The Value of Diversity and Inclusion for Our Legal Community

by Lisa Goodheart

President’s Page

I recently attended a conference on diversity and inclusion and the future of Boston law firms in a global economy.  The event, which was ably organized by Macey Russell, Co-Chair of the BBA’s Diversity & Inclusion Section, was well-attended, and the discussion was lively and constructive, with a panel of impressive and thoughtful speakers and active participation by an engaged audience.  But the issue of diversity and inclusion within the Boston legal community remains a problematic one, and progress has been painfully slow.

Recent statistics reflect a disappointing reality.  For example, NALP recently reported that among all firms and offices listed in its nationwide 2011-2012 NALP Directory of Legal Employers, just 6.56% of partners were racial or ethnic minorities, and just 2.04% of partners were minority women.  About 29% of the firms or offices reported no minority partners at all, and 57% reported no minority women partners.  The reported numbers for associates were not much better – over 17% of the firms or offices reported no minority associates, and over 27% of offices reported no minority women associates.  NALP’s numbers for openly gay, lesbian, bisexual and transgender lawyers also remain relatively low, with 1.44% of partners and 2.43% of associates at the reporting firms and offices being openly LGBT lawyers, as of 2011.

Looking to Boston-specific numbers does not provide a more comforting perspective.  As reported by NALP, the percentages of diverse partners and associates remain lower in Boston than in many other major cities.  For the 2011-2012 reporting cycle, just 3.21% of partners were minorities, and just 1.01% were minority women.  Over 48% of the reporting Boston firms and offices had no minority partners, and over 74% had no minority women partners.  Over 11% had no minority associates and nearly 23% had no minority women associates.  (City-specific statistics for LGBT lawyers are not included in the available NALP reports.)

How should we respond to this state of affairs?  One refrain that is frequently heard is the need for better education about the “business case” for diversity and inclusion.  In a nutshell, the business case for diversity rests on the premise that as our economy becomes more global in nature, significant corporate clients are themselves becoming more diverse and inclusive, as they serve an increasingly diverse customer base and answer to an increasingly diverse shareholder base.  It follows that the law firms best positioned to serve these increasingly diverse corporate clients will be those that are able to offer correspondingly diverse teams of legal talent.  Law firms should therefore pursue diversity within their ranks to gain a competitive edge.

Certainly, it’s logical to think that appealing to the self‑interest of law firms and other law offices might be the most persuasive way to get them to make a more serious, intense and sustained commitment to the recruitment, development, support and retention of more diverse lawyers.  But does the business case for diversity really provide the most productive way for us to think about this issue?  It is by now a familiar argument, and it has not succeeded to date in producing a true sea change in law firm demographics.  The status quo has proven to be a remarkably stubborn thing.

At the BBA’s Law Day dinner in May, Harvard professor Michael Sandel spoke to us about what he calls the moral limits of markets, and what money can’t buy.  Professor Sandel highlighted the degree to which economic analysis has permeated virtually all spheres of modern life, with sometimes pernicious and counter intuitive effects.  Sometimes, he suggested, things have a non-monetizable value, and the relentless drive to convert our values into marketplace terms can have a corrupting effect that paradoxically undermines that value.  In terms of diversity within our profession, perhaps we need to acknowledge that a robustly diverse and inclusive Boston legal community is one of the inherently valuable things that are worth pursuing for reasons that are not rooted in concerns about market share or enhancing profitability.

At the BBA, the investment in fostering a more diverse and inclusive legal profession is manifested in many ways.  It is embodied in our partnerships with various affinity bar associations, in the annual BBA Beacon Award for Diversity and Inclusion, and in the establishment of the Diversity and Inclusion Section for our members.  It is reflected in initiatives such as the Mentoring Program, the BMC Internship Program, other pipeline and recruitment work with area law schools and the Boston public schools, and events like the above-mentioned conference.  What lies behind this investment of effort?  No doubt, these programs and initiatives are pursued in part because they are attractive to the BBA’s members, potential members and sponsor organizations.  In that respect, they are part of the BBA’s own “business case.”  But the driving impulse behind theBBA’s commitment to diversity and inclusion is something much more fundamental.

The true motivation for the BBA’s emphasis on diversity and inclusion, in my view, is – and should be – that we are inspired to build the kind of legal community that we want to be a part of and are proud to claim as our own.  The BBA is an organization of members who choose to come together, not only for reasons of professional self-interest, but also to advance the causes and promote the values we collectively care about, and to find the professional fulfillment and personal satisfaction that comes from doing so.  Those values include justice, equality and opportunity.  A profession with a homogeneous and exclusionary demographic profile is simply not consistent with those values.

Achieving a substantially greater degree of diversity and inclusion is hard, subtle, time‑consuming work.  Of course, if it were easy, it would have already been accomplished by now.  But lawyers relish hard problems and are relentless in pursuing solutions.  And I am confident that we will collectively muster the resourcefulness and creativity to do much better.  Ultimately, the reward for doing so will be the greater strength, energy and richness of a legal community that all of us fully claim as our own.

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Merger Litigation: Coming to a Deal Near You

By Matthew C. Baltay

Legal Analysis

Shareholder litigation challenging mergers has become so ubiquitous that one observer has remarked that “[i]t’s one of the three inevitables: death, taxes and deal litigation.”[1]  Indeed, over 90% of all public company mergers with a value of $100 million or more result in shareholder litigation today.  While not as active a forum as Delaware or California for these cases, Massachusetts nevertheless is a top-six contender for merger litigation because of its relatively robust public market base.  This article provides an overview of the rise of merger litigation and examines how these cases tend to play out.

The Chances Are

It used to be that the acquisition of a public company, whether by another public company or a private equity group, would generally not result in litigation absent special circumstances such as a hostile takeover or where an unfair deal was being forced on shareholders by insiders who stood to gain.  A leading example is the case of Coggins v. New England Patriots Football Club, Inc., 397 Mass. 525 (1986), wherein public shareholders of the Patriots Football Club filed suit after they were cashed out by the majority owner.  The court found that the “freeze-out merger” did not serve any valid corporate objective but rather was done solely to further the personal financial interests of the majority shareholder.  Historically, approximately one-third of public company acquisitions nationally resulted in litigation.[2]

Beginning in the 2005-2008 period, however, merger litigation exploded.  By 2008, the percentage of public company mergers valued at $100 million or more resulting in shareholder litigation had risen to 48% of all deals.  By 2010, 84% of such deals resulted in litigation and in 2011, 94.2% of all public company takeovers valued at $100 million or more resulted in shareholder litigation.[3]

Primer on Merger Mechanics

Before delving into the nature of merger litigation, it is useful to review the steps to a successful merger.  First, a company decides for whatever reason that it is time to sell, thereby giving rise to the board’s Revlon obligation to secure the best price available.” [4]  Led by its board of directors, the company generally engages in either an auction process seeking bidders or a more targeted search for an appropriate acquirer.  Acquirers tend to be other public companies or private equity firms seeking to take the company private.  At the end of the process, which may take a half year or more, an appropriate partner is identified and the parties negotiate and ink a merger agreement.  Once this is done, usually under the cover of confidentiality, the proposed merger is announced.  Public companies do this by filing an announcement and the merger agreement with the Securities and Exchange Commission.

The company’s deal lawyers then draft the proxy statement, which is the document distributed to shareholders in connection with their requested vote on the merger.  The proxy statement describes the background of the merger, sets forth the details and mechanics of the merger itself, and provides the fairness opinion of the company’s financial advisor regarding the merger.  Generally within weeks of the merger’s announcement, the company files the preliminary proxy statement in draft form with the SEC, thereby affording the SEC the opportunity to comment and request modifications, if any.  Several weeks later, the company files the final, definitive proxy statement and mails it to shareholders.  The definitive proxy statement sets the meeting date for the shareholder vote on the merger, which usually takes place within a month or so.  Assuming the shareholders vote to approve the merger at the shareholder meeting, the deal then closes within a day or two thereafter.

While it used to be the case that this process typically flowed unimpeded by litigation, it is now quite likely that litigation will ensue in the three-month window between announcement of the proposed deal and its anticipated close.

The Litigation

In today’s environment, upon the announcement of a merger, law firms issue press releases and internet posts stating that they are investigating “possible breaches of fiduciary duty and other violations of state law in connection with the sale of the company.”  For example, when the acquisition of Massachusetts-based Zoll Medical was announced on March 12, 2012, more than a dozen law firms announced that day that they had “commenced an investigation into possible breaches of fiduciary duty” by the company’s board of directors.[5]

Next, complaints are filed, often within a matter of days of the initial announcement of the deal,[6] by specific shareholders on behalf of the class of all company shareholders.  The litigation is brought against the board of directors for alleged breaches of fiduciary duty and against both the selling company itself and the acquirer for aiding and abetting the alleged breaches.  The claims are state common law ones filed in state court (with the occasional addition of a federal claim in federal court for the filing of an allegedly materially misleading proxy statement under Section 14(a) of the Securities Exchange Act of 1934).

Complaints tend to allege:

  • That the board of directors breached its duties to the shareholders by selling the company for too low a price;
  • That the directors failed adequately to shop the company;
  • That the directors sold out the shareholders for their own interests, whether in the form of accelerated stock options, golden parachutes or lucrative positions with the acquiring company;
  • That the so-called preclusive deal protection terms found in virtually all merger agreements, including termination fees payable to the acquirer if the seller backs out and exclusive no-shop provisions that prohibit the seller from soliciting further offers, are improper; and
  • That the disclosures made in the proxy statements regarding the merger were inadequate and materially misleading.

It is rare in merger cases that a single complaint is filed.  Instead, multiple complaints are generally filed by different law firms representing different individual shareholders (but on behalf of the same class of company shareholders alleging the same harm).  According to a recent Cornerstone study, five separate lawsuits on average are filed in each merger case.”[7]  As a further complication, half of all challenged deals result in litigation in more than one jurisdiction, with suits filed in the jurisdiction where the target company is incorporated (such as Delaware, where more than 50% of all public companies are incorporated) and in the jurisdiction in which the company is physically headquartered.”[8]

The Course of the Litigation

After the complaints are filed, merger litigation tends to follow a predictable path.  The parties usually agree to consolidate the various cases in each jurisdiction into a single action.  In multi-jurisdictional cases, defendants generally move to stay the litigation in all but one forum in order to avoid active litigation on multiple fronts.  Because of the deal-related time pressure, plaintiffs then typically move for expedited proceedings, seeking court permission to take expedited discovery and to set a condensed schedule for the briefing and hearing on their anticipated motion to enjoin the merger, all within a several-week period.  At this point, defendants face a key decision point:  do they settle (and gain some comfort that the deal will close unimpeded) or do they take their chances and fight.

Disclosure-Only Settlements

More often than not, defendants make a calculated decision that the surest way to close the deal is to settle, and the most common and economical way to settle is for defendants to make supplemental disclosures.  The statistics are that 60% of all merger litigation ends with disclosure settlements (and 95% of settled merger cases involve supplemental disclosures by the company).[9]  The Delaware Chancery Court has described this process, and to some degree criticized it, as the “kabuki dance” of merger litigation, wherein a brief, initial “flurry of activity” gives way to a complete cessation of meaningful litigation and, with repeat players in place, “events unfold on cue.”  In re Revlon, Inc. Shareholders Litigation, 990 A.2d 940, 945-46 (Del. Ch. 2010) (Laster, V.C.).

The steps are straightforward.  Plaintiffs highlight certain disclosure issues that they find most problematic and, as part of a global settlement, the defendants agree to supplement their proxy statement disclosures accordingly.  Recent settlements of Massachusetts merger cases have included, for example, supplemental disclosures regarding additional details surrounding the board’s deliberations during the auction process, the strategic alternatives to auction that the board considered, and further explanation of the methodology employed by the company’s financial advisor in reaching its fairness opinion.  With supplemental disclosures made, plaintiffs take limited “confirmatory discovery” and agree to dismiss the litigation and defendants agree to pay plaintiffs’ attorneys’ fees, all subject to court approval.  Pursuant to the common benefit doctrine, counsel is entitled to an award of fees for securing a class benefit, here enhanced disclosures.  Fees in the $400,000 – $500,000 range are common, and fees stretching into the million dollar range are not unheard of.

Additionally, while commentators criticize disclosure-only settlements as draining cash out of the company to pay counsel while providing little benefit to shareholders, there are examples of merger litigation resulting in tangible monetary benefit to the shareholder base.  Approximately 5% of settled merger cases involve increased payment to the plaintiff shareholders.[10]  The recent Del Monte Foods merger litigation, for example, ended with a payment of $89 million to shareholders.

Resisting Plaintiffs

While the majority of defendants settle merger cases, some opt instead to fight.  There are clear risks and costs to this strategy, however.  Notably, there is the chance that the court might enjoin the merger or delay it long enough for material adverse events to transpire that could threaten the deal.  Nonetheless, defendants have certain opportunities to resist.  First, there is plaintiffs’ motion to expedite, which is fought at the outset.  If plaintiffs lose, they must go into the motion for preliminary injunction without discovery, thereby decreasing their chances of success.  Courts have denied plaintiffs’ motion for expedited proceedings if they view plaintiffs as failing to assert colorable claims and a sufficient possibility of threatened irreparable injury to justify the cost of expedited proceedings.  Second, defendants may oppose the motion for preliminary injunction itself by marshaling the facts and law to demonstrate that plaintiffs cannot establish a likelihood of success on the merits.

Approximately one-third of merger cases end by dismissal without settlement as a result of either court order of dismissal or through voluntary dismissal by plaintiffs after losing these motions.[11]

Merger Litigation In Massachusetts

Massachusetts, while not as busy as Delaware or California in terms of volume of deal litigation, is nevertheless one of the more active jurisdictions in the country by virtue of having a disproportionately large number of public companies located in the state.[12]  Indeed, Massachusetts is the sixth most active state in terms of deal litigation, behind only Delaware, California, Texas, New York and Pennsylvania.[13]

One can discern three general trends with regard to treatment of merger cases by the courts of Massachusetts.  First, Massachusetts courts do not hesitate to stay Massachusetts cases in favor of parallel proceedings elsewhere.  That is, while the Delaware courts will rarely, if ever, stay Delaware merger litigation in favor of merger litigation pending elsewhere, Massachusetts courts seem to lack any such policy and will grant requests to stay Massachusetts merger litigation when parallel litigation is underway elsewhere, particularly where the litigation is governed by the law of another jurisdiction (such as Delaware).

Second, Massachusetts courts are reluctant to interfere with or enjoin mergers of public companies in Massachusetts.  There is a growing line of cases — from Judge Agnes’ detailed decision in the 2007 Westborough Savings Bank merger case,to the merger litigation involving Merck’s $7.2 billion acquisition of Massachusetts-based Millipore Corporation chronicled in 2010 in the Boston Bar Journal,[16] to the recent Massachusetts Appeals Court decision concerning Oracle’s acquisition of Phase Forward Corporation — wherein the Massachusetts courts have either refused plaintiffs’ requests to expedite proceedings[17] or denied a motion to enjoin a merger.[18]  Third, Massachusetts courts will generally approve the award of attorneys’ fees in merger cases when presented with arms’ length settlements between plaintiffs and defendants.

While the tide may turn and merger litigation may become less commonplace, presently, it is all but certain that larger deals will attract litigation.  Massachusetts in particular has seen its share of merger litigation and should continue to until the phenomenon recedes, if it ever does.  Accordingly, deal lawyers in Massachusetts and elsewhere should approach M&A activity with the risk of litigation in mind.

Read Matthew Baltay’s biography here.

[1] Stanford University Professor Robert M. Daines (quoted by Daniel Fisher in “Lawyers Challenge ‘Almost Every’ Merger,” Cornerstone Study (April 26, 2012)).

[2] Cain, Matthew D. and Davidoff, Steven M., “A Great Game: The Dynamics of State Competition and Litigation,” at 11 (April 1, 2012) (free SSRN registration required).

[3] Cain, Matthew D. and Davidoff, Steven M., “Takeover Litigation in 2011,” at 2 (February 2, 2012); Daines, Robert M. and Koumrian, Olga, “Recent Developments in Shareholder Litigation Involving Mergers and Acquisitions, March 2012 Update,” Cornerstone Research

[4] Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (Del. 1986).  There is some uncertainty as to whether Massachusetts corporations that decide to sell may consider factors other than price alone, including, for example, the interests of employees and customers and the local, regional and national economy.  Gut v. MacDonough, C.A No. 07-1083, 23 Mass. L. Rptr. 110, 2007 WL 2410131, at *11 (Mass. Super. Aug. 14, 2007).

[5] See also Clark, D. and Kramer Mayer, M., “Anatomy of a Merger Litigation,” Nera Economic Consulting (April 4, 2012), at 2 (discussing the nineteen law firms that issued press releases investigating the NetLogic Microsystems acquisition once it was announced and suggesting “[t]he purpose of the press release was simple:  the law firm was looking for a client.  Despite the considerable ingenuity of plaintiffs’ lawyers, they have not yet figured out how to file a lawsuit without a client.”).

[6] According to a recent NERA study, one-third of all cases are filed within two days of the announcement of the deal and nearly 60% are filed within one week of the announcement.  Clark, D. and Kramer Mayer, M., supra, at 4.

[7] Daines and Koumrian, supra, at 3.

[8] See Clark and Kramer Mayer, supra, at 4 (suggesting that the filing of multiple suits by different firms is done because competing firms “want in on the game.”).

[9] Cain and Davidoff, “A Great Game:  The Dynamics of State Competition and Litigation,” supra, at 33.

[10] Daines and Koumrian, supra, at 11.

[11] Id. at 9.

[12] With 2% of the national population, Massachusetts has 6% of the country’s public companies involved in merger litigation (a third of which are incorporated under Massachusetts law and the remainder principally under Delaware law).  See Cain and Davidoff, “A Great Game:  The Dynamics of State Competition and Litigation,” supra, at 32.

[13] Daines and Koumrian, supra, at 8.

[14] In litigation involving the mergers of the following companies, the Massachusetts court stayed in favor of parallel litigation in Delaware:  3Com Corp. (Davenport v. Benhamou, CA No. 07-3793F, 2007 WL 4711512 (Mass. Super. Dec. 20, 2007)); Sepracor Inc. (Gianquinto v. Sepracor, Inc., CA No. 09-3833-BLS-2 (Mass. Super. Sept. 25, 2009)); US Surgical (Donnay v. Chamoun, CA No. 09-4249-BLS-2 (Mass. Super. Nov. 6, 2009)); Airvana Inc. (Short v. Battat, CA No. 10-0042-BLS-2 (Mass. Super. June 18, 2010)); BJ’s Wholesale Club, Inc. (Puzey v. BJ’s Wholesale Club, Inc., CA No. 2011-11339-MLW (D. Mass. Mar. 16, 2012) (granting motion to stay state law claims)).  In at least one case, the Massachusetts court stayed litigation involving a company incorporated under Massachusetts law in favor of litigation pending in Florida:  BlueGreen Corporation (Caltagirone v. Levan, CA No. 2011-4183-BLS-2 (Mass. Super. Jan. 17, 2012)).

[15] Gut v. MacDonough, C.A. No. 07-1083, 23 Mass. L. Rptr. 110, 2007 WL 2410131, at *11 (Mass. Super. Aug. 14, 2007) (Hudson Savings Bank’s acquisition of Westborough Bank).

[16] Carroll, J. and Brown, M., “Mergers & Acquisitions:  Massachusetts Courts Reject Injunction Attempts,” The Boston Bar Journal (Fall 2010).

[17] In the following merger cases, the Massachusetts court denied plaintiffs’ motion to expedite:  Weitman, Individually & On Behalf Of All Others v Tutor et al, MICV2008-02351, 24 Mass.L.Rptr. 343, 2008 WL 4058343 (Mass. Super. Aug. 13, 2008) (merger of Perini and Tutor); Ahern v. Wainwright Bank, C.A. No. 10-2681-BLS2 (Mass. Super. Oct. 2010); Breene v. NStar, C.A. No. 10-4115-BLS2 (Mass. Super. Ct. Mar. 2, 2011).

[18] In the following cases, the court denied plaintiffs’ motion for preliminary injunction to enjoin the merger:  Gut v. MacDonough, C.A. No. 07-1083, 23 Mass.L.Rptr. 110, 2007 WL 2410131 (Mass. Super. Aug. 14, 2007) (Hudson Savings Bank’s acquisition of Westborough Bank); Ahern v. Wainwright Bank, C.A. No. 10-2681-BLS2 (Mass. Super. Oct. 2010); Breene v. NStar, C.A. No. 10-4115-BLS2, 2011 WL 4837265 (Mass. Super. Mar. 3, 2011); Schnipper v. Watson et al., C.A. No. 09-05439-BLS (Hinkle, J) (May 2010) (Hospira, Inc.’s tender offer for Javelin Pharmaceutical Inc.); Elliot v. Millipore Corp., C.A. No. 10–853–BLS2 (Mass. Super. June 4, 2010); Erlich v. Phase Forward Corp., C.A. No. 10-1463 (Mass. Super. June 21, 2010), affirmed 80 Mass. App. Ct. 671 (2011).


What to do When Your Client Discovers Child Pornography on Workplace Computers

by Matthew L. Mitchell

Practice Tips

Scenario:  An employer’s Information Technology department performs a routine software update on an employee’s office computer.  During the course of the maintenance, an Information Technology professional discovers what appears to be child pornography saved on the hard drive.

This nightmare scenario raises several very difficult questions for the employer:

  • Should the matter be resolved through internal discipline procedures, or should (or must) the employer involve local police or other law enforcement authorities?
  • What should the employer do with the offending images or materials?
  • Should the employer conduct a further investigation?

The answers to these questions depend on a rapidly evolving body of case law and statutes, including statutory mandates that impose specific, affirmative duties on employers who discover child pornography in the workplace.  Employers must be aware of their duties and responsibilities, and be prepared to act when violations occur.  Failure to adhere to these mandates may subject employers to significant penalties and criminal sanctions.

Possession of Child Pornography Is a Crime

Under both Massachusettsand federal law, it is a crime to “knowingly possess” child pornography.  See M.G.L. ch. 272, §29C ; 18 U.S.C. § 2552.  As such, if child pornography is discovered in the workplace or on company computer networks, the employer is in violation of these laws.  Under the federal law that criminalizes possession of child pornography, 18 U.S.C. § 2252, an employer that discovers child pornography in the workplace may limit its liability if it “promptly and in good faith” (a) destroys the offending materials; or (b) informs a law enforcement agency that it has discovered illegal child pornography and affords that agency the opportunity to access the materials. See 18 U.S.C. § 2252(c).  This “safe harbor” may, however, be at odds with other statutory and regulatory mandates.  For example, as discussed below, there are federal and state statutes, potentially applicable to some employers, which expressly prohibit the destruction of evidence of child pornography.

In addition, most jurisdictions, including Massachusetts, recognize that willful or deliberate ignorance is tantamount to actual knowledge of the wrongdoing.  See, e.g., United States v. Guerrero, 114 F.3d 332, 343 n. 12 (1st Cir.1997) (“Where ‘the facts suggest a conscious course of deliberate ignorance,’ a jury is warranted in finding the defendants’ deliberate ignorance of criminal events, which is tantamount to knowledge.”) (internal citations omitted).  Accordingly, if an employer has reason to suspect that an employee is storing child pornography at the worksite or within employer’s computer systems, the employer may not avoid liability by simply ignoring the situation.  Rather, depending on the circumstances, the employer may have a duty to investigate the employee’s activities, including searching its computer files or monitoring employee’s computer usage, and taking prompt remedial action if offending material is discovered.  This duty may trump any privacy rights of the employee.  See, e.g., Doe v. XYZ Corporation, 887 A. 2d 1156, 1158 (N. J. Super. 2005) (“[An] employer who is on notice that one of its employees is using a workplace computer to access pornography, possibly child pornography, has a duty to investigate the employee’s activities and to take prompt and effective action to stop the unauthorized activity, lest it result in harm to innocent third-parties. No privacy interest of the employee stands in the way of this duty on the part of the employer.”).

Under both Massachusettsand federal law, penalties for knowing possession of child pornography include substantial fines and prison sentences.  See M.G.L. ch. 272, § 29C (imposing state prison terms of up to 5 years, and fines up to $30,000 for knowing possession of child pornography); 18 U.S.C. § 2252 (imposing up to 20 year prison sentences for knowing possession of child pornography).

A Duty to Report?

There are several federal and Massachusettsstatutes that may impose affirmative duties on Massachusettsemployers to report child pornography to law enforcement authorities.  For example, federal statute 18 U.S.C. § 2258A requires “whoever, while engaged in providing an electronic communication service or a remote computer services. . ., obtains actual knowledge of any facts or circumstances [concerning child pornography] . . . [must] provide to the CyberTipline of the National Center for Missing and Exploited Children . . . a report of such facts and circumstances. . .”  18 U.S.C. § 2258A.  If the “facts and circumstances” of child pornography include physical materials, such as images, data, or digital files, those materials must be preserved in a “secure location,” and made available to the appropriate authorities upon request.  18 U.S.C. § 2258A(h).  For purposes of the statute, the term “electronic communication service” is defined broadly as “any service which provides to users thereof the ability to send or receive wire or electronic communications.”  18 U.S.C. § 2510.  On its face, the statute appears to apply its mandatory reporting requirement to any employer that provides e-mail access to its employees.  Although some commentators suggest that the scope of 18. U.S.C. § 2258A is limited to Internet Service Providers (such as Comcast or Verizon), this limitation has not been addressed in regulations or case precedent.

Also, under Massachusetts General Law Chapter 119, §51A, certain “mandated reporters,” such as school or hospital employees, are required to report suspected incidents of child abuse and neglect to law enforcement authorities.

In addition to these statutory mandates, employers have been found liable for common law negligence for failing to report child pornography found on a work computer.  In the New Jerseycase of Doe v. XYC Corporation, a mother, on behalf of her daughter, brought a negligence action against her husband’s employer, seeking to hold employer liable for the husband’s use of workplace computer to access pornography and send nude photographs of the daughter to a child pornography site.  Although the employer was on notice that the husband was using work computers to access pornographic websites, the employer did not investigate the husband’s behavior or report his conduct to authorities.  In reversing summary judgment in the employer’s favor, the court held that the employer “had a [common law] duty to report Employee’s activities to the proper authorities and to take effective internal action to stop those activities, whether by termination or some less drastic remedy.” See XYC Corporation, 887 A. 2d at 1168.

In sum, employers must be prepared to promptly report incidents of suspected child pornography to law enforcement authorities.

The Need to be Proactive

Although it is critically important for employers to understand the appropriate actions to take after discovering child pornography, it is equally important to adopt policies and procedures that limit the likelihood of such illegal material entering the work place.  A fundamental tool in this regard is an effective media policy that addresses employee use of workplace computer equipment and systems.  Such a policy should:

  • Restrict employee computer use to authorized work-related activities and limited personal use that does not interfere with work activities or burden the employer’s computer system;
  • Notify employees that work computers, e-mail accounts, and internet activity may be monitored by the employer, and that employees have no expectation of privacy in information stored on such equipment or transmitted through such services;
  • Notify employees that the employer reserves the right to monitor employee usage of company computer equipment and systems; and
  • Inform the employee that illegal use of the company’s computer systems may be reported to law enforcement authorities.

Employers should also be committed to enforcing the policy. When an employer suspects or becomes aware of an employee’s misuse of company computer systems, the employer should engage in a prompt and thorough investigation.  If the investigation reveals inappropriate employee conduct, the employer should take remedial action.  As discussed above, such action may involve subjecting the employee to internal disciplinary procedures or, if circumstances warrant, reporting the employee’s conduct to the appropriate authorities.

Conclusion

Although the statutory and case precedent on this issue continues to evolve, a clear principle has emerged: employers may not ignore employee conduct that may involve child abuse or child pornography.

Matthew L. Mitchell is a partner at Holland & Knight LLP.  Mr. Mitchell represents businesses and educational institutions on a broad range of employment, student, and compliance related matters.


View from the Bench

by Judge Mitchell Kaplan

Voice of the Judiciary

I was appointed an associate justice of the Superior Court just before my 59th birthday, after having practiced law for about thirty-one years.  It still feels as if I was just appointed, but, in fact, I am completing my third year on the bench.  From the time I began my tenure as a judge, like every other new judge who practiced law for a number of years, I was frequently asked what surprised me most about the view of the courtroom from my new vantage point.  I tried to provide answers that were thoughtful, or, sometimes at cocktail parties, humorous (not too originally, I told the story of objecting to a question during my first trial and then, with some embarrassment, sustaining myself), but I think my comments were for the most part trite and not particularly insightful.  Writing this piece on the third anniversary of my appointment forces me to be more reflective.

My experience with a case I presided over for only a few days very soon after my appointment is a good place to start. My first formal three-month assignment was to a civil session in Suffolk.  Late Thursday afternoon of my first week, I was handed a motion for a temporary restraining order:  a financial institution was seeking to restrain the commissioner of a state agency from revoking its license to operate without an administrative hearing.  According to the plaintiff, this would create havoc for many borrowers with loan commitments and cause its many employees to lose their jobs.  I took the bench.  Only the plaintiff’s lawyers were present.  I inquired whether the Attorney General’s office had been notified and learned that it had, but plaintiff’s counsel reported that he had been told that no assistant AG would appear that afternoon.  I told the lawyers that I would conduct a hearing the next morning at10:00o’clock and they should tell counsel for the agency that I expected the agency’s attorneys to be present. That made me feel like a judge:  I had just expressed an expectation that would certainly be treated like an order.  I tried not to let it go to my head.

It then dawned on me that I had never dealt with this agency, or the statutes and regulations that governed it, when I was in practice.  I had the plaintiff’s memorandum in support of its motion, but nothing from the agency.  I had the evening to learn enough about the law to conduct a hearing the next day.  As I have come to understand since that early experience, while sometimes I have time to ask for advice from a colleague or occasionally have access to a law clerk, mostly there is just me.  While I understood the solitariness of being a judge in the abstract before I was one, the reality of it takes some getting used to.  You prepare yourself to decide the case, and then decide it, on your own.

I have also learned that, although I thought that I had pretty broad experience handling different types of civil matters, the jurisdiction of the Superior Court is so immense that I am constantly confronting cases involving substantive law with which I have had little or no experience.  I harbored no illusions about my limited experience on the criminal side.  Therefore, from a practical perspective, I have come to be exceptionally grateful for concise, well-organized memoranda that highlight the critical case law, statutes and regulations that I need to be familiar with to decide the case.  I now understand that many of those times when I asked for leave to file a thirty or forty page brief, because I just could not explain it all to the judge in twenty pages, I was making a mistake.  There is seldom time to read every case that touches on the subject before a hearing.  And being directed to adverse authority, no doubt along with a sound argument as to why it does not control in this instance, is very helpful, and I think helps burnish the credibility of the advocate.

While I am on that subject, I already have amnesia on how I argued the close cases as a lawyer, but I am really appreciative when a lawyer acknowledges that the question that I must decide is a close one and then points out why I should come out on her/his side.  Too often even really good lawyers argue that the answer to the disputed question is clear, beyond any real doubt.  I may not know the right answer, but even I can figure out that the question is hard.

Returning to the motion for a restraining order, I took the bench on Friday morning for the hearing.  The courtroom was now full of lawyers representing all interested parties, including assistant attorneys general and general counsel for the agency.  Both sides made lucid and compelling arguments.  As I sat there looking down from my new perch, I asked myself:  will the first order that I enter as a judge be to enjoin the Commonwealth from exercising its executive authority?   I literally began to perspire.  I hoped that it was not visible from counsel table.  The power and the responsibility of my new position were suddenly very real (and this before I ever had to sentence a defendant).   As I worried over the case, and what I was going to do, I recalled something one of my former partners and mentors said when I told him that I was going to be a judge.

He said that we had spent decades working hard to achieve the best result we could for our clients, but I was now going to be working hard to reach the right decision.  That was, and still is, a surprisingly calming precept.  The responsibility is awesome, but, in the end, you prepare and listen and then can take comfort in having done the best that you can to reach what you believe is the right result.  Besides, if you make a mistake the appeals court can correct it.  I have found that I really don’t like being reversed, but it isn’t the same as losing the client or the fee, if you lose the case.

So, after the argument on the injunction was over, as the parties waited expectantly, I announced my decision: I was taking the motion under advisement.  I did, however, commit to having a decision on Monday morning.  I wrote a memorandum of decision over the weekend and spent more time worrying where the commas went than I have since found a trial judge generally has time to do.  When I arrived in my chambers on Monday, there was a young associate from the plaintiff’s law firm waiting to pick up the opinion.  (He reminded me of me thirty-plus years ago.)  I had enjoined the agency, although it was likely only a Phyrric victory as it was based on a failure to provide the plaintiff an opportunity to be heard before its license was revoked.

I then learned another thing about judging: I don’t know what happened next.  I know that my decision was not appealed, as I would have received notice of that, but I don’t know what happened to the plaintiff, or its borrowers, or its employees.  I had played my part in this drama and had to turn to the next case.  It was frustrating.  As a lawyer, generally, I seldom had more than a half dozen cases that were really active at any time.  I knew everything about them:  facts, law, witnesses, etc.  They were like relations that often stayed around for years.  As a judge, especially when sitting in a civil session, I could touch twenty-five or thirty cases in a week.  I try to understand them sufficiently to decide that which is before me, but many I will never see again.  I should have thought more about that phenomenon when I was practicing law.  Except perhaps during trials, we judges do not live with cases the way lawyers do.

So not only do I find myself handling many files that I had not looked at previously, I am constantly trying to learn new law.  It is challenging, and sometimes frustrating, but it is also fun and exceptionally rewarding.

More than anything, I have learned that this is really a great job.

Mitchell Kaplan is a justice of the Superior Court.  He was previously a partner at Choate, Hall, & Stewart and served as a law clerk to Hon. Joseph L. Tauro, USDC.