In regards to costs for service of subpoenas by private process server, the district court denied defendant its fees because the weight of the authority in the district held that such costs were not recoverable.  However, the district court rejected plaintiff’s argument that the eight deposition transcripts and court reporter’s attendance fees should be taxed because defendant did not use the deposition testimony in its motion for summary judgment.  The district court concluded that the depositions transcripts and court reporter’s attendance fees were reasonably necessary for the defense of the litigation, and therefore recoverable by defendant.           

With respect to the costs associated with the processing, storing, and producing of ESI, the district court acknowledged that the Fourth Circuit has not addressed whether such expenses are recoverable.  However, the district court noted that the Sixth Circuit has held that electronic scanning and imaging could be interpreted as the modern-day equivalent of “exemplification and copies of papers” specifically allowed under 28 U.S.C. §1920(4).  However, the Sixth Circuit rejected one particular request for costs because the party had not claimed expenses for the electronic scanning of the document, but instead, the party sought costs for processing, metadata extraction, and file conversion to create electronically searchable documents.  

Plaintiff argued that defendant impermissibly attempted to recover its costs of creating electronically searchable documents.  Defendant claimed it sought costs related only to retrieving documents in a readable format as requested by plaintiff and producing TIFF images, and not just for the creation of a searchable database.  The district court concluded that the method employed by defendant more closely resembled the searchable database process, which the the Sixth Circuit denied the recovery of costs, and was unlike the mere scanning of documents.  Accordingly, without more information, the district court denied defendant’s request for costs associated with the processing, storing, and producing ESI. 

To read the entire memorandum opinion, click here.

SCOTUS Blog has commentary on the oral argument here.  The oral argument transcript — which is very interesting reading for an employment lawyer or HR professional – can be found here.  The merits and amicus briefs can be found here.

In Holmes v. Petrovich Development, Inc., an employee sued her former employer and supervisor for sexual harassment, retaliation, wrongful termination, violation of the right to privacy, and intentional infliction of emotional distress.  Defendants introduced into evidence emails that plaintiff had sent to her attorney during her employment from her company computer.  Plaintiff objected to the introduction of the emails, arguing that the emails were inadmissible as confidential attorney-client communication under Evidence Code section 952.  The trial court overruled plaintiff’s objections and allowed defendants to introduce the emails into evidence.  The trial court dismissed several of plaintiff’s claims at summary judgment and a jury found in favor of defendants on the remaining causes of action.   

The California Court of Appeal affirmed the trial court’s ruling regarding the admissibility of the emails as the emails between plaintiff and her attorney were found not to constitute confidential attorney-client communication.  The Court of Appeal held that the emails were not confidential communication because plaintiff used her employer’s computer to send the emails, even though she was informed of defendant’s policy that its computers were to be used for business purposes only and employees were prohibited from using company computers to send or receive personal emails.  Plaintiff had also been notified that the employer would inspect its computers for compliance with this policy and employees using defendant’s computers to create or maintain personal information or message had no right to privacy with respect to that information or message.   Moreover, during her employment, plaintiff had signed the employer’s employee handbook which acknowledged her understanding of the company’s computer and email policies.  The Court of Appeal concluded that by using the employer’s computer to communicate with her lawyer, knowing that the communication violated the employer’s policy and could be discovered or monitored, the emails were not communicated in confidence, and therefore were not privileged communication pursuant to Evidence Code section 952. 

The Court of Appeal emphasized that under Evidence Code section 917(b), an attorney-client communication “does not lose its privileged character for the sole reason that it is communicated by electronic means or because persons involved in the delivery, facilitation, or storage of electronic communication may have access to the content of the communication.”  However, the Court of Appeal concluded that plaintiff’s emails on her employer’s computer were similar to plaintiff “consulting her lawyer in her employer’s conference room, in a loud voice, with the door open, so that any reasonable person would expect that their discussion of her complaints about her employer would be overheard by him.”    

This case demonstrates the importance of employers maintaining current employee policy manuals which contain express policies regarding company technology and electronic communication, in addition to an agreement from the employee that they agree to comply with the company’s policies.

For a copy of the full California Court of Appeal’s decision, click here.

Our prior blog posts about court decisions in Washington, D.C., Virginia, and New Jersey regarding similar issues can be found here and here.

A divided Eleventh Circuit Court of Appeals panel affirmed sanctions in the amount of $387,738 against two Florida attorneys under 28 U.S.C § 1927.  The Court of Appeals held that the district court did not abuse its discretion when it concluded that the attorneys unreasonably and vexatiously litigated a sexual harassment lawsuit after their client contradicted herself repeatedly during her deposition. 

Floride Norelus, an immigrant from Haiti, claimed that she was sexually abused by two managers at a Denny’s restaurant where she worked for approximately one year.   In 1996, Norelus filed a lawsuit against Denny’s Inc. and four other defendants, claiming sexual harassment, retaliation, and battery.  Norelus was represented by William and Karen Amlong, two Florida attorneys experienced in employment litigation. 

During over a year of litigation, no witnesses corroborated Norelus’ claims of constant and pervasive sexual abuse, despite her allegations that most of the harassment occurred at work in various areas of the restaurant.  In fact, at least seven of the coworkers that were identified as witness by Norelus contradicted her allegations during their depositions. 

During her eight-day deposition, a Haitian French Creole interpreter translated for Norelus.  Throughout her deposition, Norelus blatantly contradicted statements that she made in her Complaint, including where the sexual abuse occurred, what kind of sexual acts were forced, and whether she sought medical attention as a result of the abuse. 

Norelus’ attorneys arranged for her to take a polygraph examination and undergo a psychological evaluation after the last day of her deposition in order to evaluate the truthfulness of her allegations.  The polygraph examiner concluded that, while she was lying about some things, Norelus was telling the truth about her core allegations of sexual abuse.   The clinical psychologist concluded that Norelus’ symptoms were consistent with Post-Traumatic Stress Disorder.   The Amlongs then decided to continue pursuing the lawsuit.  In order to correct Norelus’ contradicting deposition testimony, the Amlongs submitted a 63-page errata sheet that made 868 changes to the deposition transcript.  The majority of the changes to the deposition testimony were explained by the Amlongs as Norelus “[d]id not understand what was being asked,” the interpreter did a poor job translating, or Norelus had a “refreshed recollection.”   

When Norelus and the Amlongs refused to pay for the costs of reopening Norelus’ subsequent deposition, as ordered by the district court, the lawsuit was dismissed.  Several defendants filed motions requesting the district court impose sanctions against Norelus and the Amlongs.  In response, the district court ordered that the Amlongs personally pay a total of $389,739 for the attorney’s fees and costs that the defendants incurred in litigating the matter after the filling of the errata sheet.  

The Eleventh Circuit affirmed and held that sanctions against the Amlongs were appropriate under 28 U.S.C § 1927.  The Court concluded that the district court did not abuse its discretion by finding that the Amlongs engaged in objectively reckless conduct by proceeding in the case “unreasonably and vexatiously” when they submitted Norelus’ lengthy errata sheet and pursued litigation after her contradictory and unsupported deposition testimony made her claims untenable. 

For a copy of the Court’s decision, click here. 

Additionally, the United States District Court for the Eastern District of Virginia awarded a prevailing defendant over $25,000 in attorney’s fees and costs in a retaliation lawsuit under Title VII of the Civil Rights Act of 1964 as the action was determined to have lacked any evidentiary support.

The plaintiff in the Virginia case worked as a legal secretary at a Fairfax, Virginia law firm.  In 2008, plaintiff sent one of the firm’s male attorneys several personal e-mail messages and invited him to meetings after work hours.  The attorney complained to plaintiff’s supervisor, and in response, defendant initiated an investigation into plaintiff’s conduct.  During the investigation, plaintiff expressly stated that she did not want to allege that the attorney sexually harassed her, but she claimed that she had e-mail evidence that the male attorney was “interested in her.”  When plaintiff failed to produce these emails, defendant concluded that she should no longer work in the same location and offered to transfer her to its Richmond, Virginia office.  Plaintiff refused the transfer and her employment was terminated. 

Plaintiff sued defendant for retaliation under Title VII, alleging that she was retaliated against because she complained about and participated in an investigation regarding sexual harassment.  Summary judgment was granted in favor of defendant.   The district court then granted defendant’s motion for attorney’s fees and costs, awarding defendant over $25,000.  The court concluded that plaintiff’s lawsuit meet the standard of “frivolous, unreasonable or without foundation” for granting a prevailing defendant its attorney’s fees and costs under Title VII.  The court found that defendant overwhelmingly demonstrated in its motion for summary judgment that plaintiff’s complaint was “based on a blatant misrepresentation of events, and totally lacking any evidentiary support.”  The court ruled that plaintiff was patently unable to demonstrate even a prima facie case of retaliation under Title VII because she did not engage in any protected activity or suffer any adverse employment action.  Accordingly, the court concluded that an award of attorney’s fees and costs was appropriate because the evidence in the record clearly established that the lawsuit was “frivolous, groundless, and unreasonable.”

For a copy of the district court’s opinion regarding defendant’s motion for award of attorney’s fees and costs, click here. 

Contributed by Laura B. Chaimowitz

Larry Bodine at the Law Marketing Blog has extracts here.   He reports on the employment litigation portion of the report as follows:

Labor & Employment Litigation

Across the Board, Employment Litigation Up: Much of the litigation swell was due to spikes in labor and employment suits. As the economic recovery lags, payrolls shrink and wages are cut. There is much talk of doing more with less. In this climate, companies continue to be sued by their employees in ever greater numbers. For the third straight year, sizeable portions of survey respondents report increases in multi-plaintiff cases: 18% report increases in wage and hour disputes (FLSA); 11% report a rise in traditional labor union related matters; 10% report an increase in age discrimination cases; 7% report rises in race discrimination suits and ERISA suits; and 6% report rises in sex discrimination suits and disability discrimination suits.

A Bubble in Wage & Hour Disputes? The upward trend in wage and hour suits started several years ago, when plaintiffs’ lawyers discovered that state and federal law provided the basis for recovery of small amounts per employee for events or practices covering hundreds of workers – in addition to attorney’s fees and, in some cases, double damages. Wage and hour disputes remain the primary concern when it comes to multi-plaintiff cases: nearly half of all respondents say the greatest increase in multi-plaintiff cases came in the area of wage and hour cases. Among those wage and hour claims, the majority were premised on misclassification and overtime, with a drop-off seen in claims related to meals and breaks.

Discrimination: Cases alleging sex, race, age and religious discrimination do not account for much of multi-plaintiff cases. Of those respondents who faced employment litigation cases, when looking at both single and multi-plaintiff cases together, 51% they saw the greatest increase in the area of discrimination during the past year. It is an area 44% of respondents expect to continue growing in the coming year. Approximately one-third of all respondents indicate race, age and wage and hour cases are the three types of claims that create the most monetary exposure.

Plaintiff Debra Marlow, who is 60 years of age, alleges that Defendant Chesterfield County School Board (“CCSB”) discriminated against her on the basis of her age when she was transferred from Director of Community Relations (“DCR”) position to an allegedly less desirable position of Director of Business and Government Relations (“DBGR”).  The DBGR position was ultimately eliminated in Reduction in force in early 2009, resulting in the separation of her employment.  Prior to her separation, Marlow was offered a position that she alleges was a demotion that she refused.  Instead, Marlow demanded that she be reinstated to her previous DCR position.  Her previous DCR position, however, was filled at the time of her transfer by Marlow’s former assistant, a 37 year old male Tim Bullis. 

In discovery, Marlow sought all emails to or from her supervisors, Bullis and Marlow from January 2008 to present.  The court found that the emails sought may, at least, constitute relevant background evidence for discrimination such as attitudes, biases and prejudices.  Thus, the court found that request for emails may be appropriate but that the scope of the request must be addressed.  The court acknowledged CCSB’s objection that the request was “broad” because, for example, the request asks for all emails which would potentially include such irrelevant material as personal emails to and from friends and family, and even mundane emails such as grocery lists.  In addition, due the nature of the positions in question where the employee communicates with students and parents, there was a possibility of privileged emails with unrelated parties and that bear no relevance to the case falling under the request.  To resolve the scope issue, the court ordered Marlow to provide CCSB with a “realistic and focused” list of search terms to narrow the inquiry.  CCSB shall then apply the search terms to the emails of the relevant requested individuals and provide the results.  The court stated, “such a methodology is not foolproof, but it nevertheless strikes a proper balance between Marlow’s need for discover and the burdens to be imposed on CCSB.” 

Marlow also sought the personnel files and performance appraisals for all witnesses listed in CCSB’s Rule 26 disclosures.  In deciding what documents should be produced in response to the request, the court weighed the limited discovery purposes of the personnel files against the employees’ legitimate privacy interests and addressed the request by individual.  First, with respect to Bullis, the court found that because Marlow’s request is based on her claim that she is more qualified that Bullis and that, but for her age, she would have been allowed to return to her position, Marlow made a sufficient showing that the file was relevant.  The court ordered CCSB to produce the file, however, due to the privacy concerns the personnel file was ordered be submitted to the court for in camera review.  After review, the court will allow disclosure of documents related to Bullis’ qualifications only.

The appropriateness of the discovery requests of additional personnel files, including Thomas and Newsome, was decided based on the respective individual’s role in the decision-making process.  The court, citing authority, found that information found in the personnel file of the decision-maker(s) may be relevant to demonstrate prior discrimination, i.e. other complaints against the supervisor.  Thus, the discovery of Newsome’s personnel file was allowed and the discovery of Thomas’ personnel file was allowed “only if she was involved in the decision-making process.”

Finally, Marlow argued that the personnel files of the remaining Rule 26 witnesses should be produced because the contain evidence affecting witness credibility.  Marlow, somewhat remarkably, cited case law in support of this contention.  The court, however, found that the discovering of possible impeachment evidence is not “closely related” to her theory of the case; rather it is only ancillary.  Further, Marlow did not articulate any specific parameters of impeachment evidence sought.  The court therefore denied Plaintiff’s motion to compel the personnel files of the additional witnesses finding that the need for possible impeachment evidence did not outweigh the employees’ legitimate privacy interests. 

The court also granted Marlow’s motion to compel documents relating to the RIF and Bullis’ promotion to the DCR position.

The full text of the opinion can be found at:  http://valawyersweekly.com/fulltext-opinions/2010/09/18/010-3-473-marlow-v-chesterfield-county-school-board/

Contributed by Michael Wilson Stoker

In Whitney, Bradley & Brown, Inc. (“WBB”) v .Christian L. Kammermann, WBB alleged that Kammermann, a former senior manager, started his own consulting firm, CLK Executive Decisions, LLC (“CLKED”), during the last several years of his employment with WBB.  The Complaint alleged that on fourteen different occasions, Kammermann was reimbursed for expenses from WBB, and billed his CLKED clients for the same expenses, generating an extra $13,387.95 for himself.  WBB also accused Kammermann of submitting inaccurate timesheets.

Kammermann submitted his expenses reports to WBB via Federal Express, and to his clients via email.  WBB claimed that his a double-billing amounted to a RICO violation; the court disagreed.   The fourteen occasions of double-billing, spread over a twelve-month period, was not alleged to be a “continuing” pattern of behavior, as must be shown to demonstrate an open-ended scheme.  Nor could WBB establish a “close ended” RICO scheme, because the number of predicate acts was too slight, was not varied, had only one victim, and was a single scheme, rather than a number of separate schemes.

Angela Walton was treated for a work-related wrist injury by Mid-Atlantic Spine Specialists beginning in 1998.  She later filed a medical malpractice suit against the doctors related to the treatment, examination, and diagnosis of her injury.  Dr. Jeffrey Moore had taken two x-rays of Walton’s wrist, one in November and one in December 1998.  In his notes following the December exam, he noted that the alignment “look[ed] good.”  In a letter he wrote to his attorney almost three years later, however, Dr. Moore stated that he was not sure that he had been looking at the correct x-ray when he wrote those notes, and that he did not consider Walton’s alignment to be “good” in the December x-ray.  The letter was then produced during discovery in the workers’ compensation case, and produced to Walton’s attorney during the malpractice case.  The doctors filed a motion for a protective order asserting the attorney-client privilege.  After several hearings on the motion, the circuit court held that there had been no waiver of the privilege and concluded that the letter had been involuntarily produced because there was no way to determine how exactly it had been disclosed. 

On appeal to the supreme court, Walton argued that the circuit court had erred in ruling that the letter had been involuntarily produced because there was no evidence of bad faith or criminal activity; instead, Walton argued that the disclosure had been inadvertent, which would require application of a multi-factor test.  The doctors argued that the disclosure could not have been inadvertent unless it was produced by one of the parties holding the privilege – here either Dr. Moore or his attorney – and that the letter had actually been produced by Mid-Atlantic and the company that assisted in the document production. 

The supreme court found in favor of Walton, holding that that production of the letter was inadvertent, not involuntary.  The court reasoned that whether a disclosure is involuntary is not based on subjective intent; rather, a disclosure is involuntary if it was the result of bad faith or criminal activity.  Thus, the court concluded that the disclosure of the letter had been inadvertent.  The court then articulated a five-factor test for determining when an inadvertent disclosure resulted in waiver of the attorney-client privilege: 

(1) the reasonableness of the precautions to prevent inadvertent disclosures, (2) the time taken to rectify the error, (3) the scope of the discovery, (4) the extent of the disclosure, and (5) whether the party asserting the claim of privilege or protection for the communication has used its unavailability for misleading or otherwise improper or overreaching purposes in the litigation, making it unfair to allow the party to invoke confidentiality under the circumstances. 

The court stated that under this approach, a waiver could be found “if the disclosing party failed to take reasonable measures to ensure and maintain the document’s confidentiality, or to take prompt and reasonable steps to rectify the error.”  In this case, the court found that the doctors had failed to take reasonable precautions to prevent inadvertent disclosure because there was no evidence that they reviewed the documents for privilege before or after they were copied by the copy service.  The court also found that the doctors had waited a year and a half after receiving notice that the letter had been disclosed before they filed their motion for a protective order.  The court found that the other factors also weighed in favor of Walton, and held that the privilege had been waived because the doctors had failed to take reasonable measures to ensure and maintain the letter’s confidentiality.

The list is:

1. South Florida

2. West Virginia

3. Cook County, Ill.

4. Atlantic County, NJ (and Beyond)

5. New Mexico Appellate Courts

6. New York City

The “Watch List” includes:

1. California

2. Alabama

3. Madison County, Ill.

4. Jefferson County, Miss.

5. Gulf Coast and Rio Grande Valley, Texas

Defendant Ham’s Restaurant hired Defendant David Byers for Ham’s manager-in-training (“MIT”) program.  Ham’s is a wholly owned subsidiary of Defendant Chelda.  Ham’s sent Byers to the company’s Danville, VA restaurant to complete the six-to-eight week training program although Byers’ lived in Winston-Salem, NC.  Ham’s provided (or allegedly required) Byers accommodations at Plaintiff’s Super 8 Motel, adjacent to the Ham’s restaurant.  Plaintiff Rivett Group owns Super 8, and instigated this action.

Byers stayed at the Super 8 for more than three weeks before the incident that gave rise to this lawsuit.  Byers was an employee of Ham’s until July 18^th or 19^th, 2005.  At some point in the early morning of July 20, 2005, a fire started in the trash can in Byers’ room.  It was alleged by Plaintiffs that the fire started when Byers discarded a cigarette into the trash.  Byers maintained that other managers and MIT’s had been smoking in his room and dumped the ash tray into the trash.  The fire cause damage to the trash can, bed and frame before the sprinklers came on.  The sprinklers caused more damage though.  In fact, the hotel had to be closed for the week as a result of the fire and water damage caused by the fire. 

Byers did not complete the MIT program, and his last day of work for Ham’s is disputed.  Byers’ termination notice lists unprofessional behavior, misconduct and the fire as reasons for his dismissal.  Testimony from Ham’s managers claims that there were performance issues before the fire leading to his termination. 

Defendant Ham’s moved for summary judgment on issues related to Byers’ employment with Ham’s.  The court denied the motion for summary judgment finding that several material issues remained in dispute.  The court stated that the issues of Plaintiff’s last day of work, the reasons for his subsequent discharge were disputed and could have a material impact on the case.  Therefore, summary judgment was not proper.  The issue was genuine because a reasonable jury could return a verdict for the nonmoving party (Byers).  If Byers testimony that he did not start the fire is assumed true, it would likely preclude Ham’s from escaping liability.

Defendant Ham’s also moved for judgment as a matter of law.  The Court denied this motion because it was not clear whether Byers’ conduct was within the scope of employment.  The Court found that because there was doubt as to whether the employee acted within the scope of employment the issue should be decided by the jury and not as a matter of law by the court.  The doubt was caused by the fact that Byers was in a hotel paid for by Ham’s at Ham’s requirement.  Byers would not have stayed there without Ham’s insistence and he believed he was on duty twenty four hours a day at the hotel.  Byers was subject to being called for work at times he was at the hotel but not scheduled to work and he would have been disciplined if he refused to work when called.   Byers allegedly discussed the training program with managers in his hotel room the night of the fire.  The Court found these facts could support the claim that Byers was acting within the scope of his employment at all times in the hotel room, including when the fire took place.  Alternatively, it was not certain whether Byers’ had worked the previous three days.  Smoking was not part of the job description and necessary for him to complete his job duties.  Additionally, Byers was not performing services for Ham’s when the fire started.  The Court found that based on the above facts it was not clear whether the incident fell within the scope of employment and thus it should be a jury question.

The Court, however, granted Defendant Chelda, the parent company, motion for summary judgment.  In Virginia, a plaintiff must establish that a master-servant relationship existed at the time of injuries.  Byers’ could not do so.  An employee of a subsidiary company is not to be treated as an employee of the parent company in the normal parent-subsidiary relationship.  The court found Super 8’s single account billing to Chelda and Ham’s was not sufficient evidence to show a master-servant existed between Byers and Chelda.

The fastest circuit courts in Virginia — VLW

Fulbright & Jaworski annual litigation survey — where to get it here.  Commentary on it here and here.

Two female employees of United Salt Corporation brought suit against their employer and a plant manager alleging sexual harassment, gender discrimination, and retaliation in violation of Title VII, as well as wrongful discharge and assault and battery.  United Salt filed a Motion to Enjoin Ex Parte Contacts in response to the plaintiffs’ statement in their Motion to Compel Discovery that they planned to contact United Salt employees.  In its motion, United Salt sought to prevent the plaintiffs and their counsel from making ex parte contacts with any current United Salt employees.

The plaintiffs argued that any ex parte contacts were for the purpose of gathering information relevant to the complaint, and not to obtain admissions imputable to United Salt.  In their argument, the plaintiffs relied on Rule 4.2 of the Virginia Rules of Professional Conduct, which prohibits ex parte communications with employees within the company’s “control group.”  The plaintiffs stated that they were intending to contact only nonmanagerial employees that fall outside the “control group” and are therefore not covered by Rule 4.2. 

United Salt argued that the court’s holding in Lewis v. CSX Transportation, Inc., 202 F.R.D. 464 (W.D. Va. 2001), was controlling.  In Lewis, the court stated that the Federal Rules of Evidence imposed a broader test for determining whether ex parte contacts with a defendant’s employees were permitted.  The Lewis court articulated this test as encompassing all persons who have managerial responsibility for the company, all persons whose acts or omissions related to the case may be imputed to the company, and any persons whose statements may be deemed admissions by the company. 

The Smith court found that the employees who the plaintiffs were seeking to contact did not fall within the Lewis test.  The court reasoned that in a Title VII sexual harassment case, the company employer is only liable for acts of its supervisory employees, not nonsupervisory ones.  The court stated that “the rationale for the Lewis decision – to prevent an attorney from circumventing opposing counsel to obtain statements from employees which could be used to impute liability on the employer – is not present in this case.”  Thus, the court held that the plaintiffs were not prohibited from making ex parte contacts with nonsupervisory United Salt employees.

Contributed by Claudia Guzman

In January 2006, two employees decided to leave their former employer, FLIR Systems (“FLIR”), to start a new company.  The employees offered FLIR an opportunity to participate in their new company, Thermicon.  After FLIR rejected their offer, the employees entered into negotiations with another company, Raytheon Company (“Raytheon”).  The employees had assured FLIR that they would not misappropriate any trade secrets in the operation of Thermicon.  In June 2006, however, FLIR filed for injunctive relief to prevent the employees from moving forward with Thermicon based on the notion that misappropriation would inevitably result from Thermicon’s operation.  As a result of the lawsuit, Raytheon terminated negotiations with the employees.  Shortly after, the employees advised FLIR that they were not moving forward with Thermicon.

At trial, the court found no evidence of misappropriation or threatened misappropriation of trade secrets.  Further, the court found that FLIR had brought the lawsuit in “bad faith” on a theory of “inevitable disclosure.”  Under this theory, a plaintiff can prove a misappropriation claim by showing that the defendant’s new employment will inevitably lead him to rely on the plaintiff’s trade secrets.  The court stated that this theory is not recognized in California based on the strong public policy in favor of employee mobility.  The court proceeded to award the employees $1.6 million in costs and attorneys’ fees, and the court of appeals affirmed.

The Uniform Trade Secrets Act (“Act”) allows a prevailing party to recover costs and attorneys’ fees if a misappropriation claim is brought or maintained in “bad faith.”  Although not defined in the Act, “bad faith” has been held by California courts to consist of:  (1) an objective speciousness of the claim; and (2) subjective bad faith in bringing the action.  On appeal from a trial court’s award of fees, the party appealing the award must show that the court abused its discretion.

The court of appeals found that the trial court’s determination under the “objective speciousness” prong, which requires a finding of lack of evidence supporting the claim, was proper.  The trial court found no evidence of misappropriation or threatened misappropriation on the part of the employees, nor any evidence that FLIR had suffered economic harm.  To the contrary, the court found that FLIR’s sole motive for filing the suit was to prevent Thermicon from competing with FLIR in the future.  The court of appeals reiterated that employees have the right to engage in competition with their former employer, and even to compete for the same customers.  The court stated that speculation of misappropriation is not sufficient grounds for an injunction, and that a plaintiff was required to show “an actual use or an actual threat.”  Further, mere possession of trade secrets by an employee does not give rise to a misappropriation claim.

The court also found evidence of “subjective bad faith” on the part of FLIR under the second prong of the test.  The court stated that this prong is satisfied by evidence of improper motive, harassment, or unnecessary delay.  The court rejected FLIR’s assertion that a “reasonable suspicion” of potential misappropriation was sufficient to bar a finding of bad faith.  The court found that the trial court’s determination that FLIR’s argument was based on an “inevitable disclosure” theory was not an abuse of discretion.  The trial court also found evidence of subjective bad faith in FLIR’s failure to identify which trade secrets would be subject to the injunction.  The court found that the proposed injunction was overbroad and did not give sufficient notice as to what was prohibited, and was thus an unlawful restraint on trade which constituted evidence of bad faith.

(Hat tip to Labor & Employment Law Blog.)

Contributed by Claudia L. Guzman

After being employed by Agere Systems, Inc. (“Agere”) for 17 years, Eshelman was diagnosed with breast cancer and had to take a leave of absence.  Upon returning to work, she disclosed to Agere that she was suffering from short-term memory loss due to the chemotherapy treatment.  A few months later, she informed her supervisors that she was worried about having to drive to unfamiliar places as a result of her memory loss, which she sometimes had to do as part of her job.  Despite the problems with her memory, Eshelman received very high performance ratings, including a promotion.  In 2001, Agere began a company-wide reduction in force.  Initially, Eshelman was not identified as one of the employees to be laid off.  Eshelman’s supervisors had a discussion with her about the possibility of a transfer to a different Agere facility, during which Eshelman expressed reservations about driving to new locations.  Subsequently, Eshelman was placed in the pool of potential candidates for the lay-off, and was eventually laid off at the end of that year.  

Eshelman filed a complaint against Agere, alleging that she was discriminated against based on her age and disability.  Eshelman claimed, among other things, that Agere terminated her because she was regarded as being disabled, and because she had a record of a disability.

Following a jury trial, Eshelman was awarded $170,000 in back pay and $30,000 in compensatory damages after the jury found that Agere had discriminated against her based on her disability.  Agere made a motion for judgment as a matter of law, and in the alternative, a motion for a new trial.  Eshelman filed a motion in opposition and also made a motion for additional compensation to offset the tax consequences of her back pay award.  The district court denied Agere’s motion for judgment as a matter of law and granted Eshelman’s motion for additional compensation.

Regarding Eshelman’s motion for additional compensation to offset the tax consequences of her back pay award, the Third Circuit held that a trial court has discretion to augment such an award to compensate for tax liability.  The court cited the remedial purpose behind statutes like the ADA as the basis for its conclusion, and pointed to the practice of awarding prejudgment interest on back pay awards as additional support. 

In holding that a trial court has discretion to augment back pay awards, the Third Circuit became one of the few courts to have addressed this issue and contributed to the already-forming circuit split on the issue.  In Sears v. Atchison, Topeka & Santa Fe Railway Co., the Tenth Circuit took a similar approach and held that a district court has discretion to account for tax liability in computing back pay awards.  Sears v. Atchison, Topeka & Santa Fe Ry. Co., 749 F.2d 1451 (10th Cir. 1984).  In contrast, in Fogg v. Gonzales, the District of Columbia Circuit reversed the trial court’s grant of additional compensation to offset the tax consequences of a back pay award.  Fogg v. Gonzales, 492 F.3d 447 (D.C. Cir. 2007).  Similarly, in Hukkanen v. International Union of Operating Engineers, the Eighth Circuit held that the district court’s denial of additional compensation for tax liability was not an abuse of discretion.  Hukkanen v. Int’l Union of Operating Eng’rs, 3 F.3d 281 (8th Cir. 1993). 

Contributed by Claudia L. Guzman