Colorado Business Litigation Lawyer Blog

As most Denver businesses with federal contracts know, effective September 8, 2009, compliance with the free E-Verify internet-based system, formerly voluntary, became mandatory. The rule applies if the prime contract for services or construction is more than $100,000 with a period of performance longer than 120 days. For subcontractors, the value of services or construction must exceed $3,000.

Contractors and subcontractors are required to register with E-Verify within 30 days of the contract award date. The system, which facilitates compliance with federal immigration laws, requires that employers run new hires, whether or not employed on a federal contract, and existing employees directly working on these contracts, through the E-Verify system to determine the person’s eligibility to work in the U.S.

E-Verify compares the information on the individual’s Employment Eligibility Verification Form (I-9) against federal government databases to verify work eligibility. The E-Verify system is operated by the Department of Homeland Security in cooperation with the Social Security Administration. Applicable government contracts must have an E-Verify provision in the contract document. Penalties for non-compliance with the system’s mandatory requirements range from fines to criminal penalties and loss of eligibility to complete or bid on applicable federal government contracts.

The U.S. Chamber of Commerce and various industry associations filed a suit in a Maryland federal court, mounting serious legal challenges to the validity of the system, but the court upheld the system.

It would be prudent for prime contractors to have a provision in their subcontracts for mandatory compliance by subcontractors with the E-Verify system. Affected Colorado contractors should feel free to contact this office or their existing counsel for advice concerning the E-Verify system.

In my last blog, Bernard Madoff: An Epilogue - The SEC Looked but Failed to See (Part I), I touched on a few of the revelations made in the Executive Summary report issued by the SEC’s. The report attempted to summarize how Madoff and his company were able to run such a massive Ponzi Scheme for such a long period of time without being exposed. I would now like to discuss a few more of the eye-openers:

6. After conducting two investigations and three examinations from 1992 onward, relating to the “detailed and credible” complaints that Madoff was possibly operating a Ponzi scheme, at no time did the SEC follow the retained expert’s advice and verify Madoff’s trading with an independent third party, nor did it conduct a Ponzi scheme examination or investigation of Madoff. The SEC did request records from the Depository Trust Company (DTC) (an independent third party), but the record request was made to Madoff. Had the request been made directly to DTC, there was an “excellent chance” they would have uncovered Madoff’s Ponzi scheme in 1992.

7, SEC examiners drafted a letter to two different independent third parties requesting independent trade data, but never sent the letters because in one case, it would have been “too time consuming” to analyze the data, had they received it. No reason was given for not mailing the second letter. Again, if the letters had been sent, they would have provided information necessary to reveal the Ponzi scheme.

8. When examiners questioned Madoff, they took his evasive and sometimes inconsistent answers at face value and failed to request verification.

9. As excuses for the investigators’ and examiners’ abysmal record, the report says examiners were “inexperienced” and “confused,” failed to follow up inconsistencies, failed to verify information, disregarded incriminating evidence, gullibly accepted Madoff’s lies, inconsistencies and misrepresentations as fact, failed to trace funds and generally ignored almost indisputable proof of the existence of the grandest of all Ponzi schemes.

Just another example of your tax dollars at work.

To read the entire Executive Summary click here. For those of you who are detail-oriented with a strong stomach and nothing better to do, read the entire report by clicking here.

Earlier, I wrote some blogs on Bernard Madoff’s Ponzi scheme that defrauded investors of billions of dollars. At the time, securities regulators were trying to figure out exactly how Madoff and his company were able to perpetrate this massive fraud for such a long period of time without being exposed. On August 1, 2009, the SEC’s Office of Inspector General (OIG) issued an over 450- page report attempting to shed light on this ticklish issue.
Here are a few of the sometimes astonishing revelations contained in the 22-page Executive Summary of the report:

1. No SEC people who examined or investigated Madoff’s company, Bernard L. Madoff Investment Securities, LLC (BMIS) had any financial interest or other improper connection with Madoff or his family that influenced their conduct.

2, The former SEC Assistant Director’s “romantic relationship” with Madoff’s niece did not influence the conduct of SEC examinations of Madoff or his firm.

3. Between June 1992 and December 2008 when Madoff confessed, the SEC received eight substantive complaints that raised “significant red flags,” including specific accusations that Madoff was operating a Ponzi scheme. The report concludes that these complaints should have led to questions about whether Madoff was actually engaged in trading.

4. The SEC was aware of two articles published in reputable publications in 2001, questioning Madoff’s “unusually consistent returns” not duplicable by anyone else.

5. According to an expert retained by OIG to analyze the information the SEC, the most critical step in investigating whether someone is operating a Ponzi scheme is to verify the subject’s trading through an independent third party

In my next blog, I will note a few more of these revelations.

A September 10, 2009 decision by the 2nd Circuit U.S. Court of Appeals holds that an employer may be held liable for age discrimination allegedly committed by third parties, including an independent contractor.

Manhattan Apartments, Inc. (MAI) was the owner of an apartment building. Robert Brooks (Brooks) was hired by MAI as an independent contractor to interview and hire “Showers,” or persons who would show the apartments to prospective renters. In interviewing plaintiff Michael Halpert (Halpert) for a Shower’s job, Brooks allegedly told Halpert that he was “too old” for the position. Halpert sued MAI under the federal Age Discrimination in Employment Act.

The U.S. District Court for the Southern District of New York granted summary judgment in favor of MAI on the basis that Brooks was an independent contractor and that MAI could not be held liable for the act of an independent contractor. The court of appeals reversed the decision and remanded the case to the trial court for trial, including a determination of whether or not MAI’s degree of control over the interview and hiring process for the Shower position rendered Brooks MAI’s agent with respect to that position. The court noted that there was evidence on both sides of that issue, as disclosed by the summary judgment affidavits.

Business entities should take note that, contrary to general principles of non-liability of the principal, a person or business that hires an independent contractor may indeed be responsible for the acts of an independent contractor. This case amply demonstrates the importance of obtaining competent legal advice from an experienced business attorney concerning the sometimes complex issues of legal responsibility of one business or person for the acts of another.

[Source: Halpert v. Manhattan Apartments, Inc., ---F.3d---, 2009 WL 2881388, (CA.2, 2009)]

When your business has a complex lawsuit that you want filed or defended, how do you find a trial attorney who is the best for the kind of case you have and who is experienced and affordable? There are many areas of the law where not all of the lawyers with subject matter expertise (e.g., contract, torts, etc.) also have the ability to actually prepare and take a difficult case to trial in a competent and professional manner.

Preparing and trying a case to verdict demands an attorney with the strategic and persuasive ability to convince a jury of the righteousness of your case. These abilities are independent of the branch or area of law that is involved. They come from many years of experience in successfully trying or favorably settling various types of cases. Before you select your attorney, here are some things you can do that will help ensure that you choose the right one:

1. Ask the attorney how many cases he or she has tried. Attorneys who successfully try many cases usually have the respect of other lawyers and can negotiate a more favorable case settlement.

2. Find out what types of fee arrangements can be made. Attorneys who typically defend cases normally charge on an hourly basis. One unfavorable aspect of this type of fee arrangement is that the attorney gets paid whether you win or lose. A distinct advantage to you, therefore, is a fee arrangement, such as a contingent (percentage) fee, where the lawyer only gets paid if you win. Yet another fee arrangement is the lump sum fee. Again, the lawyer gets paid, win or lose. There are also combinations of a lump sum fee with a contingency for success.

3. Ask the attorney for a professional resume that sets forth the attorney’s legal education, memberships in professional (just pay the dues) and honorary (by invitation only) organizations, awards, experience, publications, etc.

4. Ask around. Business associates who have hired lawyers are sometimes good sources. Other lawyers in the community usually know who the best trial lawyers are. Check out the lawyer in a legal directory, such as the Martindale-Hubbell Law Directory©. This publication can usually be found at your local library. It contains a lawyer’s legal ability and ethics ratings, using input from lawyers in the local community who know the lawyer.

5. A face-to-face meeting with the lawyer is a good idea. You can learn a lot about the lawyer’s personality, demeanor and, if you ask a few questions, about his ethics and standards. You should feel comfortable and at ease with your lawyer.

6. Make sure to ask the lawyer if he or she will personally be involved in all major aspects of preparing and trying the case.

The National Fire Protection Association (NFPA©) has announced that in the coming months roughly twenty five percent of the nearly 300 NFPA© codes and standards will be revised.

Construction businesses should become aware of these revisions as they happen, so that they can feel confident they are in compliance.

Even a minor code change can have a major impact on safety. Further, even a seemingly small oversight or error can have the potential to cause fines, project delays, or re-do’s.

One way to always be current on codes and standards and to protect yourself, your business and your clients, is to subscribe to the National Fire Codes© Subscription Service in one of various formats. This can be accomplished by going to the NFPA© website.

At the forefront of national fire codes and standards, our firm has a unique perspective on fire investigation. Partner, Paul Komyatte, is a member of the Genesee Fire & Rescue volunteer fire department. In addition, our in house engineer, Andrew Kim, is a certified fire investigator.

Please note that this firm has no connection with or financial interest in the NFPA©. We mention this organization and its publications for information only. As always, we stand ready to provide you or your business with sound legal advice should potential business litigation arise.

In a previous blog, Denver Businesses are Vulnerable to Compromising their Trade Secrets and Confidential Information, Part I, I introduced the topic of the new era of spyware software. I would now like to outline what implications this may have on Colorado businesses.
The implications of this spyware can be a very serious threat to a business’s trade secrets and other confidential information. Just imagine the competitive advantage a competitor could have with your confidential information! The effects could be devastating to your business.
Some partial safeguards you should know about include:

• Don’t leave your cell phone lying around or out of your sight for long periods so that someone can install spyware in it.

• Protect your phone with a password.

• When not in use, turn off your phone and remove the battery.

• Assume your calls and text messages are being intercepted and don’t reveal things that you don’t want overheard by a competitor.

• With some cell phones, a “traffic sniffer” can be used to catch the cell phone sending the information to the remote server at which point the cell phone can be reset to factory defaults to erase the spyware.

It should be noted that intercepting telephone calls without the permission of either the caller or the person called is illegal. That does not mean that it is not being done, however. In fact, it is being done by unscrupulous persons. So protect your business secrets from being compromised. If you suspect that software has been installed on your cell phone or that confidential information or trade secrets have been given out, contact this office so that we help you minimize the damage and hold the responsible person or persons accountable.

Although cell phone spyware has been around for several years, few Colorado businesses or residents in general are aware of the existence of such invasive spyware, its capabilities and its consequences.

The spyware software application must first be installed surreptitiously by someone on your cell phone. After installation, when you make a call or send a text message, a recording is made. An email is then immediately sent to the person intercepting so that such person can listen to the live conversation or have it played back in full.

The spyware is so sophisticated that it can detect and send a record of call logs from the compromised cell phone, even if the phone owner erases the call logs on the compromised phone. And even more sinister, the spyware can pick-up background conversation even if the compromised cell phone is present but turned off. The cell phone I.D. of the person called can also be detected. The spyware is completely invisible and undetectable. The cell phone of the person called is tracked by satellite technology, so that the location of the person called can be pinpointed.

In my next blog post, I will outline the implications this spyware can have on local businesses.