When Your Private Social Networking Site Isn't So Private

One day, Kathleen Romano fell off her chair at work. As a result, she claimed that she sustained "serious permanent personal injuries." She alleged that the chair was defective and sued the manufacturer and the distributor of the chair.

Of course Kathleen also somehow felt compelled to show on her Facebook and MySpace pages just how active her lifestyle was, and where she had recently traveled to--all during the time that she claimed her serious injuries prohibited such activity!

So, based on what it saw on Kathleen's public pages, the defendant manufacturer naturally subpoened Facebook and MySpace to obtain copies of her profiles, including those portions that were not publicly available and marked as "private" using the sites' privacy settings. Although Facebook attempted to object to the Subpoena, it was ultimately compelled to produce not only the current and historical Facebook and MySpace pages, but also the deleted pages and the pages designated by Kathleen as only available to "friends" and connections.

The trial court recently decided in Romano v. Steelcase, Inc. that the production of such information was not a violation of her privacy because the publicly available information, namely the photos of her active lifestyle, supported the belief that the information sought by the Subpoena might be relevant to Kathleen's inconsistent claim of serious injury.

This appears to be a case of first impression. As the trial court pointed out, to date, there does not appear to be a case in New York directly addressing the privacy issue raised. Citing instead a Canadian court case also involving a Facebook page, the court explained that "to permit a party claiming very substantial damages for loss of enjoyment of life to hide behind self-set privacy controls on a website . . . risks depriving the opposite party of access to material that may be relevant to ensuring a fair trial." Well, now there is case precedent in New York and I am sure we will be seeing other cases on this issue soon.

Second Circuit Certifies Question of Improper Solicitation of Business Clients

On August 24, 2010, the Second Circuit Court of Appeals certified the following question to the New York Court of Appeals: "What degree of participation in a new employer's solicitation of a former employer's client by a voluntary seller of that client's good will constitutes improper solicitation?" The question is a good one because it comes up frequently enough in business transactions . . . and litigation . . . to warrant clarification from New York's highest court.

In Bessemer Trust Company, N.A. v. Branin, decided by the Second Circuit on August 24, 2010, an investment firm commenced an action against one of its former executives because he solicited the firm's clients after he left the firm. The investment firm argued that the solicitation was improper because the former executive, and his partners, had sold their firm to the plaintiff, and the sale included the executive's firm's clients and goodwill.

Following a trial on the merits, the federal appeals court held that the former executive was liable under New York's Mohawk doctrine, which prohibits a seller of a client's good will from improperly soliciting business from that client after the client's business is transferred to the purchaser.

In posing its question to the New York Court of Appeals, however, the Second Circuit was concerned about how its decision or the analysis would be affected if (a) the seller was actively developing and participating in a plan whereby others at the seller's new company solicit the client in response to inquiries from the client, and (b) the seller participates in solicitation meetings, but the seller's role is "passive."

It will be interesting to see how the Court of Appeals decides. Stay tuned.

Gain on Sale of House Not Excluded . . . New House Not the Same as Old House

The Federal Tax Code allows a married couple to exclude the first $500,000 of capital gain upon the sale of a home if they have occupied the home as a principal residence for at least two out of five years preceding the sale. But what if the homeowners decide to one day build a new house on the same property, are they still entitled to the capital gain exclusion? Apparently not, according to the IRS. And that is exactly what happened in Gates v. Commissioner of Internal Revenue where the U.S. Tax Court sided with the IRS on July 1, 2010.

Mr. Gates resided in his home for the requisite period of time before he married Mrs. Gates. When they married, they moved out, demolished the old house and built a new one. The problem was that they never lived in the new house after it was built. They sold it eventually for $1.1 million, and realized a gain of $591,405 from the sale.

The IRS ruled that the Gates were not entitled to the capital gain exclusion because they should have lived in the house that was sold in order to be entitled to the exclusion. It is not enough to sell just any structure on the same parcel of real estate.

The problem with the decision and the IRS ruling is that it begs the question: how much renovation, reconstruction or remodeling can you do to your home before the house is considered a "different" structure? Given the recent construction boom of the past few years, the decision will significantly impact thousands of taxpayers.

Until there is further clarification from the IRS or the courts, it may be wise to live in a newly renovated or constructed dwelling for at least another two years before selling . . . if possible.

Faragher-Ellerth Defense No Longer Available to Employers Under New York City Human Rights Law

In May 2010, the New York Court of Appeals in Zakrzewska v. The New School held that an employer’s defense to a claim of harassment when the employer is able to demonstrate that it took reasonable steps to prevent or correct the harassment and that the employee unreasonable failed to take advantage of the corrective opportunity to avoid the harm, commonly known as the Faragher-Ellerth Defense, is not applicable under the New York City Human Rights Law. NYC Admin Code 8-107.

New York’s highest court determined that the language of the statute imposes liability on an employer where (1) the offending employee exercised managerial or supervisory responsibility, (2) the employer knew of the offending employee’s discriminatory conduct and acquiesced in it or failed to immediate corrective action, and (3) the employer should have known of the conduct, and failed to exercise reasonable diligence to prevent it. The statutory language being clear, the court said, the fact that an employee who has not suffered any adverse employment action did not avail herself of an opportunity to avoid harm after an employer took steps to prevent the harassment, is irrelevant.

This is not the first time the courts have interpreted the New York City anti-discrimination laws differently from the New York State and federal laws.

Intercepting Employee Email Communications--Not Without Warning!

An employee using a laptop computer provided by her company for work purposes was able to access her own personal email account on Yahoo’s website. From this account she communicated with her attorney about her situation at work. Needless to say, she was not happy at work. When she eventually filed suit against the company, claiming wrongful discharge, retaliation and hostile work environment under New Jersey law, the attorneys representing the company in the action discovered her emails to her attorney and refused to disclose them in the lawsuit. The issue before the New Jersey Supreme court was whether the emails were protected by the attorney-client privilege. Stengart v. Loving Care Agency, Inc., 201 NJ 300 (2010).

Although the emails from the employee’s attorney had the typical confidentiality language, defense counsel argued that an employee had no right to privacy or to confidential communications if she was using the company computer and the company had a policy that said as much, and that she had no reasonable expectation of privacy under the circumstances. The court disagreed. The court held that the employee’s email was covered by the attorney client privilege.

In New York, a federal bankruptcy court in the case of In re Asia Global Crossing Ltd., 322 B.R. 247, (S.D.N.Y. 2005) developed the following four-part test to determine an employee’s reasonable expectation of privacy in his computer files and email: (a) does the company maintain a policy banning personal or other objectionable use; (b) does the company monitor the use of the employee’s computer and email; (c) do third-parties have the right of access to the computer or emails; and (d) did the company notify the employee, or was the employee aware of the use and monitoring policies?

Seems like the courts are still struggling with a bright line rule. Employers need to tread carefully.