 4. ■ True ■ False 5. ■ True ■ False 6. ■ True ■ False 7. ■A 8. ■ True ■ False 9. ■ True ■ False 10. ■ True ■ False 11. ■ True ■ False 12. ■ True 13. ■A 14. ■ True ■ False 15. ■ True ■ False 16. ■ True ■ False 17. ■ True ■ False 18. ■ True ■ False 19. ■A 20. ■ True ■B ■C ■D ■ False ■B ■B ■ False Los Angeles Lawyer December 2006 29 In United States v. Cioffi, an attorney advised a nonclient witness to invoke his Fifth Amendment right in an SEC investigation and suggested that some benefit—the forgiveness of a loan that a third party had made to the witness or avoidance of harm to the witness’s wife—might flow to the witness if he did so.23 Even though the evidence could be interpreted as the attorney inquiring of the status of the cancer-stricken wife of the witness rather than threatening the wife’s demise, the Second Circuit not only affirmed the attorney-defendant’s conviction for obstruction of justice but also rejected the notion that advising a nonclient witness to invoke his Fifth Amendment right is protected conduct.24 In contrast, the Fifth Circuit perceived no impropriety in an attorney’s contacting counsel for a codefendant to impress upon him the danger of his client’s testifying and to remind the attorney of his client’s Fifth Amendment right to remain silent.25 Also, the Supreme Court has firmly established that in appropriate circumstances it is permissible for attorneys to offer such advice to their client, even if the advice to invoke the Fifth Amendment right would inevitably lead to less information being supplied and, consequently, justice being obstructed.26 In United States v. Cueto, the Seventh Circuit affirmed the obstruction of justice conviction of an attorney who, during a pending covert federal investigation, obtained a state court injunction barring an undercover federal investigator from interfering with his client’s business operation and requested that the state attorney’s office criminally prosecute the agent.27 Although this conduct is ostensibly legal (independent of obstruction of justice) and motivated, at least in part, by a desire to protect his client, the Seventh Circuit upheld the attorney’s conviction because the attorney, in addition to his role as advocate for his client, had also entered into a business relationship with his client and personally benefitted from his client’s continued business operations.28 In other words, the court was satisfied that Cueto’s actions were “corrupt” because he personally benefitted from them as opposed to his client being the sole beneficiary. The common theme derived from these cases is that courts appear to find corruption when there is a departure from the traditional role of a lawyer advising a client for the benefit of only that client. Cintolo was protecting a third party, Cioffi was giving legal advice to a nonclient, and Cueto was protecting himself. Courts first seem to distinguish between an attorney acting in the best interests of a client and an attorney acting in someone else’s interests and then reason that if an attorney is acting in someone else’s 30 Los Angeles Lawyer December 2006 interests, he or she must not be acting in the best interests of the attorney’s client and is therefore acting corruptly. There are other significant factors in determining whether a situation poses a risk of an obstruction of justice charge for a lawyer. First, a lawyer is not shielded from obstruction of justice liability merely because the proceeding in which a corrupt act takes place is civil or because the government is not a party to the proceeding.29 A lawyer who destroys documents responsive to a subpoena issued in a civil lawsuit is clearly in violation of obstruction statutes. Moreover, while much ink has been spilled regarding the type and duration of the pending proceeding that is required as an element of a federal prosecution for attorney obstruction of justice,30 it is clear that a postcomplaint prejudgment civil lawsuit constitutes a pending proceeding.31 Second, although the violation of federal criminal obstruction of justice law requires an endeavor to obstruct a federal proceeding, a lawyer engaged in a state litigation can still be liable for federal obstruction of justice if his or her conduct has the collateral effect of undermining, for example, a federal investigation.32 By contrast, obstructing a California state litigation that has no bearing on any federal investigation33 would be prosecutable, if at all, under California state law. California state obstruction of justice law is much narrower than federal law. California law makes criminal only certain discrete acts such as subornation of perjury,34 solicitation of perjury,35 and obstructing a police officer during the performance of his or her official duties.36 In California there is no crime defined as general obstruction of justice; however, conspiracy to obstruct justice is a crime under California law.37 Third, it is not necessary for a lawyer’s act to actually obstruct justice. Even if, for example, the lawyer who destroys a subpoenaed document delivers another copy of the document to the propounder of the document subpoena, a prosecution for obstruction of justice could still lie. That is because the crime punishes mere “endeavors” to obstruct justice. 38 An “endeavor” encompasses a broader range of action and includes any effort that has the natural and probable effect of interfering with justice.39 Fourth, a lawyer who engages in “misleading conduct” may be found to obstruct justice.40 Federal law provides that misleading conduct toward a possible witness to “influence, delay or prevent” testimony or to withhold, alter, or destroy a “record, document or other object” is a felony. Misleading conduct includes 1) omitting information so that a part of a statement is misleading, 2) creating a false impression, or 3) creating a false document.41 Lastly, it is important to bear in mind that the government can secure an indictment of a lawyer without alleging that the lawyer was not providing legal services.42 Even if the lawyer was in fact providing lawful legal services, that fact alone cannot achieve dismissal of an indictment. Accordingly, even an attorney who is vindicated at trial has nonetheless suffered the stigma of public indictment. Applying the Law In the scenario in which an attorney is faced with a decision whether, in response to a document subpoena, to produce a document in possession of a corporate affiliate, the ethical code does not address the issue other than in the general duty of an attorney to be a zealous advocate. The constraint on this duty, found in criminal law, dictates that it is a crime to conceal or destroy documents responsive to a document subpoena.43 So how do these rules operate in conjunction with one another? The threshold question asks whether the document is responsive to the subpoena. If, on the one hand, the document is not responsive to the subpoena (that is, because there is no such study in possession of the company), then there is no affirmative obligation to produce the study. A narrow reading of the subpoena may reach this result. If the attorney concludes that despite the fact that the study is not technically responsive to the subpoena, it is relevant to the proceedings and produces it, this attorney may have violated his ethical duty to zealously represent his client and may have exposed himself to malpractice charges. In the absence of an affirmative obligation to produce the document, the attorney is barred from harming the client. Thus, if the document is not responsive to the subpoena, it probably cannot be produced even if the attorney believes that some sense of justice requires it. If, on the other hand, the document is responsive to the subpoena, must the attorney produce it? To be sure, it is a crime for the attorney to conceal or destroy the document. However, the Ninth Circuit was clear that mere failure to produce documents, without more in the way of actions or conduct, does not constitute an intent to obstruct the proceeding in which the documents were subpoenaed. 44 Indeed, the U.S. Supreme Court reversed a contempt conviction of an attorney who had counseled his clients not to respond to a subpoena duces tecum because the attorney acted in good faith.45 So one could imagine some response to the subpoena that does not involve the production of the document but also does not constitute active concealment or destruction. Assuming the lawyer is not going to pro- duce the document requested by the subpoena, the lawyer would presumably have an associate communicate that fact to opposing counsel. This would typically be accomplished via a letter stating there is no document responsive to the subpoena. The danger in this action is that if a lawyer directs an associate to write a letter omitting material information—that there is a document on point but not in possession of the subpoenaed corporate entity—the lawyer has arguably engaged in misleading conduct toward another person with intent to cause or induce a person to Once one ing in the best interest of someone other than the nominal client), it may be enough to tip the scale in favor of prosecution. Although the rule of lenity—in an ambiguous statute an action that is not clearly prohibited is legal47— offers some solace, it is of little comfort to practicing attorneys who must risk indictment to fulfill their ethical duties to their clients. The second scenario tackles the issue of a lawyer for a corporate party dealing with the corporate client’s employee, who is a witness. In preparation for the witness’s upcom- still have committed obstruction of justice? That is, if Cioffi had merely met with the witness and encouraged him to invoke his Fifth Amendment right, would that have been enough to sustain a conviction? There does not appear to be a case on point, but the Third Circuit has recognized that the language of 18 USC Section 1512 is broad enough to encompass criminal responsibility for a lawyer advising a nonclient witness to invoke his or her Fifth Amendment right.49 Given this case law, the prudent lawyer would be wise to avoid advising nonclient witnesses to invoke recognizes that the lawyer may have committed the actus reus of a crime, the question becomes has the lawyer done so with the requisite mens rea? If the lawyer is acting corruptly, he or she will be found to have obstructed justice; if the lawyer is acting in good faith, he or she will not. To complicate matters, most, if not all, of the evidence of good faith will lie in the attorney’s own mind. withhold a document from an official proceeding in violation of 18 USC Section 1512(b). It is important to remember that any conduct can be construed as obstruction of justice, so the fact that the lawyer’s statement is literally true (there is in fact no company study responsive to the subpoena) is not a defense. Unlike the crime of perjury in which literal truth is an affirmative defense,46 there is no literal truth defense to obstruction of justice. Once one recognizes that the lawyer may have committed the actus reus of a crime, the question becomes has the lawyer done so with the requisite mens rea? If the lawyer is acting corruptly, he or she will be found to have obstructed justice; if the lawyer is acting in good faith, he or she will not. To complicate matters, most, if not all, of the evidence of good faith will lie in the attorney’s own mind. The Section 1515(c) good faith defense offers little protection because it essentially inquires into the nature of the attorney’s thoughts. While there do not seem to be any prosecuted cases of attorneys under this theory, the defense is seemingly weak. If some other evidence were to surface (for example, if the lawyer had a personal stake in the outcome of the litigation or the lawyer was act- ing deposition, perhaps the corporate lawyer has reviewed his correspondence and has debriefed the witness. The lawyer may not think the witness has any personal exposure but is aware of conduct by the employee that may be harmful to the lawyer’s corporate client. Practitioners facing this situation must be aware of criminal obstruction of justice law, which provides that intimidation or misleading conduct toward a possible witness to “influence, delay or prevent” testimony is a crime. Given these parameters, lawyers could very well face obstruction of justice liability if they mislead a witness into thinking that it is in the witness’s best interest to invoke his or her Fifth Amendment right when, in fact, the lawyers are counseling the witness to invoke the Fifth Amendment in order to protect their client. Knowledge of the Cioffi case is crucial. Attorney Cioffi was convicted of obstruction of justice for meeting with a witness, encouraging him to invoke his Fifth Amendment right, and offering the witness a benefit—forgiveness of a $25,000 loan—and avoidance of some detriment—harm to his wife—if the witness invoked his right.48 If Cioffi had not offered the benefit, would he their Fifth Amendment right. Attorneys who “merely inform” witnesses of the existence of their Fifth Amendment right as opposed to advising its invocation could also face exposure, particularly if the “mere information” would be interpreted by a reasonable person as advice to assert the Fifth Amendment right. Attorneys should bear in mind that courts have deemed that “whatever the contours of the line between traditional lawyering and corrupt intent may be, they must inevitably be drawn case-by-case.”50 As a result, with no case law on this point, attorneys in this situation must risk indictment in order for a court to determine whether their behavior was zealous or criminal. Ultimately, the best solution for lawyers in this situation is to ensure that another attorney is involved in the case exclusively to represent the interests of the witness. Case law protects an attorney who conveys an encouragement to invoke a Fifth Amendment right through the filter of an attorney representing the witness.51 Apparently, if the witness in the second scenario has his own counsel, the corporate client’s lawyer may be able to persuade the witness to invoke his right while knowing the witness will get the benefit of independent legal advice. Los Angeles Lawyer December 2006 31 M. NAIR, M.D. Board Certified: – Psychiatry – Child Psychiatry – Forensic Psychiatry – Psychopharmacology – Addiction Medicine – Harvard and UC Trained Consultations • IME • Deposition • Record Review Second Opinion • Trial Testimony • Civil Litigation 562.493.2218 ■ psychiatryforensic.com State Bar Approved MCLE provider 433 N. Camden Dr., Suite 600, Beverly Hills, CA 90210 TRUST DEED FORECLOSURES “Industry Specialists For Over 18 Years” Witkin & Eisinger we specialize in the Non-Judicial of obligations secured by real property Aor trealForeclosure and personal property (mixed collateral). When your client needs a foreclosure done professionally and at the lowest possible cost, please call us at: 1-800-950-6522 We have always offered free advice to all attorneys. & WITKIN EISINGER, LLC RICHARD G. WITKIN, ESQ. ◆ CAROLE EISINGER CALIFORNIA SOCIAL SECURITY ADVOCATES We specialize in handling claims from the initial application level through the hearing before the Social Security Administration and Office of Disability Adjudication and Review. Our specialties include: • Social Security Disability Claim • Supplemental Security Income Claim (SSI) • Retirement Benefits • Social Security Spouse Benefits • Social Security Death Benefits • SSI/RSDI Overpayment Defense • SSI Fraud Protection We pay referral fees pursuant to the Rules of the California State Bar Toll Free 866.325.4529 www.socialsecuritylawattorney.com CALIFORNIA SOCIAL SECURITY ADVOCATES 32 Los Angeles Lawyer December 2006 This scenario posits that the corporate client’s lawyer enlists the aid of another lawyer to represent the witness, the newly retained lawyer recognizes that his legal fees are being paid by the corporate client, and the corporate client’s lawyer is a good source of future referrals. The corporation and its lawyer will be pleased if the employee asserts his Fifth Amendment right. Can the newly retained lawyer thus counsel the witness to invoke the Fifth Amendment on these bases? The answer is, of course, no. The lawyer must put the personal benefits of the invocation out of mind and focus solely on the best interests of the client. The newly retained lawyer may advise the client to invoke the right or not, but the advice must be based solely on what will most benefit the lawyer’s client. If a witness’s lawyer allows external motivations to influence his or her counsel, the lawyer is no longer acting with good faith, since the advice is based on factors other than the best interests of the client. On the other hand, if the lawyer does not allow external motivations to influence his or her thinking and considers only the best interests of the client, although the lawyer is not guilty of obstruction of justice, the lawyer still may not be in the clear. Most crimes, and obstruction of justice is no exception, are prosecuted based on the actus reus of the crime, not the mens rea, because it is impossible for a prosecutor to know with certainty what goes on in another’s head. The scenario in which the lawyer considers motivations extraneous to the best interests of the client may, from the prosecutor’s vantage point, look exactly the same as the scenario in which the lawyer does not consider such motivations. Both scenarios posit a lawyer with a personal financial interest advising his or her client to invoke the Fifth Amendment right and the client does so, resulting in evidence being suppressed. As a result, the virtuous lawyer may still be charged even though he or she has not committed a crime. Nevertheless, there are some steps lawyers can take to create exculpatory evidence regarding virtuous intent and thereby reduce the likelihood of being charged. One option is to draft a memo to file detailing a lawyer’s thinking at the time of counseling the client to invoke his or her Fifth Amendment right. Another option is to consult a legal ethicist. If an ethicist sanctions a lawyer’s conduct, then the lawyer may have both a defense and a witness to testify on his or her behalf. Unfortunately for the practicing attorney, obstruction cases against attorneys turn on very fine lines—and some of them involve an inquiry into the lawyer’s thinking. Exculpatory evidence will help a lawyer avoid conviction but will not necessarily avoid indictment or the accompanying embarrass- ment or harm to the lawyer’s reputation. There are situations in which the line between zealous advocacy and obstruction of justice is hazardously vague and relies on invisible evidence of the inner thoughts of a practicing attorney. Because the distinction in obstruction of justice law between criminal and legal is so fine, and the repercussions so severe, civil litigators must acknowledge that if they are not aware of the law of criminal obstruction of justice, they may be doomed to violate it—or come perilously close. ■ 1 United States v. Pellicano, Case No. 05-1046(C) RMT (pending U.S. Dist. Ct., Central Dist. of Cal.), Indictment, at 54. 2 Id. at 54, 61. 3 To the extent that state ethical rules do address these issues, it is through incorporation by reference of a state’s criminal laws. For example, the ABA Model Rules of Professional Conduct forbid lawyers from “unlawfully obstruct[ing] another party’s access to evidence.” MODEL RULES OF PROF’L CONDUCT R. 3.4(a). 4 See, e.g., MODEL RULES OF PROF CONDUCT R. 1.3 cmt (“A lawyer should act with commitment and dedication to the interests of the client and with zeal in advocacy upon the client’s behalf.”). In California, case law recognizes the same duty. See, e.g, People v. McKensie, 34 Cal. 3d 616, 631 (1983). In the criminal context, zealous representation may be constitutionally mandated by the Sixth Amendment. 5 Bruce A. Green, Zealous Representation Bound: The Intersection of the Ethical Codes and the Criminal Law, 69 N.C. L. REV. 687 (Mar. 1991). It is outside the bounds of a lawyer’s ethical duties to engage in or counsel criminal conduct. See MODEL RULES OF PROF’L CONDUCT R. 1.2(d). 6 See United States v. Moran, 2000 WL 33981888, at *5 (Jury Instructions as cited in Reply Brief for the United States). 7 See, e.g., Mary Spearing, Obstruction of Justice and Attorneys Who Work on Civil Fraud Cases, 456 PLI/LIT. 521, 532 (PLI Mar. 1993). 8 Hubbard v. United States, 514 U.S. 695 (1995) (Scalia, J. concurring). See also United States v. Cueto, 151 F. 3d 620, 631 (7th Cir. 1998). 9 United States v. Aguilar, 515 U.S. 593 (1995). 10 Cueto, 151 F. 3d at 631 (“[I]t is not the means employed by the defendant that are specifically prohibited by [18 U.S.C. §1503] but is, instead, the defendant’s corrupt endeavor which motivated the action.”). 11 United States v. Cintolo, 818 F. 2d 980 (1st Cir. 1987). See text, infra. 12 Id. 13 See Cintolo, 818 F. 2d at 992. 14 See, e.g., Cueto, 151 F. 3d at 631-32; Cintolo, 818 F. 2d at 996 (The court emphatically rejected “the notion that a law degree, like some sorcerer’s amulet, can ward off the rigors of the criminal law.”). 15 Cueto, 151 F. 3d at 631-32. 16 18 U.S.C. §1515(c). 17 United States v. Rasheed, 663 F. 2d 843, 852 (9th Cir. 1981). 18 United States v. Haas, 583 F. 2d 216, 220 (5th Cir. 1978). 19 Cueto, 151 F. 3d at 633. On the other hand, according to the Eleventh Circuit, if there is a “fair doubt” that the lawyer-defendant did not act, at least in part, with a “corrupt motive,” the doubt must be resolved in the defendant’s favor. United States v. Brand, 775 F. 2d 1460, 1465 (11th Cir. 1985). According to the Supreme Court, the “corruptly” component of the crime must in some way limit the class of defendants. Arthur Anderson v. United States, 544 U.S. 696, 706 (2005) (The inclusion of “impede” and exclusion of “dishonestly” from the definition of “corruptly” rendered the 5th Circuit’s jury instructions “flawed.”). 20 United States v. Cintolo, 818 F. 2d 980 (1st Cir. 1987). 21 Id. at 994. 22 Id. 23 United States v. Cioffi, 493 F. 2d 1111 (2d Cir. 1974). 24 Id. 25 McNeal v. Hollowell, 481 F. 2d 1145 (5th Cir. 1973). 26 Maness v. Meyers, 419 U.S. 449 (1975). 27 United States v. Cueto, 151 F. 3d 620 (7th Cir. 1998). 28 Id. at 633. 29 See, e.g., United States v. Barfield, 999 F. 2d 1520, 1525 (11th Cir. 1993); Sneed v. United States, 298 F. 911, 912 (5th Cir. 1924). 30 But see United States v. Veal, 153 F. 3d 1233, 1250 (11th Cir. 1998) (“By its wording, §1512(b)(3) does not depend on the existence or immanency of a federal case or investigation but rather on the possible existence of a federal crime and a defendant’s intention to thwart an inquiry into that crime.”). 31 See, e.g., United States v. Lundwall, 1 F. Supp. 2d 249 (S.D. N.Y. 1988); Bruce E. Yannett & David A. Weinstein, Civil Discovery Missteps Invite Criminal Sanctions; Once Almost Unheard Of, Prosecution for Perjury or Obstruction of Justice Arising from Civil Discovery Is Now More Common, NAT’L L. J., Feb. 22, 1999, at 26 (collecting cases). 32 See, e.g., Cueto, 151 F. 3d at 631. 33 PENAL CODE §127. 34 PENAL CODE §653f(a). 35 PENAL CODE §69. 36 Business and Professions Code §1628 makes any attorney guilty of a misdemeanor who “is guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party.” 37 PENAL CODE §182(5) (“If two or more persons conspire to commit any act injurious to the public health, to public morals or to pervert or obstruct justice, or the due administration of the laws, they are punishable as follows….”). 38 See, e.g., United States v. Brady, 168 F. 3d 574, 580 (1st Cir. 1999). See also Arianna Berg & Jeffrey Levinson, Obstruction of Justice, 37 AM. CRIM. L. REV. 757, 765 & n.53 (Spring 2000). 39 United States v. Aguilar, 515 U.S. 593, 599 (1995). 40 118 U.S.C. §1512(b)(1)-(3) prohibits the use of misleading conduct with the intent to affect another person or object in relation to their participation in a legal proceeding. 41 Id. 42 United States v. Kloess, 251 F. 3d 941, 949 (11th Cir. 2001). 43 18 U.S.C. §§1505, 1510(a), 1512(b)(2)(A)-(B). 44 United States v. Rasheed, 663 F. 2d 843, 852 (9th Cir. 1981). 45 Maness v. Meyers, 419 U.S. 449 (1975). 46 Bronston v. United States, 409 U.S. 352 (1973). 47 See United States v. Bass, 404 U.S. 336, 348 (1971). 48 United States v. Cioffi, 493 F. 2d 1111 (2d Cir. 1974). 49 United States v. Davis, 183 F. 3d 231, 248 (3d Cir. 1999); Cole v. United States, 329 F. 2d 437 (9th Cir. 1964). 50 United States v. Cintolo, 818 F. 2d 980, 995 (1st Cir. 1987). 51 It is not a federal crime for a defense lawyer to persuade a witness to assert his or her Fifth Amendment right as long as the witness is represented by his or her own attorney. McNeal v. Hollowell, 481 F. 2d 1145 (5th Cir. 1973). Quo Jure Corporation 1-800-843-0660 www.quojure.com [email protected] LAWYERS’ WRITING & RESEARCH When you can’t do it yourself, but you still need a brief or memo done—and done well, by experienced attorneys who are skilled writers—turn to Quo Jure Corporation. Quo Jure provides premium legal writing and research services to practicing attorneys. Our work has contributed to milliondollar settlements and judgments. Oppositions to motions for summary judgment are our specialty. Call for a free analysis and estimate. The Winning EdgeTM Los Angeles Lawyer December 2006 33 by Rochelle B. Spandorf FranchisePlayer Trademark licensees need to carefully consider the three-prong test for franchise agreements Rochelle B. Spandorf is a partner in the Los Angeles office of Sonnenschein Nath & Rosenthal LLP, specializing in franchise and distribution law. 34 Los Angeles Lawyer December 2006 KEN CORRAL In Gentis v. Safeguard Business Systems,1 the defendant retained commissioned sales agents to solicit orders, follow leads, and provide customer service. The agents did more than just take orders, but lacked authority to enter into binding sales contracts with customers, never took title to or paid for goods, seldom made deliveries, and did not handle billing or collection. When the relationship between the agents and Safeguard soured, the agents sued Safeguard for violations under California’s Franchise Investment Act. In one of the few reported appellate decisions interpreting the statute, the court of appeal found that the relationship between the sales agents and Safeguard did constitute a franchise. In Gabana Gulf Distribution Ltd. v. Gap International Sales, Inc.,2 the defendant authorized a United Kingdom company to distribute its Gap brand merchandise in markets outside the United States, reserving control over the distributor’s customers. The manufacturer terminated the distribution agreement without cause as permitted by the parties’ contract in order to pursue a different international distribution strategy. The distributor sued for wrongful termination in violation of California’s Franchise Relations Act even though the parties’ contract disclaimed a franchise relationship. When Gap moved to dismiss the claim, the court denied the motion. Both cases involve typical distribution arrangements for the offer, sale, or delivery of branded goods or services identified by the seller’s trademark. In neither case did the agent pay cash upfront or any type of monthly payment based on gross receipts for the distribution rights. Nor did the parties intend to form a franchise relationship. Neither seller expected to end up defending franchise allegations. Yet, these situations arise with considerable frequency. Manufacturers, suppliers, and other trademark owners overlook a possible franchise connection when they enter into continuing commercial relationships with independent third parties to sell their branded products or services. Embedded in these distribution arrangements is a de facto trademark license. While not every trademark license creates a franchise, every franchise contains a trademark license. Knowledge of California’s franchise laws may not be enough.3 Given the interstate, national, and even international scope of so many franchise networks today, California lawyers need to know about potentially applicable federal, state, and foreign franchise laws.4 Sorting franchises from nonfranchise licenses can be a highly uncertain process. The quality controls that trademark owners must retain over a licensee’s trademark use closely resemble the marketing controls that are characteristic of a franchise. Yet, from a regulatory viewpoint, nonfranchise and franchise licenses are as different as day and night. Nonfranchise licenses are unregulated private consensual arrangements. Franchises, by contrast, are highly regulated. Franchise sellers must obey elaborate federal and state presale disclosure and registration laws; nonfranchise licensors do not. Many states restrict the conditions under which a franchise may be terminated or not renewed. Some states dictate substantive terms for the franchise relationship. A franchisee cannot waive the statutory protections of franchise laws even if it wants to. A terminable-at-will contract clause cannot be enforced in a jurisdiction that requires good cause to terminate a franchise agreement—even if the franchisee’s attorney actively negotiated the contract. Franchise law violations carry significant penalties even if the inadvertent franchisor never knew about the law or had no intent to violate it. Not only is it a felony to sell a franchise without complying with franchise sales law,5 but federal and state franchise agencies have broad powers to punish franchise law violators and may freeze assets, order restitution, issue cease and desist orders, ban violators from selling franchises, and recover substantial penalties. Franchisees have private remedies for state franchise law violations.6 Besides compensatory damages and, in some states, attorney’s fees, an injured franchisee may 1) rescind a franchise agreement for disclosure and registration violations, including fraud in connection with a franchise sale, 2) obtain an injunction to enjoin a wrongful termination or nonrenewal of a franchise, and/or 3) recover damages or restitution. Furthermore, state franchise laws impose personal, joint and several liability on the franchisor’s management and owners even when the franchisor is a legal entity.7 Finally, lawyers who overlook franchise laws may be guilty of malpractice and potentially liable to victims of their client’s wrongdoing.8 What Is a Franchise? Most people think they know a franchise when they see one. In truth, franchising is a method of distribution, not a particular industry. There is no uniform definition of a franchise. As consumer protection statutes, courts give franchise laws a sweeping scope. Consequently, a broad variety of unsuspecting commercial arrangements may qualify as franchises. At the most basic level, a franchise is defined by the coexistence of three elements: 1) A grant of rights to use another’s trademark to offer, sell, or distribute goods or services (the “grant” or “trademark” element). 2) Significant assistance to, or control over, the grantee’s business, which may take the form of a prescribed marketing plan or what is more broadly described as a “community of interest” (the “market36 Los Angeles Lawyer December 2006 ing plan variation” element). 3) Payment of a required fee (the “franchise fee” element). A franchise finding hinges entirely on whether a commercial arrangement fits the applicable statutory definition. If any one statutory element is missing from the arrangement, the relationship is not a franchise. The legal analysis considers the parties’ actual practices, oral as well as written promises, and course-of-dealing evidence.9 A party cannot avoid a franchise relationship simply by disclaiming its existence.10 It is immaterial what the parties call themselves. While federal and state jurisdictions that regulate franchises share common definitional approaches, each jurisdiction has its own definitional subtleties and mix of exclusions and exemptions. What qualifies as a franchise under the federal franchise sales law may not qualify under state law definitions, or vice versa. What is a franchise in one state may not be a franchise in all the regulating states in which the franchisor operates. Business owners and their advisers are not the only ones confused. Irreconcilable legal precedents reflect misperceptions among regulators and the judiciary about the legal concept of a franchise. As a result, legislators, regulators, judges, and practitioners alike all suffer from uncertainty about the exact kinds of commercial arrangements intended to be regulated as franchises.11 In advising companies that manufacture and distribute products or services or that license business methods, technology, or trademarks to independent operators, practitioners should, as a preliminary, consider the possibility of unwittingly creating a franchise. In so doing, they should consult the franchise statutes, judicial opinions, and administrative guides of each jurisdiction in which the parties reside or intend to do business before their client offers an opportunity involving an express or implied trademark license or takes steps to modify or end the relationship. On the federal level, franchises are governed by the Federal Trade Commission rule, which describes three general types of franchises: package, product, and business opportunity franchises.12 The first two are best known and involve the presence of the three basic elements. The package franchisee adopts the franchisor’s business format and identifies its independent operation by the franchisor’s trademarks, in exchange for which the franchisee pays the franchisor a fee. The franchisee’s operating methods are subject to significant control by the franchisor or, alternatively, the franchisor renders significant assistance to the franchisee in day-to-day operations. Fast food, convenience stores, and real estate services are examples of package franchises. The product franchisee distributes goods identified by the franchisor’s brand manufactured by, or for, the franchisor. The franchisee pays a fee for the distribution rights above the wholesale price of the goods. As with package franchises, the franchisor exercises significant control over, or provides significant assistance to, the franchisee. Automobile and gasoline dealerships and delivery route distributors are examples of product franchises. The third type, business opportunity ventures, encompasses readily distinguishable lower-cost investments such as vending machine routes and work-at-home programs.13 State law franchise definitions largely resemble the FTC rule’s package and product franchise definitions in that most also require the combination of the three basic elements.14 The trademark and fee elements are fundamentally the same as the FTC rule. However, states laws differ by requiring either 1) substantial assistance or control (the federal standard), 2) a marketing plan prescribed in substantial part by the franchisor, or 3) a community of interest. A few state laws define a franchise by a two-prong test that either omits the marketing plan or the payment of a required fee.15 The Trademark Element The grant of rights to associate with another’s trademarks in offer- ing, selling, or distributing goods or services is not only a common element of every franchise definition but also the easiest definitional element to meet. Absent an express prohibition against use of the licensor’s trademark, a right to use the mark will be inferred even if the mark is, in fact, never used.16 For this reason, every franchise involves an express or implied trademark license of some sort. Franchise definitions vary from requiring a “license to use” the licensor’s mark to requiring a “substantial association” between the grantee’s business and the licensor’s trademark. Under the “license to use” approach, an express contract authorizing trademark use will support a franchise relationship even if the mark is not part of the licensee’s trade name—for example, Smith’s Appliances, an authorized Brand X Service Center. Permission to display a manufacturer’s logo in dealing with customers satisfies this element. Even without explicit contract authority, longstanding use of a licensor’s trademark in dealing with customers may be enough to establish a trademark license. Courts have found a requisite de facto trademark license in the following situations: • A distributor sold uniquely configured branded goods which consumers readily associated with a particular manufacturer in an exclusive territory.17 • A dealer was entitled to identify itself as an authorized dealer of the manufacturer’s products in Yellow Pages advertising.18 • A distribution agreement imposed a duty to use best efforts to promote the sale of branded products.19 • A distributor was required to wear uniforms and add the licensor’s logo or name on delivery vehicles or store windows.20 States following the “substantial association” approach, such as California, have also found the requisite trademark element satisfied when branded products or services account for a significant percentage of the independent operator’s overall sales.21 In fact, California courts have shown a willingness to stretch the definitional elements to achieve desired results. In one California appellate decision, a substantial association with the licensor’s mark was found even though the licensee was forbidden to use the licensor’s brand name and, in fact, never used it.22 The court was swayed by evidence showing that a building owner had relied on the brand name in renting space to the licensee to operate a cafeteria in the building, which satisfied the substantial association test. The Licensor’s Dilemma.The fact that an agreement lacks an express trademark license does not prove the trademark element is missing. As noted, a de facto license is part of the rights granted to an independent third party who is authorized to sell branded products or services accounting for more than an insignificant percentage of the third party’s overall sales. Since the trademark element’s presence may depend on the extent of the licensee’s branded sales, contract drafting cannot save a license from being a franchise. A contract that expressly denies a trademark license may leave the licensor, manufacturer, or supplier with the worst of both worlds: an agreement that is subject to various franchise laws, but does not contain the protections that a well-drafted trademark license should contain. Therefore, whether an arrangement lacking an express trademark license is, indeed, a franchise will most likely turn on the presence or absence of one of the other two definitional elements. The Marketing Plan Variation Element A handful of states follow the FTC rule’s approach and require the licensor to furnish significant assistance or impose significant controls over the licensee’s entire method of operation. Significant assistance exists when the licensor provides formal sales, repair, or business training programs; site location assistance; management, marketing, or personnel advice; promotional support requiring the licensee’s participation or financial contribution; or operating advice such as by furnishing a detailed operating manual. Significant controls exist if the licensor approves or restricts the business location or sales territory, specifies design or appearance requirements, prescribes operating hours, establishes production methods or standards, restricts the customers a licensee may serve, mandates personnel policies or practices, or dictates mandatory accounting practices. Under certain circumstances, any one of these factors may be enough to constitute significant control or assistance. Significant promises of assistance, even if unfulfilled, will satisfy this element. However, merely providing pointof-sale advertising and media support may not be enough.23 The franchisee’s reliance on the franchisor’s experience influences whether the licensor’s control or assistance is significant. The franchisee’s general business experience, knowledge of the industry, relative financial risk in light of its total business holdings, and the extent to which the controls or assistance go beyond normal industry practices each bear on the reliance factor. California and a number of other states define a franchise as a trademark license in conjunction with a marketing plan. The marketing plan element is composed of four distinct components, all of which must coexist: 1) a marketing plan, 2) prescribed, 3) in substantial part, 4) by the licensor. Each component has been separately analyzed by judicial and administrative authority.24 Determining whether a marketing plan exists is inherently subjective and, consequently, difficult to dodge in a written agreement. While judged by the presence of various facts, no interpretative and judicial opinion suggests a minimum number or combination of facts that inherently guarantee a marketing plan’s presence. The parties’ contract, course of dealing, and industry customs are all relevant. The term “prescribed” has been interpreted to mean something less than mandatory.25 Consequently, a marketing plan may be prescribed by Los Angeles Lawyer December 2006 37 implication when it is outlined, suggested, recommended, or otherwise originated by the licensor, even when making use of the plan is not obligatory.26 Courts differ in the degree of franchisor involvement in a franchisee’s daily business activities that are necessary to support a marketing plan. Some require significant control, such as confining sales to assigned territories, imposing sales quotas, establishing mandatory sales training, or supplying detailed instructions for customer selection and solicitation. Other courts have found a marketing plan based on far less—for example, a promoter’s recommendations, advice, or suggestions even when there is no obligation on the franchisee’s part to observe them, such as suggesting resale prices and discounts, providing demonstration equipment or advertising materials, recommending or screening advertising materials, or providing product catalogs. What courts identify as a “marketing plan prescribed in substantial part” may actually be basic to most distributorships.27 For example, a marketing plan was found to exist when: • Dealers were required to advertise the manufacturer’s products intensively, conduct a variety of promotions, and carry the manufacturer’s array of accessory sales devices.28 • Distributors marketed products pursuant to a comprehensive advertising and promotional program developed by the supplier, who reserved the right to screen and approve all promotional materials used by distributors.29 • Distributors were required to perform warranty services in accordance with the manufacturer’s warranty policy, send representatives to sales meetings, complete the manufacturer’s factory service training program, maintain minimum inventory levels, hire an extra salesman, and provide periodic sales reports to the manufacturer.30 • A promoter promised to provide a marketing plan but failed to deliver on its promise.31 Administrative and judicial opinions try to forge a distinction between production-type controls (which do not result in a marketing plan) and marketing controls (which do), but the distinction between the two has never been well articulated.32 A marketing plan can exist even when the controls or advice do not relate to advertising or marketing matters, such as when a manufacturer provides detailed instructions and advice regarding operating techniques and skill training that make independent businesses appear as if they are centrally managed and follow uniform standards. Several states follow the community of interest model, rather than the marketing plan or assistance/control approach, but differ in how they define this element. However, all these states agree that a community of interest exists when parties derive fees from a common source—a standard that potentially encompasses every distributorship and license.33 The Licensor’s Dilemma. Because the trademark element of a franchise is so easily established, trademark licensors may be tempted to avoid the imputation of a franchise by eliminating the second definitional element—some form of assistance to or control over the licensee’s business. This creates a dilemma because the federal Lanham Act imposes an affirmative duty on licensors to control the quality and uniformity of goods and services associated with their federally registered trademarks. Failure to do so may result in abandonment of trademark rights. As a practical matter, it is often impossible to distinguish trademark quality controls from the factors identifying substantial control, a marketing plan, or a community of interest. It may also be inadvisable to try to avoid the reach of franchise laws by eliminating or modifying contractual provisions designed to protect product or service quality or set operating standards that identify the licensee with a larger branded network. A licensor that eliminates or reduces quality controls may not only sacrifice important core values vital to the 38 Los Angeles Lawyer December 2006 business and brand, it may risk abandoning its trademark rights. The Required Fee Element The required fee element captures all sources of revenue paid by a franchisee to a franchisor for the distribution rights or license. The element is deliberately expansive, encompassing lump sum, installment, fixed, fluctuating, up-front, and periodic payments for goods or services, however denominated, whether direct, indirect, hidden, or refundable.34 Under federal law, imputation of a franchise relationship can be avoided by following the FTC rule, which requires a minimum payment of $500 or more before or during the first six months of operations.35 By deferring required payments exceeding $500 for at least six months, a licensor will not be deemed a franchise under federal law even if the licensee signs a nonnegotiable, secured promissory note (with no acceleration clause) promising to pay the money after six months. While this exemption offers interesting structuring opportunities for franchises sold in states without franchise laws, it has no counterpart in California or in any other state with franchise sales or relationship laws. Deferral of fees, therefore, is not a universal solution for avoiding franchise status. All jurisdictions exclude payments that do not exceed the bona fide wholesale price of inventory if there is no accompanying obligation to purchase excessive quantities. To qualify, the payment must be entirely for goods for which there is a ready market.36 Most product distribution arrangements rely on the bona fide wholesale price exclusion to avoid structuring a distributorship or dealership program as a franchise. In addition, only required payments count, not optional ones. Nevertheless, calling something optional is not necessarily controlling. Payments, though nominally optional, will be deemed required if they are essential for the successful operation of the business.37 Finally, to be classified as a required fee, the payment must be made to the licensor or its affiliate, or for its benefit, as the quid pro quo for the licensing or distribution rights. For this reason, commissions paid by a licensor to a licensee are not franchise fees.38 There is some lingering confusion about whether ordinary business expenses paid to third parties to establish or maintain a business qualify as a required fee. All jurisdictions that have considered the issue, except Indiana, have held that franchise fees are confined to payments to the franchisor (or an affiliate, or for the benefit of either) and exclude payments to third parties.39 Thus, while a franchise fee—direct or indirect—is generally a prerequisite for application of federal and state franchise sales laws, it is not a prerequisite for the application of several franchise relationship laws regulating termination, nonrenewal, and other substantive conditions of the parties’ relationship.40 The Licensor’s Dilemma. For the trademark licensor trying to avoid a de facto franchise agreement, the fee element is the easiest of the three definitional prongs to avoid. A manufacturer or supplier of branded goods that limits its compensation from a distributorship or dealership to the difference (markup) between its cost of goods and the bona fide wholesale price at which it sells the goods to its distributors or dealers can lawfully avoid the franchise laws in all jurisdictions that use a three-prong definition. This is true regardless of how closely the licensor, manufacturer, or supplier controls the distribution process or how much the supplier’s markup is.41 Often a trademark owner is in a position to collect a premium from those who want to affiliate with its brand. A manufacturer or supplier may impose innocuous payments for noninventory materials or support services, like sales manuals, demonstration kits, point-of-sale materials, or bookkeeping services, not suspecting that these payments may be enough to constitute a franchise fee. Some branded affiliations do not involve the purchase of inventory, like service businesses and technology alliances. In these relationships, the bona fide wholesale price exception is not available, and all payments that flow from the licensee to the licensor are potentially franchise fees. Frequently, licensors, manufacturers, and suppliers do not awake to the reality of the franchise relationship until years after it is formed when they seek to end the relationship pursuant to an at-will termination provision in their contract. If there is no breach of contract by the licensee, the licensor cannot end the relationship absent good cause. Because franchise laws cannot be waived, once a fee is paid anytime during the parties’ affiliation, a licensor may be foreclosed from reverting to nonfranchise status even if the licensor offers to refund the unintended franchise fee.42 Efforts to have the licensee waive the franchise laws are unhelpful. Thus, the trademark licensor’s dilemma is that, in order to escape franchise regulation, licensors may be required to leave dollars on the table. Every U.S. jurisdiction regulating franchises has its own mix of definitional exclusions and exemptions, offering a complicated and often confusing maze of structuring opportunities and limitations for companies considering regional or national expansion. Some exclusions and exemptions are common to most, or all, jurisdictions. For example, transfers by franchisees are not regulated by federal or state franchise sales laws if the licensor’s involvement in the transfer is confined to approving the buyer’s qualifications. Other exclusions and exemptions are unique to a particular jurisdiction, reflecting special local lobbying efforts.43 Accordingly, individual statutes must always be checked. For example, California law, the FTC rule, and a few other states exclude or exempt arrangements, referred to as fractional franchises, in which less than 20 percent of the licensee’s revenue is derived from sales of the licensed brand.44 Accidental Franchises Because branding is an increasingly important factor in consumer purchasing decisions, accidental franchises occur more frequently today than when franchise laws were first enacted in the 1970s. Accidental franchises occur because franchise laws poorly articulate the distinction between nonfranchise licenses and franchises. Every branded distribution arrangement involves an implied, if not an express, trademark license. Strategic affiliations between brand owners, with each owner giving the other the right to affiliate publicly with the other’s brand, are, at a minimum, de facto licenses. With few exceptions, the brand owner’s equity stake in a joint venture will not save the joint enterprise (a distinct legal entity) from being classified as a franchisee. Each time a license, distributorship, strategic trademark alliance, or other type of branded joint venture or marketing affiliation is formed, the cornerstone of a franchise potentially is laid. Given the prevalence of technology-related licenses and cobranding programs today, that cornerstone may be laid more often than brand owners realize. Courts have shown no sympathy for trademark owners that defend franchise claims by pleading ignorance of the law or no intent to create a franchise.45 Modeled after U.S. security laws, franchise statutes impose strict liability, thereby making a defendant’s intent or knowledge of the law irrelevant.46 Franchise laws also have their roots in consumer protection legislation, and, as a consequence, are construed liberally. Given the serious consequences flowing from an accidental franchise, lawyers should suspect a franchise whenever an express or de facto trademark license presents itself. Strategic branding alliances, joint ventures, and technology licenses should be viewed suspiciously as hidden franchises and closely inspected to see if money is being paid, directly or indirectly, by one party for the right to associate with the other’s trademarks. Certain aspects of the franchise definition, like the marketing plan, community of interest, and substantial assistance and control elements, are so inherently imprecise that it is difficult to render an opinion to a client that an arrangement does not contain at least some indicia of a franchise. The key is knowing how many factors are enough to tip the scale. Counsel should never rely on contract terminology or disclaimers, neither of which will defeat deemed franchise status. But contract drafters are not without tools. When a license or distribution contract is deliberately structured to avoid a franchise definitional element or takes advantage of a statutory exemption or exclusion, the drafter should express these facts in the contract. While self-serving and certainly not bulletproof, the plain language will certainly aid, and possibly influence, the fact-finder’s analysis of the franchise claim. Structural solutions may save some commercial relationships from the reach of franchise laws, but often they come at the price of sacrificing essential marketing concepts, economic objectives, or competitive opportunities. The regulatory burdens of being deemed a franchisor should be kept in perspective. Numerous franchisors comply with federal and state franchise laws every day and sustain and grow successful and viable businesses. They compete in the marketplace while complying with presale disclosure and annual registration duties, close franchise sales while honoring rules restricting promises about future earnings and obeying disclosure document delivery rules, and manage franchise relationships while respecting state laws requiring good cause for termination or nonrenewal. In the long run, the costs associated with franchise avoidance, be they added business risks or extra legal expenses, may be more painful than franchise law compliance. Companies are short-sighted if their overwhelming desire to avoid legal regulation as a franchise drives their business decisions about their overall strategic objectives. ■ 1 Gentis v. Safeguard Bus. Sys., 60 Cal. App. 4th 1294 (1998). Gulf Distribution, Ltd. v. Gap Int’l Sales, Inc., 2006 U.S. Dist. LEXIS 59799 (N.D. Cal. 2006). The court held that the complaint adequately pleaded the existence of a franchise. While the early stage ruling on the pleadings did not reach the merits, it illustrates the nuisance cost of the accidental franchise dragnet. 3 California has two general franchise laws: the California Franchise Investment Act, CORP. CODE §§31000-31506, and the California Franchise Relations Act, BUS. & PROF. CODE §§20000-20043. Enacted in 1970, the California Franchise Investment Act was the first law of its kind to require franchisors to make presale disclosures and register with a state agency before offering or selling franchises in the state. While other jurisdictions later modeled their franchise sales laws after California’s, little regulatory uniformity exists. California enacted the California Franchise Relations Act in 1980, requiring franchisors to have good cause to terminate, not renew, or cancel a franchise. 4 Franchise sales in the U.S. are subject to dual regulation at the federal and state level depending on where the parties reside or intend to do business. The federal franchise sales law, formally titled Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures, 16 C.F.R. §§436.1-3 (1978) [hereinafter FTC Rule], regulates franchise sales in all 50 states, including wholly intrastate transactions, and requires presale disclosure, but not registration with a federal agency. California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington, and Wisconsin have franchise sales laws coupled with some obligation on franchisors to register the franchise offer with a state agency. Oregon’s franchise sales law does not require registration with a state agency but does mandate disclosure and certain record-keeping duties. The FTC Rule supplements state franchise sales laws but does not preempt them. Roughly half the states also have franchise relationships laws comparable, but not identical, to California’s. 5 CORP. CODE §31410 (“Any person who willfully violates any provision of this law…shall upon conviction be fined not more than one hundred thousand dollars ($100,000) or imprisoned in the state prison, or in a county jail for not more than one year or be punished by both.…). 6 There is no private right of action for FTC rule violations, which only the FTC may enforce. 7 Spahn v. Guild Indus. Corp., 94 Cal. App. 3d 143 (1979). 8 See Courtney v. Waring, 191 Cal. App. 3d 1434 (1987). 9 The FTC rule excludes purely oral agreements from its franchise definition, but most state franchise definitions apply to oral and written contracts. 10 People v. Kline, 110 Cal. App. 3d 587 (1980) (partnership agreement held to be franchise). 11 Stephen C. Root, The Meaning of “Franchise” under the California Franchise 2 Gabana Los Angeles Lawyer December 2006 39 Seeking an Experienced Arbitrator/Mediator? STEVEN R. SAUER, ESQ. COUNSELOR AT LAW • SINCE 1974 “He is truly a master in his art.” 6,000 Settled over 5,000 Federal & State Litigated Cases 323.933.6833 TELEPHONE [email protected] E-MAIL 4929 WILSHIRE BOULEVARD, SUITE 740 LOS ANGELES, CALIFORNIA 90010 JACK TRIMARCO & ASSOCIATES POLYGRAPH/INVESTIGATIONS, INC. 9454 Wilshire Blvd. Sixth Floor Beverly Hills, CA 90212 (310) 247-2637 TEL (310) 306-2720 FAX Jack Trimarco - President Former Polygraph Unit Chief Los Angeles F.B.I. (1990-1998) CA. P.I. # 20970 Member Society of Former Special Agents Federal Bureau of Investigation 40 Los Angeles Lawyer December 2006 email: [email protected] www.jacktrimarco.com Former Polygraph Inspection Team Leader Office of Counter Intelligence U.S. Department of Energy Investment Law: A Definition in Search of a Concept, 30 MCGEORGE L. REV. 1163, 1188 (1999). 12 Federal Trade Commission, Interpretive Guides to Franchising and Business Opportunity Ventures Trade Regulation Rule, 44 Fed. Reg. 49,966 at 49,968. 13 California regulates “seller assisted marketing plans,” arrangements comparable to business opportunities, under the Contracts for Seller Assisted Marketing Plans, which has its own disclosure and registration requirements. CIV. CODE §§1812.201-1812.221. 14 California’s franchise definition is a fairly typical three-prong definition, although it is somewhat broader in scope than other three-prong definitions in that it expresses the right to offer, sell, or distribute goods or services, in the disjunctive. Gentis v. Safegaurd Bus. Sys., 60 Cal. App. 4th 1294, 1300 n.1 (“By using the word ‘or,’ the Legislature intentionally broadened the scope of the statute.”). 15 Arkansas, Connecticut, Delaware, Missouri, Nebraska, New Jersey, Wisconsin, Puerto Rico, and the U.S. Virgin Islands have franchise relationship laws that define a franchise without reference to payment of a required fee. 16 The California Department of Corporations, which oversees the California Franchise Investment Law, elaborates on California’s franchise definition in oftencited Release 3-F, When Does an Agreement Constitute a “Franchise”? (rev. June 22, 1994), available at http: //www.corp.ca.gov/commiss/rel3f.htm [hereinafter Release 3-F]. Regarding the trademark grant, it says: “Therefore, if a franchisee is granted the right to use the franchisor’s symbol, that part of the franchise definition is satisfied even if the franchisee is not obligated to display the symbol.” Other jurisdictions have cited Release 3-F to interpret their own statutes. 17 Lobdell v. Sugar ‘N Spice, 658 P. 2d 1267 (Wash. App. 1983). 18 American Bus. Interiors, Inc. v. Haworth, Inc., 798 F. 2d 1135 (8th Cir. 1986). 19 Cassidy Podell Lynch, Inc. v. Synder Gen. Corp., 944 F. 2d at 1139 (3d Cir. 1991). 20 Cooper Distrib. Co., Inc. v. Amana Refrigeration, Inc., 63 F. 3d 262, 272-73 (3d Cir. 1995). 21 There is no universally recognized minimum percentage of branded product sales that qualifies as a “substantial association” with a supplier’s trademark. The FTC rule, California, and a number of other states have their own version of an exemption for “fractional franchises,” defined generally as multiline distributorships in which sales of any one brand make up less than 20% of the distributor’s total sales. States lacking this exemption do not construe “substantial association” uniformly or necessarily view 20% as a minimal threshold. 22 Kim v. Servosnax, Inc., 10 Cal. App. 4th 1346 (1992). 23 Release 3-F, supra note 16. 24 Release 3-F, supra note 16, provides a comprehensive explanation of the individual components of the marketing plan element and identifies numerous factors indicating a marketing plan. 25 Release 3-F, supra note 16. 26 Id. 27 Steven D. Wiener, Gentis v. Safeguard Business Systems, Inc., Liberal Construction of Remedial Statutes: What Is a Franchise?, 17(4) FRANCHISE L.J. 115 (1998). 28 Boat & Motor Mart v. Sea Ray Boats, Inc., 825 F. 2d 1285 (9th Cir. 1987). 29 Meadow Fresh Farms, Inc. v. Sandstrom, 333 N.W. 2d 780 (N.D. 1983). 30 Carlos v. Philips Bus. Sys., Inc., 556 F. Supp. 769 (E.D. N.Y. 1983), aff’d in part and rev’d in part, 744 F. 2d 287 (2d Cir. 1984). 31 People v. Kline, 110 Cal. App. 3d 587. 32 Whether know-how controls, such as those common to patent licenses, are enough to turn a nonfranchise license into a franchise may depend on whether the know-how affects just an aspect of the licensee’s operations (e.g., production) or are more pervasive. 33 See, e.g, Instructional Sys., Inc. v. Computer Curriculum Corp., 826 F. Supp. 831 (D. N.J. 1993). 34 FTC Rule, §436.2(a)(2); Release 3-F, supra note 16. 35 FTC Rule, §436.2(a)(3)(iii). 36 Boat & Motor Mart v. Sea Ray Boats, Inc., 825 F. 2d 1285 (9th Cir. 1987). 37 Release 3-F, supra note 16. 38 Thueson v. U-Haul International, Inc., 2006 Cal. App. LEXIS 1736 *12 (2006). The California Court of Appeal, finding no published California authority directly explaining what constitutes a “franchise fee” seized the chance to explain California law on the subject even though the discussion is unnecessary to the holding. The California court, following Wright-Moore Corp. v. Ricoh Corp., 908 F. 2d 128 (7th Cir. 1990) (Indiana law), explained that a “franchise fee” requires a “firm-specific investment in the franchisor,” in contrast to payments for ordinary business expenses, although it shed no light on when a payment to a licensor is, and is not, a firm-specific investment. The UHaul facts, however, showed that the dealer had made no payments at all to U-Haul. Rather, U-Haul had deducted from the dealer’s rental commissions expenses for the dealer’s use of a local telephone line, directory listing, and local computer terminal. The U-Haul decision, that commission deductions are not franchise fees, is in line with previous interpretations of California law. See Adees Corp. v. Avis Rent a Car Sys., 157 Fed. Appx. 2 (9th Cir. 2005). 39 See, e.g., Wright-Moore Corp. v. Ricoh Corp., 908 F. 2d 128 (7th Cir. 1990). 40 See supra, note 14. 41 Sports Racing Servs. v. Sports Car Club of Am., 131 F. 3d 874, 891 (10th Cir. 1997) (Indiana law). 42 The California Commissioner of Corporations interprets a franchise fee to include payments for the right to enter a business that are made during the course of the business, not just at inception. In To-Am Equipment Co. v. Mitsubishi Caterpillar Forklift America, Inc., 152 F. 3d 658, 659-60 (7th Cir. 1998), the Seventh Circuit found that a tractor dealership, which was not a franchise at the inception of the parties’ relationship, became one when the dealer’s incremental payments for sales manuals over the course of eight years exceeded $500, Illinois’s statutory threshold. Nothing in California’s statute suggests that an outcome like To-Am could not happen in California, which defines a franchise similarly to Illinois. If any required payment to a supplier over California’s minimum ($100 per year for fees and $1,000 per year for fixtures, equipment, or other tangible property) is enough to create a franchise in California, then a distribution or licensing program that is not a franchise at inception for lack of a required payment could become a franchise once required payments exceed the minimum in any year. The idea that a nonfranchise agreement could turn into a franchise sometime after the parties execute a contract adds an entirely new level of uncertainty to the status of licensing and distribution arrangements. For additional discussion, generally, on what is a franchise fee, see “point/counterpoint” articles by Jonathan Solish, Unrecoverable Investments Are Critical, 26 FRANCHISE L.J. 1 (2006) and Bruce Napell, State Relationship Laws Are Not Uniform, 26 FRANCHISE L.J. 1 (2006). 43 For example, only Minnesota exempts burglar alarm franchises and arrangements between local and national airlines carriers. 44 CORP. CODE §31108. 45 To-Am, 152 F. 3d at 659-60. The Seventh Circuit admonished inadvertent franchisors everywhere: “Legal terms often have specialized meanings that can surprise even a sophisticated party. The term ‘franchise,’ or its derivative ‘franchisee,’ is one of those words.” 46 Keating v. Superior Court, 31 Cal. 3d 584, 597 (1982). RODNEY R. HATTER & ASSOCIATES Franchise Specialists for more than 30 years Assists both Franchisors and Franchisees Affordable • Experienced • Trained and well-educated e-mail www.californiafranchiseattorney.com [email protected] phone (714) 384-6540 fax (949) 494-3448 Los Angeles Lawyer December 2006 41 The 2006 Los Angeles Lawyer & Holiday Travel Gift Guide EVENTS The Music Center Speaker Series sponsored by City National Bank invites you to experience eclectic and thought-provoking evenings in downtown Los Angeles. Speakers include former president George H.W. Bush, President Vicente Fox, Maya Angelou, Fareed Zakaria, Kurt Vonnegut, Jim Lehrer, Madeleine Albright, George Will, Joan Didion, and Bob Woodward and their wide-ranging opinions and lessons learned from decades of experience at the top of their profession. Be part of the discussion. The conversation begins this January. Subscribe today at musiccenter.org or call (213) 972-0700. Please see display ad on page 44. HOLIDAY GIFT IDEAS BriteSmile Inc. A BriteSmile Spa teeth whitening is such an easy way to look and feel your best. In just 1 hour, BriteSmile removes years of stains and returns your teeth to their naturally whitest shade. And the deal has never been better: $399 for one person, $349 each for 2 or more including our Smile Forever program! Expires 12/31/2006.Gift certificates available. Locations in Beverly Hills, Irvine, & La Jolla. Visit britesmile.com or call (888) 616-3611. Esthetic Dentistry Dental Group Brighten up your holidays with a Bright New Smile! Give yourself or someone you care about a dazzling new smile this holiday season! At Esthetic Dentistry Dental Group, we offer high tech and general dental services in a state-of-theart facility: Brite Smile—Whiten your teeth up to 10 shades in under an hour. Invisalign—Straighten your teeth with “invisible” braces-no metal brackets or sharp wires. Lumineers—Reshape and whiten your teeth permanently with no shots, no preps, no pain. Implants- Simple, long-term solution to missing teeth. Sedation Dentistry—offered for fearful patients. Esthetic Dentistry Dental Group is also a full service dental office. We provide comprehensive care for your gum health and general dental needs. Call us at (213) 553-4535 to schedule an appointment. We can help you create the beautiful healthy smile you deserve. Visit us at www.estheticdentistry.net. Please see display ad on the Inside Back Cover. The Six by Six Series The Six by Six Series—-A new wave in minimalism. 100 king-size paintings suitable for your larger spaces. The last minute gift that’ll make a big impression on your favorite art lover. “They’re powerful. I couldn’t wait to get ‘In Orbit’ home and put it up on our wall”—Craig Swanson, Las Vegas, Nevada. Acyrlic on canvas over a 72” x 72” welded steel frame. Art that’s built to last. View now at www.IvanLofstrom.com or call (818) 567-2273 for a Burbank showing. Free holiday delivery. The Suit Closet The Suit Closet aims to provide their customers a pleasant suit-buying experience through the presentation of selection, excellent customer service, and convenience. The Suit Closet offers specialty suits in plus, missy, and petite sizes for career and formal occasions. Alteration services available. Kasper, Jones New York, Albert Nipon, Theory, and Laundry by Shelli Segal are just a few of the many exclusive labels we carry. We also have fine jewelry to complete your suit. Hours: 10 A.M.–7 P.M. Monday-Friday, 11 A.M.–6 P.M. Saturday (Sunday by appointment). Los Angeles Lawyer readers will save 15% by mentioning this ad. Discount not on Theory and Laundry by Shelli Segal. Does not apply to jewelry. First time customers only. Gift certificates available. Now Open! (213) 747-2829. 2296 South Figueroa Street, Los Angeles, CA 90007, (Corner of 23rd and Figueroa). E-mail: [email protected]. Web site: www.TheSuitCloset.com. Free parking in back of store. Please see display ad on page 6. Yoga Works Yoga Works invites you to give the gift of health. Purchase one of the following gifts: 10 yoga classes for $135.00 or the Pilates Starter Package including 3 sessions for just $180.00, and receive a $20.00 gift certificate to any of our Yoga Works boutiques—use it for yourself or gift it to a friend! (These packages are for new Yoga Works students only.) For more information, please e-mail us at [email protected] or call us at (310) 664-6470. Happy Holidays!! HOTELS/MEETINGS/CATERING Hotel Metropole Conveniently located in the heart of Avalon on Catalina Island just 5 minutes from the ferry. The Hotel Metropole is a luxury hotel in a beautiful pristine setting offering 48 spacious air-conditioned guest rooms with spectacular views of the ocean, mountains, and the hotel’s courtyard. Situated just footsteps from the beach, it is the ideal locale for romantic getaways, family vacations, and corporate functions. The look of relaxed elegance imparts a sense of peace and serenity, which echoes the overall island ambiance of balmy breezes and soothing waters. The Hotel Metropole is adjacent to the Metropole Market Place, an open-air marketplace with cobblestone walkways and sparkling fountains featuring a potpourri of boutiques, specialty shops, delis, cafes, and fine dining. The hotel offers wireless high speed Internet throughout, and guest rooms feature king-size beds, cable TV, DVD players and rental library, and amply stocked snack bars. Each of the bright rooms is appointed with comfortable fruitwood furnishings in an aesthetically pleasing blend of colors to match the seaside ambiance. Many rooms have Jacuzzi tubs and 42 Los Angeles Lawyer December 2006 private balconies, and adjoining rooms are available for families and groups. The hotel’s spectacular 1800 square-foot apartment, the Beach House, offers panoramic views and an added level of luxury, including two bedrooms, two Jacuzzi baths, a fully equipped kitchen, dining area, large living room with big screen TV and stereo, and over 1,000 square feet of private deck space. And coming in June ’07 are four brand new oceanfront suites, including one spectacular three room suite to compliment the beach house. Other inroom amenities include plush terry cloth robes (seasonal), complimentary continental breakfasts, and wireless Internet. Room service and day spa also available. 205 Crescent Avenue, Avalon, CA 90704, reservations and information (310) 5101884, (800) 300-8528, Web site: www.hotelmetropole.com. La Quinta Resort & Club La Quinta Resort & Club was recently named one of the “World’s Best Golf Resorts” by Travel + Leisure. The resort offers five championship golf courses, 41 pools and 53 hot spas, the full-service 23,000 square foot Spa La Quinta, Camp La Quinta, four fabulous restaurants, live entertainment and 11 boutique shops. For more information or reservations call (760) 564-4111 or go to the resort’s Web site at: www.laquintaresort.com. Please see display ad on page 42. Angeles, with a scenic view of California Plaza and surrounded by world-famous art and cultural venues. Home to the award-winning Noé restaurant and a brand-new intimate spa, the hotel features 453 guest rooms and suites and offers more than 20,000 sq. feet of state-of-art meeting space. Quite simply it is luxury that’s surprisingly sensible. 251 South Olive Street, Los Angeles, CA 90012, (213) 617-3300, fax (213) 617-3399. Promenade Ristorante Located on the southwest corner of 1st and Hope Street in the Promenade Plaza and one block from the LA Superior Courthouse, Promenade Ristorante has long been a haven for gourmet Italian cuisine. Among the restaurants regulars are personnel from the Courthouse, Music Center, Philharmonic and Los Angeles Opera. We have a wide selection of salads, pizza, pasta, and panino. There are also entrees such as hearty chicken, steak and fresh fish in addition to daily specials. Indoor and outdoor dining in a courtyard atmosphere. Free one hour validated parking below our restaurant. Promenade Ristorante, 719 West 1st Street, Los Angeles, CA 90012, (213) 437-4937, fax (213) 437-4940. Lunch Monday-Friday 11:30 A.M. to 2:00 P.M. Dinner Tuesday-Sunday 5:00 P.M. to 8:00 P.M. Web site address with full lunch and dinner menu: www.promenaderistorante.com. RESORTS Omni Los Angeles Hotel at California Plaza Just 20 miles from LAX, this luxury hotel is ideally located in the heart of a revitalized downtown Los the artistic, seaside village of Laguna Beach! Choose from an extensive menu of creative classes and activities located throughout the beach resort. Hotels are offering exceptional rates and special perks! The activity options fit every lifestyle with programs such as art classes (paint a scarf!), yoga, cooking lessons (with chocolate!), kayaking, spa pampering, and shopping. Be sure to book in advance to ensure availability now through March ’07. Visit www.lagunabeachinfo.com. Laguna Beach Visitors & Conference Bureau, 252 Broadway, Laguna Beach, CA 92651. Fax (949) 376-0558. Please see display ad on page 5. Lake Arrowhead Resort and Spa Safely out of reach of the congestion of the city, Lake Arrowhead Resort and Spa is situated at 5,106 smog-free feet in the San Bernardino National Forest. Fresh from a $15 million transformation, the resort features a lodge-like lobby; a new wine-inspired restaurant, BIN189; an 11,000-square-foot spa; exceptional indoor and outdoor function space; and all the comforts of home in our renovated guestrooms and suites. Experience complimentary clear-blue skies, stunning lake views, and mountain-fresh air. Lake Arrowhead Resort and Spa, 27984 Hwy 189, Lake Arrowhead, CA 92352, (800) 800-6792, (909) 336-1511, fax (909) 7443088, e-mail: [email protected]. Web site: www.laresort.com. Please see display ad on page 43. Laguna Beach Visitors & Conference Bureau Give the gift of a girlfriend’s getaway…a visit to The conversation starts January 29. 2007 SEASON: SERIES A The Honorable Vicente Fox 62nd President of Mexico – January 29th music center speaker series Dr. Maya Angelou – February 23rd The Honorable George H.W. Bush 41st President of the United States – March 12th Fareed Zakaria – May 14th PRESENTING SPONSOR Kurt Vonnegut Jr. – June 7th SERIES B Jim Lehrer – February 15th The Honorable Madeleine Albright – March 13th George Will – April 30th Joan Didion – May 7th Bob Woodward – June 8th 2007 SEASON SUBSCRIPTIONS START AT $150 FOR A SERIES OF FIVE SPEAKERS For subscriptions call (213) 972-0700 or visit musiccenter.org. SUPPORTING SPONSORS Preferred Wine of the Music Center A C O L L A B O R AT I O N O F T H E M U S I C C E N T E R A N D S R P R O D U C T I O N S 44 Los Angeles Lawyer December 2006 Computer Counselor BY DAVID FISHEL AND CAROLE LEVITT New Tools in the Discovery of Sound Recordings Amendments to the FRCP (and similar provisions in state courts) RECENT CHANGES to the Federal Rules of Civil Procedure are poised to move the discovery and analysis of sound recordings out of the realm will soon affect discovery requirements and practices regarding sound of high-profile government investigations and into the everyday recordings. The new rules make it clear that judges and lawyers world of normal litigation. While only a few attorneys currently must understand and manage electronic discovery from the beginning have experience with discovery of small amounts of recordings from of a case. Parties need to decide whether and how to ask for sound voice mail, fewer still have engaged in discovery of hundreds or recordings. In addition, parties should have a reasonable underthousands of hours of voice mail or call center recordings. The pro- standing of recording and storage systems, put appropriate controls liferation of audio recordings created in the course of business will in place, formulate credible plans for how they will review and promake the availability of this kind of evidence more common. Along duce responsive recordings, and decide on the forms in which the with the new rules are new tools that make discovery and analysis recordings will be produced. of this evidence more manageable. On the surface, the challenges presented by hundreds of hours of audio recordings are Phonetic audio search technology is based on breaking down audio similar to those presented by any other large body of potentially relevant materials. Requesting parties must skillfully frame recordings by analyzing the smallest components of human speech. their requests. Responding parties will attempt to limit the scope of requests and to manage the production process as best they can. The tasks are similar to any e-discovery endeavor. Parties are faced The newly revised Rule 34(a) specifically identifies “sound recordwith locating, extracting, searching, reviewing, culling, and produc- ings” as “electronically stored information” (ESI). This new term claring responsive recordings, and doing so accurately, cost-effectively, ifies and expands the “documents and data compilations” included and under short deadlines. The primary pitfalls stem from the com- in the earlier version of the rule. The new rule also allows the requestplexity of recording technologies and the sheer size of recorded audio ing party to specify the form in which it wants the information procollections, combined with the difficulty of searching them. duced. The stated aim of this provision is production of ESI in a “reaAudio recordings have long been discoverable and admissible as sonably usable” form. Audio recordings are captured in a wide evidence and have often provided compelling proof in court, but most variety of formats, many of which are proprietary to specific recordlawyers have not yet conducted audio discovery on the massive scale ing systems, so the question of whether a sound recording is reasonably now common for electronic and paper documents. That is about to usable can be expected to arise regularly. The cost and time required change. Recordings can be very good evidence. They provide a per- to convert a large collection of recordings from a proprietary format son’s words in his or her voice. In many cases this might include a tone to a more “usable” one can be significant. It behooves attorneys to of voice, verbal inflection, or snicker that conveys far more information learn about the various audio formats and seek early expert help in than a written transcript ever could. Recordings can contain “smok- making decisions about production issues so that they can be fully ing gun” statements and are very effective when used in conjunction prepared to defend their preferred form of production. with documentary evidence or witness testimony. With the right analytical tools, audio can be used to quantify evidence of specific Amended FRCP Deadline behaviors, such as the number of times a company engaged in a spe- Attorneys are required to do this very quickly. Amended FRCP 16(b) cific prohibited activity. requires parties to hold a scheduling conference to consider electronic Three factors are rapidly transforming discovery of audio evidence: discovery plans within 120 days of the commencement of an action. • Recent amendments to the Federal Rules of Civil Procedure (FRCP) Furthermore, at least 21 days before this scheduling conference, parexpressly identify “sound recordings” as “electronically stored infor- ties must meet to discuss and, if possible agree upon, electronic dismation” and impose new requirements for disclosure, case manage- covery procedures for the case. Rule 26(f) specifically requires the parties to address “any issues ment, planning, and form of production of all electronically stored relating to disclosure or discovery of electronically stored informainformation. • The quantity of sound recordings is increasing because of technology tion, including the form or forms in which it should be produced.” advances such as digital storage, regular office and cellular phone voice In relation to audio recordings, this means that parties must be mail, VoIP telephony, and unified messaging systems that deliver knowledgeable about the relevant recording and storage systems, audio voice mail as e-mail. • New tools are making it feasible to find, extract, convert, search, David Fishel is a litigator and senior director and technology counsel for and produce audio recordings. Nexidia. Carole Levitt is president of Internet For Lawyers. 46 Los Angeles Lawyer December 2006 formats, and other production issues, and must formulate their electronic discovery plans within the first 100 days of the life of a case. Following the Rule 16 scheduling conference, the court may issue a scheduling order that sets forth how electronic discovery will proceed. By the time of that order, parties should make certain that the court is fully informed of any issues regarding ESI, including audio evidence. Discovering Audio New digital recording technologies have rapidly increased the ability to record speech and to store vast amounts of those recordings. More recordings are being made, and since the new technologies are digital (that is, created and stored on computerized systems rather than analog tape), the growth is enabled by the same factors that brought about the recent explosion of electronic messaging and documents. “Sound recordings” means voice mail to many attorneys, but voice mail is not the only variety of audio evidence. Collections of recordings may include audio archives from corporate call logging systems, Web conferences, or IP-based conference calls. Businesses that routinely record conversations with customers and business partners may have huge stores of potentially discoverable recordings. These business recordings are subject to the same requirements for retention, preservation, litigation holds, and production as any other potentially relevant information. Digital recording technology spawns new opportunities and challenges for requesting and producing parties. Corporate call centers routinely record conversations between businesses and their customers for quality assurance. If the issues in a case include, for instance, the number and type of complaints about a certain product, when a company had notice of alleged problems with a product, or how a company treated its customers, that information may be found in the thousands (or millions) of calls the company received and recorded. Many businesses also record transactional conversations, such as trading or sales calls. This type of recording has proven critical in cases involving energy companies and commodities traders and is common in financial service businesses. Voice mail itself is changing. Initially, voice mail technology moved slowly from the era of the cassette tape answering machine to the PBX. Now, businesses are rapidly moving to unified messaging systems in which all messages—voice, e-mail, or instant text— are delivered to the user’s computer desktop and stored along with other message traffic on mail servers. In this environment, voice mail is converted into .wav format attachments to e-mail messages. Some routine e-mail discovery could now include voice mail attachments. In the past, voice mail recordings were generally kept in a central location, with strict limits on the number of messages each user could save and how long a message could be stored. A single person’s mailbox was easy to identify and could only contain a few minutes of recordings. As businesses switch to unified messaging, the same problems that have vexed e-mail discovery—duplicates, the propensity of users to retain e-mail, and mailbox archives that are not under the direct control of system administrators—will arise for voice mail. Voice mail was previously sought in hope that a particular message may have been saved, but now a company’s entire voice mail system may be considered to contain potentially relevant information. For example, an employment suit may seek evidence of a pattern of behavior or practice in a company’s voice mail archive. KENT GIBSON FORENSICAUDIO.ORG “Justice may be blind, but she isn’t deaf.” Kent Gibson, forensic audio specialist, (Emmy and Grammy Award winner) - audio enhancement, restoration, expert witness, audio/video evidence Featuring the new Cedar Cambridge Forensic System Los Angeles 323-851-9900 Kent @ForensicAudio.org M. NAIR, M.D. Board Certified: – Psychiatry – Child Psychiatry – Forensic Psychiatry – Psychopharmacology – Addiction Medicine – Harvard and UC Trained Tools to Meet the Challenge With the advent of e-discovery of large amounts of audio comes the need to fully process them as discovery materials, and that includes finding responsive recordings. It is not uncommon for a litigant’s IT and legal staff to have a good grasp on the location of audio evidence but to have no idea of the content of the recordings. At present, there are three primary ways of reviewing and searching recordings: listening, manual transcription, and phonetic search. (A fourth option, speechto-text transcription by computer software, is widely regarded in the legal field as currently not sufficiently accurate to produce reliably searchable transcripts.) Listening and manual transcription are the two most used at present and can be effective for small collections of recordings. However, both are very expensive, slow, and cannot scale up to economically handle the several hundred hours of recordings that a larger matter might produce. Even for small audio collections, the cost of transcribing or listening to recordings can quickly become prohibitive. Listening suffers from a number of limitations, the greatest of which is the inability to search the audio content. Having once listened to recordings, if a new search is needed, the recordings must be listened to again in their entirety. Listening costs vary widely. Paralegals or contract attorneys are often used for the initial review, but attorneys generally listen to the potentially relevant recordings in order to make legal determinations about them. In addition to prohibitive cost and lack of searchability, effective listening takes much longer than the duration of the recordings themselves. Also, attentive listening is difficult to sustain for any long period of time, and it is difficult to get directly back Consultations • IME • Deposition • Record Review Second Opinion • Trial Testimony • Civil Litigation 562.493.2218 ■ psychiatryforensic.com State Bar Approved MCLE provider 433 N. Camden Dr., Suite 600, Beverly Hills, CA 90210 EMPLOYMENT TRIAL ATTORNEYS We specialize in handling Employment & Labor Law Cases from attorney referrals in Los Angeles, Ventura, Santa Barbara, San Bernardino, Riverside and Orange County. A Full Service Employment Law Firm with extensive experience in the following specialties: • Wrongful Termination • Age Discrimination • Race Discrimination • Disability Discrimination • Pregnancy Discrimination • Sex Discrimination • Sexual Harassment • Violation of Whistling Blowing Laws • Employment Manual Preparation • Family Leave Act • Medical Leave Act • Labor Law Violations • Severance Package Agreements You will be paid a referral fee within the Guidelines of the California State Bar Toll Free 310.826.6300 www.employmentattorneyservices.com EMPLOYMENT TRIAL ATTORNEYS Representing Both Employees and Employers Los Angeles Lawyer December 2006 47 (949) 388-0524 48 Los Angeles Lawyer December 2006 to relevant bits of conversation even after they have been located. Manual transcription is similarly slow and expensive. On average, a law firm can expect to spend about $120 per hour of audio recording to produce a usable transcript of audio content. Economical transcription services can also take a long time, a problem that increases as the size of an audio collection grows. It may require transcribing more than 100 to 200 hours of recordings just to locate a few seconds of audio evidence. Phonetic audio search technology is based on breaking down audio recordings by analyzing the smallest components of human speech, known as phonemes. (There are roughly 40 phonemes used in spoken North American English.) Since 2000, Nexidia (www.nexidia.com) has applied phonetic search technology in the government intelligence and commercial call center arenas. More recently, the company began applying the technology to the e-discovery and corporate compliance market. The high-speed phonetic audio search approach has two phases: preprocessing and searching. The first phase preprocesses the sound recordings to break the words into their component phonemes. This step produces a phonetic search track and on one processor occurs roughly 60 times faster than real time. Thus, one hour of audio recording can be rendered searchable in about one minute. This means that it is feasible to handle collections of thousands of hours of recordings for discovery. Reviewers can run searches against the phonetic index for words and phrases. Search results are linked directly to the point in the original recording where the search term was found, allowing reviewers to jump directly to the point in the recording containing potentially relevant terms. This greatly increases the speed at which reviewers can pinpoint their listening to potentially relevant passages of the audio. The phonetic approach can be up to 98 percent accurate on recordings with the best quality. Accuracy can be as low as 70 percent when speakers have regional accents or the recording is of poor quality, contains blended words, proper names, slang, code words, or ad hoc usage. Accuracy of other speech recognition methods, such as speech-to-text, can drop as low as 50 percent. More lawyers are going to conduct discovery of sound recordings. Those who are going to be successful need to understand the technical aspects of audio recording systems, master the rules that govern discovery of audio materials, and use effective tools to find and organize the information. Whether they are requesting or producing sound recordings, attorneys who develop those skills can act with confidence. ■ Classifieds CA 90016, (310) 815-8855: Charlie Balot (ext. 212) [email protected] or Michael Tashman (ext. 217) [email protected]/ Attorney Wanted STAFF CORPORATE COUNSEL FOR JAPANESE LAW: Research & analyze US, Japanese & Int’l Trade Treaties to prep drafts of briefs for review by an attorney; prep memos & present info concerning US, Japanese & Int’l Trade laws to upper mgmt; Baccalaureate Degree or equiv in Law or Legal Studies reqd; must be fluent in Japanese & familiar w/Japanese Law especially as related to imports/exports; 40hrs/wk. Jobsite/interview: Los Angeles, CA. Send this ad & resume to Mr. Hiroyuki Kodama, c/o Mutual Trading Co., Inc., 431 Crocker St., Los Angeles, CA 90013. Computer Forensics SINCE 1997, ONLINESECURITY serves corporate and legal clients through an IT investigations practice including computer forensics, consulting, & investigations. Computer Forensics encompasses harvesting, analysis, network forensics, & electronic discovery identifying electronic evidence for litigation. Consulting & investigations provides experts in digital evidence, cyber crime, IT investigations, incident response, discovery strategy, & expert witness testimony. 5870 West Jefferson Blvd, Suite A, Los Angeles, 9794, fax (858) 756-2922, [email protected]. Intellectual Property Consultants and Experts DIABETES AND ENDOCRINOLOGY. Diabetes and associated complications: amputation, retinopathy, vascular etc. Experienced in medical record review, opinion, and expert witness testimony. CV and prior medical/legal experience data available. Clinical Assoc. Prof. UCLA. Degrees/licenses: MD (CA and TX). Richard D. Hornichter, MD, 450 North Bedford Drive, Suite 209, Beverly Hills, CA 90210, (310) 274-7336, fax (310) 858-6972, e-mail: [email protected]. Web site: www.diabetesdoc.com. MED-MAL? Strong medical cases can be big winners for you. Do not bet your time until you know how strong your case is. Let Dr. Prasanna review your case. Cost-effective litigation support, including questions for experts (deposition, cross). Dr. Prasanna, 38 Corporate Park, Irvine, CA 92606. www.drprasanna.com. (949) 553-9775. SLIP, TRIP & FALL EXPERT WITNESS, S. Rosen, Ph.D., 100+ California jury trials, Marina Del Rey, (800) 666- PATENTS: Inventions, utility models, industrial designs, patent search, trademark, domain names, copyright, and litigation licenses. In the territory of Russia and former USSR. Main office: 13, bld. 5 Myasnitskaya Str. 101000 Moscow, K-9, GSP-9 101999 Russia, telephone: 7495-221-8880/81, fax: 7495-2218885, e-mail: [email protected]. Web site: www.sojuzpatent.com. U.S. representative office: Vahan Yepremyan, Esq. 130 North Brand Blvd. Suite 202, Glendale, CA 91203, USA, (818) 409-1370, fax (818) 409-1373, e-mail:[email protected]. Web site: www.yepremyanlaw.com. Ready to Retire? WE ARE A LONG ESTABLISHED, boutique estate planning, trust administration, and tax planning firm looking to grow its business through relationship with a Pasadena or other So. Cal. Estate Planning practitioner who is looking to downsize or retire. Email: [email protected] or call Jo Ann (626) 792-2910. NORIEGA CHIROPRACTIC CLINICS Clinica Para Los Latinos • Serving the Latin Community for 30 years ■ MONTEBELLO WELLNESS CENTER 901 W. Whittier Blvd. Montebello, CA 90640 (323) 728-8268 ■ POMONA HEALTH CENTER 1180 N. White Ave. Pomona, CA 91768 (909) 623-0649 1.800.624.2866 NORIEGA BAIL BONDS 323.263.2663 Personal Injury and Worker’s Comp. cases accepted on lien basis. Los Angeles Lawyer December 2006 49 Index to Advertisers 50 Los Angeles Lawyer December 2006 Aon Direct Administrators/LACBA Professional Liability, p. 1, Lawyers’ Mutual Insurance Co., p. 7 Tel. 800-634-9177 www.attorneys-advantage.com Tel. 800-252-2045 www.lawyersmutual.com Lee Jay Berman, p. 4 Lexis Publishing, Inside Front Cover, p. 9 Tel. 213-383-0438 www.leejayberman.com www.lexis.com Boserup Mediation, p. 17 M. Nair, M.D. and Associates, p. 32 Tel. 310-552-1020 www.Boserup.com Tel. 562-493-2218 www.psychiatryforensic.com Coldwell Banker p. 33 Arthur Mazirow, p. 33 Tel. 310-442-1398 www.mickeykessler.com Tel. 310-255-6114 e-mail: [email protected] Commerce Escrow Company, p. 26 MCLE4LAWYERS.COM, p. 33 Tel. 213-484-0855 www.comescrow.com Tel. 310-552-4907 www.MCLEforlawyers.com Law Office of Robert D. Coviello, p.19 Mesriani Law Group p. 16, 32, 47 Tel. 310-277-7709 www.coviello-law.com Tel. 310-826-6300 e-mail:[email protected] Creative Dispute Resolution, p. 18 Metrocities Mortgage Inc., p. 8 Tel. 877-CDR4ADR (877-4237) www.adr-fritz.com Tel. 800-464-2484 www.metrociti.com Greg David Derin, p. 4 Noriega Clinics, p. 49 Tel. 310-552-1062 www.derin.com Tel. 323-728-8268 Dale A. Eleniak, p. 18 Pedersen Law & Dispute Resolution, p.18 Tel. 310-374-4662 Tel. 949-260-1181 www.pedersenlaw.com E. L. Evans & Associates, p. 19 Quo Jure Corporation, p. 33 Tel. 310-559-4005 Tel. 800-843-0660 www.quojure.com Esthetic Dentistry, Inside Back Cover Rodney R. Hatter & Associates, p. 41 Tel. 213-553-4535 www.estheticdentistry.net Tel. 384-6540 e-mail: [email protected] G. L. Howard CPA, p. 48 R. S. Ruggles & Co., Inc., p. 41 Tel. 562-431-9844 e-mail: [email protected] Tel. 800-526-0863 www.rsruggles.com Steven L. Gleitman, Esq., p. 4 Sanli Pastore & Hill, Inc., p. 6 Tel. 310-553-5080 Tel. 310-571-3400 www.sphvalue.com Holmes & Lofstrom, LLP, p. 41 Steven R. Sauer APC, p. 40 Tel. 562-596-0116, 805-547-0697 www.holmeslofstrom.com Tel. 323-933-6833 e-mail: [email protected] The Holmes Law Firm, p. 8 Anita Rae Shapiro, p. 48 Tel. 626-432-7222 www.theholmesfirm.com Tel. 714-529-0415 www.adr-shapiro.com Jack Trimarco & Associates Polygraph, Inc., p. 40 Speaker Series at the Music Center, p. 44 Tel. 310-247-2637 www.jacktrimarco.com Tel. 213-972-0700 Law Offices of Rock O. Kendall, p. 48 The Suit Closet, p. 6 Tel. 949-365-5844 www.dmv-law.com Tel. 213-747-2829 www.thesuitcloset.com Kent Gibson Forensic Audio, p. 47 UngerLaw, P.C., p. 14 Tel. 323-851-9900 www.forensicaudio.org Tel. 310-772-7700 www.ungerlaw.com Jeffrey Kichaven, p. 19 Verizon Wireless, p. 2 Tel. 213-996-8465 www.jeffkichaven.com Tel. 866-899-2862 www.verizonwireless.com Laguna Beach Visitor & Conference Bureau, p. 5 Vision Sciences Research Corporation, p. 40 www.lagunabeachinfo.com Tel. 925-837-2083 www.contrastsensitivity.net Lake Arrowhead Resort and Spa, p. 43 West Group, p. 11, Back Cover Tel. 909-336-1511, 800-800-6792 www.laresort.com Tel. 800-762-5272 www.westgroup.com La Quinta Resort & Club, p. 42 Witkin & Eisinger, LLC, p. 32 Tel. 760-564-4111 www.laquintaresort.com Tel. 310-670-1500 CLE Preview Ethics 2006 ON SATURDAY, DECEMBER 9, the Los Angeles County Bar Association and the Professional Responsibility and Ethics Committee will present a program on legal ethics developments of 2006. Speakers Diane Karpman, David Parker, John W. Amberg, Stanley W. Lamport, Judge Michael D. Marcus, Joel A. Osman, Ellen A. Pansky, Jon L. Rewinski, and Harry B. Sondheim will discuss the proposed amendments to the Rules of Professional Conduct, a year-end review of ethics highlights, the ethics of electronic discovery (including metadata), and limits on a lawyer’s right of self-defense. The program will take place at the LACBA Conference Center, 281 South Figueroa Street, Downtown. Reduced parking is available with validation for $9. On-site registration and the meal will begin at 8:30 A.M., with the program continuing from 9 A.M. to 1:30 P.M. The registration code number is 009379. The prices below include the meal. $75—CLE+PLUS members $100—LACBA members $120—all others 4 CLE ethics hours COMPUTER HARDWARE AND SOFTWARE FOR ATTORNEYS ON THURSDAY, JANUARY 11, the Los Angeles County Bar Association will host a lecture by Russell Jackman explaining the process of purchasing and maintaining computer systems for the law office. This course will teach what the parts that make up computers are, why attorneys need to know about them, what to do if the computer isn’t working, and where to find out more. The program will take place at the LACBA Conference Center, 281 South Figueroa Street, Downtown. Reduced parking is available with validation for Complex Courts Seminar $9. On-site registration and the meal ON SATURDAY, DECEMBER 9, the Litigation Section will host an in-depth study of the complex courts of California. Judge Victoria Chaney, Judge Emile H. Elias, Joe Helfrich, Warren Hernand, Paul R. Kiesel, Judge Carolyn B. Kuhl, Judge Peter D. Lichtman, Judge Anthony J. Mohr, Judge Wendell R. Mortimer Jr., Wayne G. Nitti, James R. Robie, Ricardo A. Torres, and Carl J. West will address technology in the complex court; complex case designation after January 1, 2007; JCCP applications; checklists; and use of protective orders/sealing of documents. The seminar will take place at the Southwestern University School of Law, 675 South Westmoreland Avenue, Los Angeles. On-site registration will begin at 8 A.M., with the program continuing (with a lunch break) from 9 A.M. to 4 P.M. The registration code number is 009554. The prices below include the meal. $75—CLE+PLUS members $150—Litigation Section members $175—LACBA members $200—all others, including at-the-door registrants 6 CLE hours will begin at 4:30 P.M., with the program continuing from 5 to 8:45 P.M. The registration code number is 009380. The prices below include the meal. $65—CLE+PLUS members $100—LACBA members $125—all others 3.5 CLE hours The Los Angeles County Bar Association is a State Bar of California MCLE approved provider. To register for the programs listed on this page, please call the Member Service Department at (213) 896-6560 or visit the Association Web site at http://calendar.lacba.org/. For a full listing of this month’s Association programs, please consult the County Bar Update. Los Angeles Lawyer December 2006 51 Closing Argument BY JON D. MEER AND ERIC S. BEANE To Settle or Not to Settle? AT SOME POINT, ALMOST EVERY COMPANY doing business in a business that prevails in a claim under the CDPA.7 California will face a meritless lawsuit for alleged “disability An award of attorney’s fees can be a significant deterrent to discrimination.” Increasingly, this occurs when a claim is brought future lawsuits. Courts have granted large attorney’s fee awards to for “accessibility discrimination” under the Americans with Disa- businesses even when the business could have settled the case for bilities Act (ADA) 1 and the California Disabled Persons Act an amount much less than the fees incurred. For example, in the (CDPA).2 In these cases, a person with a disability claims that he recent case of Jones v. Wild Oats Markets, Inc.,8 the plaintiff or she was “discriminated against on the basis of disability in the alleged that she had encountered 43 ADA and CDPA violations full and equal enjoyment of goods, services, facilities, privileges, during a single visit to the defendant’s grocery store. After the [or] advantages” in a business that operates as “a place of public plaintiff filed her complaint, she proposed a settlement of $25,000. accommodation.” 3 Places of public accommodation include The defendant, however, refused to settle, based on its detervirtually every business and facility that allows public visitors. Plaintiffs can file discrimination claims under the ADA or A court has no discretion to deny fees to a business that prevails CDPA based on a long list of regulations that covers everything from the number of required handicapped parking spaces in a claim under the CDPA. to the size of a toilet paper dispenser. Frivolous lawsuits under the ADA and CDPA are becoming more common, led by a growing group of parasitic plaintiffs, some of whom have mination that the plaintiff’s claims had no factual support. After as many as 100 cases on file. Rather than seeking merely to resolve approximately 18 months of litigation, the court granted the alleged barriers to accessibility, these plaintiffs also seek monetary defendant’s summary judgment motion, holding that many of the damages and attorney’s fees. Recently, courts have become aware plaintiff’s claims were “frivolous” or “borderline frivolous” under that many of these lawsuits are nothing more than shakedowns. the ADA. Because the defendant was also the “prevailing party” Indeed, in Doran v. Del Taco, Inc.,4 the court noted that ADA under the claims brought under the CDPA, it filed a motion for litigation has created a “cottage industry” whereby unscrupulous attorney’s fees. Ultimately, the court entered a final order for the law firms send disabled individuals to as many businesses as recovery of $198,634.84 in attorney’s fees and litigation expenses. Unfortunately, collecting fees may be difficult, as very few possible in order to generate lawsuits alleging ADA violations. Businesses may find it tempting to settle one of these cases, plaintiffs are likely to have assets to pay a six-figure award. since the plaintiff typically makes a relatively low settlement Businesses may have to go through a lengthy process of wage demand consisting of statutory damages and attorney’s fees. Many garnishments and liens in an effort to collect their money. companies can dispose of these lawsuits with settlement payments However, by not settling frivolous cases, businesses can take solace of under $25,000, since mandatory statutory damages under the in knowing that the same plaintiff or plaintiff’s counsel probably CDPA are $4,000 per visit to the location where the alleged will not sue them again. Sometimes, avoiding future legal expenses ■ discrimination took place. Unfortunately, these settlements are is more valuable than recovering fees already expended. often little more than a quick fix that can lead to more lawsuits in the future, because no settlement agreement can restrict a 1 Americans with Disabilities Act, 42 U.S.C. §12101. plaintiff’s lawyer from filing additional lawsuits. Indeed, some 2 California Disabled Persons Act, CIV. CODE §51.5. 3 plaintiff’s lawyers may even conclude that a company is an easy 4 42 U.S.C. §12182. Doran v. Del Taco, Inc., 373 F. Supp. 2d 1028, 1030 (S.D. Cal. 2005). target after it pays a quick settlement. 5 42 U.S.C. §12205. Before deciding to settle, businesses should assess the validity of 6 See, e.g., Brown v. Lucky Stores, Inc., 26 F. 3d 1182, 1190 (9th Cir. 2001). the lawsuit. If the business has not violated the ADA or CDPA, the 7 CIV. CODE §55. See, e.g., Goodell v. Ralph’s Grocery Co., 207 F. Supp. 2d business should consider fighting the lawsuit with the potential of 1124, 1126 (E.D. Cal. 2002). 8 Jones v. Wild Oats Markets, Inc., Case No. 04-cv-1018 WQH (WMc) (S.D. recovering its attorney’s fees. Under the ADA, the “prevailing Cal. 2006). party” may recover its reasonable attorney’s fees, including 5 litigation expenses and costs. For a business to recover against a plaintiff under the ADA, the lawsuit must be found to have been Jon D. Meer chairs the Los Angeles section of the labor and employment “frivolous, unreasonable or without foundation.”6 The CDPA practice of DLA Piper US LLP. Eric S. Beane, a DLA Piper associate, represents provides for a mandatory award of attorney’s fees to any employers and management in courts and before administrative bodies. “prevailing party.” Thus, a court has no discretion to deny fees to Meer represented the defendant in Jones v. Wild Oats Markets. 52 Los Angeles Lawyer December 2006 It’s About Time One-Visit Dentistry We know your time is valuable. That’s why we’ve invested in CEREC technology that allows for a faster experience when you need crowns, fillings or veneers. With CEREC, there is no need for a temporary and return visit, in about an hour—leaving more time for whatever is important to you. Ask us about CEREC and all of our other extraordinary dental services including: BRITESMILE • INVISALIGN • LUMINEERS Conveniently located in Downtown Los Angeles • Next to Morton’s Steakhouse By appointment only Esthetic Dentistry Dental Group www.estheticdentistry.net (213) 553-4535 Dr. Armen Mirzayan, D.D.S. Dr. Jean Lee-Mirzayan, D.D.S. © 2005 West, a Thomson business L-313404/7-05 Going places with West. west.thomson.com