It is well settled that, in New York, there can be no separate tort cause of action for an insurer’s purported bad faith failure to perform its obligations under an insurance contract. In the oft-cited Bi-Economy Market, Inc. v. Harleysville Insurance Co., 10 N.Y.3d 187, 191 (2008), New York’s highest court found that a property insurer may be liable for foreseeable damages that flow from an insurer’s breach of a first-party property policy. Despite commentary suggesting that Bi-Economy opened the door to a tort of bad faith claims handling in New York, courts have been clear that the decision was based on the insured’s claim for consequential contract damages, not the tort of bad faith claims handling.

Indeed, New York courts have repeatedly rejected attempts to extend Bi-Economy in order to create a cause of action for bad faith. Our insurance practice group procured one such holding in Orient Overseas Associates v. XL Insurance America, Inc., 18 N.Y.S.3d 381 (2015). There, the Appellate Division, First Department, confirmed that there is no bad faith cause of action in New York.

On January 17, 2019, the Appellate Division, First Department, had occasion to revisit the topic of bad faith claims. In D.K. Property, Inc. v. National Union Fire Insurance Co. of Pittsburgh, Pa., 92 N.Y.S.3d 231 (2019), insured D.K. brought a claim under a commercial insurance policy for alleged “direct physical loss or damage” to its building in downtown Manhattan. When, after three years, National Union had not paid or denied the claim, D.K. sued for breach of contract and breach of the implied covenant of good faith and fair dealing. D.K. sought consequential damages on both counts, as well as attorneys’ fees on the bad faith count.

National Union moved to dismiss D.K.’s demand for consequential damages for failure to state a claim, and the lower court granted the motion (except for attorneys’ fees). 74 N.Y.S.3d 469 (2018). In granting the motion, the trial court referenced Orient Overseas, explaining that the First Department was careful to distinguish cases where the insured had asserted a separate claim for breach of the covenant of good faith and fair dealing, as opposed to a tort claim, but that even then the claim must not be wholly duplicative of the breach of contract claim. Id. at 472. The trial court further explained that D.K. was required to “allege and prove that the type of consequential damages it seeks were reasonably contemplated by the parties prior to contracting,” and found that D.K. had not met this standard. Id. at 473. This was, in part, because D.K. only alleged “in a general conclusory fashion that ‘consequential damages for bad faith breach of the Policy were reasonably contemplated by [the parties],’” and did not allege that the specific types of damages it sought “were a natural and probable result of [the insurer’s] breach of its duty of good faith.” Id.

The Appellate Division, First Department, reversed and reinstated D.K.’s demand for consequential damages. 92 N.Y.S.3d at 231 (2019). The Appellate Division agreed that D.K. could seek consequential damages that were foreseen, or should have been foreseen when the contract began, and that D.K. would ultimately have to establish “what liability the insurer is found to have ‘assumed consciously.’” Id. at 233. The Appellate Division, however, rejected the notion that this determination should be made at the motion-to-dismiss phase, because “the inquiry is not whether plaintiff will be able to establish its claim, but whether plaintiff has stated a claim.” Id. The Appellate Division emphasized that whether D.K. would be able to establish a claim for consequential damages would have to “await a fully developed record.” Id.

In so ruling, the Appellate Division also rejected the notion that there was a heightened pleading standard requiring D.K. to explain or describe why the specific categories of consequential damages alleged were reasonable and foreseeable at the time of contract. Id. at 232-33 (“There is no heightened pleading requirement for consequential damages.”). The Appellate Division thus found that D.K. sufficiently stated a claim for consequential damages as to both the breach of contract and bad faith counts.

Importantly, D.K. did not disrupt or change the overall bad faith landscape in New York. The same facts cannot support both a breach of contract and bad faith claim, and consequential damages sought must be reasonably foreseeable at the time the parties entered into the insurance contract. Nonetheless, the decision may assist insurers in getting their bad faith counts over the motion-to-dismiss hurdle. While an insured need not meet a heightened pleading standard with respect to consequential damages, it must still plead—and ultimately prove—that it suffered consequential damages that were reasonably foreseeable at the time the policy incepted.

Artificial Intelligence (“AI”) swallows vast troves of data, so, as its definition suggests, it enables “the capability of a machine to imitate intelligent human behavior.”¹ Much like humans learn over time by exposure to different experiences and new information, AI systems can be fed enough data so that they can eventually draw conclusions and make inferences. 

Given AI’s data diet, it is saddled with a host of privacy regulations, which vary depending on the nature of the data and its uses. This article highlights three compliance tensions between AI and the European privacy regime, the General Data Protection Regulation (“GDPR”), which contains various privacy-related principles for how personal data must be processed and provides certain data subject rights. With GDPR fines reaching as high as 4 percent of annual global turnover, or 20 million euros (whichever is higher), carriers insuring them should endeavor to understand these complex risks. Understanding any insured risk, including new risks like AI, is also the first step a carrier can take to avoid a bad faith claim. This article also addresses how carriers are responding to these risks.

Top Three Compliance Tensions Between AI and GDPR

The Norwegian Data Protection Authority (“NDPA”) provided one European regulator’s perspective on GDPR compliance issues for AI. Highlighted below are three of these compliance tensions:²

1.         Discrimination Rankles Fairness Requirements

AI’s susceptibility to discriminatory processing could potentially conflict with the GDPR requirement that data be processed in a fair manner. For example, the nonprofit investigative journalism group ProPublica claimed that an AI program used for setting bail erroneously flagged black individuals as “high re-offending risks” twice more often than white individuals.³ This means companies employing or insuring AI liabilities should be on the lookout for this potential exposure.

2.         Data Minimization for Data-Hungry AI

The NDPA highlights the tension between data-hungry AI and the GDPR’s data minimization principle that requires processed personal data to be limited to data necessary and relevant to the purpose of the processing. The NDPA acknowledges an extra layer of confusion when operating in the world of AI because:

[I]t may be difficult to define the purpose of processing because it is not possible to predict what the algorithm will learn. The purpose may also be changed as the machine learns and develops. This challenges the data minimi[z]ation principle as it will be difficult to define which data is necessary.⁴

Although the regulation recognizes the “difficulty” in defining relevant purpose and necessary data, it appears the navigation of that risk rests with the user, which ultimately may show up as a claim before its insurer.

3.         Transparency in a World of Complex Algorithms

GDPR requires transparent data processing and imposes an extended duty to inform when data is used for automated decision making. The regulation puts limitations on certain types of automated decision making. The NDPA recognizes that the advanced nature of the technology processing data with AI “can be difficult to explain[,]” and sometimes it can even be “practically impossible to explain how information is correlated and weighed in a specific process[,]” because exactly what happens during AI processing is not always understood.⁵ This provides another example of the tensions between the application of AI technology and compliance with the GDPR.

Mitigating AI Exposures Under the GDPR with Insurance

GDPR creates risks for companies using AI, and those businesses will likely respond by employing various strategies, including insurance, to mitigate these risks. While cyber insurance markets continue to grow, AI presents carriers new challenges and opportunities. At this intersection of cutting-edge technology and new regulations, there are specific issues to keep in mind regarding insurance.

Insurability Issues of AI/GDPR Liabilities

Whether GDPR fines are insurable may depend on your jurisdiction. Even if fines are not insurable in a given jurisdiction, hosts of other potentially significant exposures likely are, including expenses for consumer notice and for retaining specialists like lawyers, public relations experts, and computer forensics experts. There may also be insurable liabilities arising from consumer actions.

Sufficiently Covering for AI/GDPR Exposures

Jonelle Horta, Vice President at Allied World, a global insurance and reinsurance provider, is on the company’s Cyber Underwriting team and is its FrameWRX lead.⁶ She explains some of the struggles predicting AI exposures under the GDPR:

As with all privacy-related regulations, consistent application of GDPR among its members is still somewhat of an unknown. To date there have been few fines imposed, making it difficult to predict future impact. Of the fines imposed there is a wide disparity in industry type and size, providing some preliminary insight; a broader set of breach activity will provide better clarity. GDPR is likely to impact future iterations of U.S. privacy regulations in a “me-too” fashion, which may create additional scrutiny for organizations with both U.S. and GDPR exposure. Carriers will continue to monitor the regulatory impact and evaluate, as this could mean opposing guidelines for compliance with privacy regulations based on jurisdiction.

The GDPR greatly expanded what constitutes personal data and what is a violation of a privacy law that could be subject to regulatory or consumer exposures. As opportunities for violations have increased, businesses and carriers should consider the impact of this expansion on the types of coverages and policy limits offered. Those limits include when AI is used.

Horta explains what the process might look like for companies seeking coverage specifically for AI and GDPR exposures:

Traditional insurance applications, combined with other sources for evaluating risk, typically identify operations outside of the United States. If an organization is requesting coverage for technology or professional services related to artificial intelligence, additional information is requested to identify areas of exposure (i.e., what services are being performed, the value of top contracts, etc.). Coverage could extend to the organization’s use of AI by outlining the services performed via endorsement.

Making the Most of Pre-Breach Services

Many carriers attempt to get ahead of potential cyber exposures by utilizing pre-breach services as ways to reduce exposures. Horta explains how Allied World incorporated this strategy into its offerings:

The Allied World // FrameWRXSM risk management platform provides our cyber insureds with access to a set of pre-breach services as well as a dedicated FrameWRX specialist to facilitate and support engagement at no additional cost. Our insureds have access to GDPR-specific materials and guidance, GDPR-specific training accompanied by a concierge resource to support user engagement, content regarding applicability of the regulation, and high-level preparation and criteria around fines. Each insured also has access to an advice center where they can reach out to our vendor and be connected with the appropriate legal or technical resource based on their needs. Additionally, there are a set of consultative services for an insured to choose from that may align with GDPR-related cybersecurity objectives.

Armed with knowledge of potential AI and GDPR exposures, companies can pursue methods to mitigate this risk, and carriers can respond to the need with new products, offerings, and guidance. Counsel may also be invaluable in identifying, navigating, and offsetting these complex risks in these changing times.  

“[E]very case has its twists and turns and an insurance carrier is not to be held to a duty of prescience.”¹

In Massachusetts, General Laws Chapter 176D (“Ch. 176D”) prohibits insurance carriers from using unfair methods of competition or an “unfair or deceptive act or practice” in conducting its business, including claims settlement practices.² The statute enumerates several different claims handling failures that, if proven, amount to unfair and deceptive conduct that may give rise to a claim for bad faith.³ But does this statute require perfection? The 2019 docket has added new cases to Massachusetts bad faith jurisprudence, continuing to clarify the type of conduct that gives rise to a finding of bad faith.

A. River Farm Realty v. Farm Family Casualty Insurance Company

On February 4, 2019, the United States District Court for the District of Massachusetts decided whether certain missteps in claim handling violated Ch. 176D.⁴ First, the adjuster’s mistaken interchange of the claim number caused a several-month delay in investigating and determining the scope of coverage. Once rectified, the insurer hired an independent adjuster who inspected the damage and prepared a loss estimate.⁵ During this process, the insurer again confused the claim with another, causing additional delay and confusion. The adjuster then performed a second inspection and estimate in response to the insureds’ staunch disagreement with the first estimate. The claim eventually went to appraisal after the insureds continued to dispute the insurer’s view of the amount of covered loss. 

The court rejected the insureds’ argument that Farm Family violated certain tenets of Ch. 176D, namely requiring reasonably prompt communications, reasonable investigations, and a prompt and fair settlement where liability was reasonably clear.⁶ Considering the claim in the  aggregate, the court held that Farm Family’s conduct, while not perfect, did not “descend to the level of an extreme or egregious business wrong that can give rise to liability [for bad faith],” even where delays were due to record-keeping mistakes, because the insurer ultimately communicated timely, appointed an independent adjuster in good faith, and participated in the appraisal.⁷

Likewise, the court held that neither the investigation nor the post-appraisal payment constituted bad faith.⁸ The investigation was found to be reasonable where Farm Family assigned an independent company to perform the field investigation and loss adjustment in the same month, conducted a second inspection after the insureds disagreed with the initial estimate, and agreed to appraisal when the dispute persisted. Under these facts, the court held that it was not bad faith for Farm Family to wait until it received the appraisal award to issue payment.⁹

B. Calandro v. Sedgwick Claims Management Services, Inc.

On March 18, 2019, the First Circuit Court of Appeals affirmed the Massachusetts federal court’s ruling that Sedgwick, a third-party administrator, did not commit unfair claims settlement practices.¹⁰ The case arose out of a wrongful death and conscious pain and suffering lawsuit that the claimant, Garrick Calandro, filed against a nursing home facility after his mother suffered a fall there and later died.¹¹ Sedgwick was retained to investigate and handle the claims.¹² The independent adjuster’s investigation into the cause of death proved difficult, because he was unable to obtain all of the documents requested and received conflicting information from witnesses. Based on his discoveries, the adjuster – and later, a medical expert – concluded that Ms. Calandro’s ongoing health issues, not the insured’s negligence, caused her death.¹³

The court held that Sedgwick did not engage in unfair and deceptive claims practices in its handling of the claim or in continuing to dispute that liability was reasonably clear through trial, given the factual support for contrasting position on causation.¹⁴ In its decision, the court rejected the claimant’s argument that liability was reasonably clear at various points in the claim, such as before the adjuster had completed its investigation or when the claimant submitted to the medical malpractice tribunal its offer of proof, which contained a mere outline of his expert’s opinion.¹⁵ In so holding, the court instructed that an insurer’s conduct should be evaluated based on the “totality of the circumstances in a given case” keeping in mind that “[p]erfection is not the standard that Ch. 176D imposes upon the handling of a claim.”¹⁶

In sum, while insurers are not required to be perfect, diligent monitoring of case law developments, such as those discussed above, can help insurers evaluate their own claims-handling practices and ensure every claim complies with the statutory and precedential standards imposed.

In this edition of The Robins Kaplan Insurance Insight, we focus on staying ahead of the curve in managing carrier bad faith liability by providing useful evaluations on recent cases and important statutory changes involving insurer claim handling from states across the country, including Massachusetts, New York, California, and Georgia. In addition, we continue to monitor issues relating to artificial intelligence by commenting on the tensions created by attempting to regulate data protection in an effort to educate the industry on the risks associated with AI, and guard against bad faith liability. Staying abreast of these developments is the first line of defense against future liability for bad faith and unfair claims handling moving into 2020.

We thank you for your readership and hope you find this year-end edition interesting and informative.

In This Issue

• 2019 Case Developments: Are Massachusetts Insurers Required To Be Perfect In An Imperfect World?
• Artificial Intelligence v. General Data Protection Regulation: Complex Risks in Changing Times
• Empire State of Mind: New York Bad Faith Update
• Hot off the Presses: California Further Regulates Out-of-State Adjusters in the Wake of Record-Breaking Catastrophic Losses
• “That Settles It”: The Georgia Supreme Court Provides Clarity Regarding an Insurer’s Duty to Settle

This Winter 2019 issue focuses on "The Future of the Fiduciary":

• Era of 'Art" - The Impact of Assisted Reproductive Technology in Estate Planning by Sarah J. Khoury 
• In Cryptocurrency We Trust (Or Do We?) by Ena Kovacevic and Deanna Thompson
• 2019 Year in Review by Denise S. Rahne

We are very happy to jumpstart 2020 with the newest edition of our newsletter. In this issue, we discuss a recent and fulfilling pro bono victory; sit down with Marian Pardo, a high-level executive in the banking and investment industry; and assess the opportunities and obstacles facing professional photographers in the age of Instagram.

Happy Reading!

In This Issue

• A Victory for All Involved
• Interview with Marian Pardo, Managing Director and Principal of Virtual Capital Management, LLC
• Facing the Music: Protecting Photography in the Age of Instagram

Social media, much like the internet, is a double-edged sword. Nowhere is this more evident than through the lens of Instagram and copyright protections for images. Our copyright system was not designed with the internet in mind; much less could it have anticipated Instagram, a platform that monetizes images and creative works freely shared by its users. To date, the service has over 1 billion monthly active users, who together have shared 50 billion images. As Spotify and Pandora did in the music industry, Instagram’s wide reach creates a free and democratic platform for visibility while also engendering new copyright concerns for photographers and other content creators.

Ryan Muir, professional photographer and founder of Experienced Visuals,¹ notes that social media like Instagram has “created a demand for momentary content.” For professional photographers to stay current, “visible, and relevant,” they must endure the “push for regular, high quality updates,” he says. Indeed, Muir states that an image may take “days, weeks[,] or months to create” but it “may take only seconds, or at best minutes to consume.” What’s more, there is limited protection against that consumption. Given that the copyright system has yet to permit a streamlined system for submitting content for protection and registration, photographers like Muir rarely have time to file for registration before the images go live online, where they are immediately susceptible to being made into screenshots and reused by all who have access. The push to share regular content and the lack of time to secure full legal protection thus become a self-feeding loop: Muir reports that the volume and rate at which photographers are now compelled to produce and share content renders it nearly impossible to register every new creation.

Further, under Instagram’s terms of use,² account holders automatically grant Instagram license to use any content posted onto the platform. Indeed, even though Instagram makes clear it does not “claim ownership of [the] content that [users] post on or through the Service,” by using the platforms, individuals grant Instagram a wide range of rights—including “a non-exclusive, royalty-free, transferable, sub-licensable, worldwide license to host, use, distribute, modify, run, copy, publicly perform or display, translate, and create derivative work of [that] content.” That broad license continues until the user deletes the content or the account.

For casual users and professional photographers alike, these provisions mean that once content goes up on the platform—and for as long as it stays there—Instagram will be able to use the content for its purposes in nearly any way it sees fit, including by modifying it and sharing it with third parties.

For professionals and influencers seeking a platform that maximizes exposure, this is not always a bad thing: Muir, who serves mostly business, brand, and corporate clients, says that, often, the images he shares are commissioned precisely “for publicity purposes, so in many cases, wide distribution may be a benefit rather than a liability.” And Muir uses social media in part as a professional portfolio to market “the service of [his] photograph skills, rather than the … photographs themselves.” Thus, reuse is generally less of an issue as long as there is proper attribution.

But even in the realm where wide distribution is more a benefit than a liability, photographers would do well to note that, because Instagram seizes for itself a non-exclusive license, the mere act of posting content onto the platform may trigger liability if someone else already has an exclusive license to that same image. On this issue, Muir shares that it’s wisest to first consult contractual limitations on use and then ensure receipt of approval or permissions to share the commissioned work before doing so. Note, however, that regardless of prior permissions, the broad license that Instagram takes for itself would render it impossible for photographers to subsequently issue exclusive licenses to any other parties.

If disputes emerge, Instagram requires that, aside from an expressly stated subset of claims, disputes that users bring against it are to be resolved on an individual basis either in arbitration, the proceedings for which are private, or in small claims court, which generally has low monetary limits for damages. Indeed, class action and class arbitrations are not permitted, and trial by jury is expressly waived. To this belt, Instagram adds further suspenders: Its aggregate liability under suits “will not exceed the greater of $100 or the amount [the user] has paid [Instagram] in the past twelve months.” And Instagram binds users to an indemnity and hold-harmless clause, requiring all of them to “defend …, indemnify and hold [the Service] harmless from and against any claims, liabilities, damages, losses, and expenses, including without limitation, reasonable attorney’s fees and costs, arising out of or in any way connected with these Terms or your use of the Service.”

Assuming one reads it, a user can opt out of the arbitration clause within 30 days of signing up for an account by sending a letter to Instagram detailing full name, address, user name, email address, and phone number associated with their account, along with a clear statement that the user is opting out of arbitration. Short of having a court deem the terms unenforceable or part of a contract of adhesion, however, users have few ways to escape the liability limit or the indemnity clause. And while the terms provide that copyright and trademark issues do not have to be arbitrated, those claims are still likely bound by the liability limit. This dynamic magnifies a common dilemma for professional photographers, who often find limited means of recovery against those using their content without permission or attribution—be it Instagram itself or other users on the platform. Indeed, this is a long-standing problem that has simply shifted form in the internet age: What was previously a problem of misusing print photos is now a problem of misusing digital ones.

Instagram’s bar against class actions is another symptom of a common problem that photographers face: Because photographers tend to work as independent contractors, it’s often difficult for them to sue collectively and effect systemic and industry-wide change. Indeed, it is the rare individual photographer who can rally sufficient resources to acquire legal protection against major corporations like Instagram or similar large organizations and sites. Suits related to copyright infringement of photographers are more likely to see the light of day when the claims are assigned to a third-party corporation that aggregates the copyrights of myriad individual photographers and has the resources to enforce those rights. See, e.g., Minden Pictures, Inc. v. John Wiley & Sons, Inc., 795 F.3d 997 (9th Cir. 2015) (holding that a stock photography company serving as the licensing agent for dozens of photographers had standing to bring suit against textbook publisher for violation of those licenses).

These issues—just a few of the concerns that have emerged from the intersection of art and social media—form another piece of the mosaic demonstrating that the copyright law landscape needs to evolve and adapt to our internet-driven world, including by making the copyright registration process more seamless and accessible. On this front, the music world may offer wise counsel. Just over a year ago, Congress signed into law the Music Modernization Act, which intends to reconcile copyright laws with the digital world and to ensure that songwriters and composers receive improved royalties when their works are streamed. The Act also created the Mechanical Licensing Collective, which, as of January 1, 2021, will manage a blanket mechanical license and collect royalty payments from digital services, which it will then distribute to the right copyright owners. This is not the first time the music industry has banded together in response to the difficulty that individual content creators face against industry behemoths. Nonprofit performance rights organizations like Broadcast Music, Inc. and American Society of Composers, Authors, and Publishers, for instance, protect their members’ copyrights by monitoring public performances and use, and collecting and distributing royalties. As holders of aggregate copyrights, these organizations can bring suit on behalf of their membership and litigate claims related to royalties and protections for online downloads and streaming. See, e.g., United States v. ASCAP, 627 F.3d 64 (2d Cir. 2010).

A similar group approach would behoove photographers, who need support in securing legal protections. While photography collectives do exist, they largely focus on collaborating on and generating commissioned work rather than championing legal rights and protections. As the internet and Instagram become more embedded in our world, photographers would do well to work alongside the natural evolution of the law by focusing on joining forces to seek greater protections in the law.

Marian Pardo is a highly experienced investment professional with a deep background in banking and investment and securities analysis. She has had an extensive career in banking and investment management. Throughout the course of her tenure with investment banks and financial services companies, Marian notably managed accounts and common trust funds totaling over $2 billion and, earlier in her career, was a senior member of a large corporate banking team.

Currently, Marian serves as Managing Director and Principal of Virtual Capital Management, LLC, a financial services consulting firm; Trustee of J.P. Morgan Mutual Funds; and Non-Executive Director of Viramal Limited, a specialty pharmaceutical company focused on women’s health. Due to her experience, she has appeared on CNBC (including “Power Lunch”) on several occasions. Marian is also the president of the Columbus Citizens Foundation, the first woman to hold that position in its 50-plus-year history. The foundation is a nonprofit organization dedicated to the celebration of Italian heritage and the creation of opportunities for younger Italian Americans. The foundation’s most public activity each year is organizing New York City’s Columbus Celebration, which includes a major fundraising gala, and the Columbus Day Parade – the largest celebration of Italian-American heritage and achievement in the world.

Ms. Pardo holds a bachelor’s degree in economics from Barnard College of Columbia University and has done graduate work at New York University and New York Institute of Finance.

I recently sat down with Marian, and we discussed her career:

1. What drew you to work in finance?

I always wanted to get a graduate degree in economics, but, when I explored graduate school, all the degree programs were focused on econometrics. And, with econometrics, I did not feel like I could do anything meaningful. There were too many calculations and predictions, and not enough computing power. You had to assume away so many variables! So, I turned my sights to business school. I was accepted into Columbia Business School, but then I decided not to take on more debt. Instead, I took a paying job and did some business school classes on the side. Banking, as opposed to econometrics, fascinated me as the place where sources and uses came together.


2. Despite an increased emphasis on diversity and inclusion within the finance industry in recent years, professions in that industry remain some of the least diverse of any profession. Recently, a government report indicated that women and minorities remain underrepresented as managers at banks, insurance companies and other financial firms. What is your recommendation for women trying to join and succeed in the finance industry?
   
   The finance industry is particularly problematic these days for everyone, since the industry is consolidating and thus there are less entry level opportunities available. So women need to get beyond the “averages.” They need to seek out firms that are better than average in having women in senior or management positions and that are actively looking to do more as evidenced by, for example, mentoring and diversity initiatives. It may not be the first place you find work, but that is what I would look for. For everyone, not just women, the important thing is to get started and get a foot in the door.


3. There are many barriers to boosting diversity in the finance industry, including unconscious bias in promotions and a reluctance to recruit from more than a handful of elite universities. What are ways that financial firms can tackle these obstacles?
   
   I graduated from college in 1968 – four years after the Civil Rights Act was signed into law, and in the middle of the Vietnam War. So, I have seen a lot of social change. I think the best financial firms really do cast a much wider net, and that is what they should do and continue to do. Companies should keep casting a wider net. If they are not specifically recruiting, they should still go to a wide variety of open houses and job fairs and let job seekers know what their company does. In doing so, they will open themselves up to a wider pool of prospective employees that they may not have considered before.


4. If you could, what advice would you give to your younger self, when you were just beginning your career?
   
   When I started my career, it was at the beginning of the use of technology within the financial industry. It was the era of integrating technology into the workplace – for example, being able to do spreadsheets electronically. My work did train me, but, even then, I would tell my younger self to get more training in technology and its applications.  It was clear the world was starting to change, and it is even more important today.


5. If you had to choose a career other than one in the financial industry, what would you choose and why? 
   
   Legal. I was always very good at dealing with agreements and contracts. I have a logical mind and am good at debating. Most importantly, the rule of law is what makes our form of capitalism work. The bottom line is the bottom line: Nothing in finance works if you do not have the rule of law.


6. Having worked in various capacities for investment banks and other financial services companies, and in your role at Virtual Capital Management, what do you look for from outside counsel? What are the biggest frustrations you face from outside counsel? 
   
   Counsel not only needs to be an expert in their field, but also has to understand my business. My biggest frustration is when counsel legalizes my language and, thus, changes the intent and meaning of my words. Sometimes counsel does so because they think their way is better, and sometimes counsel does so because they think they are trying to protect me from something they do not realize I actually want to do. Thus, it is important for counsel to understand what their clients are trying to accomplish.  Communication is key.


7. The most recent Columbus Day was on October 14, 2019, and the parade had almost a million attendees in New York City. The holiday has also been met with some criticism.  In your own words, why do you think it is important that we celebrate Columbus Day and that the Columbus Day Parade takes place?
   
   The celebration is a recognition of a technological breakthrough equivalent to jet travel: Columbus’ voyages proved the worlds were connected, and jet travel facilitated the joining of those worlds. With new discoveries there are always consequences that need to be interpreted over time. Columbus represents the dawn of a great era of migration for us all, but especially for Italians. All immigrant groups, even to this day, seek to be recognized for their accomplishments and contributions to the betterment of this country. I do believe every group should celebrate its heritage, including Native Americans and indigenous groups throughout the Americas. In fact, 25 years ago, the U.N. decided that the International Day of the World’s Indigenous People shall be observed on August 9 every year. The goal of the foundation is to recognize both days in meaningful ways.


8. As the first female president in the Columbus Citizens Foundation’s history, do you feel that there is a special significance to your presidency?
   
   Yes. Whenever you see this sort of change, it is a message of inclusion internally and externally. It is a reaffirmation that we celebrate and facilitate the accomplishments of each of us as individuals and as members of our communities.


9. What are some unique challenges that you have faced as the president of the Columbus Citizens Foundation, and how have you overcome them?
   
   When you have a group that has been around as long as ours has, you are always constantly challenged to make sure you maintain your relevance, especially in the 21st century, which means making changes. Change, however, makes people uncomfortable.  So, managing change can be a huge issue. Being open to everyone’s concerns and adjusting course if necessary is important. That being said, having a staff like ours that is very capable and supportive of our mission is important and makes facing such challenges easier.


10. Navigating a career and a family is challenging, and the finance industry is certainly not known for being the most compatible with family life. How have you managed to maintain a work-life balance?
    
    My husband and I have always coordinated our calendars so that our family does not get left in the dust of our other obligations. Family first is important. It does help that my husband also worked in finance, so we have always understood each other’s schedule and career. 


11. One last question. If you could invite three people, living or dead, to your dinner party, whom would you invite?
    
    I would invite my dad. He is no longer with us, but I miss him still. Leonardo da Vinci – he was a brilliant intellect. And my grandchildren; they are the ones we truly learn from.

Recently, I had the rewarding experience of representing a former vice principal of a public middle school through a contentious litigation. My team members and I took and defended several depositions in the case and guided our client toward a successful settlement agreement. Our work was vital in not only getting our client the justice he deserved but also positively changing the trajectory of his future.

Our client, referred to us through New York Legal Assistance Group (“NYLAG”), was a roughly 70-year-old black man accused of sexually harassing a middle school principal who was his direct superior. Purportedly because of the allegations lodged against him, his employer immediately suspended him and prohibited him from returning to the school. Indeed, just one day after his suspension, our client’s office was completely dismantled and his possessions had been boxed up. A security guard even escorted him off the school premises – this was not typical recourse for alleged violators at the school district. Remarkably, all these actions preceded any investigation to confirm or deny the validity of the accusations our client faced. And although the school district could have used alternative interventions and progressive disciplinary procedures (contained in the district’s policies) to deal with the allegations, they chose to bypass their own policies and, instead, suspended our client instantaneously. For example, the school district avoided giving our client – who had never had any complaints lodged against him in his 17 years of work for the district – verbal warnings and reprimands, skipping right to suspension. The district justified the suspension as necessary to protect the principal from “further harm” – despite the only grounds for our client’s suspension was the principal’s word against his.

An investigation ultimately proceeded, but because of the actions the school had already taken against our client (i.e., immediate suspension and dismantling of his office), he had already been constructively terminated. The results of the investigation found that our client violated the district’s sexual harassment policy and that he had otherwise “engaged in conduct unbecoming an administrator that constitutes inappropriate workplace conduct.” The school district subsequently initiated a disciplinary proceeding under Education Law § 3020, alleging 10 separate charges of misconduct (but none relating to sexual harassment) and sought the most severe penalty – termination. The hearing officer overseeing the disciplinary proceeding sustained six of the 10 charges concerning misconduct “unbecoming an administrator” and imposed a one-month suspension without pay.

Two months after the conclusion of the disciplinary proceeding, our client filed a complaint in the Southern District of New York against the school district, its superintendent, and the school’s principal, alleging race and age discrimination, defamation, and intentional infliction of emotional distress. We worked closely with our client to prepare for his deposition, the defendants’ depositions, and the depositions of third parties, carefully constructing our strategy, which included finding ways to show disparate treatment between our client and other similarly situated individual school district employees who were not members of protected racial or age-related classes.

I defended our client’s deposition, and my team members and I took the depositions of eight different school officials. Throughout the depositions we learned that, normally, when someone brought a complaint to the attention of the school district, the district would send “warning” letters  or “letters of reprimand” to the person charged with having committed the violation. Moreover, alleged violators ordinarily received cautionary letters that their behavior could result in consequences, and the allegations against them were thoroughly investigated before any action was imposed. This was true concerning allegations far worse than what our client had been accused of. We even found out that one school teacher – who had been suspended on two different occasions and received multiple letters of reprimand for, among other things, his misconduct toward seventh-grade female students – was still employed by the school district as a middle school teacher when we took his deposition.

The testimony we elicited during the depositions, specifically regarding disparate treatment, significantly helped leverage our case going into the settlement conference, where we succeeded in ending the litigation and obtaining monetary relief for our client. My experience with NYLAG was immensely gratifying, and I look forward to continuing my pro bono work.

Robins Kaplan LLP believes that everyone should have equal access to justice.¹ As trial lawyers, we are dedicated to leveling the playing field for our pro bono clients and giving back to those in need. In furtherance of this mission, our firm regularly works with NYLAG, a New York­–based nonprofit organization that provides free legal services to low-income New Yorkers. Through NYLAG, our attorneys have represented a vast array of clients and have obtained excellent litigation experience. Over the last year alone, our attorneys have helped 13 different clients through NYLAG. For more information about NYLAG, including how you can get involved, please visit the following website: https://www.nylag.org/.

In creating an estate plan, owners of closely held family enterprises may use asset sales to transfer business assets from one generation to the next. Generally, asset sales allow a purchaser to buy assets without also buying a seller’s liabilities, as would be the case with an equity sale. In the context of family businesses, asset sales could remove the burden of liabilities from other family members. However, structuring a transaction as an asset sale does not eliminate the risk of liabilities passing to family members. The involved parties must give careful consideration to state law doctrines of successor liability and tax statutes to minimize the risk of liabilities accompanying assets in a sale.

The old saying “when you fail to plan, you plan to fail” pertains to almost any business endeavor, but particularly to family business succession. Four out of 10 family businesses do not have a succession plan in place. Every businessowner should consider succession planning, and for those owning a family business there can be unique family dynamics in play. Below are five common missteps to avoid when preparing a succession plan for your family business.

Whether you already own or are considering buying shares in a closely held corporation, it’s worthwhile to understand the unique risks minority shareholders face and the varying levels of protections offered to minority shareholders throughout the states. This article provides a brief overview of the legal landscape and offers practical suggestions to current or prospective shareholders.

When French rock-and-roll legend Johnny Hallyday died in 2017 at age 74, 1 million people lined the Champs-Élysées for his funeral, and “Merci Johnny” lit up the Eiffel Tower. Fifteen million people later watched his hero’s tribute in Paris. Known as the “French Elvis,” Hallyday, born Jean-Philippe Smet, is credited for bringing rock-and-roll to France. In his remarkable six-decade career, he rubbed elbows with industry legends Jimi Hendrix, Keith Richards, Fats Domino, and Jimmy Page, to name a few.

Wealth planning professionals know that succession planning for clients is often multi-layered and highly nuanced, particularly for intricacies of tax planning. Working with individuals who are not U.S. citizens adds yet another layer of complexity. When assisting a married couple where one or both spouses is not a U.S. citizen, estate planning attorneys can employ certain common techniques, including a qualified domestic trust (QDOT).

“Cryptocurrencies: everything you don’t understand about money combined with everything you don’t understand about computers.”1 Most people have heard of bitcoin, but there are thousands of cryptocurrencies.2 The technological underpinnings of cryptocurrencies are intricate and powerful, making cryptocurrencies secure; however, the anonymity, novelty, and lack of predictable regulation all create a degree of risk. Fiduciaries and estate planners should be aware of the advantages and drawbacks to cryptocurrencies in order to advise their clients on this growing phenomenon.

With the ever-changing landscape of the family unit in the United States, the role of Assisted Reproductive Technology (“ART”) is increasing. ART has made parenthood possible for individuals and couples who are unable to reproduce naturally. The most common ART procedures include artificial insemination, in-vitro fertilization, and surrogacy. According to the C.D.C., ART accounts for approximately 1.8% of all infants born in the United States.

The year 2019 brought us new and ongoing developments, some modern and some mundane, ranging from future-looking contemplation of electronic wills to persistent questions related to taxes. 

Case Name: HZNP Medicines LLC v. Actavis Labs. UT, Inc., No. 2017-2149, -2152, -2153, -2202, -2203, -2206, 940 F.3d 680 (Fed. Cir. Oct. 10, 2019) (Circuit Judges Prost, Newman, and Reyna presiding; Opinion by Reyna, J.; Opinion Concurring-in-part and Dissenting-in-part by Newman, J.) (Appeal from D.N.J., Hillman, J.) 

Drug Product and Patent(s)-in-Suit: Pennsaid® 2% (topical diclofenac sodium); U.S. Patents Nos. 8,217,078 (“the ’078 patent”), 9,132,110 (“the ’110 patent”), 8,618,164 (“the ’164 patent”), 9,168,304 (“the ’304 patent”), 9,168,305 (“the ’305 patent”), 8,546,450 (“the ’450 patent”), 9,101,591 (“the ’591 patent”), 8,563,613 (“the ’613 patent”), 9,220,784 (“the ’784 patent”), 8,871,809 (“the ’809 patent”), 8,252,838 (“the ’838 patent”), and 9,066,913 (“the ’913 patent”)

Nature of the Case and Issue(s) Presented: Pennsaid 2% is Horizon’s topical non-steroidal anti-inflammatory drug (NSAID) approved for treating pain of osteoarthritis in the knees. Horizon sued Actavis for infringement of various claims of the patents-at-issue based on Actavis’ filing of an ANDA for a generic version of Pennsaid 2%. During claim construction, the district court found three terms in the asserted claims of the formulation patents to be indefinite. At summary judgment, the district court found no induced infringement of the asserted method of use claims. One claim remained at trial: claim 12 of the ’913 patent. Actavis stipulated that if claim 12 were not obvious, then its ANDA product would infringe. After trial, the district court found claim 12 not obvious and enjoined Actavis from launching its ANDA product. Horizon appealed the district court’s findings of indefiniteness and non-infringement. Actavis cross-appealed the district court’s finding that claim 12 of the ’913 patent was not obvious. The Federal Circuit affirmed. Judge Newman concurred in part and dissented in part.

Why Horizon Prevailed: Although the district court invalidated most of the claims or found non-infringement, Horizon ultimately prevailed on claim 12 of the ’913 patent.

Indefiniteness: The district court found the following three terms of the formulation patents indefinite: 1) “the topical formulation produces less than 0.1% impurity A after 6 months at 25 degrees C and 60% humidity”; 2) “the formulation degrades by less than 1% over 6 months”; and 3) “consisting essentially of.” The Federal Circuit agreed with the district court that “impurity A” was indefinite because a POSA would not know with reasonable certainty the identity of the claimed substance. The term “impurity A” only appeared in claim 4 and example 6 of the ’913 patent. Example 6 described a stability study in which the samples were tested for impurities by high performance liquid chromatography (HPLC). One finding of the stability test was that certain formulations showed a lower quantity of “impurity A.” While it was undisputed that “impurity A” was not defined in specification, Horizon argued that “impurity A” referred to USP Related Diclofenac Compound A (“USP Compound A”). Horizon argued that even though the specification did not refer to USP Compound A, a POSA consulting the available pharmacopeias would know “impurity A” refers to a specific impurity of diclofenac sodium. Because the specification referred to “impurity A” as a degradation of diclofenac sodium, a POSA would know the impurity to be USP Compound A.

Actavis argued that the specification did not provide any clues as to the identity of “impurity A” therefore implying that it was an unknown impurity. Actavis’ expert stated that a POSA would infer that “impurity A” referred to an unknown impurity because the specification did not disclose the chemical name of the impurity, used quotation marks to refer to “impurity A,” and justified not conducing additional tests to identify the impurity because it occurred in such low amounts. Additionally, the expert opined that because Example 6 did not disclose the HPLC procedure used (e.g., column type, mobile solvent, and temperature), a POSA would not be able to determine the identity of the impurity. Moreover, Example 6 suggested that more testing was necessary to determine the identity of the impurity.

The Federal Circuit found no clear error in the district court’s conclusion that “impurity A” was indefinite. First, the Federal Circuit held that the claims did not specifically relate “impurity A” to diclofenac sodium, but rather more broadly to the entire claimed topical formulation. Thus, there was no clue in the claim itself that “impurity A” related to diclofenac sodium. The Federal Circuit further explained that beyond the claim language, the other intrinsic evidence provided no clue as to the identity of “impurity A” and the Federal Circuit specifically referenced the lack of information regarding the conditions of the HPLC experiment. Looking at the extrinsic evidence, the Federal Circuit agreed with the district court’s determination that a POSA would not relate Example 6 to the available pharmacopoeias that Horizon’s expert relied on. Next the Federal Circuit considered and affirmed the district courts determination that “degrades” was indefinite. The Federal Circuit explained that because Horizon’s proposed definition of “degrades” referred to “impurity A,” and because “impurity A” was indefinite, it followed that “degrades” which relies upon an indefinite term for its construction, was also indefinite. Finally, the Federal Circuit considered and affirmed the district court’s determination that “consisting essentially of” was indefinite in the context of the patents-at-issue. “Consisting essentially of” signals a partially open claim. The parties’ dispute therefore focused on the basic and novel properties of the formulation patents. The district court found, and the Federal Circuit agreed, that one of the basic and novel properties of patented formulation was “better drying time.” Next, the Federal Circuit addressed whether the Nautilus definiteness standard applies to the basic and novel properties of an invention. In Nautilus, the Supreme Court held that “a patent is invalid for indefiniteness if its claims, read in light of the specification delineating the patent, and the prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.” Nautilus, Inc. v. Biosig Instruments, Inc., 572 U.S. 898, 901 (2014). Horizon argued that the Nautilus standard focused on the claims and did not apply to the basic and novel properties of the invention. The Federal Circuit disagreed. The court explained that because the claims were drafted using “consisting essentially of,” the claims were open to the inclusion of any ingredient that did not materially affect the basic and novel properties of the invention. Thus, the Nautilus standard applied.

Next, Horizon argued that the basic and novel properties of an invention were not properly considered at the claim construction stage because they were fact issues. The Federal Circuit rejected Horizon’s argument, and held that courts evaluating claims using the phrase “consisting essentially of” may determine the basic and novel properties of an invention at claim construction, and then may consider whether the intrinsic evidence establishes what constitutes a material effect on those properties. The Federal Circuit reasoned that “the definiteness inquiry focuses on whether a [POSA] is reasonably certain about the scope of the invention. Indeed, if a [POSA] cannot ascertain the bounds of the basic and novel properties of the invention, then there is no basis upon which to ground the analysis of whether an unlisted ingredient has a material effect on the basic and novel properties.” The basic and novel properties must be known and definite, and therefore the district court did not err. Finally the Federal Circuit affirmed the district court’s conclusion that “better drying time” was indefinite because the specification discloses two different methods for evaluating “better drying time” and methods did not provide consistent results at consistent times.

Non-infringement: Horizon premised its induced infringement arguments for the method-of-use patents on the label for Actavis’ ANDA product. The district court found that the asserted claims of the method of use patents required the following steps: (i) application of the medication to the knee; (ii) waiting for the area to dry; and (iii) application of sunscreen, insect repellant, or a second topical medication. The district court further found that to infringe the claimed method, all steps must be completed. Actavis’ label contained a warning to “wait until area is completely dry before covering with clothing or applying sunscreen, insect repellent, cosmetics, topical medications or other substances.” The district court found that Actavis’ label merely permitted, without encouraging, the application of a second topical medication. Thus, the district court held the label was insufficient to show induced infringement. The Federal Circuit agreed, explaining that the warning “operates in an ‘if/then’ manner: if the user wants to cover the treated area with clothing or apply another substance over it, then the patient should wait until the area is dry.” This did not encourage infringement because it did not require application of a second substance, whereas the claim language did. Therefore, the district court did not err in granting summary judgment of non-infringement.

Obviousness: Actavis’s argument regarding obviousness of claim 12 of the ’913 patent was premised on the predecessor product to Pennsaid 2% -- Pennsaid 1.5%. Actavis argued that the changes made to Pennsaid 1.5% to arrive at Pennsaid 2% would have been obvious to a POSA. Actavis further argued that the district court erred in requiring that the prior art predict the “exact formulation” of the claim. The Federal Circuit held that the district court’s factual findings regarding the unpredictability of the formulation were not clearly erroneous, and therefore affirmed.

Dissent by Judge Newman: Judge Newman dissented from the majority’s holdings that “consisting essentially of” was indefinite and that the ANDA label did not induce infringement of the method-of-use patents.

Judge Newman argued that the majority were incorrect in incorporating into the scope of the claims an evaluation of the basic and novel properties of the invention. She further argued that the claims using “consisting essentially of” were definite because they listed the ingredients that the claimed formulation consists essentially of. The majority’s distinction between “consisting of” and “consisting essentially of” did not comport with precedent. She stated that there is no precedent for the majority’s ruling that “’consisting essentially of’ claims are invalid unless they include the properties of the composition in the claims.” Finally, Judge Newman stated that the clear and convincing evidence standard for invalidity was not met in this case as there was no evidence that a POSA would not understand the claims with reasonable certainty. Thus, she asserted that the claims were not invalid for indefiniteness.

Judge Newman also disagreed with the majority that the ANDA product label would not induce infringement. She asserted that the label instructed a method of use that is identical to the claimed method. She further stated, “patients may not always comply with instructions. However, this does not insulate the provider from infringement liability.”

Case Name:AstraZeneca AB v. Mylan Pharms. Inc., No. 18-1562-CFC, 2019 U.S. Dist. LEXIS 180264 (D. Del. Oct. 18, 2019) (Connolly, J.)

Drug Product and Patent(s)-in-Suit: Symbicort® (budesonide/formoterol fumarate dihydrate); U.S. Patents Nos. 7,759,328 (“the ’328 patent”), 8,143,239 (“the ’239 patent”), 8,575,137 (“the ’137 patent”), and 7,967,011 (“the ’011 patent”)

Nature of the Case and Issue(s) Presented: AstraZeneca sued various Mylan entities on Oct. 11, 2018. On Dec. 19, 2018, AstraZeneca filed a first amended complaint, adding 3M Company (“3M”) as a defendant. On Mar. 14, 2019, certain of the Mylan defendants were dismissed by stipulation and order. AstraZeneca was the holder of the NDA that covered Symbicort. Mylan was the sole holder of the ANDA seeking approval to make and sell a generic version of Symbicort. According to Mylan, 3M would have manufactured the ANDA product for Mylan but would not have been involved in any marketing, promotion, distribution or sale of Mylan’s ANDA product.

Mylan moved to dismiss under Fed. R. Civ. P. 12(b)(3) for improper venue pursuant to 28 U.S. C. § 1400(b) and 3M moved to transfer this case to the Northern District of West Virginia pursuant to 28 U.S.C. § 1404(a), or in the alternative, to dismiss the claims against it under Fed. R. Civ. P. 12(b)(7) for failure to join a party under Fed. R. Civ. P. 19. The court denied Mylan’s motion to dismiss and granted-in-part and denied-in-part 3M’s motion to dismiss or transfer venue.

Why the Case Was Transferred to the N.D.W.V.: Turning first to Mylan’s motion,it was undisputed that (i) Mylan was a West Virginia corporation and did not “reside” in Delaware under § 1400(b); and (ii) Mylan did not have a regular and established place of business in Delaware. But AstraZeneca argued that venue was proper in Delaware for 3M because 3M was a Delaware corporation and therefore venue was also proper as to Mylan because: (i) Mylan was 3M’s successor-in-interest in the ANDA; (ii) Mylan was 3M’s agent; and (iii) Mylan and 3M had attempted to manipulate venue by devising a scheme through which they sought to deprive AstraZeneca of the ability to sue the party who submitted the ANDA in the district where it and AstraZeneca resided. The court disposed of all three arguments. It found that while Mylan accepted the responsibility to perform 3M’s duties under the ANDA, Mylan did not assume 3M’s place of residency in doing so.AstraZeneca’s pure agency argument failed because AstraZeneca had not established that the court should impute the residency of 3M to Mylan based on an agency relationship between 3M and Mylan. Finally, although Mylan’s communications with AstraZeneca could reasonably be described as deceptive and even manipulative insofar as they hid from AstraZeneca the role 3M played in the ANDA process, Mylan did nothing that deprived AstraZeneca of the ability to sue 3M—the party that submitted the ANDA—in Delaware. Thus, Delaware was an improper venue for Mylan. But in lieu of dismissal, the court transferred AstraZeneca’s claims against Mylan to the Northern District of West Virginia.

Turning next to 3M’s motion to transfer, the court weighed the various Jumara factors underlying its decision. Of the twelve Jumara factors, seven factors were neutral, one factor weighed against transfer, and four factors—defendant’s forum preference, the convenience of the parties as indicated by their relative physical and financial condition, practical considerations, and relative administrative difficulty due to court congestion—weighed in favor of transfer. Therefore, 3M’s motion to dismiss for failure to join Mylan as a party was rendered moot.