Pennsylvania Requiring Banks to Prevent "Elder Financial Abuse"

Last month Pennsylvania's Supreme Court's Elder Law Task Force's "elder abuse prevention" report (http://www.pacourts.us/courts/supreme-court/committees/supreme-court-boards/elder-law-task-force)("Report") imposed " financial abuse prevention" responsibilities on financial institutions.

The Report ranked "financial abuse" as among the leading mistreatment suffered by adults age 60 and above compromising 30% of Pennsylvania's adult protective services abuse claims and costing $2.9 billion annually.

 

The Report's recommendations for reducing elder financial abuse include requiring financial institutions to take an active role. 

After noting that they're often in the best position to detect, report, and prevent elder financial abuse, the Report recommended that financial institutions be:

            R designated as mandatory reporters of suspected elder abuse (like in Maryland and other states);

            R required to provide training, in conformance with state-mandated standards, for employees processing elder customers transactions; and

            R provided with the authority to hold transactions for five (5) days, during which time the institution would report the suspicious activity and determine whether to permit the transaction. 

The Report urges following Maryland, which has some of the most stringent elder financial reporting laws in the country (including both an oral and written notification requirement), for both reporting suspected elder abuse and providing mandatory employee training. 

Though the Report's recommendations, including the requirements imposed on financial institutions, require legislative action before becoming binding, financial institutions should be preparing elder abuse prevention and reporting programs to comply with heightened state and federal interest. 

Strategies For Minimizing E-Discovery Costs

Electronically stored information's ("ESI") explosion and e-discovery's skyrocketing costs have radically altered the playing field. 

To avoid e-discovery landmines, take full advantage of the new wave of e-discovery rules and technologies, and keep e-discovery costs as low as possible, planning ahead, knowing your data and cooperating with opposing counsel early in the discovery process is critical.  

Skyrocketing Costs 

Discovery comprises 70 percent of total litigation costs in cases that are not tried, litigants spend approximately $18,000 to collect, process and review a single gigabyte of data, and larger cases' potentially responsive data measure in the hundreds to thousands of gigabytes.  

Moreover, in 2009, e-discovery sanctions were awarded in more federal cases than in all the years before 2005 combined, with a $1 million "e-discovery mismanagement sanction" issued in the In re Pradaxa Products Liability Litigation in late 2013. 

Proposed "E-Discovery" Model Orders 

Over the last 3 years, more than two-dozen federal courts, including the District of Delaware, the Eastern District of Texas and the Northern District of California, have utilized local rule-making powers to enact e-discovery model orders and guidelines.  

The new rules call for phased ESI discovery, limits on email discovery and preserving and collecting certain categories of ESI, increased cooperation between litigants on e-discovery issues, and enhanced cost-shifting provisions to discourage e-discovery overreaching.  

While imposing new obligations on litigants, the new rules also create significant opportunities to secure rational and cost-efficient e-discovery frameworks tailored to the case's circumstances and transparently describe what will be covered and why.  

Taking advantage of the new rules requires extensive planning at the case's outset including: realistically assessing risks posed by litigation and own discovery needs; understanding where own relevant data resides, how much there is and difficulty of  collecting; crafting a comprehensive, justifiable e-discovery plan including limits on noncustodial ESI sources need to be preserved and collected, ESI custodians, and email discovery.  

While significantly reducing the volume of ESI that ultimately will need to be reviewed, these limitations also restrict the discovery that may be obtained from other parties.  

Advanced E-Discovery Tools 

One of the market's hottest e-discovery tools is "predictive coding", in which, after humans code an initial subset of documents, the computer “learns” what is relevant from the human coding and applies it to other documents via a designated algorithm.   

While requiring up-front effort, when dealing with a large volume of documents predictive coding substantially reduces the amount of data requiring expensive human review and curbs e-discovery costs. 

Because the law governing e-discovery tools is rapidly evolving, litigants must tread carefully, plan ahead and negotiate with opposing counsel early and transparently.  

Other parties will need to know what you plan to search, how you plan to search it and who (or what) will determine responsiveness.   

While often resulting in wider breadth of disclosed information, courts are conditioning their approval of this technology on such transparency.

Corporate Designee Deposition Strategies

Because the vast majority of cases never go to trial and depositions form the sole in-person testimony either party may elicit or live cross-examination opportunity, each deposition requires careful preparation. 

Care is particularly required in preparing a corporate designee, an entity's designated witness to answer its adversary's questions which will bind the entity in the litigation, to be deposed. 

Avoiding costly mistakes and discovery sanctions requires that in-house and outside counsel understand the governing rules - - Federal Rule of Civil Procedure 30(b)(6) or Pennsylvania Rule of Civil Procedure 4007.1(e) - - to carefully prepare for corporate designee depositions. 

Responding to Corporate Designee Deposition Notices 

All Rule 30(b)(6) requires for noticing a corporate designee deposition is a notice directed to the entity "describing with reasonable particularity the matters for examination." 

Limits do exist on the "matters for examination" description barring qualifier "including, but not limited to" or other language indicating that listed topics are not exclusive which renders the notice overbroad and subject to a motion to quash.  Reed v. Bennett, 193 F.R.D. 689, 692 (D. Kan. 2000). 

Instead, to ensure that the entity is capable of designating witnesses who can testify about each of the listed topics, rather than face the "impossible task" of designating a witness who can testify about all possible questions that may be asked, the adversary must define the "outer limits" of the subject matter of the corporate designee's deposition.  

Upon receiving a Rule 30(b)(6) notice, an entity must produce deposition witness(es) capable of giving "complete, knowledgeable and binding answers on behalf of the corporation" about each of the topics listed in the deposition notice.  Marker v. Union Fidelity Life Insurance, 125 F.R.D. 121, 126 (M.D.N.C. 1989). 

Thus, the entity must educate and prepare its designees to testify about any matter outside the designee's personal knowledge specified by the Rule 30(b)(6) notice.  Failure to do so "is tantamount to a failure to appear and warrants the imposition of sanctions".  United Technologies Motor Systems v. Borg-Warner Automotive, Civil Action, LEXIS 21837, at *4 (E.D. Mich. Sept. 4, 1998). 

Corporation May Designate Existing/Former Employees 

Not limited to its present employees, Rule 30(b)(6) permits an entity to designate existing or former "officers, directors, or managing agents, or ... other persons who consent to testify on its behalf" as its corporate designees. 

In Beauperthuy v. 24 Hour Fitness USA, LEXIS 104906, at *17 n.5 (N.D. Cal. Nov. 9, 2009), the court held that "the text of Rule 30(b)(6) leaves no doubt that a former employee can and should be designated as a Rule 30(b)(6) deponent, if the former employee is the most knowledgeable individual and as long as the former employee consents." 

Rule 30(b)(6) does not limit proper designees to people employed by or otherwise affiliated with the entity.  Any "other person who consent[s]" to testify on behalf of the entity and has the requisite knowledge and preparation may do so. 

Questions Corporate Designees Must Answer 

The corporate designee must testify about both facts within his and the entity's knowledge and answer questions about the entity's "subjective beliefs," "interpretation of documents and events" and "position" on any of the topics in the deposition notice. 

Some courts also permit questioning beyond deposition notice topics' scope but the designee's answers are treated like those of any other fact witness and do not bind the entity.  Detoy v. City & County of San Francisco, 196 F.R.D. 362, 367 (N.D. Cal. 2000). 

Other courts hold that the adversary may not ask questions beyond the Rule 30(b)(6) notice listed topics, but the entity's counsel cannot enforce that limitation by instructing the designee not to answer the questions.  Paparelli v. Prudential Insurance Co. of America, 108 F.R.D. 727, 728-31 (D. Mass. 1985).  Instead, the designee must answer the questions to the extent possible and the adversary has no recourse if the witness disclaims knowledge of matters outside the deposition notice's scope.

Effect Of Corporate Designee's Testimony 

Within the deposition notice's scope, the designee's answers are the entity's answers.  Although the entity may later alter its answers or positions, doing so subjects its representatives to cross-examination at trial and the designee's deposition testimony may be admissible as a prior inconsistent statement or a statement against interest. 

Similarly, "if a party states it has no knowledge or position as to a set of alleged facts or area of inquiry at a Rule 30(b)(6) deposition", the entity "cannot argue for a contrary position at trial without introducing evidence explaining the reasons for the change". 

A corporate designee's deposition presents both risks and opportunities for the entity involved in litigation.  By understanding the rules governing such depositions, entities' in-house and outside counsel may entities use them to great effect while minimizing the risks to their client's litigation positions.

Non-Compete Clause's Unenforceable Without "Additional Consideration"

In Socko v. Mid-Atlantic Systems of CPA, Inc., 2014 WL 1898584 (Pa. Super. May 13, 2014), Pennsylvania's Superior Court held that neither contractual language satisfying the Uniform Written Obligations Act, 6 P.S. §33 ("UWOA") - - i.e., a statement that parties “intend to be legally bound” - - nor an employee's continued employment are sufficient consideration to support a covenant-not-to-compete's enforcement.

 

Specifically, the UWOA provides that “[a] written release or promise, hereafter made and signed by the person releasing or promising, shall not be invalid or unenforceable for lack of consideration, if the writing also contains an additional express statement, in any form of language, that the signer intends to be legally bound”.

 

The Superior Court unanimously upheld a trial court’s ruling that a non-compete agreement was not enforceable against an at-will employee signing the agreement following a year's employment as a waterproofing company salesman despite “intend to be legally bound” and "not to compete for 2 years after employment's termination" language because employee received no benefit or job status change at the time of entering into the agreement.

 

After setting aside conflicting federal district court decisions, the reasoning of which were found to be unpersuasive, the Superior Court concluded that it was necessary to review Pennsylvania's history of restrictive covenant's enforcement "to determine the precise nature of the consideration required to support them”.

 

After noting that adequate consideration could take the form of a corresponding benefit to employee or beneficial job status change, citing the George W. Kistler, Inc. v. O’Brien, 464 Pa. 475, 347 A.2d 311 (1975) decision, the Superior Court identified 3 forms of consideration inadequate to support a non-compete: continued employment even if relationship is terminable at will; execution of "under seal" employment agreement; and "nominal" consideration recital (e.g., $1).

 

Rejecting Mid-Atlantic’s "UWOA's application rectified non-compete's lack of consideration" argument, the Superior Court explained that, unlike most contracts for which consideration's adequacy is not examined in determining contract's validity, Pennsylvania courts consistently inquire into the adequacy of consideration sufficient to support restrictive covenants.  The Superior Court held that “[l]anguage in an employment contract that the parties intended to be legally bound does not constitute valuable consideration in this context”.

 

The Superior Court stated: “[w]hen the restrictive covenant is contained in the initial contract of employment, the consideration is the job itself.  But when the restrictive covenant is added to an existing employment relationship, however, to restrict himself the employee must receive the corresponding benefit or change in job status.”

 

Although the “legally intending to be bound” language in Mr. Socko’s contract may have satisfied UWOA requirements, the Superior Court concluded that it did not provide him with any actual benefit and could not support the restrictive covenant's enforcement.

 

What the Socko v. Mid-Atlantic Systems of CPA, Inc. opinion fails to provide is what   consideration will be deemed adequate to support a restrictive covenant entered into after employment's commencement presumably a case-specific inquiry requiring a court to weigh factors including nature of the benefit conveyed to employee and the restrictive covenant's scope and duration.

Deficiency Judgments' Recoverable Interest and Attorneys Fees

In last month's Liberty Philadelphia REO, LP v. EFL Partners V, L.P., 989 EDA 2013 (Pa. Super. March 3, 2014) opinion, Pennsylvania's Superior Court addressed "deficiency judgments" and what attorneys fees and interest may be recovered on them.



Deficiency Judgments in Pennsylvania


If a mortgage foreclosure sheriff's sale proceeds are insufficient to satisfy the underlying judgment, the Deficiency Judgment Act, 42 Pa.C.S.A. §8103 allows for imposing personal liability against - - and executing upon the assets of - - a mortgagor for the judgment's unpaid balance.

Specifically, although mortgage foreclosure judgments are in rem against the property, and not in personam against the mortgagor, the Act provides that if the real property sheriff's sale price is insufficient to satisfy the judgment amount, interest and costs, the creditor may collect the balance due by petitioning the court to assess the sold property's fair market value following which the judgment creditor may execute against the debtor's personal assets to collect the debt's balance.  42 Pa.C.S.A. §8103(c).

The Deficiency Judgment Act's objective is to relieve a debtor from further personal liability to the judgment creditor when the real property executed upon has a fair market value on the sale date sufficient so that the judgment creditor can dispose of it to others without a further loss.  Home Sav. and Loan Co. of Youngstown, Ohio v. Irongate Ventures, LLC, 19 A.3d 1074, 1078 (Pa. Super. 2011).


Superior Court Limits Deficiency Judgment Interest and Attorneys Fees


The Liberty Philadelphia REO, LP v. EFL Partners V, L.P. court slashed $1,459,682.22 of attorneys fees deemed as "unreasonable and unconscionable" ruling that a $4 million deficiency judgment from a confession of judgment tacked onto an $8.4 million property value judgment needed "recalculation" by the trial court.

The Liberty Philadelphia REO, LP deficiency judgment arose out of a January 5, 2010  $11,214,861.05 confession of judgment, of which $1,459,682.22 was attorneys fees. 
Following the dispute's first appeal in which the confessed judgment was modified to $9,755,718.83 to reflect the attorney fees removal and a $2,444 per diem interest rate was affirmed, the judgment was executed upon via an October 5, 2010 sheriff sale of condominiums.

On February 19 2013, following a Deficiency Judgment Act petition, the Court assessed the property's fair market value at $8,400,000, entered a $4,005,226.47 deficiency judgment comprised of "January 5, 2010 through February 19 2013 $2,444 per diem interest" but, despite unpaid balance's post sheriff 's sale decrease, omitted any per diem interest rate reduction.  

Citing the Dearnley v. Survetnick, 63 A.2d 66, 69 (Pa. 1949) ruling, the Superior Court held that a plaintiff "cannot charge interest on the [principal] from the time of the sheriff's sale in 1933 [to the time the property was sold to him in 1941] ... any more than he could charge such interest if he had been paid that same amount in cash at the time of the sale".

The Liberty Philadelphia REO, LP court held that the assessing a $2,444 per diem interest rate from the October 5, 2010 sheriff's sale date to February 19, 2013, without crediting the unpaid balance with the $8.4 million plaintiff had recovered from the condominiums' sale, was erroneous and required "recalculation" by the trial court.

Pennsylvania Updates Judicial Code of Conduct

Following years of scandals and awful press, last month Pennsylvania's Supreme Court unanimously updated its Code of Judicial Conduct. 

The new amendments require Pennsylvania's 450 elected judges to quit corporate boards, bar them from hiring relatives, and force them to withdraw from cases involving lawyers who have made substantial donations to their judicial election campaign.  

These amendments are the first since 1992 and scheduled to take effect in July 2015. 

Recent Abuses 

In 2013, Pennsylvania state Supreme Court Justice Joan Orie Melvin resigned after using her elected office and taxpayer-funded staff for political purposes and the Federal Bureau of Investigation is probing into referral fees earned by the top aide and wife of state Supreme Court Justice Seamus P. McCaffery.  

In 2009, a federal grand jury returned a 48 count indictment against two former Luzerne County judges who were later convicted in connection with the “kids for cash” scandal. 

Further, until recently, Carbon County's president judge also served on the board of the county's largest bank and may have presided over matters involving the bank he served. 

Scope of Judicial Conduct Code's Amendments  

Pennsylvania's state court judges are elected, not appointed, and the Code of Judicial Conduct comprises the code of ethics governing their conduct.  While not forming criminal statutes, Pennsylvania judges have been suspended and removed for Judicial Conduct Code violations. 

Forming the first revision since 1992, the updated Judicial Conduct Code is modeled after a 2007 American Bar Association version and is nearly three times the previous Code's length. 

A substantial addition to the Code includes language expressly prohibiting nepotism stating that “[i]n making administrative appointments and hiring decisions, a judge: shall exercise the power of appointment impartially and on the basis of merit; and shall avoid nepotism, favoritism, and unnecessary appointments.”  

Presently both Chief Justice Ronald D. Castille and Justice McCaffery have their wives employed as their top aides and the change is silent on immediate family members currently employed by the judiciary. 

A provision has also been added explicitly prohibiting the “use of court staff, facilities, or other court resources in a campaign for judicial office.”  Judges will now also be prohibited from sitting on corporate boards.  Additionally, judges will be required to recuse themselves from cases where a party, a party’s lawyer, or the law firm of a party’s lawyer has made a direct or indirect campaign contribution in an “amount that would raise a reasonable concern about the fairness or impartiality of the judge’s consideration.” 

The majority of the Judicial Conduct Code new provisions will take effect on July 1, 2014 and Judges will be expected to resign from corporate boards by July 1, 2015.