From The General Counsel’s Desk

SOCIAL MEDIA:

The Rules of the Online Game – Part II

By David J. Lynam

Lynam & Associates, Chicago and Barrington, Illinois

Social media—everything from e-mail and blogs to Facebook, LinkedIn, and text messaging—has become a part of most people’s daily lives and a part of their personal identity. The constant access we have to these outlets can blur the line between work life and personal life. Prior to the advent of social media, employees conducted themselves in a certain fashion while at the office and were free to act how they wished while off the clock. Through social media, however, employers now have access to their employees’ social lives and employees have access to their personal lives while at work. In this, the second and final part of this series, we explain what employees should know about the line between their work lives and personal lives in the context of social media and also address the recent U.S. National Labor Relations Board’s “Report on Guidelines for Social Media,” which was issued in an attempt to clarify that line.

Employees’ Online Privacy

Perhaps the most problematic social media issue you face as an employee is that your online presence is primarily public, and your employer can view it at his or her leisure. In fact, your present or future employer has every right to view any information you decide to make public through the use of social media. It is helpful and smart to occasionally “Google yourself” (i.e., run a search for your name) to ensure that available information about you is not something your employer would dislike or be harmed by. Although states such as Illinois and New York have enacted protective statutes, employers in most states have the right to terminate your employment if your online presence reflects poorly on the company. Notwithstanding these realities, many employees consider their off-duty social life, whether online or not, to be private, raising the following question: What does the employer have a right to access and what is crossing the line?

The first rule an employee must understand is that the employer may access and review anything accessed using the employer’s computer or other office equipment. For example, while it is illegal for your employer to sign in as you and have constant access to your personal communications, if you have used personal e-mail or personal profiles at work your employer may read anything that was accessed at that time. Your employer may monitor these activities to ensure that your productivity has not been hindered by personal use of electronics. Employers also may monitor such social media activities to investigate potential violations of company policies, such as the leaking of confidential information.

While these rules only apply to an employee’s use of the employer’s equipment, the employer also has the right to limit personal electronic equipment use while at work. In fact, the employer may even single out certain employees and create specific strict guidelines when those employees’ work has suffered as a result of personal electronic use. Essentially, employees should realize that employers have extensive rights to monitor and regulate employees’ on-the-job social media activities.

Most employers have policies in place for social networking and personal communications at work. Be sure to read and understand your employer’s policy and get to know what rights you have and what has been limited. Unfortunately, policies can never cover every possible scenario, and sometimes you will have to make judgment calls. As a general rule, it is best to think of all on-the-clock online interactions as real life, in-person interactions. Personal texts and e-mails at work should be treated the same as having the conversations out loud while at work: If you would not make the comment to the supervisor, coworker, or client’s face, then you should not post it. In addition, if you would feel uncomfortable spending a half hour of personal time on the phone during work hours, then you should not spend a half hour sending personal e-mails or Facebook messages or making blog or Twitter posts. While every employer has different standards, your employer is allowed to take your personal social networking into consideration when evaluating your performance.

Online Relationships with Your Employer

Whether using the employer’s e-mail or letterhead, “liking or friending” the employer on Facebook, or “following” your company’s Twitter, you also must consider your online relationships with your employer, as these interactions are packed with potential issues. Your online conversations with your employer—whether it is the employer tweeting about you or you writing a comment on the company’s Facebook wall—all have potential consequences. While you do have some rights in the unlikely event your employer makes comments about you online, recognize that they also have rights to restrict what you say about them.

Finally, any time you use your work e-mail, you are acting on behalf of your employer, who becomes liable for anything you say within those e-mails. In turn, employers have the right to make you liable to them for any improper use of their business e-mail or online business persona. It is therefore best practice to refrain from using your work e-mail for any personal purpose. If it is absolutely necessary to use work e-mail for any personal purpose, include a clear disclaimer that your communication is not on behalf of the company.

Venting about Work

For as long as people have worked, people have complained about work. Employers and employees both realize that the majority of complaints about work are simply meant to be venting. In fact, most employers would take no offense if you go home to call a friend and say, “My boss has been unusually tough on me lately,” “My retirement plan is to die at my desk,” “Another day, another dollar,” etc. Very little harm could come from such a comment, and there is even some good in allowing employees to get such complaints off their chest. However, imagine making the same comment on a Facebook page or a blog, open for your employer’s clients and the entire world to view. It is easy to see how this usually harmless comment can suddenly cause serious issues for the employer’s reputation.

The above scenario sets the scene for the conflict between employees’ rights to discuss working conditions and an employer’s right to protect itself from damaging claims. This situation is yet another where the line used to be quite clear: An employee discussing working conditions with another employee has long been protected by the National Labor Relations Act. With social media, however, that employee’s discussion looks much different than a water cooler chat, as it now may be published in the public domain. These differences have been addressed, though not exhaustively, by recent decisions of the courts and the National Labor Relations Board, which attempt to set forth the rights of both employees and employers in the social media context.

National Labor Relations Board Report

The National Labor Relations Board (NLRB) is an independent government agency that functions in part to prevent and remedy unfair labor practices under the National Labor Relations Act. While it usually deals with union/employer relationships, the NLRB has recently utilized its authority to address social media issues involving employees and employers. For example, in response to the situation above, U.S. courts and the NLRB have determined that online discussions of working conditions must be protected the same as in-person conversations. However, employees cannot discuss absolutely anything about work with anyone on any forum they may choose. For example, while a group of employees discussing a working condition via a private Facebook group or a group e-mail would be protected, a single employee posting complaints about working conditions as their Facebook status is not. This is a fine line for both employees and employers, and it will take time for the NLRB to catch up and better define guidelines for both parties.

In January 2012, the NLRB released a report documenting 14 cases from the last year in an effort to better illustrate lawful versus unlawful conduct in social media. In the overwhelming majority of cases, the NLRB found that the employers’ social media policies were overly broad and in violation of the employees’ rights. Nevertheless, such findings did not always prevent an employee’s termination, so an employee should be cautious in relying on an argument that their employer’s social media policies are overly broad. (You can download the report at nlrb.gov, under Reports & Policies, Operations-Management Memos.)

Based on the NLRB’s report, it appears that the courts are trying to use several established principles to find a new rule for social media posts. For example, if an employee posts something about work on Facebook, the court will likely consider it to be a public statement. As a public statement, a Facebook post is protected speech so long as it is not a “disparaging attack upon the quality of the company’s product and its business policies, in a manner reasonably calculated to harm the company’s
reputation and reduce its income.”

As the law regarding employees’ rights to use social media continues to develop, a brighter line is being drawn. As an employee, it is important to keep up with the developments and know your rights.

Conclusion

Although the line between personal and work life has been blurred due to the use of social media and electronic communication, it is important for employees to remember that a line does still exist and the rules of conduct change depending on which side of the line you are on. It is best to use all of the available online privacy tools to your advantage to keep your private life private and your work and public life in line with your employer’s standards. In the end, though, the best advice may still be the saying “If you don’t have anything nice to say, don’t say anything at all.”

On April 16th David Lynam, co-chair of the ULCC Entrepreneur Group, will be your host for a luncheon discussion featuring the vibrant “angel” investor community in Chicago, and how Chicago’s start ups are faring in the current environment. The luncheon will be highlighted by a presentation by Jeff Carter of the Hyde Park Angels, Professor K. Raman Chadha of the DePaul Coleman Entrepreneurship Center and Kevin Willer of the Chicago Entrepreneurial Center.

The luncheon will begin with an 11:30 a.m. reception followed by  the program at noon.  The dress code at the Union League Club is business attire.  Our guest speakers for this special event are: 

Raman Chadha

Raman Chadha is an entrepreneurship educator and expert who has mentored hundreds of startups and early-stage entrepreneurs.

In 2003, Raman helped launch DePaul University’s Coleman Entrepreneurship Center, which has become one of Chicago’s most respected university-based entrepreneurship centers. Through the Coleman Center, Raman assembled the DePaul Blue Angel Network and introduced Chicago’s first angel investing educational programs: the Angel Academy seminar series for investors, and Meet the Angels, a quarterly forum for entrepreneurs. He is a regular speaker and media expert on entrepreneurship and startups, and a contributor for Crain’s Chicago Business’ blog for entrepreneurs. Raman holds an MBA from the Kellogg School of Management at Northwestern University, and a BA from the University of Illinois, Urbana-Champaign.

Kevin Willer

Kevin is the President & CEO of the Chicagoland Entrepreneurial Center. In this role, he leads the CEC’s efforts to identify and enable high potential entrepreneurs to build the next generation of high-growth companies in the Chicago area. Since 2003, the CEC has helped our client entrepreneurs secure $268.5 million in revenue, raise $160 million in financing, and create or retain 6,350 jobs.

Prior to the CEC, Kevin co-founded Google’s Chicago office in late 2000. In his 10+ years with Google, Kevin helped expand the office to more than 400 professionals. In his initial business development role, he created partnerships with large marketers and agencies including Dell, United Airlines, Sears, State Farm, Omnicom, and Publicis. From 2005-2011, Kevin led Google’s Telecom Industry practice where his teams managed marketing partnerships with several of the largest telecommunications corporations including AT&T, Sprint, and Motorola.

Kevin earned his MBA from the University of Chicago Booth School of Business, has a Bachelor’s degree from Boston College, and studied at the London School of Economics.

Jeff Carter

Jeff Carter, serial entrepreneur and co-founder of Hyde Park Angels, the fastest growing angel group in the US.  Hyde Park Angels is an organization that provides a forum for entrepreneurial-minded members to invest in seed and early stage businesses, primarily located in the Midwest.

Mr. Carter blogs atpointsandfigures.com, hydeparkangels.com, and has been seen on all the major financial networks as a commentator.

He received an undergraduate degree from the College of Business at the University of Illinois, and an MBA from the University of Chicago.

If you would like to join us, please sign up here (www.eventbrite.com/event).

Part I: Difference Between Patents, Copyrights, and Trademarks

A.  Patents: A patent is an official document or certificate issued by the federal government that describes a new invention and signifies that the exclusive rights to the  invention have been conferred to the patent’s owner. Gives the patent holder the sole right to reproduce for a limited time in order to make a profit on the invention.

B.  Copyrights: A copyright is the statutory right of an author to control the reproduction, adaptation, distribution, performance, and display of any original works of authorship.

C.  Trademarks: Generally, a trademark is any word, name, symbol, figure,  letter, or device used by a manufacturer, merchant or businessperson to identify and distinguish its products or services from those of others.

Part II: Advantages and Rights of Copyright Holders

A.  Exclusive Rights of Copyright Holders

• Reproduction of Copyrighted Work(s)
• Preparation of Derivative Works
•  Distribution of Copies of Copyrighted Work to the Public, by Sale, Transfer, Rental, Lease, or Lending
• Public Performance of Copyrighted Work
• Public Display of Copyrighted Work

B.  Advantages/Benefits

• Royalties
•  Licensing Power
• Acknowledgment for Intellectual Contributions
• Right to Bring Suit for Infringement

Part III Advantages and Rights of Trademark Use

A.  General Common Law rights for any trademark:

• General rights that arise simply through use of trademark in connection with one’s goods or services are commonly referred to as “common law rights”
• No Registration costs, but fewer and limited rights
• Examples of Common Law Rights: Protect mark owner against infringement within same geographical area/market, even by a federally registered trademark; Right to use the “TM” or “SM” symbol to designate as a trademark

B.  Advantages and Rights of Owning Federally Registered Trademarks

• Public Notice of Claim of Mark Ownership
• Legal Presumption of Ownership of Mark and Exclusive Right to Use Mark Nationwide, and Priority as of Application Date
• Ability to Bring Action Concerning the Mark in Federal Court, Including Opportunity to Recover Damages and Attorney’s Fees
• Use of U.S.Registration as Basis for International Registration
• Ability to Record with U.S. Customs and Border Protection Service to prevent importation of infringing foreign goods
•   Listing in the United States Patent and Trademark Office’s Online Database
• Use of the ® symbol.
• Right to have mark become incontestable after continuous use of registered mark for five consecutive years

Part IV: How to Maintain and Protect Trademark Rights

A.  Creation

• First, create a strong trademark (i.e. distinctive and unique) and determine its availability through a search

• If necessary, create a new and available mark

• Next, begin continuous use of mark in connection with goods or services as soon as practicable
• Alternatively, create the trademark and file an Intent-t0-Use Application, while still starting use ASAP
• Use of trademark must be legitimate and real in commerce, not just “token” use in effort to preserve rights
•  Use mark(s) on: product itself; tags or labels; containers, packaging, or displays; documents closely associated with the goods or services, including instruction manuals and advertising materials.

•  Finally, Register the Trademark with the USPTO if the rights and benefits associated therewith are desired

B.  Maintenance

• Continue to use mark in commerce as designated by the registration
• Within one-year of the registration’s sixth anniversary, file an affidavit attesting to continued use of mark.
• Must show that the mark is still in use as specified or that any periods of nonuse are due to special circumstances

• File declaration for incontestability status at any time after the five-year anniversary of the registration date
• Renew registration of mark every ten years by filing a declaration of use and notice of renewal.

For a refresher as to why your brand’s trademark is important refer to our previously published article on  “Protecting your Trademark, Protecting your Brand”.  If you have any questions about intellectual property and your business, please contact our office at firm@lynamlaw.com.

ServCorp’s Chicago Business Shorts provides an informational seminar and a local networking opportunity for like-minded business professionals. Guest speakers covering a range of business domains are invited to share their business knowledge, advice, and helpful commercial information.  Please join as we present:

Copyright and Trademark Protection, Intellectual Property Basics for Business Owners

by David J. Lynam of Lynam & Associates

Join us on Wednesday, February 22nd at 8:30am for breakfast with the presentation starting at 9:00am and concluding at 10:00am, at 155 North Wacker Drive, Suite 4250, Chicago, IL 60606.

If you would like to join, please contact Lynam & Associates at firm@lynamlaw.com to RSVP.

The current litigation is over the NLRB’s authority to enact such a requirement.  The litigation inWashingtonis a consolidation of several suits filed by business organizations such as the National Association of Manufacturers, the National Federation of Independent Business (“NFIB”) and the U.S. Chamber of Commerce.   The NFIB has since added additional complaints to its suit regarding President Obama’s controversial “recess appointments” to the NLRB in early January.  This litigation is politically fueled, and while many commentators believe the NLRB will prevail in enforcing this posting requirement because their grant of power is so broad, the case has passed all early stages of litigation and has reached oral arguments, indicating these business organizations may stand a chance.

The NLRB penalties for not complying with the posting requirements are harsh.  If a company were not to post this, the standard six month statute of limitations for any employee with an NLRA complaint would not apply at all, giving employees, former employees and union organizers an unlimited time to proceed. And, if the lack of notice is found to be willful, there could be further damages as the NLRB could use that as evidence of the company’s unlawful motive of an unfair labor practice.

The poster may be downloaded at http://www.nlrb.gov/poster.  To protect yourself, go to the above website, print the poster, and be prepared to place this alongside all other employee notices on April 30^th.  If the litigation prevails, these requirements will likely be either changed or removed.

If you have any employment law issues, do not hesitate to contact Lynam & Associates at firm@lynamlaw.com.

From The General Counsel’s Desk:

SOCIAL MEDIA:

The Rules of the Online Game – Part I

By: David J. Lynam

Lynam & Associates, Chicagoand Barrington, Illinois

            Employers and workers alike know that “social media” has become a buzzword used to encompass everything from marketing strategies to what employees are wasting time with at work. While most people know the basics of social media, like the sites and what they can do for you, most people don’t realize that there are rules for what you post, who you post to, who you search and what you can control.

Although social media interactions mostly take place in the online world, there can be very real benefits and consequences for any employer, including claims of defamation and/or discrimination based on the business’s use of these sites.  In addition to employers and business owners, employees can face embarrassment, discipline, and even termination for doing the wrong thing on a social network.  For example, it was just reported that Apple, Inc. – which has strict rules regarding online comments by its employees – fired a store employee for making unflattering comments about Apple on his Facebook page.

This two-part series will examine the benefits and the rules for social media, including Facebook, Twitter, and online review sites. In this Part I, we will discuss the benefits and rules from the employer and business owner standpoint, describing what you need to know about online marketing, interactions with employees, and online reviews. Part II will view the benefits and procedures from an employee’s perspective.

Marketing and Benefits

Despite the rules that apply, using social media is an integral part of doing business today: employees and clients – both current and potential alike – look to your online presence just as they do your in-person presence. Company profiles on Twitter, Facebook, and LinkedIn can be a resource for potential clients and potential employees, as well as a useful forum for you interact with each of these groups.  However, as in print media, any marketing and information provided via online social media must be truthful and not misleading. Most social media sites have their own policies and rules regarding promotions and content that you may post, which you should always review before utilizing the sites. Additionally, you should monitor the privacy functions of these sites and determine whether you want employees, clients, and/or the general public all viewing the same content, or whether you would like to specify what content specific groups should be allowed to access.

Are you “friends” with your employees?                  

Employers must know the rules before utilizing any benefits of social media. As little as five years ago, employers may have safely assumed that social networking was only an issue with employees under the age of 25. However, Pew Research Center has reported that the use of social networking sites like Facebook and Twitter has increased 100% in last year for those 65 and older, meaning 1 in 4 of that age group now have an account. These sites currently account for 25% of all time spent online in theU.S., making social networking the number one web activity. As such, social media is no longer something that employers and business owners can ignore.

An employer may initially wish to completely control or prohibit its employees’ online comments and interactions in an effort to avoid any possible problems. However, not only is total control or prohibition implausible, the courts have also ruled it to be illegal. Just as the National Labor Relations Act prevents employers from keeping their employees from meeting outside of work to discuss working conditions, the courts have found that employees “meeting” online and talking about working conditions in any form, even in a Facebook post, is protected labor speech. As such, there are guidelines employers should follow when it comes to regulating employees online conduct.

First, there should be a written policy circulated to and signed off on by every employee. The policy should detail what is and is not acceptable social networking behavior for employees. Your business has every right to ensure your employees’ online profiles do not reflect negatively on your company. In addition, the policy should make sure that certain information – including names of your company’s customers, any protectable trade information, and/or confidential client information – is kept confidential. The policy should address the fact that the company’s anti-discrimination, anti-harassment, and confidentiality policies still apply to employees when they are online, even during after work hours. Keep in mind, though, that while some employer rights are retained, the policy cannot be so broad as to prevent any discussion of work.

Once a policy is established, employees should be given a chance to review and ask questions on what will be considered proper and what could lead to discipline.  Ideally, there should be a way for employees to report possible problematic activity and request advice as to appropriateness before posting on social media sites.

In addition to developing a written social networking policy for employees, beware of how you access your employees’ online identities. You should disclose who you are if “friending” an employee, and should never sign on to an employee’s profile, whether or not you have permission to do so. While it may be tempting to see how an employee acts when the boss is not around, courts have considered some aspects of online profiles to be private, and you may be violating an employee’s rights by accessing his or her site.

Finally, while employers are allowed to perform online research on any prospective employee before hiring, they still must follow all anti-discrimination policies and ensure that (1) the research does not violate the prospective employee’s privacy rights, (2) the research is accurate, and (3) certain protected characteristics which can be discovered on these sites, such as race, do not enter into the hiring decision.

Online Review and Rating Sites       

Employees are not the only important social networking presence.  Whether or not you actively maintain an online presence for your business, one is likely being built; a presence that is extremely important and can be viewed by any potential customers or employees.

While every business owner knows that word-of-mouth recommendations are useful for business, the new reality is that a Tweet or a Yelp review could be just as useful, if not more. The Washington Post reported a study by Michael Luca ofHarvardBusinessSchoolshowing that a rating increase of one star on Yelp (an online rating and review site) leads to a 5-9 percent increase in revenue. While restaurant or store reviews and choices may be one thing, the use of online reviews in professional fields has also increased as people grow more comfortable in trusting online reviews and ratings.

An employer or business owner should not only regularly review what is being said in online reviews, but should know that there are some ways to control what is being said – and also some ways to get in trouble in this area. As an employer or business owner, you can use tools such as Google Alerts to keep up with what is being said about your company online and to use existing reviews – both positive and negative – to assess how your company is doing.

If you see that your company’s status is either not what you would like to see or is non-existent, there are some ways to encourage customers to provide reviews. The best course of action is to kindly ask your satisfied clients to take the time to write a review. However, be aware that there are potential legal pitfalls to asking people to post favorable reviews for your business. The Federal Trade Commission has stated that as with any product endorsement, it must be clear if the reviewer/blogger/rater has been paid or has any connection to the company.  This means that you cannot give cash to customers to write a positive review, nor can your employees pose as customers online without disclosing their status.  These rules extend to any promotion of your products, so if you decide to tout a product of yours on an industry message board, you must disclose your affiliation with the company.

One inescapable reality of online reviews is that some are bound to be negative. If you are concerned about the number or seriousness of negative reviews of your company, most online review sites will allow you to directly respond. In addition, some review sites require some verification of truthfulness and you can demand the removal of any false statements. Our law firm has had success in obtaining the removal of negative statements on behalf of clients, which can be laborious. Otherwise, there is frequently little that can be done about truthful negative opinions other than having thick skin and ensuring that there are offsetting positive comments and reviews.

Conclusion

The best advice is to view your actions on social media sites just as you would any in-person interaction: if you would not rifle through a future employee’s private information in person, don’t do it online; if you would not pose as a satisfied client to lure in future clients, don’t do it online; and if an employee is allowed to make the comment while talking to co-workers outside of work, they may be able to make it online.  Working with legal counsel to develop an appropriate social networking policy and consulting legal counsel when using a new online marketing strategy will help a business utilize all that these forums have to offer, without running into an unanticipated and costly lawsuit.

Flexible Spending Account Balances

Unless your employer has adopted the 2 ½-month grace period permitted by theIRS, be sure to check your balances on any flexible spending accounts and empty them out by December 31. Failure to do so could cause forfeiture of any money remaining in your account.

In addition, you will want to be careful in deciding what amount you should put into your flex plan for 2012, because a $2,500 annual cap on FSA payins will go into effect in 2013.

Year End Gifts

If making a gift by check, be sure the recipient of the check deposits it in 2011 if you want the money to count as a 2011 gift for purposes of the gift tax. Delivery of a certified check to the recipient prior to December 31 will accomplish the same goal, even if the recipient does not make the deposit until next year. Keep in mind that if you don’t fully exhaust the $13,000-per-donee exclusion this year, the shortfall does not carry over.

Similarly, if giving a gift of securities, be sure to endorse them over to the donee and deliver them by year-end if you want the gift to count for 2011.

Deductions

If writing a check for a deductible item, be sure to mail the check before Dec. 31 to guarantee a 2011 write-off. Even if the checks don’t clear until after January 1, you can still claim the deduction for 2011.

If charging deductible items, be sure to follow the proper procedures. If a charge is made on a retail store charge account, you may claim the deduction for the item only in the tax year in which you pay the bill. However, if the charge is made with a bank credit card, you claim the deduction for the tax year in which the goods were charged, regardless of when you pay the bill.

Plan Deadlines

Pay careful attention to the various deadlines affecting retirement plans, IRAs and Coverdells. Most employer plans, including Keoghs, must be established by Dec. 31 to get a deduction for 2011. For SEPs, though, you will have until the due date for filing your return plus any extension. Accordingly, self-employed taxpayers who miss the Dec. 31 deadline for Keogh setup and who wish to adopt a SEP instead will have time to set up a SEP. Contributions to plans for 2011 are due no later than October 17, 2012.

Regular IRAs, on the other hand, must be established byApril 16, 2012in order to take advantage of deductions for 2011. All payins are due by that date as well. Extensions on time to file will not buy you additional time in this case.

In addition, nondeductible payins to IRAs and Roth IRAs and contributions to Coverdell education savings accounts are also due by April 16, 2012.

From The General Counsel’s Desk:

“Nightmare in  Long Branch”

By: David J. Lynam

Lynam & Associates, Chicago and Barrington, Illinois

Whether ’tis nobler in the mind to suffer
The slings and arrows of outrageous fortune,
Or to take arms against a sea of troubles,
And by opposing, end them?  -Hamlet, Act III, Scene 1

Introduction

As those who work with homeowners or condominium associations know, one of the things these associations won’t tell you up front is that “when in doubt, sue” is a maxim they often live by. It is estimated that at any given time, 60% of these types of associations in Illinois are involved in legal proceedings, and in other states that percentage is even higher. Developers and contractors also frequently become engaged in litigation when something in the project goes wrong, and the legal version of finger pointing begins. Sometimes that finger can be pointed at you.

Julius Ballanco, the Editorial Director of PM Engineer magazine, immediate past president of the American Society of Plumbing Engineers, and a sought after specialist on code compliance, was recently confronted with a daunting choice: to spend unknown thousands in legal fees to defend himself against a negligence claim brought by a condominium association, to “take arms against a sea of troubles”,  or spend a large but certain amount and concede that it is sometimes better to “suffer the slings and arrows of outrageous fortune” and choose to fight another day. Did Mr. Ballanco make the correct choice? Eight years and over $150,000 later, Ballanco would reflect on his experience as a “living nightmare.”

Ballanco’s story begins in Long Branch, New Jersey, where Renaissance Estates, L.P., enlisted Ballanco and his firm, JB Engineering and Code Consulting, P.C., to work on a large residential development. The development consisted of one free-standing and three interconnected mid-rise buildings, an underground garage, seven sets of townhouse buildings, six single-family residences, and a clubhouse.

Not only was this a big project, but because it was right on the ocean, it posed some unique problems. According to Ballanco, he and his firm had to take hurricane influence factors into account, the pilings became complicated because the development was on sand, and structural loading was difficult. In fact, Ballanco and his firm had to make many changes in the middle of the project because parts of the building were too heavy. In addition, any exterior sprinklers were exposed to wind and saltwater, further complicating the project.

There was another special issue with the development: snowbirds. Many of the New Jersey residents flew south during the winter, packing their bags, turning off the heat, and leaving their homes behind. As a result, all of the pipes had to have insulation or heat tracing and had to be placed correctly to avoid freezing problems.

Ballanco and his firm had done much design work and his experiences in plumbing engineering were quite varied. As president of ASPE and elsewhere, Ballanco has always been involved in seminars and other educational endeavors. He has written several codes and standards, including the new Illustrated Plumbing Codes Design Handbook published this spring. A large portion of his experience is in forensic engineering—examining system or component failures after litigation over a problem has commenced.

Due to his work in forensic engineering, Ballanco has had plenty of experience with the legal system, both at the negotiation table and in a trial or deposition. However, the Renaissance Estates project took Ballanco by surprise. After he worked on the project for two-and-a-half years, the condominium association sued him for defective sprinkler designs and for allegedly directing the sprinkler contractor to put glycol into the CPVC pipes used in one of the three interconnected mid-rise buildings.

Immediately after the condominium association sued, it offered to settle for $25,000, but Ballanco rejected the offer. Like many professionals who pride themselves on their expertise, the monetary value of settlement did not sit well with him. “I rejected all settlement demands involving money,” Ballanco said. “I called it legal extortion. It just ticked me off… [The attorney] started up from the very beginning and asked for $25,000 from my company, and I told him he was out of his mind.”

Ballanco chose instead to stick to his guns by fighting the condominium association and the various cross-claims brought by the contractor. While the monetary cost of the fight would prove to be high, the stress and anxiety brought on by the litigation was also immense. “It strained my marriage to no end,” Ballanco said. “My wife was yelling, ‘Why did you ever take that project?’ Talk about sleepless nights, I had many.” As his story demonstrates, no litigation is simple or easy, even when you are clearly in the right. Because proving that you are right can be a very costly thing, settlement should always be an option. Strange things can happen once you reach the litigation stage, and in Ballanco’s case, they did happen.

The Condominium Association’s Accusations

When Ballanco was sued, he felt his reputation was in as much danger as his pocketbook, if not more. The condominium association and the general contractor each claimed that Ballanco had not adequately designed the sprinkler systems. The condominium association’s expert witness, another plumbing engineer, claimed he found that Ballanco’s plumbing system design did not comply with the law.

On the other side, Ballanco argued that his designs were both adequate and legal, and that he knew the development’s problems were caused by the sprinkler contractor. His biggest concern, however, was the lawsuit’s threat to his credibility: “The worst was the attack on my integrity, which annoyed the living daylights out of me, because that’s all I have to sell,” Ballanco said.

As it turned out, Ballanco’s designs were adequate, but the sprinkler contractor’s execution of his designs had caused a number of problems throughout the development: the sprinkler contractor had not installed the type of sprinklers that Ballanco had indicated in his plans, and it used the very antifreeze solution that Ballanco had advised against using in every conversation he had with the contractor. In the end, Ballanco’s task became showing that his designs were solid and that any problems were not his fault.

Once the case entered the evidence-gathering stage, Ballanco got his chance to confront the facts and present his own side of the story. He flew to New Jersey for his deposition, where the condominium association’s lawyers questioned him for hours. The deposition was, in Ballanco’s words, contentious: “I continued to refer, during the deposition, to their expert [in colorful terms]. I used words like that just because I was so frustrated. Finally, the attorney blew up at me, and it got very combative. People were holding everybody back. And [the attorney] goes, ‘I’m sick and tired of you calling this guy a moron!’ And I said, ‘Well, if you let me finish the answer, I’ll tell you why he is moron, and I’ll prove it to you.’”

Ballanco’s name calling stemmed from his personal feelings about the opposition’s faulty analysis of his design. The 54,000-square-foot underground parking garage was so big that it required two sprinkler systems under the NFPA 13 Standard for the Installation of Sprinkler Systems. In the expert witness’s analysis, he erroneously collapsed the two systems into one system and claimed that the design was illegal. Ballanco didn’t know that the expert witness had made the error in the analysis until he arrived at the New Jersey deposition. “They showed me a photograph of it, and I just got livid when I saw it,” he said. “The first time I saw the photograph was at the deposition, and I knew exactly where it was and exactly what they had done.”

Giving his deposition, Ballanco’s experiences as a forensic engineer and as an expert witness helped him to convince the plaintiffs to drop the claims based on his allegedly faulty design. “Their contention was that I didn’t provide an adequate design—that disappeared,” he said. “The details were adequate, the specifications were adequate, and they had nothing they could make stick at trial. Those issues disappeared quickly.”

The Tampered Memorandum

With the design claims dropped, the case seemed all but over. But then the entirely unexpected happened. Ballanco had noticed early on in the case that the expert’s copy of a memorandum written by Ballanco to the sprinkler contractor had been altered. The memorandum addressed an issue that had dogged Ballanco since the beginning of the project: one of the buildings was to have CPVC pipe, meaning that the antifreeze agent used in most steel pipes, glycol, could not be used, as it could degrade the CPVC pipes. Instead, a more expensive antifreeze agent, glycerin, was required. In the lawsuit, the condominium association was accusing him of telling the sprinkler contractor to use the corrosive glycol, and wanted him to pay for the damaged sprinkler system.

Ballanco had focused on the issue of CPVC’s sensitivity to glycol antifreeze from the beginning of the project. In fact, he ended every conversation with the contractors by mentioning that they had to use glycerine in the CPVC pipes. “It got to be a standing joke with them,” he said. “To the point that, whenever we were going to end the conversation, he’d say ‘I know, glycerin, not glycol, right?’ and I’d say ‘Yes!’”

Despite all of Ballanco’s warnings, the sprinkler contractors still ended up using the cheaper, more corrosive glycol antifreeze in the CPVC pipes. Afterwards, Ballanco wrote a memorandum on the antifreeze issue, stating that the sprinklers should have been filled with a glycerine-based antifreeze solution. The memorandum went on to mention that the CPVC resin supplier had OK’d the use of glycol in lower concentrations in CPVC pipes. A portion of Ballanco’s original memorandum is shown below:

The memorandum presented by the condominium association was quite different. The first paragraph, in which Ballanco clearly stated that glycerine should have been used instead of glycol, had been deleted. Without that paragraph, the memorandum seems to condone the use of glycol. It appeared that Ballanco had recommended the use of glycol and that he was to blame for the building’s sprinkler problems. If Ballanco was indeed found responsible, he would have had to pay to replace the entire sprinkler system.

Even worse, the sprinkler contractor died early on in the litigation. Witnesses dying or disappearing is at an increased potential in cases making their way to trial. Without the contractor available to cross-examine, Ballanco had to make his case on his own testimony.

Even though it was clear that there was a paragraph missing, the memo was admitted as evidence. So even though Ballanco was confident that the memo had been improperly presented and overall the evidence supported his belief, there were basic evidentiary problems that had to be addressed.

Ultimately, Ballanco was not found responsible for the sprinkler system problems. The judge found that even if the tampered memorandum was accurate, the memorandum was clear that the corrosive glycol solution had already been used in the CPVC pipes. The damage had already been done by the time Ballanco wrote the memorandum, and therefore he could not be held responsible for the damaged pipes. After eight years of litigation and countless sleepless nights, the “living nightmare” of a case was over, and Ballanco could finally return to his business and family.

The Insurance Problem

The court ultimately put an end to Ballanco’s part of the case by dismissing the condominium association’s case against him. However, Ballanco was still stuck with his legal fees, not to mention all of the potential work he missed out on while dealing with the case. For example, in the first year of litigation alone, he dedicated an estimated $30,000 worth of his time to the case. As to the total amount of time he spent on the case, he said, “We stopped counting when I put in over $100,000 of my time.” Obviously, the legal fees were only the beginning of the costs Ballanco incurred during the case.

Ballanco’s legal fees could have been covered by insurance. But as it turned out, the people he trusted never got around to buying the insurance he thought he had. Starting off as a code consultant for the project, insurance was not as much of an issue, because code consultants never directly sign off on any plans or drawings. However, once he began , the contractors convinced him to design the sprinkler system. Now acting as a designer, he was no longer just a code consultant,  and had significant legal exposure.

Once his role in the project changed, Ballanco told the contractor he was not covered by Errors & Omissions (E&O) insurance coverage and that they would have to cover him as an additional insured. He said, “Their response was ‘don’t worry, we’ll cover you for that.’ That was from day one.” Although it was in his contract, the developer never actually added Ballanco as an additional insured, and he therefore had no claim to any coverage. “When the lawsuits started flying, they all forgot that they had said word one to me [about insurance].” he said.

Ballanco said that one of his primary mistakes was his trusting the developer to procure the insurance he needed to protect himself. “Their contention was, ‘You don’t need this, we’ve got you covered, we’ll take care of you, and we’ll roll it over onto the sprinkler contractor,’” he said. He had placed his trust in the developer, and later said, “I should have never done that.”

Of course, with his own E&O insurance, Ballanco’s legal fees would have been covered. However, his principles he so vigorously stood by would have suffered, because with insurance coverage he would have had to surrender at least some control over the conduct of the lawsuit. An insurance company would have desired a settlement of the case at an early stage, depriving Ballanco of his chance to prove himself right. However, in another way, Ballanco had lost control of something else: his ability bring the suit against him to an end.

Looking back, Ballanco has his regrets. He would have chosen insurance coverage over what transpired: “I would have preferred to have insurance. Though I would have argued against the settling,” he said. As Ballanco’s story demonstrates, plumbing designers and engineers are subjected to many potential dilemmas when faced with legal action. Below, we identify some ways to help you navigate these dilemmas.

How Can You Avoid the Same Result?

First off, it is important you understand that you may not be able to avoid litigation, because when an injury occurs, parties like those that Ballanco encountered will attempt to shift responsibility to those who have the least leverage and financial wherewithal to defend themselves. However, you can attempt to avoid Ballanco’s financial losses through (1) carefully drafting agreements that attempt to shift responsibility, and (2) the use of insurance.

Engineers and designers can protect themselves by acquiring their own individual insurance. Individual insurance may be necessary because professionals cannot use their LLC or corporation as a shield against professional negligence claims. Commercial General Liability and E&O policies cover amounts you have to pay if sued, and will pay your legal fees throughout litigation (up to the coverage limits, which are unique to each policy). Such insurance policies are expensive, but in the end the costs may pale in comparison to the price of litigation. It is up to each individual to evaluate and determine which burden they would rather bear.

If you are unable or unwilling to obtain your own insurance, it may be possible to get limited insurance coverage under another contractor’s CGL (Commercial General Liability) policy by being listed as an “additional insured” on that policy. An essential step in being able to piggy-back as an “additional insured” on contractor policies is to be sure that a requirement to that effect is written into the contract you sign, along with the appropriate indemnity clause. While Ballanco was correct in requesting to be covered as an additional insured, he should have been more persistent in obtaining a Certificate of Insurance listing him as such. Without such a certificate or a copy of the policy with his name appearing as an additional insured, he had no way of establishing that he had any right to coverage.

Certificates of insurance are generally issued by the insurance provider and list the names of the insurer, the insured, and any parties who are additional insured’s. In addition, they list the names and monetary limits of any policies held by the insured. While a certificate of insurance is a form of proof of insurance, it is not a statement of coverage. Statements of coverage are contained in the specific policies themselves, and those are where you get your rights and coverage. As such, it crucial to make sure that both the certificate and the policy list you as an additional insured.

It is worth noting that that there is a difference between being an “additional insured” and being an “additional named insured” under the policy. Depending on the language of the contract of insurance, being an “additional named insured” may negate certain coverages that an “additional insured” would have, and vice versa. Unfortunately, there is no standard language for additional insured coverage on CGL policies. It is vital that you evaluate and understand which of these options would be most beneficial to you, and that you negotiate each contract accordingly. If you are sued based solely on your own negligence, there may be no coverage despite being listed as an additional insured. In addition, some states recognize a party listed as an additional insured differently than others, so where you might be covered as an additional insured in one state, another state’s courts may not recognize that coverage. As always, it is important to know your rights and the insurer’s obligations under a policy.

Another important point to know is that if you are listed as an additional insured on multiple policies, you may be able to pick and choose which insurance provider to use. For example, Illinois’s targeted tender rule allows you to choose which insurance carrier will cover litigation costs if you are sued. Institute of London Underwriters v. Hartford Fire Ins. Co., 234 Ill.App.3d 70 (Ill. App. Ct. 1992). You should be aware, however, that as of the writing of this article, this targeted tender rule is unique to Illinois.

Lessons

There are lessons to be learned from the Mr. Ballanco’s “Nightmare in Long Branch.” First, always take the initiative to obtain insurance and do not rely on others to make sure your interests are protected. Next, if you forego obtaining your own insurance, and are relying on another party’s coverage, be sure you understand the rights that go along with being named in that policy. Furthermore, although Ballanco found himself in a bad situation, it could have been even worse if not for his familiarity with the legal process. As such, you should take the time to help yourself by getting to know your legal rights. Finally, choosing whether to prove that an antagonist is wrong and that you are right can come with a heavy cost. Sometimes it is better to “suffer the slings and arrows of outrageous fortune” by controlling the outcome and paying a negotiated amount beforehand, thus saving the fight for another day.

By following our recommendations, and learning from Julius Ballanco’s experience, the next time adversity strikes, you may be much better equipped to avoid the next “Nightmare in Long Branch.”

An increase isn’t always obvious on the face of the assessment notice—Cook County’s notices showed no change in the gross assessment for many commercial properties, but other changes in assessment percentage, etc., will result in big bills. In many cases, commercial property owners can lower their tax bills by proving that the Assessor has overestimated the income they receive from their properties.

Even if your residential or commercial property tax assessment was lowered, remember that local governments still need as much or more money than ever; you may be paying more in property taxes next year, even after a reduced assessment, because you may have to pay a larger portion of the levy than before.

Filing a residential property tax appeal is relatively simple and can be done online at http://www.cookcountyboardofreview.com. Usually appeals have to be filed within thirty days of receiving your home’s “Notice of Proposed Assessed Valuation.”

If you are considering filing an appeal on your commercial property’s assessment, please contact Lynam & Associates.