Northwest Business Litigation

Oregon Court of Appeals clarifies statute of limitations for final paycheck penalty claims

Earlier this month the Oregon Court of Appeals ruled that a three-year statute of limitations for final paycheck penalty claims begins to run at the end of the 30-day penalty period.

ORS 652.140 specifies the time in which the employer must pay an employee's final wages. ORS 652.150 imposes a daily penalty for late payment of the final wages.  The daily penalty is calculated by multiplying the employee's hourly rate by eight hours.  The daily penalty runs for up to a maximum of 30 days, but stops accruing if either (1) the employer pays the wages or (2) the employee sues for the wages.

The statute of limitations for final paycheck claims has been disputed.  Employers have argued for the application of the one-year statute of limitations established by ORS 12.130.  Plaintiffs have argued for the application of the three-year limitation specified in ORS 12.100(2) with some success at the trial court level.  In Russell v. U.S. Bank, the Oregon Court of Appeals applied the three-year limitations period.  Further, the court held that the three-year period does not begin to run until the total amount of penalty wages owed to the employee has accrued.  In other words, if the final paycheck is not paid for 30 or more days, the claim does not accrue until the 30th day.  The court emphasized that "the key point is that the employee's cause of action . . . is for the penalty wages themselves, not for the earned wages that the employer should have paid the employee on his or her last day of work." 

The employee has a single penalty claim which increases by one day of wages for each day the final wages remain unpaid, up to a maximum of 30 days.  In this case, the employee sued three years and eight days after her termination.  Because her final wages remained owing after 30 days following her termination, the court ruled that her claim was timely filed.

U.S. Supreme Court issues its first major ruling on personal jurisdiction in 20 years

On Monday, a divided U. S. Supreme Court wrestled with the scope of personal jurisdiction in a products liability case.  A concurring opinion signaled that the Court may in the future be open to re-assessing standards for personal jurisdiction in light of, for example, the use of the Internet in commerce. 

J. McIntyre Machinery Ltd. V. Nicastro involved a plaintiff, Nicastro, who was injured  while using a metal-shearing machine manufactured by the defendant, J. McIntyre Machinery, in England.  Nicastro sued J. McIntyre in New Jersey state court.  The New Jersey Supreme Court held that jurisdiction over defendant was appropriate under the “stream-of-commerce” doctrine, because the manufacturer knew or reasonably should have known “that its products are distributed through a nationwide distribution system that might lead to those products being sold in any of the fifty states.”

Justice Kennedy, writing for a plurality of four, reversed the New Jersey Supreme Court, holding that the “stream-of-commerce” doctrine was insufficient to establish jurisdiction.  Justice Kennedy revisited the competing opinions set out in Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987), noting that “[t]he rules and standards for determining when a State does or does not have jurisdiction over an absent party have been unclear because of decades-old questions left open in Asahi Metal.”  Justice Kennedy criticized Justice Brennan’s Asahi Metal concurrence, stating that “a [jurisdictional] rule based on general notions of fairness and foreseeability is inconsistent with the premises of lawful judicial power.”  Instead, “it is the defendant’s actions, not his expectations, that empower a State’s courts to subject him to judgment.”

Justice Kennedy noted that the claim of jurisdiction over J. McIntyre centered on three facts: (1) an independent company agreed to sell machines manufactured by J. McIntyre to buyers in the U.S., (2) J. McIntyre’s employees attended annual conventions in the U.S., but not in New Jersey, to advertise the machines, and (3) no more than four machines ended up in New Jersey.  Justice Kennedy held that these facts were insufficient to establish jurisdiction, because while “[t]hese facts may reveal an intent to serve the U.S. market, . . . they do not show that J. McIntyre purposefully availed itself of the New Jersey market.”

Justice Breyer, joined by Justice Alito, concurred in the judgment.  Justice Breyer found that it was unnecessary to critique the tests of foreseeability and fairness, as Justice Kennedy did, because the case came within existing precedent.  He stated that the Court had never held that “a single isolated sale, even if accompanied by the kind of sales effort indicated here, is sufficient” to establish jurisdiction. Justice Breyer then criticized the “strict rules” set out in the plurality opinion, which “limit[ed] jurisdiction where a defendant does not intend to submit to the power of a sovereign and cannot be said to have targeted the forum.”  Justice Breyer also signaled that he was open to revisiting the issue of personal jurisdiction in the future, noting that “there have been many recent changes in commerce and communication, many of which are not anticipated by our precedents.”  He noted, however, that “this case does not present any of those issues,” and that it was “unwise to announce a rule of broad applicability without full consideration of the modern day consequences.”

As in Asahi Metal, no opinion won the support of a majority of the Justices.  Therefore, the Court’s holding is the narrowest holding that did have the assent of a majority of the Justices, which is likely Justice Breyer’s concurrence.  Justice Ginsberg dissented, joined by Justices Sotomayor and Kagan.

Refusal to testify at debtor exam shouldn't be punished as contempt, Oregon Court of Appeals holds

A witness at a debtor examination was improperly held in contempt for invoking her privilege against self-incrimination, according to a case decided today by the Oregon Court of Appeals.  In Redwine v. Starboard, LLC, plaintiff obtained a judgment against Starboard LLC.  Tamara Sawyer was then ordered to appear for a judgment debtor examination and to produce documents relating to Starboard and its financial affairs.  Starboard and Sawyer were both the target of an ongoing federal criminal investigation.  Sawyer appeared at the exam but refused to answer questions about her connections with Starboard or to produce documents, citing her privilege against self-incrimination.  The trial court determined that she was subject to the sanction of summary contempt.

The Court of Appeals reversed the judgment, holding that, given the criminal investigation, Sawyer was entitled to refuse to answer regarding her connections with Starboard.  This was the case even though the government might have readily obtained information about those connections from other sources. 

Designating agent for service of process doesn't support personal jurisdiction, Ninth Circuit holds

The Ninth Circuit Court of Appeals held last week that designating an in-state agent for service of process does not, by itself, subject a company to general personal jurisdiction in the state.  In King v. American Family Mutual Insurance, defendant was an out-of-state insurance company that contemplated doing business in Montana.  As the first step in obtaining authorization to sell insurance in the state, and as required by state law, the company appointed the Commissioner of Insurance as its agent for service of process.  Before defendant obtained authorization to sell insurance in Montana, and before it did any business or had any other contacts there, it was sued in Montana by policyholders who lived in another state. 

The Ninth Circuit affirmed dismissal of the action, agreeing with the district court that the appointment of an agent for service of process in Montana was not enough to subject defendant to general personal jurisdiction there.  The court reached that conclusion notwithstanding a 1917 U.S. Supreme Court opinion -- Pennsylvania Fire Insurance Co. v. Gold Issue Mining & Milling Co. -- holding that, where state law requires an insurer to appoint an agent for service in the state, that appointment by itself is sufficient for personal jurisdiction of the insurer.

Oregon Court of Appeals: Personal impact of economic hard times won't trump default judgment

The fallout from the economic meltdown won't excuse a failure to respond to a complaint, according to the Oregon Court of Appeals in a case decided Wednesday.  In Saldivar v. Roberts, plaintiff filed a lawsuit claiming fraud, misrepresentation, conversion, and unfair labor practices.  When defendants failed to respond in a timely fashion, plaintiff obtained a default judgment.  Defendants later moved to set aside the default, offering an affidavit by one of the defendants describing the personal and business matters that overwhelmed him at the time the complaint was filed.  Defendant's account of the severe blow to his real estate business from the recession, plus family crises, caused the trial court judge to set aside the default due to excusable neglect.

The Court of Appeals reversed, observing that defendant's dire circumstances did not render him unable to respond to the complaint.  "We conclude that simply choosing to ignore a matter -- even in the face of difficult circumstances -- does not qualify as a reasonable explanation so as to give rise to excusable neglect."

Significant changes to FRCP 26 will protect communications between counsel and testifying expert witnesses

Proposed amendments to Rule 26 of the Federal Rules of Civil Procedure will have a profound impact on the way attorneys and expert witnesses work with each other to prepare for expert testimony at trial.  The rule changes, which will take effect on December 1, 2010 unless Congress acts to prevent implementation, are intended to remove some of the discovery risks that have prevented open and frank discussions between counsel and expert witnesses and to make collaboration with experts more effective and cost-efficient.

In its current form, Rule 26(a)(2)(B) allows discovery of all “data or other information considered by” the expert witness in forming his or her opinions.  Many courts interpret this language to require disclosure of all communications between counsel and testifying experts, including all draft reports prepared by the expert.  Predictably, this led many litigators to actively discourage testifying experts from preparing any draft reports or communicating with counsel in writing.  Moreover, this state of affairs created an incentive –- at least for those litigants who could afford it –- to hire an additional, non-testifying, consulting expert, whose documents and communications are generally protected from disclosure.

The proposed amendment to Rule 26(a)(2)(B) would no longer permit discovery of all data “or other information” considered by the expert; instead, the disclosure requirement extends to “the facts or data considered by the witness” in forming the opinions.  This change should allow attorneys and experts to communicate more openly, without the risk of exposing to discovery written materials that may be adverse to the client’s interests.
 
And under proposed Rules 26(b)(4)(B) and (C), respectively, work product protection is expressly extended to all drafts of expert reports in any form, and to communications between counsel and testifying experts who are required to submit reports under Rule 26(a)(2)(B).  There are, however, three rather common-sense exceptions to the new “attorney-expert” privilege.  The exceptions are:  (1) communications relating to the expert’s compensation; (2) identification of facts or data that the attorney provided to the expert and that the expert considered in forming the opinions to be expressed; and (3) identification of any assumptions that the attorney provided to the expert and that the expert relied upon in forming the opinions to be expressed.

The proposed amendments should allow counsel on both sides to communicate openly with their experts, and enable experts to take notes and prepare draft reports, without fear of wide open disclosure or the gamesmanship required to prevent disclosure.  For further background, see the excerpts from the Report of the Judicial Conference Committee on Rules of Practice and Procedure.

Multnomah County offers fast track to civil trials

In response to the long-term decline in the number of trials in civil cases, Multnomah County Circuit Court now offers an expedited track for jury trials.  Presiding Judge Jean Kerr Maurer has announced a new initiative for "summary jury trials."  If parties choose to participate, they will conduct limited discovery and will be able to go to trial within four months.  See more details here.

Oregon Court of Appeals upholds arbitration clause in employment contract

The Oregon Court of Appeals has again enforced an arbitration clause in an employment contract, rejecting the employee's claim that the clause is unconscionable.  In Livingston v. Metropolitan Pediatrics, LLC, the plaintiff, a pediatrician, took issue with the conduct of his employer and other doctor members and employees related to an investigation of the clinic's child vaccine program.  He alleged he was ultimately terminated because of the concerns he expressed to his employer and government authorities. 

Plaintiff filed common law and statutory employment claims against his employer and the others in court.  The employer moved to abate the claims and compel arbitration, citing a clause in the employment agreement that required arbitration of "[a]ny controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof."  The trial court denied the employer's motion, ruling that the arbitration clause is "unconscionable" and, therefore, unenforceable.  The employer appealed, and the Court of Appeals last week agreed with the employer and sent the case back for arbitration of all claims.

The test for "unconscionability" in Oregon has two parts, one procedural and the other substantive.  A contract is procedurally unconscionable, and therefore not enforceable, if there is "oppression" or "surprise" in the "conditions of contract formation," but unequal bargaining power alone is insufficient for a finding of procedural unconscionability.  A contract is substantively unconscionable if the "terms" of the contract are "unreasonably" one-sided, such that their "effect" makes the parties' respective obligations "so unbalanced as to be unconscionable."

In this case, Plaintiff did not contend that the agreement was procedurally unconscionable; the Court of Appeals noted that, in any event, because plaintiff is a highly educated physician, any inequality in bargaining power was minimal.  The trial court, however, had found these aspects of the agreement substantively unconscionable:  (1)  the possibility that plaintiff would have to pay defendant's attorney fees and costs if plaintiff is unsuccessful on his "blacklisting" claim; (2)  excessive arbitration fees assessed against plaintiff; (3)  ambiguity about which set of American Arbitration Association rules would govern the arbitration; and (4) a requirement of confidentiality.  Before the Court of Appeals, plaintiff asserted these and other grounds for a finding of unconscionability and further argued that the arbitration clause should not apply to intentional torts, statutory claims, and claims against non-signatories to the employment agreement.  The Court of Appeals addressed the trial court's findings as well as the other arguments put forth by plaintiff, and held that none of the concerns arises to the level of substantive unconscionability or otherwise requires court litigation of the parties' disputes.  Central to the ruling of the Court of Appeals is the very broad language of the arbitration clause allowing for arbitration of "any controversy, dispute or disagreement."

U.S. Supreme Court defines corporations' place of residence for diversity jurisdiction

In January, the U.S. Supreme Court gots lots of attention for ruling, in Citizens United v. FEC, on the free speech rights of corporations.  On Tuesday, the Court addressed a less-controversial aspect of a corporation's role as "citizen" -- namely, how to determine its state of residence.

In federal court, diversity jurisdiction may exist if the parties are citizens of different states.  A corporation is deemed to be a citizen of the state or states where it is incorporated and where it has its principal place of business.  28 USC sec. 1332(c)(1).  The Supreme Court held in Hertz Corp. v. Friend that "principal place of business" means the place where a corporation's high level officers direct, control, and coordinate the corporation's activities -- i.e., its "nerve center." This reversed the Ninth Circuit, which held that a corporation's principal place of business can be the state where it conducts the most business activity.

See our earlier coverage of the case here.

Oregon Court of Appeals tackles defamation claim against a clergy member

Last week, the Oregon Court of Appeals addressed a First Amendment issue that had been untouched by both the United States Supreme Court and the Oregon courts. In Tubra v. The International Church of the Foursquare Gospel, the Oregon Court of Appeals determined that the First Amendment did not divest a lower court of jurisdiction to consider a defamation claim against a church pastor.

Plaintiff was the interim pastor of Vernonia Foursquare Church.  He was appointed by Pastors Cooke and Swor, the district superintendent and supervisor.  After a permanent pastor was hired for Vernonia and plaintiff was released, Cooke and Swor drafted a letter that Swor read aloud to the Vernonia congregation regarding the circumstances surrounding plaintiff's departure. The letter accused plaintiff of misappropriation of church funds and dishonesty during his tenure as interim pastor.  Plaintiff sued Cooke, Swor and the International Church of the Foursquare Gospel for, among other things, defamation based on the letter.

After a trial on the merits, during which the jury found for plaintiff, the defendants moved for a judgment notwithstanding the verdict, arguing that the First Amendment operated to deprive the court of jurisdiction over the defamation claim.  After a hearing, the trial court agreed and overturned the jury's verdict.

The Court of Appeals reversed, concluding that church pastors are not per se exempt from defamation claims.  The court announced that the same test guiding courts in fraud cases against religious institutions should guide courts dealing with defamation claims against church pastors. Jurisdiction hinges on whether the representation at the heart of the fraud or defamation case is "purely religious as a matter of law."  If so, the First Amendment deprives the court of jurisdiction; if not, the court may hear the case. 

Determining whether a representation is purely religious involves three inquires.  First, is the defendant organization of a religious nature?  Second, does the representation itself relate to the religious beliefs and practices of the organization?  If the answers to these first two inquires are "yes," the First Amendment deprives the court of jurisdiction unless the statements were made for a "wholly secular" purpose.  Some ideas, such as "the nature of a supreme being" and "the value of prayer and worship" must always and in every context be purely religious as a matter of law.  Other ideas, however, can be religious only because the one espousing them is doing so for a religious purpose.

Here, the Court of Appeals determined that the alleged defamatory statements --that plaintiff had misappropriated money and demonstrated a willingness to lie -- did not relate to the religious beliefs and practices of the International Church of the Foursquare Gospel, and as such, were not purely religious as a matter of law.