The Cyberskank Case

Beware what you do online.

  Cybersmear - the Skank Blogger Plans to Sue Google for $15m for Disclosing Her Identity:

A recent ruling about an alleged anonymous slanderous blogs about a New York City model made it to the front page of every news media on the Internet when a New York City Judge ruled that Google had to identify the name of the person who ran the blog called “Skanks of NYC.” When Liskula Cohen (the defamed model ) learned the identity of the anonymous blogger was Rosemary Port, a 27-year-old student at the Fashion Institute of Technology, Cohen decided to not pursue any slander claims against Port. In an interesting turn of events, now Port claims that Google somehow breached a fiduciary duty and Port’s attorney is bringing a claim against Google for $15M.

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In this instance Port claims the only person on the Internet who saw "Skanks of NYC" blogs was Cohen, and ironically because of Cohen’s lawsuit and the alleged violate by Google of Port’s rights, now everyone on earth knows. I’m sure there a lesson in this case but generally I’m reminded of the New Yorker Cartoon where two dogs are talking and one says to the other “I had my own blog for a while, but decided to go back to pointless, incessant barking.”

Oddly, PC Magazine hits on the legal points better in 'Skank' blogger talks, sues Google for $15m

Legal time-out. That strikes me as nonsensical concept: the fiduciary relationship is the highest, most stringent duty one can have to another, typically the directors duty to shareholders, or a trustee’s duty to beneficiaries. To create such a relationship between a company and someone who creates a free blogging account makes a mockery of the relationship. And what is the duty to protect anonymity? That is definitely not listed in the treatises’ lists of fiduciary duties. What is listed is the duty not to profit from one’s position as the fiduciary. The idea that Google has undertaken a fiduciary relationship with users - and that the duty includes disobeying a court order - is laughable. Now back to our catfight…

Google has a fiduciary duty?  Creative is good when kept when the bounds of reality.  This idea has only a passing familiarity with reality, but this next argument has even less relationship with reality:

This seemingly trivial yet voyeuristic spat is in fact a major First Amendment case in the making, the lawyer thinks.

I’m ready to take this all the way to the Supreme Court. Our Founding Fathers wrote ‘The Federalist Papers’ under pseudonyms. Inherent in the First Amendment is the right to speak anonymously. Shouldn’t that right extend to the new public square of the Internet?

I think Maureen Dowd does a droll destruction of this argument in her Stung by the Perfect Sting:

Yet in this infinite realm of truth-telling, many want to hide. Who are these people prepared to tell you what they think, but not who they are? What is the mentality that lets them get in our face while wearing a mask? Shredding somebody’s character before the entire world and not being held accountable seems like the perfect sting.

Pseudonyms have a noble history. Revolutionaries in France, founding fathers and Soviet dissidents used them. The great poet Fernando Pessoa used heteronyms to write in different styles and even to review the work composed under his other names.

As Hugo Black wrote in 1960, “It is plain that anonymity has sometimes been assumed for the most constructive purposes.”

But on the Internet, it’s often less about being constructive and more about being cowardly.

I really do not see this as a landmark on the road of free speech.

 For background on the case, here is JUDGE ORDERS 'SKANKS IN NYC' BLOGGER TO REVEAL IDENTITY TO LISKULA COHEN.

Cohen's lawyer, Steven Wagner, said he hopes the decision sends a message to bloggers, Twitterers, and whoever else would use the anonymity of the Internet for cowardly defamations.

"The rules for defamation on the Web -- for actual reality as well as virtual reality -- are the same," Wagner said. "The Internet is not a free-for-all."

But the lawyer for the anonymous blogger warned that the real free-for-all will happen in the court system if everyone who's ever suffered an ugly insult online decides to take their complaint before a judge.

"The floodgates would be opened if you tried to regulate these very broad, common insults and invective on the Internet," said Anne Salisbury.

"You can be really, really mean to people -- you just can't lie about a set of facts that are provable as lies, and that you knew or recklessly disregarded the truth of."

Oral Contracts and Fiduciary Duty - New Case From The Seventh Cir

The Seventh Circuit gives us a pithy definition of fiduciary duty in INTERACTIVE INTELLIGENCE, INCORPORATED v. KEYCORP, KEYBANK NATIONAL ASSOCIATION

Our conclusion is buttressed by Wilson v. Lincoln Federal Savings Bank, 790 N.E.2d 1042, 1046 (Ind. Ct. App. 2003), where the court says that a “business or ‘arm’s length’ contractual relationship does not give rise to a fiduciary relationship. That is, the mere existence of a relationship between parties of bank and customer or depositor

It is true that a bank may owe a customer a fiduciary duty if a confidential relationship exists between them. Paulson v. Centier Bank, 704 N.E.2d 482 (Ind. Ct. App. 1998). But there is nothing confidential in the FX transaction. The uncontroverted evidence shows that Interactive’s employees knew that exchange rates were available on the Internet and in the Wall Street Journal. In fact, on occasion, Interactive employees asked KeyBank about the reasons for the difference between published rates and the rates the bank was using. This is simply not a situation in which the bank was acting as a fiduciary.

No fiduciary duty exists in an ordinary business transaction but only where the relationship includes the element of confidentiality.

People assume an oral contract is no contract and are shocked when I explain it can be a contract, that a contract is not the paper but the agreement. This paragraph reminds me that oral contracts cannot be vague even if oral:

The supposed oral contract is too vague to be enforceable. See Pepsi-Cola Gen. Bottlers, Inc. v. Woods, 440 N.E.2d 696 (Ind. Ct. App. 1982). An agreement to work out more definite terms at some future time is not enforceable. Wolvos v. Meyer, 668 N.E.2d 671 (Ind. 1996). That is all that See Pepsi-Cola Gen. Bottlers, Inc. v. Woods, 440 N.E.2d 696 (Ind. Ct. App. 1982). An agreement to work out more definite terms at some future time is not enforceable. Wolvos v. Meyer, 668 N.E.2d 671 (Ind. 1996).

Indiana Limited Liability Companies and Fiduciary Duties

Reading Chancery Gives Victory to "Freedom of Contract" and Refuses to "Find" Fiduciary Duties in LLC Agreement When Not Clearly Stated from Delaware Corporate and Commericial Litigation Blog gave me a reason to tout Indiana as a place for forming a limited liability company. The Delaware Chancery Court decided that Delaware law imposes no fidicuiary duty other than what is specifiied in the LLC's operating agreement.

Importantly, the court found no provision in the LLC Agreement at issue that: "create[d] a code of conduct for all members; on the contrary, most of those sections expressly claim to limit or waive liability."

Here is the money quote:

"There is no basis in the language of the LLC Agreement for Segal's contention that all members were bound by a code of conduct, but, even if there were, this Court could not enforce such a code because there is no limit whatsoever to its applicability".

The "implied covenant of good faith and fair dealing" claim was carefully examined and dispatched with one of the more lucid and cogent treatments I can recall of this amorphous cause of action.

Finally, the breach of fiduciary duty claim was confronted by first reciting the provisions of the Delaware LLC Act at Section 18-1101(c) that allow for complete elimination of all fiduciary duties as part of an LLC Agreement. The court read the parties' LLC Agreement in this case to eliminate fiduciary duties because it flatly stated that:

"...members have no duties other than those expressly articulated in the Agreement. Because the Agreement does not expressly articulate fiduciary obligations, they are eliminated."

Indiana's Court of Appeals decided in Purcell v. Southern Hills Investments, LLC (pdf format) that an implied fiduciary duty existed for Indiana LLC's. The Court of Appeals relied upon Credentials Plus LLC v. Calderone, 230 F. Supp.2d 890 (N.D. Ind. 2002) (see Purcell at page 9 -10).

The Delaware blog finds no problem with this situation while I have serious qualms. My qualms fall into two categories. First, having been involved in cases where the mistreatment of an LLC's minority members amounted to a breach of fiduciary duty and with an implied fiduciary duty there was no protection for the minority. Secondly, I see too many people relying on do-it-yourself sites to create their operating agreements and those can lead them into the first category.

All of which means one thing for the non-lawyer: get a lawyer to draft or review your LLC agreement.

Indiana Law on Breach of Fiduciary Duty

First, what is a fiduciary duty? Where one is in a position of trust to others then that person has a fiduciary duty to those others.

Second, when can one sue for a breach of fiduciary duty? When the person having the trust commits an act clearly in his own interest and against the interest of the corporation, a breach of fiduciary duty occurs.

More specifically, the law sets out three elements the plaintiff must prove for a successful breach of fiduciary duty case: (1) the defendant had a fiduciary duty to the plaintiff, (2) the defendant breached the duty, and (3) the breach of duty caused injury to the plaintiff.

See Hartung v. Architects Hartung/Odle/Burke, Inc., 157 Ind. App. 546, 552, 301 N.E.2d 240, 242 (1973). For a more accessible case involving the fiduciary duty of a shareholder and relying on Hartung, see Linden v. Coco (html format).

Supreme Court Rules Individual Retirement Plan Participants Can Sue Employers Over 401(k) Losses | workforce.com

As mentioned elsewhere on this blog, I am recovering from the flu. I am horribly behind in my reading and even further behind in my posting. Please pardon the bare bones of the posts over the next week. I am trying to get out what appears important but not adding much in commentary - there is just not enough time right now.

Supreme Court Rules Individual Retirement Plan Participants Can Sue Employers Over 401(k) Losses | workforce.com: "The Supreme Court has ruled that individual participants in a 401(k) plan can sue their employers over losses, a move that many observers say could result in a deluge of lawsuits for plan sponsors."

Until now, plan participants could only sue employers over losses in their 401(k) plans through class-action suits. But in its opinion Wednesday, February 20, the Supreme Court said that under the Employee Retirement Income Security Act, individual employees can sue plan sponsors for losses on behalf of the plan.

“This should be a wakeup call to employers,” says Don Stone, president of Plan Sponsor Advisors, a Chicago-based 401(k) consultant. “They need to recognize that as fiduciaries, they have responsibilities and there is going to be a spotlight shined on them.”

Can your spouse get you sued over business information?

I debated this post about a Fox News article Insider Trading: Pillow Talk Reveals Couples’ Dirty Little Secrets.After all, what readers I have do not come here for SEC matters. This paragraph changed my mind:

The second theory, “misappropriation,” applies to someone who is not a corporate insider, but rather someone who owes a fiduciary duty to the source of the material non-public information for some reason. Misappropriating confidential information for securities trading purposes, in breach of a duty owed to the source of that information, gives rise to a duty to either disclose or abstain. In plain English, the outsider (aka the misappropriator) who has no ties to the corporation can be liable for insider trading if they fail to abstain from using the information or disclose the secret to the public. It’s under this theory that courts construe a duty of trust and confidence when the communicator of the information was a spouse, sibling, parent or child of the recipient, unless the recipient can show there was no reasonable expectation of confidentiality. So, you can be on the hook and have no direct connection to the corporation.

Fiduciary duty applies to more than securities fraud. The duty applies to the personal administrators of estates, trustees of all sorts, members of a limited liability company, and directors/officers of a corporation. I have not seen an Indiana case applying a duty on a spouse, but it may be possible.