41 minute read
Private Investment in U.S. Public Equity: Overview of Considerations, Mechanics and Strategies
NEIL BARLOW CLIFFORD CHANCE
Neil Barlow, legal consultant with Clifford Chance, provides an overview of considerations when executing a private investment in public equity (PIPE) transaction in the U.S.
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A private investment in public equity (PIPE) transaction is a privately negotiated sale of a public issuer’s equity or equitylinked securities to an investor, under which an issuer typically files a resale registration statement with the SEC to enable the PIPE investor to resell the PIPE securities in the public markets, from time to time.
A PIPE allows a public company to raise alternative financing via a private placement of securities to an accredited investor. This form of privately negotiated capital raise is often undertaken at a time when an issuer’s shares are undervalued or it encounters short-term liquidity issues, including when conventional financing sources may not be readily available. This presentation provides an overview of the considerations, mechanics and strategies involved for a financial sponsor when executing a PIPE transaction in the United States. The presentation covers:
The attractiveness of PIPEs in periods of economic volatility Key value protections Deal timing: structuring considerations Governance rights Resale registration rights Issuer protections Public disclosures Key documents Tear sheet of key issues and considerations and selected PIPEs
Click here to download the full presentation.
Neil Barlow is a legal consultant with Clifford Chance. He specializes in cross-border M&A, with a particular focus on private equity transactions. Barlow advises international and domestic private equity houses, financial sponsors and corporates on a wide range of matters.
Negotiate Your Next Tech Contract Like a Pro
BRIAN GREGG McNEES WALLACE & NURICK
When it comes to outsourcing SaaS and other technology and data services, there are many laws, regulations and other details to consider to avoid buyer’s remorse and limit liability.
As organizations increase their reliance on outsourced technology, in-house legal departments are faced with a deluge of contracts to negotiate. These agreements are dense, sometimes poorly written, and may be full of technical jargon unfamiliar to some attorneys. Deal-focused contract managers do not want to negotiate legal terms. Junior attorneys may not have an adequate background, which should include a mix of intellectual property law, privacy/data security law, and commercial contract law to appreciate all of the issues implicated in a software license agreement, software as a service (SaaS) agreement, or other technology service. Out of frustration or lack of familiarity with the legal and technical issues, attorneys often pass on giving these documents the scrutiny they deserve. Most vendor agreements are, not surprisingly, vendorfriendly; not addressing even just few key sections can leave an organization with buyer’s remorse, or worse, significant liability. In this article, we consider the contract terms from the perspective of the buyer. Following the recommendations below will produce an agreement that apportions the risks fairly between the parties.
Who needs to use the technology?
Most vendor contracts start from the position that only the specific contracting entity is permitted to use the software/service. Typical language excludes use or access by third parties. These restrictive terms must be revised if the buyer intends to permit its related corporate affiliates or outside service providers to use the software/service. In such circumstances, the buyer should negotiate the right for its affiliates and any other third-party servicers to use the software/service. The buyer should also make sure any formal definition of “affiliate” aligns with its corporate structure. A good practice is to negotiate the right for affiliates to use the software/service and include them as indemnified parties but not make them formal parties to the agreement. This should reduce the risk that these affiliates could be held liable along with the buyer as a party to the contract. This reduces the exposure to the affiliates but permits them to utilize the software/service.
How is the data managed?
If the engagement involves sharing data, particularly sensitive or valuable data, the agreement must be clear about who owns the data, who owns data generated by the product (data based on data), who can “use” those data sets, and how they can be used. The buyer must ensure that it does not inadvertently give up ownership of its assets, and that it owns any necessary software/service output. Many agreements permit the vendor to own and use “aggregated and anonymized” data, meaning commingled data that is sanitized of its ability to identify a person or entity. Some vendors monetize these data sets. Considerations for buyers include whether the buyer also monetizes its data and is effectively aiding a competitor. Also, buyers should evaluate the privacy law sophistication of the vendor. For example, under the European Union’s General Data Protection Regulation (GDPR), personal data only is truly “anonymized” if it’s been permanently modified to irreversibly prevent reidentification of the data subject. Under the California Consumer Privacy Act (CCPA), data can be “deidentified.” Neither concept is satisfied by merely deleting a field or two from the data set. If companies fail to anonymize/deidentify the data, it may remain subject to the GDPR, CCPA and other privacy laws, and sharing such data may expose the buyer to a claim. A final point on data: Vendor agreements rarely formally address the return of
the buyer’s data. Buyers should insist on terms that make it clear when and how they can get their data back if the agreement ends or is terminated, regardless of fault.
Confidential information
Most agreements contemplate that the parties will share at least some proprietary information that should be held in confidence. For the vendor, that might be its pricing; for the buyer, that might be its network architecture, future business plans, customer lists, etc. Issues to look out for here include narrow definitions of what constitutes “confidential information,” such as requirements that information be literally marked as confidential and that any information communicated orally must be followed up with a written communication confirming its confidential nature. These definitions do not reflect how most orga- nizations treat their data and such a definition undermines the intent of the terms. A better approach to defining confidential information is a reasonableness standard coupled with the usual description of what is not confidential information. Those exclusions usually include (a) infor- mation that becomes generally available to and known by the public; (b) information that the receiving party ob- tains on a nonconfidential basis from a third-party source, provided that such third-party is not prohibited from making the disclosure; (c) information that was known by or in the possession of the recipient prior to being disclosed; or (d) independently developed information. Anther common shortcoming of confidentiality clauses is not imposing a duty to notify the disclosing party if the receiving party learns of its unauthorized disclosure of confidential information.
Confidential information
Most agreements contemplate that the parties will share at least some proprietary information that should be held in confidence. For the vendor, that might be its pricing; for the buyer, that might be its network architecture, future
business plans, customer lists, etc. Issues to look out for here include narrow definitions of what constitutes “confidential information,” such as requirements that information be literally marked as confidential and that any information communicated orally must be followed up with a written communication confirming its confidential nature. These definitions do not reflect how most organizations treat their data and such a definition undermines the intent of the terms. A better approach to defining confidential information is a reasonableness standard coupled with the usual description of what is not confidential information. Those exclusions usually include (a) information that becomes generally available to and known by the public; (b) information that the receiving party obtains on a nonconfidential basis from a third-party source, provided that such third-party is not prohibited from making the disclosure; (c) information that was known by or in the possession of the recipient prior to being disclosed; or (d) independently developed information. Anther common shortcoming of confidentiality clauses is not imposing a duty to notify the disclosing party if the receiving party learns of its unauthorized disclosure of confidential information.
SLAs and credits
With any SaaS or hosting service, the buyer wants some assurance that the product will be reliably available. Vendors often address this with a service-level agreement (SLA) in which the vendor promises some level of uptime (usually 99.9 percent), and if the vendor falls short of that target the buyer is sometimes entitled to a credit, often anywhere from 5 to 30 percent of the recurring service fee. It sounds nice in theory, but in practice the credit schemes are often difficult or impossible for buyers to take advantage of and the credit itself rarely approximates the harm caused by an unreliable service. Most SLAs require the buyer to identify the uptime shortfall, which requires the buyer to monitor Buyers should insist on terms that make it clear when and how they can get their data back if the agreement ends or is terminated, regardless of fault.
the service. Most SLAs also require the buyer to request the credit shortly after the excess downtime. Credits of only a few percent of the recurring service fees rarely justify this effort. In addition to the credit scheme, buyers should negotiate a termination right if the promised uptime levels cannot be maintained in several consecutive months or during multiple months over a period of time, such as three months in any rolling 12-month period. The termination right gives the buyer a way to find a higher performing vendor instead of accepting poor performance for the term of the contract. Where possible, the buyer should require the vendor to provide a report on downtime to reduce monitoring needs.
Warranties
A buyer’s chief concern is usually that the software/service will meet its needs. That might mean that the software/service offers certain features that provide its value to the buyer, such as being able to interface with the buyer’s legacy technology. Without these features, the software/service may be useless to the buyer. Many agreements do not contain any direct statement that binds the vendor to provide promised features. In fact, most agreements contain boilerplate terms that say the opposite – no warranty of merchantability or fitness for a particular purpose. Buyers should override these disclaimers with a clear performance warranty. A typical approach is to require that the software/service work in material conformance with its documentation. This may provide functionality assurance, but only if there is documentation (often there is not, or it only deals with installation) and the documentation includes ref-
erences to the features of importance to the buyer. A more direct approach may be to refer to the description of features in the vendor’s proposal or, if not covered elsewhere, include a schedule of critical features that the software/service must offer. Many unhappy buyers will claim that a vendor’s product is “broken” when the reality is that the product works as designed but does not do what the buyer desired. Additional specificity in the agreement can help prevent this scenario.
Acceptance and testing
Another concept akin to the warranty issue discussed above is a testing/acceptance process to ensure that the software/ service works as promised once it is installed and configured. The buyer should negotiate an adequate amount of time to test the software/service for functionality of any critical features (again, that critical features list can make this process more objective) and for general operability before the software/service “goes live.” Ideally, the warranty will
not start until formal acceptance, payments are structured to hold something back until formal acceptance and the agreement can be terminated if the vendor cannot achieve formal acceptance. These concepts allow the buyer to retain some leverage after the agreement is signed.
Limit of liability
The limitation of liability and indemnity are the two big risk-shifting terms in the agreement. Most vendorfocused agreements will effectively disclaim all damages except direct damages and will limit the vendor’s financial obligation to some function of the buyer’s fees. A cap of 12 months of fees paid is typical. This can leave the buyer stuck with liabilities that it assumed were taken on by the vendor, and the vendor with limited exposure. Buyers should consider negotiating a specific dollar cap related to the value of the contract, as opposed to the uncertain “x months of fees paid” formula. The buyer should also push
for certain contractual breaches and obligations to be excluded from both the limitations of the types and the amounts of damages. Exclusions typically include breach of confidentiality, breach of data security obligations, indemnified claims, gross negligence, willful misconduct, and other deal-specific terms such as PCI DSS compliance. While less common than negotiating liability caps, it is important to address when damages are limited to direct damages because the outcome of some contractual breaches are foreseeable but are not direct damages. For example, some courts have found that certain damages associated with a data breach are “consequential damages.” Vendors have shielded themselves from liability under “standard” contract terms that limit exposure to direct damages and exclude any liability for damages categorized as consequential, special, etc. Buyers must be aware of how newer concerns, like a data breach, might comport with contractual terms often viewed as standard.
Indemnity
The other of the big risk-shifting clauses determines when one party must step in and defend the other against a third-party claim. Some vendor agreements will lack this clause entirely; others may limit indemnification to third-party claims alleging that the software/service infringes a third-party intellectual property right. That is a start. However, buyers should consider other situations where the vendor may contribute to or cause a third party to sue the buyer. These include breach of confidentiality, data breach, personal injury, property damage, and violation of laws such as data privacy laws. As discussed above, if indemnified claims are not excluded from the limitation of liability, the vendor’s obligations to defend may not align with the cost of the defense the buyer needs.
Terms via web link
Many software/service agreements contain links to various vendor policies and sometimes entire additional sets of binding terms. Buyers should evaluate whether incorporating these terms, which the vendor unilaterally can change, is appropriate. For example, vendor terms around acceptable use of the service, or certain security protocols, might need to remain flexible so that the vendor can change them to keep pace with evolving laws and security best practices. Buyers need to resist the urge to insist that all such terms be added as formal exhibits and remain static for the life of the agreement, as this may not be practical. However, buyers should be wary of referenced terms that change the major risk-shifting terms of the negotiated document and should consider negotiating a termination right if these “flexible” terms are modified by the vendor in a way that the buyer cannot accept. With a termination right, the buyer retains at least some leverage.
This is by no means an exhaustive list of negotiable terms, but if the buyer considers each of the above issues it will negotiate a more balanced agreement and, in the process, will have thought through the vendor engagement in a more comprehensive manner.
Brian Gregg is a member with McNees Wallace & Nurick. He chairs the McNees Food & Beverage Group and is the co-chair of the Intellectual Property Group. Gregg’s focus is on trademark and copyright protection, software and technology service contracts, franchising and a number of other related issues. Reach him at bgregg@mcneeslaw.com.
Dispute Resolution in the Wake of Lifting COVID-19 Restrictions
Eric P. Tuchmann, senior vice president and general counsel at the American Arbitration Association®-International Centre for Dispute Resolution® (AAA-ICDR) discusses how the AAA-ICDR has been handling their dispute-resolution cases during COVID-19 and what mediations and arbitration hearings could look like as states lift restrictions on sheltering in place and in-person dispute-resolution procedures become available.
CCBJ: As businesses commence reopening, is there a timetable for the AAA-ICDR to open its facilities?
Eric Tuchmann: The AAA-ICDR remained fully operational and never shut down since the beginning of the COVID-19 pandemic. However, for the safety of our employees, customers, arbitrators, and mediators, we shifted our case management to our virtual operations – an option that has been available to parties for years – and closed our physical offices.
Did the filing of cases continue?
Certainly – much happens with a case before it goes to the arbitration hearing stage. In fact, only about one-third of cases filed with the AAA-ICDR reach the hearing stage; nearly twothirds of disputes filed with us settle prior to the first hearing, many without accruing any arbitrator compensation.
And now?
Now, as cities and states have started a phased-in approach to reopening businesses, the AAA-ICDR has begun opening our case-management offices. Since these facilities reside in multiple locations around the country, the AAA-ICDR will be able to schedule in-person hearings in certain AAA-ICDR facilities depending on state and local guidelines as well as logistical considerations. In addition, AAA-ICDR has created a database of alternative hearing locations in a number of locales, which can be made available to parties.
What will an in-person arbitration or mediation look like in this environment?
A dedicated team experienced in business continuity has spent weeks reimagining the entire arbitration or mediation experience – from entering the hearing facility to moving into the hearing room and proceeding through an actual hours-long hearing.
We’re committed to creating a comfortable, safe, and welcoming environment that safeguards the health of our employees, parties, attorneys, and panelists.
That translates into:
Limiting the total number of people who are allowed into the facility daily, Limiting the number of cases in each hearing facility at one time, and Limiting the number of people in one hearing room at a time.
In addition, we will:
Provide COVID-19 packets that include a bottle of hand sanitizer, sanitizing wipes for computers and surfaces, and an antimicrobial pen. Space out seating to allow for the required six feet of distance between people Provide direction regarding where food and beverages can be obtained. Require the use of masks or face coverings (and provide them if necessary) Set up hand-sanitizing and disinfectant stations throughout the hearing facilities.
What about precautions with the offices and hearing facilities?
As each facility reopens, it will be cleaned thoroughly and disinfected using Environmental Protection Agency- (EPA-) registered cleaning products. Common areas, such as waiting areas, break rooms, and cafes may be closed or limited to small numbers of individuals that can be present. All hearing rooms will be cleaned daily.
How do you see the reopening transpiring?
In the near future, at least, we envision that a number of hearings will take a hybrid approach – due to the limitations of the number of people in a room – where arbitrators, parties, representatives, and others will be present in person, while others participate remotely. Many of our hearing rooms have video conferencing technology installed.
We have been quite successful with our telephonic and video conferencing hearings for caseloads with smaller, less complex disputes, so those likely will continue and perhaps the use of virtual hearings even will increase. However, I don’t believe in the long run that virtual hearings will replace in-person ones for the large, complex cases.
Specifically, what uniform protocols will the AAA-ICDR observe with regard to requirements of personnel and attendees?
AAA-ICDR personnel will observe the Centers for Disease Control (CDC) recommendations, and we ask that all visitors to hearing facilities do so as well. These are:
Maintaining good social distance – about six feet, which is very important in preventing the spread of COVID-19. Washing hands often with soap and water for at least 20 seconds. If soap and water are not available, use a hand sanitizer that contains at least 60% alcohol. Covering mouth and nose with a cloth face covering when around others. Staying home if sick.
Where can additional information on this subject be found?
Please visit www.adr.org/ covid19, which provides the latest information on hearing facilities, online options, virtual hearings,
Eric P. Tuchmann is general counsel and corporate secretary of the American Arbitration Association. As chief legal officer, Mr. Tuchmann and case filings.
is responsible for managing the legal affairs of the organization including litigation related matters involving the Association and its arbitrators, and drafting amicus curiae briefs submitted on behalf of the Association.
Antitrust Regulation in the Era of Big Data and COVID-19
Andrea Levine, managing director with FTI Consulting, discusses various aspects of antitrust enforcement in 2020, from data collection in a cloud-based world to how companies are coping with the effects of the pandemic.
CCBJ: Tell us about your experience prior to joining FTI.
Andrea Levine: I was an attorney at Simpson Thacher & Bartlett in New York City. I specialized in various antitrust matters, specifically merger enforcement and some cartel work. In merger reviews, if the FTC or DOJ undertakes a more fruitful investigation, they’ll issue what’s called a Second Request, asking for a large volume of information related to the merging parties and their industry. These cases – and my work on them – have always been at the forefront of e-discovery. These matters are both very data intensive and operate on a very quick timeline. So that’s how I came to know FTI: We would often engage them to help us comply with these requests, quickly and comprehensively.
COVID-19 has disrupted how companies and employees work. What do you think its downstream impact on investigations will be?
From my perspective, one of the biggest impacts of COVID-19 on businesses is the shift to a largely remote workforce. Approximately 60 percent of employees right now are working from home, and from a data and investigation perspective what we’re seeing is that a lot of these employees are looking to use various kinds of software, particularly collaboration and video software like Microsoft Teams or Zoom, to stay in touch with colleagues and clients and continue to share information – verbally, of course, but they’re also creating shared repositories for documents and data. And depending on a company’s mobile device policy, we’re seeing a lot more employees using personal devices like smartphones or tablets to conduct business.
So data is being created through a variety of sources and at a greater extent than before. And because this was a pretty quick shift and companies weren’t planning to shift their workforce to home, there are a couple of things they may not have been prepared for. One, they don’t necessarily know all of the different applications that their employees are using because solutions are being created on an ad hoc basis, and two, how to preserve, collect and process all of that new information that’s being created. Specifically looking toward investigations, if the time comes that they have an internal complaint or there are government requests for information, the first step they’ll have to take is identifying all of the various ways in which data was created, and how all of that information is being stored, and then only then can they think about how to collect, review and produce that data.
Another aspect to consider is that when we think of data collection, currently – or in the very recent past – a lot of it is being done by IT departments themselves. A lot of that data, especially if it’s organized and maintained properly, can be pulled on the back end by IT, and that saves time and money in an investigation. But now, as people are creating data in new applications, and saving data locally on their computer or mobile devices, IT staff does not have access to this data and companies will need to perform remote data collections if an investigation arises before employees can return to work. Relying on the employees themselves to properly collect all of the potentially relevant data creates additional complexities, because if you’re obligated to produce this data for a government investigation, or a litigation, you need to ensure that your collection is comprehensive and defensible. That’s not typically part of an employee’s day-to-day responsibilities, so you have to ensure knowledgeable people are overseeing collections and making sure data is being collected in the right
Coming out of the economic shutdown, companies may feel pressure to make up for lost revenue, which can create situations that are ripe for misconduct.
way. These changes in data creation and preservation also implicate privacy issues, and at least in the case of cartel investigations, across several jurisdictions with varying regulations. In the last several years, we’ve seen an increase in privacy regulations, most notably the General Data Protection Regulation (GDPR). To the extent that you are creating, collecting, or storing data globally, and potentially moving it across borders, you’ll potentially trigger these various regulations. You want to make sure that everything you’re doing around these emerging data sources does not run afoul of those regulations. As a company, at the forefront of your mind is not only knowing where your data is and how you can preserve and collect it but also how you’re protecting it and transferring it as needed.
What do you think the priorities and expectations will be from antitrust regulators conducting investigations?
We can expect that the agencies to request data from emerging data sources, particularly those that facilitate communications across companies as the DOJ is required to provide evidence of an illicit agreement in cartel cases. We started to see that even before COVID-19 – people were shifting to working from home even before that – and the regulatory agencies, particularly the DOJ, demonstrated an interest in different data types. For example, last November, a former JP Morgan trader was convicted of conspiracy in a scheme to rig the global foreign currency exchange. And the basis of that conviction was in part drawn from text messages and online chat rooms. So that’s been a really big focus for the DOJ. We had already started to see that shift away from the typical email documents and into these other kinds of online communications.
As a company that works in this space, we’ve seen the same trend, of course. In the last two years, we’ve produced data from cloud-based collaboration software and mobile messaging apps in response to Second Requests.
In addition to prior cases, we’ve also seen the DOJ update their guidance to specifically address data issues and new data sources. One example is the DOJ Antitrust Primer for Federal Law Enforcement Personnel. Their internal guidance was updated in September 2018, and now it specifically mentions that evidence of illicit communication and cooperation among competitors could take the form of, and these are their words, “emails, text message, Facebook messages,
WhatsApp and encrypted messaging apps.” So they’re publicly articulating how broad their definition of relevant data is, as well as where they’re specifically looking to find evidence of these conspiracies.
This year, we’ve also seen revisions to the DOJ’s guidance on corporate compliance policies. The latest revision adds that in determining the effectiveness of a company’s antitrust compliance program, the DOJ will consider whether “compliance and control personnel have sufficient direct or indirect access to relevant sources of data” and whether any “impediments exist that limit access to relevant sources of data.” In order to determine whether a company is being proactive in rooting out misconduct, they want to see that the personnel running the audits are able to view all of the relevant data, and do so on a periodic basis, not just one snapshot in time. This suggests that difficulty around collecting from disparate data sources does not excuse companies from monitoring this data, let alone excuse companies from providing them in response to government inquiries.
One other thing I wanted to add is that while we are in the midst of a pandemic and an economic shutdown, these factors can actually trigger potential misconduct in the antitrust space. The reason being that there are some companies that are typically competitors but are now working together in joint ventures or other arrangements to address the pandemic. Naturally we think of that as pro-competitive, but it also opens doors for behind-the-scenes communications between competitors, and the possibility that they inadvertently or intentionally share competitively sensitive information. That’s something that regulators may be on the lookout for as more of these joint ventures arise.
The other aspect of this is that coming out of this economic shutdown, companies may feel pressure to make up for the revenue that’s been lost. Those pressures can create situations that are ripe for potential misconduct. So I think
it’s important for companies to start taking their antitrust risks seriously right now, especially if they are part of a joint venture, or if their field employees are under pressure to make up for lost sales, lost business. Start thinking now about how you’re going to get in front of any misconduct, how you’re going to find it if there is any, and again, how to put compliance programs in place to make sure that you can do it effectively.
How can in-house legal teams prepare themselves?
The best thing they can do is make sure their companies get in front of these issues by implementing a comprehensive information governance policy. That goes beyond just having a policy on paper where you tell employees what records to preserve. You have to also take a look at all of the various sources of data, how that data communicates with each other, how it travels through the company. Through that process, you can identify where the data is being created, where it is being stored, how easy it would be to preserve or collect, and whether it can be consolidated into central data systems. And, of course, how to access it for investigatory and litigation needs. Certain applications don’t work seamlessly with existing data collection and processing software so it’s important to think ahead to how you would address those issues.
Another aspect of information governance is how the data is organized. In information governance, we think about what data a company is legally required to store, what it makes sense to delete, what it needs to protect. But we
also think about how data is organized by department, by project, by type of communication. This type of structure allows for more targeted data collection which saves time and costs associated with processing, hosting and reviewing data. Conversely, if the data is all mingled, you need to pull from all potentially relevant data sources significantly increasing the initial data volume.
Let’s talk about what role service providers can play in preparation and response.
Service providers have a level of expertise that companies themselves are not likely to have. They not only understand the complexities around new data sources but are also experts in how to tackle them to meet a particular company’s needs. There are considerations around retention needs versus the cost of storage, as well as balancing the need for data security with ease of collection. Service providers can walk a company through its options and recommend the policies and software that will work best. And as data storage migrates to the cloud, cybersecurity threats become a greater concern. It’s not only a matter of knowing where your data is and complying with preservation regulations but also ensuring that your company’s data does not get hacked or even misappropriated within the company. A service provider can determine where the security risks are by looking at your current data management system, where the risks are and present solutions to increase data security.
What other considerations should legal teams be thinking of as they continue to adapt to the current environment?
COVID-19 has significantly changed the way employees do business and many of these changes, working remotely, communicating on mobile devices, not being connected to a company network, sharing documents and messaging through cloud-based software, impede a company’s ability to readily track and access data in a systematic way. Moreover, these newer apps are seeing significant increases in use and their systems have not necessarily been tested, from a security perspective, in this way. I’m thinking of Zoom in particular, that has become the video conferencing software of choice for many organizations now conducting business virtually. That app has just exploded since the shelter in place orders started. This security concern is one of the best arguments, aside from e-discovery needs, for having an information governance policy in place: There is just so much personal data out there, personally identifiable data, personal health information, credit card information, Social Security numbers and the like. If a company is not proactive about protecting that information, it’s potentially out there for the taking. And when I say protect, I’m anticipating that companies have done some level of work to protect their data, but as the location of this data changes, companies need to adapt to the new risks and put security additional measures in place.
In short, this major transformation in the workplace can create a number of headaches for in-house legal down the road, from lengthy and complicated document collections to data security breaches. But with foresight and the right expertise, they can identify the issues now and avoid costly and time-consuming problems later.
Andrea Levine is a managing director within the technology practice of FTI Consulting and is based in New York. Ms. Levine advises clients on the use of advanced analytics technology and methodologies to expedite fact-finding and case development for investigations and complex discovery matters. Reach her at andrea.levine@fticonsulting.com.
Maritime Matters are at the Forefront of Alternative Dispute Resolution
Judge John G. Ingram discusses his impressive career in maritime and admiralty law, and why he’s looking forward to bringing that expertise to alternative dispute resolution at NAM.
CCBJ: You are one of the very few judges in the nation who has been a proctor member of the Maritime Law Association of the United States. Please tell us about your 30-plus year career as an admiralty lawyer, including your education, training, license and shipboard experience.
Hon. John G. Ingram (Ret.): I graduated from the Maritime College in New York and shipped out as a third mate and second mate aboard U.S. flagged container ships, cargo ships and passenger liners. Following that, I attended St. John’s Law School in New York and worked part-time and summers shipping out on merchant ships and also acting as a port relief officer when ships docked in the Port of New York. After graduating from law school, I joined the preeminent admiralty law firm of Burlingham, Underwood, Wright, White & Lord. As a litigator, I represented ship owners and towing companies in all types of marine-related incidents, including oil spill cases, cargo claims, personal injuries and wrongful deaths of seafarers, passengers and longshore harbor workers. In addition, I represented owners in charter party disputes and served as an arbitrator in maritime matters, including a small boat salvage case. And I served in the U.S. Navy Reserve for 31 years, retiring as a captain.
I was also a pilot commissioner for the state of New York for six years. As a member of the commission, I regulated pilots, conducted investigations, and made findings into maritime casualties involving state-licensed pilots. I rendered decisions on the culpability of those involved and prescribed remedial measures as appropriate. In addition, after my term as a commissioner, I represented pilots in New Jersey who were involved in casualties such as groundings, collisions, and damages to barges and facilities. I was also involved in marine insurance coverage disputes. I was lead counsel in a case involving the sinking of a passenger liner with more than 600 passengers and crew, and I have represented a major cruise line in passenger injury and death claims. In 2003, I sat as the chairperson of a three-arbitrator panel in connection with the issue of runoff on a marine insurance policy.
I’ve taught admiralty law at New York Law School and St. John’s Law School. I’m currently an adjunct faculty member at the State University of New York Maritime College where I lecture in admiralty law.
Disputes dealing with the repair and building of ships are ripe for arbitration, particularly because of the technical aspects of these cases.
So in 34 years at the maritime bar, I’ve touched on just about everything in the admiralty world.
What drew you to NAM, and how will you bring your legal and practical experience to your new role as the arbitrator or mediator in maritime cases for the organization?
NAM is actually the only alternative dispute resolution (ADR) entity that I considered. I had spoken to some of my colleagues from the State Supreme Court in New York, and they strongly recommended NAM and consider them the top name in ADR. They’re not only known as a top ADR provider but also for their great customer service. They have case managers that handle all of the logistics for the hearings. In other words, NAM’s personnel do all of the scheduling and related matters, which makes it much easier for the arbitrator/mediator. We don’t have to deal with the administrative details of setting up the arbitration/mediation time, the place, number of rooms, etc. I’ve visited their New York and Garden City offices and conference facilities and could see firsthand how the cases were being handled, and the services and amenities provided to counsel and their clients. I’m very impressed with the whole organization.
In addition, NAM has both a national and international presence, administrating cases throughout the United States, London, Monaco, France, Panama and the Philippines. I have a European Union passport. That’s something that could benefit our clients and the parties who retain NAM. I’m sure that if the parties wanted to have an arbitration in a different location other than where NAM has an office, the company and myself would accommodate the request. NAM has the ability to administrate cases in most major cities around the world.
NAM is designated as the administrator for arbitrations in many of the passenger ticket contracts used by various cruise lines throughout the industry, including Carnival and its affiliates, Norwegian Cruise Lines and Royal Caribbean. In addition, NAM is the designated administrator of seafarer arbitrations pursuant to Carnival’s Seafarer Employment Agreements.
How is it useful for a maritime arbitrator to come from the maritime bar?
The maritime bar in the United States consists of about 1,200 lawyers who belong to the Maritime Law Association of the United States. I was a proctor member of that organization until I went to the bench, and then I became a judicial member of the Maritime Law Association. Now I’m transitioning back to being a proctor member. In other words, the maritime bar is very small, and people know each other and speak the same language. So in maritime disputes, it is extremely helpful to have an arbitrator or mediator with a maritime background.
People think of maritime law as a specialty practice, and indeed it is, but it does encompass all types of legal issues. For example, product liability to construction of ships, repairs of ship claims, personal injury and wrongful death, contractual issues and insurance matters that sometimes result in arbitration or mediation.
One of the benefits of arbitration and mediation is that the parties can expect an expedited hearing and a prompt decision/result. I recently read a U.S. Supreme Court case that dealt with an important issue in maritime law called safe berth warranty. The incident happened in 2004 on the Delaware River and involved the puncture of the ship’s hull
by the fluke of an anchor that was in the channel. The case involved a claim for more than $150 million dollars in damages. The case was pending in the Third Circuit, and there was a conflict in the applicable law between the Second and Fifth Circuits, It was argued in the U.S. Supreme Court in November 2019, and was finally decided in March 2020. Ultimately, the Supreme Court decided the issue that a safe berth was a guarantee, not a promise to exercise due diligence to provide a safe berth. It took 16 years from the date of the incident to finally have it resolved by the Supreme Court. Point being, cases such as these can be resolved in a more cost-effective, time efficient manner through ADR.
Maritime matters often require considerable time to resolve in court, but how does NAM administer and manage these types of cases?
As I previously mentioned, NAM has case managers and a scheduling department that handles the full administration of the case. For example, the amount of time needed for the hearing, the location of the hearing, the dispute resolution agreements that the parties sign, etc. In the beginning of the case, the arbitrator and counsel will engage in a prehearing telephone conference call so that disputed issues can be identified and narrowed, a schedule can be set that may include discovery, briefing, motion practice and the time frame for the hearing, all in accordance with NAM’s rules of procedure, which are designed to move cases efficiently. The arbitrator as well as the case managers, continue to work with the parties and counsel to ensure that the deadlines are met and address any issues that may arise such as discovery disputes. Since the case manager and, in turn, the arbitrator, are easily accessible, disputed issues are often resolved with the scheduling of a phone call with the arbitrator, thus obviating the need for time-consuming motion practice in the court system. The arbitrator also has the ability to block out continuous days for a hearing, which will result in the case being concluded in a more efficient manner, unlike a case being heard
The parties like to go to arbitration because they’re going to get a prompt resolution by an arbitrator who’s familiar with the subject matter.
in court, where the presiding judge may not be available to hear a case each day until its conclusion because of preset motion days, conference days, and other scheduled matters.
Since NAM has the technological ability to allow for witnesses to appear via videoconference, the undue delays that would typically occur in scheduling and coordinating parties are avoided. There is more flexibility with scheduling hearing dates and party appearances in a NAM arbitration than in a courthouse.
What types of maritime disputes are most suitable for arbitration or mediation?
Marine insurance coverage and claims disputes are ripe for arbitration. Also, contractual disputes of all kinds – ranging from a ship repair contract, for instance, to a contract to build a ship – are perfect for arbitration, particularly because of the technical aspects of these cases. Maritime injury and death claims are also very well suited for arbitration or mediation.
Salvage contracts are also ideal for arbitration and mediation. Small boat salvage – it’s quite a field today, involving pleasure boats – and the fact that there are companies that do private salvage of pleasure boats, those types of cases are ripe for arbitration and mediation. The parties like to go to arbitration because they can get a prompt resolution by an arbitrator who is familiar with the subject matter. And, as I mentioned previously, passenger cruise ship claims for contractual disputes between passengers and the cruise ship companies are ideal for arbitration and mediation as
are foreign crew claims for personal injury. Most non-U.S. seafarer employment contracts provide for arbitration for those type of personal injury claims.
Let’s talk about NAM’s virtual hearings and the steps the organization has taken to provide security during a mediation or arbitration – and how this works with maritime disputes in particular.
I recently attended a continuing legal education program given by one of NAM’s prominent neutrals, who discussed NAM’s history of offering videoconferencing ability and how NAM was able to seamlessly transition to full-time virtual hearings once coronavirus shut everything down. NAM has taken incredible steps to ensure that all of its hearings are totally secure, and it offers four video platforms – BlueJeans by Verizon, Skype, Webex by Cisco and Zoom – although the vast majority of clients select Zoom. In fact, NAM’s customized videoconference technology
through Zoom is HIPAA compliant, meaning it meets or exceeds the privacy and security specifications provided by the Health Insurance Portability and Accountability Act.
The virtual hearings are set up on the computer or a mobile device. There are separate virtual “rooms” for the parties and the witnesses, all controlled by the neutral. Then there’s a joint room where the neutral and all of the participants can be present to see and hear the arguments of counsel and the testimony of witnesses. In mediations, the neutral has discussions with everybody, and then can separate the parties into different private rooms so their discussions cannot be heard by the other participants. If anyone enters that room, there’s a chime that goes off to alert people. The mediator can talk privately with one party and their counsel and the other side cannot hear what is being said. NAM has an incredible IT department and technical personnel on standby, just in case anyone needs assistance or has technical issues that need to be addressed.
Virtual ADR is particularly good for maritime matters, because in many cases we may be trying to get the testimony of a ship’s captain, who may be home on leave in Oslo, Norway, but he simply can go to a site, possibly even from his own home, and testify via Zoom. Virtual hearings are very common now and because maritime cases often involve various parties in different locations. Virtual ADR is an ideal way to bring parties together from anywhere in the world and conduct a mediation or arbitration.
What do you envision for arbitration and mediation in maritime disputes as we emerge from this pandemic?
The coronavirus has paralyzed courts. Until there is an effective vaccine, jury trials of civil and criminal cases will not be held. I just read an article about a federal judge who tried to conduct a jury trial in Arizona and had to use three separate courtrooms and have the courtrooms and restrooms cleaned between sessions. And there are real issues as to when jury trials will resume in New York and most other states. This has a great impact on the courts because in most federal courts, criminal trials take precedence over civil trials because of the right to a speedy trial and the fact that people’s liberties are being affected in many cases. So I anticipate more of a demand for mediation and arbitration across the board, including maritime matters, because the parties want a prompt resolution of their matters, instead of waiting for what could be years to get a trial date.
Also, there are going to be issues regarding force majeure and contract claims. as well as a greater need for a virtual ADR. Involved parties, such as ship passengers and crew members are not going to be able to be flown from all over the world. There will be an increased reliance on videoconferencing for the hearings. Personally, I’m excited by it. It’s the future of ADR. I pray that we do get a vaccine and that the world returns to what we considered normal, but even when we do return, virtual ADR is still going to be part of our lives.
What are you most looking forward to about your new affiliation with NAM?
I’m looking forward to resolving all types of maritime matters – using both mediation and arbitration. During mediation, the neutral puts aside the judge hat and works with the parties to bring them to a resolution – it’s all about working with the parties to get them to the number that’s going to resolve their matter. As an arbitrator, you are more like a judge, because you render a binding decision.
It’s a new challenge, a new chapter in my life, and I’m looking forward to it. I look forward to arbitrating and mediating with the foremost ADR company in the world, which is NAM. My life has been a maritime life. And now that I’m embarking on this new chapter, I look forward to using all of my maritime experience, both practical and legal, to resolve matters for parties who are involved in maritime disputes.
The Honorable John G. Ingram
(Ret.) is a member of NAM’S (National Arbitration and Mediation) panel of neutrals and is available to arbitrate and mediate maritime matters throughout the United States. He is considered to be one of the nation’s foremost authorities in admiralty law and has a broad range of knowledge in a wide variety of maritime matter.
