In a significant decision that was handed down on April 20 in MSCI Inc., Financial Engineering Associates, Inc., et al. v. Jacob, Axioma, Inc., et al., New York County trial justice Shirley Kornreich held that a software company claiming that one of its competitors had wrongly misappropriated their trade secret software that is sold to their clients from the global financial sector, was precluded from seeking further discovery from defendants until they identify, with reasonable particularity, which of the component parts or sequencing of their source code are not (1) publicly available information, (2) commonly-used algorithms, or (3) third-party licensing.

“Why is this significant?” you ask.

Because the court held that in the context of a trade secret theft case, the defendant was inherently entitled to priority of discovery, i.e., that the defendant did not have to disclose anything about its own technologies until the plaintiff first disclosed the specific trade secrets it claims were misappropriated, or stolen.

The Court’s reasoning was compelling: “[I]t would be unfair to allow plaintiffs to discover [defendant]‘s trade secrets prior to revealing their own. Should defendants remain in the dark as to the explicit portions of the source codes that plaintiffs deem to be trade secrets misappropriated by defendants, plaintiffs, once privy to [defendant]‘s source codes, could tailor their theory of misappropriation to [defendant]‘s work.”

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I have often been asked the following question in one form or another: “This claim is ridiculous. Why doesn’t the Court just throw it out, and dismiss the Complaint?”

The short answer is, that so long as from the face of the Complaint, there may be a valid, cognizable claim, New York courts are obliged to give claimants the benefit of the doubt, and give them their “day in court.” As one New York County trial judge recently summarized it:

“In the context of a 3211 motion to dismiss, the court takes the facts alleged in the complaint as true and accords the non-movant the benefit of every possible favorable inference. See, AG Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 5 N.Y.3d 582, 591 (2005). Further, any deficiencies in the complaint may be amplified by supplemental pleadings and other evidence. Id., citing Rovello v. Orofino Realty Co., 40 N.Y.2d 633, 635-36 (1976). “[T]he sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law, a motion for dismissal will fail.” Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275 (1997). Under CPLR 3211(a)(1), “a dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the claims as a matter of law.” Leon v. Martinez, 84 N.Y.2d 83, 88 (1994).”

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Last week, I received a fax from one of my adversaries that admittedly caught me by surprise: His clients apparently decided to discontinue their breach of professional services contract action against my client.

In truth, I’m not sure what prompted this action on their part; and I may never know the answer.

When my client was sued by this former long-standing client of his, it hurt him on a personal level. He felt betrayed.

Every time I called during this case (which has lasted years), the anxiousness in his voice was palpable. He was losing sleep.

But when I called my client this week to tell him the good news, here was his response:

“You added 10 years to my life.”

In my line of work, it doesn’t get much better than that.

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It is terribly unfortunate and disturbing that some lawyers seem to believe that civility and politeness are inherently at odds with good, aggressive advocacy.

Let me be perfectly clear: I have no problem with an attorney aggressively protecting and pursuing his client’s interests. Everyone’s got a job to do.

And there are certainly times when the other side plays fast and loose with the rules, and therefore needs to be called out for their inappropriate conduct.

But that doesn’t mean your knee-jerk, immediate response is to assume the other side is lying, and to then castigate them in open court – particularly when you have only unsupported assumptions rather than any hard facts to back it up. In other words – and at the risk of stating the obvious – you can disagree without being disagreeable, and picking needless fights with the other side burns the bridges of communication and erodes trust, which is a critical component to the amicable resolution of cases.

Despite these obvious drawbacks, this push-button nastiness seems to be an increasing trend I’m facing, particularly in the business litigation and breach of contract context. I certainly hope the courts start to clamp down on this trend, because it truly is a black mark for the legal profession.

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In an opinion that was handed down yesterday in the defamation case of Tener v. Cremer, New York’s Appellate Division, First Department held that the trial court erred by denying outright – without a hearing – a plaintiff’s motion seeking to hold NYU in contempt for failing to protect or produce electronically stored information (ESI) in response to a subpoena.

In response to the motion, NYU claimed that it could not comply with the subpoena because the identities of people who accessed the Internet through a particular portal were stored in a text file that was automatically overwritten every 30 days, and the school did not “possess the technological capability or software, if such exists, to retrieve a text file created more than a year ago and ‘written over’ at least 12 times.”

The unanimous appellate court was unpersuaded by this argument, however.

As the plaintiff’s expert noted, there are several steps NYU could take to obtain the data, including the utilization of forensic software. Indeed, the appellate court cited to the fact that Nassau County Commercial Division has enacted detailed rules to address specifically the issue of forensic data recovery.

Therefore, the court held, “To exempt inaccessible data presumptively from discovery might encourage quick deletion as a matter of corporate policy, well before the spectre of litigation is on the horizon and the duty to preserve it attaches.”

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International Shoppes, Inc., et al.  v. Spencer is a case from a trial court in Nassau County, NY that is scheduled to appear in tomorrow’s edition of The New York Law Journal that is the poster child – at least in my view – for litigation run amok.  And, lest you think that I meant to say “frivolous lawsuit,”  I assure you that I deliberately chose not to use that phrase.

In this case, the plaintiff sued their former employee for, among other things, allegedly defaming them publicly and fraudulent concealment. And, from the Court’s opinion, there seems to be some merit to the company’s contention that the defendant actually did defame them.

But here’s the problem:

Even assuming that someone took this former employee’s negative, defamatory comments seriously (and I’m not sure that the evidence will bear this out), and further, that the plaintiff’s company suffered damages as a result, how exactly would the defendant be expected to satisfy the judgment?

As the plaintiff is all too well aware, they employed him as a low-level sales clerk, who presumably has no assets with which to satisfy a judgment of any significance.

To me, this is just another example of “Why Defamation Lawsuits Are Often a Waste of Time and Money Under NY Law.”

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As noted elsewhere (see, e.g., “Why It’s So Hard to Recover Legal Fees in a NY Breach of Contract Case“) , the general rule in New York is that you cannot recover the costs you’ve incurred to defend a lawsuit that has been brought against you. Of course, there are some exceptions to that rule,  the most prevalent being where the two sides to the litigation had previously entered into a written agreement that provided for either side to recover their legal fees.

There is another limited exception to that rule: where the court determines that your adversary has engaged in “frivolous conduct.”

So what constitutes “frivolous conduct” under New York law?

Fortunately, it is defined by Uniform Court Rule §130-1.1 (c), which provides, in pertinent part, as follows:

(c) For purposes of this Part, conduct is frivolous if:

(1) it is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law;

(2) it is undertaken primarily to delay or prolong the resolution of the litigation, or to harass or maliciously injure another; or

(3) it asserts material factual statements that are false.

As noted in the title to this article, however, it is extraordinarily rare that New York State’s courts will award costs and/or sanctions against the other side to a litigation. Therefore, you should never assume that a court will make you whole for defending a lawsuit that you personally deem “frivolous.”

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It is indeed rare that cases which hinge completely on jurisdictional or procedural grounds could have any interest at all for non-lawyers. But GS Plasticos Limitada v. Bureau Veritas, which was just decided last week, is one such case.

In this tortious interference with contract case, the plaintiff, a Brazilian company, claimed that it lost a contract with another Brazilian company after the defendant testing company falsely reported that its products contained excessive amounts of arsenic. In response, the plaintiff sued not only the testing company, but also sued the testing company’s French parent corporation.

Since the testing was done in New York, plaintiff brought the case in New York County. But there was one (seeming) problem:  the French parent company had filed a certificate of surrender to do business in New York before the action was commenced, in accordance with BCL §1314(b)].

In reversing the trial court’s Order, and dismissing the action against both of the defendants, the appellate court stated as follows:

“BV’s surrender of its authority to do business in New York does not insulate it from the court’s assertion of personal jurisdiction over it, because the liability in this case was “incurred by [BV] within this state before the filing of the certificate of surrender” (Business Corporation Law [BCL] § 1310[a][5].; see Antonana v Ore S.S. Corp., 144 F Supp 486, 491 [SD NY 1956]; Munn v Security Controls, 23 AD2d 813 [1965]).

“However, the court erred in finding that it had jurisdiction pursuant to BCL § 1314(b)(3), based on the tortious conduct’s having arisen out of the testing services performed in New York. For purposes of BCL § 1314(b)(3), the inquiry is not where the tortious conduct occurred but ‘[w]here the cause of action arose’ (see id.; see also Gonzalez v Industrial Bank [of Cuba], 12 NY2d 33 [1962]; Hibernia Natl. Bank v Lacombe, 84 NY 367, 384 [1881]).

“Plaintiff’s claim is one for interference with contractual relations. Although the faulty testing that led to the loss of the contract occurred in New York, plaintiff had no cause of action until the contract was actually lost, i.e., until it was cancelled, and that cancellation occurred in Brazil.”

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Back in August, I wrote about the Most Formidable Defense to a Tortious Interference Claim in New York: justification. In other words, as long as a defendant can show that they induced Company A to break their agreement with Company B for legitimate economic reasons, the tortious interference claim will likely fail.

But, as pointed out in Omni Consulting Group, Inc. v. Marina Consulting Group, a New York Federal Court decision from tomorrow’s New York Law Journal, there is another defense to a tortious interference claim that is perhaps equally lethal: the plaintiff’s inability to prove that the defendant intentionally procured the breach of contract, and that if not for the defendant’s actions, the contract would not have been breached.

In dismissing the tortious interference claim, the Omni Court stated as follows:

“[The third party with whom plaintiff had the contract] came up with the idea of breaking the Master Agreement on his own. He told [defendant], without any prompting, that he would “work things out” with plaintiff to allow for a direct relationship with [defendant]. The very fact that [the third party] had to tell [defendant] that he would “work things out” implies that [the third party] hesitated to hire [plaintiff]. [Defendant] thus never suggested or encouraged any contractual breaches; it merely took advantage of an idea that [the third party] carried forward on his own.”

Somewhat ironically, as suggested in the title of this post, this claim was dismissed despite the fact that the defendant had defaulted, and not opposed the claim at trial. That result should underscore some of the difficulty inherent in proving all of the necessary elements of a tortious interference claim under New York law.

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Much to my clients’ chagrin (and yes, I get asked this question a lot), the instances where you can actually recover your legal fees expended on a case in New York are very rare.

But that doesn’t mean that there aren’t some circumstances where you can get them.

As noted in “How You Can Recover Your Legal Fees in a NY Breach of Contract Case,” one way you can recover legal expenses is if you have a written agreement that allows for the recovery of legal fees. (A verbal, or unwritten agreement on this issue will not suffice).

But what if (like most cases) you don’t have any such agreement?

Then you are left with two (2) other possibilities:

(1) if legal fees are provided for by statute or court rule (see, e.g., Matter of A.G. Ship Maintenance Corp. v Lezak, 69 NY2d 1, 5; see Baker v Health Mgt. Sys., 98 NY2d 80, 88, rearg denied 98 NY2d 728); or,

(2)  if the parties have “acted with disinterested malevolence’ [and have] . . . intentionally [sought] to inflict economic injury on [another party] by forcing [him or her] to engage legal counsel’ ” (Anniszkiewicz v Harrison, 291 AD2d 829, 830, lv denied 98 NY2d 611; see Rinaudo v City of Rochester, 148 AD2d 984).

As you might well imagine, the latter standard is extremely difficult to prove.

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