Taking more than one bite at the apple in discrimination cases

One of the anomalies of Ohio’s employment discrimination statute is that it provides for individual liability for managers’ and supervisors’ own acts of discrimination. This peculiarity presents at least three issues for businesses to deal with:

1. By adding an in-state manager or supervisor as a defendant, Ohio employees can make it difficult for out-of-state businesses to remove discrimination cases to federal court based on diversity of citizenship.

2. A conflict of interest may prevent one attorney from defending both the business and the individual defendant, thus signaling to the plaintiff that there may be liability problems.

3. A federal court may pass on hearing the state law claims against the individual defendant, thereby giving the plaintiff two bites at the apple.

Price v. Carter Lumber Co. (Ohio Ct. App. 9/15/10) [pdf] is a poignant illustration of this third issue.

Gerald Price claimed that his former supervisor, Jim Collins, told him that Carter Lumber was not willing to work around his dialysis schedule and therefore would not rehired him. Price sued Carter Lumber and Collins in federal district court for disability discrimination. The federal court dismissed without prejudice (meaning Price was free to re-file) the state-law claims against Collins. Price then sued Carter Lumber and Collins in state court. After Carter Lumber won a jury verdict in federal court, both it and Collins moved the state court for dismissal.

The law uses a lot of Latin phrases, one of which I am about to introduce—res judicata. Ohio law uses res judicata as an umbrella term to cover both claim preclusion and issue preclusion. Claim preclusion bars subsequent actions between the same parties (or those related to them) on all claims arising out of the transaction that was the subject of a previous action. Issue preclusion bars the same parties (or those related to them) from re-litigating an issue in a subsequent action if the fact or point was directly at issue in a previous action and was ruled upon by a court. In other words, a plaintiff is only supposed to get one bite at the proverbial apple.

The court of appeals concluded that even though a federal jury concluded that Carter Lumber did not discriminate against Price, a state court jury might have the opportunity to determine the same issue as to Collins, one of its supervisors. Whether Price was able to litigate his discrimination and intentional infliction of emotional distress claims against Collins would hinge on the trial court’s review of the specific issues decided by federal jury.

It is likely that Collins will ultimately succeed and have the state court claims dismissed. Yet, that fact that he has to spend time and money litigating the issue—when a jury has already concluded that the employer did not discriminate—is reason enough for Ohio’s legislature to amend our state discrimination statute to bring it on par with its federal counterpart by eliminating individual liability. 

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

The worst feeling ever, and importance of candor

Imagine a sexual harassment EEOC charge which alleges that a corporate executive displayed pornographic images on his computer to a female subordinate. You interview the executive, in addition to everyone else at the company who could have seen the images; everyone denies they existed. In fact, the executive has a plausible explanation. The charging party is a disgruntled, terminated employee who may have accidentally received an email forward of a dirty joke, and is now exaggerating that one isolated incident to extort money through a bogus claim. You have no reason to disbelieve this executive and everyone else at the company. You respond accordingly in the company’s position statement to the EEOC, which finds no probable cause.

Flash forward six months. The lawyer for the ex-employee (now a plaintiff) is deposing the same executive. Her lawyer marks your position statement as Exhibit 1, and the executive re-affirms his story. Her lawyer then marks as Exhibit 2 the discovery responses in which the company denied that any pornographic photos existed, and the executive again re-affirms his story. When her lawyer marks a manila envelope as Exhibit 3, you start to feel a pit in your stomach. When the executive opens the envelope and reveals a half-dozen pornographic photos, the pit moves up into your throat. When you realize that the photos are of the same executive cavorting with two women—whom he identifies as “escorts”—you just about throw up. And the case settles for much more than it was worth.

I often relay this story to clients from whom I think I may not be getting the whole story. I remind them that whatever they tell me is privileged. I tell them that they might think they are protecting their company, but in this age of email, and Facebook, and computer forensics, it is likely, if not certain, that the truth will eventually come out. I explain that when it does, the liability risk, potential verdict amount, and the value of any settlement goes up exponentially.

The word “candor” is one of the the most important words to lawyers. It’s in our ethical rules—attorneys owe a duty of candor to the tribunal. Almost as important, however, is the candor between a lawyer and client. We owe you a responsibility to be completely honest with you about your case and the risks it presents. We cannot do that, however, without your reciprocal honesty about the facts. It’s our job to tell your most compelling story. We cannot do that, though, if we don’t know what that story truly is.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Do you know? Admissibility of settlement offers

Sometimes, employers are blindsided by a lawsuit. The first you might learn that an ex-employee is suing you is when you are served the complaint and summons. Other times, however, the filing of a lawsuit is preceded by a back-and-forth between attorneys hoping to resolve the dispute outside of court. To what extent can you freely communicate with an ex-employee’s attorney without fear that your words and statements will come back to haunt you in a trial if the negotiations break down? Eid v. Saint-Gobain Abrasives (6th Cir. 5/12/10) [pdf] provides some guidance.

After his termination from Saint-Gobain, Kenneth Eid retained counsel for the purpose of asserting an employment discrimination claim. Prior to filing a claim, Eid’s attorney sent a letter to Saint-Gobain announcing Eid’s intention to pursue a claim but inviting a negotiated resolution. Saint-Gobain’s associate general counsel responded in writing with a discussion of Saint-Gobain’s internal investigation into Eid’s allegations and witnesses interviews. The responses concluded that the “termination was handled in our judgment in an appropriate fashion,” and “[t]here is no basis for the organization to consider a settlement with your client.”

Prior to trial, the court excluded the general counsel’s letter under Evidence Rule 408. Following a defense verdict, Eid appealed that decision.

Evidence Rule 408 prohibits a party from introducing into evidence:

• offers to settle; and
• conduct or statements made in settlement negotiations regarding the claim.

The 6th Circuit found that the trial court properly excluded the letter, despite the refusal to engage in any further settlement negotiations:

A party will often adopt a hardline position at the beginning of negotiations in order to extract greater concessions from an opponent. It would ignore the realities of negotiation to hold that such a position necessarily means that the parties are not engaged in compromise negotiations. Such a rule would also run contrary to the purposes of Rule 408, as it would invite undue caution in settlement negotiations, and would facilitate the admission of communications that contain puffing, posturing, and various irrelevancies.

The 6th Circuit also found that the discussion of the internal investigation was within the protections of Rule 408.

In other words, you can respond to an employee’s pre-suit settlement overtures with a reasonable degree of confidence that a jury will not some day be reading your lawyers comments about the strengths and weaknesses of your case.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Access to federal court just got a little bit easier for corporations

Employers like to be in federal court. According to a recent study by the American Constitution Society, plaintiffs only win 15% of the time on employment discrimination suits in federal court. Thus, it is often critical for employers to have their cases heard in federal court.

Federal courts, however, are courts of limited jurisdiction. There are two main avenues to get a case into federal court—lawsuits premised on a federal statute (known as federal question jurisdiction), and lawsuits with more than $75,000 in controversy where no defendants hail from the same state as any plaintiff (known as diversity jurisdiction). Whenever a party is sued in state court, that party may remove the suit to federal court, provided the federal court would otherwise have jurisdiction.

For purposes of diversity jurisdiction, a corporation is a citizen of its state of incorporation and the state where it has its principal place of business. When a large corporation does business in a number of states, however, determining its “principal place of business” often presents courts with a challenge. On Tuesday, in Hertz Corp. v. Friend, the United States Supreme Court decided what “principal place of business” means:

We conclude that “principal place of business” is best read as referring to the place where a corporation’s officers direct, control, and coordinate the corporation’s activities. It is the place that Courts of Appeals have called the corporation’s “nerve center.” And in practice it should normally be the place where the corporation maintains its head-quarters—provided that the headquarters is the actual center of direction, control, and coordination, i.e., the “nerve center,” and not simply an office where the corporation holds its board meetings (for example, attended by directors and officers who have traveled there for the occasion).

Why is this case important to employers?

1. As noted above, employers like to be in federal court. This case expands employer’s access to federal court by limiting the number of states in which it can be found to be a citizen for diversity purposes. By limiting a corporation’s principal place of business to the corporate nerve center, corporations will be able to remove a greater number of lawsuits.

2. Employers only have 30 days after receipt of a state court lawsuit to remove the case to federal court. The determination of whether to remove a case has to be made quickly. Therefore, it is important to get counsel involved in the litigation as early as possible so that the removal date—which cannot be extended under any circumstances—is not missed.

For additional analysis of this opinion, I suggest the following:

• Identifying corporate “nerve centers” – via SCOTUSBlog

• U.S. Supreme Court Breathes Life Into Removal Statute – via What’s New in Employment Law?

• Today, all 9 Justices embrace a clear rule over a more nuanced and litigation-breeding interpretation – via Althouse

• Nine-Zip for Common Sense – via The California Civil Justice Blog

• Supreme Court Applies "Nerve Center" Approach to Diversity Jurisdiction – via Washington DC Employment Law Update

• The Supreme Court and Federal Jurisdiction Law – via ChamberPost

• High Court Makes it Harder for Plaintiffs to Avoid Federal Court in Contract Cases – via Point of Law

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus. For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Supreme Court’s expanded pleading rules give employers added tool to combat lawsuits

Today, I am going to get a little academic, but I promise I’ll bring it back around at the end with some practical information for employers.

Two years ago, in Bell Atlantic Corp. v. Twombly [PDF], the U.S. Supreme Court ruled that to state a legal claim and survive a motion to dismiss, a legal pleading (the initial filing in a lawsuit) cannot simply recite the elements of a cause of action or make an unsubstantiated conclusion, but must set forth a claim that is “plausible on its face.” The Court explained:

Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” in order to “give the defendant fair notice of what the … claim is and the grounds upon which it rests. While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff’s obligation to provide the “grounds” of his “entitlement to relief” requires more than labels and conclusions, and a formulaic recitation of a cause of action’s elements will not do. Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all of the complaint’s allegations are true. (internal citations omitted).

For example, in discrimination case, I sometimes see complaints that simply say, “X was terminated because of his race in violation of Title VII.” While Twombly was an antitrust case, if it’s rationale extended to employment cases these types of pleadings would not suffice. Twombly, however, left open the question of whether it applied beyond the antitrust arena.

Earlier this week, the Supreme Court decided Ashcroft v. Iqbal [PDF], which extended the Twombly pleading rules to an unlawful detention case. In the wake of the Court’s expansion of Twombly outside the antitrust context, it is likely that its pleadings requirements will apply in all civil litigation. In other words, a discrimination plaintiff should no longer be able to simply speculate that discrimination occurred, or make bald, unsubstantiated conclusions. A discrimination plaintiff will have to plead sufficient, specific facts to at least put the employer on notice of what is alleged to have actually happened.

The Ashcroft decision has three big practical implications for employers:

1. Employees will be required to file much more detailed complaints, and employers will know at the earliest stages of the lawsuit exactly what is being alleged. Employers will no longer have to engage in expensive discovery just to learn the theory of the plaintiff’s case.

2. Employers will be able to make more accurate analyses of cases earlier. Earlier analysis of a case’s strengths and weaknesses will allow employers to decide early in the litigation whether a case is worth fighting, or should be settled earlier. Thus, companies should save defense costs.

3. More lawsuits should be dismissed for failing to state a claim. In theory, the less meritorious lawsuits will fall by the wayside, saving businesses the cost of defending nuisance lawsuits.

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Presented by Kohrman Jackson & Krantz, with offices in Cleveland and Columbus.

For more information, contact Jon Hyman, a partner in our Labor & Employment group, at (216) 736-7226 or jth@kjk.com.

Ohio Supreme Court may be asked to clarify Coolidge

In addition to providing a good summary of the history of the public policy wrongful discharge tort in Ohio, Klopfenstein v. NK Parts Industries, Inc. also sets the stage for a potential battle in the Ohio Supreme Court over the proper statute of limitations for a claim under Coolidge v. Riverdale Local School Dist. Coolidge held that an employer cannot discharge an employee who is receiving temporary total disability workers' compensation benefits solely on the basis of absenteeism or inability to work, when the absence or inability to work is directly related to an allowed condition. The Cuyahoga County Court of Appeals, in Brooks v. Qualchoice, held that Coolidge does not create a new public policy exception to the employment at-will doctrine, but instead illustrates conduct that is retaliatory under R.C. 4123.90 (the workers' comp anti-retaliation provision). In Klopfenstein, the Third District Court of Appeals disagreed, holding, "Coolidge creates an independent public policy exception to the employment at-will doctrine." These divergent holding have significant implications, because the two claims have vastly different statutes of limitations. An aggrieved employee has 4 years to file a public policy wrongful discharge claim, as compared to 180 days for a retaliation claim pursuant to R.C. 4123.90. The workers' comp retaliation statute also has strict notice requirements that a claimant must meet as a prerequisite to bringing suit, in addition to more restrictive damages.

Klopfenstein will not be the last word on this issue. Whether in an appeal from that case, or some future case, the Ohio Supreme Court will be called upon to clarify its Coolidge holding and definitively state the proper statute of limitations. In anticipation of that future battle, let me suggest that Klopfenstein was wrongly decided. R.C. 4123.90 states: "No employer shall discharge ... any employee because the employee filed a claim ... under the workers’ compensation act for an injury ... which occurred in the course of and arising out of his employment with that employer." If an employee is terminated because of workers' comp-related absences, that employee is being terminated because of the claim. Thus, the termination falls squarely within the coverage of R.C. 4123.90. It is the job of the legislature, and not the courts, to expand the statute of limitations for Coolidge claims if it sees fit to do so.

Small claims court needs reform

Did you know that a company cannot represent itself in an Ohio small claims court? An employee is free to go to small claims court and file any claim $3,000 or under against an employer, and the employer must hire an attorney to represent it at court. Even though a corporation is defined as a "person" under the law, and an individual can appear pro se, a company that tries to exercise the same right will be barred under the guise of the unauthorized practice of law. This rule needs to be fixed. Because the cost of defense often outweighs the cost of the claim, how is justice served if companies have little incentive to litigate? Often, however, companies want to challenge the claim, because at stake is the sanctity of a policy that the employer has spent time and money having drafted, implementing, and enforcing. Also, companies need to send the message that they will not roll over even for small claims brought by employees. So, what you are left with is a company that may not want to pay to fight the claim, and if they do pay to fight it, a pro se plaintiff that will be outmatched in court by having to face cross examination by a hired professional. This system is crying out for reform. Ohio law should be amended so that a company can appear in small claims court through a corporate officer and without an attorney. This amendment will allow the system to work as it is intended, so that small claims can actually be tried with small costs and small hassle.

Vicarious release held ineffective

Edwards v. Ohio Inst. of Cardiac Care is not earth shattering for what it says, but I write because of the novel argument made by the employer in trying to escape a jury verdict. It is well-settled Ohio law that supervisors and managers are jointly and severally liable with their employers for their own acts of discrimination. After suffering a $200,000 jury verdict on a sexual harassment claim, the employer in Edwards made the novel argument to the appellate court that the plaintiff's pretrial settlement with the accused supervisor extinguished the company's liability. While the Court seemed impressed with the creativity of the argument, it ultimately rejected it (the case was reversed on other grounds relating to the jury instructions). The Court reasoned that the supervisor is not liable simply as the employer's agent, but is liable because the statutory definition of "employer" in R.C. 4112.02(A)(2) includes individual supervisors and managers whose conduct violates the law. In other words, the supervisor and the company are co-employers. Thus, a settlement with one does not extinguish the liability of the other. In other words, if you want to obtain a release, you have to make sure you are a party to the agreement.

Sixth Circuit opens the floodgates to federal court

I have a confession to make. I am a procedure nerd. Civil Procedure was my favorite class in law school, and cases that raise interesting procedural issues still get me excited. Putting my personal oddities aside, I still think that Klepsky v. United Parcel Service, Inc. could prove to be one of the most important cases decided this year by the Sixth Circuit, as it greatly expands the class of employment cases that can be removed from state court to federal court.
Thomas Klepsky, a Cleveland-area driver for UPS and a union member, started his lawsuit in the Cuyahoga County Court of Common Pleas, asserting Ohio statutory and common law whistleblower claims. UPS removed the case to federal court on the grounds that the federal Labor Management Relations Act ("LMRA") completely preempted Klepsky's state-law claims. Over Klepsky's objection the district court kept jurisdiction and ultimately dismissed his claims on their merits. On appeal, the Sixth Circuit, concerned over the propriety of the federal courts' jurisdiction, requested that the parties be prepared to discuss the issue at oral argument.
By way of some background for those that do not often find themselves in federal court, there are two types of subject matter jurisdiction that permit a plaintiff to originally file an action in federal court, diversity jurisdiction (where none of the plaintiffs are citizens of the same state as any of the defendants, and the amount in controversy exceeds $75,000), and federal question jurisdiction (where a claim arises under the Constitution, laws, or treaties of the United States). If a plaintiff files such an action in state court, a defendant has the option to remove it to federal court. It is no secret that employers and their lawyers usually prefer to be in federal court, and removal is often the proper implement to get there.
Typically, the availability of a defense under a federal law (such as preemption) is not enough to support removal to federal court, and a plaintiff can avoid a federal forum by pleading only state law claims and suing at least one non-diverse defendant. However, in limited circumstances, where a federal law completely preempts state law on a relevant subject matter (such as ERISA, or, as in this case, the LMRA where a claim requires the interpretation of a collective bargaining agreement), removal is proper despite the lack of a federal claim in the complaint.
Consistent with precedent, the Sixth Circuit found that Klepsky's state law causes of action did not support preemption. However, the Court, in a novel turn, held that one of the remedies pleaded by Klepsky, reinstatement, supported complete preemption and permitted removal:

We find that this single request is enough to support preemption here, as it would require interpretation of the terms of the CBA, and implicates a right created under the CBA.... Even if he does not explicitly rely on terms of the CBA pertaining to reinstatement, his request for reinstatement would, at a minimum, seem to implicate such rights and require interpretation of the CBA. For this reason, we find that preemption exists under the LMRA, and that removal based on federal jurisdiction was proper here.

Thus, because the complaint contained a boilerplate request for reinstatement, which would require an interpretation of the collective bargaining agreement (via application of seniority clauses, etc.), removal was proper.
Ignoring whether this case was decided rightly or wrongly, it nevertheless has serious implication for the availability of a federal forum to decide state law claims. Plaintiffs who are union employees will now have a difficult time defeating a removal petition. Clearly, any unionized plaintiff who prays for reinstatement will be subject to having his or her complaint removed from state court. I will be keeping a close eye on cases in this Circuit to see if Klepsky is applied to prayers for front pay (the flip side of reinstatement), prayers to be made whole, or catch-all prayers under which a court could reinstate. My prediction is that this decision will prove to a blessing to employers, who often go to great lengths to get into federal court, a curse to employees, who often try to avoid federal court like the plague, and a potential docket clogging disaster to the district courts, who will most likely see their already heavy caseloads become that much busier.