Franklin County Appeals Court Affirms Discovery Sanction Against Employer to Produce Copies of Computer Hard Drives.

Discovery sanctions are in the news a lot these days. There were two notable discovery abuse decisions last week. In both, the appellate court affirmed the trial court’s sanction against the uncooperative defendants who failed to comply with their obligations to produce information requested by plaintiffs before trial. First, the Washington Supreme Court affirmed entry of an $8M default judgment plus attorney fees against Hyundai Motor Company for its “willful efforts to frustrate and undermine truthful pretrial discovery.”
The parties continued to argue about their discovery obligations, including the location and timing of depositions and whether the defendants had produced all responsive documents which had been requested. Although defendants had asserted that it has responded fully to the discovery requests, it did not respond to the Plaintiff’s second motion to compel discovery and did not seek a protective order to protect confidential information encompassed by the Plaintiff’s discovery requests. Not surprisingly, the trial court granted the second motion to compel, suggested that defendants submit a protective order for consideration and directed defendants to produce the requested documents or face sanctions. However, defendants again insisted that they had already fully complied with the discovery requests and produced no further documents. Therefore, in November 2007, Plaintiff moved for a default judgment as a discovery sanction. In response, the defendants, “[t]o the extent that they might have withheld any documents, defendants blamed their failure to produce on Plaintiff’s refusal to explain what documents were missing from defendants' response.”

The trial court referred the discovery dispute to a magistrate. Defendants submitted an affidavit in support of their position, but then the information was contradicted by the testimony of their witness, who admitted that the defendants had not produced relevant documents in discovery because of, among other things, confidentiality concerns and the breadth of the discovery requests. Unfortunately, the defendants had never sought a protective order to protect the confidentiality of the information or submitted any objections based on the overbreadth of the discovery requests. Thus, the magistrate found the defendant’s failure to comply with the prior court orders to be willful.

Nonetheless, the magistrate did not order a default judgment for the defendants’ willful disregard of court orders. Instead, he ordered the defendants to produce the documents within 20 days, to pay the Plaintiff’s discovery expenses (i.e., attorney fees) and to “provide, at their own cost: (1) a forensic copy of the computer hard drives of Martin, Citynet's Chief Financial Officer ("CFO"); and Citynet's Chief Operating Officer ("COO"); and (2) any schedule, calendar, .pst file, Outlook application, or PDP application utilized by Martin.” The parties then agreed upon a mutually satisfactory protective order. The trial court then affirmed most of the magistrate’s recommendations over the defendant’s objections:

In sum, the trial court approved and adopted the magistrate's decision with a few relevant caveats. First, the trial court allowed defendants to redact from the forensic copies of the hard drives any privileged material. Second, the trial court permitted defendants to designate personal information contained on the forensic copies for "attorneys' eyes only." Finally, the trial court required Bennett to execute an affidavit confirming that, to the best of his knowledge, he is engaged in no professional activity that is in any way competitive to the business activity of the Citynet entities, that he does not encounter any of the Citynet entities competively in the course of his professional life, and that he otherwise does not engage in competition with any of the Citynet entities. Apparently, the trial court ordered such an affidavit to ensure that Bennett would not use the confidential business information contained in the forensic copies to achieve a competitive advantage over defendants.

The defendants immediately appealed and the Court of Appeals found the discovery order to be a final and appealable order. “[A]ppellate courts have reasoned that as long as an appellant presents a "colorable claim" that the documents subject to a discovery order are privileged and/or confidential, the proceeding that resulted in that order qualifies as a "provisional remedy." Moreover, “[b]ecause information is no longer confidential after dissemination, defendants would not have an effective remedy if forced to delay appeal until after final judgment.”

The Court affirmed the trial court’s sanction in part because of the defendants’ deliberate flaunting of its discovery obligations and of the court’s discovery orders.

A forensic image, or "mirror image," of a hard drive " 'replicates bit for bit, sector for sector, all allocated and unallocated space, including slack space, on a computer hard drive.' " . . . Generally, courts are reluctant to compel forensic imaging, largely due to the risk that the imaging will improperly expose privileged and confidential material contained on the hard drive. Because allowing direct access to a responding party's electronic information system raises issues of privacy and confidentiality, courts must guard against undue intrusiveness. . . .

In the case at bar, [Plaintiff] has demonstrated that defendants repeatedly represented that they had disclosed all responsive documents, when, in fact, they had not. As the magistrate found, such obfuscation displays a willful disregard of the discovery rules and the trial court's orders. Moreover, defendants' last-minute discovery of certain responsive documents indicates that when not outright defying the trial court's orders, defendants adopted a lackadaisical and dilatory approach to providing discovery. Given this background of noncompliance, we cannot conclude that the trial court abused its discretion in ordering defendants to produce forensic copies of the hard drives of Citynet's CEO, CFO, and COO.

In arguing to the contrary, defendants first contend that trial court's order impermissibly allows [Plaintiff] to discover vast amounts of irrelevant information which cannot possibly relate to [Plaintiff’s] age discrimination, retaliation, and breach of contract claims. While defendants may be correct, they fail to appreciate that their own intransigence in the course of discovery justifies the scope of the trial court's order.

Nonetheless, even though the trial court permitted the defendants to redact privileged matters and to designation confidential information “for attorneys’ eyes only,” the Court was still sympathetic about producing confidential and trade secret information directly to Plaintiff, who now worked for one of defendants’ direct competitors. In such cases, sometimes

courts adopt a protocol whereby an independent computer expert, subject to a confidentiality order, creates a forensic image of the computer system. The expert then retrieves any responsive files (including deleted files) from the forensic image, normally using search terms submitted by the plaintiff. The defendant's counsel reviews the responsive files for privilege, creates a privilege log, and turns over the non-privileged files and privilege log to the plaintiff. . . . .

[Plaintiff] deserves a remedy for the prejudice caused by defendants' misconduct, but that remedy should not require defendants to sacrifice highly-sensitive, confidential information that has no bearing on [Plaintiff’s] claims. Additionally, private information of the computers' users—such as personal financial information and communications with friends and family—should not be subject to disclosure. Therefore, we conclude that the trial court abused its discretion in devising the procedure for the forensic imaging. We urge the trial court to adopt a protocol similar to the one described above. We believe that such a protocol would allow [Plaintiff] sufficient access to the computer systems to recover useful information, while also providing defendants with an opportunity to identify and protect privileged and confidential matter.

The discovery sanction and forensic imaging was otherwise affirmed.

Insomniacs can read the full court opinion at http://www.sconet.state.oh.us/rod/docs/pdf/10/2009/2009-ohio-6195.pdf

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Ohio Appeals Court: Death and Taxes May Be Certain, but the Timing Alone is Too Indefinite to Form a Binding Promise.

Last month, the Franklin County Court of Appeals affirmed summary judgment against a former corporate officer who had been promised employment for the life by the majority shareholder. Steele v. Mara Enterprises, Inc., No. 2009-Ohio-5716. In that case, the plaintiff worked his way up to become president of the corporation. When the founder died, his widow inherited his majority interest and eventually transferred her ownership to a trust. She promised him that he would keep his job as long as she was alive and in reliance on this promise, he turned down two offers of employment. Nonetheless, the Court found her promise to be too indefinite to support a promissory estoppel claim.

According to the Court’s opinion, after many years of employment, membership on the Board of Directors and the purchase of one share in the corporation, the plaintiff was fired after the Board all voted to resign and the new Board was elected. The Court found the verbal promises of employment for the lifetime of the majority shareholder to be too indefinite to be legally binding:

Death, although inevitable, is unpredictable. A future event that, by its very nature, could occur in ten minutes or ten years is too indefinite to constitute a "specific term" for purposes of promissory estoppel. Such statements are, at best, discussions of "possible future career developments and opportunities." . . . . Similarly, here, Laverne Hill's statements were tied to her own death and, as a result, suffered the same deficiency as those "promises" made in Callander: they fail to unambiguously promise continued employment for a specific period of time. Indeed, the statements lacked specificity in other aspects. The statements never included a discussion of job title, job responsibilities, compensation, or contingencies in the event the business closed or Laverne Hill decided to part with her ownership interest before her death. The complete lack of details suggests Laverne Hill's statements were anything but clear and unambiguous promises of continued employment. . . . .

In any event, even if the promise were sufficiently unambiguous, the Court questioned whether a majority shareholder could bind the corporation since she was not an officer, did not make these promises in a meeting of the Board members, was never ratified by the Board and never reduced to writing. On the contrary, the Employee Handbook (created by the plaintiff) provided that all employees were employed at will unless given a written contract.

Finally, the Court rejected the breach of fiduciary duty claim by a minority shareholder because the duty is owed by the majority shareholder (who was not named as a defendant) and not the corporation (who was the only named defendant).

Insomniacs can read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/10/2009/2009-ohio-5716.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Franklin County Appeals Court: Nothing is Reasonably Reliable In a RIF or Public Litigation.

Last month, the Franklin County Court of Appeals affirmed the dismissal of a defamation and wrongful discharge suit brought by the former head of security for Capital University whose job was eliminated in 2006 during a budget crisis. Woods v. Capital Univ., No. 2009-Ohio-5672. Although the 54-year old plaintiff had been told in writing during his exit interview that his performance played no role in the elimination of his position (and he had received nothing but promotions prior to his termination), the university’s attorney was quoted in two local newspapers as attributing part of the termination decision to “job performance issues.” His responsibilities were divided and his public safety management responsibilities were given to a 28-year old safety officer. Nonetheless, the Court affirmed dismissal because the allegedly defamatory statements related to a matter of public concern, which required proof of actual damages or actual malice, and the redistribution of duties to existing employees cannot support an inference of age discrimination. Finally, his promissory estoppel claims were dismissed because the three verbal promises of continued employment were contracted by the terms of his written contract with the university.

According to the Court’s opinion, the plaintiff was eight years away from retiring from another college when he was hired by Capital to reorganize its public safety department. When he expressed reluctance to leave a secure position so close to his retirement age – particularly with friction that was likely to develop during the planned reorganization, he was assured by the VP/Treasurer that he would be employed at least eight years to retire at Capital. However, his offer letter only promised one year of employment. He was promoted the following year and given two more one-year appointments. When rumors surfaced about a possible budget deficit, he again sought reassurance about his job security and was again assured by the VP/Treasurer that his job was safe. When the VP/Treasurer was then fired, he sought and obtained similar assurance from the President, who then shortly thereafter left.

When an impending $12.5M deficit was revealed, a committee examined all positions and recommended the elimination of 72 positions, including that of the plaintiff. His termination letter informed him that his job was eliminated because of the budget difficulties and not because of his job performance. His public safety duties were reassigned to a 28-year old officer and his auxiliary duties to other employees. He then filed a lawsuit for $4.6M against Capital for age discrimination and promissory estoppel. The lawsuit received publicity in the local media and Capital’s attorney was quoted in two newspapers as stating that the plaintiff had been let go because of the budget difficulties and “job performance issues.” The plaintiff amended his claims to include the allegedly defamatory statements by the attorney. The trial court granted summary judgment to the defendants and the plaintiff appealed.

Defamation Claim

The Court of Appeals addressed the defamation claim first and found the attorney’s statement about the plaintiff being fired in part because of his job performance to be defamatory on its face (or defamation per se) since it had the tendency to hurt plaintiff’s career and ability to find another job. The Court rejected the defense attempt to

characterize this statement as vague and contend that if it is defamatory at all, it is only defamatory per quod. We disagree. No employer fires an employee for good job performance. The only reasonable reading of [the attorney’s] statement is that Capital terminated [the plaintiff’s] employment for two reasons, and one of those reasons was [the plaintiff’s] poor job performance. Thus, the statement in and of itself tends to injure [the plaintiff] in his occupation as any employer would hesitate before hiring a potential employee who underperformed in his previous job. Such a statement is defamatory per se.

Typically, damages in such situations are presumed without proof or pleading. However, in this case, the Court found the statement to also have limited protection from the First Amendment. Because the plaintiff worked for a private college, he was not a general public figure. Moreover, the fact that he filed a lawsuit – by itself – did not render him a limited purpose public figure. However, the fact that he sought $4.6M in damages from a significant private institution which was having very public budget difficulties rendered the issue of the reduction in force and his lawsuit a matter of public concern – as evidenced by the significant media coverage. Therefore, the claim was governed by the United States Supreme Court’s decision in Gertz v. Robert Welch, Inc. (1974), 418 U.S. 323, 345-46, which concluded that:

in such cases, the states could define for themselves an appropriate standard of liability, so long as they did not impose liability without fault. Gertz, 418 U.S. at 347. Subsequently, Ohio adopted the ordinary negligence standard as the standard of liability for actions involving a private individual defamed in a statement about a matter of public concern. Landsdowne v. Beacon Journal Publishing Co. (1987), 32 Ohio.St.3d 176, 180. In addition to requiring an element of fault, the Gertz court also limited the type of damages recoverable in defamation cases involving private individuals and statements regarding a matter of public concern. Given the constitutional command of the First Amendment, . . . the states could no longer permit recovery of presumed or punitive damages, at least when liability was not based upon a showing of actual malice. Gertz, 418 U.S. at 349, . . . Thus, in Ohio, a plaintiff must prove either: (1) ordinary negligence and actual injury, in which case he can receive damages for the actual harm inflicted; or (2) actual malice, in which case he is entitled to presumed damages.

Thus, the plaintiff was required to show actual malice or actual injury (i.e., “out-of-pocket loss, impairment of reputation and standing in the community, personal humiliation, and mental anguish and suffering”). However, the plaintiff’s testimony that he felt that his job hunt was impaired by “google searches” of the attorney’s statement was too speculative to support proof of actual injury. Moreover, he failed to introduce any evidence that the attorney knew that his statement was false at the time it was made. Therefore, summary judgment on his defamation claim was upheld.

Retaliation

The plaintiff also claimed that the attorney’s defamatory statement was made in retaliation for the plaintiff’s consultation with an attorney following his termination. However, the Court refused to infer causation (i.e., the defamatory statement from the consultation with counsel) based on the passage of two months between the demand letter from the plaintiff’s attorney and the newspaper accounts repeating the defamatory statement. Because there was no other evidence of causation or proving a link between the two events, the Court affirmed summary judgment.

Age Discrimination

Typically, a discrimination claim requires that the plaintiff show that he was replaced by someone outside the protected class. The Court noted that this is extremely difficult, if not impossible, to show when the plaintiff was fired in a reduction in force:

When a discharge results from a work force reduction, an employee is not replaced, instead his position is eliminated. Barnes v. GenCorp Inc. (C.A.6, 1990), 896 F.2d 1457, 1465. Logically, then, a plaintiff discharged as part of a work force reduction cannot offer evidence that he was replaced by a substantially younger person to satisfy the fourth element of the prima facie case. Moreover, even if such a plaintiff demonstrates that his discharge permitted the retention of substantially younger persons, no inference of discriminatory intent can be drawn. Id. In the context of a work force reduction, the discharge of the plaintiff and retention of a substantially younger employee is not "inherently suspicious" because a work force reduction invariably entails the discharge of some older employees and the retention of some younger employees. Brocklehurst v. PPG Industries, Inc. (C.A.6, 1997), 123 F.3d 890, 896. Permitting an inference of intentional discrimination to arise from the retention of younger employees "would allow every person age 40-and-over to establish a prima facie case of age discrimination if he or she was discharged as part of a work force reduction." Barnes at 1465.

{¶57} Consequently, when a plaintiff's position is eliminated as part of a work force reduction, courts modify the fourth element of the prima facie case to require the plaintiff to " 'com[e] forward with additional evidence, be it direct, circumstantial, or statistical, to establish that age was a factor in the termination.' " Kundtz v. AT & T Solutions, Inc., 10th Dist. No. 05AP-1045, 2007-Ohio-1462, ¶21 . . . The purpose of this modified requirement is to ensure that, in work force reduction cases, the plaintiff has presented evidence to show that there is a chance that the work force reduction is not the reason for the termination. Asmo v. Keane, Inc. (C.A.6, 2006), 471 F.3d 588, 593 . . .

Nonetheless, the plaintiff can also show discrimination if he was in fact replaced instead his duties being eliminated, consolidated or distributed among a number of different people:

An employee is not eliminated as part of a work force reduction when he or she is replaced after his or her discharge. However, a person is not replaced when another employee is assigned to perform the plaintiff's duties in addition to other duties, or when the work is redistributed among other existing employees already performing related work. A person is replaced only when another employee is hired or reassigned to perform the plaintiff's duties.

In this case, the plaintiff’s 2004 promotion involved him assuming certain duties outside the public safety department. When his position was eliminated in 2006, those duties were reassigned and only his public safety duties were given to the 28-year old officer. The reassignment of his auxiliary duties were more than cosmetic or superficial duties. Thus, there was sufficient evidence to show that his position was eliminated and his duties distributed in a genuine reduction in force. Therefore, without additional evidence or direct evidence of age discrimination, summary judgment on this claim was affirmed.

Promissory Estoppel.

Plaintiff brought this claim based on the three separate promises of job security which he received both before and after he was hired by Capital. As explained by the Court:

Promissory estoppel provides an equitable remedy for a breach of an oral promise, absent a signed agreement. Olympic Holding Co. v. ACE Ltd., 122 Ohio.St.3d 89, 2009-Ohio-2057, ¶40. In order to succeed on a claim for promissory estoppel: "The party claiming the estoppel must have relied on conduct of an adversary in such a manner as to change his position for the worse and that reliance must have been reasonable in that the party claiming estoppel did not know and could not have known that its adversary's conduct was misleading." . . . The elements necessary to prove a claim for promissory estoppel are: (1) a clear, unambiguous promise, (2) the person to whom the promise is made relies on the promise, (3) reliance on the promise is reasonable and foreseeable, and (4) the person claiming reliance is injured as a result of reliance on the promise.

The fatal flaw in his argument, however, is that he signed written contracts which promised him only employment for a year at a time. Therefore, his reliance on the oral promises was not reasonable under the circumstances:

[C]ourts cannot enforce an oral promise in preference to a signed writing that pertains to exactly the same subject matter, but has different terms. Ed Schory & Sons at 440. Thus, "[p]romissory estoppel does not apply to oral statements made prior to the written contract, where the contract covers the same subject matter.

The Court rejected the plaintiff’s argument that his employment letters were not binding contracts, but only acknowledgment of certain terms. The Court also rejected the argument that the plaintiff’s reliance on promises made during the budget crises were reasonable under the circumstances. In any event, the plaintiff did not provide any evidence that he relied on the promises to his detriment since there was not evidence that he rejected a job offer in reliance on the promises. On the contrary, despite the promises being made to him during the budget crises, he promptly began searching for another job and submitting his resume to other employers.

Insomniacs can read the full opinion at http://www.sconet.state.oh.us/rod/docs/pdf/10/2009/2009-ohio-5672.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Franklin County Appeals Court: Structure of Employment Agreement Implied Non-Compete Clause Into Founder’s Retirement Clause.

Last month, the Franklin County Court of Appeals affirmed summary judgment in favor of an east-side dental practice in a declaratory judgment action involving its obligation to make retirement, or deferred compensation, payments under an employment agreement to its founder who retired after a serious illness and then opened up a competing dental practice after his recovery. Drs. Kristal & Forche, D.D.S., Inc. v. Erkis, 2009-Ohio-5671. The dispute centered on the meaning of “retirement,” which was not defined in the agreement. The Court implied the non-competition obligation from the fact that the Professional Services Agreement signed by the defendant dentist contained a resignation clause which permitted him to leave the practice for any reason upon 90 days notice, but, unlike the retirement clause, did not obligate his remaining partners to provide him with deferred income during his retirement. Therefore, the Court concluded that “retirement” meant from the profession, not just the dental practice, or the resignation clause would be rendered superfluous.

According to the Court’s opinion, the defendant dentist formed the practice, which was ultimately joined by two additional dentists. They formed a professional corporation and each signed professional services agreements. The agreements provided that each dentist could resign upon 90 days notice. The agreement also provided that the defendant dentist could retire at any time and at any age and be entitled to over $1.1M in deferred compensation paid out in monthly installments of $40,000. Retirement was not defined in the agreement. The only other clauses where a dentist was entitled under the agreement to deferred compensation was when the dentist died or became disabled, which also involved leaving the profession, rather than just the practice.

In early 2003, the defendant dentist became seriously ill, accepted disability payments under the agreement and retired in May 2003. The practice purchased back his shares and paid him $306,000 in retirement compensation through May 2005. He then made a remarkable recovery and opened his own competing practice in October 2004, which involved soliciting some of his former employees and clients. The practice then filed a declaratory judgment action in August 2005 concerning its obligation to continue making retirement payments to the defendant dentist on the grounds that the defendant dentist had breached his agreement by competing against it and, by soliciting clients and referral sources, had decreased its revenue to the point that it could no longer afford to fund his “retirement.”

The practice argued that “retirement” meant from the profession, not just the practice. As a result, by the defendant-dentist’s competition against them, he breached the agreement by returning to the profession and relieved them of their obligation to make retirement payments to him. Thus, under the practice’s interpretation, the agreement’s retirement clause imposed an implied non-compete obligation upon the defendant dentist. In turn, the dentist argued that “retirement” meant any and all retirements and did not require him to remain unemployment or to leave the profession permanently.

The Court agreed with the practice’s argument because (1) the voluntary and involuntary termination provisions permitted the dentist to leave the practice without requiring the practice to provide deferred compensation and (2) deferred compensation was only required if the dentist left because of death, disability or retirement. Therefore, the Court could infer the parties’ intent from the structure of the agreement to define “retirement” as meaning from the profession, rather than just the practice.

Insomniacs can read the full opinion at http://www.sconet.state.oh.us/rod/docs/pdf/10/2009/2009-ohio-5671.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

EEOC Revises Its “Equal Employment Opportunity Is the Law” Poster To Reflect November 21 Effective Date of Genetic Information Nondiscrimination Act

The EEOC has posted on its website the new EEO Is the Law poster which reflects the November 21 effective date of GINA. Every employer with more than 15 employees and most federal contractors are required to post a notice about the rights of applicants and employees under Title VII, the ADA, the ADEA, the GINA, the Equal Pay Act, Executive Order 11246, the Rehabilitation Act and the Vietnam Era Veterans Readjustment Assistance Act, etc. Employers may post a supplemental poster next to their existing poster of employees news rights under GINA and the ADAA or may post an all new poster which incorporates the new rights under GINA. Employers may print out these posters in English and Spanish directly from the EEOC website or may order larger (and more readable) version to be mailed.

GINA was enacted in 2008 and has broader application to employers and healthcare providers than its name implies. Title I applies to group health plans sponsored by private employers, unions, and state and local government employers, issuers in the group and individuals health insurance markets, etc.