The Lawletter Blog

EMPLOYMENT LAW: Keeping Employment Policies Apace with Developments in Same-Sex Marriage and Gender Identity Discrimination

Posted by Gale Burns on Mon, Dec 29, 2014 @ 13:12 PM

The Lawletter Vol 39 No 10

John Buckley, Senior Attorney, National Legal Research Group

     A periodic review of employment policies for changes in the law is always prudent. In light of the rapidity of recent developments, however, including marriage rights of same-sex couples and prohibitions against discrimination based on sexual orientation and gender identity, counsel for employers face an unprecedented challenge keeping workplace policies compliant in a changing legal landscape.

     Same-sex marriage rights. Recent legislative and judicial developments related to same-sex marriage rights impact workplace rights involving benefits, leave time, and related issues. An employee's same-sex spouse may be entitled to coverage under employer-provided health insurance plans and have rights as the alternate payee, beneficiary, and/or survivor in employee pensions and other retirement benefits. Upon divorce, an employee's spouse may recover an interest in the portion of the employee's pension or other retirement benefit that accrued during the marriage. Upon an employee's death, the surviving spouse may be entitled to receive any wages due the employee. Similarly, under federal and many state laws, an employee is entitled to paid or unpaid leave time to care for a spouse with a serious medical condition or a spouse who is a military servicemember or veteran. Thus, it is essential for employment policies to reflect the current legal definition of "spouse" under federal law and in the employer's particular state(s) of operation.

     Currently, a majority of states plus the District of Columbia permit same-sex marriages or recognize such marriages legally performed elsewhere. Seventeen of these states and the District of Columbia legalized such marriages as a matter of state law, while the remainder have been ordered by the federal courts to permit such marriages under the federal Constitution. The U.S. government currently recognizes such marriages for federal purposes in all of these jurisdictions. United States v. Windsor, 133 S. Ct. 2675 (2013); U.S. Att'y Gen. Press Release No. 14-1181 (Oct. 25, 2014). Although the U.S. Supreme Court recently declined to accept appeals from three federal circuit court decisions striking down various state same-sex marriage bans, e.g., Kitchen v. Herbert, 755 F.3d 1193 (10th Cir.) (invalidating Utah's ban), cert. denied, 135 S. Ct. 265 (2014), the Sixth Circuit Court of Appeals has just created a split of authority on the issue by upholding similar bans in four states—Kentucky, Michigan, Ohio, and Tennessee—against constitutional challenges, DeBoer v. Snyder, Nos. 14-1341 et al., 2014 WL 5748990 (6th Cir. Nov. 6, 2014). This "circuit split" increases the chances of the Supreme Court's accepting an appeal in the Sixth Circuit case or another same-sex marriage case in which a petition for review may still be filed. Thus, the existing federal decisions invalidating same-sex marriage bans could potentially be overruled.

     Workplace Discrimination. In recent years, an increasing number of states have been amending their civil rights and fair employment practices statutes to prohibit discrimination on the basis of sexual orientation. Many of these states include gender identity or expression within the prohibition. Currently, 21 states and the District of Columbia prohibit such discrimination in both public and private employment.

     Although Title VII of the federal Civil Rights Act of 1964 contains no prohibition of such discrimination, in July 2014 the President issued an executive order that requires most federal contractors to prohibit workplace discrimination on the basis of sexual orientation and gender identity. Exec. Order No. 13,672, 79 Fed. Reg. 42,971 (Jul. 21, 2014). This requirement applies to contracts entered into on or after the effective date of implementing regulations to be issued by the Office of Federal Contract Compliance Programs ("OFCCP"). On October 20, 2014, the OFCCP sent to the Office of Budget and Management its draft final rule to implement the new executive order. In the meantime, however, the OFCCP is adhering to its previously stated position that gender identity/transgender status is protected under the ban on sex discrimination of Executive Order No. 11,246. OFCCP Dir. 2014-02 (Aug. 19, 2014).

     Conclusion. In light of these fast-breaking developments, counsel for employers would be well advised to conduct a thorough review of employment policies to ensure compliance, as well as to increase the frequency of periodic reviews.

     Do your clients have appropriate and effective employment policies? National Legal Research Group, Inc., will provide a complimentary review and consultation regarding an existing employment policy, or an assessment to determine what policies are needed for your clients. To take advantage of this offer, you may contact us by email at or by phone at (800) 727-6574. You can also fax an existing policy to us at (434) 817-6570. You will receive a complimentary initial consultation with John F. Buckley IV, a nationally known author and authority on Human Resources and Employment Law.

Topics: employment law, employment policies, compliance

CIVIL PROCEDURE: Notice—Use of the Internet

Posted by Gale Burns on Mon, Dec 29, 2014 @ 13:12 PM

The Lawletter Vol 39 No 10

Charlene Hicks, Senior Attorney, National Legal Research Group

     The provision of notice solely by publication of an impending legal proceeding affecting an individual's property rights has long been unpopular with the public and disfavored by the courts. To ameliorate the harshness of publication notices and to comply with the intended recipient's right of due process, state and federal courts generally require the party charged with giving notice to first take reasonable steps or make diligent efforts to locate the intended recipient's current address. The question then arises as to what type of investigation is legally required to fulfill the sending party's notice obligations. In this regard, some courts have recently been asked whether such investigatory obligations include the performance of an Internet search for the intended recipient's current address.

     This question is clouded by the admonition of the U.S. Supreme Court in Jones v. Flowers, 547 U.S. 220 (2006), that a party charged with providing notice need not conduct an open-ended search to locate the intended recipient's current whereabouts. It is unclear whether an Internet search amounts to an open-ended search rejected by Jones.

     Case law on this point is split. In requiring an Internet search, one state court opined: "In our contemporary, technologically connected society, a diligent individual would undoubtedly utilize the Internet—with its enormous reach and nearly instant results—to locate property owners and addresses." In re Application of Douglas County Treasurer, 2014 IL App. (4th) 130261, ¶ 45, 5 N.E.3d 214, 225, appeal denied, 8 N.E.3d 1047 (Ill. 2014) (table disposition). In contrast, other courts have ruled that an Internet investigation is the kind of open-ended search that the Jones Court expressly condemned as unnecessary. See, e.g., Foreclosure of Liens v. Holton, 428 S.W.3d 670 (Mo. Ct. App. 2014); MacNaughton v. Warren County, 982 N.E.2d 1237 (N.Y. 2012).

     Given the increasing availability of ready access to the Internet in our society, it seems courts in the future are likely to require that parties charged with the responsibility of providing notice perform an Internet search for the intended recipient's current address. It would be prudent for counsel to reserve notice solely by publication only for those situations in which an Internet search and other investigatory methods fail to reveal the intended recipient's current whereabouts.

Topics: civil procedure, investigatory obligations, Internet search, notice by publication

TORTS: Defamation—Absolute Privilege—Statements to Media

Posted by Gale Burns on Mon, Dec 29, 2014 @ 12:12 PM

The Lawletter Vol 39 No 10

Fred Shackelford, Senior Attorney, National Legal Research Group

     Joining numerous other courts that have addressed the issue, the Nevada Supreme Court has considered for the first time whether a litigant's statements to the media regarding litigation are protected by an absolute privilege. In Jacobs v. Adelson, 325 P.3d 1282 (Nev. 2014), a wrongful termination claim was brought against a former employer and its chief executive officer, Sheldon Adelson. The case attracted widespread media attention, and during its course, Adelson was quoted in a Wall Street Journal article as follows: "We have a substantial list of reasons why Steve Jacobs was fired for cause and interestingly he has not refuted a single one of them. Instead, he has attempted to explain his termination by using outright lies and fabrications which seem to have their origins in delusion." Id. at 1284.

     The plaintiff amended his complaint to add a count for defamation per se. Defendants successfully moved to dismiss this count, arguing that the statement was absolutely privileged as a communication made in the course of judicial proceedings. On appeal, the Jacobs court recognized that the absolute privilege is based upon the belief that the public interest in having people speak freely outweighs the risk that individuals will occasionally abuse the privilege by making false and malicious statements. The court observed that it had not previously considered whether the privilege applies to statements made to members of the media. However, the court noted that prior cases had held that the privilege does not apply when statements are made to someone who has no interest in the outcome of the litigation.

     The court recognized that most courts in other states have held that the absolute privilege does not apply to statements made to the media. The court outlined the rationale for the majority rule:

Statements made to the media "do little, if anything, to promote the truth finding process in a judicial proceeding. . . . [They] do not generally encourage open and honest discussion between the parties and their counsel in order to resolve disputes; indeed, such statements often do just the opposite." Pratt v. Nelson, 164 P.3d 366, 381 (Utah 2007). And allowing defamation claims for statements made to the media will not generally hinder investigations or the detailing of claims. Milford Power, 918 F.Supp. at 486; see also Asay, 594 F.2d at 698. Thus, the need for absolute privilege evaporates. Milford Power, 918 F.Supp. at 486. Because the privilege's purpose is not to protect those making defamatory comments but "to lessen the chilling effect on those who seek to utilize the judicial process to seek relief," these courts have declined to extend the privilege in this context.

Id. at 1286.

     The Jacobs court adopted the majority rule, reasoning that a nonparty must have an interest in, or connection to, the outcome of the case beyond an interest as a mere observer. The court stated that the nature of the recipient's interest in, or connection to, the litigation is a case-specific, fact-intensive inquiry. Turning to the facts of the case, the court concluded that the Wall Street Journal had no interest other than as an observer of the proceedings. The court also drew a distinction between "bona fide litigation activities and a public relations campaign." Id. Finally, the court declined to consider whether the conditional privilege of reply applied, because that issue had not been developed at trial.

Topics: torts, defamation, absolute privilege, statements to media

PENSIONS: What Severance Contracts Are Subject to Federal ERISA Law?

Posted by Gale Burns on Wed, Dec 24, 2014 @ 10:12 AM

The Lawletter Vol 39 No 10

Matt McDavitt, Senior Attorney, National Legal Research Group

    While many employers create severance contracts as incentives for employees to remain during mergers or sales of the company, few employers realize that some severance agreements are governed by the Employee Retirement Income Security Act ("ERISA") and that federal ERISA law preempts state law when such severance contracts are introduced during litigation.

     However, not all employer severance contracts are subject to preemption by federal ERISA law. The ERISA statutes do not define which severance agreements are governed by federal law; fortunately, a line of federal case law has clarified how this determination is made.

[I]n determining whether a plan requires an on-going administrative scheme, we must consider four factors: [1] whether the payments under the plan are one-time lump sum, or continuous, payments; [2] whether the employer undertook any long-term obligation with respect to the payments; [3] whether the severance payments come due upon the occurrence of a single, unique event, or any time that the employer terminates employees; and [4] whether the plan requires the employer to engage in a case-by-case review of the employees.

Rosati v. Cleveland-Cliffs, Inc., 259 F. Supp. 2d 861, 871 (D. Minn. 2003). Importantly, the envisioned onetime, lump-sum payment removing a severance contract from ERISA preemption does not refer to the fact that each employee would receive a lump-sum payout of the severance benefit upon actual or constructive termination; instead, it refers to the unlikely scenario wherein all benefited employees would receive their severance payouts at the same time, via one payment pooling their separate benefits. Thus, where employees eligible under the severance package qualify at differing times, requiring individualized analysis of the benefits due as well as a separate payout to each qualified employee, the severance contract is subject to, and controlled by, ERISA law.

     Additionally, a severance plan will be subject to ERISA law where the employer must invest in ongoing administration of the plan, such as where payments to qualified employees will occur periodically, or where the employer must make case-by-case benefits determinations to determine the proper payout:

     ERISA will preempt a state law breach of contract claim if the claim requires the court to interpret or to apply the terms of an employee benefit plan. An employee benefit plan can include severance payments. The decisive inquiry in determining whether a severance plan falls within ERISA's coverage is whether the plan requires an ongoing administrative program to meet the employer's obligation. ERISA applies when a severance plan potentially places periodic demands on an employer's assets that create a need for financial coordination and control. In contrast, the requirement of a one-time, lump-sum payment triggered by a single event requires no administrative scheme whatsoever to meet the employer's obligation, and ERISA therefore does not apply.

Bowles v. Quantum Chem. Co., 266 F.3d 622, 631 (7th Cir. 2001) (citations omitted) (internal quotation marks omitted).

     Thus, an ERISA-governed severance contract is one in which the employer (or other administrator) must maintain an administrative scheme to deal with processing ongoing severance benefit requests, the benefits determination must be made by analyzing each employee's individual factors, and payment will be made individually to each qualifying employee rather than by some onetime, mechanically determined method.

Topics: ERISA, pensions, severance contracts

CRIMINAL LAW: Search and Seizure—Cell Phone Location Tracking

Posted by Gale Burns on Wed, Dec 24, 2014 @ 10:12 AM

The Lawletter Vol 39 No 10

Doug Plank, Senior Attorney, National Legal Research Group

     The Florida Supreme Court recently held that the warrantless tracking of an individual through the use of real-time cell site location information was a violation of that individual's rights under the Fourth Amendment. In Tracey v. State, No. SC11-2254, 2014 WL 5285929 (Fla. Oct. 16, 2014), the defendant had been convicted of possession of cocaine and other offenses after police officers apprehended him while he was transporting the cocaine by automobile. The evidence showed that the officers had been able to monitor the movements of the defendant and his accomplice, who was located in another city, by following the cell site location information given off by their cell phones as the defendant placed calls to the accomplice. By using the information showing the location of the accomplice, the officers were able to establish where to set up surveillance for the moment that the defendant would meet the accomplice and exchange the cocaine.

     The court determined that even though the officers had secured a warrant authorizing the installation of a "pen register" and "trap and trace device" as to the defendant's cell phone, such a warrant allowed only the recovery of information regarding the numbers of the phones that the defendant had previously called and received calls from and did not extend to tracking the defendant's location in real time. The court further found that the defendant had a reasonable expectation of privacy in the real-time cell site location information provided by his cell phone and that he had not voluntarily conveyed that information to his service provider for any purpose other than to enable the use of his cell phone for its intended purpose. Accordingly, the court held that the failure of the officers to seek a search warrant for the specific purpose of using that location information was a violation of the Fourth Amendment.

Topics: search and seziure, cell phone, tracking

IMMIGRATION LAW: Standard for Evaluating Criminal Conviction in Removal Proceedings Based on Conviction

Posted by Gale Burns on Thu, Dec 4, 2014 @ 15:12 PM

The Lawletter Vol 39 No 9

Suzanne Bailey, Senior Attorney, National Legal Research Group

     Section 237(a)(2)(B)(i) of the Immigration and Nationality Act ("INA"), 8 U.S.C. § 1227(a)(2)(B)(i), provides that an alien is deportable if s/he has been convicted of any law "relating to a controlled substance . . . other than a single offense involving possession for one's own use of 30 grams or less of marijuana." (Emphasis added.) What approach should an Immigration Judge ("IJ") take in determining whether the alien's conviction fits within this "personal use" exception? Should the IJ be limited to a categorical inquiry, which does not permit a review of the facts underlying the particular offense but requires a comparison of the elements of the "generic" offense listed in the INA with the elements of the statutory offense of which the alien was convicted? Or should the IJ be allowed to conduct a circumstance-specific inquiry into the alien's conduct leading to the conviction?

      A recent decision from the Board of Immigration Appeals ("BIA") reconciled its prior decision in In re Davey, 26 I. & N. Dec. 37 (BIA 2012), supporting the circumstance-specific inquiry, with the more recent Supreme Court decision in Moncrieffe v. Holder, 133 S. Ct. 1678 (2013), adopting a categorical inquiry. In re Dominguez-Rodriguez, 26 I. & N. Dec. 408 (BIA 2014). There, the court reaffirmed the holding in Davey that the language of section 237(a)(2)(B)(i) of the INA, 8 U.S.C. § 1227(a)(2)(B)(i), calls for a circumstance-specific inquiry into the alien's conduct. Thus, the removal proceeding in Domiguez-Rodriguez was remanded to the IJ for further proceedings, in which the Department of Homeland Security ("DHS") carried the burden of proving by clear and convincing evidence that the alien's criminal offense did not fall within the personal use exception.

     The alien in Dominguez-Rodriguez was a lawful permanent resident who had been convicted of possession of more than one ounce of marijuana in violation of Nevada Revised Statutes section 454.336, and who was sentenced to a suspended indeterminate sentence of between 19 and 48 months and placed on probation. On the basis of this conviction, DHS put him in removal proceedings and attempted to prove that the conduct underlying the alien's conviction actually involved more than 30 grams of marijuana. The IJ determined that under the categorical inquiry approved of in Moncrieffe, the alien was not removable, because the minimum conduct punishable under the Nevada statute was less than 30 grams of marijuana. In other words, notwithstanding what conduct the alien actually engaged in, the fact that he could have been convicted under the Nevada statute for possessing less than 30 grams of marijuana was sufficient to negate the removal charges. Furthermore, the IJ barred DHS from conducting a circumstance-specific inquiry into the facts underlying the offense unless the agency could establish that the alien was convicted of possessing more than 30 grams of marijuana by reference to documents in the record of conviction.

     On appeal to the BIA, the American Immigration Lawyers Association ("AILA") argued on behalf of the pro se alien that the IJ was correct and that Moncrieffe controlled. The BIA explained that whether the categorical approach applies

depends on the language of the particular immigration provision at issue. Where the immigration statute provides for the removal of an individual convicted of a "generic crime," it is undisputed that the DHS must establish that the elements of the individual's offense categorically correspond to the elements of the pertinent generic crime.

26 I. & N. Dec. at 410-11. In Moncrieffe, the Supreme Court held that the relevant statute, INA § 101(a)(43)(B), 8 U.S.C. § 1101(a)(43)(B) ("illicit trafficking in a controlled substance (as defined in section 802 of Title 21), including a drug trafficking crime (as defined in section 924(c) of Title 18)"), defined a "generic crime" because it incorporated by reference other criminal statutes and, thus, a categorical approach reviewing the statutory elements of the offenses was necessary. 26 I. & N. Dec. at 411 (citing Moncrieffe, 133 S. Ct. at 1691). However, the BIA continued:

The Supreme Court and the lower Federal courts have recognized . . . that the categorical approach is inapplicable in removal proceedings when the immigration provision under review calls for a circumstance-specific approach that allows for an examination, in immigration court, of the particular circumstances in which an offender committed the crime on a particular occasion.

Id. (citing cases) (internal quotations marks omitted). This approach is consistent with Davey, which had previously determined that section 237(a)(2)(B)(i) of the INA, 8 U.S.C. § 1227(a)(2)(B)(i), calls for a circumstance-specific inquiry into the character of the alien's unlawful conduct on a single occasion, not a categorical inquiry into the elements of a single statutory crime.

     The BIA decision appears to allow a minitrial within the context of removal proceedings and seems to countenance a less objective assessment of the alien's criminal conviction than a simple comparison of the elements of the offense of conviction and the language of the immigration statute. No doubt this BIA decision is not the final word on whether Moncrieffe requires a categorical approach to criminal grounds for removal, and the issue inevitably will work its way through the federal courts.

Topics: immigration, removal proceedings, personal-use exception, criminal conviction

BANKRUPTCY: Chapter 13

Posted by Gale Burns on Tue, Dec 2, 2014 @ 17:12 PM

The Lawletter Vol 39 No 9

Anne Hemenway, Senior Attorney, National Legal Research Group

     If you have ever wondered why above-median-income Chapter 13 debtors continue to enjoy ownership of luxury items, the answer is in the 2005 amendments to the U.S. Bankruptcy Code. Prior to the significant amendments to the Code in 2005, a Chapter 13 debtor's disposable income, necessary for the viability of a Chapter 13 plan, was determined by the court reviewing an individual debtor's ability to pay a Chapter 13 plan based on the individual circumstances of the debtor. As part of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"), Congress amended 11 U.S.C. § 1325(b) and replaced the court's discretionary analysis of a debtor's disposable income and expenses with a statutory and mechanical means test.

     The new objective test "requires debtors with above-median income to calculate their 'disposable income' by subtracting specific expenses from 'current monthly income' as defined by [§ 1325(b)(2)-(3)]." In re Welsh, 711 F.3d 1120, 1130 (9th Cir. 2013). The test specifies what is a Chapter 13 debtor's disposable income and what are the debtor's necessary expenses. It also distinguishes between below-median-income debtors and above-median-income debtors. Above-median-income debtors calculate disposable income by deducting limited living expenses, based on the "Collection Financial Standards" of the Internal Revenue Service ("IRS") and the other provisions of the "means test." The means test is the exclusive gauge for determining above-median-income Chapter 13 debtors' projected disposable income, and the projected disposable income must be calculated by subtracting the standard expenses as set forth in the Code. Importantly, that includes subtracting the debtor's average monthly payments to secured creditors due during the following 60 months. See 11 U.S.C. § 707(b)(2)(A)(iii)(I).

     That part of the means test, however, makes no qualifications on the kinds of secured debt that a debtor can deduct from current monthly income. "The result may be that, consistent with the means test, the debtors could make secured payments on luxury or comfort items . . . with the result that little 'disposable income,' as that figure is calculated, remains to pay unsecured creditors." Welsh, 711 F.3d at 1130.

     In In re Joest, 450 B.R. 381 (Bankr. N.D.N.Y. 2011), the court explained that Congress's objective in requiring that the expense side of the projected disposable income calculation be determined using the means test was to limit the bankruptcy court's discretion and to avoid inconsistent results by mandating an objective standardized test). See also In re Sparks, 360 B.R. 224 (Bankr. E.D. Tex. 2006) (the intent of incorporating the means test into a Chapter 13 above-median-income case was to preclude the allowance of any improper discretionary spending). Yet, the irony is that Congress substituted the pre-BAPCPA individual case-by-case approach with a mandatory formula that includes an unconditional allowance for deducting payments on secured debts, including blatantly unnecessary luxury items. See In re Salas, No. 12-39494-BKC-AJC, 2014 WL 92728, at *2 (Bankr. S.D. Fla. Jan. 1, 2014) ("Congress did not limit or qualify the kinds of secured payments that are subtracted from current monthly incomes to reach the amount of disposable income, and there is no justification for this Court to impose any limitations under the guise of interpreting good faith.").

     Courts strictly adhere to the mandatory statutory language allowing for the deduction of payments on secured debts, notwithstanding the nature of the item upon which the secured debt is owed. In re Feiling, Case No. 11-71474 MEH, 2013 WL 2451333, at *3 (N.D. Cal June 6, 2013) ("Further, to the extent the claim is secured, the Ninth Circuit recently held . . . that a good faith challenge to payment of a non-essential secured debt is preempted by the statutory language.").

Topics: bankruptcy, Chapter 13, 11 U.S.C. § 1325, BAPCPA

CIVIL PROCEDURE: Electing Between Legal and Equitable Remedies

Posted by Gale Burns on Mon, Dec 1, 2014 @ 13:12 PM

Paul Ferrer, Senior Attorney, National Legal Research Group

      The Federal Rules of Civil Procedure specifically provide that a plaintiff stating a claim for relief must include in his or her complaint, among other things, "a demand for the relief sought, which may include relief in the alternative or different types of relief." Fed. R. Civ. P. 8(a)(3). Many states, including Oregon, have included an identical or substantially similar provision in their own Rules of Civil Procedure. See Or. R. Civ. P. 16(C) ("Inconsistent claims or defenses are not objectionable . . . . A party may . . . state as many separate claims or defenses as the party has, regardless of consistency and whether based upon legal or equitable grounds or upon both."). Despite the rules permitting pleading of alternative claims for relief, plaintiffs who request both legal and equitable remedies based on the same conduct by the defendant often face an early motion to dismiss the equitable claim on the theory that equitable relief ordinarily is not available when the claimant has an adequate legal remedy. The Oregon Supreme Court, sitting en banc, considered this "shibboleth" in a thoughtful opinion rendered in Evergreen West Business Center, LLC v. Emmert, 323 P.3d 250, 252 (Or. 2014) (en banc).

      In that case, the plaintiff was a limited liability company that looked to the defendant, one of its members, to save its property from foreclosure by a lender. The defendant did so, but by buying the loan and associated encumbrance for his own benefit for about $614,000. The defendant then foreclosed on the property himself, bought it at a foreclosure sale with a maximum credit bid, and then encumbered the property with a $900,000 loan from a different lender. The plaintiff sued the defendant for breach of fiduciary duty, seeking in separate claims alternative forms of relief: either damages or a constructive trust on the property. The plaintiff alleged in both claims that the property had been worth almost $1.4 million when the defendant wrongfully acquired it for himself. At the plaintiff's request, the trial court instructed the jury on the damage claim that if the defendant breached a fiduciary duty owed to the plaintiff, the plaintiff "is entitled to any profits made by [the defendant] as a result of the breach." Id. at 253. The jury, apparently not believing that the defendant profited from his breach, awarded the plaintiff actual damages of $1 and punitive damages of $600,000, which were reduced to $4 by the trial court. The trial court then offered the plaintiff the choice between a money judgment for $5 or a constructive trust. Not surprisingly, the plaintiff elected the constructive trust. The defendant appealed, arguing that the plaintiff was not entitled to a constructive trust remedy, because it had an adequate legal remedy in the form of the jury's award of damages.

     The Oregon Supreme Court disagreed, concluding that the plaintiff was indeed entitled to elect the constructive trust remedy. With regard to the timing issue, the court held that "[t]he doctrine of election between inconsistent remedies does not require an election before the entry of judgment. A party need only choose between or among inconsistent remedies, not inconsistent claims or theories of recovery." Id. at 260 (citing Or. R. Civ. P. 16(C)). Thus, the plaintiff only had to "elect its preferred remedy before the entry of final judgment," id., which means that alternative legal and equitable claims properly pleaded by a claimant should be permitted to survive a motion to dismiss and proceed through trial before an election is required. On the main issue, the court rejected the argument that the plaintiff was not entitled to elect the constructive trust remedy because the jury's award—even though unsatisfactory to the plaintiff—was legally adequate so as to preclude any award of equitable relief. The court, while admitting that there was support for the argument in its prior decisions "holding that equitable relief is not available if there is an adequate remedy at law for the same breach or wrong," found that this principle was grounded in the old procedural distinction between law and equity that has largely been abolished in Oregon, as elsewhere in the United States. Id. at 256-57. As such, at least with regard to a choice of remedies for a breach of fiduciary duty between a money award and a constructive trust, the plaintiff could choose a constructive trust if necessary for the obtaining of complete justice, even though the law might also give the remedy of damages against the wrongdoer. In light of the jury's award of a mere dollar in money damages, "[o]nly a constructive trust would permit plaintiff to obtain the property that defendant misappropriated and to enjoy its benefit," id., which is the point of the constructive trust remedy, see id. at 255.

     The Evergreen decision provides a good basis for a plaintiff to argue that he or she is not required to choose between alternative legal and equitable claims based on the same breach or wrong at an early stage of the case. This may prove to be a considerable benefit both in developing the theories, which may involve different elements even if based on the same alleged misconduct by the defendant, and ultimately in choosing the more advantageous remedy if both are awarded.

Topics: civil procedure, eqitable remedies

PRODUCTS LIABILITY: Nonmanufacturing Seller May Be Liable

Posted by Gale Burns on Mon, Dec 1, 2014 @ 13:12 PM

The Lawletter Vol 39 No 9

Jeremy Taylor, Senior Attorney, National Legal Research Group

      In a recent decision, the U.S. District Court in Yanez v. Graco, Inc., CIV. 13-2243 JRT/JSM, 2014 WL 4415291 (D. Minn. Sept. 8, 2014), held that both a parent corporation and its subsidiary were manufacturers of the hose and paint system that allegedly caused the plaintiff's injuries. The plaintiff brought a state law strict products liability action against a number of defendants involved in the manufacture and distribution of the product. After removal of the case to federal court, the defendants moved for summary judgment.

     The applicable North Dakota law relieves a nonmanufacturing seller of strict liability under circumstances applicable to the case at issue. However, North Dakota law also defines a "manufacturer" to include a seller of a product "who is owned in whole or significant part by the manufacturer." N.D. Cent. Code § 28-01.3-01 subd. 1. Examining the relationship between the manufacturer and the seller of the paint system, the court concluded that the parent corporation, which manufactured the product, and its subsidiary, the nonmanufacturing seller, were both "manufacturers" of the product for purposes of strict liability.

     In so holding, the court noted that the parent corporation, either as a corporate entity or through its sole shareholder and board member, owned all of the shares of the subsidiary. The court further explained that the actual percentage of ownership is not dispositive of control giving rise to liability under the products liability statute but is part of a more comprehensive inquiry into the degree of control that an owner exerts over the corporation or the other shareholders.

     The lesson of Yanez is that both products liability plaintiffs and defendants should be alert to the corporate relationships between parties in the chain of a product's distribution when a statute purports to relieve one or more of these entities from strict products liability.

Topics: products liability, liability, nonmanufacturing seller, corporate relationships in chain of distribution

ELECTION LAW: Government Regulation—Gaming—Constitutional Law

Posted by Gale Burns on Mon, Oct 27, 2014 @ 16:10 PM

The Lawletter Vol 39 No 8

Tim Snider, Senior Attorney, National Legal Research Group

     We live in an increasingly politicized and polarized country. With elections occurring at least every other year and political activity ongoing, the states are struggling to contain or define the limits of political advocacy. Texas, like most states, licenses nonprofit charitable organizations to conduct games of chance, such as bingo, for fund-raising purposes. The net proceeds of those games, however, must be devoted exclusively to the charitable purposes for which the entity has qualified as a tax-exempt, charitable organization. The Texas Bingo Enabling Act ("the Act") provides, in pertinent part, that

the net proceeds derived from bingo and any rental of premises are dedicated to the charitable purposes of the organization only if directed to a cause, deed, or activity that is consistent with the federal tax exemption the organization obtained under 26 U.S.C. § 501 and under which the organization qualifies as a nonprofit organization as defined by Section 2001.002.

Tex. Occ. Code Ann. § 2001.454(b).

     Certain tax-qualified charitable organizations in Texas, licensed to conduct bingo games, used the proceeds of the games for purposes of advocating political causes and positions, specifically to lobby in support of, or in opposition to, certain ballot initiatives. The Texas Lottery Commission ("the Commission"), which is tasked with administering and enforcing the Act, entered an enforcement order prohibiting the organizations from using the proceeds for those purposes, concluding that doing so violated the Act. The organizations brought suit, alleging that the Commission's action amounted to an unconstitutional limitation on free speech. The district court, relying heavily on Citizens United v. FEC, 558 U.S. 310 (2010), agreed with the plaintiffs.

     The Fifth Circuit affirmed. Dep't of Tex., Veterans of Foreign Wars v. Tex. Lottery Comm'n, 760 F.3d 427 (5th Cir. 2014). Under the teaching of Citizens United, laws that burden political speech are subject to strict scrutiny, which requires the Government to prove that the restriction furthers a compelling interest and is narrowly tailored to achieve that interest. It reasoned that a state's mere licensing of an entity does not empower the state to attach unconstitutional restrictions to the granting of that license. Neither Congress nor the state legislatures may condition the conferral of a government benefit on the forfeiture of a constitutional right. Because the action of the Commission burdened the exercise of the right of expression, its action was subject to strict scrutiny.

     The Commission articulated three reasons for its restriction on the use of the charities' funds: (1) regulating gambling, including reducing the size of the gambling industry in Texas; (2) combating fraud by ensuring that bingo proceeds are used only in support of charities, not lobbyists; and (3) promoting charities—that is, ensuring charities do not forgo spending their bingo revenue on their charitable purpose by squandering those funds on political advocacy. The Fifth Circuit was skeptical that any of those reasons supported the Commission's action, but more importantly for present purposes, the court was not persuaded, and the Commission did not argue, that those interests were compelling. Accordingly, the Commission's application of the statute to the charitable plaintiffs' use of their revenues could not withstand constitutional scrutiny.

     Citizens United has had far-reaching consequences. It intrudes even into the field of trade regulation, which usually does not implicate constitutional issues. If Department of Texas is any gauge, the country will continue to be plagued with even more political disputation, even in nonelection years.

Topics: games of chance and government regulation, nonprofit charitable organizations fundraising, use of gaming proceeds for political causes, restricting use of proceeds unconstitutional

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