Category: Business Law

PA Supreme Court Agrees to Examine Contractual Relationships Between Law Firms and Non-Lawyers

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The Pennsylvania Supreme Court has agreed to evaluate whether an alleged fee-splitting arrangement between a law firm and a non-lawyer was proper, and whether the arrangement violated state law and public policy.

In SCF Consulting, LLC v. Barrack, Rodos & Bacine, No. 1413 EDA 2015, 2016 WL 4962900 (Pa. Super. Ct. July 8, 2-16), Plaintiff, SCF Consulting, LLC (SCF), alleged it was entitled to a promised share of profits for cases SCF had worked on as part of an oral consulting contract with Defendant, Barrack, Rodos and Bacine (“Barrack”). The contract regarded representation of various institutional investors who sought to bring class actions alleging securities violations. Pursuant to this contract, SCF claims it was paid a yearly consulting fee, plus “a five percent (5%) share of the firm’s annual profits attributable to the cases originated and worked on by Barrack, and a 2.5% of cases originated by other members of the firm.” Based on this compensation package, SCF assisted Barrack in becoming legal counsel for the class representatives in virtually all of its cases. SCF admitted that Barrack paid them their fixed annual consulting fee for each of the years worked, but alleges that Barrack failed to pay the share of profits due at the end of 2014.

SCF filed this suit claiming that Barrack breached the parties’ agreements by refusing to make the promised profit share payments for cases that were originated, worked on and resolved by SCF.

The trial court sustained Barrack’s demurrer to all counts of SFC’s complaint on the basis that the compensation plan they entered into was against public policy due to violation of Pennsylvania Rule of Professional Conduct, 5.4. The rule prohibits a lawyer or law firm from sharing legal fees with a nonlawyer exclusive of various exceptions. While SFC claimed the plan was an express exception to the rule [under section (a)(3)], both the Trial Court and Superior Court disagreed.

On February 1st, 2017, SCF appealed to the Supreme Court of Pennsylvania to determine “whether the trial court and superior court erred in sustaining Barrack’s demurrer to all counts of SFC’s complaint, even assuming that the compensation plan was in violation of 5.4., Pennsylvania law, public policy and the interests of justice require such an agreement to be enforced because an attorney must not be shielded from liability, nor financially rewarded for violating the Rules of Professional Conduct.”

For more information, call our business lawyers in Philadelphia at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Pennsylvania Supreme Court Finds Strict Liability

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Improper Basis of Recovery Against Medical Device Manufacturers

Pennsylvania courts consider strict liability to be an improper basis for recovery in cases where manufacturers fail to provide adequate warnings regarding prescription drugs. In Hahn v. Richter, 543 Pa. 558 (Pa. 1996), the Plaintiff, Hahn, was treated for back pain by one of the defendants, Dr. Richter. The treatment included several surgical procedures and multiple intrathecal injections of Depo-Medrol, a drug manufactured by the other defendant involved in the case, Upjohn. A package insert accompanying the drug provided warnings to physicians that a condition called “arachnoiditis” was reported after doctors administered the drug by way of intrathecal injection, and that this method was not an approved usage by the Federal Drug Administration. Following his treatment, Hahn developed the condition “arachnoiditis”, which required further surgery and ultimately resulted in serious, permanent injury. Hahn filed a suit against both Dr. Richter and Upjohn alleging that his condition was caused by the Depo-Medrol and that Upjohn failed to provide adequate warnings to physicians regarding intrathecal use of the drug.

The court ruled that where the adequacy of warnings associated with prescription drugs is at issue, the failure of the manufacturer to exercise reasonable care to warn of dangers (i.e. manufacturer’s negligence) is the only recognized basis of liability. The court ruled that a “manufacturer of drugs is not strictly liable for unfortunate consequences attending the use of otherwise useful and desirable products which are attended with a known but apparently reasonable risk.”

For more information, call our Philadelphia business lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Fraud in the Inducement Hurdle

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Parole Evidence Rule

When a contracting party has been painted a “false picture” of how a contract will operate, that party may have a fraud in the inducement claim. One instance of this is when an individual signs a materially different contract after the parties had agreed to language in earlier drafts. Under Pennsylvania law, plaintiffs are required to prove the following elements in a claim for fraud in the inducement: (1) a representation; (2) material to the transaction at hand; (3) made falsely with knowledge of its falsity or recklessness as to its truth; (4) with intent of misleading another into relying on it; (5) justifiable reliance on the misrepresentation; and (6) resulting injury. Broederdorf v. Bachelor, 129 F.Supp.3d 182, 198 (E.D. Pa. 2015). Successfully pled, such contracts are voidable. Giannone v. Ayne Institute, 290 F.Supp.2d 553, 564 (E.D. Pa. 2003).

However, in Pennsylvania, such claims are subject to the parole evidence rule. If the court finds that the agreement at issue constitutes “a writing that represents the ‘entire contract between the parties,’ then the court may not consider ‘preliminary negotiations, conversations[,] verbal agreements,’ or any other extrinsic evidence of representations made by the parties prior to the execution of the written contract.” Batoff v. Charbonneau, 130 F.Supp.3d 957, 970 (E.D. Pa. 2015). And so, the parole evidence rule will bar the admission of statements necessary to establish a fraud in the inducement claim, resulting in its dismissal. For instance, in Batoff, the court dismissed the fraud in the inducement claim because the settlement agreement clearly represented the entire contract between the parties through its integration clause. In a similar case, the District Court dismissed a fraud in the inducement claim because the contract expressly stated, “This Agreement contains the whole agreement between Seller and Buyer, and there are no other terms,” which triggered the parole evidence rule. Charlton v. Gallo, 2010 WL 653155, at *4 (E.D. Pa. 2010).

For more information, call our business lawyers in Philadelphia at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Website Operator Denied Copyright Protection

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A recent Central District of California decision shed some light on the application of the Digital Millennium Copyright Act’s (DMCA) Section 512(c) safe harbor provision. Under the safe harbor, online service providers that meet certain requirements may avoid liability for damages that may arise from infringing content uploaded by service users. In Greg Young Publishing, Inc. (GYPI) v. Zazzle, Inc. (Zazzle), the court addressed the question of whether Section 512(c) safe harbor may protect an online service provider that commercially exploited infringing content.

Zazzle operates a website on which users may upload images. Other users may have the images printed on various merchandise including coffee mugs, posters, and t-shirts. The users typically do not own the images and have not obtained authorization from the owners to upload them. Zazzle does not ensure that images are not infringing, rather the company manufactures the product once it is ordered, delivers it to the purchaser, and pays a royalty to the user who uploaded the image.

Zazzle displayed 41 paintings owned by GYPI and created consumer products for sale from the paintings. GYPI sued Zazzle for copyright infringement and Zazzle asserted Section 512(c) safe harbor as an affirmative defense. GYPI argued that Zazzle could not rely upon safe harbor because: (1) Zazzle is not a service provider, (2) Zazzle knew that their services infringed upon GYPI’s copyright, and (3) Zazzle had the right and ability to control the infringing activity, choosing to exploit the paintings for financial benefit.

Case Argument

First, GYPI argued that Zazzle is not a service provider because it does not accept and display user-submitted images, but also manufactures and sells products based on those images. The court rejected this argument, finding that Zazzle was unquestionably a provider of online services and therefore a service provider within the definition of that term in Section 512(c) safe harbor.

Second, GYPI argued that Zazzle had specific knowledge of the infringing content, rendering Zazzle ineligible for safe harbor protection. The court held that a service provider only has such knowledge when the copyright holder submits a DMCA-compliant or a third party submits a sufficiently specific complaint. Therefore, GYPI’s complaints to Zazzle about infringing content and the fact that GYPI sent Zazzle a catalogue of images for them to check for infringement, were not enough to constitute specific knowledge.

Finally, the court held that Zazzle received a financial benefit from, and that it had the right and ability to control, the infringing activity. The court acknowledged that Zazzle had the ability to remove infringing content, terminate repeat infringers’ accounts, and engage in limited monitoring of the site. However, this does not amount to a right and ability to control, which only exists when a service provider plays a more active role in user content. This happens specifically when the service provider exerts substantial influence over activities such as selection, monitoring, and marketing of user content.

In this case, the court held that Zazzle did exert the substantial influence necessary to render it unable to be shielded by Section 512(c) safe harbor because Zazzle’s content management team approved user’s orders; the subsequent automated nature of the process is irrelevant. Therefore, Zazzle will be liable for copyright infringement damages resulting from the sale of products displaying the protected images.

Philadelphia Intellectual Property Lawyers at Sidkoff, Pincus & Green P.C. Represent Clients in Copyright Disputes

Philadelphia intellectual property lawyers at Sidkoff, Pincus & Green P.C. represent clients in copyright disputes throughout Pennsylvania and New Jersey, including Philadelphia and South Jersey. Contact us online or call us at 215-574-0600 to discuss your case.

Tortious Interference as applied by Pennsylvania Courts

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“One who intentionally and improperly interferes with the performance of a contract (except a contract to marry) between another and a third person by inducing or otherwise causing the third person not to perform the contract, is subject to liability to the other for the pecuniary loss resulting to the other from the failure of the third person to perform the contract.” Adler, Barish, Daniels, Levin & Creskoff v. Epstein, 393 A.2d 1175 (Pa. 1978).

This duty of non-interference applies whether or not there is a contract with a third party See Restatement (Second) of Torts, § 766, Comment (b) (1979)( “there is a general duty not to interfere intentionally with another’s reasonable business expectancies of trade with third persons, whether or not they are secured by contract…). This duty also applies to contracts that are terminable at will. Restatement (Second) of Torts, § 766, Comment (g) (1979).  “Under Pennsylvania law, to succeed on a claim for tortious interference with existing or prospective business relationships, a party must show:

(1) The existence of a contractual or prospective contractual or economic relationship between the plaintiff and a third party

(2) Purposeful action by the defendant, specifically intended to harm an existing relationship or intended to prevent a prospective relation from occurring

(3) The absence of privilege or justification on the part of the defendant

(4) Legal damage to the plaintiff as a result of the defendant’s conduct and

(5) For prospective contracts, a reasonable likelihood that the relationship would have occurred but for the defendant’s interference.”

At Sidkoff, Pincus & Green P.C., our Pennsylvania and New Jersey attorneys handle many types of legal matters, including those involving tortious interference. To discuss your case with a Philadelphia business lawyer, call 215-574-0600 today or contact us online.

Supreme Court Of Pennsylvania Rules That Summary Judgement Is Not Warranted Where Plaintiff Did Not Destroy Evidence As A Result Of Negligence Or Bad Faith

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In Schroeder v. Commonwealth, the Supreme Court of Pennsylvania determined whether a product liability defendant and a non-product liability defendant are entitled to summary judgment when the plaintiff failed to preserve a defectively-designed product. 710 A.2d 23, 24 (Pa. 1998). In Schroeder, plaintiff represented the state of the decedent, who died when his truck caught fire after the decedent lost control of the truck.   Following the accident, the decedent’s insurer sold the truck’s remains to a scrapper, who took the remains to a salvage yard after plaintiff signed title over to the insurer.  The plaintiff requested the salvage yard not sell or destroy the truck until examination. However, the salvage yard sold many of the truck’s parts.  The plaintiff filed suit against the truck’s manufacturer and seller alleging it was defective. Plaintiff also sued the DOT alleging it negligently maintained the highway, which caused decedent to lose control of his truck. The defendants moved for, and the trial court granted, summary judgment on the ground the truck had been spoiled. The Commonwealth Court affirmed, finding the plaintiff was vested with absolute responsibility to preserve evidence and failed to do so, warranting summary judgment.

Applying previously stated methods to the case, the Pennsylvania Supreme Court reversed the Commonwealth Court, determining that the product liability defendants, the seller and manufacturer, were not entitled to summary judgment. As to fault, the first factor for spoliation, the court found that no evidence in the summary judgment motions supported the plaintiff’s transfer to the salvage yard was negligent or in bad faith, particularly given the plaintiff’s requests not to sell or destroy the truck. Additionally, the court found the second and third factors also did not necessitate summary judgment in the case.  The court determined that because the plaintiff claimed product liability based on a design defect common to all similar trucks, the prejudice to the defendants/appellees was not great as they could inspect other trucks for the alleged defect.  Accordingly, the court noted a lesser sanction, like a jury instruction on the spoliation, was warranted.

Additionally, the court determined that DOT also was not entitled to summary judgment based on spoliation.  The court reiterated that summary judgment was not warranted due to plaintiff’s fault.  Further, examining the second factor, the court noted DOT suffered less prejudice from spoliation of evidence than the products liability defendants, as claims against DOT related to the condition of the roads rather than the truck.  Finally, in consideration of the third factor, the court found that a lessor sanction such as a jury instruction on the spoliation would be proper.

Philadelphia Business Lawyers of Sidkoff, Pincus & Green P.C. Advise Clients Seeking Summary Judgement

At Sidkoff, Pincus & Green P.C., our Pennsylvania and South Jersey business lawyers offer experienced guidance for a variety of legal matters. We will work tirelessly to achieve the best possible outcome for you case. To schedule a consultation in our Philadelphia office, call 215-574-0600 today or contact us online.

Definition and Determination of Spoliation of Evidence under PA Law

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Definition and Punishments

‘Spoliation of evidence’ is the non-preservation or significant alteration of evidence for pending or future litigation.  When a party to a suit has been charged with spoliating evidence in that suit (sometimes called ‘first-party spoliation’) . . . trial courts [may] exercise their discretion to impose a range of sanction against the spoliator.” Additionally, sanctions for spoliation arise from “the common sense observation that a party who has noticed that evidence is relatable to litigation and who proceeds to destroy said evidence, is more likely to have been threatened by that evidence, than a party in the same position who does not destroy the evidence.

In other words, Pennsylvania courts recognize that a potential remedy for spoliation is allowing the jury to draw an “adverse inference” against the spoliating party.

In federal court, “spoliation occurs where: the evidence was in the party’s control; the evidence is relevant to the claims or defenses in the case; there has been actual suppression or withholding of evidence; and, he duty to preserve the evidence was reasonably foreseeable to the party.” As to sanctions in federal county, the District Court for the Eastern District of Pennsylvania has noted that spoliation ‘may give rise to sanctions which include: dismissal of a claim or granting a judgment in favor of a prejudiced part; suppression of evidence; an averse inference, referred to as the spoliation inference; fines; and attorney’s fees and costs.”

The Test for Determining Spoliation and its Severity

To make such a determination, the court must balance three factors:  “(1) the degree of fault of the party who altered or destroyed the evidence; (2) the degree of prejudice suffered by the opposing party; and (3) the availability of a lesser sanction that will protect the opposing party’s rights and deter future similar conduct. In evaluating the first prong, the fault of the party altering or destroying evidence, courts must consider both “the extent of the offending party’s duty or responsibility to preserve the relevant evidence, and the presence of absence of bad faith.”

Philadelphia Local Counsel at Sidkoff, Pincus & Green P.C. Advocate for Those Affected by Spoliation of Evidence

At Sidkoff, Pincus & Green P.C., we handle many types of legal matters, including spoliation of evidence. Call 215-574-0600 today or contact us online for local legal counsel in Pennsylvania and New Jersey.

Philadelphia Cracking Down on Discriminatory Business Practices

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The Fair Practice Ordinance of the Philadelphia Code (FPO) prohibits businesses from discriminating (against patrons) on the basis of race, ethnicity, color, sex, sexual orientation, gender identity, religion, national origin, ancestry, age, disability, marital status, familial status, genetic information, or domestic or sexual violence. Recently, there has been public outcry over alleged discrimination toward LGBT people in some Philadelphia bars and restaurants. In light of this, Mayor Jim Kenney recently signed a bill amending the FPO to more stringently punish businesses who engage in “severe or repeated violations” without efforts to remediate such practices by authorizing the Philadelphia Commission on Human Relations (PCHR) to order a business to cease operations “for a specified period of time.” The PCHR will eventually enact further regulations to clarify the meaning of “severe and repeated” and “effective efforts” or the length of time are.

Philadelphia’s amended FPO law comes at a critical time in the unfolding of discriminatory business-patron regulations nationwide. This June, the Supreme Court decided to grant cert to a related case involving a baker in Colorado refusing to bake wedding cakes for same sex couples because of his religious beliefs. The Court will hear Masterpiece Cake Shop v. Colorado Civil Rights Commission in the coming term; its outcome will likely have determinative implications for the enforceability, or lack thereof, of laws like the FPO.

For more information, contact our Philadelphia business lawyers at Sidkoff, Pincus & Green at 215-574-0600 or contact us online.

Philadelphia Business Lawyers: Trade Secrets Lawsuit

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An architecture and construction company, Tesla Wall Systems LLC, has been awarded $14.5 million in damages in a claim against its former president. Among other things, the claim alleged breach of contract based on the trade secret/restrictive covenant clause in the employment contract. The contract contained post-employment restrictions barring the ex-president from interference with company business relationships for six months, and from soliciting employees for nine months.

Tesla Wall alleged that the breach of confidentiality began as early as September 2012 when the defendant bought three laptops. The company maintained that he did not ask to be reimbursed for his purchase because he was using them to steal trade secrets. In the complaint, Tesla employees said that after his departure, the defendant continued to pursue Tesla projects and customers with his new company. The list of proprietary information that he allegedly took with him included everything from software and technology, to technical data and research, engineering designs, internal bids and proposals, as well as customer lists and internal pricing information.

Many claims involving restrictive covenants never make it to trial as the parties often opt for a settlement.  However in this case, the employer decided to pursue the claim to its conclusion. After sitting through more than ten days of trial, a federal jury in the Southern District of New York returned a verdict in favor of Tesla Wall LLC.

Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Represent Clients in Breach of Contract Matters, Restrictive Covenant Actions and Trade Secret Claims

The Philadelphia business lawyers at Sidkoff, Pincus & Green P.C. have experience in contract law, restrictive covenants and trade secrets. Please call us at 215-574-0600 or contact us online. Our offices are in Philadelphia and we serve clients nationwide.

Philadelphia Business Lawyers: Court Rules on Copyright

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Recently, the U.S. Supreme Court issued a watershed decision in Star Athletica v. Varsity Brands, holding that the decorative features on cheerleading uniforms are protected by federal copyright law. The issue before the court was what was the appropriate test to determine whether a feature of a useful article, such as an article of clothing, is protected under the 1976 Copyright Act’s Section 101. The Court set out to resolve a widespread disagreement as to what testing standard is most appropriate.

Justice Clarence Thomas authored the opinion. He wrote that an artistic feature of a uniform’s design can be copyrighted if it can be perceived as a two or three-dimensional work of art that stands separate from the uniform itself. The analysis applies equally to all “useful articles.” In addition, the feature must qualify as a protectable pictorial, graphic, or sculptural work either on its own or in some other medium if imagined separately from the uniform.

Varsity Brands manufactures cheerleading uniforms and athletic apparel. Varsity has more than 200 copyright registrations for two-dimensional designs consisting of various patterns, chevrons, and shapes. Designers create concepts that consist of original combinations, positionings, and arrangements of elements and do not consider functionality or the ease of actually producing uniforms. Varsity sued Star Athletica, who also markets cheerleading uniforms, after they allegedly copied two-dimensional art designs that Varsity had copyrighted. The Court held that the uniforms at issue met the requirements set forth by the newly devised test.

Justice Stephen G. Breyer dissented, finding that Star Athletica’s designs looked like generic pictures of cheerleader uniforms. He compared the situation to a pair of old shoes in a Van Gogh painting—stating that it would not qualify as a shoe design copyright, though the painting itself would be copyrightable.

Justice Ruth Bader Ginsburg concurred with the majority’s judgment, but not its opinion. She said that designs are not designs of useful articles, but rather are themselves copyrightable graphic works reproduced on useful articles. She found that the designs were standalone works of sculptural art that were covered by Section 101 of the 1976 Copyright Act.

Philadelphia Business Lawyers at Sidkoff, Pincus & Green P.C. Handle All Types of Trademark Litigation

If you are seeking representation in any type of business, copyright, or trademark matter, the Philadelphia trademark litigation lawyers at Sidkoff, Pincus & Green P.C. are available to answer your questions. To schedule a consultation with us, call us at 215-574-0600 or contact us online today.