Email Privacy | Employment Offer | False Claims / Qui Tam

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No Expectation of Privacy in an Email Account

No Expectation of Privacy in an Email Account

In Peerenboom v. Marvel Entertainment, LLC, the Appellate Division, First Department, ruled that a non-party, Isaac Perlmutter, did not have an expectation of privacy in an e-mail account owned by his employer, Marvel. Thus his e-mails were not protected by attorney-client privilege or spousal privilege, but some e-mails may be protected as attorney work product.

Attorney–client privilege or lawyer–client privilege is one of the oldest recognized privileges for confidential communications, which allows a client to refuse to disclose and to prevent any other person from disclosing confidential communications between the client and the attorney. By assuring confidentiality, the privilege encourages clients to make “full and frank” disclosures to their attorneys, who are then better able to provide candid advice and effective representation.

Spousal privilege (also called marital privilege or husband-wife privilege) is a term used in the law of evidence to describe two separate privileges: the communications privilege and the testimonial privilege. These privileges are based on a policy of encouraging “spousal harmony” and preventing spouses from having to condemn, or be condemned by, their spouses. The spousal communications privilege or confidences privilege protects the contents of confidential communications between spouses during their marriage from testimonial disclosure, while spousal testimonial privilege (also called spousal incompetency and spousal immunity) protects the individual holding the privilege from being called to testify in proceedings relating to his or her spouse.

The attorney work-product doctrine protects materials prepared in anticipation of litigation from discovery by opposing counsel.

Here, the lower court granted Perlmutter’s motion for protective orders against disclosure of certain e-mails to the extent of directing Marvel to produce privilege log items allegedly subject to the marital privilege for “in camera review,” and otherwise denying the motion. On appeal the First Department unanimously modified the lower court’s order to deny Perlmutter a protective orders on the ground of marital privilege, to direct Marvel to produce to the lower court all items in Perlmutter’s privilege log in which he asserted attorney work product protection, and to remand the matter to that court for in camera review (in the private view ofthe judge) and a determination of whether such documents are in fact protected attorney work product.

The Court concluded that “Perlmutter lacked any reasonable expectation of privacy in his personal use of the e-mail system of Marvel, his employer, and correspondingly lacked the reasonable assurance of confidentiality that is an essential element of the attorney-client privilege. Among other factors, while Marvel’s e-mail policies during the relevant time periods permitted ‘receiving e-mail from a family member, friend, or other non-business purpose entity. . . as a courtesy,’ the company nonetheless asserted that it ‘owned’ all e-mails on its system, and that the e-mails were ‘subject to all Company rules, policies, and conduct statements.’ Marvel ‘reserve[d] the right to audit networks and systems on a periodic basis to ensure [employees’] compliance’ with its e-mail policies. It also ‘reserve[d] the right to access, review, copy and delete any messages or content,’ and ‘to disclose such messages to any party (inside or outside the Company).’ Given, among other factors, Perlmutter’s status as Marvel’s Chair, he was, if not actually aware of Marvel’s e-mail policy, constructively on notice of its contents.” For the same reasons, the Court also concluded that Perlmutter’s use of Marvel’s e-mail system for personal correspondence with his wife “waived the confidentiality necessary for a finding of spousal privilege.”

The Court further concluded that “given the lack of evidence that Marvel viewed any of Perlmutter’s personal e-mails, and the lack of evidence of any other actual disclosure to a third party, Perlmutter’s use of Marvel’s e-mail for personal purposes does not, standing alone, constitute a waiver of attorney work product protections.”

Job Offer Letter Could Turn Into a Contract For a Fixed Term

Job Offer Letter Could Turn Into a Contract For a Fixed Term

In Petitt v. LMZ Soluble Coffee, Inc., the Appellate Division, First Department, reversed a Supreme Court decision that dismissed a complaint for breach of an employment agreement on the ground that the hiring was “at-will.”

In New York, absent an employment agreement establishing a fixed duration, and employment relationship is presumed to be a hiring at-will, terminable at any time by either party.

Here, the plaintiff Mary Petitt brought an action against defendant LMZ Soluble Coffee, Inc. for breach of the parties’ employment agreement, alleging that she was terminated prior to the expiration of a “fixed, five-year term of employment” at LMZ and was, therefore, entitled to damages for lost compensation, among other things. Although Petitt did not have a formal employment agreement, she alleged that her employment “agreement” was set forth in a letter to her from the president of LMZ. That letter provided, in part as follows:

I have finished 5 months of work with my advisory team and we have completed a Strategic Plan, conducted a CEO search and finished the outline for a transition plan… Not only were you a finalist in this effort, you are the one I want to lead our family business, and take it to a new level. You have all the skills, ethics, approachability and reputation that fit perfect with our company’s history and its needs going forward. This has been a deeply considered decision, as I have poured my heart and soul into leading LMZ for the past 25 years and now want to step back from the day-to-day, while knowing the Company is in hands that I trust. You are the one. The attached page outlines the details of the offer. I hope you find them as compelling and rewarding as I intend them to be.

The attached page, entitled “Re: CEO Compensation Package,” was divided into three sections. Section I stated that the “annual salary” is $350,000. Section II, outlined the annual bonus, stating that the target bonus is $150,000, based on three criteria. The first criteria provided:

60% attributable to increases in net profit before taxes and other distributions, plus 10% on net profit above annual targets as follows:

– FY 2015: $3.0MM
– FY 2016: $3.5MM
– FY 2017: $4.0MM
– FY 2018: $4.5MM
– FY 2019: $5.0MM

The remaining two criteria provided for an additional 20% attributable to either “new channel development” or “leadership development for Ethan Feuer,” Petitt’s designated successor – LMZ’s President, Jonathan Feuer’s son.

Section III, outlined deferred compensation, setting out the following:

Up to $2.0 MM earn-in over 5 years based on three criteria:

(A) 50% attributable to annual increase tonnage volumes from current 5,000 MT/annum.
Parameters and metrics to be agreed between Chairman and CEO.

(B) 30% attributable to annual increase in gross sales with annual targets of:

– FY 2015: $125MM
– FY 2016: $150MM
– FY 2017: $200MM
– FY 2018: $250MM
– FY 2019: $300MM

(C) 20% attributable to organizational development. Parameters and metrics to be agreed between Chairman and CEO.

Annual deferred compensation awards will be calculated annually in accordance with themaximum amounts indicated below, and paid over a three year period commencing one year following separation or at the end of the fifth year of employment, whichever is later

– FY 2015: $300K
– FY 2016: $350K
– FY 2017: $400K
– FY 2018: $450K
– FY 2019: $500K

Finally, it provided that “[i]n the event of a transfer of ownership of the Company…the Deferred Compensation referenced above will be paid in cash, only for any prior fiscal years earned.”

After accepting the position, Petitt served as CEO from December 1, 2014 until termination on June 1, 2015. On August 27, 2015, Petitt filed her complaint, alleging that LMZ breached the employment agreement.

LMZ moved to dismiss the complaint and the Supreme Court granted the motion reasoning that “absent an agreement establishing a fixed duration,” New York presumes a “hiring at will.” “The presumption may be triggered ‘when an employment agreement fails to state a definite period of employment, fix employment of a definite duration, establish a fixed duration or is otherwise indefinite.’ A sensible path to declare New York law starts with these two steps: (1) if the duration is definite, the at-will doctrine is inapplicable, on the other hand, (2) if the employment term is indefinite or undefined, the rebuttable at-will presumption is operative and other factors come into the equation. Thus, the ‘threshold determination’ is one of definiteness, and only if a court ‘discern[s] no term of some definiteness,’ will it consider other factors to rebut the at-will presumption. Here, the CEO Offer and Compensation package, read together, do not contain a term of ‘some definiteness.’”

The Court further reasoned: “First, the CEO offer does not contain any language referencing duration of employment. Looking to the Compensation Package, there is, again, no language guaranteeing Petitt a five-year term of employment.” “Thus, these documents do not set any “definite” term of employment, and so, this Court finds, the rebuttable presumption of at-will employment applies.”

As for Petitt’s argument that the measure of her compensation, beginning in “FY 2015” and ending in “FY 2019” is “pegged to a five-year term,” the Court responded: “Unfortunately for Petitt, New York law is clear that payment schedules, measured yearly or otherwise, do not establish a fixed period of employment. Thus, the Compensation Package, as outlined above, is nothing more than a payment schedule, providing for incremental increases in bonuses and compensation on an annual basis, and does nothing to rebut the at-will presumption.”

The Appellate Court disagreed, and in reversing the decision and reinstating the complaint, it held that the “subject employment agreement contains an ambiguous provision regarding deferred compensation that can be read as indicating that plaintiff was to be employed for five years. Considered in conjunction with the five-year payment schedules and targets in the agreement, this ambiguous provision precludes a determination as a matter of law of the parties’ intentions as to the term of plaintiff’s employment.”

A carefully drawn job offer letter and employment agreement should avoid these types of cases, but they must be clear and unambiguous to avoid pitfalls.

False Claims/Qui Tam

False Claims/Qui Tam

The federal False Claims Act (“FCA”) is a key government civil enforcement tool that has been employed to target a broad spectrum of alleged frauds against the government and provides job protection to whistleblowers because of the professional and personal risks they take to expose and stop fraud against the government. The FCA grants to private citizens under its qui tam provisions the right to sue on behalf of the government and share in any recovery. It provides for up to treble damages and awards of 15 to 30 percent of recoveries for those bringing cases. The FCA is the single most important tool U.S. taxpayers have to recover the billions of dollars stolen through fraud every year. New York has a parallel statute.

The FCA imposes liability on any person or entity who submits a claim to the federal government that he or she knows (or should know) is false. An example may be a physician who submits a bill to Medicare for medical services she knows she has not provided or that were not medically reasonable or necessary. This would include inflating the costs of patient care actually provided, or billing for patients over a period of days when all treatments occurred in a single visit. This also includes furnishing services in excess of the patient’s needs, based on their diagnosis; or furnishing a battery of diagnostic tests, where only a few were needed; it also includes misrepresenting the diagnosis to justify the services or products Medicare paid for.

The False Claims Act also imposes liability on an individual or entity who may knowingly submit a false record in order to obtain payment from the government. An example of this may include a government contractor who submits records that he knows (or should know) are false and that indicate compliance with certain contractual or regulatory requirements. This would include a claim of “worthless services” which challenges the level of care or deficiencies in, for example, nursing home care. It is not always necessary to show the services are completely lacking, but only that patients/residents are not provided the care that meets statutory standards. In such a case, the request for payment for services rendered would be a “misleading half-truth” because services were rendered, but there was a non-disclosure of a failure to comply with material statutory, regulatory, or contractual requirements.

The third area of liability includes those instances in which a person or entity obtains money from the federal government to which they may not be entitled, and then uses false statements or records in order to retain the money. An example of this so-called “reverse false claim” may include a hospital who obtains interim payments from Medicare throughout the year, and then knowingly files a false cost report at the end of the year in order to avoid making a refund to the Medicare program.

We have successfully represented whistleblowers in qui tam cases on behalf of the United States and New York State governments, disclosing Medicare and Medicaid fraud and other unlawful false claims and fraud made upon governments, and recovering for our clients monetary awards based upon the size of the governments’ recovery. We have also successfully represented whistleblowers in their direct claims for retaliatory discharge from employment.

This newsletter is provided by Hamburger, Maxson, Yaffe & McNally LLP to keep its clients, prospective clients, and other interested parties informed of current legal developments that may affect or otherwise be of interest to them, and to learn more about our firm, our services and the experiences of our attorneys. The information is not intended as legal advice or legal opinion and should not be construed as such

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