2013.04 the corporate counselor (jce article)

By Sandra Feldman

This edition of the Quarterly State Compliance Review looks at some recently enacted and in-troduced legislation of interest to corporate lawyers. It also looks at some recent cases of interest, in-cluding Delaware and California decisions dealing with the ability to sue dissolved corporations.In The STaTe LegISLaTureS

There were several bills of in-terest that either went into ef-fect or were introduced during the period between Jan. 1, 2013 and April 1, 2013. Highlights in-clude the following:

In New Jersey, Assembly Bill 1543, effective March 8, enacted the Revised Uniform Limited Li-ability Company Act. Among the differences between the Revised Act and the LLC act it replaces are that the Revised Act provides that an operating agreement may be oral or implied, that an LLC has perpetual duration, that the default rule for allocat-ing profits, losses and distribu-tions is on a per-capita basis, and that an LLC is required to provide indemnification under certain circumstances.

By John C. Eustice

Y our company is engaged in civil discovery and is served with a Rule 30(b)(1) notice identifying a specific corporate officer or director to be produced for deposition. The designee is busy, located overseas, knows

little about the issues in the lawsuit, does not want to sit for a deposition, or some combination of the above. What are your options? Most in-house counsel know to argue that a high-level executive, such as the CEO, is an “apex” witness who should not be deposed until the noticing party has exhausted alternative discov-ery means. Another argument counsel may not know, however, involves using the text and intent of Rule 30(b)(1) to curtail these depositions.

Although most courts have interpreted Rule 30(b)(1) to allow such depositions, one particular well-reasoned opinion examining the rule provides a blueprint for counsel to resist convention and effect a better outcome for their companies. This uphill battle is often worth fighting, as it empowers institutional parties to preclude or at least place limits on an opposing party’s ability to demand deposi-tions of named officers, directors, and managing agents.FederaL ruLe oF CIvIL ProCedure 30

Rule 30(a)(1) provides that, subject to certain exceptions, “[a] party may, by oral questions, depose any person, including a party, without leave of court.” Rule 30(b)(1), the notice provision, provides only that a “party who wants to depose a person by oral questions must give reasonable written notice to every other party.” Where the party to be deposed is a corporation or other institutional party, both Rules 30(a)(1) and 30(b)(1) are silent on whether the discovering party can direct which institutional representative appears for deposition.

Rule 30(b)(6), which was added in the 1970 amendments to the Federal Rules, is the sole provision in the discovery rules that permits a party to take, by notice, the deposition of an institutional party. That rule allows a party to “name as the deponent a … corporation, a partnership, an association, a governmental agency, or other entity” and “describe with reasonable particularity the matters for ex-amination.” Following receipt of such a notice, Rule 30(b)(6) requires “[t]he named

In This IssueResponding to FRCP 30(b)(1) ................. 1

Quarterly State Compliance Review ... 1

Insurer Billing Guidelines .............. 3

VA’s New Employment-Based Tort .............. 5

The Noel Canning Decision ................ 7

Intangible Assets.....11

PERIODICALS

Volume 27, Number 12 • April 2013

Corporate Counselor®

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organization” to “designate one or more officers, directors, or managing agents, or designate other persons who consent to testify on its behalf.”

Until 1970, the only way a litigant could examine an institutional party was to notice the depositions of au-thoritative individuals (i.e., officers, directors, or managing agents) by serving the institution pursuant to Rule 30(b)(1). This practice often led to wasteful depositions of indi-viduals lacking relevant knowledge. It also led to litigation about who constitutes a “managing agent.” See 7-30 Moore’s Federal Practice - Civil § 30.03[2] (2009).

When Rule 30(b)(6) was added, it provided a vehicle through which a party can obtain the actual knowl-edge of an institutional party on matters relevant to the litigation. Although the Advisory Committee made clear that Rule 30(b)(6) “sup-plements” and does not replace the earlier method by which a party may depose an organization, Rule 30(b)(6) should be viewed as the pre-ferred method because it seeks an organization’s relevant knowledge. Indeed, Rule 30(b)(6) was designed to “assist organizations which find that an unnecessarily large number of their officers and agents are be-ing deposed by a party uncertain of who in the organization has knowl-edge.” See Advisory Committee Notes for the 1970 Amendments.

This brief history reveals the intent of Rule 30 with respect to institution-al parties: to empower litigants to notice, depose, and obtain relevant information from the institutional party itself. Noticing the deposition of an officer, director, or managing agent lacking substantive knowledge is far less efficient than serving a Rule 30(b)(6) notice, and gets a party no closer to reaching this goal.

LeavIng no STone unTurnedDespite the text of Rule 30(b)(1),

courts have generally interpreted it to allow litigants to notice for deposi-tion any officer, director, or manag-ing agent of an institutional party. The select few courts that have exam-ined the text and intent of Rule 30(b)(1), however, have not arrived at the same conclusion. Magistrate Judge Ronald Boyce engaged in a robust analysis of the rule in Stone v. Mor-ton Int’l, Inc., 170 F.R.D. 498, 500 (D. Utah 1997). After reviewing the text of Rule 30 and associated case law, the court concluded that the “Rules of Civil Procedure do not provide di-rect and concrete support for the ob-ligation of a corporation to produce a director, officer or managing agent pursuant to notice under Rule 30(b)(1),” and, accordingly, denied a mo-tion to compel the production of a corporate officer for deposition who was located overseas as demanded in a deposition notice. Id. at 503-04.

Magistrate Judge Boyce recog-nized a key fact lost on most courts: “Nothing in Rule 30(b)(1) obligates a corporation to produce an officer, not a party to the litigation, at a de-position.” 170 F.R.D. at 500. Indeed, although Rule 30(b)(1) “allows a party to notice for deposition on oral examination ‘any (sic) person,’” “[n]othing in Rule 30(b)(1) refers to a corporation or a director manag-ing agent, or officer.” Id. Rule 30(b)(1) “does not expressly obligate a corporation to produce a corporate director, officer or managing agent in the litigation forum for deposi-tion.” Id. at 501. Given the text of the rule and its intent, why should a non-party officer of a corporation be subject to deposition by notice to the corporation without any show-ing that the officer possesses any relevant knowledge at all?

The Stone court held that impos-ing an obligation that every organi-zation automatically produce any of its officers, directors, or managing agents pursuant to a deposition no-tice would be problematic for at least three reasons. 170 F.R.D. at 501. First, “the forum may be remote to the res-idence and place of business of the

FRCP Strategiescontinued from page 1

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John C. Eustice is counsel at the law firm Miller & Chevalier Char-tered in Washington, DC. He can be reached at 202-626-1492 or [email protected].

April 2013 The Corporate Counselor ❖ www.ljnonline.com/ljn_ corpcounselor 3

By Ty Childress

Generally, an insurer has three op-tions when a claim is tendered for defense. An insurer may deny any obligation to defend, agree to fully defend without reservation, or agree to defend while reserving rights to deny coverage later. Policyhold-ers need to consider a whole host of issues when an insurer agrees to defend under a reservation of rights including, but not limited to, who controls selection of underlying de-fense counsel, rates to be paid to that counsel, privilege issues associ-ated with underlying counsel com-munications, and potential conflicts between the policyholder’s and the insurer’s interests.

One source of increasing dis-putes between policyholders and their insurers is the increasing at-tempted use of so-called “litigation management guidelines” by insurers in addressing their defense obliga-tions. Contrary to what insurers of-ten claim, these types of guidelines generally do not have any binding legal effect. Policyholders should consider carefully how to respond to an insurer’s attempt to impose such guidelines.

Frequently, in agreeing to defend a claim, an insurer will attach to its response a document titled “Litiga-tion Management Guidelines” or something similar. Typically, the guidelines purport to dictate vari-ous rules and procedures that the policyholder and its underlying de-fense counsel must comply with in order to have the insurer pay de-fense costs. The guidelines will of-ten address such issues as: 1) the hourly rates the insurer will pay; 2) insurer pre approval for various ex-penses (i.e., experts); 3) what costs the insurer will or will not pay (i.e.,

overnight delivery, travel, copying); 4) underlying counsel reporting and budget requirements; and 5) staff-ing/billing expectations (i.e., intra-office conferences, number of coun-sel attending depositions).

As an initial matter, policyhold-ers should be aware that these guidelines are almost certainly not legally binding. Very rarely do in-surers attach or incorporate billing guidelines in the policy when it is issued. Thus, as a matter of simple contract law, the billing guidelines do not form a part of the insurance contract. From a legal perspective, such billing guidelines represent little more than an insurer’s opinion or wish list regarding underlying defense issues.eThICaL and LegaL ProbLemS

Setting aside the dubious contrac-tual enforceability of insurer billing guidelines, many jurisdictions have criticized, and even rejected, insurer billing guidelines as improperly in-terfering with a defense counsel’s ethical obligations to its client, the insured. The ethical issue was sum-marized by The West Virginia Law-yer Disciplinary Board as follows:

Although the apparent purpose of these guidelines is to effect economy, the ineluctable result is to constrain or limit an attor-ney’s exercise of independent professional judgment, either by (1) precluding payment for certain activities (even if the at-torney deems the activities to be appropriate) or (2) requiring the attorney to submit to ‘sec-ond guessing’ of the attorney’s judgment and decisions and then precluding payment if the attorney acts in a manner con-trary to such ‘second guessing.’Due to this “second guessing”

concern, legal ethics authorities in several states have held that insur-er billing guidelines interfere with an attorney’s independent profes-sional judgment and, accordingly, a defense attorney not only need not, but potentially may not ethi-cally, agree to abide by such guide-lines. See, e.g., Rhode Island Su-preme Court Ethics Advisory Panel Opinion No. 99-13 (issued Oct. 27, 1999) (“the litigation management guidelines … interfere with the in-

dependent professional judgment of defense counsel and ultimately with the quality of legal services provided to the insureds. As such, the [attorney and his/her firm] may not ethically agree to abide by these guidelines in their entirety.”); Iowa Supreme Court Board of Profes-sional Ethics and Conduct Opinion No. 99-01 (Sept. 8, 1999) (“[i]t is the opinion of The Board that: (1) it would be improper for an Iowa lawyer to agree to, or accept or fol-low guidelines which seek to direct, control, or regulate the lawyer’s pro-fessional judgment or details of the lawyer’s performance, dictate the strategy or tactics to be employed; or limit the professional discretion and control of the lawyer.”)

The rejection of insurer billing guidelines has not been limited to ethics panels. Numerous courts have reached similar conclusions. For ex-ample, the California Court of Ap-peals expressly “question[ed] the wisdom and propriety of so-called ‘outside counsel guidelines’ by which insurers seek to limit or restrict cer-tain types of discovery, legal research, or computerized legal research by outside attorneys they retain to rep-resent their insureds where there is a potential for an uncovered claim.” Dynamic Concepts, Inc. v. Truck Ins. Exch., 61 Cal. App. 4th 999 (1998). The court concluded that ‘[u]nder no circumstances can such guidelines be permitted to impede the attorney’s own professional judgment about how best to competently represent the insureds.” Similarly, the Supreme Court of Appeals of West Virginia has held that an insurance company pos-sesses no right to control the meth-ods or means chosen by the attorney to defend the insured. Barefield v. DPIC Companies, Inc., 215 W.Va. 544, 600 S.E.2d 256 (2004).PraCTICaL ConSIderaTIonS

The lack of enforceability of in-surer billing guidelines as a matter of both contract law and ethics pro-vides corporate policyholders with strong ammunition to reject any at-tempt by an insurer to unilaterally impose such guidelines. Never-theless, the ultimate objective, of course, is to reach consensus with

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The Indefensible DefenseHow to Counter Insurer Billing Guidelines

Ty Childress is a partner in the Los Angeles office of Jones Day. E-mail: [email protected] or go to www.jonesday.com.


the insurer regarding a cost-effec-tive vigorous defense that allows reasonable input from the insurer in a manner that does not impede or restrict the defense effort. Identi-fied below are some of the more fre-quent billing guideline disputes that arise between corporate policyhold-ers and their insurers and some sug-gested approaches for resolution.Hourly Rates

Some litigation guidelines purport to list the “highest hourly rate” that the insurer will pay for the defense of a particular matter. Again, that identified rate simply reflects the unilateral opinion of the insurer as to the hourly rate it wishes to pay. Generally, unless the policy ex-pressly says otherwise or is subject to statutory provisions in certain states, a policyholder is entitled to retain any qualified counsel whose hourly rates are consistent with the rates paid in that geographic area for that type of case. As would be expected, the reasonable hourly rate for handling complex securities litigation in New York is likely to be quite different than a routine per-sonal injury claim in North Dakota.

A policyholder should certainly try, if at all possible, to reach an agreement from the outset with its insurer about the identity and hourly rates of underlying defense counsel. As an initial matter, a policyhold-er should review its policy to see whether the policy contains a list of law firms who the insurer has pre-approved (so-called “panel counsel”) and whether any such list simply identifies potential firms or actually purports to limit the policyholder to choosing one of the listed firms.

If the policy does not specify a firm to use, a policyholder should ensure that the hourly rates of its selected firms are reasonable for the jurisdic-tion and type of matter. While some states have statutes that address (and may limit) an insurer’s hourly rate reimbursement obligations in certain settings, a policyholder is otherwise generally entitled to reimbursement of the actual hourly rates charged by underlying defense counsel so long as they are reasonable.

If an agreement on rates cannot be reached, one possible alterna-tive is for the policyholder to fund the delta between the insurer rate and the actual hourly rate and re-serve rights to pursue the insurer for the full amount at a later time. While such an approach has the downside of requiring the policy-holder to self-fund some portion of the defense costs, it does allow for selected counsel to focus on the de-fense of the case. With the insurer reserving rights on the indemnity as-pects of the case (i.e., whether any settlement or judgment is covered), the accumulated amount of unpaid defense costs can be added to sub-sequent negotiations (or coverage litigation) over whether the insurer is obligated to fund any settlement or judgment. Just as the amount at issue with respect to a settlement or judgment often impacts the nature of negotiations between a corpo-rate policyholder and its insurer, the amount of unpaid defense costs at issue often dictates whether that gap can be resolved short of litigation.Staffing

Insurers often try to exert control over staffing by attempting to pay for only “pre-approved timekeepers.” As the ethics opinions discussed earlier demonstrate, the decision about the appropriate attorneys for a matter belongs to the policyholder and its counsel, not the insurer. See, e.g., Board of Commissioners on Griev-ances and Discipline of the Supreme Court of Ohio Opinion No. 2000-3 (dated June 1, 2000) (“[g]uidelines that dictate how work is to be allo-cated among defense team members by designating what tasks are to be performed by a paralegal, associate, or senior attorney are an interfer-ence with an attorney’s professional judgment … .”).

In order to counter an insurer’s attempt to claim that the staffing for the defense of a particular case was unreasonable, corporate poli-cyholders should consider working with their defense counsel on the identification of the “core” attorneys involved in the defense of the case (which partner(s), associate(s), and paralegal(s) will have day-to-day responsibility) and limit the num-ber of “transient” time-keepers (at-

torneys or paralegals who “drift” in and out of a case billing a few hours from time to time). While there is obviously an occasional need to add timekeepers either because of work demand (periods of intense discov-ery or trial preparation) or specific expertise (inclusion of an attorney with particular subject matter ex-pertise on a discrete issue), the reasoning behind the use of these additional defense team members should be documented to blunt any subsequent “second-guessing.”Budgeting and Task Approval

Corporate policyholders and in-surers both have legitimate reasons to employ budgeting processes as part of the defense effort. Corporate policyholders want predictability for the likely expense associated with the defense of a case, while adjust-ers for the insurers generally seek to set internal reserves for what they are likely going to be asked to pay as the defense proceeds.

Unfortunately, insurers far too of-ten seek to unilaterally impose their own timing considerations for any budget and attempt to use budget estimates as some sort of cap on ac-tual defense costs. Any party that has been involved in reasonably complex litigation knows that the timing and accuracy of budget estimates can be quite fluid as events in the litigation occur. For example, a corporate poli-cyholder may file an early motion to dismiss in a case and, depend-ing on how the court rules on that motion, a case could be dismissed or substantially altered. In such sit-uations, the client and its counsel may decide it makes sense to defer budget estimates until the parties receive guidance from the court on threshold issues. Similarly, the client and its counsel may decide to create estimated budgets that contain wide ranges to account for different pos-sibilities. How and when to employ budgeting is a decision between the client and its counsel. While, sub-ject to privilege considerations, a corporate policyholder may choose to share its budgeting with its insur-er, the insurer is not in a position to dictate that budget process.

Insurer Guidelinescontinued from page 3

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By James V. Irving

The Employment at Will doctrine, which has been broadly embraced throughout the U.S. since the 19th century, provides in general terms that in the absence of a written contract providing for employment for a limited duration, or subject to specific terms of termination, an employment relationship may be terminated by either party without explanation and without liability. In reliance on this doctrine, an em-ployee may quit at any time without giving a reason, and an employer may fire an employee with a paral-lel absence of notice or explanation.

baCkgroundIn 1959, in a case called Peter-

mann v. International Brotherhood of Teamsters, Peter Petermann al-leged he was terminated for refus-al to give false testimony before a legislative investigating committee, and the California Court of Appeals recognized the first judicial excep-tion to employment at will. 174 Cal.App.2d 184 (App. 2d Dist. 1959). As now modified through decades of statutory changes and the judi-cially imposed modifications of our Common Law, the doctrine will not shield an employer from liability for firing an employee for an “improp-er reason.” The process of defining improper reason has created an im-posing body of law throughout the 50 states and Washington, DC, with each state defining its own excep-tions and the parameters of them.

Several improper reasons can be found in statutes adopted by the vari-ous states or by the federal govern-ment with application to the states. For example, firing an employee for reasons of race, color, gender, reli-gion, national origin, age or handicap

status — or appearing to do so — will get an employer in trouble anywhere. However some policy-defining fed-eral regulations that may impact the Employment at Will doctrine have limited application, depending on the number of people employed by the employer. For example, the Age Discrimination in Employment Act of 1967 applies only to employers with at least 20 employees; the threshold for the Americans With Disabilities Act of 1990 is 15 employees. Three major exCePTIonS

Aside from these specific statutory requirements, three major excep-tions have emerged nationally over the past half-century to the Employ-ment at Will doctrine. These are the implied contract exception, the cove-nant of good faith exception and the public policy exception. In each case, the viability of the exception and the circumstances to which it applies are determined on a state-by-state basis. For example, in the 12 states that recognize the Implied Contract ex-ception, a terminated at-will employ-ee may still sue for wrongful termi-nation if he or she has received oral or written assurances of continued employment, such as a representa-tion in an employer’s personnel poli-cies or an employee handbook. In another 21 states, the employee can rely on the implied contract excep-tion only if he or she was terminated contrary to written assurances of continued employment. The Implied Contract exception is not recognized in the Commonwealth of Virginia or in 12 other states.

Similarly, in 11 states, none of them Virginia, a covenant of good faith and fair dealing is implicitly part of every employment contract, permitting an employee to sue if he or she is ter-minated for a reason that the state’s courts have determined is bad faith. Bad faith has been defined by dif-ferent state courts in different ways, including the imposition of a “just cause” standard and the prohibition of terminations for malice or ill will. In Nevada, it may be bad faith to ter-minate an employee in an effort to avoid paying him retirement benefits.

The public policy exception is by far the most common major excep-tion, recognized in some fashion in

all states except Alabama, Georgia, Louisiana, Maine, Nebraska, New York and Rhode Island. Under this exception, an employer may not fire an employee if doing so would violate the state’s public policy, or a state or federal statute. Once again, whether the grounds for a particular termination violates public policy is determined by the courts of the individual states. As we have seen in California, firing an employee for refusal to provide perjured tes-timony violates the public policy of the state, and in Illinois, discharging an employee for providing informa-tion about criminal activity to law enforcement authorities has been found to violate public policy. WhaT haPPened In vIrgInIa

Recently, the Virginia Supreme Court considered the breadth of its public policy exception in light of confused and sometimes contro-versial history. Virginia is widely recognized as a business-friendly jurisdiction and the continued vi-brancy of the Employment at Will doctrine, relative to other states, is part of the reason. The state recog-nized no exception until 1985 when the Supreme Court of Virginia hand-ed down Bowman v. State Bank of Keysville. 229 Va. 534 (1985).

Betty Bowman’s employment at the State Bank of Keysville was ter-minated by the bank in 1979. She sued, claiming she was terminated for an improper reason, specifically in retaliation for her refusal to vote for a proposed merger. Six years later, the Supreme Court of Virginia agreed, holding that terminating Bowman in retaliation for exercising her rights as a stockholder was a violation of public policy. Id. The Bowman opin-ion contained language attempting to limit the application of the exception, but its parameters were left unclear, beginning a period of uncertainty in the law as state courts wrestled with the breadth of the exception.

In 1994, in Lockhart v. Common-wealth Education Systems Corp., the state’s high court expanded the so-called Bowman doctrine to include termination in violation of the Vir-ginia Human Rights Act (VHRA).

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VA Recognizes a New Employment-Based Tort

James V. Irving is a shareholder at Bean, Kinney & Korman, P.C. in Ar-lington, VA, practicing in the areas of business, employment law and litigation.


247 Va. 98 (1994). Lawanda Lockhart claimed that she was terminated from her job at Commonwealth Col-lege for reporting racially offensive behavior, and her refusal to engage in such behavior. While reaffirm-ing “our strong adherence to the Employment-at-Will doctrine,” the court found that the VHRA was a statement of public policy and that its violation could constitute an ex-ception to the Employment at Will doctrine under the theory espoused in Bowman. Id. at 106. As a result, it appeared that Virginia law protected not only an employee’s actions in re-liance in public policy, but also an employee’s status as a member of a protected class.

Lockhart, however only increased the uncertainty and the Bowman doctrine suffered through a period of confusion and inconsistency. In 1995, the General Assembly amended the VHRA to eliminate its use as the ba-sis of a Bowman doctrine exception to employment at will. And in 1997, in Doss v. Jamco, the court made it clear that VHRA violations could not be the basis of Bowman claims. 254 Va. 362 (1997). In Mitchem v. Counts, the court reaffirmed the viability of the Bowman doctrine when Mitchem alleged she was terminated for refus-al to engage in criminal conduct “of a sexual nature.” 259 Va. 179 (2000). In a nuanced legal distinction, the court found that Mitchem’s allegations fit within the Bowman exception even though they also stated a violation of the VHRA which by its express terms, cannot form the basis of Bow-man claim. Id.

After Doss and Mitchem and the controversy that preceded these cases, the public policy exception settled into a stable and very nar-row exception to Virginia’s general policy of employment at will. And so it remained until an unusual in-tervention by the Fourth Circuit Court of Appeals caused the Virgin-ia Supreme Court to again consider broadening it. It did so on Nov. 1, 2012, when the Virginia Supreme Court recognized a new employ-ment-based tort and handed down

its opinion in VanBuren v. Grubb. 2012 Va. LEXIS 193 (2012).VanBuren V. GruBB

The case arose in an unusual con-text, but one reminiscent of Mitchem. Angela VanBuren was employed as a nurse by the Virginia Highland Or-thopedic Spine Center, LLC in Rad-ford, VA. The clinic was owned by Dr. Stephen Grubb, an orthopedic sur-geon. According to VanBuren, Grubb hugged her, kissed her, rubbed her in inappropriate areas and made unwelcome and offensive sexual ad-vances toward her. VanBuren further alleged that after she rejected these advances, Grubb terminated her em-ployment, giving no explanation for the termination.

VanBuren sued both Grubb and the clinic in federal court under several theories, including wrong-ful discharge. She substantiated her claim against Grubb by alleging that she had been fired by him for refus-ing to engage in criminal conduct (adultery and lewd and lascivious conduct are crimes under Virginia law), and that her termination there-fore violated public policy under the Bowman line of cases. Among other things, Grubb argued that he hadn’t employed VanBuren and that he couldn’t be personally liable on a theory of wrongful termination.

The U.S. District Court dismissed the claim, ruling that “permitting non-employer liability for the tort of wrongful discharge may very well impermissibly broaden the Bow-man doctrine beyond the scope that the Virginia Supreme Court would believe prudent.” Vanburen v. Va. Highlands Orthopaedic Spine Ctr., LLC, 728 F. Supp. 2d 791 (W.D. Va. 2010). When VanBuren appealed to the Fourth Circuit, the appellate court entered an order of certifica-tion, asking the Virginia Supreme Court to advise them whether the cause of action upon which VanBu-ren based her claim against Grubb was recognized in the Common-wealth. VanBuren v. Grubb, 471 Fed. Appx. 228 (4th Cir. 2012).

After noting that it was a case of the first impression in Virginia, the Supreme Court formally — al-though narrowly — recognized “the common law tort of wrongful dis-

charge in violation of established public policy against an individual who was not the plaintiff’s actual employer but who was the actor in violation of public policy and who participated in the wrongful firing.” 2012 Va. LEXIS 193, at *14.

In a 4-3 ruling, Justice Leroy Mil-lette, Jr., writing for the majority, stated “We find Virginia’s existing precedent permitting such acts to be consistent with the Court’s es-tablished case law regarding agency relationships … . Indeed, the rec-ognition in Bowman of a tort of wrongful discharge for public policy reasons leads to this result. Limit-ing liability to the employer would follow a contract construct. Wrong-ful discharge, however, is an action sounding in tort.” Id. at *12.

In her dissent, Chief Justice Cyn-thia D. Kinser suggested that the majority had turned the focus on the underlying wrongful conduct, rather than the wrongful discharge. Id. at *24-25 (Kinser, J. dissenting). It’s a valid observation: It is reasonable to wonder if the court has opened the door for a broader array of termina-tion-based torts in the years to come.

However, over the past quarter century, the same question has been asked and answered several times. Recalling the efforts to expand the Bowman doctrine, it seems likely that aggressive plaintiffs’ attorneys will rely on VanBuren in an effort to broaden the exception. It also seems likely that the Virginia Supreme Court will move with caution and care if it chooses to do so.

In the meantime, the case will proceed against both Grubb and the Clinic in the United States Dis-trict Court for the Western District of Virginia. Like business owners throughout the Commonwealth of Virginia, Grubb, as well as the clinic, are now exposed to financial liabil-ity if the court adopts VanBuren’s allegations of fact.

VA Tortcontinued from page 5

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services of a competent professional person should be sought.


By Matthew C. Lonergan and Summer Austin Davis

After the D.C. Circuit Court’s rul-ing in Noel Canning v. NLRB, No. 12-1115, slip. op. (D.C. Cir. Jan. 25, 2013) that a majority of the NLRB members were appointed uncon-stitutionally, many employers cel-ebrated the apparent demise of NLRB decisions that they viewed as unfavorable. Some of the most em-ployer-unfriendly and controversial decisions include the following:

Costco Wholesale Corp., 358 NLRB No. 106 (2012) (holding that an em-ployer’s social media policy prohibit-ing electronic postings that “damage the Company, defame any individual or damage any person’s reputation” unlawfully restricted employees’ pro-tected rights; also adopting the Ad-ministrative Law Judge’s ruling that the employer’s rule prohibiting em-ployee discussion of “private matters of members and other employees” was unlawfully overbroad).

Karl Knauz Motors, Inc., 358 NLRB No. 164 (2012) (holding that an employer’s handbook rule pro-hibiting “disrespectful” language or “any other language which injures the image or reputation of the Deal-ership” was unlawful).

Banner Health System, 358 NLRB No. 93 (2012) (holding that the em-ployer violated the NLRA by asking an employee who was the subject of an internal investigation to refrain from discussing the matter while the employer conducted the inves-tigation).

Sodexo America LLC, 358 NLRB No. 79 (2012) (holding that an em-ployer's off-duty access rule was in-

valid because the rule granted the employer “unfettered discretion” to determine which employees could access the facility while off duty).

Marriott Int’l, Inc., 359 NLRB No. 8 (2012) (holding that the employ-er’s policy of prohibiting off-duty employees from accessing the em-ployer’s property without manage-rial approval was unlawful).

WKYC-TV, Gannett Co., 359 NLRB No. 30 (2012) (holding that an em-ployer’s duty to collect union dues from employees pursuant to a dues check-off provision continues even after the expiration of the collective bargaining agreement).

Alan Ritchey, Inc., 359 NLRB No. 40 (2012) (holding that unionized employers must give the union no-tice and an opportunity to bargain before imposing discretionary dis-cipline involving demotions, sus-pensions, and terminations where the applicable collective bargain-ing agreement does not establish a grievance-arbitration process).ramIFICaTIonS

Noel Canning purports to not only invalidate all post-January 2012 NLRB decisions, but it also invali-dates any action the current Board has taken or will take as long as the majority of the Board appointments are deemed unconstitutional.

The ramifications of the Noel Can-ning decision are not unprecedent-ed. In 2010, the U.S. Supreme Court tossed more than two years of NLRB decisions because the NLRB lacked a quorum. New Process Steel v. NLRB, 130 S. Ct. 2635. At first glance, it seems that employers can proclaim game, set, match! Right? Not quite.

The NLRB has not accepted the D.C. Circuit’s ruling in Noel Can-ning, and is instead conducting business as usual. The NLRB con-tends that the Noel Canning deci-sion is limited to the litigants in the case — Noel Canning and the Board — and other NLRB decisions are un-affected. As such, the NLRB contin-ues to investigate complaints alleg-ing violations of the National Labor Relations Act (NLRA) and continues to issue decisions.

Litigants across the country have pounced on the Noel Canning deci-sion in an effort to obtain relief not

only from NLRB decisions, but also from any action (or potential ac-tion) taken by the NLRB since Janu-ary 2012. The U.S. Supreme Court, however, has declined to enter the fray. For example, in Healthbridge Management v. Kreisberg, Health-bridge Healthbridge applied for cer-tiorari and requested that the Court stay a Connecticut District Court or-der reinstating striking workers to their former positions pursuant to the NLRA. Section 10(j) of the NLRA authorizes reinstatement of striking workers pending final action by the NLRB. Healthbridge contended in its certiorari petition that the reinstate-ment order should be stayed pend-ing a determination of whether the NLRB is authorized to act at all, in light of the Noel Canning decision that arguably destroys the Board’s ability to act. On Feb. 6, 2013, the Supreme Court declined to review Healthbridge’s petition.

Until the U.S. Supreme Court de-cides the constitutionality of the January 2012 appointments to the NLRB, employers cannot be certain whether the appointments were lawful or whether the post-January 2012 Board decisions are enforce-able against employers. WhaT emPLoyerS Can do

Although the current state of our labor laws is uncertain, employers can take certain actions in view of the Noel Canning decision.1. Appeal Adverse NLRB Rulings Made Since January 2012

Noel Canning provides employ-ers with a basis for arguing that an adverse NLRB decision should be reversed. Until the Supreme Court weighs in on the issue, employers should consider the Noel Canning decision when deciding whether to pursue the appeal of an NLRB ruling. Additionally, employers should con-sider whether to pursue appeals out-side the 60-day filing period. Federal Rule of Appellate Procedure 4(a)(5) permits a party to move for an exten-sion of time to file an appeal upon a showing of good cause. Arguably, good cause exists where, as in this case, an appellate court invalidates an NLRB decision after the expiration of the time to appeal that decision.

continued on page 8

What the Noel Canning Decision Means for Employers

Matthew C. Lonergan is a partner with Bradley Arant Boult Cummings LLP in Nashville. He can be reached at [email protected] or 615-252-3802. Summer Austin Davis is an associate in the Litigation Group, resident in the firm’s Birmingham, AL, office. She can be reached at [email protected] or 205-521-8916.


corporate official, as in this case.” Id. (the noticed officer in Stone was vice president of the defendant’s Euro-pean division in Germany). Second, “the corporate official may not be a particularly knowledgeable person about matters at issue in the litiga-tion.” Id. Third, “[a]n automatic obli-gation to produce a corporate officer for deposition pursuant to notice un-der Rule 30(b)(1) F.R.C.P. is suscep-tible to abuse.” Id.

TaCTICaL ConSIderaTIonSThe three concerns listed by the

Stone court provide a roadmap to in-house counsel for resisting de-position notices for their officers or directors via negotiation with op-posing counsel or, failing that, mov-ing for a protective order under the balancing test standard of Rule 26. See, e.g., Flanagan v. Wyndham Int’l, 231 F.R.D. 98, 102 (D.D.C. 2005) (“[C]ourts generally employ a bal-ancing test, weighing the burden-someness to the moving party

against the deponent’s need for, and the relevance of, the information be-ing sought.”).

Though the standard for obtain-ing relevant discovery from a party is low — the noticing party need only show, pursuant to Rule 26(b)(1), that the deposition would lead to the discovery of admissible evi-dence — convincing the court that the noticed officer or director lacks relevant knowledge and the deposi-tion would therefore be a waste of time and resources remains the best route to obtaining a protective order precluding the deposition in its en-tirety. In Stone, even though the no-ticed officer was the plaintiff’s direct supervisor, the court held that there was “at best a slim indication of [the officer’s] participation or knowledge” of the “circumstances leading to the elimination of [the plaintiff’s] posi-tion and his discharge.” 170 F.R.D. at 504. This led Magistrate Judge Boyce to preclude the deposition of the no-ticed officer until after a Rule 30(b)(6) deposition and after a showing by the plaintiff that the officer “may still provide relevant information.” Id.

If the noticed officer or director works for a foreign subsidiary or otherwise resides far from the liti-gation forum, then the organization has an additional argument to bol-ster the relevance point and empha-size the unfair burden and expense placed on it to produce the person for deposition. While the general rule is that the deposition of a cor-porate officer should be taken at the corporation’s principal place of business or at the deponent’s resi-dence or place of business, see Salt-er v. The Upjohn Co., 593 F.2d 649, 651 (5th Cir. 1979), the expense of sending attorneys to depose and de-fend a deposition can be significant. Foreign organizational litigants have the best argument in this regard, giv-en that the United States Supreme Court has held that American courts “should exercise special vigilance to protect foreign litigants from the danger that unnecessary, or unduly burdensome, discovery may place them in a disadvantageous posi-tion.” Societe Nationale Industrielle

2. Make Sure You Understand Which Rules Are Potentially Invalid

Employers should consult with counsel to gain a clear understand-ing of exactly which NLRB rules are invalidated by Noel Canning. Just because the rule is articulated in a post-January 2012 decision does not mean that the rule is invalid. If the NLRB can show that the rule or opinion articulated in a decision was in existence prior to January 2012, Noel Canning will probably not affect the validity of the rule.3. Weigh The Pros and Cons

When deciding whether to inter-pret Noel Canning as invalidating all post-January 2012 NLRB deci-sions and acts, an employer should weigh the potential costs and ben-efits of its decision. For example, an employer should consider whether the benefit of not following a rule outweighs the cost of responding to

a charge that it is engaging in unfair labor practices. On the other hand, employers should refrain from mak-ing immediate and sweeping chang-es to its policies in accordance with post-2012 NLRB decisions because those changes might be unneces-sary if the decisions underlying the changes are declared void.

Before deciding to ignore or fol-low decisions of the current NLRB, an employer should weigh the costs (e.g., the expense of litigating the matter against the NLRB, the po-tential disruption to the workplace, the costs of rewriting and distribut-ing policies) against any benefits gained by choosing not to comply with post-January 2012 NLRB deci-sions. Remember, the NLRB’s posi-tion is “full steam ahead,” and that means continuing to issue decisions that will be consistent with current precedent, including these contro-versial 2012 decisions. Employers should keep in mind that disputing an unfair labor practice charge and making global changes to company-

wide policies are costly processes and Noel Canning does nothing to mitigate those costs.4. Understand the Risks

As with all labor relations and em-ployment decisions that implicate your company’s exposure to adverse rulings and judgments, consult with counsel to determine what relief your employees might be entitled to receive if you ultimately end up on the wrong side of the Noel Canning argument.ConCLuSIon

So, what is the bottom line? Be-fore an employer pops the cork on the champagne in celebration of what appears to be the administra-tive death of certain NLRB decisions (past and future), it should careful-ly consider the potential risks and consequences of disregarding the NLRB’s decisions, which may (or may not) ultimately be deemed valid by the United States Supreme Court.

Noel Canningcontinued from page 7



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In the District of Columbia, Bill 19-584, which was signed by the Mayor on Feb. 8 and which goes into effect after a 30-day Congressional review period and publication in the D.C. Register, authorized the creation and operation of Benefit Corpora-tions. In Pennsylvania, House Bill 1616, effective Jan. 22, also autho-rized Benefit Corporations.

Among the bills that were recently introduced and are still pending are the following: In California, Assem-bly Bills 434, 457 and 491 would amend provisions of the corpora-tion law governing preferred shares, reorganizations, and emergency by-laws. In New York, Assembly Bill 942/Senate Bill 3259 would elimi-nate the LLC publication require-ment and Assembly Bill 4946 would permit shareholders to attend meet-ings via remote communication.

California (Senate Bill 121), Min-nesota (House Bills 287 and 398), New York (Senate Bill 177), and Pennsylvania (House Bill 462) intro-duced bills dealing with corporate political spending. And Missouri (House Bill 510), Montana (House Bill 362), and Nebraska (Legislative Bill 168) introduced bills to autho-rize Series LLCs.

In The STaTe CourTS

de ChanCery CourT dISmISSeS SuIT agaInST CourT-ordered CuSTodIan

In Jepsco, Ltd. v. B.F. Rich Co, Inc., C.A. No. 7343, decided Feb. 14, 2013, a minority stockholder brought a suit against a custodian who had been appointed by the Delaware Chancery Court following a dispute over the election of direc-tors. The custodianship resulted in a settlement agreement and the sale

of the corporation’s only asset. The stockholder alleged that the custodi-an breached his statutory and fidu-ciary duties by selling the sole asset without either obtaining its consent or notifying it that the majority had consented to the sale.

The Delaware Chancery Court dismissed the breach of statutory duty claim on the grounds of ju-dicial immunity. The court noted that the custodian was acting under court order when he implemented the settlement by selling the sole as-set. Thus, he could not be stripped of his immunity even if he had vio-lated the corporation law by selling the asset without the consent of or notice to the minority stockholders.

The court dismissed the breach of fiduciary duty claim on the grounds of laches, noting that such a cause of action must be brought within three years of accrual. Here, the cause ac-crued, at the latest, when the court terminated the custodianship and the stockholder filed its complaint after that date.

de ChanCery CourT: reCeIver noT neCeSSary For CorPoraTIon dISSoLved more Than 10 yearS

In In the Matter of Krafft-Murphy Company, Inc., C.A. No. 6049, de-cided Feb. 4, 2013, asbestos claim-ants with pending claims against a corporation that had been dissolved for more than 10 years sought the appointment of a receiver. In Dela-ware, the Chancery Court may ap-point a receiver at any time where a dissolved corporation has undistrib-uted assets. In this case the corpora-tion’s only assets were liability insur-ance policies it had purchased while it was in operation. Thus, the court had to determine whether the corpo-ration was amenable to suits brought more than 10 years after its dissolu-tion in order to determine if the poli-cies constituted undistributed assets.

The Chancery Court held that the corporation was not amenable to such suits. The court stated that while it is clear the Delaware leg-islature intended to extend a dis-solved corporation’s liability for at least three years, there was no evi-

dence it intended to extend liability beyond 10 years. Thus, because the corporation would not be liable for suits of the kind at issue, the insur-ers had no obligation to pay under the insurance policies. Accordingly, the insurance policies have no value and the corporation has no undis-tributed assets that justify the ap-pointment of a receiver.

Ca SuPreme CourT: STaTe’S SurvIvaL STaTuTe doeS noT aPPLy To ForeIgn CorPoraTIonS

Greb v. Diamond International Corporation, S183365, decided Feb. 21, 2013, was another lawsuit filed against a dissolved Delaware corpo-ration for injuries due to asbestos exposure. The issue was whether Delaware’s three-year corporate sur-vival statute applied, which would result in the suit being dismissed, or California’s survival statute — Sec. 2010 of the General Corporation Law (GCL) — which did not have a three-year time limit. The trial court ruled that Delaware law applied and the appellate court affirmed. The Califor-nia Supreme Court granted review to resolve a conflict among the appel-late courts over whether Sec. 2010 applied to foreign corporations.

The California Supreme Court ruled that Sec. 2010 did not apply to foreign corporations. The court rejected the plaintiffs’ argument that Sec. 102(a) of the GCL, which pro-vides that the GCL applies to corpo-rations “organized” under the law, meant that the law applied to for-eign corporations that had to qualify to do business and that were subject to various requirements which the plaintiffs characterized as “organiza-tional mandates.” The court stated that had the legislature intended to impose such a litigious and in-trusive scheme on qualified foreign corporations it would have made its intention clear.

Similarly, the court held that a past version of the law, which stated that it applied to “private corporations” did not mean that foreign corpora-tion were covered. In addition, the


Sandra Feldman is a publications and research attorney for CT Corpo-ration and a member of this news-letter’s Board of Editors. CT Cor-poration is part of Wolters Kluwer Corporate Legal Services (www.ctle galsolutions.com).

Quarterly Reviewcontinued from page 1


Aerospatiale v. United States Dist. Court for the Southern Dist. of Iowa, 482 U.S. 522, 546 (1987).

Finally, an institutional party must put a Rule 30(b)(1) notice in con-text with other discovery sought by the opposing party in the case. For example, if the organization’s senior officers or directors are noticed at the outset of discovery without the noticing party first seeking Rule 30(b)(6) testimony, the organiza-tion should argue that the party’s requests are premature and that less burdensome and more efficient dis-covery methods should be exhaust-ed first. The Stone court explained that an institutional party may seek a protective order under Rule 26(c) to preclude a deposition of a cor-porate officer and, “[i]n determining what relief to allow, the court can consider whether the party seeking the deposition has made an effort to obtain information under Rule 30(b)(6).” Stone, 170 F.R.D. at 504. If the opposing party has issued a flurry of deposition notices seeking testimony from numerous officers and directors without any threshold

showing that they have substantive knowledge of the matters at issue in the lawsuit, the organization should argue that the party is inefficiently fishing for information, as presaged by the 1970 Advisory Committee’s notes, and should not be permitted to do so.

Admittedly, all of these arguments face an uphill climb if an organiza-tion seeks to wholly preclude the deposition of an officer or director. However, the arguments enable an organizational party potentially to control the discovery process and, for example, force an opposing party to exhaust less burdensome discovery methods and demonstrate need before being permitted to de-pose hand-picked officers, directors, or managing agents.

ConvenTIonaL WISdomAs Stone explained, it is “court

practice and interpretation” that have created the concept that an institutional party must produce its officers, directors, and managing agents for deposition pursuant to deposition notice under Rule 30(b)(1). Stone, 170 F.R.D. at 502. Yet de-cision after decision appears to al-low litigants to use Rule 30(b)(1) in precisely this manner.

The key to weakening this super-ficially appealing argument lies in the limits of the legal rulings and the specific facts and circumstances ad-dressed in them. Most cases end up citing to the same handful of deci-sions (or decisions derived there-from): GTE Products Corp. v. Gee, 115 F.R.D. 67 (D. Mass. 1987), United States v. Afram Lines, (USA), Ltd., 159 F.R.D. 408 (S.D.N.Y. 1994), and Sugarhill Records Ltd. v. Motown Re-cord Corp., 105 F.R.D. 166 (S.D.N.Y. 1985). None of these courts, however, analyzed whether, under the actual text of Rule 30(b)(1), an organiza-tion can be compelled to produce a named officer, director or manag-ing agent based on notice alone. For example, the Sugarhill decision did not cite Rule 30(b)(1) at all, relied on case law decided before the 1970 Rule amendments, and ultimately al-lowed the corporation to produce someone with knowledge other than the named deponent. See Stone, 170 F.R.D. at 503 (analyzing Sugarhill).

In the GTE decision, the plain-tiff served notice on a corporation to take the deposition of corporate employees who were not officers, directors, or managing agents, and the court noted only in dicta that

court rejected an argument based on a past provision of the state Consti-tution which provided that foreign corporations would not be allowed to transact business in the state on more favorable terms than domestic corporations. According to the court, that provision merely prohibited the legislature from granting a privilege to a foreign corporation that it did not grant to a domestic corporation.

ny CourT oF aPPeaLS uPhoLdS oPTIon agreemenT

In Fundamental Long Term Care Holdings, LLC v. Cammeby’s Fund-ing LLC, 2013 NY Slip Op 951, de-cided Feb. 14, 2013, an LLC entered into an option agreement entitling the option holder to acquire one-third of the LLC’s membership units

for $1,000. The agreement provided that upon exercise of the option, the LLC shall deliver certificates for the acquired units and the acquirer shall be admitted as a member. However, when the option was exercised, the LLC responded that it could not is-sue membership units until the op-tion holder provided a capital con-tribution of at least the fair market value of its interests. According to the LLC its operating agreement re-quired such a capital contribution before any new members could be admitted. The LLC sought a decla-ration that the option holder was bound by the operating agreement. The trial court ruled in favor of the option holder, the appellate division affirmed, and the LLC appealed.

The New York Court of Appeals affirmed. The court agreed with the lower courts that the option agree-

ment unambiguously granted the option holder the right to acquire a one-third interest for $1,000. The court rejected the plaintiff’s conten-tion that the option agreement and operating agreement had to be read together as requiring a two-step pro-cess whereby first the option holder paid $1,000 for the right to acquire the units, and then made a capital contribution. The court pointed out that the option agreement and op-erating agreement were not inextri-cably intertwined. Furthermore the parties here were sophisticated and counseled and had they meant for fair market value to be due upon ex-ercise of the option they would not have omitted that term from the op-tion agreement.

Quarterly Reviewcontinued from page 9


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By Michael Goldman

This article is the sixth installment in an ongoing series focusing on ac-counting and financial matters for corporate counsel.

Domain names, customer lists, patents, trademarks, copyrights, trade secrets, franchises, licenses, contracts, business methods, and other forms of rights, relationships, and intellectual property have be-come the overwhelming items of value in many businesses today. They are a major focus area for the Business Valuation profession, but get disproportionately small atten-tion in the accounting world.goodWILL

Goodwill is probably the best-known intangible asset. Almost ev-ery business has goodwill, because without it, business does not exist for very long. Yet, goodwill does not appear as an asset on most compa-ny balance sheets. Remember some of the accountant’s core principles — historical cost, consistency, ob-jectivity, and conservatism. These generally discourage the booking of self-created assets, especially assets whose value is so hard to measure. When you see goodwill on a balance sheet, that generally means that the company acquired another company and paid more than the sum of the value of identifiable assets. Goodwill is generally only recorded as a result of arm's-length transactions.Perverse Results

The treatment (or non-treatment) of goodwill can lead to perverse re-sults. Paying more than can be at-tributed to physical assets, in the accountant’s world, is considered evidence of goodwill. In the real world, it is sometimes considered evidence of stupidity.R & D Costs

Research and development costs are money that the company spends

in the hopes of obtaining new busi-ness processes, patents, copyrights, or products. Since it is often diffi-cult to assign specific costs to spe-cific outcomes and there are un-certainties in identifying the extent and timing of the benefits received from these expenditures, the costs of research and development are generally expensed immediately as incurred, whether the research is successful or not.Restrictions

Other intangible assets are subject to the same restrictions — if they are internally created, they generally do not get recognized on the balance sheet. If they are purchased, they can get shown on the balance sheet as an identifiable asset. Thus, the bil-lions of dollars that beer companies spend promoting their brand names during sporting events is considered to be an expense that gets written off each month, even though it is building value. Their carefully cul-tivated and developed brand names will never appear on their balance sheet. If, however, one beer com-pany buys another, the acquiring company will be able to record the value of the acquired brand names on its balance sheet, even as its own internally developed and promoted brands appear nowhere on any of its financial statements .Depreciation

Purchased goodwill was original-ly treated by accountants very simi-larly to fixed assets in that it was as-sumed that the asset would steadily lose value over time, and therefore needed to be written down each pe-riod. For fixed assets this is called “depreciation.” For intangible assets it is called “amortization.”

Eventually, it was accepted in the accounting world that if manage-ment is doing its job the value of the goodwill they acquired should be increasing, not decreasing. The value of goodwill could be seriously understated by amortizing it. This shift in perspective caused goodwill to be treated more like land (which is not depreciated) than like build-ings (which are depreciated). The new accounting standard became not to amortize goodwill.

Other intangible assets are amor-tized or not based on whether they have an identifiable life. Examples of this are the length of a patent, the ex-piration of an agreement, or the life cycle of a product. If the life of the as-set is identifiable, than the asset gets amortized over that life. The amor-tization is usually on a straight-line basis, assuming the intangible loses its value at a steady rate. If the life of the asset is not identifiable, then the asset value remains the same on the balance sheet unless it becomes impaired. Intangibles are tested for impairment every year and written down whenever impairment is iden-tified. These write-downs are a one-way street — assets are never written up for enhancements in value.gaaP

To further delve into the realm of the surreal, GAAP (Generally Accept-ed Accounting Principles) for intan-gible assets is different than IRS reg-ulations as to what gets expensed, capitalized and amortized. Different state laws may define and treat in-tangible assets differently from each other, both from a legal and tax per-spective. Basically, what you need to know about the Intangible Asset number on the balance sheet you are looking at is that it is not comparable to any other company’s Intangible Asset figure and that it is most likely understated and meaningless. In an attempt to adhere to their core prin-ciples, the accountants have missed the forest for the trees on this one. Intangible assets on a balance sheet are more of a plug to make debits equal credits than they are a true in-dication of value.buSIneSS vaLuaTIon

A more specialized branch of the accounting profession, the Business Valuation community, has dealt ex-tensively with valuation of intan-gible assets. Unlike GAAP accoun-tants, business valuation analysts are not paralyzed by the uncertainty inherent in intangibility. While in-tangibles usually get no more than a single chapter in accounting texts, entire libraries of books have been written about them by and for the Valuation community.


Intangible Assets

Michael Goldman, MBA, CPA, CVA, CFE, CFF, is principal of Mi-chael Goldman and Associates, LLC in Deerfield, IL. He may be reached at michaelgoldman@mind spring.com.


Reasons to properly value intel-lectual property and other intan-gible assets include transaction sale support, solvency analysis, licens-ing, strategic alliances, infringement

damages, taxation of intercompany transactions, collateral-based financ-ing, regulatory requirements, and even for determining the loss due to attorney malpractice. Valuation methods of intangible assets will be the subject of a later installment in this series. For now, rest assured

that there are professionally accept-ed methods of valuing intangible assets that are scientific, insightful, justifiable, and defensible.

To order this newsletter, call:1-877-256-2472

On the Web at:www.ljnonline.com

Even more problematic than bud-get demands, some insurers purport to not pay for certain litigation ac-tivities or require pre-approval for certain litigation activities before the insurer will pay. Once again, numer-ous jurisdictions have disapproved of such requirements as being inconsis-tent with an attorney’s professional judgment. For example, Washington State Bar Association Formal Opin-ion No. 195 (1999) provides:

A billing guideline that arbi-trarily and unreasonably limits or restricts compensation for the time spent by counsel per-forming services which counsel considers necessary to adequate representation, such as periodic view of pleadings, conducting depositions, or in preparing or defending against a summary judgment motion, endeavors to direct or regulate the lawyer’s

professional judgment in vio-lation of [Washington Rules of Professional Conduct].Op. at pg. 6. Ohio has also ex-

pressly disapproved of insurers’ at-tempts to require pre approval for litigation tasks.

While it is certainly good practice to keep a defending insurer informed of significant developments in the case, such as major ongoing tasks and the retention of experts, insurers should not be able to dictate those decisions by insisting on prior approval of liti-gation activities approved by the cli-ent and within the professional judg-ment of defense counsel.ConCLuSIon

Ideally, the objectives of the cor-porate policyholder and its insurer should be fully aligned — success-fully defending the underlying litiga-tion. Both parties want to eliminate or minimize risk and potential liability by defending a case in as legally effective and cost-efficient manner as possible. Misalignment occurs when an insurer who is reserving rights to deny cover-

age simultaneously attempts to mini-mize or avoid its contractual defense obligations by seeking to impose its views, through billing guidelines or otherwise, on the attorney-client relationship. Too frequently, corpo-rate policyholders (or their defense counsel) will receive insurer billing guidelines shortly after the defense of a case has commenced and allow such largely legally ineffective, and ethically questionable, guidelines to interfere with the defense effort.

Although it is obviously prefer-able for corporate policyholders to engage in a constructive and coop-erative dialogue with their insur-ers in defending cases, corporate policyholders should be aware that there is substantial authority reflect-ing that an insurer’s billing guide-lines are nothing more than the insurer’s unilateral opinion that car-ries only marginal legal relevance to the parties’ defense discussions.

Insurer Guidelinescontinued from page 4

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Rule 30(b)(1) has been interpreted to allow parties to notice the de-positions of such individuals. 115 F.R.D. at 68; see also Afram Lines, (USA), Ltd., 159 F.R.D. at 413 (de-ciding whether noticed individuals were “managing agents” and not fo-cusing on the issue of the obligation to produce).

By urging a court to look beyond “court practice and interpretation” and to the text and intent of the rules, organizations can buck con-

ventional wisdom and limit, or in some cases even preclude, deposi-tions of named officers, directors, or managing agents. See, e.g., Estate of Esther Klieman v. The Palestin-ian Authority, CA No. 04-1173 (PLF/JMF), 2012 U.S. Dist. LEXIS 78287, at *12-15 (D.D.C. June 6, 2012).FInaL anaLySIS

Upon receiving a notice of de-position for an officer, director, or managing agent pursuant to Rule 30(b)(1), an institutional party need not reflexively agree to produce the named individual. Instead, counsel should consider whether the indi-

vidual possesses relevant informa-tion, whether his or her location or position make the deposition burdensome and expensive, and whether the notice is part of a clas-sic fishing expedition and not part of an orderly discovery plan. Us-ing these factors to tilt the equi-ties in their favor, in-house and outside counsel have an opportu-nity to buck conventional wisdom and better protect the organization during discovery.


Intangible Assetscontinued from page 10

2013.04 the corporate counselor (jce article)

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