Pennsylvania is the latest state to adopt a law designed to protect citizens who are faced with lawsuits aimed to impede their right to speak about matters of public concern. Both chambers of the Pennsylvania legislature unanimously passed House Bill 1466 (the “Act”), and Governor Shapiro signed the Act into law on July 17, 2024. The Act grants immunity for protected public expression by empowering judges to dismiss a Strategic Lawsuit Against Public Participation (“SLAPP”). SLAPPs are often used to intimidate and prevent individuals from exercising their state and federal rights to free speech.

By passing anti-SLAPP legislation, Pennsylvania lawmakers made clear that “[i]t is in the public interest to encourage continued participation in matters of public significance” without threat of “abuse of the judicial process.”[1]

A Short History of Anti-SLAPP Efforts in Pennsylvania

Pennsylvania lawmakers introduced anti-SLAPP reform legislation[2] a decade ago, when the Old City Civic Association ceased doing business after being unable to sustain the cost burden of being hit with multiple SLAPP suits.[3] That first version of the bill, Senate Bill 95, was modified in 2018 to address concerns raised by various stakeholders, including the Pennsylvania Bar Association (“PBA”).[4] The amendments included language changes to address the limits of free speech, the scope of potential liability for incurred fees and damages, and the designation of the appropriate factfinder.

A coalition of diverse groups, including the Pennsylvania NewsMedia Association and the PBA, expressed support for broadening anti-SLAPP immunity beyond environmental suits to all “protected public expression.” Anti-SLAPP legislation strengthens and shields free speech rights, particularly for non-profit organizations and individuals with limited resources, though these protections are intended for all, no matter their station.[5]

The new law provides broader protections for claims, acting as the Pennsylvania-specific version of the Uniform Public Expression Protection Act (“UPEPA” or “Uniform Act”), a comprehensive anti-SLAPP law adopted by the Uniform Law Commission. Pennsylvania is the ninth state to enact a bill modeled after UPEPA.[6] By adopting a version of the Uniform Act, Pennsylvania joins these other states in an effort to minimize forum shopping and enhance uniformity nationwide.[7]

Highlights of the Current Bill

Building on the Uniform Act, HB 1466 creates a substantive framework by which lawsuits designed to impede the exercise of protected speech can be dismissed and incorporates procedural features that reflect the actual practice of law in Pennsylvania.

Substantive Framework

• A person is immune from civil liability for a suit based on “protected public expression”—which includes communications in government proceedings and the exercise of free speech and press rights on matters of public concern.[8]
• A SLAPP claim will be dismissed if a prima facie case cannot be established,[9] or if the standard for demurrer or summary judgment is established.[10]
• A party that succeeds in asserting immunity shall be awarded attorney’s fees, court costs, and expenses of litigation jointly and severally against each opposing party that asserted the SLAPP cause of action.[11]
• If a party’s assertion of immunity is itself deemed frivolous or meant to delay proceedings, the opposing party shall be awarded attorney’s fees, court costs, and expenses of litigation.[12]

Procedural Features

• Immunity from a SLAPP claim can be raised at any time, no later than 60 days after service.[13]
• All other proceedings, with certain limited exceptions, are stayed upon the filing of an anti-SLAPP motion.[14]
• The court must hear oral argument on the motion within 60 days of being filed,[15] and it must subsequently issue a decision within 60 days after hearing oral argument.[16]
• In ruling on immunity, a court shall consider the record as defined in the Pennsylvania Rules of Civil Procedure 1035.1 and 1035.2, relating to summary judgment motion practice.[17]
• Any determination whether immunity applies is subject to immediate appeal.[18]

The Act will apply to civil actions commenced, or a cause of action asserted, on or after the effective date. The next steps will include promulgation by the Supreme Court of Pennsylvania of procedural rules in conformity with the pretrial motion procedure under the Act, and the Legislative Reference Bureau will publish a notice of promulgation and the effective date  in the Pennsylvania Bulletin.

Best Practices Following Enactment

Litigants will want to take proactive steps to minimize potential exposure under the Act and should be cognizant that pursuing anti-SLAPP proceedings may seriously stall pending litigation. Our experienced team can help you, your firm, and your clients efficiently navigate application of the new anti-SLAPP law.

Tithi Patel assisted in the preparation of this article. She is a summer associate at Cozen O’Connor and a rising third-year law student at Temple University Beasley School of Law.

[1] 42 Pa. Cons. Stat. § 8340.12.

[2] Pennsylvania enacted a narrow anti-SLAPP bill in 2000, which only offered protection for speech related to criticism of environmental laws or regulations. See HB 1466: Protecting Public Expression Through Anti-SLAPP Reform, ACLU Pa., https://www.aclupa.org/en/legislation/hb-1466-protecting-public-expression-through-anti-slapp-reform (last visited July 11, 2024).

[3] Pa. Lawmakers Pass Bill to Curb Frivolous Lawsuits, Protect Free Speech, The Bradford Era (Jul. 11, 2024), https://www.bradfordera.com/news/pa-lawmakers-pass-bill-to-curb-frivolous-lawsuits-protect-free-speech/article_c49a9e02-3fca-11ef-a846-07bf281ea2a3.html. “[T]he Old City Civic Association [“OCCA”] was hobbled by the cost of getting sued. Even though the cases did not proceed to trial, the OCCA faced thousands of dollars in legal bills after being sued twice in 13 months for objecting to liquor license transfers.” John McDevitt, Whacked by Lawsuit Costs, Old City Civic Association Disbands, CBS News (May 16, 2013), https://www.cbsnews.com/philadelphia/news/whacked-by-lawsuit-costs-old-city-civic-association-disbands/.

[4] The PBA’s Civil and Equal Rights Committee, Civil Litigation Section and other committees expressed support for the pending anti-SLAPP bills, and the Association’s policymaking body, the House of Delegates, approved those recommendations in both 2015 and 2018 as the legislation evolved.

[5] Public Hearing on House Bill 95 – Anti-SLAPP, 2019-20 Regular Sess. 13 (Penn. 2019) (written testimony of Thomas G. Wilkinson, Jr. on behalf of the PBA).

[6] Emily Hockett, UPEPA Sweeps the Nation, Reps. Comm. for Freedom of the Press (June 3, 2024), https://www.rcfp.org/upepa-sweeps-the-nation.

[7] More than 30 states have some form of anti-SLAPP legislation. See generally Speak Free PA, https://www.speakfreepa.org/ (last visited July 11, 2024).  New Jersey recently followed this trend with adoption in October 2023 of its Uniform Public Expression Act.

[8] §§ 8340.13, 8340.15.

[9] § 8340.15(1)(i).

[10] § 8340.15(1)(ii), (2).

[11] § 8340.18(a). An award will also be imposed if the opposing party voluntarily discontinues the SLAPP action, with or without prejudice. § 8340.18(b).

[12] § 8340.18(b).

[13] § 8340.16(b).

[14] § 8340.16(e)(1), (f).

[15] § 8340.16(d)(1).

[16] § 8340.16(d)(5).

[17] § 8340.8340.16(d)(4).  “[F]ederal courts of appeal are split as to whether—and to what extent—provisions of state anti-SLAPP laws should be applied by federal courts sitting in diversity…. The First, Second, and Ninth Circuits have previously … allowed defendants to invoke at least some state anti-SLAPP law protections in federal court. The Fifth, Tenth, Eleventh, and D.C. Circuits, however, have not.” Shannon Jankowski & Charles Hogle, SLAPP-ing Back: Recent Legal Challenges to the Application of State Anti-SLAPP Laws, ABA Comm’ns Law. (Mar. 16, 2022), https://americanbar.org/groups/communications_law/publications/communications_lawyer/2022-winter/slapping-back-recent-legal-challenges-the-application-state-antislapp-laws/. The Act’s fee shifting provision and its new cause of action should be deemed substantive law that apply in federal court because the immunity is not tied to any particular court procedure. The immunity can be raised in any pleading or motion permitted under the governing rules of civil procedure. A party is free to raise it via preliminary objections in state court or a motion to dismiss in federal court, a motion for judgment on the pleadings, at summary judgment, or even on a directed verdict.

[18] § 8340.17.

Oral settlement agreements are typically enforceable, provided that the parties are able to show a meeting of the minds regarding terms that comply with their jurisdiction’s statute of frauds, and that can be performed within one year.[1] However, when the oral settlement is reached during a mediation, the agreement may be unenforceable even where there is no material disagreement on the settlement terms. This article serves to summarize a recent New Jersey appellate ruling that drew a bright line rule on whether oral settlements reached in mediation are enforceable, and how this decision compares to the current law in Pennsylvania.

Napolitano & Oral Settlement Agreements in New Jersey Mediations

In Napolitano v. European Construction Professionals LLC, the New Jersey Appellate Division considered whether one party could compel the other to comply with the terms of an oral settlement reached during mediation.[2] The litigation initially arose out of a breach of contract dispute, where plaintiff homeowners alleged breach and negligence against a construction company. After discovery, the parties agreed to participate in mediation. While they failed to reach a settlement during their initial meeting, a subsequent series of phone calls between the parties and the mediator appeared to resolve the dispute.

Seeking to confirm the settlement, the mediator sent a letter to each party’s counsel, expressing that, “based upon my phone conversations with each of you yesterday, we have reached an agreement.” The letter also set forth the essential terms of the settlement, and requested each party to sign and return the letter to signify their assent to the deal. Neither party, however, returned a signed copy of the letter, nor did they email the mediator acknowledging the settlement’s completion. Instead, the parties exchanged emails about redefining some details of the settlement, and eventually ceased communication without a resolution.

Six months later, the defendants filed a motion to enforce the settlement with the New Jersey Law Division in Hudson County. The defendants argued that the essential terms had been agreed upon, while the plaintiffs asserted that there was no binding agreement reached. The Law Division granted the defendants’ motion, concluding that the parties had reached a meeting of the minds during the mediation process, and noting that past precedent had enforced oral settlement agreements, even without the presence of a written agreement.

The plaintiffs appealed, and in a notable opinion, the Appellate Division reversed the lower court’s decision. The Appellate Division first acknowledged that typically, when parties agree upon the essential terms of a settlement so that the details can be “fleshed out” in a later written document, the settlement will be enforced notwithstanding the fact that a writing does not materialize because one party later reneges. 

However, the Appellate Division then drew a sharp distinction for oral settlements reached during mediation, proclaiming that, under New Jersey law, “a settlement that is reached at mediation but not reduced to a signed written agreement will not be enforceable. This ‘broad, bright-line rule’ governs all mediation agreements, whether mediation is court-ordered or voluntary.”[3] This rule eliminated New Jersey litigants’ ability to enforce oral settlement agreements reached in mediation, unless the agreement has a written, signed counterpart.

Pennsylvania Courts on Oral Settlement Agreements in Mediation

Unlike the bright-line rule expressed by the New Jersey Appellate Division in Napolitano, Pennsylvania courts have not adopted a rule prohibiting the enforcement of oral settlements reached in mediation. “An oral settlement agreement may be enforceable and legally binding without a writing.”[4] Generally, Pennsylvania law requires that, to enforce an oral settlement made in mediation, there must be clear evidence that both parties assented to the essential terms of the settlement, and that the parties must not have agreed that a written contract was a condition to a binding agreement.

The Pennsylvania Superior Court considered the question in Krebs v. United Refining, when a plaintiff homeowner alleged nuisance and negligence after the defendant’s property leaked gasoline fumes into the plaintiff’s basement.[5] The parties participated in mediation, and while they did not reach a total settlement, they drew up a written mediation agreement. The agreement, however, provided that “no settlement is final and/or binding until formal documents are fully executed.” The parties later orally agreed to settle for $187,500, but no written agreement was memorialized.

Eventually, the homeowners filed a motion to enforce the settlement, which the trial court denied, and the Superior Court considered on appeal. In affirming the lower court’s denial of enforcement, the Superior Court ruled that it would only “enforce oral settlement agreements… if the parties have agreed upon the essential terms of the agreement.” The court ruled that the evidence failed to show that the parties had achieved a meeting of the minds as to the essential terms of the settlement, and the court would not “fill these terms in” and enforce an agreement of its own devising. The court relied on the fact that essential terms were never placed on the record, and that the parties had explicitly agreed that the settlement must be in writing to be enforceable.[6]

Pennsylvania’s federal courts have drawn similar conclusions when interpreting the enforceability of oral settlements reached at mediation. The Western District of Pennsylvania has ruled that the test for enforceability is whether both parties have manifested intent to be bound by the settlement’s terms and whether the terms are sufficiently definite to be enforced.[7] A term sheet may be evidence of an intention to be bound, but when it requests one party’s agreement to the terms therein, this weighs against enforceability.[8] In a Middle District ruling, the court enforced the terms of an oral agreement reached as to all material terms during a court annexed voluntary mediation notwithstanding the parties’ inability to agree on how the terms would be memorialized in a subsequent writing.[9]

The Eastern District of Pennsylvania enforced an oral settlement reached in mediation in Orta v. Con-Way Transportation.[10] There, a formalized writing was not a condition of the settlement, and both parties were present at the settlement conference and had given express authority to their attorneys to settle the lawsuit. Additionally, the mediator held a post-negotiation meeting to ensure that the parties understood what occurred during the mediation, and the plaintiff did not object to the settlement at that time. The fact that the plaintiff later changed her mind regarding the agreed-upon terms did not undermine the binding nature of the agreement.

The Mediation Privilege as a Challenge to Enforcement

A complicating factor in enforcing oral settlements reached in mediation is the existence of a “mediation privilege” in both the state and federal courts. The Pennsylvania state mediation privilege is outlined by 42 Pa.C.S.A. § 5949, and generally bars admission of all mediation communications and documents into evidence. However, the state privilege carries a notable exception: a mediation document may be introduced in an action to enforce a settlement agreement. There remains question, however, as to whether oral assertions made during a mediation can be introduced in an action to enforce a settlement agreement in Pennsylvania state court.[11] Enforcement of the federal mediation privilege has also been uneven.[12] Therefore, there is an obvious tension between the application of confidentiality to mediation discussions and the potential need to enforce terms agreed upon during the mediation. This tension will tend to increase the difficulty of supplying admissible testimonial evidence necessary to enforce terms that were not reduced to writing.

Mediation & Oral Settlements: Best Practices to Ensure Enforceability

While the recent New Jersey appellate ruling in Napolitano is appealing for its bright-line rule barring enforcement of oral agreements reached at mediation, it is also unsatisfactory in the context of oral agreements reached that neither party contends are an inaccurate recitation of the settlement terms. Where one party concedes that it entered into an oral agreement to settle and the terms are undeniable, it is cold comfort to the other side to learn that the agreement reached will be unenforceable simply because it was not immediately reduced to writing.

To improve the likelihood that an oral settlement reached during mediation will be enforceable, consider the following practice pointers:

If parties are able to agree on the essential terms of a settlement, write them down on a term sheet signed by the parties and witnessed by counsel. This will provide stronger justification for bypassing the mediation privilege if you must file a motion to enforce settlement. In the term sheet, stipulate that formalization of the terms into a written contract is not a condition precedent to its binding nature. Include a statement that each party has in fact read, understood and agreed to the terms, preferably in consultation with their respective counsel. Securing a signature, initials or other physical manifestation of the opposing party’s informed assent to the terms is also critical to ensuring enforceability, particularly in New Jersey.

If the desire is to avoid later inquiry into oral mediation communications, incorporate into the mediation agreement a provision precluding disclosure and rendering such communications confidential, including the exchange of documentary evidence, mediator statements made during the course of the session, as well as any draft terms sheets.

A more nuanced drafting approach would deem all communications during the course of the mediation confidential, but explicitly state that the provision does not apply to any proceeding to enforce a mediated settlement.

Finally, take all steps to ensure that your client has expressly consented to the settlement, and your role in securing it. Have your client(s) present at the settlement negotiations, and have the mediator explain the mediation process to them. Be sure that at the conclusion of the mediation, your client has fully understood what has transpired, and each material term of the agreement. This will help to ensure that there is adequate evidence of their express consent to settle.

The article was written with the assistance of Thomas DePaola, a 2024 summer associate in the firm’s Philadelphia, Pennsylvania office.

[1] See, e.g., White v. Fleet Bank of Maine, 875 A.2d 680 (Me. 2005).

[2] See Napolitano v. Eur. Constr. Pros., LLC, No. A-0960-23, 2024 WL 1650656 (N.J. Super. Ct. App. Div. Apr. 17, 2024). The opinion is designated “not precedential.”

[3] The Appellate Division relied primarily on the reasoning of its prior ruling in Gold Tree Spa, Inc. v. PD Nail Corp., 291 A.3d 1185 (N.J. App. Div. 2023)

[4] Kazanjian v. New England Petroleum Corp., 332 Pa. Super. 1, 480 A.2d 1153, 1157 (1984).  “If parties agree upon essential terms and intend them to be binding, ‘a contract is formed even though they intend to adopt a more formal document with additional terms at a later date.’” Johnston v. Johnston, 346 Pa. Super. 427, 499 A.2d 1074, 1976 (1985).

[5] See Krebs v. United Ref. Co. of Pennsylvania, 893 A.2d 776 (Pa. Super. 2006).

[6] It bears noting that the Superior Court recently reaffirmed the principle that a settlement, whether oral or in writing, will not be enforced unless it reflects the express authorization of the client. John G. King v. Christopher P. Driscoll, 2023 Pa. Super. 95 (June 5, 2023)(reversing trial court’s grant of petition to enforce settlement).  See also Reutzel v. Douglas, M.D., 870 A.2d 787, 788 (Pa. 2005) (reversing trial court’s order enforcing claimed settlement and remanding for trial court to determine whether plaintiff sustained his burden in proving defendant’s attorney had express authority to settle the case).

[7] See Long v. TowLine River Serv., Inc., 568 F. Supp. 3d 535, 549 (W.D. Pa. 2021).

[8] The Third Circuit, in its Appellate Mediation Program Rules, prohibits disclosure of statements made in mediation proceedings, and further provides that “[n]o party will be bound by statements or actions at a mediation session unless a settlement is reached.  If a settlement is reached, the agreement must be reduced to writing and will be binding on all parties to the agreement[.]”  L.A.R 33.5(c) & (d).

[9] Bayer v. CitiMortage, Inc., 2014 WL 4187556 (M.D. Pa. 2014). The court noted in its opinion that “there is a strong public policy favoring voluntary settlement of lawsuits,” and therefore, allowing parties to void settlement agreements “because the agreement becomes unpalatable or the parties become greedier, ‘would work a significant deterrence to the federal policy encouraging settlement agreements.’” (internal citations omitted).

[10] See Orta v. Con-Way Transp., No. CIV.A. 02-1673, 2002 WL 31262063 (E.D. Pa. Oct. 8, 2002).

[11] See Aetna, Inc. v. Lexington Ins. Co., 76 Pa. D. & C. 4^th 19 (Pa. Ct. Com. Pl. 2005) (finding that “the confidentiality of the mediation process” is not violated when courts “consider communications related to… mediation in order to ascertain the parties’ intent with regard to [a] Settlement Agreement.”). The Uniform Mediation Act, which has been adopted in a minority of states, exempts only written settlement agreements from the mediation privilege. See Section 6(a)(1).

[12] See generally Gatto v. Verizon Pa., Inc., 2009 U.S. Dist. LEXIS 86601 (W.D. Pa. 2009) (declining to apply a mediation privilege and allowing a mediator to testify as to the terms orally agreed upon during mediation between parties).  See also, Robert Runyon III, et. al., The Ongoing Split Within the Third Circuit Over the Existence of A Federal Mediation Privilege, 95 Pa. B.A.Q. 28, 32 (2024) (addressing the dichotomy that exists between Pennsylvania state and federal courts concerning communications made during the mediation process).

In a rare foray into the thicket of former client conflicts, the Third Circuit affirmed a district court ruling in favor of a lawyer who represented a claimant adverse to a former client in an aviation products liability action.

In Avco v. Turner, a company that manufactures airplane engines sued their former defense attorney for breach of fiduciary duty and declaratory and injunctive relief, contending that she should be prohibited from representing a product liability plaintiff against Avco’s interests.  After Attorney Veronica Saltz Turner was hired by the Wolk Law Firm, she participated in the underlying case, Torres v. Honeywell Inc., where her work was limited to preparing and responding to Daubert motions of two non-Avco defendants and examining expert witnesses at a July 2020 Daubert hearing that did not involve Avco. After that hearing, Turner ceased work on the Torres case.

The evidence showed that over the course of 12 years, Turner had handled a number of products liability actions for Lycoming Engines, a division of Avco. Turner terminated her representation of Lycoming in November 2017 and ended her attorney-client relationship with Avco in June 2018. In March 2020, the Wolk firm, opposing counsel in several of Turner’s Lycoming products liability actions, retained Turner to assist in the Torres v. Honeywell case pending in Arizona.

District Judge Joshua D. Wolson granted summary judgment in Turner’s favor, concluding that Avco did not establish a factual dispute with respect to any actionable injury.  In bringing its claim, Avco bore the burden to produce evidence that the subject matter of the representation was “substantially related” to Turner’s previous representation of Avco.  See Pa. RPC 1.9(a)(former client conflicts). However, the court found that Avco did not meet that burden and granted summary judgment in Turner’s favor.

Avco appealed, and the Third Circuit vacated and remanded for consideration of whether there was a factual dispute as to the existence of a fiduciary relationship and Turner’s alleged breach, which might entitle Avco to fee disgorgement and injunctive relief.  2022 WL 2901015 (3d Cir. July 22, 2022).  The district court thereafter found that Avco failed to prove that Turner had breached a fiduciary duty of loyalty to Avco and again granted summary judgment. Avco Corp. v. Turner, 2022 WL 17251250 (E.D. Pa. Nov. 28, 2022).

Avco appealed once more, but the Third Circuit rejected Avco’s argument, concluding:

“Without evidentiary support of a relationship between confidential information Turner obtained from Avco and the substance of the work she did for Torres, Avco’s “appeal amounts to an argument that all [aircraft product liability] cases are the same.” [citation omitted]  Accepting this overly broad principle could handcuff attorneys to one side of the bar for their entire career. … Because Avco points to no evidence that Turner’s work in Torres called for or allowed the use of confidential information against Avco, it has not met its burden under the substantial relationship test. (Op. at 7-8.)(emphasis in original)”

The Third Circuit’s non-precedential opinion in Avco confirms that a lawyer’s intimate knowledge of a former client’s practices will not, standing alone, establish the necessary link from that confidential information to the subject matter of the later work adverse to the former client.  The challenge must be supported by an evaluation of the substance of the prior representation as compared to the current adverse representation.  Id. at 6, citing INA Underwriters Ins. Co. v. Nalibotsky, 594 F. Supp. 1199, 1206 (E.D. Pa. 1984). The Court observed that the Torres complaint alleged defects in a turbocharger caused the plane crash, but did not supply any documentation supporting its contention that Turner would have needed to draw upon Avco’s confidential information gleaned from any previous representation.

The Third Circuit’s ruling in Avco reaffirmed the principle that a challenge to a lawyer’s representation as a prohibited former client conflict is generally a fact specific inquiry, requiring the former client to produce evidence to support its contention that the lawyer’s current adverse representation is “substantially related” to the work performed for the former client, and that there is a tangible risk that the lawyer will thereby be positioned to take advantage of the former client’s confidential or privileged information. A client’s overly broad assumption that the lawyer must have obtained and will use the former client’s confidential information against in the future will also be insufficient to support a breach of fiduciary duty claim.

The Third Circuit’s observation that lawyers should not be “handcuffed” to a client or its legal position for the duration of their careers provides some comfort for lateral moving lawyers. However, before taking on a new matter that involves the interests of a former client, lawyers must be cognizant of the risks and evaluate the following:

In looking at the scope of the former representation, would the lawyer have received the type of information from the client that could be used to the advantage of the new client and disadvantage of the former client in the new matter;

Was the lawyer’s relationship with the former client so extensive that it obtained “intimate knowledge of the inner workings” of the former client (See, e.g., Darrow v. PPL Elec. Utilities Corp., 2021 WL 5895163 (Pa. Super. 2021); 

In the case of a lateral lawyer who formerly represented a client, can the firm establish an adequate and timely ethical screening protocol to isolate the lateral lawyer and effectively prohibit imputed disqualification under Pa. RPC 1.10. 

The Superior Court of New Jersey, Appellate Division, recently issued an interesting opinion upholding claims against a New York law firm stemming from its employment of an IT support technician contrary to the terms of a restrictive covenant with his former employer. Notably the court also awarded the plaintiff, Accounteks.Net, Inc., attorney fees in the amount of $175,000. 

Accounteks, an IT consulting firm catering to small and medium sized businesses in New Jersey and New York, employed Christian Montes as an IT support technician.  Plaintiff assigned Montes to provide regular on-site tech support to CKR Law LLP. In the meantime, CKR began searching for an in-house IT technician. Montes had left the plaintiff’s employment and CKR reached out directly to him for help with an IT matter. CKR later advised plaintiff that it intended to hire Montes over plaintiff’s objection due to the noncompete.

Of particular interest to law firms, the law firm that hired the IT technician in the face of the non-compete agreement faced a series of claims, including tortious interference. The trial court held a bench trial, finding that the law firm engaged in conduct that was “intentional, malicious[,] and in wanton disregard of [plaintiff’s] contractual rights[.]”  The trial court awarded $72,000 in damages against the firm, representing two years’ worth of monthly fees under the IT services agreement as between plaintiff and the law firm. The judge also found the defendants jointly liable for breach of the implied covenant of good faith and fair dealing, and the firm for intentionally causing the IT technician to breach his ongoing duty to his former employer. At a separate hearing, the court awarded plaintiff counsel fees against the law firm defendant of over $175,000.

The Appellate Division largely rejected the law firm’s appeal points, and of particular interest here, upheld the award of attorney’s fees solely against the law firm despite the lack of an articulated basis in the trial court’s opinion for its departure from the “American Rule,” which generally holds each party responsible for its own attorney’s fees absent a contractual or other recognized basis for such an award. See Rendine v. Pantzer, 141 N.J 292, 322, 661 A.2d 1202 (1995).

The Appellate Division recognized an exception to the American Rule for third-party litigation:

One who through the tort of another has been required to act in the protection of his interests by bringing or defending an action against a third person is entitled to recover reasonable compensation for loss of time, attorney fees and other expenditures thereby suffered or incurred in the earlier action.

2023 WL 3311577 *5, citing DiMisa v. Acqaviva, 198 N.J. 547, 554, 969 A.2d 1091(2009)(quoting Restatement (Second) of Torts § 914(2) (1979)). The court noted that the plaintiff’s claims for payment for services rendered were subject to the American Rule, and therefore no attorney’s fees would be awarded for pursuit of those claims. The court remanded the attorney’s fee award for a recalculation consistent with the contractual non-compete language at issue.

The Accounteks ruling is sobering not only for law firms but also for any business looking to bring IT expertise in house. The court had no difficulty enforcing the restrictive covenant precluding the IT technician from working for any customer for two years after his separation from employment, notwithstanding the general burden on the employer to establish the agreement’s enforceability and the national trend to scrutinize such restrictions more closely.  The court did acknowledge, however, that an employer may not simply employ such a restriction to prevent competition from a former employee. More importantly, the court imposed attorney’s fees against the law firm, a non-party to the IT technician’s employment agreement and fee shifting provision attached to his restrictive covenant, on the basis that the firm had tortiously interfered with his employment contract and that fees were recoverable as reasonable compensation for the tortious conduct.

In light of the Bureau of Labor Statistics May 2023 jobs report that employers added 339,000 jobs to the already tight labor market, law firms and industry alike are well advised to familiarize themselves with this decision and be vigilant about hiring practices in this competitive labor market.  Finding skilled employees is particularly difficult in the current tight labor market. While it may be tempting to consider poaching a vendor’s employees who have proven their skills and usefulness, Accounteks stands as a stark warning to refrain from doing so until and unless the new employer has performed appropriate due diligence.  A law firm considering directly hiring employees of a vendor may benefit from directly addressing with the vendor agreeable terms and conditions for direct hires.

Unlike Pennsylvania, New Jersey also imposes attorney’s fees against lawyers and law firms in legal malpractice actions. E.g., Innes v. Marzano-Lesnevich, 136 A.3d 108 (2015); Saffer v. Willoughby, 143 N.J. 256 (1996); DiStefano v. Greenstone, 357 N.J. Super. 352, 815 A.2d 496 (App. Div. 2003).  This added risk can alter the settlement calculus for law firm defendants, particularly where their available professional liability insurance coverage erodes with the expenditure of attorney’s fees incurred in defending the malpractice action. Law firms facing that additional risk of exhausting their coverage may be more anxious to settle a marginal liability claim at an earlier time.

Another lesson of Accounteks is to consider whether a potential litigation matter could trigger fee shifting. If those considerations are at play, the litigant needs to factor that exposure into its calculus of the cost of the litigation.  

For additional background and takeaways from the Accounteks decision, please review the excellent post authored by Abigail Green below.

A Third Party in New Jersey May be Unable to Avoid Fee Awards Under an Exception to the American Rule

The Federal District Court in Philadelphia has sanctioned a lawyer for copying and pasting opposing counsel’s motion in limine and filing it as her own work product the next day. Finding that the motion had been plagiarized, the court granted a motion for sanctions and awarded attorney’s fees incurred by plaintiffs in opposing the motion and in moving for sanctions. 

In Stilp v. Borough of West Chester, the plaintiffs filed a civil rights suit after the defendant Borough of West Chester issued a citation threatening fines following their flag burning demonstration on the public courthouse steps. The plaintiffs, both political activists, claimed that the local ordinance prohibiting open burning relied on by the defendant borough violated their First Amendment rights. The district court concluded that the Borough could not extinguish plaintiffs’ constitutional claims on summary judgment. On the eve of the deadline for motions in limine, plaintiffs moved to exclude lay opinion testimony by a code enforcement officer to be offered by the defendant on the grounds that he did not have specialized expert knowledge regarding the safety of the flag burning demonstration. The following day, counsel for the defendant filed a virtually identical motion, seeking to preclude lay opinion testimony of the plaintiffs on the same grounds.

The Third Circuit recently opined that sanctions were warranted against investors who pursued claims against an ailing company that were brought solely for the purpose of leveraging a settlement.  The ruling stands as a stark warning of the potential consequences to securities lawyers and their clients if their claims are deemed frivolous.

In Scott, et al. v. Vantage Corp., et al., the plaintiff investors attempted to recover millions of dollars they invested in the company, which eventually declared bankruptcy. They claimed that the company sold securities without making required disclosures and that defendant Askew, a company officer, made misrepresentations about the company’s stock. The District of Delaware granted summary judgment in favor of the defendants in 2019, and the Third Circuit affirmed. After that affirmance, the district court performed a Private Securities Litigation Reform Act (PSLRA) mandated Rule 11 inquiry, and found that two of the plaintiffs’ three claims were asserted in violation of Rule 11, which forbids frivolous filings. However, the court did not award Askew attorneys’ fees or impose any other sanction.

Did you hear about the case where the client’s CEO waived privilege by forwarding an email from his company’s counsel to a hotel’s front desk for printing? Whoops!

In Fourth Dimension Software v. Der Touristik Deutschland GMBh, linked below, the CEO of the plaintiff software company (“FDS”) received an email from the company’s former in-house counsel. Because the CEO was traveling in Germany and wanted to review the email before a key business meeting, he forwarded it to the hotel front desk’s email to print. The defendant successfully argued in the district court that forwarding the email to the hotel front desk waived attorney-client privilege.

The recent arrest of an armed man who planned to kill Supreme Court Justice Brett Kavanaugh has brought renewed attention to the issues surrounding the personal security of federal judges and their families.  The suspect told investigators that he found Justice Kavanaugh’s home address online.

On June 3, a retired Wisconsin circuit court judge, John Roemer, was shot and killed at his New Lisbon home in what the state attorney general described as a “targeted act” against the judicial system.

There were over 4,500 threats against judges in 2021, according to the U.S. Marshals Service.[1] Credible security incidents and threats against federal judges and court officials quadrupled from 2015 to 2019.