Ohio Court: No Immediate Appeal from Denial of Preliminary Injunction Against Unfair Competition

Posted on
Reply

If you sue a bunch of former sales employees for absconding with customer information and violating non-solicitation agreements, and you ask a judge to issue a “preliminary injunction” to stop those former employees in their tracks while your lawsuit is pending, and the judge says “no,” can you appeal right away?

In Ohio, the answer appears to be: not necessarily. Or, that’s the answer according to a new Ohio decision, Wells Fargo Insurance Services USA, Inc. v. Gingrich. (No, not that Gingrich.)  Whether or not you get an immediate appeal – or you have to wait until the entire stinking lawsuit is over to appeal – depends on whether or not you can prove

Ohio’s rules will, under certain circumstances, allow for an immmediate appeal from the denial of a motion for preliminary injunction, but one of the requirements that must be met is that the putative appellant must show that he or she “would not be afforded a meaningful or effective remedy by an appeal following final judgment as to all proceedings, issues, claims, and parties in the action.”

And therein lies the problem in the Gingrich case. The appealing party in that case was complaining about three departed former brokers who were soliciting “a very specific discreet [sic] book of business.” (Aside: I think they meant “discrete,” rather than “discreet,” though I have no doubt that the particular customers in question behaved as discreetly as circumstances may have warranted. But I digress…)

Their former managing director claimed that he had “no idea how many” of this customers in this book had already been targeted and also had no clue “what that business will evolve to” in the future.

Not enough, according to the Court.  The Court discussed a couple of other earlier Ohio cases where interlocutory appeals had been allowed, but noted that in those other cases, the appealing parties had been able to produce actual evidence of the impending doom they faced absent an appeal.  In this case, all that was offered was, for the most part, speculation, which isn’t really evidence of anything, especially since we were still only dealing with a discreet (discrete?) group of customers:

Wells Fargo is only seeking to enjoin Gingrich, Smittle, and Nixon from soliciting business from a limited number of select customers for which they acted as brokers, or, as Wells Fargo stated at the preliminary injunction hearing, “a very specific discreet book of business.” In turn, while its managing director did testify that there was no way to quantify its losses for it has “no idea how many of [these customers] they are calling on today” and are unable to determine “what that business will evolve to,” the lost revenue resulting from the departure of any one these customers is easily calculable by using a standard industry multiplier. As a result, because any losses to Wells Fargo can be remedied by money damages at the conclusion of the case, so too can any losses that it may incur during the pendency of the case.

Ergo, since Wells Fargo could be made whole by a single check, there was no need to bother the Court of Appeals with an interlocutory appeal.

Image: renjith krishnan / freedigitalphotos.net

Does “Manifest Disregard” Still Exist as a Grounds for Vacating an Arbitrator’s Award?

Posted on
Reply

For as long as I can remember, courts have entertain arguments about whether or not to overturn an arbitrator’s award on the grounds the the arbitrator “manifestly disregarded” the law.

Trouble is, there’s this statute out there called the Federal Arbitration Act, and the FAA lists several grounds for vacating an arbitrator’s award, and “manifest disregard for the law” isn’t one of them. And then, in 2009, the Supreme Court issued an opinion in a case called Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576, 581 (2008), in which the Supremes held that the enumerated grounds for vacatur in the FAA are “exclusive.”

Is this the death of “manifest disregard” review?

Yes, that’s exactly what Hall Street means, according to the 1st, 5th and 11th Circuits.  (See Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 358 (5th Cir. 2009); Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1323-24 (11th Cir. 2010); Ramos-Santiago v. UPS, 524 F.3d 120, 124 n.3 (1st Cir. 2008), although the latter of these is clearly dicta).

But not every Circuit has been willing to let go of its “manifest disregard” blanket yet.  The 2nd, 6th, and 9th Circuits have narrowly construed Hall Street and have continued to give varying degrees of life to “manifest disregard.” (Stolt-Nielsen SA v. AnimalFeeds Int’l Corp., 548 F.3d 85, 93-94 (2d Cir. 2008), rev’d on other grounds, Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 130 S. Ct. 1758 (2010)); Comedy Club, Inc. v. Improv W. Assocs., 553 F.3d 1277, 1290 (9th Cir. 2009); Coffee Beanery, Ltd. v. WW, LLC, 300 Fed. Appx. 415, 419 (6th Cir. 2008)).

Even in the midst of this rather obvious circuit split, the Supreme Court in the aforementioned Stolt-Nielsencase punted on the question, stating in a footnote (footnote 3, to be exact) that it was not going to resolve the question of whether “manifest disregard” was dead in light of Hall Street:

We do not decide whether “manifest disregard” survives our decision in Hall Street Associates, as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10. AnimalFeeds characterizes that standard as requiring a showing that the arbitrators knew of the relevant principle, appreciated that this principle controlled the outcome of the disputed issue, and nonetheless willfully flouted the governing law by refusing to apply it. Assuming, arguendo, that such a standard applies, we find it satisfied.

And now, the 4th Circuit has chimed in – and has joined the side of the Circuits that will still entertain arguments concerning “manifest disregard.”

At issue was a $1.1 million sanction that an arbitration panel had smacked upon Wachovia after Wachovia had initiated arguably-frivolous unfair competition FINRA arbitration against some departed broker-dealers, who countersued for unpaid wages under South Carolina state wage law and then asked the arbitration panel to sanction Wachovia under South Carolina’s frivolous conduct statute.  The Fourth Circuit went through a length analysis of the history of the “manifest disregard” analysis, noted the circuit split above, and then concluded that – based solely on the footnote from Stolt-Nielsen (the same footnote 3 mentioned above), that it was joining the side of the 2nd, 6th, and 9th Circuits:

We read this footnote [footnote 3 from Stolt-Nielsen] to mean that manifest disregard continues to exist either “as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10.”

So, there you have it.  If you’re keeping score, the “manifest disregard is alive” team has now pulled out in the lead, leading the “manifest disregard is dead” team by a score of 4 circuits to 3.

Strolling Into Your Opponent’s “Electronically Stored Garden”: The Production of Hard Drives in Discovery

Posted on
Reply

Occasionally, I receive discovery requests from other lawyers who demand, as part of their initial discovery requests, that they be permitted to make “forensic” copies of my client’s computer hard drives, apparently so that they (or their experts) can examine the entire contents of those drives at their leisure and without restriction. There are rather obvious privacy and confidentiality concerns with any such request.

Is a request such as this ever proper – right out of the box, as part of someone’s initial discovery requests?

Probably not, according to a new decision from an Ohio Court of Appeals in a case called Nithiananthan v. Toirac. The case is not an employment case – but this issue is (alas) not confined to employment cases, as you shall see.

The Nithiananthan case was a lawsuit about a home security camera that was allegedly pointed directly at someone else’s house (allegations which, ironically, raised privacy issues of a different sort). The Nithiananthans apparently sought to turn the tables on the Toiracs – the owners of said camera – and served a discovery request, asking for a forensic copy of the hard drive from the computer that was connected to the camera. The trial judge ordered the drive to be produced. The Toiracs appealed.

According to the Ohio court, whether or not a litigant should be allowed to take an unaccompanied stroll through her opponent’s “electronically stored garden” (snicker) will depend on whether or not that opponent has exhibited a “background of noncompliance” with his or her discovery obligations:

[C]ourts are reluctant to compel forensic imaging due to the risk of exposing privileged and personal information that may be stored on a hard drive.  Therefore, courts must guard against “undue intrusiveness” in order to protect the party’s privacy in their electronic information systems. [Citation]. Weighed against the party’s privacy interest, a court must “consider whether the responding party has withheld requested information, whether the responding party is unable or unwilling to search for the requested information, and the extent to which the responding party has complied with discovery requests.” [Citation]. The balancing factors begin to weigh more heavily in favor of forensic imaging “when a requesting party demonstrates either discrepancies in a response to a discovery request or the responding party’s failure to produce requested information.” [Citation].

Our decision today does not set forth the proposition that parties requesting forensic imaging are entitled to such if they are able to demonstrate a single discovery violation, or periodic discrepancies in discovery responses because complex litigation can often entail discovery issues that need to be resolved. Furthermore, it is not our intent to issue a ruling that encourages litigants to create discovery difficulties just so they can seek an order to tromp through the opposing parties’ electronically stored garden.  [Ed. note - smile].  Instead, the party must demonstrate the “background of noncompliance” … [Citation].

The Nithiananthans were unable to show sufficient discovery obtrusiveness on the part of the Toiracs to warrant a peek at their hard drive: the most they were able to show was that there had been a couple minor paper discovery tussles that were eventually resolved. Not enough of a “background of noncompliance,” according to the Court.

The Nithiananthan court relied heavily upon an earlier decision from a different Ohio appellate district (Bennett v. Martin, 186 Ohio App.3d 412, 2009-Ohio-6195, (10th Dist.)).  The Bennett court in turn had drawn these same factors from a litany of federal court decisions from across the country.  In Bennett, there was substantial evidence that the defendants had essentially blown off the plaintiff’s requests (“defendants’ last-minute discovery of certain responsive documents indicates that when not outright defying the trial court’s orders, defendants adopted a lackadaisical and dilatory approach to providing discovery” – ouch), hence that court allowed discovery of the hard disk being requested.

image: imagerymajestic / freedigitalphotos.net

6th Circuit: Federal “Edge Act” Did Not Permit Removal of Ohio Wrongful Discharge Lawsuit

Posted on
Reply

Ordinarily, cases involving a court’s jurisdiction aren’t terribly exciting reading. Cases involving removal jurisdiction tend to be even less exciting.  And cases involving both removal jurisdiction and foreign currency transactions can… well., ZZzzZzzzzzz.

But then I saw Sollitt v. KeyCorp., where Key tried to remove a case from an Ohio state court into federal court based upon the provisions of the Edge Act.

The Edge Act?

[A]ll suits of a civil nature at common law or in equity to which any corporation organized under the laws of the United States shall be a party, arising out of transactions involving international or foreign banking, … or out of other international or foreign financial operations, … shall be deemed to arise under the laws of the United States, and the district courts of the United States shall have original jurisdiction of all such suits; and any defendant in any such suit may, at any time before the trial thereof, remove such suits from a State court into the district court of the United States for the proper district by following the procedure for the removal of causes otherwise provided by law. [12 U.S.C. § 632].

Now, I am sure there are plenty of lawyers across the country who deal with the Edge Act every day. Some of them may even carry a printout of the Edge Act in their wallets and have excerpts from the Edge Act on their Facebook timeline. I’m not one of them, so this “Edge Act” business caught my eye.

And then the court started talking about naked pictures…

Indeed. Who knew the Edge Act could be so titillating.  In any event, the plaintiff in this case, Mr. Sollitt, had made some complaints to Key about the bank’s handling of certain foreign currency transactions. But then he had the misfortune of being caught with a bunch of naked pictures in his email account–some of which he had forwarded to his personal email account. [Tip of the day: this is a bad career advancement strategy.]  Key fired him. The plaintiff then sued in Ohio state court for wrongful discharge in violation of public policy under Ohio law, claiming that the real reason he’d been fired was for his earlier complaints.

Which brings us to the Edge Act.

Key removed the case to federal court, pointing to the Edge Act, pointing to itself as a “corporation organized under the laws of the United States” (it’s a national bank), and arguing that Mr. Sollitt’s claims arose “out of transactions involving international or foreign banking.” The district court agreed, and refused Mr. Sollitt’s motion to send the case back to state court as having been improperly removed.

The Sixth Circuit reversed. Importantly for purposes of The Personnel Files, the Sixth Circuit held that Mr. Sollitt’s Ohio law wrongful discharge claim did not “arise out of” a foreign banking transaction, and for that reason, it was not a candidate for removal based on the Edge Act. The Sixth Circuit had not previously had an occasion to consider what type of case “arises out of” foreign banking within the meaning of the Edge Act, so it dusted off an old 1980 decision from the First Circuit (Diaz v Pan American Federal Savings and Loan Association, 635 F.2d 30 (1st Cir. 1980)) and came up with this:

The statute [the Edge Act] is otherwise limited to cases arising from ‘transactions’ and ‘other . . . financial operations’ of banking institutions. We think that this limited range of companion parts of the same statutory section militates in favor of a similar narrow limitation for the term ‘banking’. Moreover, a commonsense approach to a statute
principally concerned with financial transactions of an international character suggests that ‘banking’ includes only traditional banking activities. As was the district court, we are unable to believe that Congress intended to reach all cases in which a bank is a party. If Congress so intended, it could have stated its intent more easily.

Works for me. The Sixth Circuit adopted this rationale from the Diaz case wholesale–and stated that the broader reading of the Edge Act’s removal provision that had been suggested by Key could lead to “ridiculous” results:

Suppose, for example, that Sollitt had tripped and fallen over a stack of carelessly placed printouts of foreign-currency transactions. This meager association — ridiculous as it is — between the potential negligence claim and the foreign banking transaction that generated the printouts, would appear to suffice for Edge Act jurisdiction under so limitless a view. That cannot be correct.

Thus, Edge Act removals are no longer possible in the Sixth Circuit merely because some national bank is the defendant and the allegations have some tenuous connection to foreign banking.  Removal is now only possible in such suits only if they involve traditional banking activities. And you can take that to the b…. oh, never mind.

Image: Grant Cochrane / freedigitalphotos.net

Update: according to the premier source-of-all-sources, Wikipedia, the Edge Act, a 1919 amendment to the Federal Reserve Act, was sponsored by the same Walter Evans Edge who is portrayed (quite loosely, I note) on the HBO series Boardwalk Empire. Who knew!

5th Circuit: Arbitration Agreement Unenforceable Because Employer Reserved Right to Modify It

Posted on
Reply

Several companies have mandatory arbitration programs, pursuant to which every employee must sign an agreement promising to submit every possible claim they might want to assert against the company to mandatory and binding arbitration. Much ink has been spilled in various court decisions concerning the circumstances pursuant to which these these types of agreements are enforceable.

But though the law on this issue can vary significantly from state to state, there is at least one universal principle that, one would think, should be pretty obvious: it must be an agreement.  A real, honest-to-goodness contract.

Which brings us to the Fifth Circuit’s new opinion in Carey v. 24 Hour Fitness USA, Inc.  Apparently, someone at 24 Hour Fitness thought that parachuting a mandatory arbitration “clause” in their handbook (but only the handbook) was a good idea, and that trying to enforce it against some employee who had the nerve to show up in court was an even better idea. The problem is that 24 Hour Fitness’s handbook – like most handbooks – had a disclaimer which emphasized that the handbook isn’t an “agreement” at all, and that the company is always free to change it:

I acknowledge that, except for the at-will employment, [the Company] has the right to revise, delete, and add to the employee handbook. Any such revisions to the handbook will be communicated through official written notices approved by the President and CEO …

Every first year law student knows that you can’t have a true contract if one of the parties isn’t really agreeing to anything–that’s called an “illusory” bargain. And that was the problem with this “agreement.”  24 Hour Fitness was trying to reserve for itself the right to monkey with the handbook (including the arbitration clause), even on a retroactive basis, while at the same time pointing to the arbitration clause as a binding, enforceable “contract.”

The Fifth Circuit was having none of it:

the fundamental concern … is the unfairness of a situation where two parties enter into an agreement that ostensibly binds them both, but where one party can escape its obligations under the agreement by modifying it. Requiring notice alone does not fully address this concern: … this [notice of modification] could still arguably allow [the company] to avoid its promise to arbitrate as to claims that were already in progress, unless there were some provision preventing changes from applying to in-progress disputes.

The Fifth Circuit did note a Texas Supreme Court case from 2002 (In re Halliburton Co., 80 S.W.3d 566 (Tex. 2002)), where that Court had enforced an arbitration agreement which also allowed the company to modify the deal–but that other arbitration agreement contained a “savings clause” which essentially allowed only prospective changes to the agreement, and banned the company from changing the rules concerning claims that had already matured or had been asserted by the time of the change. No such savings clause was present in this case.  Whoops.

Image: savit keawtavee / FreeDigitalPhotos.net

NLRB Clicks “Like” Button on Two Employer Social Media Policies, Rejects Many Others

Posted on
Reply

Lafe Solomon, Acting General Counsel of the National Labor Relations Board, issued a new report yesterday describing various social media-related cases that the Board has handled during the preceding year. The report, which is 35 pages long, is interesting reading. But the most interesting thing is that nearly all of the employer social media policies mentioned were found to be unlawful to some extent. Specifically, the NLRB found all of the following policies and policy language to be violations of Section 8(a)(1):

  • A requirement that employees “avoid identifying themselves as [company] employees, unless there was a legitimate business need to do so,” and to only discuss terms and conditions of employment “in an appropriate manner.”
  • A ban on “unprofessional communication that could negatively impact the [company's] reputation or interfere with [its] mission.”
  • A ban on “unprofessional/inappropriate communication regarding members of the [company's] community.”
  • A ban on “disclosing or communicating information of a confidential, sensitive, or non-public information concerning the company on or through company property to anyone outside the company without prior approval of senior management or the law department.”
  • A ban on “use of the company’s name or service marks outside the course of business without prior approval of the law department.”
  • A ban on “publishing any representation about the company without prior approval by senior management and the law department.”
  • A requirement that employees obtain prior management approval before they could “identify themselves as the Employer’s employees” (and then they had to “expressly state that their comments are their personal opinions and do not necessarily reflect the Employer’s opinions”).
  • A requirement that all “social networking site communications be made in an honest, professional, and appropriate manner, without defamatory or inflammatory comments regarding the employer and its subsidiaries, and their shareholders, officers, employees, customers, suppliers, contractors, and patients.”
  • A ban on “discriminatory, defamatory, or harassing web entries about specific employees, work environment, or work-related issues on social media sites.

Common problems with the above requirements and prohibitions, according to the Board, is that they either chill, or burden, or flat out prohibit the exercise of employees’ Section 7 rights to engage in collective discussion on Facebook (and elsewhere) about workplace-related issues.  Several of the policy provisions (such as the bans on defamation and disclosing “confidential” information, or the requirement that things be discussed in an “appropriate” manner) failed in the Board’s eyes because no examples or context were offered to the employee, and an employee reading the provision would understand his or her Section 7 rights being limited. (Or at least, so sayeth the Board.)

Of all of the policies that the Board discussed in the memo, it pushed the “Like” button on just two:

  • An employer’s prohibition on any “post or display comments about coworkers or supervisors or the Employer that [is] vulgar, obscene, threatening, intimidating, harassing, or a violation of the Employer’s workplace policies against discrimination, harassment, or hostility on account of age, race, religion, sex, ethnicity, nationality, disability, or other protected class, status, or characteristic.” (This prohibition was actually an updated version of the last bullet item listed above – the Board found this employer had corrected the Board’s concerns about the word “defamatory”.)
  • An employer’s policy that banned “using or disclosing confidential and/or proprietary information, including personal health information about customers or patients, and it also prohibited employees from discussing in any form of social media “embargoed information,” such as launch and release dates and pending reorganizations, and that prohibited employees from referring to the company “by name,” “publishing any promotional content,” and requiring employees employees, “while engaging in social networking activities for personal purposes, [to] indicate that their views were their own and did not reflect those of their employer.” (The latter provisions the Board found OK because they were found only in a section of the policy called “Promotional Content,” and that as a result, “employees could not reasonably construe the rule to apply to their communications regarding working conditions, as they would not consider those communications to promote or advertise on behalf of the Employer.”)

And for those employers who have a boilerplate “savings clause” in their social media policies (something like: “this policy should not be interpreted or applied so as to interfere with employee rights to self-organize, form, join, or assist labor organizations, to bargain collectively through representatives of their choosing, or to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection, or to refrain from engaging in such activities“), nice try. The NLRB held that this exact savings clause did not salvage the company’s otherwise-unlawful policy, essentially because the Board concluded that the average employee reading the savings clause would have no idea what it meant (“an employee could not reasonably be expected to know that this [savings clause] language encompasses discussions the Employer deems
‘inappropriate’“).

Much of the above guidance is not new — though I do admit that it is nice for once to see examples (if only just a few) of policies that the Board actually finds to pass muster under Section 8(a)(1).

Image: Nutdanai Apikhomboonwaroot / FreeDigitalPhotos.net

California Court: Recruiters Qualified for “Commissioned Salesperson” Exemption in Wage Order 7

Posted on
Reply

A California Court has held that a group of recruiters qualified for California’s commissioned salesperson exemption.

Here’s how the court described what these recruiters did to earn their keep:

Appellants’ primary job duty was to recruit “candidates” for employer “clients.” Surrex’s clients would place “job orders” with Surrex and appellants would search for potential candidates to fill the job orders. Appellants would use various resources to find candidates, including an internal database that Surrex maintained and various “on-line job boards.” Appellants would then attempt to convince both the candidate and the client that the placement of the candidate with the client was a proper fit.

The recruiters sued their employer, arguing that they were owed unpaid overtime. However, these particular employees were subject to IWC Wage Order 7, and under that Order, you don’t get overtime if you’re a bona fide “commissioned salesperson.” The company argued that these recruiters were commissioned salespersons, and the trial court agreed, throwing the claim out. The Court of Appeals has now affirmed that result.

Under California law, you don’t qualify for the commissioned salesperson from overtime unless – get this – you’re a salesperson and you get paid on commission.

The court held that these recruiters were indeed principally engaged in selling a service by scrounging up job candidates and convincing them to come work for the company’s clients:

appellants’ job, reduced to its essence, was to offer a candidate employee’s services to a client in exchange for a payment of money from the client to Surrex. Offering a candidate’s employment services in exchange for money meets the ordinary definition of the word “sell”… Further, Surrex presented evidence and testimony that appellants engaged in what is commonly thought of as sales-related activity — that is, they attempted “to persuade or influence [clients] to a course of action or to the acceptance of something.” [Citation]. Finally, it is undisputed that Surrex did not obtain any revenue unless and until an employer client selected a candidate proffered by a consulting services member. Thus, it was only upon the successful placement of a candidate that Surrex recorded a sale, and that a Surrex client became a paying client.

The court nixed the recruiter’s counter-argument that tasks such as trolling the Internet for potential job candidates, reviewing resumes, etc., shouldn’t count as time spent “selling”:

This argument perceives the word sales in a vacuum contrary to the job description of any salesman. The whole point of these activities, including online search for candidates, resume reviews, unsolicited (cold) calls, etc., are the essential prerequisites necessary to accomplishing the sale.

Finally, the court concluded that these recruiters were indeed paid a bona fide commission. The recruiters received a percentage of the money paid by the company’s clients for candidates – but this percentage was then run through a mathematical formula based on the company’s “adjusted gross profit” relative to the sale. In essence, the lower the company’s costs associated with the sale, the higher a percentage of that sale the recruiter would receive as payment. The recruiters objected, claiming that this couldn’t qualify as a bona fide commission system because it wasn’t a “straight” commission and it was “too complex.” The court rejected this argument, stating in essence that nothing in earlier California decisions required a straight commission system in all circumstances.

The case is Muldrow v. Surrex Solutions Corp.

Image: graur razvan ionut, freedigitalphotos.net