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Connectiuct Business Litigation Blog
Commentary on lawsuits and legal issues impacting Connecticut businesses. Authored by experienced business litigation attorney, Kane Bennett of Aeton Law Partners, LLP.
On November 17, a superior court jury in Stamford returned a 15 million dollar verdict in favor of the Auto Body Association of Connecticut (and three other auto body repair shops) arising out of claims againt the Hartford for unfair trade practices. The case docket goes back to 2003 and was filed based on claims that the Hartford was supressing auto body labor rates by steering customers to preferred appraisers and auto body shops. The website search-autoparts.com provided some insights into the case stating that the claims were supported by "extensive documentation including internal memoranda detailing company policies, as well as several depositions by company employees." In addition to the 15 million dollar verdict, the Association is now looking to obtain injunctive relief, and potentially punitive damages according to a article in the Hartford Courant by Kenneth Gosselin. According to an article by Rob Varnon on newstimes.com the problem started when the Association believed that customers with damaged cars were being steered to preferred shops with lower rates according to terms of the insurance company, not the customer. The Auto Body Association of Connecticut has taken issue with the practices of appraisals and auto body repair rates for years now. At one time, even before this current case, I represented one of several independent appraisal companies sued by the Association seeking discovery of documents related to the same set of issues. Our group of defendants was successful in defending the discovery lawsuit, but it was clear then that the Association intended to bring additional claims.
The National Cyber Security Alliance recently released a new study with some startling numbers concerning small businesses and the threat of data loss, security breach, or cyber attack. Some of the key numbers obtained from polling small business owners include: 65% store customer information on computer systems 43% store financial records 33% store credit card information 86% do not have anyone focused on system security 11% of owners never check their computer security systems. 75% use the internet to communicate with customers 28% have formal internet security policies What do these numbers suggest? Deborah Cohen, who covers small business for Reuters.com, published an article following release of the study and “confirmed that small businesses are among the most vulnerable to Internet crime. . .” She quoted Michael Kaiser, executive director of the National Cyber Security Alliance, who noted that “small businesses are pretty robust targets” for cyber attacks citing the lack of Internet protocol and employee training. Cohen’s article also offers some tips from Kaiser for small businesses to help confront cyber attacks. If you are looking for some guidance or help with cyber security, read here for some of my earlier posts. If you are looking for a do-it-yourself placer to start, try the U.S. Chamber of Commerce. The Chamber offers a great resource entitled“Common Sense Guide to Cyber Security for Small Businesses.” It’s a 12 step plan to increase cyber security. Here are some highlights: · Use strong passwords and change them regularly · Watch for strange email attachments · Install computer
The short answer is yes, a business does need a contract, also known as a "non-compete agreement," to prevent a former employee from fairly competing in business once the employee resigns. Even with a written agreement, there are limitations on non-compete agreements because they are viewed as a restraint of trade. To be enforceable, the restrictions in the agreement must be reasonable in time, scope, and geography. The restrictions also must be reasonable in relation to legitimate business interests you are seeking to protect. A poorly drafted agreement, or no agreement at all, can leave a business with little legal recourse to stop a former employee from fair competition once the employee resigns. Simply put, the law in Connecticut permits fair competition upon resignation. However, the lack of a written agreement does not give free license to employees to unfairly compete in all circumstances. For example, what about an employee that starts competing against your business without your knowledge while continuing to work for you? Is this fair competition that should be freely permitted? Depending on the circumstances, this type of conduct can be actionable in a civil case for damages. The actionable conduct is breach of the employee’s common law duty of loyalty, which exists without a written agreement in certain circumstances. There are also statutes in Connecticut that can protect businesses in certain situations that do not require contracts such as unauthorized computer access or misappropriation of trade secrets. I just read a story about a recent case that demonstrated some of the legal issues involved when there are no contracts in place with former employees.
Imagine your company is so busy preparing for a board meeting that a secretary sets aside paperwork from a recently served lawsuit for a billion dollars over trade secrets. Imagine further that your company bureaucracy fails to put it together that a lawsuit has been filed until such a time that your company becomes defaulted in the case, to the tune of $1.26 billion dollars. Ouch. Well, that is exactly what happened at PepsiCo according to a report by Lynne Marek in the National Law Journal. According to the story, PepsiCo for various reasons, failed to realize a lawsuit had been filed or a motion for default until it was too late. The case involved allegations that PepsiCo stole trade secrets and ideas for Aqaufina from two Wisconsin men. When the suit went unnoticed, a Wisconsin state court judge granted a motion for default against PepsiCo. Marek writes that PepsiCo is trying to undo the damage and vacate the default. Perhaps PepsiCo can vacate the default, but if not, it is a devastating blow in litigation to lose your liability defenses. By all accounts PepsiCo indicates the lawsuit is questionable suggesting numerous defenses exist. Unfortunately, it appears there is a chance they may never get to assert the defenses. In Connecticut, if you are defaulted for failing to respond to a lawsuit and a default judgment enters against you, you also can lose the ability to defend against the allegations in the complaint. If you further fail to appear in the case before the court determines the amount of damages (usually at a hearing), then you
Here are some quick hits from Blogs I read around the country on business litigation. Dionne Searcey of the Wall Street Journal law blog reports on the intellectual property fight over the red, white, and blue "Hope" image of President Barrack Obama created by Los Angeles artist Shepard Fairey. Fairey is claiming his rights to the work, but apparently is confused as to his source material leading to the withdrawal of his duped attorneys. Rush on Business breaks down his tips for negotiating Franchise Agreements. Rush highlights the need to have an attorney review your franchise agreement and not to believe any franchisor that says you do not need an attorney or that they will not hold you to certain terms of the agreement. A win for digital technology was reported on by Mack Sperling in the North Carolina Business Litigation Report. Mack reports on a case where a settlement agreement was challenged under the statue of frauds because it involved land and there were no written signatures. You can read here an earlier post from me on the statute of frauds in Connecticut. The court upheld the agreement in part based on electronic signatures in emails exchanged between counsel. Nancy Savitt of the Privacy Law Blog reports on an enforcement action concerning the Children’s Online Privacy Protect Act (COPPA). The Federal Trade Commission fined Iconix Brand Group, Inc $250,000 for "collecting personal information from children without complying with COPPA’s parent consent…" The personal information at issue was dates of birth. Collecting personal identifiers such as
In the Business Torts category of this blog, I recently covered the basic law in Connecticut concerning interference with business relationships. Today’s post concerns another business tort known as "defamation" and how it intersects with the growing use of social networking sites. There already have been several lawsuits for defamation arising out of use of social networking sites, such as Twitter and Facebook. For example, The California Defamation Blog lists several celebrities involved in defamation cases, including Courtney Love who was sued by a fashion designer for defamation after a series of derogatory Twitter posts by Love. Craig Kanalley of Chicagonow.com reported that a property owner sued a tenant for disparaging Twitter comments. The Chicago Tribune recently reported on a defamation lawsuit brought by a mother and her son after a phony Facebook profile was created showing the son was a racist. Should Connecticut businesses be concerned? Clearly, the type and variety of these suits are on the rise. In legal circles, these type of claims have a category of their own called "cyber slander" or "internet defamation." Given the popularity in use of social networking sites, and the ease in which statements can be broadcast to millions, it is safe to predict that more defamation cases will be filed in the future. Connecticut businesses can be affected by defamation suits involving social networking sites and the internet in a number of ways, such as: Employees making comments about a competitor Employees making comments about supervisors or co-employees Employees making comments about the company’s products Competitors making derogatory comments about the company Phony Facebook or Twitter profiles Derogatory comments about the company In Connecticut, defamation
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