Ohio Federal Court Enforces FLSA Collective Action Waiver, Rejects All Prior Cases on the Issue in the Process

One of the mostly hotly-litigated issues in employment law is the whether or not employees can waive their ability to bring overtime and other wage-related lawsuits under the Fair Labor Standards Act as part of a collective action. Many employment arbitration agreements, for example, contain provisions that require employees to bring all of their claims individually and ban employees from bringing any type of class or collective actions, including overtime and other wage-related claims under the FLSA. Yet there is an old U.S. Supreme Court case which holds that FLSA rights “cannot be abridged by contract or otherwise waived because this would nullify the purposes of the statute.” Barrentine v. Arkansas-Best Freight Sys. Inc., 450 U.S. 728, 740 (1981)).

Thus the question arises: are collective/class action waivers enforceable against an employee who wants to bring an FLSA collective action? Or does such a waiver die a quick death at the hands of Barrentine? Courts have come down all over the place on this issue.

But a brand new Ohio decision – Killion v. KeHE Distributors – may have overturned the apple cart. In Killion, the District Court rejected absolutely every other case that had previously been issued on this subject, finding them to be either inapplicable or wrongly decided.  The Court also held that the plaintiffs had failed to demonstrate anything in the text of the FLSA which created a non-waivable right to proceed collectively, nor had the plaintiffs identified any evidence that their FLSA rights would be affected by the enforceability of their waivers.

Curious? Read on!

The agreement at issue in the Killion was a settlement agreement that contained the following language:

I waive and give up any right to become, and promise not to consent to become, a member of any class or collective action in a case in which claims are asserted against [KeHE] that are related in any way to my employment or the termination of my employment with [KeHE]. …

To the extent permissible by law, this release of all claims … includes without limitation any and all claims arising out of my employment with [KeHE] … and all other claims arising under … the Fair Labor Standards Act …

The employees argued that this language constituted a waiver of substantive FLSA rights. They pointed to prior case law holding that attempted private waivers of FLSA rights are unenforceable, and then pointed to a stack of prior federal court decisions holding that the ability to proceed collectively under the FLSA is a substantive right. The company, for its part, argued that the ability to proceed collectively under the FLSA is a mere procedural vehicle, not a substantive right, and it pointed to a different stack of prior federal court decisions holding this.

The court in Killion rejected all prior cases on this issue, finding them all to be either wrongly decided or inapplicable.

The defendant’s cases were wrong, in essence, because they all relied on a mistaken interpretation of Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 29 (1991).  According to the court in Killion, “Gilmer does not go as far as these … courts would like.” The Killion court explained:

In Gilmer, the Court considered whether an employee was required to arbitrate an alleged wrongful termination under the Age Discrimination and Employment Act (“ADEA”). … The Court held compulsory arbitration did not run afoul of the text, legislative history, or purpose of the ADEA. … Like the FLSA, the ADEA was enacted to protect individuals as well as important social policies. … Indeed, the ADEA expressly adopts the collective action procedures in Section 216(b). … . According to Gilmer, plaintiffs can be forced to arbitrate their ADEA claims “[s]o long as the prospective litigant effectively may vindicate [their] statutory cause of action in the arbitral forum. …” …. But Gilmer did not hold that the right to a collective action may be waived. To the contrary, the arbitral forum at issue in Gilmer actually provided for a collective action, … and KeHE admitted, during a recent record hearing, that Gilmer did not go so far as to hold that such an action may be waived. Subsequent decisions relying on Gilmer surprisingly ignore its holding. … This Court is unpersuaded by those cases. [Ed. note – emphasis is mine].

The plaintiffs’ cases were no help, either.  The plaintiffs’ pointed to cases rejecting collective action and class waivers on public policy grounds due to the possibility that an individual might be unable to find a lawyer and therefore forego a lawsuit if the potential recovery were too small, thus impeding the purposes of the statute.  The Killion court rejected all of those cases, pointing to the fact that the FLSA allows for prevailing party attorneys’ fees as well as the plaintiffs’ failure to put any hard dollar value on their individual claims’ value (as well as their failure to object to the employers’ statement that the claims were valued at at least $40,000 apiece, hardly a trifling amount).  The plaintiffs also pointed to Raniere v. Citigroup Inc., 827 F. Supp. 2d 294 (S.D.N.Y. 2011), where the court had held that FLSA collective action waivers were indeed swept up by the rule from the Supreme Court’s Ballentine case (mentioned at the top of this post), relying (as the Killion court put it) on “the extremely limited legislative history of the FLSA regarding the right to a collective action,” which does little more than mention the existence of the possibility of collective actions and refer to the total available remedies generally as “both a common-sense and economical method of regulation.”  The Killion court found this scant legislative history, and hence Raniere, to be “not nearly enough to persuade this Court that Section 216(b)’s collective action right can never be waived.”

The plaintiffs also pointed to Section 216(c) of the FLSA, and argued that any waiver of FLSA rights must be supervised by the Secretary of Labor or else it is void.  The Killion court simply held that this was a misreading of Section 216(c), which provides that “The Secretary is authorized to supervise the payment of … unpaid overtime compensation … and the agreement of any employee to accept such payment shall
… constitute a waiver … of any right … [to] unpaid overtime compensation. ….”  The Killion court held that this section “only applies to the waiver of a right to unpaid compensation. Section 216(c) says nothing about waiving a right to a collective action in federal court.”

Having rejected all of the parties’ authorities, the Court’s only remaining option was to turn to the text of the FLSA itself.  29 U.S.C. § 216(b) states that “[a]n action … may be maintained … by any one or more employees for and in behalf of himself or themselves and other employees similarly situated” [Ed. note – emphasis is mine]. The Court, interpreting this language, held that it merely conferred upon employees the ability to make choice, and in this case the plaintiffs made that choice when they signed their agreements.  So long as those agreements did not “nullify the purposes of the statute” or “thwart legislative policy,” they ares enforceable:

The statute permits a collective action, but it does not require one. Plaintiffs concede this when they note they could proceed as a collective action or aggregate their individual claims … . Additionally, Plaintiffs have done nothing to demonstrate financial burden in an individual pursuit of their claims and, aside from bare assertions, made no showing individual actions will impede enforcement of the FLSA. Without such a showing the waiver does not “nullify the purposes of the statute,” Barrentine, 450 U.S. at 740… , or “thwart [] legislative policy.” [Citation}... Section 216(b) is clear: Plaintiffs may proceed collectively, not shall. By signing the Agreement they [the plaintiffs] waived that right.

The Killion court also pointed to the recent U.S. Supreme Court decision in AT&T Mobility LLC v. Conception.  Even though that case dealt with arbitration, and did not address issues specific to the FLSA, the Killion court stated that AT&T Mobility nontheless “generally held that individual proceedings are necessary to arbitration and trump any underlying policy considerations. … That policy applies in any context, including arbitrations that limit collective actions under the FLSA.If the right to a collective action may be waived in an arbitration agreement, then what prevents that right from being waived in other agreements?”

What about it?

The enforceability of a collective waiver does not change outside the arbitration context. … After all, arbitration agreements are scrutinized under contract theories and are on “equal footing” with contracts. [Citations]. Plaintiffs argue that cases allowing collective action waivers in the arbitration context only did so because underlying FAA policies dictated that result. [Citations]. Plaintiffs conclude that in the absence of the FAA, only the FLSA’s broad remedial purpose controls — a purpose which apparently should persuade this Court to invalidate the waiver. It does not.

This Court must construe the FLSA “liberally to effectuate the broad policies and intentions of Congress.” [Citations]. This is true whether or not the FAA is involved, because in arbitration “a party does not forgo the substantive rights afforded by the [FLSA]; it only submits to [] resolution in an arbitral, rather than a judicial, forum.” [Citation]. It is true that the cases KeHE relies on upheld the arbitration agreements in part because of the arbitral preference under the FAA, but that is not why they upheld the collective action waivers. Those waivers were upheld because they did not offend the purposes of the FLSA. [Citations].

Plaintiffs have not convinced this Court how the waiver here would undermine their rightsunder the FLSA. Therefore, given the statutory language and cases discussed above, this Court finds the collective action waiver is not offensive to the FLSA. …

Having found no obstacle to the enforcement of the collective action waivers, the Killion court proceeded to deny certification of the collective action and strike the collective action language from the plaintiffs’ pleading. 

So, if you thought that you had a handle on the current state of the law concerning the enforceability of collective/class action waivers under the FLSA, Killion may have altered your universe a bit.  I am certain this is not the last that we will hear on this subject.  Stay tuned!

Fun with ERISA: Don’t Save Your ERISA Preemption Argument for the State Court Appeal

As most employee benefits lawyers will know, there are not very many ERISA cases percolating in the state courts.  ERISA cases tend to get removed to federal court on complete preemption grounds (for reasons explained below).

But a new state court ERISA case has landed, courtesy of the Ohio Court of Appeals in Betz v. Penske Truck Leasing Co. LP.  This case has an important lesson about timing, and shows that while ERISA may preempt a lot of things, one thing that it does not preempt is the running of the clock.

Every seasoned litigator knows that, when it comes to raising an argument in a lawsuit, good timing is essential.  Sometimes there are pesky rules (like Federal Rule of Civil Procedure 8) that kick in require the parties to raise certain issues right up front.  Yet, more often, it is up to the lawyers to pick the best time to come forward with their arguments and counterarguments.  Your opponent gains unnecessary time to react if you tip your hand too soon.  And you can find yourself against the ropes if you wait until it’s too late.  Timing one’s arguments is an art form, and there are few hard and fast rules.

Except this one: don’t wait until the appeal to raise an argument for the first time.  That is nearly always a bad idea.  As a general rule, if you raise an argument for the first time on appeal, the court of appeals will typically ignore it, and hold that you waived it by failing to raise it in the trial court.

But what about ERISA preemption?  Is there something special about ERISA, and its sweeping preemption, that allows ERISA parties (like plan sponsors) to wait until the appeal to raise ERISA preemption issues?  

ERISA, as mentioned above, is one of those rare federal laws (like the National Bank Act) that completely preempts state laws in its field.  In simple terms, this means that states are not permitted to legislate on the subject matter of employee pension and welfare benefit plans, and any attempt to assert a state law claim on these subjects is treated as if it were a federal claim, because a federal claim is the only claim that could ever exist in that subject area.  Thus, any attempt to assert a state law claim relating to an employee pension or welfare benefit plan is really an ERISA claim, no matter how the parties might attempt to dress the claim up.  This is why ERISA cases can be (and usually are) removed to federal court if they happen to get filed in state court initially.

Let’s say that a company which offered a group life insurance benefit plan to its employees – an ERISA plan – gets gets sued for breach of contract in state court for allegedly failing to provide plan benefits as promised. And let’s say that instead of removing the case to federal court and moving to dismiss any preempted state claims, this company instead pushes forward in state court and litigates the state claims on their merits – not even raising the preemption defense in its answer.  The company then waits until after it prevails on summary judgment, and the plaintiff has appealed, to finally start arguing preemption.

That is, in essence, what happened in the new Betz case, and the court in Betz held that the company had indeed waived the ERISA preemption argument by failing to raise it in its answer, by failing to argue preemption in state court, and by failing to mention preemption until the case was already on appeal:

Under federal law interpreting ERISA, pre-emption of state law claims is an affirmative defense that is waived if not timely pled. Gilchrist v. Jim Slemons Imports, Inc., 803 F.2d 1488, 1497 (9th Cir. 1986). This view has been adopted in at least one district court in the Sixth Circuit. Old Line Life Ins. Co. of Am. v. Garcia, (E.D. Mich.), No. 02-40239, (Nov. 19, 2007), citing Allstate Ins. Co. v. My Choice Med. Plan for LDM Technologies, Inc., 298 F.Supp.2d 651, 655-56 (E.D. Mich. 2004) (enumerating other circuits that have held ERISA pre-emption waived if not raised in a responsive pleading). This court has held likewise. Brown v. Zurich, 150 Ohio App.3d 105, 2002-Ohio-6099, ¶ 33 (10th Dist.) (failure to raise ERISA pre-emption before the trial court constitutes a waiver of the issue).

Therefore, we conclude that ERISA pre-emption is an affirmative defense that may be waived if not timely asserted. Here, the issue of ERISA pre-emption was raised for the first time on appeal. Allowing Penske to raise the defense at this stage of the litigation would result in unfair surprise, prejudice, and delay. Accordingly, we conclude that Penske may not assert ERISA pre-emption as an affirmative defense to Betz’s breach of contract claims. Once ERISA pre-emption is removed from the equation, there is no reason why Betz cannot proceed on her state law breach of contract claims against Penske.

The court therefore reversed the grant of summary judgment, and remanded the case back to state court for a trial on the plaintiff’s state law breach of contract claim.

Thus, not even ERISA is exempt from the ordinary rules of timing.

Image: freedigitalphotos.net

Ohio Supreme Court: Trial Court Must Bifurcate Punitive Damages in Tort Lawsuits

In Ohio, we have been waiting for our Supreme Court’s decision in Luri v. Republic Services, Inc. for quite some time. And now we have it. And there was much rejoicing.

Luri was a retaliation case arising under Ohio’s state discrimination laws. The case went to a jury trial, and jury awarded Mr. Luri more than $46 million in compensatory and punitive damages. Importantly for purposes of the endless briefing that was to come, prior to the trial, the trial judge had denied the company’s motion to “bifurcate” the punitive damages phase of the trial from the remainder of the trial – (in other words, the company wanted to have a separate trial on the question of whether or not it should be punished for its wrongdoing by a punitive damage award, rather than have those issues commingled with the remainder of the trial).

The trial court’s denial of the motion to bifurcate the punitive damages phase of the trial is what the parties in Luri have been fighting over for nearly five years now.

The company argued to the Court of Appeals that bifurcation of the punitive damages award was mandatory because of the following Ohio statute (Ohio Rev. Code 2315.21(B)):

In a tort action that is tried to a jury and in which a plaintiff makes a claim for compensatory damages and a claim for punitive or exemplary damages, upon the motion of any party, the trial of the tort action shall be bifurcated as follows… [Ed. note – emphasis is mine]. 

Seems simple enough. And yet the Court of Appeals said no, the trial judge retained discretion whether or not to bifurcate, because of Ohio Civil Rule 42(B):

The court, after a hearing, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial … [Ed. note – again, the emphasis is mine]

What about the statute that purports to make bifurcation mandatory? The Court of Appeals resolved (?) the rather obvious conflict between the statute and Rule 42(B) by holding that the statute was “an unconstitutional usurpation of the judiciary’s ability to control procedural matters.”

Turns out, the Court of Appeals got that wrong. Earlier this year, in a different case (Havel v. Villa St. Joseph), the Ohio Supreme Court had held that R.C. 2315.21(B) “creates a substantive right to bifurcation in tort actions when claims for compensatory and punitive damages have been asserted” [emphasis is mine].

Havel was not an employment case. But Luri is. Today, the Ohio Supreme Court, in two short sentences, reversed the Court of Appeals’ decision and remanded the case back to the Court of Appeals “for application of Havel v. Villa St. Joseph.”
So, what does all this mean? 

What it means for the actual litigants in Luri is probably a complete re-do of their entire trial, once the Court of Appeals gets around to applying Havel. If the old trial was tainted by all this extraneous evidence pertinent only to punitive damages, and the right to bifurcation of those issues is a substantive one, I see no way around a do-over, unless I’m missing something. Insert heavy sigh here. Interestingly, if a new trial does happen, it probably won’t be before the same trial judge, who is, as of this writing, in a federal penitentiary (for reasons that local readers of this blog will know well.)

What it means for the rest of us, however, is that mandatory bifurcation of punitive damages should now be the rule in virtually all Ohio statutory discrimination, retaliation, and harassment cases, all of which arise under the same statute that was at issue in Luri. Why bother ordering the Court of Appeals to apply Havel to the Luri case unless the same substantive right to mandatory bifurcation was at issue? (This is especially so, given that the Court of Appeals in Luri, when holding the statute to be unconstitutional, had expressly relied on its own earlier decision in the Havel case where it had held the same thing–the same Havel decision that the Supreme Court would later reverse.) This is the first time that the Supreme Court has acknowledged, if only obliquely, that R.C. 2315.21(B)’s mandatory bifurcation scheme does indeed apply in statutory discrimination cases arising under Ohio law. (As long as the employer asks for it, that is.)

Even more interestingly, it appears implicit in the Supreme Court’s Luri decision that Ohio statutory retaliation cases must be “tort actions” within the meaning of R.C. 2315.21(B), since the bifurcation statute by its terms applies only “in a tort action”. This is significant, because there are other provisions of Chapter 2315 that apply in “tort actions,” most notably the caps on non-economic compensatory damages in Section 2315.18, and the caps on punitive damages elsewhere in Section 2315.21. The Ohio Supreme Court has never previously held that these caps apply in statutory discrimination, retaliation, or harassment cases arising under Ohio law. (The Court of Appeals in Luri itself had reduced the punitive damage award, pointing to the caps, but the entirety of the Court of Appeals opinion has now been reversed for a do-over.)  
Now, the Supreme Court has apparently spoken definitely on the “tort action” question. Maybe.

Stay tuned. This is likely not the last we will hear of these issues.

Image credit: freedigitalphotos.net

Buying a Company That Uses Noncompetes? Better Read Those Agreements Carefully…

This morning, the Ohio Supreme Court has held, in a long-awaited decision, that noncompetition agreements that lacked assignment and successorship language did indeed transfer “by operation of law” to an LLC that was the product of a series of mergers and similar transactions.

However, it was a pyrrhic victory, since the Supreme Court also held that this LLC could only enforce what it acquired “as written,” and what it had acquired in this instance were worthless covenants that had expired long ago and that by their terms could only be enforced by the original signatory entity.

The case is Acordia of Ohio, LLC v. Fishel.

The noncompetition agreement in question had stated that the employees who signed them could not engage in certain acts of competition “[f]or a period of two years following termination of employment with the company for any reason.” [Ed. note – emphasis is both mine and the Court’s]. Each agreement defined “the company” as being simply the particular company that the employee worked with at the time. None of the agreements had language stating that successors or assignees could enforce them.

The Supreme Court held that the lack of successorship or assignment language in the documents did not preclude the agreements from transferring to the successor entity (affectionately referred to as “the L.L.C.” throughout the Supreme Court’s opinion) “by operation of law”:

Because the statute [Ohio Rev. Code 1701.82] specifies that the new company takes over all the previous company’s assets and property postmerger, it is clear that employee contracts transfer to the resulting company. In this case, the employees’ contracts came under the control of the L.L.C. after it merged with Acordia, Inc. Because the statute specifies that the new company takes over all the previous company’s assets and property postmerger, it is clear that employee contracts transfer to the resulting company. In this case, the employees’ contracts came under the control of the L.L.C. after it merged with Acordia, Inc.

But what, exactly, did this LLC inherit? According to the Supreme Court, not much. It inherited only the ability to enforce the agreements “as written.” And in this case, that amounted to practically nothing.

As noted, the agreements contained no language that contemplated enforcement of the covenants by successors or assignees. Instead, they provided that only the signatory “company” could enforce them. The Supreme Court held that this language meant what it said. The LLC argued that, regardless, it should be able to jump “into the shoes” of the former entity and enforce the covenants based on Ohio corporation law. The Supreme Court said no, since this would “require a rewriting of the agreements”:

the L.L.C. may not enforce the noncompete agreements as if the L.L.C. had stepped into the shoes of the company that originally contracted with the employees. Appellant’s proposed outcome would require a rewriting of the agreements. By their terms, the noncompete agreements are between only the employees and the companies that hired them.

And to twist the knife, the Supreme Court held that even if the agreements had contained language allowing successors or assignees to enforce the noncompetition covenants in addition to the signatory “company,” the covenants had expired. By their terms, all of the covenants had begun to run when employment with the signatory “company” ended, and by necessity, all employment with each of these signatory “companies” had ended when the entities themselves had ceased to exist:

Because the noncompete agreements transferred to the L.L.C. upon completion of the merger, the L.L.C. obtained the right to enforce the agreements as written. In other words, the employees were unable to compete with the L.L.C. for the two years following their termination from the “company” with which they each had signed their respective noncompete agreements.

In this case, the termination, or complete severance of the employer-employee relationship, occurred when the company with which the employee agreed not to compete ceased to exist, an event triggered by merger. The triggering event for Fishel, Freytag, and Taber occurred when Acordia of Cincinnati, Inc. merged with other Ohio companies to become Acordia of Ohio, Inc. in December 1997. Consequently, their noncompete periods expired in December 1999. The triggering event for Diefenbach occurred when Acordia of Ohio, Inc. merged with the L.L.C. in December 2001. Her noncompete period accordingly expired in December 2003. Because the employees’ noncompete January Term, 2012 periods had all expired before their resignations from the L.L.C. and subsequent employment with Neace Lukens, the L.L.C. had no legal right to enforce the noncompete agreements against the employees. [Ed. note – emphasis is mine.]

Whoops.

The lesson here is rather obvious. If your company uses noncompetition agreements (or some similar type of post-employment restriction), best check to make sure that assignees and successors are explicitly given rights of enforcement. You may also want to check to see how your agreements “start the clock” on post-employment restrictions, lest those restrictions expire before the employee is even out the door.

Today’s Reminder: Not Every "Equal Pay Act" Plaintiff is Female

When most people think of the Equal Pay Act, they think of females who claim to be paid less than males for doing essentially the same work. And the Equal Pay Act does indeed prohibit that sort of thing.

But the Equal Pay Act is not limited to situations where females claim to be paid less than males. It also covers the reverse: males who claim to be paid less than females:

No employer … shall discriminate, within any establishment in which such employees are employed, between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions… (29 U.S.C. § 206(d)(1), emphasis added).

And for those of you in beautiful Ohio, the state law counterpart to the federal Equal Pay Act, found in Section 4111.17(A) of the Ohio Revised Code, is far broader:

No employer, including the state and political subdivisions thereof, shall discriminate in the payment of wages on the basis of race, color, religion, sex, age, national origin, or ancestry by paying wages to any employee at a rate less than the rate at which the employer pays wages to another employee for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar conditions (R.C. 4111.17(A), emphasis added).

An Ohio Court of Appeals has just reminded us of this reach of the equal pay laws, in Lang v. City of Columbus Division of Power & Water. Mr. Lang was hired as an Engineer-in-Training, and claimed that a female Engineer-in-Training (Ms. Fitzpatrick) was being paid a higher hourly rate for no good reason. Indeed, he claimed the pay disparity was illegal and in violation of Ohio’s Equal Pay Act.

He lost his lawsuit, because according to the Court of Appeals, there were real differences in responsiblities between their two positions – Ms. Fitzpatrick’s job involved supervisory responsiblities and a degree of outdoor field work, while the evidence showed Mr. Lang by comparison to be a desk jockey with no supervisory responsiblities. (There was also the bit about proffering contradictory deposition testimony – that’s rarely something that endears a witness to a court.) These differences justified whatever pay disparity existed between them.

But, for our purposes, Mr. Lang did not lose his lawsuit merely because he’s a man – he only lost his lawsuit because he couldn’t prove that the pay differential existed because he was a man. Even though most Equal Pay Act plaintiffs are female, they don’t have to be, and employers should remember that.

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Ohio Court: Employer Not Entitled to Appeal Denial of Preliminary Injunction in Trade Secrets Case

If you sue some former sales employees for absconding with customer information and violating non-solicitation agreements (how dare they!) and then 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,” you can appeal, right?

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.

Keep Out Of My "Electronically-Stored Garden"

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?  Is a litigant entitled to “tromp” unescorted through her opponent’s “electronically stored garden,” so to speak?

Not sure if there will be any emails in THIS garden…

Not according to the 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.

Ohio Court: Client List Was Not a Trade Secret

An Ohio court of appeals has held that a company’s roster of clients was not a trade secret, and for this reason, it has thrown out a preliminary injunction against several former employees of a bookkeeping company who had been accused of misappropriating trade secrets and stealing some of those clients.

Really?  A client list, not a trade secret?

It turns out that all lists of clients are not made equal. Some contain only a naked roster of company names. Others contain a myriad of details about clients that are clearly the fruits of years of interpersonal contacts: names of key contact persons, direct dial numbers, email addresses, names of kids, etc.  It is these latter chestnuts that are the “value in a client list,” according to the Court:

The company typically has spent many hours of labor and interaction to develop the information reflected in [this type of] list, and disclosure to a competitor grants the competitor a tremendous advantage in not having to spend the time and money to develop that same information.

Unfortunately for the plaintiff in this case, its client list was of the former kind–just a list of company names. That’s it.  According to the court, this raw list of client names had insufficient value to warrant any kind of trade secret protection.

There was also the additional problem that the company did little to keep even this bare list a secret:

• The company had “sponsored a social gathering for clients, spouses, and employees,” and in doing so, “made known to all present at least some of the names on its client list”
• The company “allowed the names of clients to be placed on the reception desk where the public had full access to them.”
• The company allowed some clients to “walk unescorted through the office where the names of other clients were displayed” in various locations.
• The company “allowed a tax consulting business in the same building to share client files and to have access to [company] computers. In that regard, the testimony indicated the office door was left open on some Saturdays in tax season, allowing persons to enter the offices where client names were displayed and to attempt access to the receptionist’s computer.”  [Ed. note–wow].

Finally, there was no evidence that the particular former employees in question had taken any list at all.  They testified instead that they simply “remembered the names of some of the clients.”

Add all this up, and the court concluded that the departing employees had not really taken anything (much less anything of value), and that whatever they did take with them in their brains, it was not entitled to trade secret protection.  Trade secrets get protection only when they are, in fact, secrets, and when that secrecy has value.  According to the Court, neither was the case here.

The case is Columbus Bookkeeping & Business Services, Inc. v. Ohio State Bookkeeping, LLC.

Ohio Court: Bringing Switchblade to Work Not "Just Cause" for Dismissal

An Ohio court of appeals has reinstated the unemployment compensation benefits of an employee who had been fired for bringing a switchblade to work–even when the employer had a written policy banning such items from the workplace.  (Apparently, the employee only used the knife to “chip frozen ice” at her workstation, which she would suck on to keep her throat moist.)

Everyone agreed that this knife met the definition of a deadly weapon under the policy (though they debated whether it was, in fact, a “switchblade,” or a “pocket knife”). But the court latched onto the fact that discharge wasn’t mandatory under the policy–the policy stated instead that each case was instead “must be considered on pertinent facts and the measure of discipline imposed accordingly.”  Apparently the court simply disagreed with the employer that the offense was serious enough to warrant discharge:

On the facts of this case, we do not find just cause for Cittadini’s termination. Cittadini only used the knife to chip frozen ice, as even acknowledged by the hospital’s employment manager. She got the knife out of her purse so that she would not have to leave her work station during a particularly busy time. There was no evidence that she threatened anyone, used the knife in a threatening manner, or even knowingly brought the knife into the hospital. The gist of Boone’s testimony was that she was upset that Cittadini came to work sick, not that she felt threatened by her. And, in fact, Boone [a co-worker–Ed.] also violated the hospital’s policy requiring that employees “should not confront any individual suspected of carrying a [deadly weapon], but rather they are to immediately contact Protection Services.”

So there.  The case is Cittadini v. Ohio Dept. of Job and Family Services

Get Ready for Ohio’s Annual Minimum Wage Adjustment

For the past several years, Ohio’s minimum wage has adjusted annually to reflect inflation. This coming year’s increase takes the state minimum wage to $7.70 per hour, a 30¢ increase from 2011.

Read more about the increase on the Z&R main website.