The case of former Desperate Housewife, Nicolette Sheridan, illustrates a simple legal concept that escapes many attorneys and their clients.
Your case has to make sense.
As you probably heard, Sheridan claimed she was wrongfully terminated in violation of public policy, in retaliation for a battery claim she made against the show’s creator, Marc Cherry. Much of the trial turned on whether he had reasonably touched her as part of directing her acting, as he claimed, or had struck her about the head in a violent manner out of frustration, as she claimed.
But here’s the thing. You can’t sue for wrongful termination if you were not terminated. Sheridan was not terminated. Rather, her contract simply wasn’t renewed. Although the case ended in a mistrial, defense counsel brought a post-trial motion for judgment in defendants’ favor based on that simple fact. It went over the judge’s head, but the Court of Appeal recognized that you can’t be wrongfully terminated if you were not terminated. As Justice Thomas Willhite Jr. wrote:
"A cause of action for wrongful termination in violation of public policy does not lie if an employer decides simply not to exercise an option to renew a contract. In that instance, there is no termination of employment, but instead an expiration of a fixed-term contract."
On that seemingly apparent basis, the Court agreed that judgment should have been entered in favor of defendants on the wrongful termination claim. So, although the case originally ended in a mistrial because the jurors could not agree, the wrongful termination claim is now dead and buried.
However, the Court of Appeal did throw Sheridan a life line. It concluded that she might be able to amend her complaint to add a cause of action under Labor Code § 6310. That code section provides that an employer cannot discriminate against an employee who has complained about unsafe working conditions. In other words, if she can show that her contract would have been renewed but for the complaint about Cherry’s directing techniques, that would be a form of discrimination and would entitle her to damages.
At first blush it may appear to be a distinction without a difference, but the difference in damages is huge. Section 6310 provides only for recovery of "lost wages and work benefits . . . ." That could still be some serious coin for Sheridan, but it takes any emotional distress and punitive damages out of the equation.
Lesson for all businesses: Many lawyers think too much like lawyers, and can't see the conceptual problems with a case. I’ve had two other cases with this same legal issue, where the employee’s attorney tried to argue that failing to renew a contract was a wrongful termination. The employee quite properly lost in both cases because there can be no wrongful termination without a termination. But the bigger lesson here is, don’t let your attorney take you for an expensive ride on some legal theory, unless it passes your own common sense test.
I believe in freedom of speech. I fight for freedom of speech. I feel that I must tell you that up front because every time I report a victory in court on a defamation action, I inevitably get some push back, as though I am preventing someone from speaking their mind. Give me a few minutes to explain this case and you’ll see that freedom of speech is served by the fight against false speech.
In this case, my clients were a business (a corporation) and the individual who owns that business. The defendant was starting a business and traveled to an overseas company owned by my client (we’ll call that the "foreign company") and entered into a contract for the creation of some custom software.
And that is where the divergence in the two versions of the story begins. My clients assert (and proved at trial) that the software was fully functional and delivered on time by the foreign company. For reasons not important to the story, the defendant was unable to implement the software and blamed the failure of his start-up business on the software.
Let’s pause there. As I told the jury, if the defendant had elected to go onto Yelp or any other site and post a TRUTHFUL review of my client's business, no matter how harsh and critical, there would have been no action. Indeed, I said that if this was a case where a business was trying to silence a critic for an honest review, then I would have been sitting at defendant’s table in the courtroom defending him.
But that is not what defendant did.
This is the scenario that I see over and over in defamation cases. Someone becomes unhappy with a business or individual, and decides to criticize them on-line. It might even begin with a pure motive – just putting out the word to the public to avoid a business that did not satisfy the customer. But as the person types the words, he or she decides it’s just not stinging enough. In this case, the defendant must have felt that a legitimate review stating that in his opinion the software did not work as promised or was not delivered on time just wasn't hurtful enough. So the reviewer begins to embellish (which is a polite way of saying he lies).
In this case, the defendant took to the Internet and created blog posts about my clients on his own blog, and sent an email to my clients’ customers. Instead of saying the software was late, which is what he claimed at trial, he falsely claimed that the Plaintiffs had taken his money and never delivered anything. Late delivery would have been a breach of contract, but by claiming my clients never delivered anything, that turned it into fraud.
But that wasn’t enough.
He added the false statement that my clients had failed to pay vendors "hundreds of thousands of dollars."
No, still not damaging enough.
He falsely claimed that my client had "funneled work" to his own companies while employed by another company.
Better, but someone might still do business with them.
So he added the false statement, "They are swindlers of the highest kind and have milked many of their clients of money and time."
That should do it.
At his deposition and at trial, the defendant could not show that the software was late, he could not identify any work that was "funneled" away from my client’s former employer, he could not name one vendor who was not paid (or indeed even name a vendor), and he could not name a single client who was "milked of money and time."
Today, an Orange County jury, known for being very conservative with damage awards, awarded $1.5 million jointly and individually to both of my clients for the damage to their reputations.
The jurors got it. Afterwards, some of them expressed their concerns that they do not want people constrained from being critical on the Internet, but they all agreed that false speech like this does nothing to promote the "marketplace of ideas" that we all hold so dear. Even after spending so much time with this case, I still don’t know why defendant was so vicious toward my clients, but the jury agreed with me that a claim of free speech cannot be used as a defense by someone who only sought to destroy another with lies.
When employees complain that they have no rights under California’s at-will employment presumption, I explain that it is something that can be negotiated like any contract provision. In other words, if you want a parking spot, negotiate for it. If you want the company only to be able to terminate you for cause, negotiate for it.
Of course as I offer this advice, I am cognizant of the fact that these sort of negotiations usually take place only in circumstances where the employee is bringing a very desirable skill set to the table. In other words, Mark Zuckerberg is probably in a better position to negotiate away the at-will presumption than, say, someone applying for work at Target.
Or is he?
In its registration documents for the upcoming initial public offering, the details of the contracts with Facebook’s top executives have been revealed. As it turns out, CEO Zuckerberg, along with COO Sheryl Sandberg and CFO David Ebersman are all at-will employees of Facebook.
So the next time an employee decries the at-will presumption, just tell them they are in good company.
We were just able to help a client dodge a bullet, and the fact pattern provides a cautionary tale for all.
If you or your business is the victim of Internet defamation by an anonymous poster, and you decide to go after that person, you have many hoops to jump through to get the necessary information. Say you are being trashed on WeTrashPeople.com by an unknown person. (I just made up that name, but I’m sure someone will snatch up the URL.) Unless the site is one of the few that displays the IP address of the poster, you may have to go through three rounds of subpoenas to work your way back to the Internet Service Provider (ISP), such as Cox, Time Warner, or whomever. Complicating things, most ISPs use dynamic IP addresses. In other words, every IP address is used by different subscribers at different times. It is not enough just to know the IP address of the person who posted the lies about you, you must find out who that address was assigned to at the precise time and date the comment was posted.
And that is why you must move quickly. The ISPs all have their own policies on how long they retain that information. If you wait six months to retain counsel to go after the person who is defaming you, by the time the attorney works through the subpoena process, the essential information may be gone.
It appeared that was going to be the case with our client, who waited too long before contacting us. We traced the information all the way back to the ISP, who responded to our subpoena by stating that the information was not retained. With some additional pressing by us, the ISP revised its position and coughed up the information, but that could have been the end of the road for the client’s action.
Bottom line: If you are the victim of defamation, and you think you want to pursue an action, move quickly. Filing an action does not mean you are committing yourself to going to court. More often than not, once we have identified the defamer, an informal resolution can be reached. On multiple occasions we have discovered that the defamer is a competing business who is posting false reviews. They are more than willing to remove the comments once they have been exposed to the light.
I found a news squib I came across today to be particularly interesting because it follows the precise example I often use to explain the difference between opinion and a statement of fact, and it shows how one country is dealing with reviews posted for extortionist purposes.
First, the example. If you eat at a restaurant and later post a review that says the food tasted like poison, you are probably safe from a claim for defamation. Most would agree that is mere hyperbole; that you are offering your opinion that the food tasted bad, not that you actually meant it contained poison.
On the other hand, if you say that the food did, indeed, poison you, then you’d better be able to back it up with hard evidence. The first cannot be measured – what you think poison tastes like is your opinion. The second statement can be tested, because we can see if the food that day could have lead to food poisoning.
Now to the real life application. It seems that one of the latest fads in Internet extortion is for a reviewer to post a review claiming that he suffered food poisoning at a restaurant. The extortionist then offers to accept, say, $5,000 for the pain and suffering of the poisoning and, oh, incidentally, offers to take down the terrible review as well. Other times the offer to remove the post never comes, because the false allegation of food poisoning is from a competitor.
This bogus review scam has become so rampant in Great Britain that the Advertising Standards Authority (ASA) has informed TripAdvisor that it can no longer claim or even imply that its on-line restaurant and hotel reviews can be trusted. The news item added that it is not always the case the reviewer knows he or she is lying. When one suffers legitimate food poisoning, they almost always blame the last place they ate, not realizing that the incubation period for a good case of food poisoning is usually one or two days, and can take as long as a week. In most cases, it is impossible to know which restaurant is responsible for the poisoning except by finding a common restaurant among a group of victims.
How would you like to be the employer in this case?
Two police officers at the University of Texas Medical Branch (UTMB) refused to arrest a patient, saying there was no probable cause and the arrest would therefore be illegal. They were shown the door, and now are suing for wrongful termination.
Firing an employee for refusing to break the law is a violation of public policy, and therefore is a wrongful termination. Thus, this entire case will come down to whether it would have been unlawful for the officers to make the arrest, an issue that might be open to the testimony of an expert witness who can explain the law of probable cause.
So, the time came in the case to designate the expert witnesses, and the plaintiffs designated themselves! Counsel for UTMB screamed, claiming that the judge was the best person to decide the issue of probable cause. Besides, counsel argued, the officers had not provided resumes or articles published in legal journals to show their expertise.
Silly counsel, resumes are for . . . well that doesn't really work. But the standard for an expert is not nearly as high as what you argued. There is no requirement that a person be published or have a curriculum vitae in order to be an expert. He need only show that the has sufficient knowledge of a subject to be able to offer an opinion that would be helpful to the jurors. Seems to me that police officers with training and years of experience would be able to provide meaningful testimony as to what constitutes probable cause.
The judge denied the request to exclude the expert testimony of the officers. A more detailed article about the case can be found here.
This is the flip side of the coin I wrote about in Don't Bet Your Job on Whether You're Right. In that case, a City employee decided that depositing a certain check would be illegal, and refused to do so on that basis. She lost her wrongful termination case, because the judge decided it would not have been illegal to deposit the check.
"Pregnancy Discrimination" -- one of my firm's practice areas -- popped up in my Google Alerts, and the link took me the the YouTube video below. The video is of a visibly pregnant woman, complaining about how she suffered job discrimination at work due to her pregnancy. People using YouTube videos to vent is nothing new, relatively speaking, but I found this video interesting for a couple of reasons.
First was the fact that it came up so readily in a search. A Google search for "pregnancy discrimination" yields 1,520,000 hits. The video was posted on January 9, 2012, and five days later I was seeing it in my Google Alerts. Thus, employers need to know that even a modest effort as in the case of this video could quickly put a business in a negative light.
The second point of note is how persuasive it is because of the calm manner it was presented. The woman, who identifies herself only as "Angel", is not screaming or making outrageous claims; she just sets forth the facts like she is making a closing argument at trial.
In this case, the employer will probably receive little if any backlash. The audio is pretty poor (Angel, the most important part of a video is the AUDIO!), it has fewer than 100 hits at the time I am writing this, and I don't believe she ever identifies the employer, only her union. Nonetheless, the video offers a valuable lesson.
An employer always ran the risk that a termination would result in a lawsuit, but could minimize the chances of a successful suit by making certain all laws were followed AND that the termination did not have the appearance of impropriety. That second element is now especially important, because even if the employer can prevail in civil court, it might still be found guilty in the court of public opinion, with a concomitant impact on the bottom line.
CareerBuilder.com did a poll to determine the most reviled corporate buzzwords. Incredibly people are still uttering "outside the box", which is the most hated term by 31 percent of the respondents.
The rest of the list:
- Low-hanging fruit (24 percent)
- Synergy (23 percent)
- Loop me in (22 percent)
- Best of breed (19 percent)
- Incentivize (19 percent)
- Mission-critical (19 percent)
- Bring to the table (18 percent)
- Value-add (17 percent)
- Elevator pitch (16 percent)
- Actionable items (15 percent)
- Proactive (15 percent)
- Circle back (13 percent)
- Bandwidth (13 percent)
- High level (10 percent)
- Learnings (9 percent)
- Next steps (6 percent)
So what is the importance of this list to you? Just know that if you choose to bring these cliches to the table, you might incentivize others to circle back on you.
My business partner Deanna Stone wrote an excellent article back in 2008 about how the (then) new hands free cell phone law could expose employers to liability if a worker, on company business, caused an accident while in violation of the law. Now we get news that the National Transportation Safety Board wants a law passed that will ban any cell phone use while driving*, hands free or not. Ms. Stone's advice was good then and is good now. As she said:
Taking these simple precautions can reduce an employer’s potential liability for damages relating to employee violations of the new law:
(1) Draft and distribute a clear policy on the new law in employee handbooks, and have your employees sign an acknowledgment of receipt of the new policy or new handbook incorporating such policy.
(2) When issuing a cell phone to new employees, provide a copy of the new law, the company’s policy on such law, and again have the employee sign an acknowledgment of receipt of such material.
(3) Have a training class for all employees on the new law, the company’s new policy requiring employee compliance with said law when using the company cell phone or their own personal cell phone if used to conduct company business.
(4) Provide or post information on the new law and your new company policy in the office kitchen, break room or other public areas in your office.
(5) Inform employees that they company will not foot the cost for violations of the new law, and that they will be personally liable if they choose to violate the new law.
(6) Create a disciplinary policy for any employee who violates the new law, which ultimately can lead to the termination of the violating employee.
(7) If you employ minors, you should taken even greater precautions with such employees especially if their job duties include driving for work purposes. It is a great temptation to a teenager to simply text a friend while driving, and this is a violation of the new cell phone law.
Yes, it's crazy** that the Feds feel compelled to be so ridiculously paternal, and that we need to jump through these hoops as a result, but we're here to keep you off the path of liability.
* I happened to see a reported case from another state that interpreted a statute that made it illegal to text and drive. While stopped at a stop light, the defendant fired off a quick text message and got a traffic ticket for the dastardly deed. He took it all the way to the Court of Appeal, which agreed with the trial court that sitting at a stop light is still "driving".
** Why do I see this as crazy? Because we only need a law that makes it illegal to perform an act that distracts from driving. If you are reading a newspaper while driving, you deserve a ticket and we don't need a law that singles out newspaper reading. How is talking hands free while driving any more distracting than, say, singing along to "Freebird" (which necessitates a lot of head nodding and air guitar), yet we don't have a no Freebird law (yet).
When is a breach of contract also fraud? When the party never intended to perform.
When do you get triple damages and all of your attorney fees for fraud? When you hire Morris & Stone (although your results could differ).
Breach of contract is easy to spot, but business owners are often confused about what constitutes fraud. Someone fails to pay all the money owed on an invoice, and the client wants us to add a cause of action for fraud. That's probably not fraud.
The elements of fraud are (1) a misrepresentation of a material fact; (2) made with the intention that the party rely on that representation to his detriment; (3) reasonable reliance on the misrepresentation; and (4) damages. As you can see from the above elements, in the case of a contract, for there to be fraud the fraudulent intent must exist at the time of the contract. If a person enters into a contract intending to perform, if he later fails to perform, that breach will not transmute into fraud no matter now egregious and flagrant his breach. To prove fraud, you must show that at the time the defendant entered into the agreement, he had no intention of performing.
So how do you get into the mind of the defendant to determine if he intended to perform when he signed the agreement? Thankfully, California courts have held that the behavior after the contract was signed can be used to show that the defendant never intended to perform. In our case, the defendant borrowed a significant amount of money from our client, and pursuant to the agreement that money was to be invested in a business venture. The money was never repaid, and our client hired us to recovery the money.
We went her one better. We sued for fraud, because we could see no indication that the money ever went into the business venture. We felt that would be sufficient to show that at the time of the contract the defendant did not intend to perform. He was free to argue that he intended to invest the money at the time of the contract and therefore it was not fraud, but how would he explain that the money was never used for the intended purpose? As we suspected, defendant fought us on discovery, and when we compelled him to respond, he could not provide any proof that the money had ever gone to the business.
But here is where we got really creative. There is a criminal code section that makes it illegal to receive stolen property, and allows a victim to bring a civil action against the criminal to recover three times the value of the stolen property. We sued under that section, alleging that the entire loan process had just been a artifice to relief our client of her money. In other words, he stole the money from our client through a bogus business venture, and kept that money for himself. It was no different than if he had stolen the money by hacking into her checking account. The fact that he used loan documents to steal the money did not make it any less of a theft.
A fact pattern that will support this breach of contract/fraud/theft approach does not arise very often, but we have tried it twice before. In both of the prior actions, we won on the breach of contract and fraud causes of action, but could not get the judge to consider the theft cause of action. The theft cause of action provides a real conceptual hurdle for most judges. Many judges are former District Attorneys or Public Defenders, and their criminal law backgrounds taught them that a criminal cannot be convicted of both stealing property and receiving that property. Yet, here I am arguing to them that I want damages under a statute dealing with receiving stolen goods even though this is the same person that stole the goods (here, the money). In reality, the law says that someone cannot be convicted of both offenses, but can be charged with either. Indeed, the law says that if the statute of limitations has passed for the theft of the goods, the thief can still be charged with receiving the property, because the statute actually states that it is an offense to receive or exercise control over the stolen property. Thus, the same person that steals the property is guilty of exercising control over it if it still has not been returned.
The second conceptual hurdle involves the erroneous concept that the defendant must have been convicted of the offense before the civil suit can take place. After all, the judges reason, the legal standard for the burden of proof on a criminal conviction is beyond a reasonable doubt, whereas in civil court it is just more probable than not. How can a defendant be made to pay under a criminal statute when he has never been convicted of the offense? Complicating the matter, no reported decision has ever discussed the civil remedies under the criminal statute upon which we were relying.
In reality, these concerns are easily disposed of, but the judge must be made to wrap his mind around the concept. In the latter case, no criminal conviction is necessary because it still must be shown in the civil action that the defendant committed the offense. Other cases involving civil enforcement of criminal statutes have made clear that the primary reason the statutes provide for a civil remedy is that law enforcement does not always have the will or resources to go after a criminal. A victim of a crime should not be dependant on the vagaries of the criminal system in order to seek redress. For example, there is a statute that permits cable companies to seek civil damages for the theft of a cable signal. What are the odds that police departments around the state are going to devote resources to going after cable thieves? Therefore, the Court of Appeal held that cable companies can prosecute under these criminal statutes whether or not the defendant has ever been criminally charged. It's a win-win. The cable company can become its own police force in order to discourage cable thieves, and the government need not devote resources to that purpose.
So it is here. There would be little disincentive to using false pretenses to "borrow" money if the worst that could happen to the defendant was that he would someday be ordered to return the money. Morris & Stone uses this criminal statute to impose a quasi-criminal remedy on the defendant, providing a much greater disincentive regarding this type of fraud, since the defendant must pay back three times the amount he took.
This judge finally got it, and tripled the damages, awarding our client three times what she had loaned to the defendant. As a huge bonus, the statute provides that the defendant must pay all attorney fees incurred by the plaintiff. Absent a contract provision, you are not entitled to recover attorney fees under a breach of contract case, and rarely under a fraud claim. Since we used this criminal statute, the court also awarded our client her attorney fees.
We might just start wearing badges.