Bluegrass Business Law

January 17, 2009

Best Business Practices: Customer loyalty versus switchover marketing

Filed under: Business,Solo & Small Firm — G.A. Napier @ 9:43 pm
Tags: , , ,

The switchover marketing plan has become the norm in big business and unfortunately, it appears to work. Here is a post about Insight Communications, Inc. and how they do business. Switchover marketing is here to stay because companies believe, and probably have the data to show, that if they can just entice a customer away from another provider in a saturated market, that customer will likely stay with them. Once that customer becomes accustomed to that particular company and service, they will be loathe to leave just because of the hassle in changing again.

The “loathe to leave” principle allows credit card companies to raise interest rates after a year or two, insurance companies to jack up their rates year after year, and cable and phone companies to raise rates even in a bad economy. The cloud in the silver lining is that this practice mainly works for big business and so small businesses can take advantage of the raw feelings the individual customer gets. Small businesses, including law firms, can focus on rewarding customer loyalty and any incentives (discounts, special pricing, etc.) can be directed to those who keep coming back.

September 23, 2007

When is business litigation like making stew? When all else failed:

A recent Kentucky Court of Appeals decision provides a veritable grocery list of business related causes of action and their elements: Kenney v. Hanger Prosthetics & Orthotics, Inc., (2006-CA-000939-MR)(to be published).

In the case, John M. Kenney had been an employee of Hanger Prosthetics, but ventured out on his own. He alleged that Hanger employee Michael Adams said many bad things about him, such as that he embezzled from Hanger and was barred from competing with Hanger per a non-compete contract provision. Only Kenney’s claim of breach of contract passed summary judgment while the defamation and tortious interference with business claims died there.

Since the litigation souffle fell with those carefully crafted claims, Kenney’s persistent lawyer(s) decided to make stew. They tried to amend the complaint with just about every conceivable claim:

    A. Interference with Prospective Contractual Relations
    [t]he tort of interference with a prospective advantage is plagued with the absence of a uniformly recognized terminology. It has been referred to as the tort of interference with a business relationship, inducing refusal to deal, interference with a prospective economic advantage, interference with advantageous relations, interference with reasonable economic expectancies, or interference with prospective business expectancies. . . . The American Law Institute has named the tort “Intentional Interference with Prospective Contractual Relation.”
    . . . .
    B. Defamation Per Quod
    The difference between defamation per se and defamation per quod is that, in the former, damages are presumed and, in the latter, the plaintiff must prove special damages.
    . . . .
    C. Unfair Competition/Trade Practices
    unfair competition consists of either (1) injuring the plaintiff by taking his business or impairing his good will, or (2) unfairly profiting by the use of the plaintiff’s name, or a similar one, in exploiting his good will. Underlying the whole theory is the matter of actual or intended deception of the public for business reasons.
    . . . .
    D. Slander of Title, Trade Libel/Disparagement, Injurious Falsehood
    Corporations and other businesses can and do recover for libel or slander when they have been defamed by charges such as crime or fraud. But defamatory charges commonly made against individuals–adultery, for example–have little relevance to corporations and many of the imputations about corporations are harmful without being defamatory. When the publication asserts that the corporate product is defective, inadequate, or harmful without asserting personal defamation, the traditional view regards the claim as essentially different from the claim for defamation. The same is true if the publication merely says that the plaintiff has gone out of business. This different claim goes under the general name of injurious falsehood. When the publication attacks a product, it is also called trade libel or commercial disparagement. When the publication attacks title to property rather than
    quality of a product, the claim is likely to be called slander of title.
    . . . .
    1. Slander of Title
    that the defendant has knowingly and maliciously communicated, orally or in writing, a false statement which has the effect of disparaging the plaintiff’s title to property; he must also plead and prove that he has incurred special damage as a result.
    . . . .
    2. Trade Libel/Disparagement
    Trade libel involves disparaging and false assertions about the quality of one’s property rather than title to it.
    . . . .
    3. Injurious Falsehood
    One who publishes a false statement harmful to the interests of another is subject to liability for pecuniary loss resulting to
    the other if (a) he intends for publication of the statement to result in harm to interests of the other having a pecuniary
    value, or either recognizes or should recognize that it is likely to do so, and (b) he knows that the statement is false or acts in
    reckless disregard of its truth or falsity. Restatement (Second) of Torts § 623A (1977).
    . . . .
    E. Illegal Restraint of Trade and Commerce
    A restraint of trade may be adjudged unreasonable if it is per se unreasonable or violates the rule of reason. Id. Examples of per se unreasonable conduct include price-fixing arrangements, tying arrangements, agreements among competitors to divide markets or to allocate customers, group boycotts, and agreements to limit production. . . . Kenney has clearly not alleged any of these practices or any comparable practices. As for a restraint which violates the rule of reason, “showing merely injury to oneself as a competitor is insufficient.” . . . . Thus, the trial court did not err by failing to permit Kenney to amend his claim in this regard.
    (internal citations omitted)

The Court of Appeals found this cause of action stew rather bland and rejected each one of these attempts to amend the original complaint to survive summary judgment. I do not know if Mr. Kenney retained his attorney’s on a contigent fee or was being billed hourly. If the latter, Mr. Kenney got very expensive pot of unsavory legal stew. But for this huge bill, he also achieved fame through a published case which is an excellent primer on potential business litigation causes of action and how they did not fit his situation.

Lesson of the day: Business litigation strategy should be focused to create a cogent theme. This may include multiple causes of action, but the relevant facts should be put forth so that each cause of action plausibly follows from those facts. Overreaching to try and force tenuous causes of action to fit those facts simply creates excess litigation costs and, like in this case, probably will not change the result.

July 21, 2007

Employment (or loss thereof) at Will Doctrine

Filed under: Business,Solo & Small Firm — G.A. Napier @ 10:49 pm

A recent Kentucky Court of Appeals decision, Follett v. Gateway Regional Healthcare System, Inc, 2006-CA-000855-MR (July 20, 2007)(to be published), provides illumination on an exception to the employment at will doctrine in Kentucky. In this case Sharon Follett, the Director of Nursing at Mary Chiles Hospital, was fired by Patrick Romano, CEO of Gateway (which owns Mary Chiles). Ostensibly, the termination was for insubordination due to Sharon Follett giving raises to two nurses.

I do not even need foreshadowing to tip you off to the next event. Sharon Follett claimed the firing was actually for some whistleblowing she did the preceding year. She cited two events:

    The first situation involved her reporting suspicions that an emergency room doctor was under the influence of alcohol while on duty. The other situation involved her involvement in reporting suspected emergency room billing irregularities at the hospital. Id. at 2.

Ordinarily in Kentucky, and employer can fire an employer for a good reason or just because they feel like it. Usually, a firing can occur even for a morally indefensible, but legal, reason. However, a narrow exception to this fire at will doctrine is when taking such an action violates a fundamental and well-defined statutory or constitutional public policy. In this case, Sharon Follett argued that the firing was due to her unwillingness to violate KRS 311.550(1):

    Conviction of willfully resisting, preventing, impeding, obstructing, threatening, or interfering with the or any of its members, or of any officer, agent, inspector, or investigator of the board or the Cabinet for Health and Family services, in the administration of any of the provisions of KRS 311.550 to 311.620 shall be a Class A misdemeanor.

In looking at Follett’s claim, which was a non-civil rights claim for wrongful discharge, used a three prong approach. She had to show that: 1) she was engaged in a statutorily protected activity, 2) a termination occurred (this seems a bit obvious to actually be its own prong, but there it is), and 3) that there is a connection between the activity and the termination. Furthermore, for the third prong, she had to show that the protected activity was “a substantial and motivating factor but for which the employee would not have been discharged.” Id. at 6citing Zarebidaki, 867 S.W.2d at 188.

The Court then reviewed many of the facts set forth at the trial court level. This included the events around Sharon Follett’s reporting the problems and evidence indicating she, in fact, did have authority from Romano to give the raises. As a result, the Court vacated the trial court’s summary judgement and reinstate the action.

Moral of the story: Even though Kentucky has an employment at will doctrine that strongly favors employers, be sure to review ALL the surrounding circumstances when a firing is questionable. If you are a small business without in-house counsel, it is worth paying a consultation fee to an attorney to perform such a review.

June 24, 2007

The Zen of Dilbert:

Filed under: Business,Solo & Small Firm — G.A. Napier @ 11:54 pm

Does this experience portrayed by Scott Adams’ Dilbert cartoon seem too familiar? If so, you may need to find an attorney with the same entrepreneurial spirit that has made your business successful.

December 21, 2006

Victims’ Rights Groups!?

Filed under: Personal Injury,Solo & Small Firm — G.A. Napier @ 7:07 pm

I am anxious to hear from anyone with first hand knowledge of this phenomenon.  There are a number of victims’ rights groups set up that contact the victims and families of victims immediately (within days) of a major catastrophe, such as Flight 5191, offering “help”.  Some of these groups are likely legitimate and concerned.  Others have a less benign purpose in mind.

Those non-benevolent groups receive considerable funding from large plaintiff attorney firms and were most likely caused to be created by those firms.  The firms call this funding “charitable donations” but is actually an unethical form of fee sharing.  The groups “help” to the victim or family is to refer them to their sponsor firm for representation and tell them they need to protect their rights quickly.  Often, the firm is in a different state.  Often these firms expect fees of 40 to 45% (excessive in my opinion) of any recovery before expenses are taken out.  They then contract with a local attorney in the state of the catastrophe and give them a slice of that fee (why not cut out the middle man?).

So, if you are contacted by a victims’ rights group and they quickly refer you to an attorney or firm, please ask them some questions.  Ask if the firm they are referring you too is out of state, and if so, are they aware of a good in state attorney.  Ask them if the firm they are referring you to regularly donates to their group and how much.  Beware if they cannot or will not answer either of those queries. 

December 11, 2006

Small Firm – Big Value

Filed under: Business,Solo & Small Firm — G.A. Napier @ 2:26 pm

Here is a quote from a great post on by Carolyn Elefant about the value one gets from a solo or small firm:

“Say you decide to charge a flat fee of $18,000 for an appeal that you predict will take you 40 hours to research, brief and argue at your most efficient.  That’s around $450 an hour, $360 even if you take 10 hours more than planned.  Moreover, a $18k appeal is a pretty good deal for a company.   Now, let’s take that same appeal to the big
Boston law firm.  Figure 30 hours for the 5th year associate to reseach and draft the brief ($14,550 at $485/hr), with 15 hours research and proofing assistance from the first year ($4125 at $275/hr).  But then once the briefs have been filed, we can assume that an upper level partner will argue the case, so he or she will need at least a conservative 8 hours of review and prep at $600/hour.  Suddenly, that appeal is up to $23,475, $5k above what you’ve offered, not to mention better value, since when you argue the case, you’ll have the benefit of having done the research yourself.”

I looked up the list that she references earlier in the post from and found a large Cincinnati firm.  This is the closest to Lexington, Kentucky that I could find:

Dinsmore & Shohl (306) (
1st $160 5th $200
2d $170 6th $210
3d $180 7th $215
4th $190 8th $225


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