Featured Articles

  • 29 Jul 2016 4:54 PM | Lynette Pitt (Administrator)

    by Lori Keeton, Lincoln Derr, PLLC

    In North Carolina, footage from a law enforcement officer’s body or dashboard cameras is not considered a public record or personnel record according to a recently passed law that goes into effect October 1. North Carolina joins five other states—Florida, Georgia, Illinois, Oregon, and South Carolina— in making this determination.

    Prior to the passage of the new law, such footage was often shielded from release to the public because it was considered part of a criminal investigation or personnel file.

    Under the new law, anyone captured in police video or audio can make a written request to the head of the custodial law enforcement agency to see the relevant footage. The agency may consider any of the following in deciding whether to grant the request:

    • If the person requesting disclosure of the recording is a person authorized to receive disclosure.
    • If the recording contains information that is otherwise confidential or exempt from disclosure or release under State or federal law.
    • If the release would reveal information regarding a person that is of a highly sensitive personal nature.
    • If the release may harm the reputation or jeopardize the safety of a person.
    • If the release would create a serious threat to the fair, impartial, and orderly administration of justice.
    • If confidentiality is necessary to protect either an active or inactive internal or criminal investigation or potential internal or criminal investigation.

    If the request is approved, the applicant will be allowed to view the relevant footage but will not be provided with a copy without a court order. If the request is denied, the applicant can appeal to the superior court for review of the agency’s decision.

    Anyone else who wishes to obtain footage must file an action in the superior court in any county where any portion of the recording was made for an order releasing the recording. In determining whether to order the release of all or a portion of the recording, the court must consider the factors set forth above as well as the following:

    • Release is necessary to advance a compelling public interest.
    • The person requesting release is seeking to obtain evidence to determine legal issues in a current or potential court proceeding.
    • There is good cause shown to release all portions of a recording.

    North Carolina Governor Pat McCrory says the new law is an attempt to strike a balance between transparency and prudence. The ACLU and others have criticized the law as granting law enforcement agencies such broad discretion that it hinders the very purpose of the cameras (i.e. to build trust and enhance accountability).

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  • 28 Jul 2016 2:00 PM | Lynette Pitt (Administrator)

    by Beth Stanfield, Lincoln Derr, PLLC

    Since 2013, when the U.S. Department of Health and Human Services (HHS) Office for Civil Rights (OCR) issued its Final Rule implementing revisions to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the potential for business associates to be sanctioned for privacy breaches has been a concern to law firms that regularly handle protected health information (PHI). A recent settlement involving a business associate brings that concern into sharper focus.

    But first, a brief HIPAA refresher . . .

    The 2013 revisions to HIPAA, which were mandated by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH Act), extended the privacy and security requirements originally focused on healthcare providers (or “covered entities”) to business associates. In recognition of the fact that most healthcare providers rely on outside providers to carry out various healthcare functions, the definition of “business associate” encompasses a wide variety of outside providers, such as third party administrators, CPAs, transcriptionists, and attorneys. In fact, the website for HHS provides several examples of groups that would be considered business associates under the HITECH Act, including “[a]n attorney whose legal services to a health plan involve access to protected health information.”

    Given the high stakes associated with a potential privacy breach, law firms have been working to solidify their security measures and protocols both internally and with outside contractors to comply with all HIPAA and HITECH Act requirements. However, the recent business associate settlement published on the website for HHS provides greater insight into the potential for a HIPAA violation and the degree of security measures necessary to remain in compliance.

    The subject of the settlement was Catholic Health Care Services of the Archdiocese of Philadelphia (CHCS), a non-profit organization providing management services to six nursing homes. In February 2014, OCR was notified by each of the nursing homes regarding a breach of unsecured electronic PHI (ePHI). The potential breach arose from a stolen iPhone, which contained ePHI of nursing home residents. Specifically, the phone contained social security numbers, information regarding diagnosis and treatment, medical procedures, names of family members and legal guardians, and residents’ medication information.

    After investigating the incident, OCR determined that CHCS (1) failed to conduct an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity, and availability of ePHI held by CHCS; and (2) failed to implement appropriate security measures sufficient to reduce the risks and vulnerabilities to a reasonable and appropriate level. The investigation revealed that the phone, which was issued by CHCS to an employee, was not encrypted or password protected. In addition, CHCS did not have any policies addressing removal of devices with PHI or what to do in the event of a security incident. Finally, OCR determined CHCS did not have a “risk analysis” or “risk management plan.”

    As a part of the settlement, CHCS agreed to pay $650,000.00 and entered into an “Agreement and Corrective Action Plan” on June 24, 2016.

    The corrective action measures outlined in the Agreement are instructive for business associates. For example, CHCS was required to promulgate numerous policies addressing the following items:

    • encryption of ePHI;
    • password management;
    • security incident response;
    • mobile device controls;
    • information system review;
    • security reminders;
    • log-in monitoring;
    • a data backup plan;
    • a disaster recovery plan;
    • an emergency mode operation plan;
    • testing and revising of contingency plans;
    • applications and data criticality analysis;
    • automatic log off;
    • audit controls; and
    • integrity controls.

    The Agreement further required CHCS to review its policies at least annually (if not more often) and distribute them to its workforce. CHCS was also required to obtain “signed written or electronic initial compliance certification from all members of [its] workforce” and provide security training.

    In addition to the financial and administrative implications of OCR’s investigation, perhaps of even greater concern to business associates is the negative exposure associated with such a well-publicized settlement arising from a fairly common occurrence – theft of an iPhone. While the Agreement and Corrective Action Plan disclaims any admission of liability on the part of CHCS, the Agreement is fully accessible to the public and available here.

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  • 27 Jul 2016 9:00 AM | Lynette Pitt (Administrator)

    by Lori Keeton, Lincoln Derr, PLLC

    What should law enforcement officers do if faced with a “a non-criminal” “mentally ill man being seized for his own protection, [who is] seated on the ground… hugging a post to ensure his immobility… surrounded by three police officers and two Hospital security guards, [who has] failed to submit to a lawful seizure for only 30 seconds”?

    What should they do if faced with a 260-pound, strong, unrestrained, mentally ill man who refuses to comply with their attempts to arrest him and is trying to kick them who moments earlier had been walking erratically near a busy road and “is a danger to himself having been off his medication for several days and [is] engaging in self-destructive behaviors…” and a possible danger to others and the officers do not know if he is armed and have tried to use lesser force in the form of verbal commands and soft hands techniques without success?

    And what would you expect them to do if these two scenarios described the same individual?

    These are the types of perplexing questions that law enforcement officers are called upon to answer every day and that the Fourth Circuit recently grappled with in Estate of Armstrong ex rel. Armstrong v. Vill. of Pinehurst, 810 F.3d 892 (4th Cir. 2016).

    In Armstrong, the police were called to assist with a subject suffering from bipolar disorder and paranoid schizophrenia who had gone off his medication. His sister had convinced him to go to the hospital after watching him engage in erratic and self-injurious behaviors. While they were in the process of obtaining involuntary commitment papers, Armstrong ran away. The police were called. When Armstrong learned about the commitment papers, he wrapped himself around a sign and refused to leave. In the course of trying to effectuate the commitment, officers utilized their Taser/electronic control device (“ECD”) five times in drive stun mode, but it did not stop Armstrong from resisting. Ultimately, the officers and two hospital security guards physically removed him from the post, laid him face-down on the ground and cuffed both his arms and his legs. Soon after, the officers saw that Armstrong was unresponsive. He was pronounced dead shortly after arrival at the nearby hospital.

    The family sued the Village of Pinehurst and TASER International in the Middle District of North Carolina alleging violations of the decedent’s Fourth and Fourteenth Amendment rights by using excessive force. The United States District Court for the Middle District of North Carolina granted summary judgment for the officers based on qualified immunity. 

    On appeal, the United States Court of Appeals for the Fourth Circuit upheld the granting of summary judgment, finding that the ECD usage was excessive force but the officers were nonetheless entitled to immunity because it was not clearly established at the time of this incident that Mr. Armstrong had the right “not to be tased while offering stationary and non-violent resistance to a lawful seizure.”

    Ironically, however, it isn’t the Court’s ruling per se that has garnered national attention, but rather the Court’s use of the opinion to put officers “on notice” of the limited situations in which they may lawfully use ECDs in the future.

    In particular, the Fourth Circuit characterized the use of ECDs- in either probe mode or drive stun mode- as “[p]ainful, injurious [and] serious” and advised that the level of resistance required to justify use of an ECD must rise to the level of a “risk of immediate danger.”

    The obvious question thus becomes what is a “risk of immediate danger”? Rather than providing examples of what would satisfy this standard, the Court offered guidance as to what would not be sufficient:

    • The fact that a subject is unrestrained.
    • The fact that a subject is actively resisting.
    • The fact that a subject is noncompliant.
    • The fact that a subject is unrestrained, actively resisting AND noncompliant.

    We can also extrapolate some guidance from the Court’s application of the Graham v. Connor factors in analyzing the reasonableness of the force at issue:

    FACTORS THAT FAVOR ECD USAGE

    • The subject is believed to have committed a serious/violent crime.
    • The subject is advancing towards the officers (or someone else).
    • The subject is/could be armed.
    • The subject is violently resisting.
    • The subject is a danger to others.
    • The danger the subject poses could be mitigated by ECD usage.
    • Lesser uses of force have been unsuccessful.

    FACTORS THAT WEIGH AGAINST ECD USAGE

    • The subject is mentally ill.
    • The subject is stationary or being restrained.
    • The subject is non-violent.
    • The number of officers on the scene outnumbers the number of subjects.
    • The subject is only a danger to himself.
    • The proposed use would be contrary to manufacturer’s instructions.
    • The officers have only been working to restrain the subject for a brief period of time.

    Justice Wilkinson wrote a concurring opinion for the case joining in the decision of the majority but differing in its analysis. “The majority… left it all up in the air” according to Wilkinson.

    What is clear is that while ECDs have been marketed as an alternative to deadly force since their inception, the Fourth Circuit has significantly narrowed the gap between when an officer can lawfully use an ECD versus when an officer can use deadly force and more or less abolished any legal difference between the use of ECDs in drive stun mode versus probe mode.

    And the fight isn’t over yet. The defendants have recently petitioned the United State Supreme Court to review the case and TASER International, the National Fraternal Order of Police and the Southern States Benevolent Association have submitted amicus briefs joining in the request. Stay tuned….

    To read the opinion, click here

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  • 22 Jul 2016 10:00 AM | Lynette Pitt (Administrator)

    by Noelle C. LeBlanc, Lincoln Derr, PLLC

    Paralegal?

    Exactly what is a paralegal? Why should you care? Interesting question. Intriguing answer.

    If you Google, “What is a paralegal?” you would come across the following:

    “The American Bar Association (ABA) defines a paralegal as: A person qualified by education, training or work experience who is employed or retained by a lawyer, law office, corporation, governmental agency or other entity and who performs specifically delegated substantive legal work for which a lawyer is responsible.”

    The definition doesn’t sound important or glamorous; honestly it sounds pretty blah and boring. Either way, lawyers who partner with paralegals, clients who reap the benefits, and paralegals who are recognized as valuable team members know the truth.

    In case you don’t…

    Remember the classic story “The Wizard of Oz?” Dorothy and Toto navigating the harrowing Land of Oz in their quest to go home; banking on the hopes that “the Wizard” can make it all happen. Dorothy finally gains an audience with the “Great and Powerful Oz” only to uncover the mighty wizard is actually just an ordinary man “working magic behind the curtain.” Ironically, in spite of his ordinary appearance and limited magical abilities, he is the catalyst for Dorothy and Toto’s return home.

    In the litigation world, paralegals are the “mighty wizards behind the curtain” working magic with education, training, skills and abilities to bring a litigation case “home.” To emphasize a few areas- paralegals handle the day-to-day progression of the case from inception to conclusion. Paralegals confirm the attorneys are on task, responsive, meeting deadlines, and prepared for any situation be it conferences with opposing counsel or ready for battle in the courtroom. Paralegals take on tasks (under the strict supervision of their attorneys) like communications with clients, court personnel, opposing counsel, experts and witnesses. Paralegals draft key pleadings for review by the attorneys. Paralegals perform important research and make sure that adherence to civil rules are being followed. N.C. Certified Paralegals, must meet high standards of education, experience and complete continuing legal education requirements annually. Furthermore, N.C. Certified Paralegals must adhere to the same ethics and professional conduct as their attorneys.

    Best part of all… paralegal rates are substantially less than attorneys. Paralegals afford the attorney the ability to focus their talents on more complex legal work while providing their clients with exceptional, affordable services when they utilize paralegals to complete tasks that need only minimal review and supervision.

    Bottom line: The answer to this question is paralegals are indeed the “magic behind the curtain” and they afford the client the security in knowing they are not only receiving exceptional client service but also receiving the most “bang for their buck!”

    So my question to you…. Does your legal team include skilled paralegals? If not, you might be missing out on the “magic.”

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  • 29 Jun 2016 2:38 PM | Lynette Pitt (Administrator)
    by Jonathan Reich, Womble Carlyle Sandridge & Rice, LLP


    Representing clients with dormant or long-tail claims can be a challenge for a number of reasons. Long-tail claims – think asbestos, pollution, sexual molestation, and (increasingly) wrongful convictions – often take decades to develop from the initial tort into the subsequent lawsuit. Sometimes these are products liability lawsuits, where memoranda from the 1960s and 1970s is sought to be admitted at trial. Sometimes these cases are post-exoneration wrongful convictions matters, where the underlying conviction was obtained decades ago. And, sometimes, any of these fact patterns can also initiate bet-the-company insurance coverage litigation. Whether facing a barrage of products liability lawsuits, an alleged civil rights/wrongful conviction from the 1980s, or an insurance coverage matter arising from either, the ability admit into evidence original documents may play a critical part of obtaining summary judgment or a favorable jury verdict. Under both North Carolina Rule of Evidence 803(16) and its federal counterpart, statements in a document which is at least 20 years old and whose authenticity is establish are an exception to the general prohibition against the admissibility of hearsay under Rule 802. This exception is titled “Statements in Ancient Documents” in both the state and federal rule, and has come to be known as the ancient documents exception to the hearsay rule.

    Over the last several years, the Judicial Conference Advisory Committee on Evidence Rules has begun the process of removing the ancient documents exception from the Federal Rules of Evidence. This body has proposed amendments to Federal Rule of Civil Procedure 803(16) and has initiated the process of accepting public comments and taking testimony regarding the deletion of the ancient documents rule. This rather innocuous proposal may have major ramifications for tort lawyers generally, including defense lawyers and insurance coverage lawyers.

    Although the underlying rationale for this hearsay exception stands on a shaky foundation – a document does not become more reliable when it ages an additional year from being 19 years old to being 20 years old – the rule serves a pragmatic purpose. In many cases with long-tail claims, it is simply impossible for the plaintiff or defendant to locate witnesses which can lay the proper foundation and testify based on personal knowledge about a document which may have been created decades ago.

    Under current Federal Rule 803(16), if a document is more than twenty (20) years old, and appears authentic, it is admissible for the truth of its contents. Under the Advisory Committee on Evidence Rules’s pending proposal, Rule 803(16), would be deleted entirely. The Advisory Committee on Evidence Rules reasoning is that the growing presence of ESI – electronically stored information – will lead to an abuse of Rule 803(16) in the future because of the relative ease of retaining documents in excess of 20 years. As a result, the drafters fear an abuse of this hearsay exception in the future.

    These future fears have everyday, real-world implications for practicing defense lawyers and insurance coverage lawyers. Clients with long-tail claims, be they asbestos, other products liability, pollution, insurance coverage, or any other, often must rely to some degree on ancient documents. For example, insurance coverage disputes involving insurance policies from the 20th century sometimes rely on fractions of a complete insurance policy. In those cases, specialized insurance expert witnesses (known as “insurance archeologists”) are sometimes used to “reconstruct” the material terms and material exclusions of policies. This process is usually done with a mix of secondary evidence and ancient documents from either the policyholder or the insurer. See, e.g., Dart Industries, Inc. v. Commercial Union Ins. Co., 28 Cal. 4th 1063 (2002).

    As clients defending claims well-know, the simple commercial reality is that they will sometimes not be able to produce a records custodian who can testify regarding ancient company documents. Similarly, it is a simple commercial reality that insurance companies and insurance agents (and even law firms!) are usually not required by law to keep every piece of paper generated for an indefinite period of time. With regard to insurance coverage actions for long-tail claims, this is particularly true. In those cases, the defendant in the tort lawsuit often becomes the policyholder-plaintiff in the related coverage action. As plaintiff, it will carry the burden of proof with regards to establishing that a policy of insurance existed.

    Under current practice, a witness with personal knowledge can who can testify about company records is often unavailable. It may be because that particular manager of the company has died, cannot be located, is outside the jurisdiction, or has a lack of memory. As a result, Rule 803(16) allows for the admissibility of ancient company documents, if, in conjunction with Rule 901(b)(8), they appear in a condition that creates no suspicion of authenticity and they are simply found in a place they would likely be. If the proposed abrogation of the ancient documents hearsay exception is approved and then incorporated into the Federal Rules of Evidence, any party attempting to prove the contents of an internal memo or ancient insurance policy will be required to produce a witness or additional business records which confirm that the proffered policy is a business record which was made at or near the time indicated on the document in the regular course of that enterprise’s business. Federal Rule of Evidence 803(6).

    This proposed amendment to the Federal Rules of Evidence will also raise the stakes in forum battles. Removing the ancient documents hearsay exception from the federal rules will have a major impact in certain types of cases. Cases litigated in North Carolina state courts, where the ancient document rules will continue to apply, will be able to present additional evidence to the trier of fact.

    Because long-tail claims will continue to be litigated in our court system, all participants should acknowledge that there remains a role for the ancient documents exception in the Rules of Evidence. Although the period for public written comment has closed, public testimony will be taken. Additionally, a number of lawyers and seven sitting United States Senators have written to oppose the abrogation of the ancient documents exception. Be on the lookout towards the end of the year to see whether the proposed amendment to Federal Rule 803(16) is adopted.

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  • 27 May 2016 3:55 PM | Lynette Pitt (Administrator)

    by Michael P. Thomas, Patrick Harper & Dixon, LLP

    Those of you paying even the least bit of attention to the relationship between Congress and the President (not to mention within Congress) for the last few years will be surprised to learn that, on May 11, 2016, President Obama signed a bill that passed the Senate 87-0 and the House 410-2. It’s the “Defending Trade Secrets Act” and it contains some new tools that many lawyers who work for business and industry will find appealing in protecting our client’s intellectual property.

    Before I get to that, however, most of the other write-ups I have seen on the DTSA have buried the lead, at least from an employment lawyer’s perspective. The DTSA contains significant new whistleblower protection for disclosure of trade secrets and notice requirements that must be included in employee contracts in order for employers to take full advantage of the benefits of the statute in the event of misappropriation.

    The DTSA provides for complete immunity from criminal or civil prosecution for the disclosure of a trade secret either made either (1) “in confidence to a Federal, State, or local government official, either directly or indirectly, or to an attorney… solely for the purpose of reporting or investigating a suspected violation of law” or (2) “in a … document filed [under seal] in a lawsuit or other proceeding….” 18 USC §1833(b). A whistleblower who files a retaliation suit is permitted to disclose the trade secret to her attorney, to use the trade secret in the proceeding, to file papers containing the trade secret under seal, and to seek and obtain a court order setting terms for disclosure of the trade secret. 18 USC §1833(c). To the extent trade secret information is related to any alleged wrongdoing by an employer, these whistleblower protections are robust.

    The whistleblower protections go one step further, however, and provide a cause for immediate action by all employment attorneys. Employers who ask employees to sign any “...contract or agreement with an employee that governs the use of a trade secret or other confidential information…,” 18 USC §1833(b)(3), must now provide explicit notice of the whistleblower protections set forth in the DTSA in any such contract after May 11, 2016. Id. The notice can be in the contract or the contract can refer to the employer’s compliance policies. Id. “Employee” includes employees and independent contractors. 18 USC 1833(b)(4).

    The penalty for failure to include the notice language is the inability to utilize the exemplary damages and attorney’s fee provisions of the DTSA in a suit for misappropriation – even if the defendant was not a whistleblower. 18 USC §1833(b)(3)(C).

    So, at a minimum, it is time to revise any and all forms which employment lawyers use as a basis to draft non-compete, non-solicitation, confidentiality or other similar agreements with employees so that, going forward, agreements will contain such notices. You may also want to confer with your clients about revising existing agreements, though that has broader implications. A process for updating evergreen agreements that would otherwise automatically be renewed is worth discussing with your clients, too.

    In substance, the DTSA provides a federal cause of action for trade secrets misappropriation claims where the products or services affect interstate commerce. The claims may be brought in state or federal court. The DTSA provides for general injunctive relief. Damages may be calculated either as actual loss plus disgorgement of unjust enrichment OR application of a reasonable royalty. Willful and malicious misappropriation justifies an award of exemplary damages up to 2 times the actual damages or royalty. Attorney’s fees are permitted to a prevailing party upon a showing of bad faith or willful and malicious action by the other party. The limitations bar is three years from actual or constructive discovery. 18 USC §1836.

    The DTSA contains an elaborate provision for obtaining an ex parte order of seizure for products manufactured using misappropriated information. The procedure is analogous to the procedures for obtaining seizure of counterfeit goods or copyright infringing material. It permits a court to impound the products derived from misappropriated trade secrets based on a credible threat the products will be destroyed or hidden. Rigorous procedural and factual hurdles are set up by the statute. If you believe you might have the opportunity to put this provision to work, read the statute in detail.

    The DTSA contains a precise definition of misappropriation and revises the definition of trade secret to focus on the economic value of having the secret information not be known to others who could derive economic value from knowing the information, rather than being secret from the public. 18 USC §1839.

    With the exception of the immunity provision, the DTSA does not purport to preempt state law.

    One final note for employment lawyers, the DTSA does not permit a judge to enjoin a person who is alleged to have misappropriated a trade secret from taking any particular employment and limits conditions which can be placed on employment in an injunction. Such limits must be based on evidence of actual threats of misappropriation and not merely on the fact that the individual knows the secret information. 18 USC §1836. Such an injunction cannot override other state or federal law limiting restraints on employment. Id. These requirements, on their face, however, do not appear to block a court from enjoining employment based on other factors, such as a non-compete agreement.

    Mike Thomas is the 2015-2016 chair of NCADA's Employment Law Practice Group

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  • 10 May 2016 10:00 AM | Lynette Pitt (Administrator)

    by Bob Meynardie, Meynardie & Nanney, PLLC

    A new federal private cause of action to protect trade secrets appears imminent. Since North Carolina already allows private parties to bring a civil action to protect their trade secrets, we compare the two statutes and answer several practical questions related to the dual protection.

    1. Do the statutes protect the same things?

    The North Carolina Trade Secrets Protection Act (“NCTSPA”) defines a trade secret as business or technical information, including but not limited to a formula, pattern, program, device, compilation of information, method, technique, or process that derives independent actual or potential commercial value from not being generally known or readily ascertainable through independent development or reverse engineering by persons who can obtain economic value from its disclosure or use and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

    The Federal Defense of Trade Secret Act (“FDTSA”) defines a trade secret as all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing if the owner thereof has taken reasonable measures to keep such information secret and the information derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by the public.

    Though the federal definition is much wordier, the two definitions are very similar. Essentially both statutes protect financial or technical information that has economic value because it is not generally known and the owner has taken reasonable steps to protect the secrecy of the information.

    2. Does the same conduct constitute a misappropriation or violation of both statutes?

    The Federal statute defines a misappropriation as the “acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means or disclos[es] or use[s] a trade secret of another without express or implied consent.” Improper means includes, among other things, acquisition “under circumstances giving rise to a duty to maintain the secrecy of the trade secret.” Notably, reverse engineering is not improper.

    The NCTSPA defines misappropriation as “acquisition, disclosure, or use of a trade secret of another without express or implied authority or consent, unless such trade secret was arrived at by independent development, reverse engineering, or was obtained from another person with a right to disclose the trade secret.” Reverse engineering is lawful under the State statute as well.

    In contrast to the FDTSA, the NCTSPA does not make knowledge or reason to know that the information is a trade secret an element of misappropriation. However, as discussed below, knowledge or reason to know significantly impacts the remedies available under the State statute.

    3. Do the statutes offer the same remedies?

    Damages are available under both the State and federal statutes. Under the State statute actual damages are measured by either the economic loss to the owner or unjust enrichment of the defendant. Punitive damages are available if the misappropriation was willful or malicious.

    Under the FDTSA, damages are available measured by damage to the owner, unjust enrichment to the defendant, or as a reasonable royalty. If the misappropriation is willful and malicious exemplary damages are available in an amount up to three times (House version; two times in the Senate version of the Bill) the amount of compensatory damages awarded.

    Both the State and federal statute provide for injunctive relief to prevent the use or disclosure of trade secrets. The State statute provides that an injunction may condition use of the trade secret on the payment of a reasonable royalty. Under the State statute, the knowledge or reason to know that the information is a trade secret has significant effects on the remedies available.

    For instance, no damages are available for use prior to the time the defendant knew or had reason to know it was a trade secret. If the defendant has materially changed its position prior to knowledge then she cannot be enjoined but may be required to pay a royalty. Further, if the defendant has acquired inventory without knowledge he may dispose of the inventory without payment of a royalty.

    Preservation of Secrecy: The NCTSPA explicitly allows the court to take steps to preserve the secrecy of the trade secret. Since by definition, the secret derives value from not being publicly known anything less would be self-defeating. Under the State statute, this includes:

    • sealing the record
    • in-camera proceedings and
    • protective orders.

    In addition to the means of preservation available under the NCTSPA, the federal statute also provides for “civil seizure” of the trade secret. In some cases, this may be a very important remedy but there is a heightened threshold to be met before it is available. The details of civil seizure under the FDTSA is beyond the scope of this post but will be discussed in a subsequent blog post.

    4. Can the prevailing party recover attorneys’ fees?

    Under the FDTSA, reasonable attorneys’ fees are available to the Plaintiff where the trade secret is willfully or maliciously misappropriated or where a motion to terminate an injunction is made in bad faith. Fees are available to the defendant when the claim of misappropriation or an opposition to a motion to terminate the injunction is made in bad faith.

    Likewise, under the NCTSPA, attorneys’ fees are available to the prevailing party if the claim of misappropriation was made in bad faith or if the misappropriation was willful or malicious.

    5. When must the action be brought?

    A claim under the North Carolina statute must be brought within three years of the misappropriation or within three years of when it was or reasonably should have been discovered.

    The Senate and House versions of the FDTSA have different statutes of limitation. The Senate version allows three years but the House would allow five years. Although a five year statute of limitations in some cases may make a difference, waiting five years to protect a valuable trade secret may impact the determination of how valuable a secret it is in the first place.

    This article was originally posted on Mr. Meynardie's blog: http://www.businesslawyer-nc.com/blog/ 

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  • 27 Apr 2016 4:00 PM | Lynette Pitt (Administrator)

    by Robin A. Seelbach, Wall Templeton & Haldrup, P.A.

    In re New Bern Riverfront Dev., LLC, Case No. 8:10-ap-23 (Bankr. E.D.N.C.).

    Recent orders from the Bankruptcy Court for the Eastern District of North Carolina and the District Court for the Eastern District of North Carolina provide authority for a general contractor, or any other contractor, to apply the discovery rule in N.C. Gen. Stat. § 1-50(a)(5)f. to its construction defect claims, even if the contractor is not the owner of the project.

    The opportunity for risk transfer for non-owners in construction defect cases may have just gotten a little broader. In In re New Bern Riverfront Dev., LLC, Case No. 8:10-ap-23 (Bankr. E.D.N.C.), the Bankruptcy Court for the Eastern District of North Carolina held N.C. Gen. Stat. § 1-50(a)(5)f. tolled the three-year statute of limitations for negligence and contract-based claims until the defect became apparent or should reasonably have become apparent to the non-owner claimant. While North Carolina jurisprudence is replete with cases recognizing a discovery rule for claimants that own the damaged property at issue, this is the first decision applying North Carolina law that has recognized a discovery rule for non-owner claimants (e.g., general contractors, first-tier subcontractors, second-tier contractors, etc.). Depending on the facts of your case, risk transfer options for a non-owner client may extend beyond those parties that performed work on the project within three years from the date suit was filed.

    In re New Bern Riverfront Dev., LLC, arose out of the construction of the Skysail Luxury Condominiums in New Bern, North Carolina (the “Project”). Substantial completion of all relevant work occurred on April 15, 2009 (depending on who you ask). In March 2009, New Bern Riverfront Development, LLC (“New Bern”), the owner/developer of the Project, filed suit in Wake County Superior Court alleging construction defects and asserting claims against the general contractor, Weaver Cooke Construction, LLC (“Weaver Cooke”), Weaver Cooke’s surety, the architect, and select concrete and design subcontractors. In November 2009, New Bern filed a petition for relief under Chapter 11 of the Bankruptcy Code and the state court defect action was also removed to the Bankruptcy Court for the Eastern District of North Carolina, where it progressed as an adversary proceeding.

    In 2010, Weaver Cooke filed a third-party complaint against the banks that financed the Project, but did not add any building envelope subcontractors for the Project. On April 19, 2012, Weaver Cooke filed a motion for leave to file a second third-party complaint asserting claims of negligence, contractual indemnity, and express warranty against building envelope subcontractors. Citing the substantial completion date of April 15, 2009 – or even earlier completion dates – the subcontractors claimed the three-year statute of limitations under N.C. Gen. Stat. § 1-52(1) and (5)1 barred Weaver Cooke’s claims.

    After extensive discovery, almost all of Weaver Cooke’s subcontractors filed motions for summary judgment. The Bankruptcy Court (Judge Stephani Humrickhouse) issued a series of orders on these motions beginning in June 2014 and continuing through December 2014. One of the main issues litigated was whether Weaver Cooke’s breach of contract and/or negligence claims were subject to a statute of limitations defense or if they could be saved by tolling under a discovery rule. There was extensive oral argument and briefing on whether or not the discovery rule in N.C. Gen. Stat. § 1-52(16) would apply to these claims since that statute, by its plain language, only applies to claims for “personal injury or physical damage to claimant’s property.” (emphasis added). The subcontractors argued persuasively that this was inapplicable because Weaver Cooke, the general contractor, did not own the property that was damaged.

    Instead of relying on N.C. Gen. Stat. § 1-52(16), Weaver Cooke asserted it was entitled to tolling under N.C. Gen. Stat. § 1-50(a)(5)f., which states:

    For purposes of the three-year limitation prescribed by G.S. 1-52, a cause of action based upon or arising out of the defective or unsafe condition of an improvement to real property shall not accrue until the injury, loss, defect or damage becomes apparent or ought reasonably to have become apparent to the claimant.

    The Court accepted Weaver Cooke’s position and applied the plain language of the tolling provision in N.C. Gen. Stat. § 1-50(a)(5)f. to find that Weaver Cooke’s claims did not accrue until the injury became “apparent or aught reasonably to have become apparent to the claimant.” This is the first written opinion applying the discovery rule under N.C. Gen. Stat. § 1-50(a)(5)f. to a non-owner. In support of its holding, the Court cited Oates v. Jag, Inc., 314 N.C. 276, 333 S.E.2d 222 (1985). The Supreme Court in Oates, however, applied N.C. Gen. Stat. § 1-50(a)(5)f. to toll claims by a homeowner plaintiff, not to a litigant that did not actually own the property at issue.

    After determining that Weaver Cooke was entitled to tolling of the statute of limitations, the Court then performed factual analysis of accrual of the claims against each individual subcontractor under Pembee Mfg. Corp. v. Cape Fear Constr. Co., 313 N.C. 488, 329 S.E.2d 350 (1985). Based on the facts of a given claim, the Court reached different results for different subcontractors. See, e.g., Docket Number 882 (filed 6/3/14) (denying summary judgment on statute of limitations) and Docket Number 884 (filed 6/10/14) (granting summary judgment on statute of limitations). The Court’s discussion of the accrual issue and the governing statutes is in Docket Number 882 (“Order on Summary Judgment Regarding Statute of Limitations: East Carolina Masonry, Inc.”). Later orders on the statute of limitations issue generally refer back to this order and do not give the full explanation. These orders do not appear to be available through Westlaw but can be accessed through PACER.

    The majority of Judge Humrickhouse’s orders on the parties’ various summary judgment motions are currently on appeal to the Eastern District of North Carolina. In the first decision to be handed down on appeal, Judge Britt agreed with Judge Humrickhouse’s application of the tolling provision in N.C. Gen. Stat. § 1-50(a)(5)f. and affirmed the denial of summary judgment to Weaver Cooke’s masonry subcontractor. See East Coast Masonry, Inc. v. Weaver Cooke Construction, LLC, Case No. 5:15-CV-252-BR, Docket Number 77 (filed 1/20/16) (E.D.N.C.). Given the number of appeals currently pending in the Eastern District from the Bankruptcy Court’s orders, this issue may well be appealed to the Fourth Circuit.

    While these federal opinions are not binding authority on North Carolina state courts, they are persuasive authority on how the plain language of N.C. Gen. Stat. § 1-50(a)(5)f. should be applied. Based on this favorable jurisprudence, non-owners will likely be emboldened to seek claims against entities that completed their work outside the three-year statute of limitations more frequently. The issue, however, is far from settled. There is very real tension between the federal courts’ application of this statute and opinions from North Carolina state courts holding that the statute of limitations for a breach of contract claim begins running as of the date of breach. See, e.g., Kaleel Builders, Inc. v. Ashby, 161 N.C. App. 34, 43-44, 587 S.E.2d 470, 477 (2003) (“A cause of action based upon breach of a contract accrues on the date of the breach, at which time the three years begin to run.”) (citing Miller v. Randolph, 124 N.C. App. 779, 780, 478 S.E.2d 668, 670 (1996)). Ultimately, these issues are likely to be speed bumps rather than roadblocks on the nascent rule’s journey to becoming state law.

    1In general, a cause of action based on breach of contract and/or breach of warranty accrues on the date of the breach, at which time the three years begin to run. Kaleel Builders, Inc. v. Ashby, 161 N.C. App. 34, 43-44, 587 S.E.2d 470, 477 (2003). “A cause of action based on negligence accrues when the wrong giving rise to the right to bring suit is committed, even though the damages at that time be nominal and the injuries cannot be discovered until a later date.” Harrold v. Dowd, 149 N.C. App. 777, 781, 561 S.E.2d 914, 918 (2002).

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  • 25 Apr 2016 11:00 AM | Lynette Pitt (Administrator)

    by Stacy M. Imler, Ph.D., P.E., Exponent, Inc.

    History

    The first rollover-activated side curtain airbags (RSCAs) were offered by Ford Motor Company in their 2002.5 model year Ford Explorer/Mercury Mountaineer 4 door sport utility vehicles, manufactured after March 4, 2002. The purpose of this technology was to provide incremental benefit to belted occupants in rollover crashes. Implementation of this technology into production vehicles involved rigorous developmental and testing work to design, develop, and test the overall system which included the curtain airbag, seatbelt pretensioners, restraint control module, and platform-specific algorithms for sensing and deployment, all integrated within a specific vehicle platform. Since the introduction of RSCAs, vehicle manufacturers have continued to incorporate this technology into their vehicle fleet at a steady rate with a sharp increase in market insertion starting in the 2010 model year (Figure 1, N

    HTSA, DOT HS 811 882, 2014).

    RSCAs are passive supplemental restraint systems to seatbelt use. Analysis of field accident data demonstrates that seatbelt use is highly effective in prevention of occupant ejection and reduction of serious and fatal injury in rollovers. For example, Malliaris and Digges (SAE 1999) found that 98.8% of belted pickup rollover occupants did not sustain serious or greater injury. Further, they reported serious and greater injury rates of 1.4% to 3.1% for belted passenger vehicle occupants in rollover crashes.

    Initial development of RSCAs was directed at providing incremental head protection through cushioning, as well as a level of supplemental containment through reduced portal size. These objectives were balanced with the goal of minimizing injury potential associated with deployment and occupant interaction with the device itself (e.g., the system must “do no harm”). The resulting systems have evolved and continue to evolve in response to regulatory efforts, but have finite coverage, finite energy capacity, and finite head cushioning capacity. These concepts are demonstrated in the National Highway Traffic Safety Administration’s (NHTSA’s) guided impactor testing of production systems, wherein it has been demonstrated that the greatest retentive capacity occurs in the regions where the curtain is supported by vehicle structures (e.g., at the upper rear aspect for the front window positions). The lowest retentive capacity occurs at the unsupported perimeter of the curtain airbags or in areas of limited coverage. In the region of lower retentive capacity, tests have demonstrated motion of the guided impactor well beyond the glass plane and boundaries of the RSCAs, resulting in ejection of the impactor. More generally, this testing demonstrates that forceful occupant loading into an inflated RSCA results in movement of the RSCA into and through the window plane and can result in occupant ejection.

    Published research examining field accident data has shown that an occupant’s injury risk cannot be reduced to zero through implementation of a particular safety countermeasure, particularly for occupants involved in severe crashes. Analysis of initial field accident data which includes vehicles equipped with RSCAs demonstrates estimates of fatality reduction by approximately 20% to 40% (Padmanaban and Fitzgerald, IRCOBI 2012; NHTSA, 2014). Examination of the distribution of rollovers shows that the average rollover crash in the field involves less than 2 quarter revolutions (Gloeckner et al., AAAM 2007), and it is well established that occupant injury potential increases with corresponding increases in the number of quarter revolutions (Moore et al., AAAM 2005). Accordingly, to estimate RSCA efficacy in multiple roll events, the NHTSA specifically incorporated this relationship with recognition of reduced RSCA efficacy with increased exposure for belted, partially ejected occupants (NHTSA FRIA, 2011). Field accidents contain examples of fatal injury as a result of partial ejection even in the presence of a deployed RSCA. These examples as well as those encountered in litigation, demonstrate that for belted occupants, the presence of a deployed RSCA cannot preclude partial ejection or fatal injury.

    In addition to ejection related injuries, research examining the effects on occupant kinematics and occupant loading in the presence of RSCAs has been performed in the context of catastrophic neck injuries, also referred to as “diving” injuries, sustained during rollover crashes as a result of torso augmentation at vehicle-to-ground impact. It has been shown in spin testing as well as in full-scale rollover testing that the presence of an RSCA does not prevent the up-and-out motion of a belted dummy. Further, the presence of an RSCA does not prevent the head from coming into contact or close proximity to the interior of the roof nor does it prevent the head-neck-torso alignment needed for “diving” injuries (Heller et al., SAE 2015; Newberry, Imler, et al., SAE 2014). Rollover component system testing demonstrated that the use of pretensioners and RSCAs did not preclude head contact with the roof and had a limited effect on the dummy neck loading at roof to-ground impacts (McCoy, SAE 2010). These tests demonstrate the potential for occupants to sustain catastrophic neck injury even in the presence of a deployed RSCA.

    As with considerations for implementation of all safety countermeasures, the incremental benefits in safety provided by RSCAs need to be balanced with the goal of minimizing occupant injury potential related to deployment (i.e., the safety countermeasure should “do no harm”). As supported by field accident data, there are limitations to the efficacy of rollover curtain technologies, particularly in high severity rollover crashes. Further, the design and performance goals need to be balanced with the inherent risks, to result in a system which will increase occupant safety. However, the resulting system cannot mitigate all serious injuries. For a particular rollover crash, the occupant injury outcome related to the performance of the rollover curtain technology is dependent on the vehicle-, occupant-, and crash specific parameters.

    FMVSS No. 226: Ejection Mitigation

    On January 19, 2011, nearly a decade after vehicle manufacturers first introduced RSCAs into production vehicles, Federal Motor Vehicle Safety Standard (FMVSS) No. 226, “Ejection Mitigation”, was established “to reduce the partial and complete ejection of vehicle occupants through side windows in crashes, particularly rollover crashes.” As detailed in the Final Rule, ejection mitigation countermeasures are required to limit the outboard displacement of a projected headform to 100 mm (3.9 in) beyond the inside surface of the window glazing of the portal. The NHTSA anticipated that manufacturers will modify their existing side curtain airbags through increased window coverage, increased inflation duration, and tethering geometry changes to meet the standard. The agency asserted, “full window opening coverage was key to the effectiveness of the curtain in preventing ejection.” The phase-in schedule for FMVSS 226 requires that a percentage of vehicles meet the new requirement beginning September 1, 2013, and will require that all new vehicles meet the standard by September 1, 2017.

    To test for the 100 mm displacement criterion, an 18 kg (40 lb) headform is projected at impact speeds of 20 kph (12.4 mph) and 16 kph (10 mph), at 1.5 and 6 seconds, respectively, following curtain airbag deployment. As per the Final Rule, these tests “replicate the forces that an occupant can impart to the curtain during the rollover event as well as during side impacts.” Impact target locations are determined based on the vehicle specific geometry of the side daylight openings. Pertaining to the specific ejection mitigation countermeasure, the standard “does not allow the use of movable glazing as the sole means of meeting the displacement limit of the standard (i.e., movable glazing is not permitted to be used without a side curtain air bag).” Further, the second impact, executed at 6 seconds following curtain deployment, must be performed with the glazing retracted or removed from the daylight opening.

    Conclusions

    Rollover-activated side curtain airbags were first available in late 2002 model year vehicles, but only after extensive development and testing performed by component and vehicle manufacturers. Since then, introduction of this technology into the vehicle fleet has followed a phase-in approach for multiple reasons, including technological challenges, still-limited field performance data, and the potential for unintended consequences. As this technology continues to evolve, design and performance goals need to be balanced with the inherent risks, to result in a system which will increase occupant safety. However as with all safety countermeasures, the resulting system cannot mitigate all serious injuries. Evaluation of occupant injury outcome related to the performance of RSCA technology in a specific rollover crash is dependent on the vehicle-, occupant-, and crash specific parameters.

    Citation abbreviations: SAE – Society of Automotive Engineers; IRCOBI – International Research Council on Biomechanics of Injury; AAAM – Association for the Advancement of Automotive Medicine.

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    About the Author: Dr. Stacy Imler is a Managing Engineer in Exponent’s Atlanta office. Dr. Imler is a licensed engineer who specializes in injury biomechanics and her work includes evaluation of the effects of existing or hypothetical safety countermeasures such as airbags and seatbelts on injury outcome. She earned her undergraduate degree in Mechanical Engineering at Lehigh University and her Masters and PhD in Mechanical Engineering at Georgia Tech.

  • 26 Feb 2016 12:52 PM | Lynette Pitt (Administrator)

    by Josh Durham, Bell Davis & Pitt, P.A.

    North Carolina's new state law 2015-50 is getting a lot of attention these days, and for good reason. For starters, the law brings to mind the Primetime Live controversy from the early nineties, when ABC employees obtained employment at Food Lion in order to record certain food handling and sales practices. North Carolina's new law would’ve given Food Lion a new remedy against ABC, as it addresses those situations in which an employee does the following acts:

    • enters a "nonpublic area” of an employer’s business;
    • does so for a reason "other than a bona fide intent of seeking or holding employment or doing business with the employer;”
    • records images or sound without authorization; and
    • causes damage or harm to the business.

    The new law also brings with it a lot of controversy. Critics call it an “ag-gag” law, because they fear it will stifle legitimate investigations into farms and food processing facilities. Critics also say that the new law will hamper investigations into other types of businesses as well, such as nursing homes and daycare centers. While the law provides some limited exceptions, including those for law enforcement, it’s still a violation to go to the press. Governor McCrory actually vetoed the bill last year, saying that “it does not adequately protect or give clear guidance to honest employees who uncover criminal activity,” but the legislature overrode the Governor’s veto.

    The new law took effect last month, and People for the Ethical Treatment of Animals; Center for Food Safety; Animal Legal Defense Fund; Farm Sanctuary; Food & Water Watch; and Government Accountability Project are among those who have already filed suit in an effort to declare the law unconstitutional. The New York Times recently blasted the law, claiming that “[t]he secrecy promoted by ag-gag laws should have no place in American society."

    But there’s one part of the new law that often gets overlooked in these discussions. It applies to a situation that I’ve seen numerous times in my litigation practice.

    Imagine this. John Smith has been a loyal and faithful employee of XYZ Sales for years, but he lately has grown disenchanted with his job. It’s just not as fulfilling as it once was. He seeks other employment in his same field, finds a new job, and provides his two weeks’ notice. One day during the notice period, he secretly downloads a customer list and other company information. He uses this information at his new job. XYZ Sales finds out about it, and let’s just say it’s not happy.

    Before this new law, XYZ Sales might have filed suit against Smith for breach of a confidentiality agreement, if he in fact ever signed one. Unfortunately, too few employers make use of such an agreement. XYZ Sales also might have tried to make a claim under the federal Computer Fraud and Abuse Act (“CFAA”), which applies to situations in which someone accesses another’s computer without authorization or in which someone exceeds his or her authorized access. Unfortunately for XYZ Sales, courts in our region have dismissed such CFAA claims, because John Smith technically had the right to access the information. He was, after all, still an employee. That he might have copied the information with ill intent is irrelevant under the CFAA.

    This leaves XYZ Sales with a possible claim for misappropriation of trade secrets, but this can be extremely hard. Courts in our area require employers to describe such trade secrets with sufficient particularity in their pleadings; merely alleging that an employee stole “processes,” “strategic information,” “designs,” “marketing plans,” and even “customer lists,” can be insufficient. Also, to succeed on its trade secret claim, XYZ Sales must prove that the information is not generally known to others, that the information is valuable to others because of its secrecy, and that it took reasonable steps to protect the secrecy of the information. These are extensive, and expensive, parts of any trade secret litigation.

    But have no fear, the ag-gag law is here. In addition to its prohibitions against unauthorized recording, the new law provides a remedy against any employee who "enters the nonpublic areas of an employer's premises for a reason other than a bona fide intent of seeking or holding employment or doing business with the employer and thereafter without authorization captures or removes the employer's data, paper, records, or any other documents and uses the information to breach the person's duty of loyalty to the employer.” If John Smith indeed went to work that day intending to copy that information, it looks like XYZ Sales has a claim against him under the new act.

    In pursuing such a claim, XYZ Sales will not have to prove that the information was a secret or that it wasn’t widely known. XYZ Sales will not have to prove that it took any steps to protect the information or that the information was of great value to a competitor. From my reading of the new law, XYZ Sales will only have to prove that John Smith came to work with the intent to take the information, that he gained the information from a nonpublic part of its business, and that such actions damaged XYZ Sales. Under the law, XYZ Sales will be able to recover all damages that Smith caused, plus $5,000 for each day that Smith committed a violation. XYZ Sales can also recover its attorney’s fees.

    From a public policy perspective, it will indeed be interesting to see how the courts rule on the attacks to the new law’s constitutionality. It is undisputed that the press has been a powerful force for change in American history, and the ag-gag law does seem to deprive it of potentially valuable sources of information.

    But from a litigator’s perspective, I can’t wait to see how, and to what extent, companies like XYZ Sales make use of the new law in cases involving departing employees.

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