Members and managers of a limited liability company are shielded from vicarious liability for the LLC's torts, but can be held personally liable if they either knew of the tortious acts or participated in them. That was the conclusion of the Oregon Supreme Court last week in Cortez v. Nacco Material Handling Group, Inc.
ORS 63.165(1) protects members and managers of an LLC from liability resulting "solely by reason of being or acting as a member or manager." The scope of that statutory immunity was at issue in Cortez. The court held that the immunity is comparable to that available to an officer or director of a corporation. According the to court, "members or managers who participate in or control the business of an LLC will not, as a result of those actions, be vicariously liable" for the LLC's torts. But a member or manager can be liable for its own negligent acts in managing the LLC, or for knowing of or participating in the LLC's torts.
Addressing an issue of first impression, the Oregon Court of Appeals today held that the inconvenient-forum doctrine, or forum non conveniens, is available as a basis to dismiss a lawsuit in state court. In Espinoza v. Evergreen Helicopters, Inc., the trial court dismissed a wrongful death action arising from a helicopter crash in Peru, applying the inconvenient-forum doctrine. On appeal, plaintiffs contended that Oregon courts lack discretion to decline to exercise jurisdiction.
Judge Rex Armstrong, writing for the court, surveyed Oregon case law and determined that courts have inherent power to decline jurisdiction, including based on the inconvenient-forum doctrine. To obtain dismissal on that basis, a defendant bears the burden of demonstrating that an alternative forum is available and adequate, and that considerations of convenience and justice so outweigh the plaintiff's choice of forum that the action should be dismissed. The court remanded the case to the trial court for application of the new test.
Business owners violated the Uniform Fraudulent Transfers Act (ORS 95.200 to 95.310) when they dissolved one business and transferred the assets and operations to a newly-formed entity, according to the Oregon Court of Appeals.
In Norris v. R&T Manufacturing, LLC, the court last week affirmed the trial court's conclusion that the reorganization was an improper effort to avoid a judgment against the original business. The court rejected what the defendant described as good-faith business reasons for forming a new LLC, and found that the new entity didn't pay reasonably equivalent value for the tangible and intangible assets.
California recently became the second state to pass a law acknowledging the problem of workplace bullying. The first state to do so was Tennessee.
Effective January 1, 2015, California’s existing law mandating sexual harassment training for supervisors must include training on the prevention of abusive conduct. For the purpose of the new California law, "abusive conduct" means
conduct of an employer or employee in the workplace, with malice, that a reasonable person would find hostile, offensive, and unrelated to an employer's legitimate business interests. Abusive conduct may include repeated infliction of verbal abuse, such as the use of derogatory remarks, insults, and epithets, verbal or physical conduct that a reasonable person would find threatening, intimidating, or humiliating, or the gratuitous sabotage or undermining of a person's work performance. A single act shall not constitute abusive conduct, unless especially severe and egregious.
Tennessee’s law, passed earlier this year, requires the Tennessee advisory commission on intergovernmental relations (TACIR) to create by March 15, 2015, a model policy for employers to prevent abusive conduct in the workplace. Employers who adopt the TACIR or an equivalent policy are immune from suit for any employee’s abusive conduct that results in negligent or intentional infliction of mental anguish.
Since 2003, 26 states have introduced some version of the Healthy Workplace Bill (HWB), the anti-bullying legislation being promoted by social psychologist Gary Namie and his wife, who was a victim of workplace bullying and, thereafter, suffered from depression. To date, no states have enacted the HWB. However, recognizing the serious harmful effects of bullying, many schools have already implemented anti-bullying policies. It may just be a matter of time before anti-bullying legislation extends to the workplace.
The Oregon Supreme Court held last week that the attorney-client privilege applies to communications between a law firm's lawyers and the firm's in-house counsel. In Crimson Trace Corp. v. Davis Wright Tremaine LLP, plaintiff sued its lawyers for malpractice, and sought discovery of communications between the defendant lawyers and a group of firm lawyers designated as in-house counsel. Those internal communications had occurred when a potential conflict of interest arose between the client and its lawyers.
The trial court held that the communications were discoverable and were not subject to the attorney-client privilege, adopting a "fiduciary exception" to Oregon Evidence Code 503, which sets out the scope of the privilege. According to the fiduciary exception, a law firm's fiduciary obligations to its clients prevent it from invoking the privilege to protect its lawyers' communications with in-house counsel. Justice Landau, writing for the Supreme Court, concluded that the fiduciary exception is not supported by the plain language of Rule 503, and that the internal law firm communications in that case were protected by the privilege.
As discussed in our earlier posts (Part 1 and Part 2), the EEOC and NLRB have in recent years targeted employers who impose restrictions on employee speech and conduct that could chill employees' exercise of their rights under the NLRA and Title VII. Whether the courts will agree to invalidate restrictions on employee speech and conduct in the context of settlement agreements is an open question and a matter of concern for employers.
Such restrictions are common in agreements resolving employment disputes. Indeed, many companies would not think of entering into a settlement in which they were not assured that the affected employee(s) would comply with the company’s confidentiality policy, maintain confidentiality of the fact and/or terms of the settlement, and refrain from disparaging the company. While policy considerations associated with settlements are arguably different from those associated with other employment practices attacked by the agencies, the employment rights at issue are largely the same. If the courts embrace the positions held by the EEOC and NLRB, employers may start to see both current and former employees challenge undesirable settlement terms by filing suit or administrative charges, or raising the issue as a defense to enforcement. Either way, if the courts invalidate such terms, employers will have a lot less incentive to settle.
Given the likelihood that agencies will continue to scrutinize both employment policies and settlement terms, employers should review all of their policies and agreements that may impact employees’ exercise of employment rights under the NLRA and Title VII. These can include policies addressing confidentiality, use of the Internet, email, and social media, disparagement, and general conduct policies (e.g., no gossip and professionalism policies) that purport regulate employee speech. Employers will need to balance the risks and benefits of including such terms going forward.
The EEOC’s recent lawsuits against employers described in Part 1 follow the NLRB’s similar attempts in recent years to rein in employer restrictions that could impact employee speech and other employment rights under federal labor law.
The focus of the NLRB and the EEOC has been primarily on invalidating employment policies that might have a tendency to chill employee rights under Section 7 of the NLRA and Title VII, such as broadly-worded confidentiality and social media policies. Section 7 entitles employees to form and join a union, and to engage in organizing, collective bargaining, and other concerted activities for mutual aid and protection. Section 8 of the NLRA prohibits employers from interfering with employees’ exercise of their rights under Section 7.
One such ruling by the NLRB was recently upheld by the Fifth Circuit, which invalidated a fairly standard confidentiality policy. The policy at issue defined “Confidential Information” as including information related to customers, suppliers, distributors; the employer’s management and marketing processes, plans and ideas, processes and plans, financial information, including costs, prices; current and future business plans, computer and software systems and processes; personnel information and documents, and the company’s logos and art work. The policy prohibited employees from sharing Confidential Information outside the organization, or from removing or making copies of any company records, reports or documents without prior management approval. The policy also provided that disclosure of Confidential Information could lead to termination and possible legal action. Although the company’s policy said nothing specific about wages, the Fifth Circuit found that the policy violated Section 8 of the NLRA because employees could interpret the policy as precluding discussions about wages. Thus, it appears that the NLRB’s expansive reading of Section 7 rights may be gaining traction in the courts, at least with respect to employer confidentiality policies.
In our next post we will address the practical implications of federal agency efforts to limit restrictions on employee speech.
The EEOC and NLRB continue to target employers who restrict employee speech and conduct, especially when those restrictions could impact employees’ rights under labor and employment laws.
The EEOC recently filed suit attacking the use of certain terms in employer settlement agreements, this time against CollegeAmerica, a private college based in Salt Lake City. The EEOC alleges that CollegeAmerica conditioned an employee’s separation benefits, among other things, on her promise not to file a complaint or grievance with any government agency or to disparage CollegeAmerica. When the employee filed a charge against CollegeAmerica with the EEOC alleging discrimination and retaliation, College America promptly filed an action against the employee in state court for breach of the agreement.
The EEOC claims that the agreement violates the employee’s right to file charges with the EEOC and that CollegeAmerica’s filed its lawsuit in retaliation for the employee’s filing of the EEOC charge. The EEOC is seeking to recover the employee’s attorney fees incurred in defending the state court action, and for injunctive relief to invalidate the employee’s separation agreement and prevent CollegeAmerica from using the offending terms in its form settlement agreements.
This follows a lawsuit that the EEOC filed in February against CVS Pharmacy, seeking to invalidate settlement terms including confidentiality and non-disparagement clauses, a general release, and a covenant not to sue, among other things. See our earlier coverage of the CVS case here.
Our next post will address similar actions against employers by the NLRB.
There is little debate that the Lanham Act, 15 USC 1125(a), entitles direct competitors to sue each other for false advertising, while consumers (including business consumers) lack standing to sue under the Act. For parties that are neither competitors nor consumers, however, the landscape has been far from clear. In Lexmark International v. Static Control Components, Inc., the United States Supreme Court last week clarified that the class of plaintiffs entitled to assert a false advertising claim under the Lanham Act includes any party that suffers injury to a commerical interest in reputation or sales flowing directly from the deception.
Lexmark manufactures and sells laser printers, including the toner cartridges for those printers. Static Control does not sell printers or toner catridges but it manufactures a microchip that remanufacturers may use to refurbish Lexmark toner catridges. Although Lexmark and Static Control are not direct competitors, Static Control sells its microchips to Lexmark's competitors. Lexmark allegedly informed consumers that it was illegal to use Static Control's microchips to refurbish Lexmark toner catridges, and then sued Static Control for copyright infringement. Static Control countersued Lexmark under the Lanham Act for false advertising. The District Court dismissed Static Control's counterclaim on the ground that only a direct competitor has standing to sue.
The Supreme Court ruled that direct competition is not required to assert a Lanham Act false advertising claim, and that Static Control stated a claim for relief against Lexmark where Lexmark disparaged Static Control and its products, thereby causing injury to Static Control's reputation.
The Oregon Court of Appeals recently held that a business owner can pursue a defamation claim against an individual who posted a negative on-line review. In Neumann v. Liles, plaintiff, who operates a wedding venue, was the target of a review on google.com calling her, among other things, "two faced, crooked, and . . . rude." She sued the author of the review, who had been a guest at a wedding hosted at plaintiff's venue.
The on-line critic in response filed a "special motion to strike" under Oregon's SLAPP statute. SLAPP stands for "strategic lawsuit against public participation," and the anti-SLAPP statute creates a procedure for dismissing at an early stage an unfounded lawsuit designed to quash speech or activism on issues of public interest. While the statute protects certain speech-related activities, it does not shield defendants who engage in defamatory speech.
According to the Court of Appeals, the trial court should not have granted the anti-SLAPP motion to strike the complaint because plaintiff had offered sufficient evidence that the review was in fact defamatory. While defendant claimed that the review represented his opinion and was merely "figurative, rhetorical, or hyperbolic," the Court of Appeals concluded that most of the post was "nonrhetorical and factual" and contained specific, potentially defamatory, statements about plaintiff's honesty and business ethics. Accordingly, the trial court should have allowed the case to proceed to trial.