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JULY 2 0 0 7
ON THE COVER
An Aggressive and
Passionate Defense:
SunTrust Banks, Inc. and
Powell Goldstein LLP
In this issue
• Compliance and Ethics: Training the Board
• Regulatory Trends: Climate for Change—
and Opportunity
• Horizon Issues in Energy
A supplement to InsideCounsel presented by LexisNexis ® Martindale-Hubbell ® .
Bringing corporate counsel and leading law firms together to share best practices.

letter from
martindale
In this issue of Counsel to Counsel, we spotlight the many ways law
firms partner with corporate clients to get out in front of the critical
issues impacting their respective businesses and industries.
contributor profiles
Richard S. Cohen
Managing Partner,
Ford & Harrison LLP
As the EEOC steps up its commitment to
systemic employment discrimination
investigations and litigation, counsel
should work with Human Resources and
take aggressive steps to head off
potential lawsuits.
Global climate change is a business reality that presents a number of
opportunities. “Climate for Change—and Opportunity” makes the
case for proactive corporations to get ahead of the curve on
greenhouse gas emissions. Horizon Issues looks at the significant
impacts to the hard-charging energy industry.
The first of our Profiles in Partnership features SunTrust Banks, Inc.
and Powell Goldstein LLP, and demonstrates the value of finding the
right litigation partner when the press is watching and it’s time to dig
your heels in and stand your ground.
The second Profile examines a 7,000-acre master-planned
community—essentially a small city—that generated a three-year
regulatory review for Newland Communities and its counsel, Fowler
White Boggs Banker, and involved some 19 state and federal agencies.
We hope that you find this issue of Counsel to Counsel stimulating
and informative. Please share your comments with us at
counseltocounselmag@martindale.com.
Howard M. Hoffmann
Senior Trial Partner,
Duane Morris LLP
Richard L. Seabolt
Partner/Litigator,
Duane Morris LLP
Stephen Martin
General Counsel and
Vice President, Strategy,
Corpedia, Inc.
A comprehensive compliance and ethics training
program for board members can help companies
avoid major liability issues.
Isolated legal liability incidents can quickly
become full-blown criminal investigations.
Addressing legal liabilities right away can
greatly reduce the impact of a crisis.
Michael Walsh
President and CEO
On the cover: Pictured from left are L. Lin Wood and Nicole J. Wade, Powell Goldstein LLP; and
Raymond D. Fortin, SunTrust Banks, Inc. Cover photo by Stanley Leary. Story on page 6.
Robert J. Pugh
Chief Counsel, Technology and
Intellectual Property,
The PNC Financial Services
Group, Inc.
Counsel need a simple way to identify
corporate innovations that could be patentable
and offer additional benefits to the company
when protected.
InsideCounsel
222 S. Riverside Plaza, Suite 620
Chicago, IL 60606
calfred@insidecounsel.com
312-651-0345
LexisNexis ® Martindale-Hubbell ®
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Counsel to Counsel is published as a supplement to InsideCounsel, 222 S. Riverside Plaza, Suite 620, Chicago, IL 60606.
Copyright 2007 by InsideCounsel and Martindale-Hubbell. All rights reserved. No reproduction of any portion of this supplement
is allowed without written permission.
LexisNexis, the Knowledge Burst logo, Martindale-Hubbell and martindale.com are registered trademarks of Reed Elsevier Properties
Inc., used under license. © 2007 Martindale-Hubbell, a division of Reed Elsevier Inc. All rights reserved. The views expressed herein
are the views of the author(s) and do not necessarily reflect those of Martindale-Hubbell.
Sherrie L. Farrell
Litigator and Member,
Dykema
Crafting an aggressive corporate defense against
mass tort litigation is no easy task. Establishing
an organizational structure and a detailed product
time line will help you decide on the next step.

Martindale-Hubbell
President and CEO
Michael Walsh
Executive Editor/Editor in Chief
Erin Martin
Coordinator
Laura Coppola
Graphic Designer
Holly Haugen
InsideCounsel
Publisher
Brion Palmer
Director of Custom Media
Carol Alfred
Editor
Jay Becker
Contributing Editors
Scott M. Gawlicki
18
Barry Solomon, Esq.
Amy I. Stickel
John M. Toth
© 2007 JupiterImages Corporation
06
09
features
profiles in partnership
SunTrust Banks, Inc. and
Powell Goldstein LLP
best practices
Preventing an EEOC
Systemic Investigation
Ford & Harrison LLP
13
14
best practices
Establishing the
Corporate Defense
Dykema
global perspectives
M&A Regulation: Piecing
Together a New Paradigm
26
28
in the spotlight
Proactive Structuring
of Investment Agreements
in the spotlight
Notice Provisions:
Balancing Business Relationships
With Insurance Claims
10
11
12
best practices
Compliance and Ethics:
Training the Board
Corpedia, Inc.
best practices
Elements of Triage
Duane Morris LLP
best practices
Surfacing Patentable
Corporate Innovations
The PNC Financial Services
Group, Inc.
16
21
24
global perspectives
Chemical Industry: Facing a Mix
of Regulatory Challenges
profiles in partnership
Newland Communities and
Fowler White Boggs Banker
regulatory trends
Climate for Change—
and Opportunity
02
05
18
departments
brief advice
Dispute Resolution Methods
decision point
Offering In-House Counsel
New Objective Data for
Evaluating Law Firms
horizon issues
Energy
JULY 2007 01

ief advice
Weighing the
Pros and Cons
Martindale-Hubbell posed
the following question to
provide a variety of views
on this important topic:
What should be my primary considerations in
choosing a particular dispute resolution strategy?
Cathleen M. Devlin
Partner
Saul Ewing LLP
cdevlin@saul.com
Lori B. Wiese
Partner
Powers & Frost, LLP
lwiese@powersfrost.com
Peer Review Rated
Daniel F. Shank
Director
Coats Rose
dshank@coatsrose.com
Peer Review Rated
In resolving a business dispute, one
key consideration is whether the parties
seek to preserve an ongoing business
relationship. If they do, a more cooperative,
informal and efficient dispute resolution
strategy, enabling the parties to control
their outcome by mutual agreement—such
as direct negotiation or mediation—is
usually the wiser course. Such methods
maximize the chances of salvaging the
relationship in a way that the “winner and
loser” outcome of more adversarial and
protracted arbitration or litigation
proceedings often cannot.
Dispute resolution often isn’t considered
early enough in the case-review process.
Setting up an effective arbitration
or mediation takes as much effort as a
pretrial hearing—and in a dispute
resolution, not every trial strategy should
be disclosed to the other side, which adds
another element of complexity. Crafting an
organized strategy, bringing together both
parties, creating exhibits and compiling
demonstrative evidence are essential to
success. These efforts take time, but are
often worth it; an experienced mediator
or arbitrator is more informed and
sophisticated than the average jury.
• Mediation allows your client to hear the
other side’s position directly from the
other side. It is the best status report
you can provide your client.
• Arbitration is about replacing the legal
system with a streamlined, sophisticated
arbiter. Arbitration has its place in
technical matters, but it can be just as
expensive as traditional litigation.
• Arbitration need not be administered
between sophisticated parties. Instead,
each party should select a mediator;
the two disinterested mediators select a
true neutral third; and then, proceed
using agreed rules.
02 www.martindale.com

DISPUTE RESOLUTION METHODS
Mediation and arbitration once represented exotic alternatives to litigation, revolutionary methods that could save feuding parties
money, time and the unpredictability of a jury. As parties have grown more willing to embrace ADR, mediation and arbitration have
become standard tools in a legal strategy. Since mediation, arbitration and litigation all have pros and cons, and no two cases are
alike, there are many factors to consider when choosing a particular option—or options.
Illustrations by Holly Haugen
Cheryl E. Diaz
Partner
Thompson & Knight LLP
Cheryl.Diaz@tklaw.com
Peer Review Rated
Michael J. Dewberry
Shareholder
Fowler White Boggs Banker
mdewberry@fowlerwhite.com
Peer Review Rated
John S. Barr
Partner
McGuireWoods LLP
jbarr@mcguirewoods.com
Peer Review Rated
If each party genuinely believes he or she
will prevail, a nonbinding summary jury
trial may be the tool to bring them closer
together. In a summary jury trial, the
parties select 12 jurors from the applicable
jury pool and retain a third-party neutral
to serve as trial judge. The parties each
present a condensed version of the case.
The jurors then deliberate and provide
feedback. The perspective of the jurors can
often lead a party to re-evaluate his or her
position in order to facilitate a settlement.
A sometimes-overlooked strategy is private
judging. Although not available in every
state, it provides the functional equivalent
of a nonjury trial by a retired judge or
qualified attorney, jointly selected by the
parties for his or her expertise. The
process generally involves the streamlined
application of procedural rules and more
case management by the private judge.
It is best suited to cases where an early
decision or greater control over the
pretrial calendar is important, or where
threshold legal issues require prompt
rulings. In many states, some rights of
appeal are preserved.
The primary consideration is “the
consequences of losing”; not just the case
at hand, but the impact losing will
have on future similar disputes, business
operations, reputation and business
strategy. Arbitrators tend to base decisions
on concepts of equity, can be arbitrary and
there is no appeal. Litigation demands
application of the rule of law and provides
an opportunity to appeal a trial court
disaster. Mediation allows for creative
solutions, where litigation and arbitration
serve up a number, often intolerable.
Think through the end game before you
pick your field of play.
(Continued on next page)
For more information about these
lawyers and their firms, please visit
www.martindale.com.
JULY 2007
03

DISPUTE RESOLUTION METHODS
What should be my primary considerations
in choosing a particular dispute resolution strategy?
Illustrations by Holly Haugen
Mary Jane Stitt
Partner
Blake, Cassels & Graydon LLP
maryjane.stitt@blakes.com
Peer Review Rated
Michael W. Hawkins
Partner
Dinsmore & Shohl LLP
michael.hawkins@dinslaw.com
Peer Review Rated
John F. Mariani
Shareholder
Gunster, Yoakley & Stewart, P.A.
jmariani@gunster.com
Peer Review Rated
Private arbitration offers several
advantages over litigation, particularly
when multinational organizations are
involved. If the parties are located in more
than one jurisdiction, they can choose
a neutral forum of convenience. There is
also the ease of enforcement of the
arbitration award internationally without
needing to re-litigate the issues. And
arbitration offers confidentiality of the
dispute and ultimate award; the opposing
parties may not want the precedent of a
court proceeding or all the world to know
the details of the dispute.
As a general dispute resolution principle, it
is critical to know your goals and know the
other party. The key is to understand your
interests and their interests. Particularly
in mediations, the most effective results
come from avoiding excessive posturing,
and, instead, identifying the interests
of the other side and proposing mutually
agreeable solutions. Making reasonable
proposals that can be backed up by
objective and legitimate standards will
go far in bringing the other side in line
with your perspective.
Mandatory arbitration, once viewed
as the be-all, can be straightforward
and definitive but is not necessarily as
streamlined as it once was, and
possibilities of appeal are practically nil.
Mediation tends to work best as a
precursor to arbitration or trial, giving
both sides a glimpse of things to come and
an objective outsider urging peace in place
of war. Trial, while certainly the most
involved, at least allows the check and
balance of meaningful appellate review.
Which to use? Focus on the level of
complexity of the dispute; then, match a
resolution methodology to that.
For more information about these
lawyers and their firms, please visit
www.martindale.com.
04 www.martindale.com

Offering In-House Counsel New
Objective Data for Evaluating Law Firms
decision point
Jacob Wackerhausen/iStockphoto
Corporate counsel and other buyers of legal services frequently
express their need for a robust and independent resource that can
help them identify, evaluate and select law firms. They can learn
about law firms from their Web sites, consult online directories to
evaluate their credentials and review legal publications to read
about their specific accomplishments. What is missing, though, is
objective data in a standardized format that enables true apples-toapples
comparisons of law firms. In-house counsel are asking for
this type of reliable, objective data as a foundation on which they
can build their buying decisions.
A
t LexisNexis Martindale-Hubbell,
we have conducted extensive
interviews with in-house counsel
around the world, asking them
what resources would be most useful
to them in the outside counsel selection
process. This research has highlighted
a critical need for reliable data based on
feedback from other buyers of legal services
regarding their outside counsel. After all,
the first resource that virtually any corporate
counsel uses when looking to hire a law
firm is the old-fashioned referral from one
of their peers.
For example, some of the tasks that buyers
of legal services told us they would hope to
accomplish with this elusive objective data
about law firms include:
■ Select outside counsel with confidence,
using qualitative information from peers
on key criteria for evaluating law firms;
■ Identify and evaluate the credentials of a
law firm about which little is known,
such as a firm in a remote jurisdiction;
■ Receive a true sense of a law firm’s
demonstrated expertise by considering
the feedback from other in-house counsel
as additional data to supplement an
evaluation of law firm profile data,
LexisNexis Martindale-Hubbell Peer
Review Ratings and other information;
■ Save time with the law firm evaluation
process; and
■ Justify the selection of outside counsel
to the CEO, board of directors and
other key executives with an objective
indicator of the firm’s experience and
credentials.
We took this feedback to heart and
partnered with in-house counsel to develop
a new information resource that would
help meet these stated needs. LexisNexis
Martindale-Hubbell Client Review is a
new product that is based on confidential
surveys completed by current and former
clients of law firms that provide client
recommendations of a law firm’s quality of
legal representation, client service and value
for the money. Developed in collaboration
with in-house counsel worldwide, Client
Review also includes recommendations by
practice area and industry.
Just like our Peer Review Ratings, Client
Review is a service to the legal profession
facilitated by Martindale-Hubbell. All
survey responses are anonymous and not
attributable to specific respondents.
We view Client Review as part of the
next generation of decision support data
from Martindale-Hubbell. These reviews
aggregate feedback from law firm clients on
a wide range of critical factors that buyers
of legal services have told us are the key
items that shape their selection of outside
counsel. This is the kind of objective data
that informs in-house counsel’s evaluation
of those qualitative aspects of a law firm
on which only their in-house counsel peers
can comment.
Client Review was developed from a broad
spectrum of corporate counsel input and is
prominently featured on www.martindale.com.
No other comparable client review tool
exists.
To make this offering as useful as possible
to in-house counsel, we need your help.
Participation of in-house counsel as active
reviewers of law firms is essential as we
build this new professional resource that
will be widely available to buyers of
legal services on www.martindale.com, our
industry-leading Web site for information
about lawyers and law firms. Your continued
participation in the process will provide
you and your peers with a credible source
of objective and anonymous input that
you can rely upon as you evaluate, compare
and ultimately select outside counsel.
To help us continue building a useful
and objective information resource
to aid you in your evaluation of prospective
outside counsel, please contact us at
http://www.martindale.com/clientreview/
reviewer/ and learn how you can submit a
Client Review of a law firm.
Barry Solomon, Esq., is vice president
and general manager, LexisNexis
Martindale-Hubbell. He can be reached
at barry.solomon@lexisnexis.com.
JULY 2007
05

profiles in partnership
An Aggressive
and
Passionate Defense
SunTrust Banks, Inc. and Powell Goldstein LLP
By Scott M. Gawlicki
Sometimes you just have to dig your
heels in and fight.
Such was the case in 2005 when two heirs
of a prominent Atlanta family sued SunTrust
Banks, Inc. for a staggering $165 million,
claiming the bank lost them millions of
dollars by mismanaging trust funds established
by their late grandfather.
The lawsuit generated plenty of headlines
and brought the bank more than its share of
negative publicity. But SunTrust was not
about to be intimidated.
“We believed the plaintiffs made a variety
of reckless allegations—unsupported by
facts—that attacked our integrity,” says
SunTrust Executive Vice President and
General Counsel Raymond D. Fortin. “We
made a fundamental decision to defend
ourselves because we knew we didn’t do
anything wrong.”
Faced with what looked to be a long,
drawn-out battle, SunTrust turned to Powell
Goldstein LLP partners and litigators L. Lin
Wood and Nicole J. Wade. Wood, who would
serve as lead counsel and trial lawyer, had
a lot of experience with high-profile cases,
including representation of Richard Jewell
in connection with the 1996 bombing of
Centennial Olympic Park in Atlanta.
“SunTrust was the victim of false accusations
that went to the core of its reputation
and integrity,” Wood says. “The bank
wanted an aggressive and passionate
defense. My reputation is that I play by
the rules but that I’m aggressive and
passionate in defending my clients. So it
was a very good fit.”
Opening Salvos
The lawsuit was brought by Thomas Shaw
and his half brother, Alexander Hitz, after
SunTrust filed to resign as their trustee. The
plaintiffs accused SunTrust of breaching its
“We made a fundamental
decision to defend
ourselves because we
knew we didn’t do
anything wrong.”
fiduciary duty in managing trusts
established by their late grandfather and
Atlanta physician, H. Cliff Sauls. Key to
their argument was the bank’s longstanding
relationship with The Coca-Cola Co., and
its substantial holdings of Coca-Cola stock.
Raymond D. Fortin, SunTrust Banks, Inc.
Shaw and Hitz claimed SunTrust refused
to act on numerous requests to diversify
their stock portfolios—which were heavily
invested in Coca-Cola stock—because it
would negatively affect its own holdings.
That refusal, they argued, resulted in the
value of their trusts declining by more than
50 percent after Coke stock hit a peak of
nearly $89 in 1998 and then dropped to
roughly $44 at the time of the lawsuit.
SunTrust, on the other hand, argued it
had made every effort to comply. In 2000,
it subdivided the original trust into
multiple trusts representing Shaw and Hitz
and two other beneficiaries, an aunt and
Emory University. That increased each half
brother’s annual distribution from about
$75,000 to more than $230,000. But when
the wrangling continued, the bank opted
to resign as trustee.
Photography by Stanley Leary
L. Lin Wood, Powell Goldstein LLP
06 www.martindale.com

partnership
at a glance
SunTrust Banks, Inc.
L. Lin Wood (left), and Nicole J. Wade, Powell Goldstein LLP;
Raymond D. Fortin, SunTrust Banks, Inc.
SunTrust Banks, Inc., headquartered
in Atlanta, is one of the nation’s
largest banking organizations,
serving a broad range of consumer,
commercial, corporate and
institutional clients. As of March 31,
2007, SunTrust had total assets
of $186.4 billion and total deposits
of $123.4 billion. The company
operates an extensive branch and
ATM network throughout the
high-growth Southeast and mid-
Atlantic states.
“There were efforts to diversify their
holdings as well, but we needed the consent
of the plaintiffs and they didn’t consent,”
Fortin says. “Over time, it became apparent
to us that they might be more interested in
litigation than anything else. They were very
difficult to deal with.”
“SunTrust hired Powell Goldstein in 2004
after it received a demand letter from
plaintiffs’ counsel,” Wade explains. “After a
thorough assessment, including extensive
witness interviews and document review, we
agreed with the bank that its actions were
proper and it should aggressively defend the
case.” Beating the plaintiffs to the
“SunTrust had nothing to hide,
so we said, ‘Let’s get into
court and get this resolved.’
The plaintiffs were very
surprised by that strategy.”
courthouse, SunTrust filed suit to resign as
trustee in early 2005. Wade continues,
“SunTrust had nothing to hide, so we said,
‘Let’s get into court and get this resolved.’
The plaintiffs were very surprised by that
strategy.”
Indeed. Shaw and Hitz quickly filed a
countersuit, arguing the bank’s failure to
diversify their trusts resulted in their value
declining from $14 million to $6 million.
Claiming they lost $15 million—$8 million
in market value, as well as the value of lost
income and investment opportunities—
the half brothers asked for punitive
damages 10 times the $15 million figure,
plus fees paid to SunTrust, or more than
$165 million.
Building a Defense
SunTrust and Powell Goldstein began the
defense process by sifting through nearly
30,000 pages of documents, many stored on
microfiche and dating back to the original
trust’s opening in 1950. The documents
were placed in an electronic database
accessible to both SunTrust and Powell
Goldstein attorneys.
“We didn’t just hand the case over; we had
regular strategy sessions with a lot of
dialogue and interaction,” Fortin explains.
“I had to assess the goals and sensitivities
of our business people and convey that to
Lin and Nicole. There were other trusts
with Coke stock, so there was a precedent
component to the case.”
In one analysis, the team examined all
potential gains and losses that would have
been realized if SunTrust had diversified
the trusts at any time other than 1998, when
Coke’s stock price peaked. By including
capital gains taxes and other costs, the
analysis revealed the trusts would be worth
millions less.
“We basically re-created everything that
happened from day one,” Wade explains.
“Dozens of depositions were taken,
including those of the plaintiffs and their
advisers, SunTrust management and
management at Coke. Over the time period,
SunTrust unquestionably made the right
decisions for the trust, and the plaintiffs
As SunTrust’s general counsel,
Raymond D. Fortin is responsible for
the company’s legal and regulatory
affairs, and oversees corporate
compliance, regulatory liaison and
federal legislative affairs. He joined
SunTrust in 1989 and also serves as
corporate secretary and a member
of the Management Committee.
Prior to joining SunTrust, he served
for eight years as staff counsel at
the Citizens and Southern Georgia
Corporation. Contact Raymond at
raymond.fortin@suntrust.com.
profited greatly from those decisions. As a
trustee, SunTrust should not have been
held responsible for failing to sell the stock
at the one moment in history when it briefly
reached an all-time high.”
In 2006, Powell Goldstein moved for partial
summary judgment, arguing that because
the plaintiffs signed the new distribution
agreement in 2000, they effectively waived
any claim that the income paid from the
trusts was insufficient.
Further, the firm asked that expert witness
and financial analyst Candace L. Preston,
whom the plaintiffs brought in to assess the
alleged financial damages, be disqualified
because she had no experience in trusts. At
the same time, Wood and Wade persuaded
SunTrust not to introduce any expert witnesses
of its own.
JULY 2007
07

partnership
at a glance
Powell Goldstein LLP
Powell Goldstein's litigation team
includes attorneys with a wealth of
experience in handling and minimizing
the impact of controversies on a wide
range of industries including manufacturing,
banking, healthcare, technology
and telecommunications. The firm
regularly handles cases in both state
and federal court for individuals and
for institutional fiduciaries, including
four of the largest national banks in
the country.
L. Lin Wood has 30 years’ experience
as a trial lawyer focusing on civil
litigation, representing individuals and
corporations as plaintiffs or defendants
in tort and business cases involving
claims of significant damage. He has
extensive experience in First Amendment
litigation and management of the
media in high-profile cases, including
representation of Richard Jewell,
Howard K. Stern (individually and as
executor of the estate of Anna Nicole
Smith), John and Patsy Ramsey, the
victim in the Kobe Bryant case and
former U.S. Congressman Gary Condit.
Lin is Peer Review Rated. Contact him at
llwood@pogolaw.com.
Nicole J. Wade practices civil litigation,
with an emphasis on fiduciary litigation,
trust and estate litigation and general
commercial litigation. She represents
financial institutions and individuals
in a wide range of fiduciary litigation,
including breach of fiduciary duty
actions, fraud claims, will caveats, will
and trust construction cases, competency
claims, actions for removal of trustees
and executors, and contested
guardianship hearings. Contact Nicole
at nwade@pogolaw.com.
“What’s interesting is that a
fiduciary case can sometimes
be similar to a tort case.
You’re talking about a
standard of care that’s
very fact-specific. So it’s a
battle of experts. In this
case the other side failed to
produce a qualified expert
and we exploited it.”
“You open up the defense lawyer’s handbook
and under ‘strategy’ it will advise you to
prepare your own experts. We did that and
had excellent experts ready to testify for
the bank,” Wood explains. “But if we had
identified those experts, it would have
given plaintiffs additional time to designate
new rebuttal experts and remedy what we
believed to be a fatal deficiency in their
case, among others. Without identifying
our experts, plaintiffs were stuck with
Candace Preston.”
In January 2007, Fulton County Superior
Court Judge Jerry W. Baxter ruled the two
half brothers could not sue the bank for lost
or insufficient income from the trust. He
also disqualified Preston, saying she did not
have the “appropriate level of knowledge,
skill, experience, training, or education, in
the area or specialty in which her opinion is
to be given.”
“My hat’s off to Lin and Nicole; that was a
gutsy move,” Fortin says. “What’s interesting
is that a fiduciary case can sometimes be
similar to a tort case. You’re talking about a
standard of care that’s very fact-specific. So
it’s a battle of experts. In this case the other
side failed to produce a qualified expert and
we exploited it.”
Baxter’s decision represented a major
win for the bank. In March, Shaw dropped
out of the lawsuit and agreed to retain
SunTrust as his trustee. SunTrust, in turn,
agreed not to pursue the reimbursement
of its attorneys’ fees and expenses. With
Hitz’s response still pending, Fortin could
not be happier with both the result and
Powell Goldstein’s performance.
“At the start, I told upper management we
were going to be aggressive and try to set the
tempo of the case. To do that, we needed
litigators with both the passion and ability to
explain our side of the story,” he says. “We
liked the fact that with Lin, Powell Goldstein
brought a real trial lawyer to the case. He
and Nicole were focused, creative partners,
and they put on a superb defense.”
08 www.martindale.com

FORD & HARRISON LLP
Preventing an EEOC
Systemic Investigation
best practices
A longstanding female employee—who did not
situation
complain internally—files gender discrimination
charges with the Equal Employment Opportunity
Commission (EEOC) alleging that she has been repeatedly passed over
for promotion in favor of less qualified men. Regardless of the merit
of her charge, Human Resources (HR) is concerned about a possible
EEOC investigation which would extend beyond the individual charging
party’s situation.
in-house counsel
challenge
The EEOC has recently stepped up its
commitment to systemic discrimination
investigations and litigation. Therefore, it’s
inside counsel’s task to work with HR to resolve the issue quickly
and head off an EEOC investigation before it expands into a pattern
and practice lawsuit.
approach
adopted
In this scenario, which is based on an actual
case, inside counsel and HR began the
investigation by meeting with the department
head to get a detailed explanation as to why the department head
selected the male employee. The department’s statistical evidence was
also examined—including direct hires, promotions, resignations,
terminations and exit interviews—for any evidence of discrimination.
Even though the department head’s reasoning was deemed solid,
the department’s past performance was troubling. Other female
employees had suggested during exit interviews that a previous
department head—not the current manager—had not given women
quality assignments.
In this case, legal and HR opted to establish a new job opportunity
which would represent a promotion for the charging party. HR worked
with the new department head—who was assured the solution was
not based on the belief that he had done anything wrong—to assess
the woman’s skills. At the same time, legal prepared a joint letter that
would go to the EEOC from HR and the charging party.
HR then met with the charging party and told her the situation had been
reviewed. Without discussing the merits of her charge, HR emphasized
her value as an employee and explained the last thing either wanted
was a dispute.
A new position with more responsibility and higher salary was offered.
In addition, HR offered, at the company’s expense, a training seminar
on supervisory skills and advised her that, because of the company’s
commitment to equal opportunity, an EEO training program for all
managers and supervisors within the department had been organized.
implementation steps
• If a discrimination allegation occurs, conduct internal interviews
and take immediate action.
• To prevent allegations and/or problematic EEOC systemic
investigations in the future, establish a system to regularly monitor
statistical employment evidence, including direct hires, promotions,
resignations and terminations, for evidence of discrimination.
• Establish a similar process to monitor and follow up on exit
interview results.
measuring
success
Short term: The female employee was happy
with the promotion opportunity and that
HR had moved so quickly and positively on
her complaint. She signed the letter for the EEOC, which then
dismissed the charge without ever conducting any investigation or
even obtaining a position statement. Hence, the company avoided
what easily could have turned into a pattern type investigation.
Long term: The training did take place and the turnover rate for
female employees in that department was reduced dramatically.
future issues
to consider
In light of the EEOC’s renewed focus on systemic
investigations and litigation, inside counsel must
ensure that statistical employment evidence and exit
interview results are being monitored regularly to
uncover and resolve potential discrimination
problems early on.
Richard S. Cohen is managing partner in the
Phoenix office of Ford & Harrison LLP. His
primary practice area is employment law, with
an emphasis on employment discrimination.
Richard is Peer Review Rated. He can be
reached at rcohen@fordharrison.com.
JULY 2007
09

est practices
COMPLIANCE AND ETHICS:
Training the Board
STEPHEN MARTIN | CORPEDIA, INC.
Stephen Martin is general counsel and vice president, strategy, at Phoenix-based Corpedia, Inc., an ethics and compliance
consulting company, and a clinical professor at the University of Denver. He was a recent Counsel to Counsel forum co-chair.
Contact him at smartin@corpedia.com.
implementation steps
Personal liability for compliance and corporate
situation
ethics failures for board members is at its peak.
Yet, despite recent amendments to the Federal
Sentencing Guidelines—and corporate financial scandals that have held
board members personally liable for millions of dollars—many companies
still do not provide board members with compliance and ethics training.
in-house counsel
challenge
Companies must address FSG board member oversight
requirements of the organization’s compliance and
ethics programs and company responsibility for
communicating program standards and procedures by “conducting effective
training programs and otherwise disseminating information appropriate to
the [board of directors’] roles and responsibilities.” Although directors want
such guidance, most companies do not have formal board training programs.
In-house counsel must explain the expanding liability issues, both to the
company and the board, and establish a comprehensive training program.
approach
adopted
Meet with management and explain the impact of
the recent amendments to the Guidelines. Impress
upon them the necessity of training the company’s
board to protect the company and individual directors.
Then, meet with the board, underscore the importance of the training and
assess each member’s desired training topics. Popular and key training
topics include: data protection/customer privacy; gifts/entertainment;
recent rule changes by the National Association of Securities Dealers and
the Securities and Exchange Commission; appropriate board oversight of a
compliance program under the Guidelines; D&O liability and proactively
addressing risk; and what ethical leadership by directors means today.
Once needs are assessed, determine how to deploy the training. Will
internal or external experts conduct it? Will you employ electronic
tutorials, classroom sessions or workshops with break-out groups? Ensure
quality and effectiveness while maximizing board time. A typical agenda
might include:
• Overview of Board Oversight Responsibilities.
• Substantive Discussion. Includes interactive scenario-based situations,
best practices workshops and Q&A.
• Demonstrate to senior management the need for board training.
Cite supporting information, e.g., the amended Federal Sentencing
Guidelines, corporate and personal liability issues revealed by
recent scandals and/or examples of best practices.
• Assess the board’s training needs. Check with peers to see how
others handle training. Determine who will conduct the training
and establish the format.
• Conduct the training and canvass the board to gauge
effectiveness. Compare results with those of peers or consultants.
Use the feedback to refine all aspects of future training.
• Consider informing stakeholders, customers and employees that
your training has occurred. This could be great positive internal
and external press.
• Ethical Frameworks and Values-Based Leadership. Includes driving
long-term focus, profit and sustainability as an enterprise, including
handling ethical dilemmas.
A day of formal training, separate from the board’s normal duties, is
ideal. Discuss with management the available (and appropriate)
amount of time that can be dedicated.
Provide written reference materials and ask the board to evaluate
training effectiveness. Compare your findings with those of peers or
third parties. Use the feedback to refine future board training.
measuring
success
Providing compliance and ethics board
training complies with the Federal Sentencing
Guidelines, fulfills board oversight duties,
protects the company and individual directors and helps the company’s
drive toward increased long-term profitability and corporate sustainability.
future issues
to consider
Consider approaches for retraining, onboarding new
members and avoiding complacency. Keep things fresh
with continued communications and training that
share best practices and updates.
10 www.martindale.com

DUANE MORRIS LLP
Elements of Triage
best practices
The recent E. coli outbreak linked to spinach, which
situation
began as an agricultural processing accident,
demonstrates that what appears to be an isolated
product liability incident can quickly morph into a full-blown criminal
investigation. Establishing and addressing legal liabilities at the outset—a form
of legal triage—can greatly reduce the impact of a crisis on any organization.
in-house counsel
challenge
minimizes potential legal risks.
As the company’s legal steward, inside counsel
must play a leadership role in developing and
executing a crisis response strategy that averts or
approach
Gather your crisis team immediately. Prosecutors
adopted always look at how quickly a company reacts, so
don’t let anything fester, even for an hour. Identify
the legal risks and risk sources and list them in order of importance.
Begin by identifying the core problem and the potential for continued
injury, death and/or financial loss, and then take remedial action. If you’re
a food, toy or drug supplier, will you need to issue recalls? Should you
temporarily stop buying from your suppliers?
A factory explosion that injures workers may have been caused by leaks
in aging piping. What must be done to prevent further harm at this
facility or others like it? Can the problem be isolated, or will the entire
plant have to be shut down? Retaining outside consultants—for
example, a firm specializing in evaluating and replacing piping—will
obviously affect your response and enhance your image with regulators.
At the same time, institute internal measures to prevent a cover-up. Take
steps as soon as possible to prevent employees from destroying and/or
falsifying operating logs or other records.
Once the problem is identified and remedial measures are in place, develop a
verifiable message that addresses internal and external audience concerns.
Appoint one spokesperson to ensure consistency. If an investigation is
under way and you have no information to release right now, say so.
Reach out to state and federal enforcement and regulatory agencies. If
you enlist regulators as your colleagues, they will be less likely to bring
charges against you.
Have Sales contact key customers. Explain the situation and how you’re
reacting. Send updates by fax, email or both to keep customers in the loop.
If appropriate, consider reaching out to your competitors. They’ve
probably been through similar crises and may be willing to sell overnight
production time—or even the product itself—to help you continue to sell
under your own name.
implementation steps
• Assemble the crisis team as soon as possible.
• Identify the root cause of the problem.
• Establish and implement corrective measures.
• Secure all internal records.
• Craft a public message/response.
• Reach out to regulators and customers.
• Conduct post-crisis analysis.
Finally, your primary outside counsel should be part of the crisis team. They
know your business well and often bring experience from other crises.
measuring
success
Effective crisis management will prevent,
defuse or win private lawsuits and
indictments. Further, it will protect businesscritical
licenses and registrations; reimbursements and grants from
local, state and federal agencies; and long-term relationships with
customers, insurers, lenders and other business partners.
future issues
to consider
If you haven’t already done so, identify and schedule
your first meeting with an internal, go-to crisis
management team.
Howard M. Hoffmann, former chief of the
criminal division and deputy U.S. attorney for
the U.S. Attorney’s office in Chicago, is a senior
trial and appellate partner with Duane Morris
LLP. Howard is Peer Review Rated. He can be
reached at hmhoffmann@duanemorris.com.
Richard L. Seabolt is a Duane Morris
partner/litigator, focusing on complex trials
and appeals arising from commercial
disputes, including those involving technology,
construction and insurance. Richard is
Peer Review Rated and can be reached at
rlseabolt@duanemorris.com.
JULY 2007
11

est practices
Surfacing Patentable
Corporate Innovations
ROBERT J. PUGH | THE PNC FINANCIAL SERVICES GROUP, INC.
Robert J. Pugh is chief counsel, Technology and Intellectual Property, at The PNC Financial Services Group, Inc.
in Pittsburgh. Robert recently co-chaired Counsel to Counsel forums on this subject. He can be reached at
robert.pugh@pnc.com.
implementation steps
Most companies recognize the value and
situation
importance of patenting corporate innovations.
For some industries, such as the financial services
industry, these protectable innovations include processes, generally
implemented by computers, involved in operating a business or that
define a service offering (sometimes referred to as “business methods”).
However, many companies in these same industries do not have a long
history of or established culture surrounding patenting such innovations.
in-house counsel
challenge
Corporate counsel must establish a simple way
to identify new technology-based systems
and processes that may be candidates for patent
protection. This can be especially difficult in industries where there’s
little history of seeking such patents.
approach
adopted
Begin with an internal education program.
Develop and broadly distribute informational
materials explaining the types of methods
and systems that are patentable and why patent protection is
important. Include any examples of innovations your company has
already sought to patent. Target for more focused communications
those areas within the company that are most likely to develop
patentable innovations, such as departments responsible for product or
application development. Establish points of contact for those seeking
more information.
Try to leverage existing databases and systems within the company to
help identify patentable innovations. For example, check with your
IT department to see if your company currently employs one or more
databases to track technology-based projects. PNC, for example,
maintains a “Technology Initiatives” database. When new technologybased
initiatives are launched, they are entered into and tracked within
this database. The project managers enter information concerning the
initiatives into the database, including their name, department, contact
information and detailed descriptions of the initiative.
• Spearhead a campaign that explains what is patentable and why
patent protection is important.
• If possible, provide examples of systems and methods your
company has already sought to patent.
• Provide extra focus to those areas of the company most likely to
develop patentable methods or systems, such as the product or
application development departments.
• Check with IT to see whether a database already exists for
tracking new technology-based initiatives.
• Leverage that database to obtain leads on potentially patentable
technology-based systems and methods.
To leverage the database, the Legal department added a simple yet
effective step—embedding a short series of “yes” or ”no” questions
concerning the initiative into the database and requiring each project
manager to answer them. Examples of these questions include:
“Does your initiative involve a system or process that is not currently
available from a vendor?” and “Are competitors using similar systems
or processes?” The questions take less than a minute to answer,
and, if certain responses are given, an electronic communication is
automatically forwarded to Legal identifying the initiative as one
meriting further investigation. Often, these types of project tracking
databases already include codes to identify the type of initiative. You
can set up the questions so that when certain codes are selected (such
as routine building maintenance) the questions are not presented,
since these types of initiatives are unlikely to involve patentable
innovation.
measuring
success
The electronic tool described here has
helped bridge the gap between the PNC
Legal department and those who develop
new business methods and systems, accumulating numerous
leads on potentially patentable developments. As a result, PNC
is building a solid portfolio of pending patent applications.
12 www.martindale.com

DYKEMA
Establishing the
Corporate Defense
best practices
The pace and breadth of mass tort litigation
situation
continues to expand. As a result, in-house
counsel at large national or multinational
corporations are increasingly faced with complex, voluminous,
multidistrict product liability lawsuits involving personal injury, property
damage and/or economic loss.
in-house counsel
challenge
Crafting an aggressive corporate defense,
whether it’s a relatively isolated matter or a
bet-the-company case, requires identifying
and gathering case-specific facts, documents and input from witnesses
and expert witnesses; and ensuring that highly technical issues are
translated into concepts that are easy for a jury to understand.
implementation steps
• Identify affected divisions/business units.
• Create a product time line that identifies important facts,
witnesses and documents.
• Interview key internal contacts and opposing witnesses.
• Review transcripts for testimony that supports your case.
• Gather case-related documents.
• Test and refine your story.
• Choose/prepare expert witnesses.
approach
adopted
The defense process starts by assessing the
company’s current standing in terms of facts,
product history, witnesses and internal documents.
Begin by identifying the affected division or divisions and retrieving
all applicable organization charts. This will help you 1) determine
how the organization was structured when the product was developed,
2) identify key players who may ultimately serve as witnesses and
3) identify where important documents are stored. If product
development dates back 10 or more years, chances are the organization
has changed—perhaps dramatically.
Then, build a product time line, which will help establish and prioritize
the facts of the case. The goal is to create a fact chronology. How
did the product design play out? What departments and individuals
were involved? Were there any early issues or problems? And if so,
how were they resolved?
Include disputed facts and previous litigation, if there are any. Make the
time line as detailed as possible because you will refer back to it often.
Does the past or current litigation involve the same product or issue?
Are there similarities in the plaintiffs? Which firms are bringing these
cases? The time line will bring all these issues out into the open.
The process will also help identify key internal players, develop a
potential defense strategy and hone your discovery objectives. Once
you arrive at a defense strategy, it’s far easier to get internal people
to talk to you. Then you can review deposition transcripts—including
opposing witnesses—to uncover testimony that supports your strategy.
Apply the same approach to e-discovery. You want and need the
discovery and discovery response to be strategic. Considering the cost,
you need to know what you’re looking for, versus mass document
retrieval. Use the time line and plan your discovery and response
accordingly.
Draft the corporate story and test it. Start at the trial stage and work
backward. Ask, “Do we have enough pieces to put together our story
for this trial? Or are there still holes in the time line?” Continue to
massage the story until it is simple enough for any jury to understand.
Once the defense is established, review your expert witness list. If
you’ve done your homework, you’ll know which experts are a good
fit. Then coach them to ensure they will address their topics exactly
the same way every time, regardless of where the case is tried.
measuring
success
Creating the corporate story requires a
comprehensive review of all product-related
documents, witness interviews and caserelated
facts, both good and bad. This legal “audit” is the road map
that will help inside counsel ascertain the strength (or weakness) of
the company’s position and craft its defense strategy accordingly.
Sherrie L. Farrell, a litigator and member
in Dykema’s Detroit office, coordinates
and provides discovery strategies for
companies involved in multidistrict
litigation and mass tort claims. She can
be reached at sfarrell@dykema.com.
JULY 2007
13

global perspectives
M&A REGULATION:
Piecing Together a
Slava Gutsko/iStockphoto
New Paradigm
By John M. Toth
In a decision with far-reaching implications,
Canada’s Competition Tribunal ruled in
March 2007 that the country’s Competition
Bureau could not delay the closing of Labatt
Brewing Co. Ltd.’s proposed $201.4 million
CAD takeover of Lakeport Brewing Income
Fund. The decision by the Tribunal, a
specialized court that decides controversies
under Canada’s Competition Act, paves
the way for faster completion of Canadian
company acquisitions—a significant
advantage in the current active M&A
market. It also reverses a nearly 30-year
global trend toward complex and timeconsuming
regulatory scrutiny of M&A
transactions. Central to this paradigm shift
was a well-conceived, high-stakes plan by
Labatt and Blake, Cassels & Graydon LLP,
the company’s outside counsel, to force
closing the Lakeport acquisition within the
statutory period defined for Competition
Bureau review, regardless of any delay
sought by the agency. The perspectives of
Blakes Partners Brian A. Facey and Craig C.
Thorburn and Labatt General Counsel
Susan M. Rabkin explain the success of a
strategy that Rabkin defines as “plan
properly, understand your objective, be
thorough—and execute.”
What’s the Game Plan?
According to Facey, there is a dichotomy
between “the need of the parties in a public
market transaction to get deals done
quickly and the inclination of the regulators
to review these details in intricate detail,
regardless of competitive realities.” In this
deal, Canada’s leading beer company, Labatt,
an indirect subsidiary of InBev SA, itself the
leading global brewer, sought to acquire
“…the Bureau’s policies
of taking five months
to review a complex
acquisition, and of
rejecting hold-separate
agreements before
review is complete, were
merely recent unilateral
declarations that were not
supported by the law.”
Lakeport, a rapidly growing brewer in
the discount segment of the Ontario beer
market. Lakeport management vowed to
call off the Labatt acquisition if there was a
major delay due to competitive review, so
Labatt retained Blakes, where Facey was
co-counsel in the most recent successful
challenge to the Competition Bureau’s
review process.
The game plan was to announce that the
Lakeport acquisition would close within
the 42-day minimum statutory review
period, and to propose placing Lakeport
in a separate trust (a hold-separate
agreement) if the Competition Bureau
needed more review time. “We were
confident in this strategy,” Facey relates,
“because the Bureau’s policies of taking five
months to review a complex acquisition,
and of rejecting hold-separate agreements
before review is complete, were merely
recent unilateral declarations that were not
supported by the law.” The Bureau sought
an order to delay the deal and rejected the
hold-separate plan. Labatt persuaded the
Tribunal that enough time had passed and
14 www.martindale.com

the Tribunal upheld the company position.
“The decision was viewed as a tremendous
upset, but we were not surprised,” says
Facey. The deal closed the next day as a full
merger between the companies.
An Extraordinary Offer
“Lakeport’s concerns in structuring this
acquisition centered on competition rather
than finance,” recalls Thorburn, “so we
made addressing those concerns the key to
our transactional structure.” Labatt’s terms
How Canada Regulates
in part by a trust amendment that the
companies had negotiated to prevent
holdouts. Thorburn believes that prior to
the Tribunal decision, publicly held
companies increasingly shied away from
deals with antitrust issues, often opening
the door to private equity interests as
purchasers. Now, he asserts, “the regulatory
playing field has been leveled, and the
rewards will go to those companies that
are innovative and aggressive in taking
advantage.”
The Competition Bureau is part of Industry Canada, a federal government
department, and is responsible for maintaining and encouraging fair competition
in Canada. The Bureau administers four key pieces of federal legislation, including
the Competition Act and the Consumer Packaging and Labelling Act. Competition
litigation in Canada involves representing clients before the courts on criminal
matters and before the Competition Tribunal on civil proceedings initiated by the
Competition Bureau. The Competition Tribunal is a strictly adjudicative body that
operates independently of any government department and that hears and decides
all civil controversies that arise under the four competition statutes. The
Competition Bureau has said it intends to appeal the Tribunal’s Labatt decision to
the Federal Court of Appeal, which has broad jurisdiction to hear federal civil and
criminal matters, but a ruling is some months off and would not void Labatt’s
acquisition of Lakeport.
kept the pressure on ourselves to meet
every deadline the Bureau set.” When the
Competition Bureau issued a Section 11
Order requiring substantially more
documents within a 21-day period, the
Labatt team relied on companywide
resources to comply.
Such effort and preparation were the
foundation of Labatt’s decision to assume
the risk of the deal through the breakup
fee. “For both our own management and
the Lakeport unit holders, the risk was
a calculated one for the right reward,”
says Rabkin. “We knew the marketplace
and were confident in the arguments we
prepared. The Tribunal agreed with our
position.” Future acquisition transactions
in Canada may indeed adopt a similar
approach to the regulatory review
process.
Susan M. Rabkin is vice president and general
counsel – North America of Labatt Brewing
Co. Ltd. She may be reached at
susan.rabkin@labatt.com.
Brian A. Facey is a partner in the Competition
Law practice of Blake, Cassels & Graydon LLP.
He may be reached at brian.facey@blakes.com.
Craig C. Thorburn is a partner in the Business
Law practice of Blake, Cassels & Graydon LLP.
He is Peer Review Rated. Craig may be reached
at craig.thorburn@blakes.com.
included what Thorburn calls the
“extraordinary offer” of paying Lakeport a
$5 million CAD breakup fee if the deal
did not go through on time. The confidence
of the company and its counsel in their
regulatory review strategy justified the riskreward
trade-off.
Lakeport was owned by unit holders
(including its founders) of an income trust,
and the transaction itself was a cash offer
of $28 CAD per unit. The units traded
on the Toronto Stock Exchange and their
price had fallen in the days before the
Tribunal ruling on fears of an unfavorable
result. Once the ruling was announced, all
remaining outstanding units were tendered
within 24 hours—a result made possible
Keeping the Pressure On
Rabkin, as in-house counsel, took the lead
in convincing Labatt’s corporate parent
that the competition risks of the Lakeport
transaction were justified by the potential
market advantages, and selected Blakes as
the law firm to manage those risks. “Our
whole strategy was predicated on the
belief that competition law is changing, and
that the right arguments could present a
sophisticated case for approval,” she asserts.
Labatt had previously lost an acquisition
target to an offshore competitor during the
delay caused by extended regulatory review,
so the company was already prepared to
offer the information the Competition
Bureau would require. Rabkin adds, “We
Blake, Cassels & Graydon LLP has over
500 lawyers across Canada, the United
States, the United Kingdom and China.
The firm’s integrated office network
provides access to a full spectrum of
capabilities in every area of Canadian
business law.
JULY 2007
15

global perspectives
CHEMICAL
INDUSTRY:
Facing a Mix of
© Corbis
Regulatory Challenges
Three major regulatory issues—REACH,
FCPA and homeland security—raise
new challenges for the chemical industry.
Carolyn J. Buller, chair of the Global
Chemicals Practice at Squire, Sanders &
Dempsey, believes companies should
consider proactive steps now to mitigate
negative impacts on global competitiveness.
James C. Diggs, senior vice president and
general counsel of PPG Industries, a leading
chemical products company with operations
in more than 20 countries, agrees and also
suggests that properly prepared companies
may realize new advantages from these
challenges.
A New REACH
The European Union’s new Registration,
Evaluation, Authorization and Restriction
of Chemicals (REACH) program requires
registration of up to 30,000 chemicals sold
in Europe (see Inside REACH), with up to
several thousand of these expected to be
identified as hazardous and requiring further
testing and authorization. “Chemical
By John M. Toth
manufacturers must test not only the
chemicals themselves, but also how they
are modified by downstream users to
identify exposure risks,” Buller says.
“This raises confidentiality and other
business issues on how much competitive
information suppliers and distributors
are required to disclose.” Buller believes
that collaboration on compliance will
be feasible, given existing industry
relationships. However, confidentiality
agreements among these companies are
essential to protect trade secrets.
“REACH also gives us
an opportunity to
differentiate ourselves
from our competitors
by developing innovative
ways of improving
our products for REACH
compliance.”
“One potentially burdensome aspect of the
regulation,” she says, “is that downstream
companies must go beyond assessing the
impact of REACH on their own products.
They must also assess the products of key
suppliers who may remove product from
the supply chain if test and authorization
costs become too burdensome. Until this is
sorted out,” Buller cautions, “companies
must keep in close communication with
their suppliers.”
For prepared global chemicals producers,
REACH may also offer promise of new
opportunities. PPG’s Diggs agrees that
REACH compliance means a substantial
effort but adds, “REACH also gives us
an opportunity to differentiate ourselves
from our competitors by developing
innovative ways of improving our products
for REACH compliance.” Diggs notes that
Asia-Pacific countries often model their
industry regulations after Europe’s, so
REACH-compliant companies may be well
positioned in that region.
16 www.martindale.com

Inside REACH
The FCPA Effect
Foreign Corrupt Practices Act compliance
is neither new nor unique to the chemical
industry. However, the global production
and growing emerging market activities
of chemical companies are increasingly
affected by FCPA disclosure rules. One
industry-leading company recently agreed
to a $225,000 FCPA settlement for selfreporting
payments in India to encourage
completion of a new product’s regulatory
review before the growing season. Also, as
the industry consolidates through mergers
and acquisitions, transactional due diligence
uncovers offshore practices that may be
questionable but do not technically violate
the law—raising issues of what disclosure
is necessary.
Diggs notes that FCPA compliance reflects
“the extent to which companies like ours
are allowed to operate more fully in emerging
markets where local or state-owned companies
previously dominated.” As these countries
integrate into the global economy (for
example, through World Trade Organization
membership), they increasingly follow
accepted global business practices—“not by
adopting the FCPA in its totality,” he says,
“but by adapting to its basic tenets.”
Buller believes that managing such FCPA
issues during this integration should
emphasize frequent and thorough communications
with offshore managers concerning
their compliance responsibilities. “Personal
general counsel visits, plant by plant and
sales office by sales office, are the best way
to get the word out, particularly in emerging
markets where these concepts may still
be new,” she says. Technology should be an
important addition to personal contact,
particularly the use of computerized testing
(in local languages) to demonstrate
compliance knowledge and create a record
of instruction. Such actions are the most
effective at preventing a problem from
occurring. They also demonstrate an active
compliance program that can help mitigate
sanctions if disclosure of proscribed or
questionable practices is necessary.
Security Matters
On the issue of security, Diggs sees the
industry taking leadership in ensuring more
Registration, Evaluation, Authorization
and Restriction of Chemicals (REACH)
was adopted in December 2006 and took
effect June 1, 2007. It has been called
the most important European Union
legislation in 20 years. Businesses that
manufacture or import more than one
ton of a chemical annually will be
required to register such chemicals.
Substances of “very high concern”—
chemicals that cause cancer, infertility,
genetic mutations or birth defects,
and those which are persistent and
accumulate in the environment—may
be used only if they have authorization
from the new European Chemicals
Agency. Authorization will be granted
only after extensive testing and a
registration process that includes regular
assessment and review. Estimates are
that as many as 30,000 chemicals must
be registered over the next 11 years, with
perhaps from 2,500 to as many as
10,000 chemicals in the “very high
concern” category.
secure production and transportation of
chemical products that are critical to the
U.S. economy. At the same time, he adds, it
is important to avoid an impression that the
industry dominates the evolution of security
standards to the exclusion of stakeholders in
government and society. “Improved security
will require a collaborative effort on the part
of all constituencies,” Diggs asserts. “If the
process is handled cost-effectively, both the
industry and our country will benefit.”
New federal Homeland Security regulations
cover the production and transportation of
Franz Pfluegl/iStockphoto
chemicals, but Buller says that many state
officials do not consider the regulations to
be strong enough. “A number of states, such
as New Jersey, may be moving to create
their own security requirements, although
these are still being developed,” she notes.
As both federal and state security standards
evolve, Buller believes that industry best
practices can play a model role in shaping
the regulatory environment. On issues such
as transportation of chemicals by pipeline,
truck and rail, the industry has been out
front in establishing safeguards—reflecting
concerns over legal liability and disrupted
production as well as homeland security.
Because REACH, FCPA and homeland
security concerns continue to evolve,
chemical industry companies must develop
flexible compliance strategies that can be
modified as regulatory provisions change.
However, it is imperative to move ahead
with compliance efforts today. Waiting
until all rules are finalized will likely put
any company too far behind the curve in
fulfilling its legal obligations.
James C. Diggs is senior vice president,
secretary and general counsel of PPG Industries.
He is Peer Review Rated. James may be reached
at diggs@ppg.com.
Carolyn J. Buller is a partner and chair of the
Global Chemicals Practice at Squire, Sanders &
Dempsey L.L.P. She is Peer Review Rated.
Carolyn may be reached at cbuller@ssd.com.
Among the strongest global law firms, Squire,
Sanders & Dempsey L.L.P. combines sound
legal counsel with effective, visionary
leadership to resolve legal challenges. With
approximately 800 lawyers in 30 offices
worldwide, Squire Sanders offers one of the
most global legal service platforms answering
business, advocacy, regulatory and capital
market requirements.
JULY 2007
17

horizon issues
NEW ENFORCEMENT POWER
FOR FERC
The Energy Policy Act of 2005 gave the
Federal Energy Regulatory Commission
(FERC) expanded power to impose civil
monetary penalties on companies that
do not comply with electricity and natural
gas marketing regulations. The agency
has increased enforcement spending by
25 percent during the past two years and
now dedicates approximately 150 persons
to enforcement matters. This year, FERC
has imposed the first penalties under its
new authority:
Energy
The effects of energy industry challenges are felt
globally. The regulatory climate changes constantly,
sometimes in positive ways (incentives for power plant
construction) and other times in problematic directions
(increased FERC penalties and rate-making scrutiny).
Business practices are also in flux, from construction
techniques to takeover strategies. And the threat of
mass action litigation is constant. These issues pose
significant concerns for in-house counsel.
© 2007 JupiterImages Corporation
• Five electric utilities were fined a total of
$22.5 million for violations of tariff and
market rules. Four of the five companies
self-reported their violations, and FERC
emphasized that their penalties could have
been much higher if they had not done so.
• FERC fined a Maine-based natural gas
company $1 million and the marketing
arm of an independent generator $4.5
million for self-reported violations of the
“shipper must have title” rule.
FERC also has initiated numerous audits of
both regulated electric utilities and natural
gas pipelines as well as nontraditional
sellers such as power marketers for
compliance with trading and operations
regulations.
FERC’s new enforcement power to levy
fines of up to $1 million daily means that
energy companies and their counsel must
develop effective compliance programs.
Today’s volatile energy prices increase
pressure on regulators to investigate market
behavior. Companies that foster a culture of
compliance, prepare a written compliance
plan and train all appropriate personnel to
observe it have the best chance to avoid
violations, minimize their chances of an
investigation and mitigate penalties if
violations occur.
Daniel E. Frank
Partner, Energy and Environmental
daniel.frank@sablaw.com
Sutherland Asbill & Brennan LLP
18 www.martindale.com

REGULATORY RISKS ON THE RISE
The electric utility industry is entering a
period of exceptional regulatory risk due
to the rising cost of producing electricity.
When the cost of providing electric service
increases, so does the risk of regulatory
disallowances. The most successful
companies will avoid overreaching, manage
the regulatory process well and maintain
positive relationships with the regulatory
and political community.
The cost to produce electricity has already
jumped in the last few years as a result
of large increases in fossil fuel prices, and
this trend is expected to continue. In
addition, the industry will need to invest
hundreds of billions of dollars over the
next few decades to meet increasing
demand for electricity and replace aging
facilities, and recovery of this investment
will put enormous additional upward
pressure on electric rates. The industry
must also reduce its reliance on generation
sources that produce greenhouse gas
emissions, such as the approximately
50 percent of U.S. electric energy that is
currently produced by burning coal.
This will put additional upward pressure
on rates.
Examples of regulatory risks include the
recent standoffs in Maryland and Illinois,
where politicians have intervened to limit
cost recovery in response to substantial
rate increases. The risk of disallowances
will not be limited to so-called regulated
services. The same political and regulatory
forces will affect the recovery of investment
costs by unregulated “merchant” generators
who operate in a mixed regulatory and
competitive environment. For example,
rising prices are already producing
disenchantment with deregulated markets,
and this trend is likely to accelerate as
prices continue to rise.
David B. Raskin
Partner
draskin@steptoe.com
Peer Review Rated
Steptoe & Johnson LLP
STATE UTILITY CONSTRUCTION
INCENTIVES
Evolving state electricity deregulation led
many utilities to acquire power plants
rather than build new ones. Since 2003-
2004, with the effects of California’s power
marketing crisis, Enron’s collapse, the
2003 Northeast blackout and rising natural
gas prices, however, state deregulation
has slowed. Power demand is growing, but
utilities find it unprofitable to build in
deregulated states. The 50-year lifetime of
generating plants requires rate assurance for
cost recovery, and several states are seeking
to provide it by creating new regulatory
structures that combine modified competitive
rate review with capacity construction
incentives.
In Virginia, state legislation approved in
2007 ends deregulation and capped rates on
December 31, 2007. The Virginia State
Corporation Commission will set base rates
of investor-owned electric utilities under a
modified cost-of-service model based on
adjusted return on equity (ROE) of a group
of Southeastern U.S. utilities. The new
structure authorizes stand-alone rate adjustments
to recover costs of new generation
projects, major generating unit modifications
and energy efficiency and conservation
programs. Utilities are granted enhanced
ROE on new capital expenditures as
incentive to build major generation projects.
States that re-regulate with a modified
regulatory scheme that ensures relative
financial certainty will likely receive most
new energy infrastructure development,
while those that stay deregulated or are
slower to regulate may experience less
development. While any investment in this
area would seem sound, it is important
to understand your market and legislative
and regulatory trends to protect your
shareholders by knowing what equity
returns can be expected.
Joanne Katsantonis
Partner and Chair, Energy and Utilities
jkatsantonis@mcguirewoods.com
Peer Review Rated
Edward L. Flippen
Partner, Energy and Utilities
eflippen@mcguirewoods.com
Peer Review Rated
McGuireWoods LLP
THE GOING-PRIVATE
BRIAR PATCH
The power sector is seen as “hungry for
capital,” much of which will come from
private equity sources, according to the
February 20, 2007 edition of Platts Electric
Power Daily. An example of this trend is
the proposed buyout of TXU Corp., a
publicly traded utility company regulated
by the State of Texas, by private equity firm
Kohlberg Kravis Roberts & Co. (KKR).
KKR may have assumed that a relatively
benign regulatory environment in Texas
would prevail. TXU’s assets and operations
are within the Electric Reliability Council
of Texas (ERCOT), which is within Texas’
geographic boundaries, and largely
outside the purview of the Federal Energy
Regulatory Commission (FERC). This
would mean only the regulatory scrutiny of
the Public Utility Commission of Texas
(PUCT), whose rules require only notice of
the transaction to PUCT within 30 days
after closing of the sale. FERC approval
was not necessary.
However, PUCT is working to change its
rules to give it power to review the
KKR/TXU transaction. Moreover, Electric
Power Daily reported on March 30 that
Rep. Joe Barton, congressman from Texas,
has pressed for FERC regulation of
ERCOT.
Whether the efforts of PUCT, Rep. Barton
or FERC result in control over the
KKR/TXU transaction is not the real story.
The real story is that the hard and soft
costs of this transaction just skyrocketed.
As counsel in such a transaction, plan
ahead, count on opposition, devise a war
plan and count on exponential increases in
transaction costs. Whether the costs are
worth it will remain to be seen.
Douglas F. Pedigo
Partner, Corporate and Securities
doug.pedigo@tklaw.com
Peer Review Rated
Thompson & Knight LLP
(Continued on next page)
JULY 2007
19

NUCLEAR POWER REGULATORY
INITIATIVES
Although about 100 U.S. nuclear power
plants generate approximately 20 percent
of the country’s electricity, no nuclear
plants have been constructed since the
1970s. Now concerns over greenhouse gas
emissions and energy independence have
renewed interest in nuclear power. Utilities
will benefit from at least two federal
regulatory innovations to spur nuclear
plant construction.
In late 2006, the Nuclear Regulatory
Commission (NRC) issued a final rule
updating CFR 10 Part 52 for approval of
nuclear plant construction. The new
rule establishes a streamlined process for
site selection, design certification and
an operating license, each of which was
previously a separate approval proceeding.
The streamlined process could cut the
new plant approval time in half. The
use by utilities of probabilistic risk
assessment (PRA) in their applications,
reflecting decades of experience operating
sophisticated offshore nuclear plants
abroad, also supports greater efficiency
in the approval process. The NRC has
adopted the position that third parties
wishing to contest plant construction
must base their objections on sound and
demonstrable technical reasons somewhat
comparable in sophistication to a PRA.
“Nuclear Power 2010” is a complementary
Department of Energy (DOE) initiative.
This joint government/industry cost-shared
effort focuses on identifying standardized
nuclear plant technologies and site selection
techniques. Thanks to the program, the
DOE is close to finalizing two standardized
nuclear plant designs, which by replacing
customized, site-specific designs will further
simplify regulatory approval. Also, the
Tennessee Valley Authority is taking the
lead in demonstrating how new nuclear
plants can be built on existing sites to
facilitate site approval.
Roy P. Lessy Jr.
Partner, Energy and Natural Resources
rlessy@pattonboggs.com
Peer Review Rated
Patton Boggs LLP
NEW CONTRACT TERMS FOR
NUCLEAR CONSTRUCTION
Pressures to reduce greenhouse gas
emissions have renewed interest in nuclear
power plant construction. However, U.S.
utilities will be unable to obtain financing
unless they can ensure plant operation
within a fixed period. Utilities are likely to
demand different construction contract
terms than those from the 1970s by:
• Replacing cost-plus arrangements with a
fixed sum for the entire project.
• Replacing the role of the subcontractor
design team with direct contracts between
utilities and designers.
• Requiring that contractors bear the
following risks: labor interruptions,
even though personnel shortages are
anticipated; procurement problems, even
for overseas purchase; and schedule risk,
even when the contractor will have little
or no control over the design schedule.
• Expecting contractors to bear the risk
of damage to existing facilities when new
plants are built nearby.
• Requiring contractors to meet Safety
Conscious Work Environment (SCWE)
standards of the Nuclear Regulatory
Commission (NRC), and to maintain
Employee Concern Programs (ECP) for
workers.
• Dealing with a tightening surety market.
Some issues from 30 years ago will
remain critical:
• Contractor quality assurance responsibilities
under evolving NRC regulations
and construction acceptance standards.
• Contractors participating in environmental
site assessment and approval
under the National Environmental
Policy Act of 1969.
Increasing the contractor’s risk could help
utilities commoditize the construction
process, ensuring prompt NRC approval
and recovery of capital and construction
costs in ways that can attract financing.
Richard H. Lowe
Partner, Construction Law and Litigation
rhlowe@duanemorris.com
Peer Review Rated
Charles W. Whitney
Chair, Nuclear Energy Practice Group
cwwhitney@duanemorris.com
Peer Review Rated
MASS LITIGATION LIABILITY
Two recent mass litigation verdicts in West
Virginia state courts may lead to significant
liabilities for energy producers, and could
spur similar lawsuits in other states.
Individual cases arising from a 2001 flood
were consolidated and allowed to proceed
by the Supreme Court of Appeals of West
Virginia as In re: Flood Litigation. The
approximately 4,000 plaintiffs alleged that
landscape alterations from surface coal
mining and timber operations caused
flooding of nearby homes and businesses.
Many defendants settled before trial, and
the first case tried in 2006 produced a
jury verdict for the plaintiffs. In March
2007, the trial court set aside the verdict,
ruling that the floods were caused by an
unforeseeable event and not the actions of
the defendants. Nevertheless, the Flood
Litigation cases were an innovative attempt
to hold energy extractive producers liable
for what previously were considered “Acts
of God.” Subsequent floods have resulted
in additional litigation.
In another new mass litigation approach,
a class of West Virginia landowners sued a
natural gas producer, alleging that they
were fraudulently denied the full value of
natural gas royalties by company practices
considered standard in the industry. The
2007 jury decision in Estate of Garrison
G. Tawney, et al., v. Columbia Natural
Resources, L.L.P. awarded the plaintiffs
$404.3 million, including $270 million in
punitive damages. Although an appeal is
likely, two lawsuits against other producers
have already been filed. The plaintiffs’ case
focused on the deduction of post-production
costs from royalties as well as alleged
“fraud” in failing to properly identify such
deductions on royalty statements. The
size of the verdict will likely force natural
gas companies to change their royalty
calculation formulas and royalty statements.
Richard J. Bolen
Partner, Litigation
rbolen@huddlestonbolen.com
Peer Review Rated
Huddleston Bolen LLP
For more information on these lawyers and
their firms as well as energy industry legal
analysis, please visit www.martindale.com
and our Legal Articles database.
Duane Morris LLP
20 www.martindale.com

Walking Hand
in Hand
Newland Communities and Fowler White Boggs Banker
profiles in partnership
By Scott M. Gawlicki
From an attorney’s perspective, there
are real estate projects, and then there
are “master-planned communities.”
Consider San Diego-based Newland
Communities’ latest project, the 7,000-acre
Bexley Ranch. Located in Pasco County,
Fla., just outside Tampa, Bexley will feature
6,000 single-family homes; 1,000 multifamily
units; 400,000 square feet of retail space;
250,000 square feet of office space; land for
two elementary schools, a middle school
and a high school; an 18-hole golf course; a
library; some 120 acres of parks; a 176-acre
wildlife corridor and a 1,433-acre greenway
corridor, each with walking trails and bike
paths; and roughly $78 million in local
road improvements.
Getting a project this big off the ground—
it’s being developed in three phases and
should be completed around 2025—takes
experience and plenty of legal legwork. In
the case of Bexley, the legal concerns rest
squarely on the shoulders of Rhea F. Law,
president and CEO of Fowler White
Boggs Banker.
“Rhea’s knowledge regarding the legal
issues surrounding project development
complements our land use expertise
perfectly,” says Newland Senior Vice
President and General Counsel Martha Guy.
“Her input on a project like Bexley is
invaluable. She’s as much a part of our team
as anyone in-house.”
“I love my job,” Law says. “Newland is one
of the largest residential and urban mixeduse
community developers in the country—
they have nearly 40 communities under way
in 14 states. They’re very successful and the
key to that success is their focus on quality
and innovation. And I love working with
innovative people.”
Pictured clockwise from left are Don Whyte, Newland Communities; Rhea F. Law,
Fowler White Boggs Banker; Sharon Koplan and Martha Guy, Newland Communities
Starting With a Retreat
Indeed, virtually everything about
Newland’s approach to project development
is innovative.
Take, for example, the way the company
launches each new project. It assembles all
the key players, including land use planners,
engineers, marketing experts, biologists,
wetland experts, botanists and the project’s
legal/permitting representative, in this
case Law, for an “envisioning.” It’s a retreat
of sorts, often held near the proposed
building site.
Photography by Red Kite Studios
“Each team member brings an instinctive
feel for where the community needs to go,”
explains Don Whyte, Newland senior vice
president for the Southeast region who also
works with the company’s regional general
counsel, Sharon Koplan. “Our communities
are literally designed from the ground up. We
begin by identifying the buyers. Will there be
family units built for kids or empty-nester
units for adults? Families are changing and
their needs are changing, too. So we say,
‘Here are the potential buyers, what kind of
amenities will they need?’ Then we examine
each idea from a land use perspective.”
JULY 2007
21

partnership
at a glance
Newland Communities
Headquartered in San Diego,
Newland Communities is a privately
owned company that creates residential
and urban mixed-use communities
from coast to coast. With expertise in
creating a special sense of community,
Newland brings to life the unique
history, culture and traditions of the
land they develop. Newland believes
it is their responsibility to create
enduring, healthier communities so
people may live life in ways that
matter most to them. Newland
currently has nearly 40 communities
under way in 14 states.
Martha Guy is Newland
Communities’ senior vice president
and general counsel. She joined the
company in 2001 and is responsible
for all corporate and project level
legal matters. Martha came to
Newland from TrizecHahn
Development Corporation, where
she served as senior corporate
counsel. She can be reached at
MGuy@newlandcommunities.com.
Sharon Koplan is the regional
general counsel for the Southeast
and mid-Atlantic regions of Newland
Communities. She works closely with
the local business teams on project
legal matters, including acquisitions,
sales and operational issues. Sharon
came to Newland in 2004 from the
Dallas office of Gibson, Dunn &
Crutcher LLP. She can be reached at
SKoplan@newlandcommunities.com.
Don Whyte has more than 30 years’
experience in creating communities
in Canada and the United States,
including major amenity-oriented
master-planned communities in
Florida, Colorado and Alberta. He is
currently responsible for all Newland
operations in the Southeast region
of the United States, including
Florida and Georgia. Don joined
Newland Communities in 2001, after
it acquired Genstar Land Company
(USA). He can be reached at
DWhyte@newlandcommunities.com.
Environmental concerns abound, and the
Bexley project is no exception. The project’s
two-day envisioning, held in nearby Tampa
in 2002, included celebrity zookeeper
“Jungle Jack” Hanna, who’s appeared on
“Rhea may look at a proposed
road or access way early on
and say, ‘There’s no way the
county will allow that, but
you could accomplish the
same thing by doing it this
way instead.’”
numerous regional and national television
outlets, including “Good Morning America.”
“He brought snakes, eagles and other wildlife,
everything you find on the property,” Law
explains. “Newland brought him in because
they wanted all of us to understand the site’s
environmental resources and what needed to
be protected.”
Dual-Purpose Guest
Including Law in the gathering served a
dual purpose. First, her participation
helped identify (and when necessary rectify)
potential legal snags early in the design
process. “Rhea may look at a proposed road
or access way early on and say, ‘There’s no
way the county will allow that, but you
could accomplish the same thing by doing it
this way instead,’” Whyte explains.
More important, the sessions give Law a
thorough understanding of the project, one
she would need to develop and submit what’s
known as an Application for Development
Approval of a Development of Regional
Impact (DRI)—essentially a due diligence
report prepared for an array of state and
federal regulators on Newland’s behalf. The
DRI must be approved by each regulatory
body before the project can move forward.
“It’s Rhea’s responsibility to help us work
our way through the regulatory maze so that
we end up with the same development we
originally envisioned,” Whyte says. “She’s an
important part of the envisioning, because
she’s the one who’s going to deliver our
vision to the regulators.”
Meeting Regulatory Demands
An application is required for any project
that’s beyond the statutory scope of a
particular county or region. In the case of
Bexley, Pasco County requires a DRI study
for any project over 2,000 units in size.
It took Law and her team three years to
gather and distribute the information.
The study consists of multiple, highly
detailed analyses. For example, one analysis
evaluated the site’s wetlands and outlined
22 www.martindale.com

partnership
at a glance
measures Newland would take to preserve
and/or enhance them. A wildlife analysis
assessed whether any endangered species
populate the site, while another assessed
the potential for archeological issues—in
this case the limited chance of uncovering
Native American tribal remains. Once
completed, agencies then review, comment
and, if necessary, request additional
information.
“With Bexley, we ended up with three,
3-inch binders of documentation and
analyses. We worked closely with 19
agencies, especially the Tampa Bay Regional
Planning Council, the Florida Department
of Transportation and Department of
Environmental Protection (DEP), and the
U.S. Army Corps of Engineers,” Law
explains. “Usually the reviewing agencies
engage in several rounds of additional
information requests.”
The objective, Law says, is to resolve issues
as quickly as possible and keep the project
moving forward. That, of course, is where
the envisioning process really pays off. If,
“You have to walk the
property and examine the
aerials. If we had not been
there during the envisioning,
we might not understand an
agency’s concerns.”
the importance of including us from the
outset. We’re an integral part of the team.”
Long-Range Success
With the DRI study and other regulatory
approvals completed in 2006, the Bexley
project is now officially under way. Soon
it will join nine other communities Newland
has developed in Florida—including
FishHawk Ranch, which recently received
the Best in American Living Award from
Professional Builder magazine and the
National Association of Home Builders,
essentially the Oscars of the home-building
industry.
As Newland’s statewide counsel for Florida,
Law and Fowler White have played a key
role in all of them, as well as many others in
the Southeast region.
“We consider Rhea to be the premier
attorney for government entitlement work
in Florida,” Guy says. “We operate in
Fowler White Boggs Banker
Fowler White’s Government,
Environmental and Land Use
Department is devoted to land
use, environmental permitting
Newland
and real
Communities
estate transactional
Headquartered matters, including San Diego, permitting Newland of
Communities Developments has been of Regional creatingImpact,
desirable, Sector livable Plans, comprehensive communities across plansthe
nation and for zonings, nearly representation four decades. Its before
communities local government are consistently and regulatory listed
among bodies, the top real 20 estate selling acquisitions, in the nation.
The loans, company leases is currently and litigation. developing The
communities group represents across the a variety country, of
including developers sites in and Colorado, land owners. Florida,
Georgia, North Carolina, South Carolina,
Texas, Nevada, Arizona, California,
Oregon, As president Washington, and CEO Minnesota of Fowler and
Maryland. White Boggs Banker, Rhea F. Law
is also a member of the firm’s
Government, Environmental and
Martha Land Guy Use is Practice Newland Group. Communities’ She has
experience senior in land vice president acquisition, and
permitting, general counsel. environmental She
representation joined the company and land in
use 2001 and and zoning is responsible matters,
with for all a corporate specific emphasis and
on project commercial/industrial/
level legal
residential matters. Martha Developments came to
of Newland Regional from Impact, TrizecHahn
and Development serves as general
counsel for Community
Development Districts.
Rhea is Peer Review
Rated and can be reached
at rlaw@fowlerwhite.com.
for example, the DEP voices a concern over
the project’s impact on a particular wetland
area, Law is able to sit down and explain in
detail that portion of the project.
“I always advise new lawyers to never take
on a project they have not personally seen,”
Law says. “You have to walk the property
and examine the aerials. If we had not been
there during the envisioning, we might
not understand an agency’s concerns. The
personal experiences on the site allowed
us to convey to them exactly what we’re
planning to do. That’s why working with
Newland is so wonderful—they understand
seven regions encompassing 14 states.
These are long-term, complex projects; the
development process ranges from land
acquisition to financing to entitlements to
disposition and turnover of the community.
We rely on outside counsel like Rhea to
walk with us hand in hand throughout the
entire process.”
Though it will take decades to complete,
Law says seeing a project like Bexley
through is indeed rewarding. “These are
obviously long-range projects,” she says.
“But to me, they’re like my children. I like
to watch them grow. And, of course, I never
stop worrying about them.”
JULY 2007
23

egulatory trends
Climate for Change —
and Opportunity
By John M. Toth
Global climate change, no
matter what its scientific
acceptance, is a regulatory
and business
reality. The U.S. Supreme Court’s
2007 Massachusetts v. Environmental
Protection Agency ruling that the EPA
can regulate mobile source greenhouse
gas emissions under the Clean
Air Act illustrates this fact. However,
says Gabrielle Sigel, co-chair of
Jenner & Block’s Climate and Clean
Technology Law Practice, many
major companies are moving ahead
of regulatory action to develop
“verifiable, transparent and clearly
articulated strategies for reducing
their greenhouse gas emissions.”
Such strategies may involve significant
costs and even business
disruption for organizations, but
Robert L. Graham, also co-chair of
Jenner & Block’s Climate and Clean
Technology Law Practice, believes
they will create substantial opportunities.
“Companies that proactively deal
with global climate change today,” he asserts,
“will be analogous to those that took first
advantage of Silicon Valley’s digital revolution
20 years ago.”
A Regulatory Crazy Quilt
The key issue for corporate America in the
rapidly evolving regulation of greenhouse
gases is whether to support a single federal
standard, or accommodate a wide range of
state programs that Sigel believes could
produce “a crazy quilt of different standards
and requirements.” Although some states
may keep regulation minimal, others,
including Illinois and Massachusetts, are
“Companies that proactively deal with
global climate change today will be
analogous to those that took first
advantage of Silicon Valley’s digital
revolution 20 years ago.”
considering strict emission controls and
trading systems for emission credits.
California has already mandated that
companies in the state lower their
greenhouse gas emissions to 1990 levels
by 2020.
Given this disparity in state regulation,
Sigel says that any company with multistate
operations should actively advocate for
a consistent federal regulatory approach
that supercedes fragmented state action.
Ultimately, any federal program will likely
require emissions reduction from a baseline
level, as California does now. “The
problem,” Sigel adds, “is that there is no
Tim Teebken/Photodisc Green/Getty Images
clearly articulated protocol or
standard for determining baseline
emissions in such a way that
companies can get credit for
reducing them.” However, she
recommends that rather than wait
for a single standard to emerge,
companies should prepare for
comprehensive federal regulation by
measuring and monitoring CO 2
emissions now, to build a proactive
record that will be verifiable under
any future emissions reduction
rules.
Know Thyself
Businesses should pursue additional
plans for stronger greenhouse
gas regulation, says Graham. He
defines the aim of the planning
process as “simultaneously
transforming your organization
and working to influence events,
to be a driver and not a victim
of the new regulatory environment.”
A multifaceted approach should begin with
an understanding of climate change issues,
an assessment of how those issues impact
organizational needs and a pragmatic effort
to influence decision makers as they develop
the new regulatory structure. Proactive
examination of the roles that both suppliers
and customers play is crucial—as Graham
notes. “If you buy products from suppliers
that have a large carbon footprint, at the
very least you will face cost-push price
pressures as these companies face higher
compliance costs.”
The compliance assessment process is a
business issue, not just a legal one. “Carbon
24 www.martindale.com

The Supreme Court and Climate Change
The U.S. Supreme Court’s Massachusetts v. Environmental
Protection Agency decision did not broadly expand
greenhouse gas regulation, says Robert L. Graham, co-chair
of Jenner & Block’s Climate and Clean Technology Law
Practice. The Court ruled affirmatively on the narrow issues
of whether motor vehicle carbon dioxide emissions are
pollutants under the Clean Air Act, and whether states can
sue the EPA to force CO 2 regulation. The ruling gives the
EPA discretion to regulate carbon dioxide emissions, but
the Court warned the agency, as Graham says, “You must
explain your reasoning if you decline to exercise this
discretion.” More important, he believes, is that the ruling
creates a tipping point in climate change regulation. “The
regulatory world was already changing before the Court’s
decision,” Graham says. “The real significance of the ruling
is that it reinforces the prominence of the climate change
issue, and creates a ripple effect that applies environmental
law and regulation to greenhouse gases.”
emissions do not just come from tailpipes;
they are generated in some way by virtually
every business activity,” Graham warns.
Every business needs to evaluate how
much CO 2 it generates, what regulatory
actions would put it in jeopardy and
whether it can function in a cap-and-trade
system of buying emission offsets, such as
currently exists on the Chicago Climate
Exchange. Avoid compartmentalizing your
analysis of these items by applying a full
range of disciplines to reflect intellectual
property, tax, litigation and corporate issues
as well as regulatory concerns.
Don’t Be an Ostrich
Because, as Graham asserts, “any company
will lose with an ostrich-like approach to
climate change regulation,” he and Sigel
both identify actions as prudent to take now.
They fall into three broad categories:
1. Regulatory
Identify every state where your operations
could produce CO 2 and other greenhouse
gases, and continually monitor state
legislative and regulatory efforts to restrict
emissions.
Review your compliance process to maximize
the advantages of confidentiality by using legal
counsel to hire and structure the analyses of
energy and environmental consultants.
2. Organizational
Think beyond environmental compliance
alone and structure a cross-disciplinary
team to address issues related to greenhouse
gas emissions in the full range of your
organization’s production operations and
facility management.
“Any company will lose with an
ostrich-like approach to climate
change regulation…”
Create a board of directors subcommittee
with responsibility for risk assessment and
change empowerment to deal with
emissions mitigation actions.
3. Operational
Establish a baseline year from which to
measure greenhouse gas emissions and
keep comprehensive, verifiable records of
emission reductions from that point.
Explore the use of alternative energy sources
such as solar, wind, biofuels and biomass,
with particular emphasis on state incentives
for use (such as solar power in Arizona).
Prepare to report publicly on your remedial
actions, in everything from securities filings
to affirmative public relations messages.
Sigel believes such steps will create “a
comprehensive approach that is practical,
sustainable and that reflects organizational
values,” allowing companies to retain
control of their own futures no matter what
regulatory framework ultimately emerges.
Robert L. Graham and Gabrielle Sigel are
partners in Jenner & Block’s Environmental,
Energy and Natural Resources Law Practice
and co-chairs of the firm’s Climate and Clean
Technology Law Practice. Robert and
Gabrielle are both Peer Review Rated. They
can be reached at rgraham@jenner.com and
gsigel@jenner.com.
JULY 2007
25

in the spotlight
Proactive
Structuring
of Investment
Agreements
By John M. Toth
Mikael Damkier/iStockphoto
Whether private equity and
venture capital funds invest in
smaller-sized growth companies,
or multinational corporations are joint
venture co-investors, the structure of the
parties’ investment agreement determines
the success of the transaction. Terms of
management control, methods of dispute
resolution, strategies for growth and
standards for valuation should all be settled
and documented upfront in the shareholders’
agreement. Charles F. Hertlein Jr. and
James A. Marx, partners in corporate
practice at Dinsmore & Shohl LLP, believe
that these issues involve many of the same
considerations regardless of the size of the
transaction or the partners involved. “Any
of these concerns are fertile ground for
controversy in an investment transaction,”
Marx asserts, “unless the parties clearly
define and agree upon eventualities at
the start.”
Where to Begin
A smaller company seeking growth through
private equity or venture capital investment
should begin a successful transaction by
clearly defining the organizational and
management structure. Most such businesses
choose the limited liability company form
because of its tax advantages, but in any entity
structure, the most important consideration
is determining which management members
have active responsibility for control. “The
analogy is to a football coach who is most
effective when he has responsibility for both
developing strategy and securing players,”
Marx says. “Even if the control is equally
divided among venture partners, there
needs to be a clear voice on valuation and
buy/sell rights.”
“Even if the
control is equally
divided among
venture partners,
there needs to be
a clear voice on
valuation and
buy/sell rights.”
This is particularly important in private
equity and venture deals, where investors
generally have a five-year time frame.
Deciding the investors’ exit vehicle is
essential and Hertlein notes that, in today’s
securities regulation climate, put rights to
buy out an investment partner are becoming
more attractive than registration rights to
force a public equity offering. “This also
raises business planning issues for company
management,” he adds, “because they
must secure capital to replace the original
investors once they cash out.”
The Nuclear Option
Control ultimately manifests itself in the
board of directors structure. Majority owners
will have a majority of the board; equal
partners with equal board representation
should add a neutral third-party member
whose vote can break deadlocks. Either
way, avoid requiring unanimous consent to
approve the sale of the company. What
Hertlein calls a “nuclear option” could be a
provision to force one party to buy out the
other if they cannot agree on sale terms.
Another option, which Marx identifies as
26 www.martindale.com

“Russian roulette,” allows each side to
define in the investment agreement those
preconditions of price and valuation
under which it would be a buyer or seller.
Provisions for binding mediation or
arbitration would be a third possibility.
The last resort for either side is a courtmandated
dissolution of the venture.
Most private equity and venture investment
models currently use either “drag-along”
or “tag-along” rights. In the former, the
investors can require company management
to participate when they find a buyer for
their stake; in the latter, if a buyer is found
for a certain percentage of the investment,
both sides can sell that percentage of their
ownership stakes. Because such opportunities
can arise suddenly, Marx urges boards to
commission an annual company valuation
by an outside accounting firm. “Most
A Meeting of Equals
When large corporate equals create a joint
venture investment, many of these same
control and valuation issues should be
addressed initially. “Both parties contribute
something to such a venture,” Hertlein
observes, “and establishing issues of fair
value and depreciation upfront is essential
to a successful transaction, particularly if
the contribution of assets is not equal.”
If the venture is not administratively selfsufficient,
one or both sides must provide
management services and value them
appropriately.
Intellectual property rights are frequently
central to large company ventures. The
parties must decide from the start whether
technology is given or licensed to the venture,
and either option has significant implications
for IP ownership. To address the issue of who
Technology Ventures: The Need for Flexibility
As lead counsel in many software manufacturing business combinations, Charles F.
Hertlein Jr. urges clients to build maximum flexibility into transaction
documentation because the industry changes so rapidly. “Technology ventures
often evolve in unexpected directions, and either partner may find that the fully
developed venture is significantly different than they anticipated,” he explains.
“Once that happens, it is extremely difficult to renegotiate venture terms.”
In one example, an engineering design company had created a new category of
workflow management software. Because software was not its core business, the
company entered a joint venture with another industry participant to develop the
product. Five years later, the software had become a significant growth business,
and the company could only bring it back in-house by engaging Hertlein to
negotiate a new agreement with significantly higher valuation—which could have
been avoided by clear growth and control definitions in the original agreement.
companies do a single valuation at the start
of a venture and never update it, which
often creates valuation disputes later,” he
says. “An annual valuation brings issues
such as underfunded pension plans to the
surface, so they can be resolved before
they become due diligence problems when
selling an investment stake.”
gets control of intellectual property developed
by the venture itself, Hertlein and Marx
suggest that the parties agree to license
technology from the venture, with clear
definition of ownership expiration rights.
Particularly if the joint venture owners are
public companies, there should be clear
agreement on what and how much each
party can consolidate from the venture into
its own financial results. That includes
the extent to which either side can derive
tax benefit from losses and depreciation.
Financial agreement should also include
agreement on the extent to which either
side may buy back its own or the other
side’s investment stake. “In all these
considerations, it is essential that the parties
anticipate and resolve negative eventualities
beforehand,” Hertlein warns. “If a dispute
arises, it is harder to force an exact division
of asset ownership in a joint venture than it
is in a marital divorce.”
The Fundamental Rule
Hertlein and Marx agree that one
fundamental rule applies to all investment
agreements, no matter what the size of
the parties or the nature of their business
relationship: Make every effort during
negotiations to anticipate future disputes.
“The eagerness to get a deal done creates
the temptation to minimize the likelihood
of problems,” Hertlein warns. “Thinking
through negative eventualities and how to
address them is one of the surest ways to
avoid them.”
Dinsmore & Shohl LLP is a full-service
law firm with more than 300 attorneys
practicing in nine offices. For the past 99
years, Dinsmore & Shohl has provided a
broad range of integrated services to
meet the needs of both large and small
businesses as well as institutions,
associations, governments, professional
firms and individuals.
Article Participants:
Charles F. Hertlein Jr.
Partner, Corporate
chuck.hertlein@dinslaw.com
Peer Review Rated
James A. Marx
Partner, Corporate
james.marx@dinslaw.com
JULY 2007
27

in the spotlight
NOTICE PROVISIONS:
Balancing Business Relationships
With Insurance Claims
By Amy I. Stickel
Steve Cole/Photodisc/GettyImages
It’s a common scenario for businesses—
your company is working on a project
with another company with which you
have a good relationship, when something
goes awry. It could be a problem with a
building under construction or a product
that doesn’t meet agreed-upon standards.
The situation doesn’t appear to be dire,
though, and you’ve successfully worked
through problems before during your long
history together. So after meeting with your
organization’s management and the other
party’s management and in-house counsel,
you decide that the two of you can fix it
without calling in the insurance company.
However, straightening out the situation
takes some time, and you eventually realize
that it can’t be fixed. Things go from bad
to worse, and you must make a claim to
your insurance company. Unfortunately, the
insurance company response is that, by
refusing to notify it as soon as the original
problem surfaced, you failed to properly
exercise the notice provision in your
insurance contract. Once that happened,
you prejudiced the claim and now the
insurer is balking at paying it.
The Perils of Going Alone
It’s a scenario that Charles George, a partner
at Patterson, Dilthey, Clay & Bryson, L.L.P.
in Raleigh, N.C., has seen before.
“There are often good incentives for two
parties to try to resolve problems by
themselves. But something may start out
as a little thing, and the next thing you
know, it’s something bigger,” says George.
He points to a recent situation he was
involved with in which a company tried
to fix a problem internally. This case
involved a real estate company that hired a
construction company to build a property.
The property wasn’t built according to the
agreed-upon specifications; but rather than
report the situation to the insurer, the two
Satisfying the notice
provision is usually
not the first thing
that occurs to most
in-house counsel
while a situation is
unfolding.
companies decided to try to work together
to solve the problem. However, after
some time passed, it became clear the two
companies couldn’t resolve the situation
themselves. A lawsuit was filed and when
George’s client, the insurance company, was
finally notified of the claim, it argued that
it didn’t have to pay because of the time
delay in filing the claim while the companies
attempted to work out the problem.
“It put [both companies] in a bad situation,”
says George.
That situation isn’t unique, though: Satisfying
the notice provision is usually not the first
thing that occurs to most in-house counsel
while a situation is unfolding. Those provisions
tend not to be closely read, and they don’t
usually offer a specific timetable for reporting
claims. It can be unclear when the insurance
company needs to be called, and the rules
for notice provisions vary widely from state
to state.
“The notice provision is way in the back of
the contract, and it’s not something that
even the lawyers give any thoughts about,”
George says.
28 www.martindale.com

DIY Approach
Insurance companies may always prefer to be notified immediately about any
potential claims, but in-house counsel have valid reasons to advise on holding off
on a notification in some situations.
“You have to weigh the pros and cons,” says Charles George, partner at Patterson,
Dilthey, Clay & Bryson, L.L.P. “There may be reasons to handle it yourself.”
The language also tends to be boilerplate—
notice provisions usually call for policyholders
to notify the insurance companies “as soon
as practicable.” This is a vague definition
that can allow for disagreements between
policyholders and insurance companies,
with the insurance companies often arguing
that they should have been called in sooner,
no matter when a claim was filed.
Some situations also evolve so slowly it
can be difficult to determine when a
seemingly small glitch becomes a matter
for an insurance claim. The scope of a
problem may not even be clear to the
businesspeople who are working closely on
the situation. And if it’s not clear to them,
employees may not think about alerting the
legal department until it is too late.
Variations Abound
Even if a company files a claim, state policies
vary widely. For instance, under Virginia law,
the passage of time can be enough to violate
the notice provisions—if a company doesn’t
report an incident immediately, the claim
can be denied. But under North Carolina
law, there has to be a showing of prejudice
to the insurance company for the claim to
be denied, regardless of any time delay.
“That’s just one example of two different
states interpreting ‘as soon as practicable’
differently,” he says. “From state to state,
one needs to be aware of the differences.”
George points to a case in Virginia where a
company waited 126 days to file a claim,
only to have the insurance company deny it.
From a business’ perspective, four months
may not be much time in which to identify
a potential claim and decide whether to
report it, says George.
The differences between states is further
complicated for companies with business
around the country. Simply determining
which state’s standards are applicable can be
Good reasons to avoid notifying an insurance company about a situation that
could evolve into a claim include:
■ Business relationships
Two companies with a good relationship may feel they can settle the issue
themselves rather than bring in the insurance companies immediately.
“If you’ve worked with someone for a long time and things are not working out,
oftentimes, parties will stick with the situation and try to resolve it themselves,”
he says. “Or you may have a situation where you are hoping to keep a good
customer happy.”
■ Differing interests
Insurance companies and their policyholders don’t necessarily share common
interests and goals. Insurance companies report to their own stakeholders, and
they are most interested in resolving disputes for the lowest cost possible,
according to George. A policyholder, on the other hand, may be far more
interested in retaining a business relationship—something that doesn’t worry
the insurance company.
■ Rising costs for claims
The more incidents a company reports, the more likely it is to see insurance rates
increase. Some corporate situations are the equivalent of a fender-bender that
doesn’t require bringing in the insurance company. “If you rear-end someone and
you may be able to fix it for $100, you wouldn’t necessarily call the insurance
company,” George points out. If you can convince the other party to send you the
bill from the body shop, you’ve saved yourself rising rates and a lot of paperwork.
a time-consuming process. George points to
another client that was headquartered in
Georgia, had purchased insurance in North
Carolina and then had a claim in Tennessee.
Determining which state’s rules to follow
took some time to figure out.
The key to determining whether to call
in the insurance company often hinges on
specific notice provisions and the laws in
individual states. When deciding whether a
situation warrants involving an insurance
company, in-house counsel must understand
the ramifications of what could happen if
they do, and what could happen if they
don’t. “Consider whether the insurance
might apply, and the pros and cons to your
organization in reporting it to your insurer.
When in doubt, give notice to the
insurance company,” George advises.
Patterson, Dilthey, Clay & Bryson, L.L.P. is a
firm comprised exclusively of trial lawyers
who are actively engaged in the defense
of civil litigation throughout North Carolina.
The firm’s attorneys concentrate their
practice in the defense of products liability,
premises liability, extra-contractual litigation,
medical malpractice, workers’ compensation,
insurance coverage, automobile liability and
other civil defense litigation.
Article Participant:
Charles George
Partner
cgeorge@pattersondilthey.com
JULY 2007
29