Adventures in Electronic Filing, A Cautionary Tale

Any lawyer reading this will know that in federal court these days, you file everything electronically, that is, you upload pdfs of your pleadings to the court's website over the Internet. Working your way through the process takes a little figuring out, but it generally works pretty well and makes life easier for everyone.

The other day, I had a last minute adventure with a filing. I am acting as Massachusetts counsel for a prominent New York firm in a case pending in Boston's federal district court. We had a deadline of 6 p.m. the other day to file a response to a complaint asserting about $72 million in damages. As a general rule, if you fail to meet a deadline like this one, you run a serious risk of default, that is, a ruling by the court that you lose the case.

Lead counsel had their materials to me well in advance of the 6 p.m. deadline, but I was on a conference call until a little after 5 p.m. No worries -- filing is a 5-minute job if everything goes right. I like to start the process at least 30 minutes in advance in case something goes wrong. My only prior experience with anything going wrong was discovering that the attachments to my filing were too big for the system, and I had to break them into pieces at the last minute.

So about 5:15, I try to log onto the court's web site. No go. I get one of those error messages you get when you try to access a site that is down. I try multiple variations on the address -- trying both the main page and some of the sub pages to see if I can get in that way. No go. In case it's my computer, I try my secretary's computer. Nope. I try rebooting mine. No.

So now it's pushing 5:30 and my anxiety level is rising. I start calling various clerks at the court, but of course, everyone has gone home. I call the emergency hotline and talk to a nice fellow who gives me the e-mail address of the judge's clerk (I forget which one, docket, I think). So I e-mail the files to her.

But I also notice that I am getting e-mail notices of other people's filings, which suggests that the problem is on my end, not the court's. This is bad news from my perspective, as I am pretty sure the administrative order implementing electronic filing says that if you boot a deadline due to a technical malfunction, that's not going to get you out of hot water (I have not gone back and checked this belief at this point.) I am pretty confident the court will accept my e-mail as timely filing -- courts are not generally gratuitously cruel -- but I still greatly prefer to comply with the established procedures.

So I call my partner in our Boston office, and ask him if he can log on. No problem. At about 5:50, I e-mail him the filings and talk him through filing them -- which is not as easy as it sounds. There are a bunch of screens you have to get through and if you haven't done it before, it's not entirely intuitive. Fortunately, I have done it a lot and can visualize the screens, so I manage to talk him through it with only a minor error (filing the memo in support as an attachment instead of a separate document), which the clerk fixes without a fuss the following morning. My clock shows 5:56 when my partner hits the file button. I think the court's docket shows 5:53. Minutes to spare.

Not a lot of fun, though, let me tell you. One of the cardinal rules of lawyering is never boot a deadline. You can generally amend things or add to them later, but you have to be on record by the deadline, or you lose. (Actually, my personal rule of lawyering is to assume that any time my opponent boots a deadline, the court will take pity on him or her and let them file late, but if I do it, the court will take me out back and shoot me. This attitude keeps me focused on meeting deadlines.)

We have now corrected the difficulty. I still don't know exactly what it was, but my IT guys say there was "a communication problem between the two systems." How comforting.

So, for any lawyer reading this, here's a recommended firm policy, which I have implemented in light of this awful experience. On any day when an electronic filing is due, we will log onto the court's web site and confirm that everything is operational circa 4 p.m. That way, you still have an hour before the clerks go home to swing into action and correct problems. I don't think doing it much earlier is a great idea though -- just because everything's jake at 10 a.m. doesn't mean it will be at 5 p.m.

The old saw, "if it can go wrong, it will," applies with terrible force in lawyering. Lawyers must have a plan B at all times, even for things that you would think are trivial.

Financial Fiduciaries and Global Warming

So, if you are a financial fiduciary -- which I am loosely defining here as someone who manages other people's money -- must you inform yourself about global warming and its potential impact on your portfolio? The 2006 Report from the Carbon Disclosure Project would suggest that you must. You can download a pdf of the report here: http://www.cdproject.net/

Never heard of the Carbon Disclosure Project? Here's the group's self description from its web site (this is direct quotation):

"The Carbon Disclosure Project (CDP) provides a secretariat for the world's largest institutional investor collaboration on the business implications of climate change. CDP represents an efficient process whereby many institutional investors collectively sign a single global request for disclosure of information on Greenhouse Gas Emissions. CDP has historically sent this request to the FT500 largest companies in the world however in 2006 we expanded our reach to over 2100 companies. We will be continuing this expansion this year."

On page 11 of the 2006 report, the CDP offers this little bombshell: "No longer can fiduciaries claim to be unaware of what is at stake. Taking climate risks into account is now becoming part of smart financial management. Failure to do so may well be tantamount to an abdication of fiduciary responsibility and indication of poor management." (Emphasis added).

Trying to amp up the pressure on the investing community?

The Standard of Review After an Arbitration . . .

If you lose an arbitration, you pretty much lose once and for all. Sure, there are a few limited grounds to appeal, but they are REALLY limited.

Page E1 of the Boston Globe this morning, Judge backs ruling in favor of fired MassMutual chief -- I blogged a bit about this a while back -- MassMutual Financial Group fired its CEO, Robert J. O'Connell, and was ordered to pay him $50 million in termination benefits by an arbitration panel. MassMutual appealed, and the Superior Court has affirmed. I imagine that given the magnitude of the award, MassMutual will pursue further appeal. But the standard of review is a bear and I don't like MassMutual's chances to overturn the award.

Freeze Out Remedies Cabined Down In Massachusetts

So what remedy can a minority shareholder get when frozen out of a closely-held, Massachusetts corporation? A forced buy-out of the plaintiff's shares is off the table after the Massachusetts Supreme Court's decision in Brodie v. Jordan, 2006 Mass. LEXIS 696 (Dec. 12, 2006).

After finding that the defendants had breached their fiduciary duty to the plaintiff and frozen her out of the company, the Superior Court ordered the defendants to buy out the plaintiff's shares at a price based upon the company's net assets ($94,500), plus interest. Both the SJC and the Appeals Court affirmed the finding of a breach of fiduciary duty. The Appeals Court also affirmed the remedy awarded, but the SJC vacated it.

The Court held that "[t]he proper remedy for a freeze-out is 'to restore [the minority shareholder] as nearly as posssible to the position [s]he would have been in had there been no wrongdoing." Id. at *9 (quoting Zimmerman v. Bogoff, 402 Mass. 650, 661 (1988)). Although the Court purported to recognize the trial court's "broad equitable powers to fashion remedies," and the abuse-of-discretion standard applicable to the trial court's exercise of that discretion, the Court held that the remedy awarded "placed the plaintiff in a significantly better position than she would have enjoyed absent the wrongdoing, and well exceeded her reasonable expectations of benefit from her shares." Id. at *10. The Court based this conclusion on the undisputed fact that there was no right to a buy out in the articles of incorporation, bylaws, or "applicable background law."

The Court further noted that a forced buyout has a certain appeal, because it separates the warring parties in a "clean break." The Court believed, however, that the long term result of recognizing this remedy would be a "forced share purchase in virtually every freeze-out case." The Court distinguished cases from other jurisdictions recognizing the forced buyout remedy as premised on more expansive shareholder rights to force corporate dissolution than exist under the Massachusetts statute.

On remand, the Court directed consideration of both money damages for prior harm and prospective injunctive relief to ensure participation in the business.

To my eye, the Court got this one wrong. Its rationale, that the remedy "placed the plaintiff in a significantly better position than she would have enjoyed absent the wrongdoing, and well exceeded her reasonable expectations of benefit from her shares" seems to me to be a finding of fact at odds with the discretionary decision of the trial court. Although a forced buyout may not make sense in every case, that's why the law affords the trial court discretion, rather than inflicting bright line rules. I have never been a big fan of the "slippery slope" argument -- i.e., that if we recognize this remedy here, before we know it, the same remedy will be awarded in every case. There's plenty of room in the common law to draw lines on a case by case basis; there's no need to draw a line at zero in order to prevent the line from extending to infinity.

In my view, a correct application of the abuse-of-discretion standard would have dictated that the result be affirmed. Of course, by the time the damages are calculated on remand and an injunction entered, the defendants may wish they had just bought the plaintiff out. Still, the remedy should be an available option and removing it altogether is a mistake.