Since you’re already giving up all productivity during the big dance, why not check out the latest in Suits by Suits?

• Bloomberg says that Hercules Offshore has defeated a “say on pay” lawsuit brought by a shareholder who claimed that the Hercules board should not have ignored an investor vote that the company’s executive compensation was too high.  Was defeating this lawsuit one of the fabled “Twelve Labours”?

• Bankruptcy
• Breach of Contract
• Confidentiality
• Executive Compensation
• Social Media
• The Inbox

Earlier this month, we blogged about an important decision by the U.S. Court of Appeals for the Second Circuit in Bechtel v. Administrative Review Board, a Sarbanes-Oxley whistleblower case.  In Bechtel, thecourt upheld the Department of Labor’s denial of a whistleblower claim, even though it found that the administrative law judge (“ALJ”) had applied the wrong legal standard. 

So how did the ALJ get the law wrong?

To understand the ALJ’s error, it’s important to understand how the governing law defines the burden of proof in a Sarbanes-Oxley case. 

• Sarbanes-Oxley Act
• Whistleblowers
• Wrongful Termination

Employees use their work e-mails for all kinds of communications, from the business-related to the personal and private.  When a dispute arises, however, it’s getting more difficult to keep those private e-mails from seeing the light of day.

For example, last week’s Inbox highlighted one recent decision in which a New York federal court ruled that an executive had “no reasonable expectation of confidentiality or privacy” in his work e-mail.  United States v. Finazzo, No. 10-CR-457 (E.D.N.Y. Feb. 19, 2013). 

• Confidentiality
• Social Media

Send up the white smoke!  After a week spent locked inside our offices -- or, for some of us, inside courtrooms -- your (usually) infallible Suits by Suits lawyers have finally voted on this week's Inbox:

• Wednesday, three top multinational banks -- Citigroup, Capital One, and Wells Fargo -- all agreed to broaden their clawback policies after requests by the New York City Comptroller's Office.  Clawback policies enable an employer to recover compensation, stock options, bonuses, and other monies from former high-ranking executives who are later determined to have engaged in financial misconduct.  We are going to review the specific policies when released and will keep you updated.  The City Comptroller's press release can be read here.
• We've said it before and we'll say it again:  your corporate emails are not private!  In one of a series of rulings in U.S. v. Finazzo, the U.S. District Court for the Eastern District of New York ruled that an executive "has no reasonable expectation of privacy or confidentiality in any communications" made through a work email account where the employer disclosed that it reserved the right to monitor an employee's usage of the system.
• On Wednesday, Steve Jacobs, the former CEO of the Las Vegas Sands outpost in China, sued casino magnate Sheldon Adelson, alleging (among other things) that Adelson ordered him to threaten the head of Macau's government, Chief Executive Edmund Ho, for "not playing ball" in connection with condominiums that the Sands was trying to sell in Macau.  Jacobs was fired from Sands China in July of 2010 and subsequently filed a wrongful termination suit in October of that year.  On a totally unrelated note, Casino is one of our favorite movies.
• Coincidentally, a former housekeeper sued Casino actress Sharon Stone -- co-star of the aforementioned film, as well as -- and do you really need to be told this? -- Total Recall, Basic Instinct, and many others, accusing Ms. Stone of retaliatory termination after the maid requested paid medical leave for injuries allegedly sustained while carrying Ms. Stone's groceries.  A spokesperson for Ms. Stone claims that the charges are "utterly baseless."
• This one isn't a movie starring Arnold Schwarzenegger -- but perhaps it should be.  A 62-year-old man wrestled a shark out to sea in order to save children on a beach in Australia.  That's the good part.  The bad part?  Someone videotaped the heroic shark-wrestling; it went viral (because of course it did), and was viewed by the hero's employer -- a children's charity, no less -- who had been told the man and his wife were on sick leave.  The shark-wrestler (and his wife, who had been employed by the same charity) were subsequently fired.  As Rick Perry might say:  "oops."  (Side note for the eventual movie adaptation:  According to Wikipedia, the Governator is 65.)
• Reporter Bryant Ruiz Switzky of the Washington Business Journal brought our attention to a very interesting report issued by Ernst & Young, and now we pass that along to you:  the Big Four firm warns corporate directors that they are "being watched" carefully by shareholders and should tweak executive compensation and other issues accordingly.  If you're involved in pay issues, you need to read this report.
• On Monday, Dr. David Naarian of Philadelphia, PA sued his former partners in 3B Orthopaedics PC over the sale of their medical practice to Aria Health, claiming that he had been defrauded out of more than $800,000 in the $4 million sale.
• Our friends at the Harvard Law School Forum on Corporate Governance and Financial Regulation have published yet another relevant article, this one by Noam Noked, "Dealing with the SEC's Focus on Protecting Whistleblowers."
• Relatedly:  just this week, a federal judge drastically reduced a jury's award to a whistleblower.  In 2009, Weihua Huang was terminated by the University of Virginia in retaliation for reporting U.Va's alleged mismanagement of grant money and a jury awarded him $160,000 in back pay and $500,000 in compensatory damages.  Earlier this week, the trial judge granted U.Va's motion to reduce the compensatory damages awarded by the jury by 80% -- from $500,000 to $100,000 -- on the grounds that the award was "not proportional" to the injury suffered.  As is typical in these cases, the court compared the award to other jury awards within the district.
• Troubles continue for the venture capital industry; we've discussed the case of Ellen Pao in considerable depth (here and here, for starters), but this week, we learned that another venture capital firm, CMEA Capital, is facing allegations of sexual and racial misconduct in the workplace, including sexually explicit behavior towards three former female employees.
• Career development coach Stacey Hawley, writing for Forbes, has penned an article entitled "Negotiating An Employment Agreement," that offers some practical tips to the executive on the move.
• And finally:  who says CEOs aren't human?  When VeriFone ousted CEO Doug Bergeron on Monday, he penned a weepy goodbye letter, telling staff "I will always love you and I will always love VeriFone."  No word if he read the letter aloud while playing Celine Dion music softly in the background, but apparently he read our advice to departing CEOs (unlike outgoing Groupon CEO Andrew Mason).

• The Inbox

If you’re a regular Suits by Suits reader – and if you aren’t, why not? – you know that we think California’s first-in-the-nation law prohibiting essentially all covenants not to compete in employment contracts is going to be a major factor in future executive employment agreements and disputes across the country.  Indeed, we’ve been keeping track as other states respond in various ways to the California law.  (For details on the California law and its implications, see our prior piece, the “State by State Smackdown.”)

In our March 1 Inbox, we flagged a bill under consideration by the Massachusetts state legislature, House Bill No. 1715, which would establish that noncompete clauses of six months or less are presumptively reasonable, and clauses exceeding six months can be enforced if the court finds that the employee has (a) breached a fiduciary duty, (b) taken company property, or (c) earned at least $250,000 per year in annualized compensation.

The status quo in Massachusetts (and the majority of states) permits covenants not to compete, subject to a case-by-case judicial balancing test that considers the interests of the former employer against the hardships to the employee and the public.

It is tempting, then, to view House Bill No. 1715 as a “halfway point” between the existing law in Massachusetts and California’s outright ban.  Under this view, the new proposed legislation would be seen, politically, as moving Massachusetts in the direction of California and away from upholding noncompete agreements.  And indeed, thanks to some excellent reporting by Don Seiffert, an Associate Editor at the Boston Business Journal, we’ve discovered that’s precisely the view of Massachusetts Governor Deval Patrick (D).

Read on....

• Breach of Contract

Today we're going to look at a federal statute that is increasingly becoming central to disputes between outgoing executives and their former employers -- a statute originally designed to prohibit computer "hacking."

Now, if you’re anything like me, when you hear the word “hacking,” you probably envision Matthew Broderick using a dial-up modem to break into his high school’s computer and change his grades.  (In fact, Broderick pulled this same trick twice in the 1980s; first in WarGames and then again in Ferris Bueller’s Day Off.)  Indeed, if you asked the average person to define “hacking,” they would probably come up with something like WarGames; that is, they would consider hacking to be breaking into a computer or network to which you were not given permission to access, in order to do something nefarious, like changing your grades or starting World War III.

It probably comes as no surprise that after those blockbuster movies (and some real-life events, too), Congress enacted a statute to prohibit “hacking” back in the heyday of the 1980s.  That statute – the Computer Fraud and Abuse Act (“CFAA”) – is still the law today, and is codified at 18 U.S.C. §§ 1030.

But what you might not know is that in many areas of the country, there's a court-interpreted disconnect between the CFAA’s definition of hacking and Matthew Broderick.  That disconnect, in turn, has become a very real issue today for departing executives and their employers.  For example, if you’ve been fired and you delete files off of your laptop before returning it, you may be civilly and even criminally liable under the CFAA in some jurisdictions.  (International Airport Centers, LLC v. Citrin, 440 F.3d 418 (7th Cir. 2006).  (Less relevant – but more salacious – is the Justice Department’s efforts to prosecute a mom under the CFAA for lying about her age on MySpace.)  United States v. Drew, 259 F.R.D. 449 (C.D. Calif. 2009).

It all depends on how the courts in your area interpret the CFAA.  Read on....

• Social Media
• The Basics
• Trade Secrets

Here at the SuitsbySuits Tower in Washington, D.C., we’re closing the week of the Snowquester that Wasn’t, a snowstorm that could have given us a large thumping of snow but turned out to be…well, more disappointing than a playoff loss by you-know-who.  The chatter about the storm has, though, led to a rare mea culpa by a prominent weather blog and pretty much kicked off the Virginia governor’s race in a dispute over one candidate’s tweet about safety in the snow. 

In any event, things other than a poem-inducing non-blizzard happened this week, and here are the highlights:

• Age Discrimination
• The Inbox

Based on the statistics, it is nearly impossible to win a whistleblower claim brought under the Sarbanes-Oxley Act.  In 2010, the Center for Public Integrity wrote that the U.S. Department of Labor, which administers those claims, had only upheld 25 out of the 1,091 claims brought since the Act was passed in 2002.  That’s only a 2% success rate. 

Although Scott Bechtel’s case took a longer path than most, it is now another statistic on the side of failure.

• Sarbanes-Oxley Act
• Whistleblowers
• Wrongful Termination

‎“Everything has its limit - iron ore cannot be educated into gold,” Mark Twain famously said.  In this two-part series, we’re ‎going to explore one limit on protection from risk using insurance.

We’ve written frequently about the need for companies and their executives to protect themselves from lawsuits using insurance and indemnification.  In our writing on SuitsbySuits, the most common types of insurance we discuss are directors’ and officers’ insurance (which protects directors, officers, and sometimes companies against litigation arising out of the directors’ and officers’ work on behalf of the company) and employment practices liability insurance (which defends companies and executives against litigation arising from employment discrimination, wrongful termination, and other types of claims). 

Insurance is a good way to transfer the risk of certain types of claims to an insurer, and it’s something company executives need to consider.  But, as Twain reminded us, everything has its limit.  This series of posts is about an executive at a charitable foundation, who found one limit of the foundation’s directors and officers’ (D&O) and employment practices liability insurance last week – when a court held that the insurer didn’t have to pay his legal bills in cases against him, because those cases arose out of actions he took outside of his role as an executive.  Technically speaking, he was not an “insured person” under the policies. 

Sounds generic, right?  What’s so interesting about this?

• Insurance

In Part One of this series, we gave the background to the insurance coverage dispute between Jerry Sandusky and Federal Insurance Company, which wrote D&O and employment practices liability insurance to The Second Mile, a charity Sandusky founded.  I explained how Sandusky was seeking coverage under those policies for the criminal and civil cases against him, and how, in response, Federal filed suit, arguing that it did not have to indemnify or defend him because he was not “acting in his capacity” as an executive of Second Mile when the alleged sexual abuse happened. 

Last week, the court held that Federal did not have a duty to reimburse Sandusky’s defense costs, as we’ll explain below.  But first, let me get on my insurance-lawyer soapbox and explain a couple of key terms.  Insurance in its most common form (and certainly the policies Federal wrote here) does two things: 1) indemnify someone, or some business, for judgments or settlements against them in civil cases, and 2) defend someone, or some business – or pay defense costs  in civil (and, in rare cases, criminal) matters.  Indemnity and defense are two distinct obligations that the insurer has. 

• Insurance