Today Blawgletter welcomes back the estimable Ron Woessner as Guest Blawger.  Joining him is aspiring SMU law grad Chris Knowles.

Their post calls on the American Bar Association to tighten the ethical test for security of electronic communications involving confidential matters.  As you'll see, the ABA's standard contrasts with the stricter one that applies to our friends who practice healing arts instead of law.

Messrs. Woessner and Knowles surely know their subject.  Their company, Zix Corporation, features its own Email Encryption Service. 

The opinions they express, of course, are their own.  Let's see what they have to say.

____________________________________________________________________________________

Trust Me — I'm a Doctor (Not a Lawyer)

Ethical Standards for Confidential Communications

Doctors are more ethical than attorneys.  Just ask the American Medical Association.  In maintaining the professional standard of care in communicating confidential information, the professional guidelines are clear.  Doctors are required to protect their patients' personal, confidential information when using electronic mail while lawyers get a pass on client privacy.

The ABA position regarding unencrypted email is well established.  An attorney may communicate confidential client information via unencrypted email without violating the ABA's Model Rules of Professional Conduct.  This same conduct by a medical doctor would run afoul of the AMA guidance for physicians regarding electronic transmission of patient information.  When the AMA considered the ethical responsibility owed to patients in email communication, it determined that the potential privacy implications demanded the use of encryption technology in the transmission of messages containing a patient's personal information.

According to risk guidelines adopted by the AMA, email communications should be conducted over a secured network, with provisions for privacy and security — including encryption — in accordance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA).  "As online communications between physician offices and pateints continue to rise, it is imperative that physicians protect privacy and medical record confidentiality as well as reduce their own liability," said Donald J. Palmisano, MD, an AMA Trustee and member of the AMA Online Oversight Panel.  Dr. Palmisano added that he "encourage[s] physicians to select a secure messaging solution, rather than use un-secure email."

Aditionally, the AMA has noted that unencrypted email services do not meet the security guidelines established by federal law in HIPAA.  The HIPAA Security Standards require physicians to protect the security of patients' electronic medical information through the use of procedures and mechanisms that protect the confidentiality, integrity, and availability of information.  Therefore, physicians and other healthcare providers and their business associates must implement administrative, physical, and technical safeguards that will safeguard electronic health information that they collect, maintain, use, and transmit.  In short, doctors must use email encrytion to protect patient privacy.

The AMA mandates encryption because it has determined that email is not a secure method for sending sensitive data.  The conclusion that physicians should steer clear of unencrypted email communication with patients has been endorsed by the majority of the nation's leading medical societies, including the American Academy of Opthalmology, the American Academy of Pediatrics, the American College of Obstetricians and Gynecologists, the American Psychiatric Association, and the American Society of Plastic Surgeons — groups comprising over 70 percent of the nation's insured physicians.  However, it's not just doctors who understand the duty to protect a client's privacy.

State governments and privacy-attuned companies require encryption for email containing personal, confidential customer information.  In addition to the scores of banks and healthcare companies that use email encryption to transmit personal, confidential data, the governments of Massachusetts and Nevada either currently or soon will demand encryption of personal information sent via email.  And consider the recent press announcement by Walgreens/Kentucky Health Systems (KHS) concerning the unencrypted transmission of roughly 28,000 state retirees' names, dates of birth, and Social Security numbers by Walgreens to their customer, Kentucky Retirement Systems (KRS).  Under KRS rules, the failure of Walgreens/KHS to comply with KRS's encryption mandate required them to disclose the security breach to the public.

In contrast to the privacy-conscious position of the AMA, state governments, and privacy-responsible companies, the ABA permits the use of unencrypted email communication between attorneys and clients because it believes unencrypted email affords a "reasonable expectation of privacy."  The courts do not always agree — as one client recently discovered when using unencrypted email at work to communicate with his attorney.  See Scott v. Beth Israel Medical Center, Inc., 847 N.Y.S.2d 436 (N.Y. Sup. Ct. Oct. 17, 2007).  The case did not end well for the client.  See Scott v. Beth Israel Medical Center, Inc., 850 N.Y.S.2d 81 (N.Y. App. Div. 2008) (ordering judgment against client).

Clients deserve better.  The AMA requires email encryption for private health information.  Why does the ABA accept a lower standard for attorney-client communications?  It is time for the ABA to raise the ethical bar and require the use of encrypted email for attorney-client communications.

Ron Woessner
Senior Vice President, General Counsel, and Secretary
Zix Corporation

Chris Knowles
Consultant
Zix Corporation

Feed-icon-14x14 Happy Cinco de Mayo!

You've read about the U.S. Supreme Court's ruling in the "fleeting expletives" case.  Today Blawgletter welcomes you back to the case involving a "fleeting image of nudity" that, for 9/16 of a second, broadcast a picture of Janet Jackson's bare right-side area between the bottom of her rib cage and her shoulder.

The Federal Communications Commission condemned CBS's failure to stop transmission of the nakedness.  It assessed a $550,000 fine.  The Third Circuit vacated the order as "arbitrary and capricious".  See "Third Circuit Strips 'Wardrobe Malfunction' Fine".

The Supreme Court today vacated the Third Circuit's decision and remanded the case to that court "for further consideration in light of FCC v. Fox Television Stations, 550 U.S. ___ (2009)."

At least three courts of appeals have held that a non-contracting party who loses a motion to compel arbitration under the doctrine of "equitable estoppel" has to wait until the end of a court case to appeal.  See "Antitrust Class Beats Arbitration-by-Estoppel".  The Second Circuit parted company with its sister courts (the Sixth, Tenth, and D.C. Circuits).  See "Supremes to Settle Arbitration Appeal Split".

The U.S. Supreme Court today took the minority view also.  In Arthur Andersen LLP v. Carlisle, No. 08-146 (U.S. May 4, 2009), six of the nine justices agreed that section 16(a)(1)(A) of the federal Arbitration Act controls.  It provides a right to a midstream appeal from "an order . . . refusing a stay of any action under section 3."  It thus allows anyone who loses a motion to stay a lawsuit pending arbitration to appeal right away:

By that provision’s clear and unambiguous terms, any litigant who asks for a stay under § 3 is entitled to an immediate appeal from denial of that motion—regardless of whether the litigant is in fact eligible for a stay.  Because each petitioner inthis case explicitly asked for a stay pursuant to § 3, App. 52, 54, 63, 65, the Sixth Circuit had jurisdiction to review the District Court’s denial.

Id., slip op. at 3.

But what of section 3 itself, which limits stayable actions to ones "referable to arbitration under an agreement in writing"?  The majority of the courts of appeals read section 3 to bar relief if the losing party didn't bind itself to "an agreement in writing" and instead argued that equitable estoppel allowed it to enforce the clause against one who did so bind himself.  Justice Scalia, writing for the Court, would have none of it:

Respondents argue that, as a matter of federal law, claims to arbitration by nonparties are not "referable to arbitration under an agreement in writing . . . because they seek to bind a signatory to an arbitral obligation beyond that signatory's strictly contractual obligation to arbitrate," Brief for Respondents 26. Perhaps that would be true if § 3 mandated stays only for disputes between parties to a written arbitration agreement. But that is not what the statute says. It says that stays are required if the claims are "referable to arbitration under an agreement in writing." If a written arbitration provision is made enforceable against (or for the benefit of) a third party under state contract law, the statute’s terms are fulfilled.

Id. at 7 (emphasis in original).

Justice Souter wrote a dissent, in which Chief Justice Roberts and Justice Stevens joined.

FeedIcon Semper ubi, sub ubi.

Products that U.S. manufacturers made in the U.S. but sold in Argentina injured Argentines in their home country.  The Argentines sued in the U.S.  The U.S. defendants moved to dismiss the cases in favor of suits in the Land of Contrasts — perhaps in bustling Buenos Aires.  Result?  The American judges lightened their dockets with pen strokes granting the motions.

The Seventh Circuit upheld the forum non conveniens (inconvenient forum) orders. The court noted the oddity of U.S. companies begging for Argentine justice while Argentines pleaded for trials in Florida and Illinois.  But no matter.  "[O]ur focus in these cases must be on particularized circumstances that lean in favor of U.S. courts or foreign courts."  Abad v. Bayer Corp., No. 08-1504, slip op. at 8 (7th Cir. May 1, 2009).

The court shunned the "incomplete" "laundry list" approach under the famous forum non decision in Gilbert v. Gulf Oil Co., 330 U.S. 501 (1947).  The Gilbert method, the court pointed out, "gives a party free rein to suggest any reason that occurs to him for why the case should be litigated in one court rather than another."  Abad, slip op. at 9 (emphasis in original).  And so the court picked the factors it deemed most pertinent — which place's law will apply to the claims and the situs of key evidence.  Because both pointed to Argentina and no other factor outweighed them, the court held that the district courts didn't abuse their discretion by dismissing the cases on forum non grounds.

FeedIcon Abad decision?

U.S. Supreme Court Justice David Souter will leave the Highest Bench in the Land in June.  See articles by WSJ, NYT, WaPo, Bloomberg, Fox, and CNN.

Lawyers who practice in federal court will likely remember Justice Souter best/worst for writing the Court's opinion in Bell Atlantic Co. v. Twombly, 550 U.S. 544 (2007).  Twombly held that a complaint can't survive a motion to dismiss unless it states a "plausible" claim. It also retired the Court's old shorthand for judging a complaint — the "no set of facts" gloss from Conley v. Gibson, 355 U.S. 41 (1957).  Courts cite Twombly more often than any other case.

The pro-defense Twombly outcome contrasts with Justice Souter's generally moderate-to-liberal record on the Court.

Avaya IP Phone 
One of Avaya's IP Telephones.

Today the Third Circuit sent part of a securities fraud case against Avaya Inc. back to the district court.

The "central theory is that investors and analysts viewed the key to Avaya’s success to be its ability to increase sales revenues without cutting prices."  The panel held that the complaint alleged enough details about Avaya's "pricing pressure" statements to survive a motion to dismiss under the strict standards of the Private Securities Litigation Reform Act of 1995.  Institutional Investors Group v. Avaya, Inc., No. 06-4595, slip op. at 3 (3d Cir. Apr. 30, 2009).

The court affirmed the grant of the motion to dismiss in part.  The complaint didn't persuade Their Honors that allegations regarding certain "forward-looking statements" met PSLRA muster.

Feed-icon-14x14 91 pages!

The Paper of Record today reports that the Department of Justice has opened a file on a license pact between Google and people who write and publish books.  The licensing deal would settle copyright claims against Google for its Google Book Search service.   Google describes the "groundbreaking agreement with authors and publishers" here.

Critics contend that the deal gives Google too much power over the online book search market.

The federal judge handling the copyright lawsuit, a class action, extended the "opt out" date for class members to September 4, 2009.  That means copyright owners can choose to exclude themselves from the pending settlement by giving notice of their choice by that date.

The Paper of Record reported last month:

“Up to now, Google has been very careful to avoid predatory behavior,” said Christine A. Varney, a partner at the law firm Hogan & Hartson and a former member of the Federal Trade Commission. “But a transaction like this [a now-kaput deal with Yahoo on search ads], I think, is fundamentally anticompetitive.”

Ms. Varney since has become the head of the Antitrust Division in the DOJ.  Uh-oh.

[T]o experiment with substituting borosilicate glass for ordinary glass in a sexual device was not a venture into the unknown.

Ritchie v. Vast Resources, Inc., No. 08-1528, slip op. at 5 (Fed. Cir. Apr. 24, 2009) (Posner, J., sitting by designation) (holding patent for "sex aid . . . fabricated of a generally lubricious glass-based material containing an appreciable amount of an oxide of boron" invalid for obviousness under KSR Int'l Co. v. Teleflex, Inc., 550 U.S. 398 (2007)).

FeedIcon No comment.

A 5-4 U.S. Supreme Court today upheld the Federal Communications Commission's rule change that bars "fleeting expletives" in television broadcasts.  Federal Communications Comm'n v. Fox Television Stations, No. 07-582 (U.S. Apr. 28, 2009).

For background, see "The FCC Would Find this Post Indecent".

Justice Scalia wrote the majority opinion; Chief Justice Roberts and Justices Alito, Kennedy, and Thomas joined it (except for the part slamming the dissenters' views).

Justices Breyer, Ginsburg, and Stevens each penned a separate dissent.  All four dissenting justices joined Breyer's.

Feed-icon-14x14 Ineluctable modality of the visible.

Jim Cramer 
Jim Cramer in a calm moment.

Blawgletter went to a speech on Saturday by Jim Cramer, he of CNBC's Mad Money.  He said a Great Many things by way of telling us what brought on the Current Financial Crisis.  But he offered a single solution:  charge the bad guys with crimes and send them to prison.

Going to the brig, he said, "is socially awkward" for These People.  Sending white-shoe Wall Street goons there, he said, will teach a lesson.  It will also help prevent the next Big Financial Catastrophe, he said.

The crime?  Market manipulation.

How so?  Bear with us.  It gets pretty thick.

Hedge Fund A wants to drive down the market price of, say, Goldman Sachs.  HFA starts by shorting the stock.  Big time. 

In the old days — 10 or so years ago – HFA couldn't do that because a short seller had to own or "borrow" all the shares it wanted to short.  But the Securities and Exchange Commission stopped checking awhile ago.  So HFA could short millions and millions of shares even though it couldn't comply with the own-or-borrow rule.

The SEC's view of its "uptick" rule aids the strategy.  The rule barred shorting until a stock's price rose a bit.  It aimed to prevent a downward vortex.  But the SEC quit enforcing the uptick rule, too.

HFA next doubles down on its bet that Goldman Sachs stock will fall by buying credit default swaps.  The CDSs guarantee HFA a big payoff if Goldman Sachs bonds take a tumble.  They will, of course, if investors start doubting the firm's solvency.

Now comes the fun part.  Credit rating agencies and journalists begin calling HFA to find out why HFA shorted Goldman Sachs stock in such a big way.  HFA says it has heard the firm has real trouble, could collapse, can't survive.  The agencies and reporters, HFA hopes, will downgrade their ratings for the Goldman Sachs bonds.  If they do, HFA will collect Big Bucks on the CDS contracts.

Mr. Cramer supposed that HFA might not have acted alone.  Other hedge funds might have chosen the same strategy.  Perhaps they acted together.

The result?  Goldman Sachs stock dropped.  A lot.  A healthy firm teetered on the brink of extinction.  Meanwhile, HFA and its friends reaped Large Rewards.  The shorts paid handsomely, as did the CDS contracts.

Fact or fiction?  We don't know.  But we Totally Agree that the lurch towards deregulating financial markets made the scenario possible and probably likely.

We also accept Mr. Cramer's penitentiary remedy.  He proposed a special Department of Justice section that would go after the bad guys, on Wall Street and beyond.  But we add that the crime angle takes its power in part from the fact that Congress and the courts have made civil fraud cases so hard to maintain.  They've judged that plaintiffs must detail, in their complaint, facts that compel a "strong inference" of intent to defraud.

Civil lawyers who suspect fraud can seldom get such key information.  Criminal prosecutors, by contrast, have authority to issue subpoenas and compel testimony to a grand jury.  And insiders who know what went on tend to go to the authorities in hopes of cutting a deal that'll keep them out of the hoosegow.

Which leaves us with the Department of Justice as the protector of market integrity. 

Thank God someone will do it.  Thanks, Jimbo.