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NYSBA FALL 2009 | VOL. 13 | NO. 2 NY Business Law Journal A publication of the Business Law Section of the New York State Bar Association Inside HeadNotes 5 (David L. Glass) Litigation and Recoupment of Executive Compensation 8 (Stephanie L. Soondar and Allen Major) (Edited by Candace Hines) Arbitration Agreements and Bankruptcy—Which Law Trumps When? 44 (Edna Sussman, with the assistance of Osata Tonia Tongo) E-discovery “Worst Practices”: Ten Sure-Fire Ways to Mismanage a Litigation Hold 48 (Jack E. Pace III and John D. Rue) “Inside the Courts: Key Securities Cases” 54 (Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates) A Functionalist Perspective on the Effectiveness of the Gramm-Leach-Bliley Networking Exception and Its Related Regulation R Provisions 70 (Vlad Frants) New York’s New Ethics Rules: What You Don’t Know Can Hurt You! 80 (C. Evan Stewart) When Is a Foreign Corporation Doing Business in New York? 84 (Stuart B. Newman and Ari Spett) What Every Attorney Should Know About the New Durable Power of Attorney Form 87 (Anthony J. Enea) New York Employment Law Update 90 (James R. Grasso) Ethics Flu: Legal Ethics Concerns for New York- Licensed Cross-Border Transactional Attorneys 92 (Megan Burke) Committee Reports 101 From the NYSBA Book Store Business/Corporate Law and Practice AUTHORS Michele A. Santucci, Esq. Richard V. D’Alessandro, Esq. Attorney at Law Richard V. D’Alessandro Professional Niskayuna, NY Corporation Albany, NY Professor Leona Beane Professor Emeritus at Baruch Professor Ronald David Greenberg College and Attorney at Law Larchmont, NY New York, NY This monograph, organized into three parts, includes coverage of corporate and partnership law, buying and selling a small business and the tax implications of forming a corporation. PRODUCT INFO AND PRICES 2009-2010 / 860 pp., softbound The updated case and statutory references and the numerous PN: 40519 forms following each section, along with the practice guides NYSBA Members $72 and table of authorities, make this latest edition of Business/ Non-members $80 Corporate Law and Practice a must-have introductory ** Free shipping and handling within the continental reference. U.S. The cost for shipping and handling outside the continental U.S. will be added to your order. Prices do not include applicable sales tax. Get the Information Edge NEW YORK STATE BAR ASSOCIATION 1.800.582.2452 www.nysba.org/pubs Mention Code: PUB0659 NY BUSINESS LAW JOURNAL Fall 2009 Vol. 13, No. 2 THE BUSINESS LAW SECTION NEW YORK STATE BAR ASSOCIATION in cooperation with NEW YORK LAW SCHOOL © 2009 New York State Bar Association ISSN 1521-7183 (print) ISSN 1933-8562 (online) Business Law Section—Officers Chair ..................................................................................... Rebecca J. Simmons Sullivan & Cromwell LLP 125 Broad Street New York, NY 10004 [email protected] First Vice-Chair ................................................................... Bruce J. Baker Nixon Peabody, LLP 1100 Clinton Square Rochester, NY 14604 [email protected] Second Vice-Chair............................................................... Paul H. Silverman and Fiscal Offi cer McLaughlin & Stern LLP 260 Madison Avenue, 21st Floor New York, NY 10016 [email protected] Secretary ...............................................................................Deborah Anne Doxey, Esq. Phillips Lytle LLP 3400 HSBC Center 34th Floor Buffalo, NY 14203-2887 [email protected] Business Law Section Committees Chair Banking Law ........................................................................ Clifford S. Weber Hinman Howard & Kattell, LLP 106 Corporate Park Drive, Suite 317 White Plains, NY 10604 [email protected] Bankruptcy Law .................................................................. Mark S. Tulis Oxman Tulis Kirkpatrick Whyatt & Geiger 120 Bloomingdale Road White Plains, NY 10605 [email protected] Consumer Financial Services............................................. William R. Henrick DealerTrack, Inc. 1111 Marcus Avenue, Suite M04 Lake Success, NY 11042 [email protected] 2 NYSBA NY Business Law Journal | Fall 2009 | Vol. 13 | No. 2 Corporations Law ............................................................... Janet Thiele Geldzahler Sullivan & Cromwell LLP 1701 Pennsylvania Avenue, NW Washington, DC 20006 [email protected] Derivatives and Structured Products Law ...................... Ilene K. Froom JPMorgan Chase Bank, NA 245 Park Avenue, 11th Floor New York, NY 10167 [email protected] Franchise, Distribution and Licensing Law .................... Thomas M. Pitegoff Pitegoff Law Offi ce 445 Hamilton Avenue Suite 1102 White Plains, NY 10601 [email protected] Insurance Law ..................................................................... Robert M. Yellen AIG Executive Liability 175 Water Street, 10th Floor New York, NY 10038 [email protected] Public Utility Law ............................................................... Deborah Michele Franco Cullen & Dykman 100 Quentin Roosevelt Boulevard Garden City, NY 11530-4874 [email protected] Securities Regulation .......................................................... Jeffrey W. Rubin Hogan & Hartson LLP 875 Third Avenue New York, NY 10022 [email protected] Technology and Venture Law ............................................Steven R. Masur MasurLaw 101 East 15th Street, 2nd Floor New York, NY 10003 [email protected] NYSBA NY Business Law Journal | Fall 2009 | Vol. 13 | No. 2 3 NY BUSINESS LAW JOURNAL Editor-in-Chief David L. Glass, Associate Director, Center on Financial Services Law, New York Law School Managing Editor James D. Redwood, Professor of Law, Albany Law School Editorial Advisory Board Chair Professor Ronald H. Filler, Director, Center on Financial Services Law, New York Law School Advisor Emeritus Stuart B. Newman, Salon Marrow Dyckman Newman & Broudy LLP Members Frederick G. Attea, Phillips Lytle LLP Adjunct Professor David L. Glass, Macquarie Holdings (USA) Inc. Richard E. Gutman, Exxon Mobil Corporation Guy P. Lander, Carter Ledyard & Milburn LLP Howard Meyers, Visiting Professor and Associate Director of the Center on Business Law & Policy, New York Law School Raymond Seitz, Phillips Lytle LLP Houman Shadab, Associate Professor, New York Law School C. Evan Stewart, Zuckerman & Spaeder, LLC Research Assistants Megan Burke Ann M. McGrath NNYY BUUSINESSSINESS LAAWW JOOURNALURNAL AAvailablevailable oonn tthehe WWebeb aatt WWWW.NYSBA.ORG/BusinessLawJournalWW.NYSBA.ORG/BusinessLawJournal 4 NYSBA NY Business Law Journal | Fall 2009 | Vol. 13 | No. 2 HeadNotes In Yogi’s felicitous formulation, it’s déjà vu all over only saving grace at the mo- again for New York business lawyers. Specifi cally: the ment is that implementation Federal Trade Commission (FTC) has decided that of the Red Flag Rule—which lawyers are subject to the “Red Flag Rule” under the already had been delayed a Fair and Accurate Credit Transactions Act (FACT Act), full year from the original which mandates that “creditors” implement a program to target date of November 1, protect their clients from identity theft (i.e., in connection 2008—has now been pushed with personal information given to the attorney in confi - back again, this time to dence by the client). The American Bar Association (ABA) June 2010, apparently at the has fi led suit, alleging that the FTC’s action is arbitrary, request of Congress. Look capricious and contrary to law, in that the FTC has failed for an article on the subject to “articulate, among other things: a rational connection in the Spring issue. between the practice of law and identity theft; an explana- Leaving aside the FTC tion of how the manner in which lawyers bill their clients and its caprices, fi nancial markets reform remains front- can be considered an extension of credit under the [FACT and-center as 2009 winds to a close. As this issue went Act]; or any legally supportable basis for application of to press, Rep. Barney Frank (D-MA), Chair of the House the Red Flag Rule to lawyers engaged in the practice of Financial Services Committee, had just introduced legisla- law.” (Note: as this issue went to press, the lower court tion to implement the Obama Administration’s reform ruled in favor of the ABA. It is not known whether the proposals. We anticipate that our Spring 2010 issue will FTC plans to appeal.) have more to say on the subject. In the meantime: But why should anything as trivial as the law stop a federal agency on a mission? Following enactment of the Gramm-Leach-Bliley (GLB) Act of 1999, which among ”[T]he public outcry over unseemly other things required all “fi nancial institutions” to imple- bonuses and other compensation ment a policy to protect the privacy of their customers arrangements for executives of financial and annually send privacy notices to them, the FTC like- wise decided that lawyers were “fi nancial institutions,” firms that received Government assistance at least to the extent that they engaged in tax preparation, has led to various proposals to limit or real estate settlement and similar activities, and, as such, regulate compensation—both for firms were required to comply with the GLB Act privacy pro- actually receiving federal aid and for large, visions—notwithstanding that all attorneys are subject to state ethics rules that impose substantially greater duties systemically important financial companies on them and are more protective of their clients, and that more generally.” there was no indication whatever
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