It is easy to overlook employee morale when determining what makes a successful business. Unhappy employees are a serious concern for companies. Low morale causes lower productivity, poor customer service and high turnover. Low morale also leads to excessive absenteeism and less time in the office productively working. Many company leaders feel that because they can’t pay their employees as much as the next company, they will be unable to retain their employees or will be unable to keep their employees satisfied. The good news is that they couldn’t be more wrong! Your business may not be able to pay the highest salaries, but a little recognition goes a long way. In fact, employees who feel valued are much less likely to leave their employer, even for a higher paying job. There are many ways to increase employee morale, and many don’t cost the company a dime. First and foremost, communication with employees is key. Have an open door policy and keep employees informed. When employees are not kept informed about what is going on, they tend to gossip and make up stories to fill in the blanks. Even if you don’t have good news to share, honesty is still the best policy. The more your employees are able to trust what you say, the less likely they will be to engage in harmful gossip. In addition, listen and be available. All employees in an organization should be approachable, from the CEO on down the line. Be available and engage your employees on a personal level. You may not be able to resolve all of the issues, but if employees feel they have been treated respectfully, they are less likely to become disgruntled. In addition, recognize the good – don’t just highlight the bad. When an employee performs well, make sure you recognize it. That doesn’t mean you have to give them a bonus. To the contrary, employee satisfaction increases significantly when employees are acknowledged internally for their efforts. Send an email to the team congratulating the employee for hard work. Put a note on the bulletin board or in the company newsletter. That recognition in turn inspires them to continue to do good work and encourages others to do the same so that they can be recognized. In addition, give employees a feeling of ownership. Not ownership of the company – ownership of their job. Ask them for ideas on how to improve their departments. Act on their suggestions. If you notice that things need to improve, ask them how they would do it. Not only will you benefit from their suggestions, but making them feel heard will boost morale. However, do not ask for suggestions and ignore them after they are received. This is a common trap employers fall into and it can easily backfire. Instead of ignoring their suggestions, allow employees the opportunity to implement some of their ideas. Finally, give employees some perks. Allow them to work from home if possible, or give them a gift card to a restaurant after they have demonstrated successful performance. These things do not cost a company much financially but can bring many rewards and help keep a company successful. Download the Reprint from The Livingston County Chamber of Commerce's Feb 2015 'The Chamber Factor' As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

Have you heard? A New York State law regarding surprise billings from medical providers becomes effective April 1, 2015. The general purpose of the law is to address persistent consumer complaints regarding unanticipated bills from out-of-network health care providers. As such, large portions of this law affect health insurance plans and hospitals. This Alert focuses on the law as it affects health care professionals (physicians, dentists, psychologists and other health professionals who are licensed under Article Eight of the New York Education Law), group practices of health care professionals, New York licensed diagnostic and treatment centers and Federal health care centers serving medically underserved populations (each, a Provider). Providers have disclosure obligations to patients and prospective patients, as follows: ▪ Providers must disclose in writing or through an internet website the health insurance plans in which the Provider is a participating provider, and prior to the provision of non-emergency services, the hospitals with which the Provider is affiliated. In addition, this same information must be provided verbally when a patient appointment is scheduled. ▪ If the Provider does not participate in the patient’s or prospective patient’s health care plan, the Provider must: a) prior to the provision of non-emergency services, provide a notice that the amount or estimated amount of the Provider’s fee for service is available upon request, and b) when requested by the patient or prospective patient, provide a written disclosure of their fees or estimated fees for the health care services provided or anticipated to be provided, absent unforeseen medical circumstances that arise during the course of treatment. ▪ Physician Providers must provide a patient or prospective patient with the name, practice name, mailing address and telephone number of any additional Provider scheduled to perform anesthesiology, laboratory, pathology, radiology or assistant surgeon services in connection with care provided in the physician’s office or upon the referral or coordination of services by the physician Provider for the patient. ▪ For a scheduled hospital admission or outpatient procedure, physician Providers must disclose the name, practice name, mailing address and telephone number of any other physician arranged by the patient’s physician to assist in the patient’s care, and information as to how to determine the health care plans in which the referred physician participates. ***** If you are a Provider and would like more information about how to implement the laws disclosure requirements, please contact a member of our Health Care Practice Group. As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

In January, our very own Steve Gersz participated in a UVANY Rochester event: Understanding Early Stage Term Sheets (or,Term Sheets for Dummies!) This informative event focused on early stage growth companies looking for their first round of outside funding. Rami Katz, Chief Operating Officer at Excell Partners, moderated a discussion between Steve Gersz, Esq., Underberg & Kessler LLP and Jeremy Wolk, Esq., Nixon Peabody, who reviewed and debated considerations, appropriateness and issues in a Convertible Note Term Sheet vs. a Series A Equity Term sheet. A video of the presentation can be found at:  https://vimeo.com/120551403 As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

Jennifer A. Shoemaker has been elected a partner in the law firm of Underberg & Kessler LLP, effective January 1, 2015. Ms. Shoemaker is a partner in the firm’s Labor & Employment and Litigation practice groups.  She represents businesses and not-for-profit organizations in a variety of employment matters, including discrimination, workplace issues and harassment.  She also represents individuals in the full spectrum of family law issues. Ms. Shoemaker holds a B.S. from Ithaca College and is a graduate of Boston College Law School.  She is a member of the Board of Directors of Camp Stella Maris, and also a member of the Association of Collaborative Family Law Attorneys. As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

The Non-Profit Revitalization Act of 2013 (the Act) is the first major overhaul of New York’s Not-for-Profit Corporation Law (the NFP Law) in decades. Its provisions apply not only to nonprofits that are incorporated in New York, but also to non-profits that are registered in New York for charitable solicitation purposes. Most provisions became effective on July 1, 2014. Many non-profits will need to amend their bylaws, incorporation documents and policies or modify their governance structure in order to benefit from the changes or to comply with its requirements. Types Before the Act, not-forprofit corporations were of four types: “A” (often trade associations or civic groups), “B” (corporations formed for purposes specified in the Internal Revenue Code for “501(c)(3)s”), “C” (any lawful business purpose to achieve a public objective), or “D” (any nonprofit formed under another law of the state, such as the Private Housing Finance Law for low income housing developers). Now there are just charitable and non-charitable corporations. Any Type “B” or “C” is deemed to be charitable, as is any Type “D” formed for charitable purposes. Any Type “A” or “D” formed for noncharitable purposes are noncharitable. Non-charitables are less regulated. Modernization Electronic communication (fax and email) is explicitly permitted for notices, including waivers of notice of member and director meetings, member proxies, and consent in lieu of an inperson meeting or unanimous written consent by directors and members. Note that “unanimous” means ALL board or committee members, not just those who respond, and does not allow for voting by email or fax. Board members may participate in a meeting of the board or any committee through videoconference. An organization’s bylaws also must be amended. Transaction Approvals Generally, only consent of the Attorney General is required for real estate transactions, mergers and consolidations or dispositions of all or substantially all assets of charitable corporations. The Attorney General may, however, determine that court approval should be sought. The Act does not state the criteria to be used by the Attorney General to determine when to refer the approval to the court, with one exception: if the corporation will become insolvent following completion of the transaction. Board approval of real estate transactions now requires only a simple majority to authorize the purchase, sale, mortgage, or other disposition of real property that does not constitute all, or substantially all, of the assets. Governance The terms “standing committee” and “special committee” have been replaced by “committee of the board” and “committee of the corporation.” Only committees of the board, those comprised entirely of board members, can bind the board. Organizations should review their bylaws to be sure that any committees of the corporation (those whose composition includes nonboard members) have no authority to bind the board. Committees of the corporation may make policy recommendations and otherwise function in an advisory capacity. Under new §715 of the NFP Law, a non-profit is prohibited from entering into a “related party” transaction unless it has determined that the transaction is fair, reasonable and in the non-profit’s best interest at the time of the determination. The board is required to expressly consider alternatives to the related party transaction, approve it by a vote of a majority of ALL directors then in office (not just those present), and fully document in the minutes the basis for the approval and the alternatives considered. All non-profits must adopt a conflict of interest policy that complies with §715-a of the NFP Law. Non-profits with more than 20 employees and annual revenue greater than $1 million are now required to have a whistleblower protection policy that complies with §715-b of the NFP Law. Compliance with these policies is to be overseen by the audit committee or the independent directors of the board. All non-profits, including those incorporated outside New York, that are subject to registration for charitable solicitation in New York and required to file an independent auditor’s report with the Attorney General must have an audit committee of the board comprised of independent directors responsible for retaining an independent auditor and reviewing audit results. This oversight may, in the alternative, be performed by the independent directors on the board. The oversight responsibilities are set forth in great detail in §712-a of the NFP Law. The revenue thresholds for which organizations conducting charitable solicitations in New York are required to file certain financial reports with the Attorney General will become progressively higher as follows: $500,000 as of July 1, 2014; $750,000 as of July 1, 2017; and $1,000,000 as of July 1, 2021. Effective January 1, 2015, there is an express prohibition on an employee serving as chair of the board or holding any title with similar responsibilities. Conclusion The Act was intended both to modernize the procedures for corporate formation and board operations of nonprofits in New York and to improve the quality and transparency of their governance. Directors of nonprofits, especially those that receive funding from governmental agencies, should review their corporate documents and seek counsel, if necessary, to achieve compliance. The Attorney General’s website (www.charitiesnys.com/guides_advice_ new.jsp) is also a resource for board members and staff. Download the Reprint from November 2014 Edition of 'The Chamber Factor' As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

In a recent tragic and somewhat unlucky case, attorneys are reminded of the significant responsibility we accept when we are retained by clients. The case is a great reminder to make clear in the written retainer agreement the exact scope of the representation, and then to have a system in place, with checks and balances, to prepare for upcoming duties and deadlines in case unexpected and disruptive issues arise. The first case was a proposed wrongful death action, which in New York has a two-year statute of limitations to file the complaint. The family first retained an attorney, Mr. A., to bring the action. Unfortunately, it appears from the record that Mr. A. did little or nothing during his time as lead counsel on the matter. (It is remarkable how often attorney malpractice and misconduct cases involve an initial attorney in difficulty, which then ensnares the subsequent attorney as well. Extra care must be taken when taking over a file from another attorney.) After 18 months, the family of the deceased hired a second attorney, Mr. B., to take over the case, and the retainer agreement limited Mr. A. to a communication role only. The record does not describe Mr. A.'s communication role, but does note that Mr. A. was convicted of immigration and visa fraud just after Mr. B. was retained, and then was sentenced to prison shortly before the statute of limitations ran, suggesting that Mr. A. was of little assistance. For his part, once he was retained, Mr. B. did implore the Surrogate's Court to issue letters of limited administration by noting that the statute of limitations was expiring soon and that Mr. A. had done nothing on the file. Those limited letters of administration then were issued with about a month to go before the statute of limitations would expire. Sadly though, Mr. B. was ill with cancer and died a few weeks later without getting the complaint filed and, therefore, the statute of limitations did run out 11 days later. After the family sued Mr. A. and the estate of Mr. B, Mr. B.'s estate quite logically presented Mr. B.'s death certificate to the court and argued that there should be no finding of malpractice as Mr. B. died before the statute of limitations ran out. Both the New York State Supreme Court and the Appellate Division disagreed, however, finding that sufficient evidence existed to present a material issue of genuine fact of whether Mr. B.'s cancer was such that sudden death was a foreseeable risk for which he should have prepared to protect the client's interests. Specifically, the courts noted that Mr. B. was associated with three other attorneys who could have made sure the complaint was filed on time before or after Mr. B.'s death. The courts also held that because so little time remained between Mr. B.'s death and the running of the statute of limitations, it was not feasible for the family to engage subsequent counsel in order to get the complaint filed on time. Finally, it was significant to the courts that the client had not been notified of the statute of limitations expiration before it ran. Attorneys are also at risk of malpractice liability based on the scope of their representation, even where the task at issue might not be considered by the attorney to be legal work. For example, an attorney drafting a contract for a client may be asked at a later date for a numerical calculation related to the same agreement. In that instance, the retainer agreement between counsel and client is crucial to establishing the scope of the attorney's duties. Certainly the attorney should take great care at any time to be accurate in any advice or calculation provided to a client, but if for some reason the attorney believes a communication to a client is not part of the attorney-client relationship, such provision must be included in the signed retainer agreement. As always, it is the proactive planning and well-reasoned procedures of an attorney's practice that give him or her the best chance of avoiding misunderstanding and malpractice. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

Underberg & Kessler LLP has been named a 2015 Rochester Tier 1 “Best Law Firm” by U.S. News - Best Lawyers®. The firm’s real estate and municipal law  practices were included in the top tier rankings of Rochester law firms.  The “Best Law Firms” are recognized for professional excellence with persistently impressive ratings from clients and peers. Achieving a ranking signals a unique combination of quality law practice and breadth of legal expertise. The U.S. News – Best Lawyers® “Best Law Firms” rankings are based on a rigorous evaluation process that includes the collection of client and lawyer evaluations, peer review from leading attorneys in their field, and review of additional information provided by law firms as part of the formal submission process. As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

Please see this case study from 2014 which demonstrates the need to thoroughly investigate all claims of sexual harassment in the workplace, as it is impossible to know the limits of human misconduct without investigation. In the case, senior management and the human resources group were presented with a sexual harassment complaint from a female vendor ‎regarding a male employee.  The male employee denied the allegations, and in an unusual twist, made his own allegations of gender discrimination and sexual harassment against his female boss. The company gave short shrift to the male employee's denial and his claim, and fired him. The male employee sued and his attorney conducted his own investigation of all of the allegations.  Ultimately, evidence was uncovered that the jury found established that the male employee's boss had convinced the vendor to falsely claim she was harassed by the male employee as part of a pattern of gender discrimination and sexual harassment against the male employee by his female boss.  The jury then awarded the male employee a multi-million dollar verdict against the company. It is imperative that a thorough investigation be conducted by an experienced professional when any discrimination or harassment is alleged. As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

If I include an arbitration clause in my patient agreements to resolve patient disputes or claims, is it enforceable? In 2012, the U.S. Supreme Court rendered its decision in Marmet Health Care Ctr., Inc. v. Brown, which involved a West Virginia prohibition on nursing home admission agreement arbitration clauses. The response from the Court was blunt: when the state law prohibits the arbitration of a particular type of claim, the analysis is straightforward; the conflicting rule is displaced by the Federal Arbitration Act. The Act states that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” The Marmet decision appears as though it strikes down all prohibitions against predispute arbitration agreements, not simply those limited to personal injury or wrongful death in the nursing home context. Thus far, New York State courts have agreed. However, arbitration agreements must also pass muster under New York contract law. In Stewart v. Contemporary Dental Implant Ctr., Inc., a New York court addressed an arbitration agreement within an informed consent form signed by a patient prior to receiving dental care. The thrust of the opinion is that predispute binding arbitration agreements within a medical consent form will be valid so long as: (1) the circumstances of their signing are generally reasonable; (2) they are not a requirement for obtaining emergency medical care; and (3) they contain a clear notice that the signee is waiving his/her right to a trial by jury. While it is not clear that all mandatory arbitration clauses in the medical field will be honored, it appears that, so long as the agreement is reasonable, for non-emergency care, and clearly notes its impact on a signatory’s right to a trial by jury, medical service providers should be protected. Before adopting a mandatory arbitration clause, each practice should check with their malpractice insurance carrier to ensure that the adoption of arbitration will not negatively impact coverage of a claim. Also, the practice should have a thorough discussion with their attorney as to the merits of arbitration vs. court proceedings in the context of a medical malpractice claim. Consider that even though the practice may legally do so, the practice may not be better off in arbitration. Attorneys may well diff er in judgment on this decision. Download the Reprint from The September 2014 Edition of 'The Bulletin' by MCMS As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

"You have to learn the rules of the game. And then you have to play better than anyone else.” — Albert Einstein This article highlights some of the recent amendments to the Rules of the Commercial Division of the Supreme Court, as well as new rules that were adopted and put into effect earlier this year. These recent amendments include: Increased monetary thresholds for principal claims to be heard in the Commercial Division Expanded requirements relating to settlement disclosure Staggered court appearances with assigned time slots for argument on motions New guidelines intended to streamline discovery of electronically stored information from nonparties Limitations on the number and scope of interrogatories. These rule changes are the result of Administrative Orders of the Chief Administrative Judge of the Courts. The powers of the chief administrative judge are conferred by the New York State Constitution. Under Article VI, Section 30, the Legislature may delegate to the chief administrator rule-making powers with respect to the practice and procedure of the courts. Monetary Thresholds The monetary bar in the Eighth Judicial District, which includes Buffalo, was doubled effective Sept. 2, from $50,000 to $100,000. The $50,000 threshold in the Seventh Judicial District, which was increased a couple years ago from $25,000, will not change. In Albany and Onondaga County, the monetary threshold is now $50,000, up from $25,000. These changes follow the increased threshold by the New York County (Manhattan) Commercial Division in February 2014 from $150,000 to $500,000. Consultation Prior to Conferences Under an amendment to Rule 8(a) of the Commercial Division Rules, “counsel for all parties” must consult about “any voluntary and informal exchange of information that the parties agree would help aid early settlement of the case,” prior to a preliminary or compliance conference. This requirement is in addition to the preexisting duties on counsel to consult about: Resolution of the case Discovery and other issues to be discussed at the conference The use of alternative dispute resolution to resolve some or all of the issues in the litigation. Staggered Court Appearances A new rule, which went into effect on September 2, 2014, is Rule 34 of section 202.70(g) of the Uniform Rules, which is intended to “streamline the litigation process in the Commercial Division” by assigning a time slot to each court appearance for oral argument on a motion. Rule 34 provides that “[t]he length of the time slot allotted to each matter is solely in the discretion of the court.” The new rule places the responsibility of notifying all other parties - by email - about when the matter is scheduled to be heard on each attorney “who receives notification of an appearance on a specific date and time.” The rule also requires an exchange of email addresses by counsel. Specifically, Rule 34(c) provides that “All parties are directed to exchange email addresses with each other at the commencement of the case and to keep those e-mail addresses current, in order to facilitate notification by the person(s) receiving the court notification.” Guidelines for e-Discovery from Nonparties Another new rule provides guidance to litigants in the area of collecting electronically stored information from nonparties in discovery. Practitioners seeking or responding to a demand for ESI from nonparties should refer to the guidelines, which encourage early assessment and discussion of the potential costs and burdens imposed with respect to preservation, retrieval and production – in light of the nature of the litigation and the amount in controversy. Limits on Interrogatories The Commercial Division Rules now include specific limitations on interrogatories. A recent administrative order, with an effective date of June 2, limits the number of interrogatories to 25, including subparts, unless a preliminary conference order specifies another limit. This numerical limitation brings the Commercial Division Rule consistent with Federal Rules of Civil Procedure. In addition to limiting the number of interrogatories, the administrative order also limits the scope of interrogatories to certain specified categories of requests. Absent a court order, interrogatories are now limited to: name of witnesses with knowledge of material information, computation of each category of damage alleged, and the existence, custodian, location and general description of necessary documents and other physical evidence. Practitioners should note that under the new rule, “at the conclusion of other discovery, and at least 30 days prior to the discovery cut-off date,” unless prohibited by court order, a party may serve contention interrogatories, to elicit factual bases or support for allegations contained in a pleading. Proposed Limitations on Depositions The chief administrator is also considering adoption of an amendment that would limit the number and duration of depositions to ten per side and seven hours, respectively. The public comment period for the proposed rule closed in August. If adopted, the numerical limit and durational limit would make New York’s Commercial Division rules consistent with Federal Rules of Civil Procedure 30(d)(1) and 30(a)(2)(A) Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

On July 14, the EEOC issued a 60-page “enforcement guidance” on pregnancy discrimination and related issues in the workplace, giving employers insight on how the EEOC will handle pregnancy-related complaints going forward. The guidance, issued after a 3 to 2 vote along commission partisan line, is intended to clarify a number of federal laws that employers and courts have interpreted in various ways, including the Pregnancy Discrimination Act and the Americans with Disabilities Act, both of which apply to employers with 15 or more employees. This is the first time in more than 30 years that the EEOC has updated its pregnancy discrimination guidelines, and is doing so because of the significant increase in pregnancy-related complaints over the last decade. The timing is interesting, as the guidance was issued just weeks after the U.S. Supreme Court agreed to hear Young vs. United Parcel Service, Inc., a case brought by a pregnant UPS worker that is expected to face some of these issues head on. In fact, the dissenting EEOC commissioners issued public statements questioning the majorities’ decision to issue the guidance without first making it available for public comment and questioned the timing given the pending court case. The EEOC’s guidance reinforces the PDA mandates that discrimination based on pregnancy, childbirth or related medical conditions is a prohibited form of sex discrimination. In addition, the PDA requires that women affected by pregnancy, childbirth or related medical conditions be treated the same as other persons not so affected but similar in their ability to do work. The guidance takes the position that even though pregnancy itself is not a disability under the ADA, all pregnant workers are entitled to a reasonable accommodation under the ADA. Specifically, “an employer is obligated to treat a pregnant employee temporarily unable to perform the functions of her job the same as it treats other employees similarly unable to perform their jobs, whether by providing modified tasks, alternative assignments, leave, or fringe benefits.” Other accommodations employers may be required to offer pregnant employees include modified work schedules (i.e., more frequent breaks or later arrival times due to pregnancy-related fatigue or morning sickness), purchasing or modifying equipment or devices (i.e., providing a pregnant employee a stool so she can sit when working in a position that ordinarily would require her to stand), or altering how a job function is performed (i.e., allowing a pregnant woman suffering from pregnancy-related carpel tunnel syndrome to dictate notes and have assistants input the data rather than requiring the pregnant employee to use a keyboard). The EEOC’s guidance also addresses how employers need to apply light duty policies under the PDA. An employer violates the PDA if it denies pregnant women light duty while providing light duty to other employees who are similarly unable to perform their jobs. As such, if an employer has a light duty policy that covers employees injured on the job, then it must also cover pregnant employees similarly unable to perform their work. This is the exact issue before the Supreme Court in Young, where the Fourth Circuit Court of Appeals held that the PDA does not require exactly the type of accommodations contained in the new EEOC guidance. The guidance spells out that the fact that the EEOC will broadly interpret how and when the ADA applies to pregnant workers, and what reasonable accommodations in the workplace will be required. The guidance provides “best practices” for employers to avoid unlawful discrimination against pregnant workers. Included are prohibitions on discrimination based on a woman’s intentions to become pregnant or seeking fertility treatments, on past pregnancy and potential pregnancy (i.e., fertility issues or reproductive risk). In addition, lactation, a much disputed matter in the courts, is now considered a medical condition. Citing the Affordable Care Act and the PDA, the EEOC guidance also calls for employers to provide prescription contraceptives to employees on the same basis as prescriptions drugs, devices and services that are used to prevent the occurrence of medical conditions other than pregnancy. The EEOC did, however, acknowledge in an official Q&A for employers the recent Hobby Lobby Supreme Court decision, which granted an exception to employers on religious grounds: “EEOC’s enforcement guidelines explains Title VII’s prohibition of pregnancy discrimination; it does not address whether certain employers might be exempt from Title VII’s requirements under the [Religious Freedom Restoration Act] or under the Constitution’s First Amendment.” It is important to note, under the guidance, a pregnant worker is not protected if the woman’s condition was neither revealed nor obvious, but an employer is liable for decisions motivated on a past pregnancy or on stereotypes or assumptions about a pregnant woman’s ability to work. While the EEOC guidance is not law, employers can be sure that the EEOC will apply the principals as it conducts investigations. As such, employers should review and, if appropriate, revise policies concerning discrimination, light duty, leave and benefits. Employers should continue to make employment decisions based on qualifications and not on any pregnancy or pregnancy-related conditions. Indeed, before taking any adverse action against a pregnant employee, employers should make sure they have good documentation of non-discriminatory reasons for the decision. It remains to be seen what the Young decision’s affect, if any, will have on the EEOC’s guidance, and employers should pay careful attention to the outcome of the pending case. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.

Some business disputes prove to be so intractable, or cause or threaten such severe economic injury, that they require legal action. In many instances, a lawsuit is the continuation, in a different forum, of an existing business dispute that the parties could not resolve by compromise. Although less than 5 percent of all civil lawsuits are decided by a trial, there is no guarantee that a client will be able to force its adversary to settle on favorable terms by merely commencing a lawsuit. Therefore, a client electing business litigation should plan to go all the way to trial, and have a clear understanding of the risks and rewards of doing so. The best lawyers counsel their clients on the high transaction costs inherent in resolving business disputes through litigation. At the same time, the client must understand that her litigation expenses constitute an investment made with the expectation that she will receive a reasonable return on that investment in the form of damages. In the absence of a contract or statute providing that the prevailing party shall recover its attorneys’ fees from the losing party, the client has to bear her own legal expenses. Consider this hypothetical with a fairly common fact pattern: The client sells its customer specialized metal fabricating equipment for $3.5 million; the customer has paid $2.5 million by the time the equipment is delivered; however, upon delivery, the customer claims that the equipment does not work properly, refuses to pay the contract balance, and demands that the client refund the $2.5 million already paid; the client insists that the equipment meets contract specifications and that the customer is operating the equipment improperly; and efforts to resolve the impasse by negotiations are unsuccessful, because neither side is willing to compromise its position. In this scenario, the client will never get its $1 million unless it sues for it. However, even if the client prevails at trial and is awarded $1 million in damages (and along the way defeats the customer’s inevitable counterclaims for $2.5 million and other damages), the client will not “net” $1 million after factoring in the cost of litigation. Therefore, before suing the customer, the client must analyze whether the anticipated return on its investment in a lawsuit will justify the expected cost of litigation. Once sued, the customer must do a mirror-image analysis: how much would it cost us to settle now; how much will it cost us to defend this lawsuit; and if we spend that money, by how much might we reduce our exposure to damages? These are not easy analyses. Not all facts are known at the outset of a case. Litigation procedures can be complicated and confusing. If they haven’t been through business litigation before, even sophisticated business people sometimes feel that the lawyers are speaking a foreign language when explaining legal strategies and developments in the case. The lawyer’s preparation of a written litigation plan with the foreseeable legal expenses estimated on a task-by-task basis can go a long way to help a client understand what is going on in her lawsuit, and why. It also helps when the client has an understanding of the fundamentals of civil litigation: it is an adversarial process; a party must disclose all relevant evidence to the adverse party; all relief must be formally requested from a court through trial, or by written application (motion); a party must prove its entitlement to any requested relief, and the adverse party can and will oppose that request; and a court will hear both sides’ arguments and review both sides’ evidence before making a decision. A major generator of legal expense and client angst in a business case is the discovery process. “Discovery” is the evidence gathering stage of a lawsuit, which includes both “paper discovery” and pretrial examinations of witnesses. In paper discovery, the parties serve each other with notices requesting documents and information relevant to the claims and defenses asserted in the lawsuit. In a business case, thousands, and perhaps tens of thousands, of pages are disclosed, and the parties also are often required to provide written responses to detailed written questions (interrogatories). A client will need to devote substantial resources and employee time to prepare documents for disclosure and responses to interrogatories, and to analyze the documents and information disclosed by the adverse party. Moreover, a client will often balk at disclosing documents or information requested by the adverse party due to the expense or burden involved, or because the requests seek confidential information. Although lawyers are required to make good faith efforts to resolve any discovery disputes before requesting court intervention, those disputes are often decided by the court by a motion to compel (made by the party seeking discovery), or by a motion for a protective order (made by the party opposing discovery). In most cases, once all paper discovery is completed, the parties conduct examinations before trial of the other side’s witnesses, and, as necessary, of non-party witnesses, under oath and recorded by a court stenographer. Of course, parties are free to settle their dispute at any time during a lawsuit, and many business cases settle as legal expenses rise and the relative merits of the parties’ positions come into focus. Certainly by the end of discovery, both sides are fully aware of the strengths and weaknesses of their respective cases, and are, theoretically, ready for trial. Cooler heads often prevail at this point, as the parties face the reality that if they do not voluntarily settle their dispute, they will lose control of the decision-making process and their respective fates will be decided by third parties with no stake in, and no experience with, the dispute: a judge or jury. However, a client may well make the business decision to incur the additional (and high) cost of a trial with the informed belief that the potential benefits outweigh the risks, and that those risks are preferable to the certainty of an unfavorable settlement. Download the Reprint from The Daily Record As always, if you have any questions, please feel free to contact us here or call us at 585.258.2800.