PolymerAdvisorywww.polymerlaw.com A Publication of the Benesch Polymer Law Group for the Polymer, Plastics and Packaging Industries Vol. 2, October 2005 Hurricane Katrina: A Greater Force Hurricane Katrina is recognized as the most governmental acts. An event does not In This Issue… severe natural disaster in the United States need to be catastrophic in order to fall since 1900. It will be remembered for its within the scope of a force majeure clause. Hurricane Katrina: devastation of the Gulf Coast Therefore, without a natu- ▲ regions, and especially for “Hurricane ral disaster, the failure of A Greater Force the massive flooding of the third parties, such as sup- historic city of New Orleans. Katrina is pliers and subcontractors to Control Your Own Destiny: perform their obligations, ▲ recognized Protect Trade Secrets and Resin makers throughout can be a force majeure the U.S. Gulf Coast are Customer Relationships as the most event. Courts generally dealing with the aftermath uphold the contracting of Hurricane Katrina, resulting severe natural Mother Nature Strikes Again parties’ definition of force ▲ in increased resin prices and majeure. In Kentucky decreased availability. Within disaster in the Upcoming Events Utilities Company v. South ▲ the first week of September, United States East Coal Company et al., many major producers of since 1900.” the court stated that the certain plastics resins have parties were free to set declared force majeure, which forth the terms of their agreement. If the literally means “greater force,” announc- parties agreed that electric power failures ing that their supply of products has been constituted a force majeure event, the hindered or halted by the aftermath of court would not construe such language Hurricane Katrina in the Gulf. to require an “overpowering force” in the It is expected that many businesses along nature of an Act of God. the Gulf Coast will invoke force majeure B. Causation clauses to excuse required contract performance. However, whether a force Causation deals with the causality that majeure clause can excuse the invoking connects the impact of an event to the party from its performance of a contract nonperformance of the contract. Force depends on: (i) who invokes the force majeure clauses are intended to excuse a majeure clause, (ii) how carefully it is party only if the force majeure event is drafted and (iii) what effect Hurricane reasonably beyond the invoking party’s Katrina had on the performance that is control and the failure to perform could Cleveland: sought to be excused. not be avoided by the exercise of due 2300 BP Tower care by that party. As a result, courts will 200 Public Square The analysis of a force majeure clause not permit a supplier to invoke a force Cleveland, OH 44114-2378 always requires an examination of four majeure clause where the delay or inabili- Phone: 216.363.4500 elements: (i) the force majeure event, ty to perform was caused by the supplier. Fax: 216.363.4588 (ii) causation, (iii) the effect of a force Similarly, a force majeure defense may not majeure event on the performance that is be available where the delay or inability Columbus: sought to be excused, and (iv) the proce- to perform could have been prevented 88 East Broad Street dural requirements that must be followed through the exercise of diligence. In Steel Suite 900 by the invoking party. Industries, Inc. v. Interlink Metals & Columbus, OH 43215-3506 A. Force Majeure Events Chemicals, Inc., one of a steel vendor’s Phone: 614.223.9300 sources was affected by a force majeure Fax: 614.223.9330 Typically, force majeure clauses cover event, however, the contract did not natural disasters or other “Acts of God” require the steel vendor to obtain the steel www.bfca.com such as earthquakes, and some man-made from this particular source. As a result, the events, such as strikes, lockouts, riots, and Continued on page 2

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Continued from page 1 court held that a force majeure clause did If a force majeure is declared, a supplier D. The Procedural Requirements not excuse the steel vendor and the steel should be alert to any statute or regulation vendor was required to fulfill its obligation that requires it to allocate its diminished Generally, a force majeure clause contains to procure the steel from other sources. products among its customers. For example, a notification clause. Such clause requires in the event of force majeure, a supplier a party that wishes to be excused from C. The Effect of a Force Majeure Event of residual fuel oil must comply with the performance under the force majeure clause to give prompt notice of its inten- The effect of a force majeure event deals Emergency Petroleum Allocation Act to allocate its scarce products among its tion to the other party. Failure to comply with whether the invoking party can be with the procedural requirements of a excused from the performance. Some users. Absent any statutory and regulatory requirements, a supplier should review notification clause may invalidate a force contracts provide that an event of force majeure claim. majeure will terminate the contract, while its contract to see whether it carries any others may provide that a force majeure contractual obligation to allocate on a Before invoking a force majeure clause, event will only postpone the performance. pro rata basis to all of its customers. businesses impacted by Hurricane Katrina If a contract provides that force majeure Moreover, even without a specific alloca- should carefully review the terms and does not terminate the contract entirely, tion clause, if the related manufacturing conditions of its contracts to determine then the party invoking the force majeure or supply agreement contains a clause what relief is available under the force clause cannot be completely excused from which provides that a buyer cannot be majeure clause, whether it should allocate performance. In Distribution Services treated by a supplier in less favorable products or production capacity among its Limited v. Hong Kong Islands Line America terms than those extended to supplier’s customers, and how to carefully follow the S.A., the force majeure clause only sus- other customers, then the supplier may procedural requirements in order to obtain pended the contracting party’s obligation still have a contractual obligation to the appropriate relief. to ship the contracted goods during the allocate its available products among period of force majeure. After the period its customers. As a practical matter, this For more information, contact Yanping Wang of force majeure was over, the contracting may simply be good business practice to at 216.363.4664 or [email protected], party was required to resume performance maintain supplier-customer relationships. or Megan Mehalko at 216.363.4487 or of its obligations under the contract. [email protected].

Control Your Own Destiny: Protect Trade Secrets and Customer Relationships Trade secrets and customer relationships ments, pricing, profit margins, special The Uniform Trade Secrets Act (“UTSA”) are some of, if not the most, critical assets needs and preferences, and more. In the defines a “trade secret” to include any a business possesses. But are these assets case of polymer manufactures and others information which: adequately protected from theft? The law having sophisticated production proce- in virtually every state establishes the dures, these information systems in all a) derives independent economic value, framework for protecting these assets, but likelihood also contain technical infor- actual or potential, from not being gener- it is up to each business entity to take the mation such as recipes, formulae, produc- ally known to, and not being readily steps necessary to obtain the benefit of tion procedures, operations parameters ascertainable by proper means by, other these laws. The failure to take these steps and sequences, and other detailed infor- persons who can obtain economic value can render the existing legal safeguards mation regarding how compounds are from its disclosure or use; and absolutely meaningless. Unfortunately, produced. All of this information is in a b) is the subject of efforts that are businesses often wait too long before form which most likely can be printed, reasonable under the circumstances seriously addressing this vital issue. emailed, or otherwise transferred with to maintain its secrecy. the touch of a button. Technological advances have enabled The type of information which can qualify businesses to capture, categorize and uti- The Uniform Trade Secret Act (“UTSA”), as a trade secret is essentially limitless. lize a wealth of business information, far adopted in Ohio and 44 other states, pro- If the information is not generally known beyond what anyone could have antici- tects this and other information from use outside your business and there is value pated a few short years ago. The negative or disclosure outside the business, provided to the information because it is not side to these advances is that employees the business has taken reasonable steps to generally known, the information can now have ready access to information maintain the secrecy of that information. be recognized as a trade secret. The that could cause the business great com- At its core the UTSA protects any infor- courts have expressly recognized many petitive harm were it to fall in the hands mation that derives economic value by types of information as trade secrets, of a competitor. For example, informa- virtue of the fact that it is not generally such as business plans, customer lists, tion systems now neatly display not only known and is subject to reasonable efforts customer purchasing data, pricing infor- a particular customer’s identity, but also to maintain its secrecy. In addition, the mation, supplier information, product detailed information regarding that cus- Computer Fraud and Abuse Act, the design and development information, tomer such as the purchasing authority, Economic Espionage Act, and various formulae, recipes, manufacturing process what it buys, when it buys, how much it state unfair competition laws provide buys, packaging and shipping require- related protections. Continued on page 3 3

Continued from page 2 details, and marketing strategies, to high- to such information. Only then can the enforcement of noncompete agreements. light just a few. Even commercially avail- business make an informed and practical Thus, any business which puts its sales (or able data and information may qualify as a decision as to how and what methods of other) employees in a position to develop trade secret if manipulated or catalogued protecting the information should be close relationships with customers should in a way which makes it unique or other- implemented. The methods of protection seriously consider the use of noncompete wise not readily ascertainable. should be designed (1) to ensure, to the agreements, in addition to protecting the extent practical, that the access to the confidentiality of trade secret information. The key to availing one’s self of these pro- information will in fact be tections is the effort a business takes to limited to those having a In this era of unprecedented maintain the confidential status of sensi- need to know, and (2) to A comprehensive mobility, it is a matter of tive business information. These efforts apprise anyone working protection plan when, not if, a key employee can and should include limiting access to with such information must start with with extensive exposure those having a need to know, password to, and knowledge of, trade that it is confidential and the identification of protecting information systems, labeling must be treated as such. secrets will join a competitor. documents confidential, controlling the competitively If that employer has taken access to areas housing confidential infor- The use of Noncompete sensitive business the steps necessary to pro- mation, implementing policies and work Agreements can be vital to tect its confidential, trade rules prohibiting disclosure, utilizing con- not only protecting trade information existing secret information, it will fidentiality agreements and noncompete secrets, but also customer within the business. be in position to take action agreements with employees, and utilizing relationships. As a general to restrain any threatened confidentiality agreements with customers rule, an ex-employee is free to exploit the use or disclosure of that information. and suppliers that have access to sensitive customer relationships developed in the Conversely, an employer which has failed information, to name only several. course of his/her employment with the for- to take such steps risks being rendered mer employer. Thus, any ex-employee not powerless to prevent a competitor’s A comprehensive protection plan must bound by a noncompete agreement is free exploitation of those most valuable secrets. start with the identification of the com- to solicit his or her former employer’s cus- This is truly an area where a business can, petitively sensitive business information tomers. This is of particular concern and to a large extent, control its own destiny. existing within the business. Once importance in the area of sales. Many, if defined, it should then be determined not most, state laws recognize the protec- For additional information on this topic, who currently has access to this informa- tion of these customer relationships as a contact Mike Buck at 216.363.4694 or tion and, then, who needs to have access legitimate and proper interest justifying the [email protected]. Mother Nature Strikes Again Note: A far more extensive analysis as a sudden, unexpected, and unavoidable Hurricane Camille. The court described of this issue is found in Mr. Blubaugh’s manifestation of the forces of nature. the singular nature of the storm: recently-published article, The Perfect Whether a particular natural event consti- Storm: The Parameters of a Successful tutes an “Act of God” turns on several “Hurricane Camille, which was the great- “Act of God” Defense in Freight Claims. factors. These factors generally include: est natural disaster in the history of the Please contact him for a copy. North American continent and caused 1) the severity of the natural occurrence more devastation and destruction to the Like every other business in the region, causing the damage, Mississippi Gulf Coast… than any hurri- those involved in the polymer industry in cane of record, with unprecedented wind Louisiana, Mississippi, and Alabama are 2) the reasonable predictability of this velocity in excess of 200 miles per hour, a dealing with the aftermath of Hurricane natural occurrence, tide rise of 30’ or more, and a tidal surge of Katrina. At worst, entire facilities may be 3) the lack of human agency in the at least 22’, is the most classic case and deemed “totaled.” At best, many months damage to the freight, and striking example of what is characterized will pass before power, water, natural gas, as an Act of God. This freak of nature was and communications are fully restored 4) the reasonableness of any precautions of sufficient velocity and destructiveness and facilities are otherwise operational. taken by the defendant. to overcome all reasonable preparations...” One challenge that many companies will face is responding to or prosecuting The quintessential example of a success- Id. at 1330. As a result, the court found claims for damage to, loss of, or delay to ful “Act of God” defense arises in the that none of the claimants could establish freight in transit. context of hurricanes. For instance, in liability against the various defendants. the case of In the Matter of the Complaint Federal and state law provide that a and Petition of International Marine However, a storm does not have to rise shipper cannot prevail in a freight claim Development Corp., 328 F.Supp. 1316 to the level of a hurricane or be of conti- against a carrier if an “Act of God” caused (S.D. Miss. 1971), a variety of plaintiffs nental significance in order for it to the freight damage, loss, or delay in ques- made claims for property damage and constitute an “Act of God.” Rather, tion. An “Act of God” is generally defined catastrophic personal injuries caused by Continued on page 4 Benesch, Friedlander, Coplan & Aronoff LLP 4

Continued from page 3 Upcoming Events the specific features of any storm can be Company of Hartford v. Old Dominion October 6, 2005 sufficient to make it an “Act of God.” In Freight Line, Inc., 2003 WL 22004895 Maximizing Shareholder Value American International Insurance Co. v. (S.D. N.Y. 2003) (freight is not lost due This conference, geared to senior executives and Vessel SS Fortaleza, 446 F.Supp. 221 (D. to an “Act of God” merely because it was investment advisors in the plastics industry, is being held at the Hyatt Regency Chicago. Benesch is P.R. 1978), the district court analyzed stolen during a storm). Indeed, carriers sponsoring this day-long event with Plante & whether a storm that struck a vessel en are sometimes charged with knowledge Moran and the Society of the Plastics Industry. The route to Puerto Rico constituted an “Act (both actual and constructive) of storms morning discussion will provide an overview on of God.” The court cautioned against a and weather patterns that might once how plastics companies can maximize shareholder value through operational techniques, unique infra- mechanical approach in which one sim- have been unpredictable. For instance, in structure, and transactional positioning. Benesch’s ply measures the force of the winds or the National Starch & Chemical Company v. Richard Lillie will deliver the keynote address on height of the waves to see if a storm M/V “Monchegorsk”, 2000 WL 1132043 “When a Good Offense is the Best Defense - Dealing with Regulatory Agencies.” The afternoon amounts to an “Act of God.” The court (S.D. N.Y. 2000), a shipper shipped a large will focus on how to enhance the value of your identified a number of additional factors quantity of starch products from Thailand company’s infrastructure by improving human that must be reviewed in assessing a to Maine. While the products were being resources and compensation strategies, intellectual storm: (1) the duration of the storm, (2) loaded into a Cyprian cargo vessel’s various property practices, and other assets. Finally, the day will address transactional issues including valuation, the size of the vessel, (3) the wave inter- holds simultaneously, rain began to fall. succession strategies, and exit strategies. vals, (4) crossing seas, (5) structural dam- Many of the bags became wet and, in fact, For more information, contact the Society of the age, and (6) “other” unidentified consid- water was found pooling on top of many of Plastics Industry at 773-380-0808 or email Patti erations. Id. at 226. The court found that them. The court rejected the defense that Gillespie at [email protected]. the storm in question, which involved the rain was an “Act of God” because the October 7, 2005 winds of “full storm force” and “unusually carrier was or should have been aware of Mid-America Plastics Partners, Inc. As the plastics industry continues to segment itself short” wave intervals, constituted an “Act the weather risks native to the region. See into the “haves and have-nots,” partnering continues of God.” also Louis Dreyfus Corp. v. M/V "MSC to become increasingly prevalent. Driven by the Floriana", 1998 WL 474092 (S.D. N.Y. need to differentiate, grow, globalize, innovate, The case of Noritake Co., Inc. v. M/V 1998) (carrier did not establish that storm and reduce costs, successful companies will look to Hellenic Champion, 627 F.2d 724 (5th Cir. alliances to remain competitive. Rob Marchant was “Act of God” because no persuasive will speak on “Creating Competitive Advantages - 1980), involved an even more modest evidence was introduced that 20 mile per Differentiate through Strategic Alliances” at this half weather system: hour wind is particularly unusual or unex- day session being held at the Holiday Inn Montrose. For more information, contact Megan Thomas at “On June 15, 1976, the Port of Houston pected in area). [email protected] or 216.363.4174. area experienced severe, flash flooding As the foregoing cases indicate, the suc- October 18-20, 2005 from heavy rains. Though the weather cessful application of the defense turns on Plastics Encounter Southeast bureau had predicted only a 15% chance the severity of the event, the reasonable Don’t miss the only show in the Southeast this fall of rain that day, the port area received where you can: predictability of the event, the lack of • See the latest technology in action some 13” of rain within a few hours, while human agency in the event, and the rea- • Make valuable contacts with processing, design a local airport received less than 2”.” sonableness of the carrier’s precautions. and management professionals • Attend conferences sponsored by The Society Id. at 726. The shipper in Noritake sued One must perform the necessary historical of the Plastics Industry (SPI) and the Industrial for damage to 152 cardboard cartons of research in order to have a context by Designers Society of America (IDSA), and which to judge the significance of the seminars by Compuplast and Paulson Training dinner sets that were damaged in a flood- •View two unique product galleries in the same ed warehouse. The trial court found that particular event. As this year’s weather location -- the SPI Structural Plastics Division’s the unexpected storm system constituted has shown, the future can hold any num- Design Gallery and the IDSA Idea Gallery an “Act of God” and the Fifth Circuit ber of meteorological surprises. • Unwind and talk casually at complimentary networking receptions affirmed. For additional information on this topic, Megan Mehalko, co-chair of Benesch’s Polymer please contact Marc Blubaugh at Group, with Matt Jamison of PMCF, will be presenting Of course, one must keep in mind that all on succession planning and exit strategies. See heavy weather conditions do not consti- 614.223.9382 or [email protected]. www.plasticsencounter.com for more information. tute “Acts of God.” See Security Insurance December 1, 2005 Transportation Conference This one-day conference addresses a range of chal- lenges faced when transporting goods. Insurance issues, supply chain strategies, hazmat issues, and more will be covered. The conference will be held FOR MORE INFORMATION ABOUT OUR POLYMER LAW GROUP at the City Club of Cleveland and followed by a networking reception. PLEASE CONTACT ONE OF THE FOLLOWING: For more information, contact Megan Thomas at [email protected] or 216.363.4174.

Allan Goldner Megan L. Mehalko March 5-8, 2006 216.363.4623 216.363.4487 Plastics News Executive Forum Save the date for this popular and informative E-mail: [email protected] E-mail: [email protected] annual conference. Information will be posted on www.plasticsnews.com as the forum approaches.

The content of the Benesch, Friedlander, Coplan & Aronoff LLP Polymer Advisory Newsletter is for general information purposes only. It does not constitute legal advice or create an attorney-client relationship. Any use of this newsletter is for personal use only. All other uses are prohibited. ©2005 Benesch, Friedlander, Coplan & Aronoff LLP. All rights reserved. To obtain permission to reprint articles contained within this newsletter contact Karen Masuga with Benesch, Friedlander, Coplan & Aronoff LLP at 216.363.4409.