For owners of closely held corporations, remedy for oppression must match the wrong

By Dan Larsen
March 6, 2015

Last week the Oregon Court of Appeals examined the remedies that a trial court may impose to remedy shareholder oppression.  In Hickey v. Hickey, ownership of a family ranching business was divided among several siblings.  One sibling acquired a majority interest by purchasing shares from others.  As controlling shareholder, he engaged in self-dealing and commingling of assets, to the detriment of the remaining minority shareholder.   The minority shareholder then filed suit under ORS 60.952 to impose remedies for oppression.  The trial court ordered amendment of the bylaws and articles of incorporation to strip the voting rights of the majority shareholder and remove him from management. 

 The appellate court reviewed the nonexclusive list of remedies provided under ORS 60.952 to rectify oppressive conduct, including: (1) cancellation or alteration of any provision in the corporations articles of incorporation or bylaws, (2) removal from office of any director or officer, (3) appointment of a custodian to manage the business, (4) appointment of a provisional director, (5) retention of jurisdiction by the trial court for protection of the minority shareholder, or (6) dissolution of the corporation.  While the trial court has many remedies to choose from, "[t]he remedy must correspond to the wrong--or legally recognized right--for which the remedy is provided under ORS 60.952." 

The Court of Appeals reversed the trial court, holding that the effect of the remedy selected was to convert the minority shareholder into the majority shareholder.  That constituted  a windfall to the plaintiff and was not within the "reasonable expectations" of either party.  The appellate court then remanded the case to the trial court with instructions to devise a more appropriate remedy, such as ordering a share purchase for fair value to remove one of the two shareholders from the business.

Nonprofit's governing documents dictate scope of director's liability

By Lori Irish Bauman
March 3, 2015

Last week the Oregon Court of Appeals addressed the liability of directors of a nonprofit corporation, reversing summary judgment for directors of a homeowners association on breach of fiduciary duty claims.

In WSB Investments, LLC v. Pronghorn Development Company, LLC, plaintiff was an owner of a timeshare and a member of the HOA that asserted various claims against the directors, including breach of fiduciary duty. In reviewing the trial court's grant of summary judgment, the court discussed the standards for directors' obligations to a nonprofit. While ORS 65.369(1) imposes liability for gross negligence or intentional conduct, the legislature has not defined gross negligence in this context. The court held that, for directors' liability, gross negligence means negligence characterized by near total disregard or indifference to the rights of others or the probable consequence of a course of conduct. The court further held that, while ORS 65.357 states the standard of care of uncompensated directors of a nonprofit, whether those standards have been violated must be determined with reference to the obligations set out in the governing documents.

Accordingly, the court found triable issues of fact as to,among other things, the use of reserve funds for operating expenses and failing to elect new board members in a timely fashion, all in violation of the HOA's governing documents.

Pom’s Wonderful Start to the New Year

By Ashley Long
January 5, 2015

The Ninth Circuit Court of Appeals last week handed a trademark victory to Pom Wonderful, reversing a district court decision denying its request for an injunction against competitor Pur Beverages.


Pom Wonderful, maker of the popular POM pomegranate juice drinks, requested a preliminary injunction to bar the defendant from using the word “pŏm” for its pomegranate flavored energy drinks, as seen below.

Pom

The district court denied the request, stating that Pom Wonderful did not establish a likelihood of confusion between the marks. 

On review, the Ninth Circuit focused on the Sleekcraft factors for likelihood of confusion.  Regarding the physical similarities of the marks, the Ninth Circuit found far more in common between the marks than not.  “Balancing the marks’ many visual similarities, perfect aural similarity, and perfect semantic similarity more heavily than the marks’ visual dissimilarities – as we must – the similarity factor weighs heavily in Pom Wonderful’s favor.”  Furthermore, when considering this factor, strong marks are given greater weight than weak marks.  As such, the district court clearly erred by giving more weight to the marks’ differences than their similarities.

The district court also erred in its “brick-and-mortar” trade channels analysis.  “Because Pom Wonderful and Pur sell highly similar products in supermarkets located across the country, the marketing channel convergence factor weighs in Pom Wonderful’s favor.  The district court clearly erred in . . . requiring Pom Wonderful to prove that its beverages were sold in the very same brick-and-mortar stores as Pur’s ‘pŏm’ beverage.”  Though a perfect overlap of retailer locations increases likelihood of consumer confusion, its absence does not undermine the convergence of the marketing channels.

Finally, the district court mistakenly weighed the remaining factors – actual confusion, defendant’s intent, and product expansion –against Pom Wonderful.  The absence of any evidence supporting these factors is to be considered merely neutral in a likelihood of confusion analysis.

In weighing the totality of the factors, the Ninth Circuit review revealed that five of the Sleekcraft factors weighed in favor of Pom Wonderful, none weighed in favor of Pur Beverages, and three factors were neutral.  Since the district court’s errors created a ripple effect, influencing its decision regarding the remaining preliminary injunction requirements, the Ninth Circuit reversed and remanded.

Oregon Supreme Court refines the "same nine" rule for jury verdicts

By Lori Irish Bauman
December 16, 2014

The Oregon Constitution and Oregon Rule of Civil Procedure 59G(2) both state that "in civil cases three-fourths of the jury may render a verdict."  The "same nine" rule requires that, if the questions presented to a jury are interdependent -- such as questions addressing the elements of a single claim -- the same nine out of 12 jurors must agree on every question.  Separate and independent questions are not subject to the same nine rule. 

Last week the Oregon Supreme Court elaborated on the rule, holding that the same nine jurors need not agree on the amounts of economic and noneconomic damages from the same injury when rendering a verdict.

In Kennedy v. Wheeler, defendant admitted liability for negligence in a personal injury action, and a 12-person jury set economic and noneconomic damages.  A jury poll showed that, while 10 jurors agreed on the amount of economic damages and 9 agreed on the amount of noneconomic damages, only 8 jurors agreed on both sums.  Defendant objected to the verdict and moved for a new trial, citing the same nine rule. 

On review, the Supreme Court stated that the test for applying the same nine rule is whether verdict is logically consistent despite the differing votes.  In Kennedy, the verdict did not violate the requirement of a verdict by three-fourths of the jury because there is no logical inconsistency when the same nine jurors do not agree on the amounts of each type of damages.

Oregon Supreme Court on statutory immunity of LLC members and managers

By Lori Irish Bauman
October 9, 2014

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.

Oregon Court of Appeals recognizes the inconvenient-forum doctrine

By Lori Irish Bauman
October 8, 2014

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.

Oregon Court of Appeals: Transfer of business violated fraudulent transfers law

By Lori Irish Bauman
October 7, 2014

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 will require supervisor training to prevent workplace bullying

By Stacey Mark
September 30, 2014

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. 


 

Oregon Supreme Court recognizes law firm "in house" privilege

By Lori Irish Bauman
June 6, 2014

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.

Angencies continue to attack restrictions on employee speech: Part 3 -- Lessons for employers

By Stacey Mark
May 27, 2014

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.