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California’s Proposed Education Budget Cuts May Lead to More Layoffs

Posted on: June 3rd, 2020

By: Matthew Jones

California Governor Gavin Newsome proposed a new budget, which includes cuts of approximately 8% to California’s education system.  Previously, California districts were not permitted to layoff teachers after mid-May.  However, if the proposed budget cuts are approved, districts will have the opportunity to layoff additional teachers through August 15th

Although most districts are requesting more funding and jobs, such a proposal may be necessary for those districts in poor financial condition.  These districts may be able to avoid bankruptcy or a state takeover but utilizing this new time frame for layoffs and furloughs. 

In response to the proposed budget cuts and potential extension of time for layoffs, the California Teachers Association plans to ask the Legislature to suspend the provision in the Education Code related to mid-summer layoffs.  Such a request has been approved twice by the Legislature: in 2002-03 and 2011-12.

Some believe that even if this budget is approved and the extension to mid-August takes effect, there is a small chance districts will turn to additional layoffs/furloughs.  However, given the current economic climate and the already struggling California education system, nothing is guaranteed and it is expected that the anticipated layoffs may spur new lawsuits.

If you have questions or would like more information, please contact Matthew Jones at [email protected].

Cybersecurity Forensic Reports and the Work Product Doctrine

Posted on: June 3rd, 2020

By: Michael Kouskoutis

When responding to a data security incident, it is typical for a company’s attorneys to retain a computer forensics firm on behalf of the company to help investigate what occurred. Because the forensic firm’s work is performed at the direction and under the supervision of the company’s attorneys, the company then asserts that the forensic firm’s work product, including any written report of findings, is protected from disclosure by the attorney-client privilege and work product doctrine. Case law in various jurisdictions has upheld this view when it is clear that the work performed was done under circumstances and in a manner that allows for this protection. But a recent case from a federal court in Virginia was decided the other way and serves as an important reminder to companies and their attorneys about the limits on this protection.

In a class action lawsuit following a data breach, Capital One refused to produce a report prepared by a computer forensics company retained to investigate the incident, on the basis that the report was protected from disclosure by the work product doctrine.  But Magistrate Judge John Anderson of the U.S. District for the Eastern District of Virginia recently ruled that Capital One had to produce the report to the attorneys suing it on behalf of customers impacted by the data breach because Capital One failed to meet its burden in establishing that the report was entitled to work product protection, despite that the investigation was performed at the direction of outside counsel.

In reaching this decision, the court emphasized that Capital One had signed a master services agreement with the forensics company, predating the subject incident by several years.  Also, while the companies did sign a separate agreement to investigate the subject incident, the agreement provided for essentially the same services as a pre-existing statement of work signed several months before the incident.  Moreover, the report was distributed to several governmental regulators and shared with about 50 Capital One employees, indicating that the investigation was important for business and regulatory reasons, rather than merely for purposes of litigation. 

The court was also persuaded by another case cited by the Plaintiffs in which, while performing cybersecurity incident response and remediation services, a forensics company discovered malware in their client’s system.  The forensics company amended its statement of work to shift supervision of the investigation to outside counsel, but did not otherwise change the agreement or deviate from services described in the MSA, and the resulting forensic report was therefore discoverable in litigation. Judge Anderson applied this same reasoning to the Capital One case and similarly required production of the forensics report.

Thus, a key takeaway from the Capital One case is that, while MSAs are certainly useful in expediting response to cybersecurity incidents, businesses should be careful that statements of work for subsequent services do not rely entirely on terms found in the MSA. Instead, it is better for the business’s attorneys to engage the forensics firm under an entirely separate MSA and SOW pertaining solely to its response and investigation of the incident at hand.  In addition, the business’s attorneys should be included on all communications with the forensics firm during its investigation, and distribution of any report by the forensics firm should be strictly limited to the attorneys and key management within the business who require access to the information in order work with their counsel on the business’s response to the incident.

If you have questions or would like more information, please contact Michael Kouskoutis at [email protected].

Waiver of Liability and COVID-19

Posted on: June 2nd, 2020

By: Michael Bruyere and Kathleen Cusack

As all 50 states begin easing restrictions related to COVID-19, businesses will be seeking ways to limit not only their employees’ and patrons’ exposure to the virus but also any potential liability stemming from the virus. One tool some businesses are using to try to limit their liability arising from COVID-19 is a waiver. By requiring employees and/or customers to sign a waiver of liability, businesses seek to shift the responsibility associated with contracting COVID-19 to the individual rather than the business.

While a few states will not enforce liability waivers, most jurisdictions in the United States will enforce waivers for liability arising out of negligent conduct. However, most jurisdictions will not enforce waivers of liability that seek to waive liability arising out of intentional, reckless, or grossly negligent conduct. What behavior would meet the threshold for recklessness or gross negligence remains unclear. In a recently filed lawsuit, the family of a passenger on the Grand Princess cruise ship allege that the cruise line was grossly negligent in exposing passengers to risk because it added additional passengers after people on board exhibited symptoms of the virus and the cruise line knew of the potential exposure. The lawsuit claims that passengers were not informed of any risk of exposure and that the cruise ship failed to enact sanitary procedures until about two weeks after passengers exhibited symptoms. (Case No. 2:20-cv-04074).

Where waivers are enforceable, they must be drafted in a manner that guarantees that customers will understand the risks associated with the services and the rights that they will waive.  Waivers also must be written in such a way that they are concise and plainly evident, i.e. not buried in a long document. 

Waivers of liability are common for certain types of businesses, such as gyms, but are less common and perhaps even impractical for many other types of businesses. For instance, while theme parks more commonly have waivers of liability that could be electronically communicated, smaller businesses such as grocery stores and hair salons may not. In addition, a physical waiver form may be impractical because the process of signing the waiver would require contact with objects, which is incongruous with common COVID-19 safety recommendations. Businesses could also warn patrons of a potential risk of contracting COVID-19 by using signs similar to wet floor signs. While signs would not necessarily limit a business’s liability, it might help establish that patrons were aware of the risk of exposure to the virus while on the premises.     

Despite a lack of clear understanding of how courts will interpret COVID-19 liability waivers, businesses across the country will likely try to implement waivers in addition to safety precautions to minimize the risk of exposure for employees and patrons. An example of a COVID-19 liability waiver for the Falmouth Country Club in Massachusetts in part reads “I acknowledge and fully assume the risk of illness or death related to COVID-19 arising from my being on the premises and participating in the Activities and hereby RELEASE, WAIVE, DISCHARGE, AND COVENANT NOT TO SUE (on behalf of myself and any minor children form whom I have the capacity contract) [the business]. . . .” Disney World Resort now also mandates that visitors sign COVID-19 liability waivers. Some businesses have even started mandating that employees waive potential liability stemming from exposure to COVID-19 while at work. While these liability waivers are controversial, many businesses see them as a necessary step in reopening.  

If you have questions or would like more information, please contact Michael Bruyere at [email protected] or Kathleen Cusack at [email protected]

Additional Information:

The FMG Coronavirus Task Team will be conducting a series of webinars on Coronavirus issues on a regular basis. Click here to view upcoming webinars.

FMG has formed a Coronavirus Task Force to provide up-to-the-minute information, strategic advice, and practical solutions for our clients. Our group is an interdisciplinary team of attorneys who can address the multitude of legal issues arising out of the coronavirus pandemic, including issues related to Healthcare, Product Liability, Tort Liability, Data Privacy, and Cyber and Local Governments. For more information about the Task Force, click here.

You can also contact your FMG relationship partner or email the team with any questions at [email protected].

**DISCLAIMER: The attorneys at Freeman Mathis & Gary, LLP (“FMG”) have been working hard to produce educational content to address issues arising from the concern over COVID-19. The webinars and our written material have produced many questions. Some we have been able to answer, but many we cannot without a specific legal engagement. We can only give legal advice to clients.  Please be aware that your attendance at one of our webinars or receipt of our written material does not establish an attorney-client relationship between you and FMG. An attorney-client relationship will not exist unless and until an FMG partner expressly and explicitly states IN WRITING that FMG will undertake an attorney-client relationship with you, after ascertaining that the firm does not have any legal conflicts of interest.  As a result, you should not transmit any personal or confidential information to FMG unless we have entered into a formal written agreement with you. We will continue to produce education content for the public, but we must point out that none of our webinars, articles, blog posts, or other similar material constitutes legal advice, does not create an attorney client relationship and you cannot rely on it as such. We hope you will continue to take advantage of the conferences and materials that may pertain to your work or interests.**

Proposed Revisions to Massachusetts’ Paid Family and Medical Leave Regulations

Posted on: June 1st, 2020

By: Janet Barringer and Zinnia Khan

The Massachusetts Department of Family and Medical Leave (“DFML”) recently issued to the public proposed revisions for Massachusetts’ paid family and medical leave program.  In its release, DFML issued a markup of proposed revisions to the regulations governing the program.  While the proposed revisions are not yet enacted, reviewing the proposed changes is helpful for employers and employees to see where the paid benefit is likely headed.  The DFML will hold a public hearing on the proposed amendments to regulations on June 11, 2020, at 10 a.m.  Prior to this hearing, interested parties are invited to submit comments directly to DFML.  The link to submit comments directly to DFML is here.

The Paid Family and Medical Leave Law (“PFML”) allows covered individuals to use paid leave for several reasons including (i) bonding with a child after birth or adoption,(ii)  relating to necessities for a family member’s active duty or call to duty in the Armed forces, (iii) caring for a family member who is a covered service member or (iv) caring for the individual’s own health condition.  Beginning on July 1, 2021, eligible individuals will also be able to use paid leave to care for a family member’s serious health condition.  Employers in Massachusetts are presently subject to a payroll tax as a means to fund the PFML, though benefits are not expected to become available until January 1, 2021.

The DFML’s proposed regulations are subject to further change pursuant to the required public hearings and comment period.  Still, due to the impending impact on employers and employees when enacted, examining some of the significant proposed revisions is worthwhile:

  • Definitions: the DFML has included new definitions for several key terms and updated the definitions of terms already defined in the prior regulations such as what constitutes accrued leave, when an application for benefits can be considered to be complete and the duration of an employee’s leave which is protected under the PFML. 
  • Optional Coverage for Otherwise Ineligible Employers: the proposed changes provide an avenue for employers who would otherwise not be covered by the law (such as municipalities, political subdivisions, housing authorities, or charter schools) to become a covered employer for a minimum term of one year.
  • Private Plan Exemptions: the marked-up regulations go into greater detail on how covered employers may request an exemption because they offer paid family and/or medical leave to employees through a private plan.
  • Application for Benefits: the DFML proposes new notice requirements for employees applying for benefits under the PFML, including new notice requirements stating employees must give at least 30 days’ notice to their employer of the anticipated start date of the paid leave and notice must be given prior to an application to the DFML.
  • Applying for Benefits Verification: the proposed changes include a new requirement that employees using paid leave on an intermittent basis must verify the hours of leave taken with the DFML in order to continue receiving benefits.
  • Weekly Benefit Amount: the proposed changes state the weekly benefit amount will be calculated based on an employee’s average weekly wage at the time the employee files a request for paid leave.  The weekly benefit amount will not change during the term of the approved leave period.
  • Substitution of Employer-provided Paid Leave: the DFML proposes to change the regulations to provide that employees choosing to use accrued paid leave provided by their employers rather than benefits under the PFML will have their accrued paid leave run concurrently with PFML leave.
  • Employer Reimbursement: the proposed revisions state if employers make payments to a covered employee during a period of PFML equal to or greater than the weekly benefit amount, the employer shall be reimbursed out of any benefits due to the covered individual or to become due from the Trust Fund by the DFML.
  • Intermittent and Reduced Schedule Leave: DFML proposes additional guidance for keeping track of intermittent leave.  Employers must provide the DFML with wages or qualified earnings paid to employees approved for intermittent leave individual on a monthly basis, or at another interval approved by the DFML.
  • Retaliation: the proposed revisions update the rebuttable presumption of retaliation to state a negative change shall not include trivial, or subjectively perceived inconveniences that affect de minimis aspects of an employee’s work.  In addition, an employer who notifies the DFML based on a bona fide belief the employee has committed fraud in connection with the employee’s application for benefits shall not give rise to an action of retaliation or presumption.

The above changes are subject to further change and revision.   This blog is an overview of the major proposed changes to date of the current regulations.  We advise employers to read through the markup submitted by the DFML for information on all proposed changes and updates.  The DFML will hold a public hearing on the proposed amendments to regulations on June 11, 2020, at 10 a.m.  Prior to this hearing, DFML invites interested parties to submit comments on the proposed revisions directly to DFML.  The link to submit comments directly to DFML is here

If you have questions or would like more information, please contact Janet Barringer at [email protected] or Zinnia Khan [email protected].

Law Firm Falls Victim To E-Mail Scam – Loses Appeal Following Allowance Of Summary Judgment

Posted on: May 28th, 2020

By: Marc Finkel

In 2019, the United States Treasury Department released statistics detailing the number of reported business email compromise incidents over a three- year period.  The number of monthly incidents increased exponentially over those three years from approximately 500 reported incidents per month in 2016 to over 1,100 reported incidents per month in 2018.  Additionally, the total value of such scams increased from approximately $110 million per month in 2016 to $310 million per month in 2018.  Despite the efforts of law enforcement to curtail such scams, the Treasury Department statistics suggest that the problems associated with business email compromise incidents are worsening over time. 

Businesses that routinely conduct large wire transfers in the ordinary course of business, such as law firms, are particularly vulnerable to such scams.  Unfortunately, when a law firm falls victim to such a scam, the consequences can be financially devastating with little-to-no available recourse.  Such a situation recently befell a Boston area law firm that was denied relief from the Massachusetts Appeals Court in a matter arising out of an email scam that cost the firm over $300,000.00. 

In Sarrouf Law LLP v. First Republic Bank & another, a lawyer from the Plaintiff law firm was contacted through the firm’s email system from someone pretending to be the president of a large foreign construction manufacturing company.  The scammer sought to hire the law firm to represent the manufacturing company in the sale of construction equipment to a purported Massachusetts based purchaser.  The scammer went so far as to have a telephone conference with a lawyer from the Plaintiff law firm in order to discuss details concerning what was ultimately a phony business transaction and to execute a fee agreement as required by the Plaintiff. 

Once “engaged” the Plaintiff was sent two checks that were purportedly from the equipment buyer’s insurance broker.  The first check was in the amount of $3,000.00 which was meant to cover the Plaintiff’s fee.  The second check was in the amount of $337,044.00 and was purportedly an initial deposit for the purchase of the construction equipment.  Both checks were subsequently deposited in the Plaintiff’s lawyer trust account.  The scammer thereafter provided the Plaintiff with specific wiring instructions as to the second check which the Plaintiff followed—even though the first check for $3,000.00 had been returned as non-payable.

The Plaintiff’s bank, Defendant First Republic Bank, conducted a multi-tiered procedure in order to verify the requested wire transfers.  The Defendant ultimately approved the wire transfers and the recipients received the funds as directed.  It was discovered after the wire transfers were completed that the second check for $337,044.00 was counterfeit and, as a result, the Plaintiff was charged back the amount of the second check.  Accordingly, the Plaintiff’s lawyer trust account became overdrawn and required them to deposit over $300,000.00 of their own money in order to restore the account to its prior balance.  Ultimately, the Plaintiff filed a two- count complaint in the Massachusetts Superior Court against the Defendant alleging, under California law (due to choice of law considerations), negligence and a violation of the California Uniform Commercial Code.  The Superior Court granted summary judgment on behalf of the Defendant and dismissed both counts of the Plaintiff’s complaint.

On appeal, the Massachusetts Appeals Court affirmed the allowance of summary judgment.  Specifically, the Appeals Court found that the Plaintiff could not bring a viable claim for negligence against the Defendant due to (1) the absence of a legal duty based upon the relationship between the parties; (2) the economic loss doctrine’s bar against the recovery of pure economic losses in claims sounding in tort; and (3) that the Plaintiff’s common law negligence claim is preempted by sections of the Uniform Commercial Code that apply to banks and transactions similarly at issue.  Furthermore, the Appeals Court affirmed summary judgment as to the second count of Plaintiff’s complaint alleging a violation of the California Uniform Commercial Code because there was no evidence that the Defendant failed to exercise good faith or ordinary care in the performance of its obligations to follow the wire instructions as directed by the Plaintiff.  Here, the Defendant had no legal obligation to inspect the check to determine whether it was potentially counterfeit.

The Sarrouf Law LLP matter serves as a truly sad and cautionary tale of which practicing lawyers should be aware.  As the Appeals Court stated, “[a] party is in the best position to guard against the risk of a counterfeit check by knowing it’s ‘client,’ it’s client’s purported debtor and the recipient of [a] wire transfer.”  When it comes to business email compromise incidents none of us are immune to such scams and vigilance on our part alone is the only form of true protection.

If you have questions or would like more information, please contact Marc Finkel at [email protected].