CONSUMERS SEEK $10 BILLION IN DAMAGES FROM TOYOTA

Consumer class action lawsuits seeking damages for the diminished value of Toyota vehicles have been expanded to include racketeering allegations, ratcheting the potential damages in those cases upwards from $2 billion to potentially $10 billion.

The consumer class action lawsuits–which total around 80  in number–originally sought around $2 billion in damages for owners of Toyota vehicles.  The lawsuits were based upon data from auto evaluation services, such as Kelley Blue Book and Edmunds, that showed a 4% to 8% decline in the resale value of Toyota vehicles.

The new allegations are based upon evidence revealed during congressional testimony over the Toyota recalls.  That evidence, lawyers say, establishes that Toyota knew about sudden acceleration and other defects long before it initiated the recent recalls.  Toyota’s concealment of those defects, the plaintiffs allege, constitutes criminal conduct and subjects Toyota to liability under the Racketeer Influenced and Corrupt Organization Act (RICO).  Plaintiffs in RICO actions are entitled to three times their damages, thus the heightened damages projections.

TOYOTA AVOIDED PRODUCING “BOOKS OF KNOWLEDGE”

Earlier this month, Toyota attorney Theodore Hester confirmed the existence of confidential “Books of Knowledge” that Toyota has, to this point, avoided producing to the National Highway Traffic Safety Administration or to its opponents in products liability lawsuits.  Toyota’s admission of the existence of the Books vindicates corporate whistleblower Dimitrios Biller, a former Toyota attorney who has accused the company of concealing evidence in civil cases.

Toyota began compiling the data that comprises the Books of Knowledge in 2002.  The Books were later converted to an electronic format.  According to Hester, the Books include “highly proprietary and commercially sensitive information regarding job process flow, procedures and regulatory information.” 

In an eight-page letter to the House Oversight and Government Reform Committee, Mr. Hester claimed that Toyota had settled lawsuits before it was required to produce the Books of Knowledge in any civil case.  If that is true, Toyota has arguably done nothing wrong.  It is commonplace for companies to confidentially settle lawsuits to avoid the disclosure of arguably privileged or irrelevant information when its production appears imminent, and there is nothing illegal or unethical about the practice.  But Biller’s allegations of concealing evidence cast doubts upon Toyota’s explanation for its non-disclosure of the Books of Knowledge.  Biller’s allegations suggest that the Books contain evidence that should have been produced.  If Biller is correct–and it’s looking as if we will soon find out–Toyota could be forced to re-open settlements with hundreds of accident victims from whom Toyota wrongfully withheld the Books during litigation.

CONNECTICUT AG DEMANDS TOYOTA INVESTIGATE THREE CRASHES

Connecticut Attorney General Richard Blumenthal has demanded that Toyota investigate three wrecks, one of them fatal, involving Toyota Camry vehicles.  The wrecks all happened the week of March 9, 2010.  Two of them involved recalled 2007 Camry models.  One of the wrecks killed a 77-year-old man named Norman Shankman. 

Mr. Blumenthal released a statement calling upon Toyota to ascertain whether vehicle defects played a role in the wrecks, characterizing it as “absolutely vital to public safety.”  Toyota pledged to cooperate with the Connecticut AG’s investigation.

GEORGIA SUPREME COURT STRIKES CAPS IN MED MAL CASES

The Georgia Supreme Court ruled Monday that the state may not limit the amount of money juries award to victims of medical malpractice. The ruling struck down that portion of Georgia’s 2005 Tort Reform bill that capped medical malpractice victims’ jury awards at $350,000 for pain and suffering. The court held that the cap removed a jury’s fundamental role to determine the damages in a civil case.

“The very existence of the caps, in any amount, is violative of the right to trial by jury,” Chief Justice Carol W. Hunstein wrote in the decision.

The court’s decision arose from the case of a 71-year-old woman, Betty Nestlehutt, who was permanently disfigured after face-lift surgery.  A jury awarded she and her husband $1.26 million in damages, including $900,000 for her pain and suffering. Because of the cap, her damages were reduced to $115,000 for medical expenses and $350,000 for pain and suffering. As a result of the ruling Monday, the original award was reinstated.

“The bedrock of our democracy — our ability to self-govern at the ballot box and in the jury box — remains intact,” said Adam Malone, the lawyer for Ms. Nestlehutt.

The lawyers at Fried & Bonder congratulate Adam Malone, along with all others involved, for their courageous and hard work.

Ninth Circuit: Tip Pooling Restrictions Apply Only to Employers Who Claim Tip Credit

In a decision with potential significance for restaurant owners nationwide, the Ninth Circuit Court of Appeals recently ruled that restrictions on tip pooling schemes, which require the exclusion of non-tipped employees like restaurant managers and kitchen staff, do not apply to employers who do not claim a “tip credit.”  The case is Cumbie v. Woody Woo, Inc., 2010 WL 610603 (9th Cir. Feb. 23, 2010).

The Fair Labor Standards Act, or FLSA, requires qualifying employers to pay their hourly employees the federal minimum wage, which is currently $7.25.  The FLSA permits restaurant owners to claim a “tip credit” for tips collected by certain eligible employees.  Eligible employees are those who hold positions which “customarily and regularly receive tips.”  Waiters and waitresses, bartenders and counter servers customarily and regularly recieve tips; managers and kitchen staff do not.  A tip credit may be claimed only for employees in the former category. 

The tip credit permits employers to pay tipped employees a reduced hourly wage–$2.13 per hour–and use the employees’ collected tips to make up the difference.  The FLSA mandates that collected tips belong to the tipped employee and may not be withheld by the employer.  But the statute also allows employers to implement voluntary tip pooling schemes, under which tipped employees pool their tips and then distribute them among themselves according to an agreed upon formula. 

The FLSA allows only tipped employees to participate in tip pools.  Managers, kitchen staffers and other non-tipped employees cannot participate in tip pools.   Employers are responsible for paying non-tipped employees their full hourly wage.  Employers cannot force tipped employees to subsidize non-tipped employees.  Allowing non-tipped employees to participate in tip pools would do exactly that. An employer who implements an illegal tip pooling scheme risks losing its ability to claim a tip credit.

In Cumbie, the plaintiff–Misty Cumbie–waited tables at Vita Cafe in Portland, Oregon.  Because Oregon law forbids tip credits, Vita Cafe paid Cumbie the full federal minimum wage.  It also required her to participate in a tip pooling scheme under which kitchen staff received more than 50 percent of server’s collected tips.  Only 30 to 45 percent of collected tips were returned to servers. 

Cumbie sued Vita Cafe in Oregon federal court for violating the FLSA.  She alleged that the tip pooling scheme violated the FLSA because it required her to share her tips with non-tipped employees.  The Oregon court dismissed her case, finding no FLS A violation.  Cumbie appealed the decision to the Ninth Circuit Court of Appeals.   

The issue on appeal was whether an employer who pays the full minimum wage, and claims no tip credit, can implement a tip pooling scheme that includes non-tipped employees.  The Department of Labor filed a brief on behalf of Cumbie.  The Oregon and Nevada Restaurant Associations filed briefs on behalf of Vita Cafe.

The Ninth Circuit sided with Vita Cafe, affirming the Oregon court’s dismissal of Cumbie’s case.  The Ninth Circuit held that the FLSA’s tip pool restrictions apply only to employers who claim a tip credit.  As the Court stated, “The FLSA does not restrict tip pooling when no tip credit is taken.”  It rejected Cumbie’s argument that the tip pooling scheme illegally forced her to subsidize Vita Cafe’s non-tipped employees.  “The purpose of the FLSA is to protect workers from substandard wages and oppressive work hours.  Our conclusion that the FLSA does not prohibit [Vita Cafe's] tip-pooling arrangement does not thwart this purpose.  Cumbie received a wage that was far greater than the federally prescribed minimum, plus a substantial portion of her tips.  Naturally, she would prefer to receive all of her tips, but the FLSA does not create such an entitlement where no tip credit is taken.”

The decision is significant because it is the first to directly address whether the FLSA’s restrictions on tip pools apply to employers who do not claim a tip credit.  However, since most employers do claim a tip credit–Oregon’s prohibition on tip credits being the exception, not the rule–the decision’s direct application will be fairly limited.  Of greater concern for employees is the Ninth Circuit’s refusal to invalidate the tip pooling scheme as an illegal attempt to subsidize non-tipped workers.  The court could have found the practice illegal per se, in derogation of the spirit of the FLSA, but it instead reached the opposite conclusion by focusing narrowly on the wording of the tip credit portion of the statute.

“But I Wasn’t Talking About Her”: Eleventh Circuit Broadens Definition of Sexual Harassment

January 20, 2010–In Reeves v. C.H. Robinson Worldwide, Inc., the Eleventh Circuit Court of Appeals ruled en banc that sex-specific derogatory comments can constitute a hostile work environment, even if they are part of a generally accepted vulgar and offensive workplace atmosphere, and even if they are not directed at a specific female employee.

Before Reeves, courts in the Eleventh Circuit (which includes Georgia) generally rejected sexual harassment claims that were based upon a generally vulgar or offensive  workplace enviroment.  Title VII, as courts would often point out, is not a civility code.  Vulgar and offensive langauge or behavior–even if of a sexual nature–were not considered sexual harassment unless  directed at a specific employee .   Title VII requires proof of intent to discriminate based upon an employee’s sex, and where vulgar or offensive language or behavior was prevalent in the workplace, but not directed at any employee in particular, evidence of intent to discriminate was absent.

Reeves altered this general rule.  In Reeves, the Eleventh Circuit held that “a plaintiff can prove a hostile work environment by showing severe or pervasive discrimination directed against her protected group, even if she herself is not individually singled out in the offensive conduct.” In other words, the court held that generally vulgar or offensive language can give rise to an actionable sexual harassment claim if the language is directed at the plaintiff’s protected group (in this case, females)–even if  not directed at the plaintiff herself.  “It is enough to hear co-workers on a daily basis refer to female colleagues as ‘b*tches,’ ‘wh*res,’ and ‘cunts,’ to understand that they view women negatively, and in a humiliating or degrading way,” the court wrote  “The harasser need not close the circle with reference to the plaintiff specifically.”

The decision is probably best understood as a response to the shockingly toxic work environment that spawned it.  Ingrid Reeves worked  at shipping company C.H. Robinson for almost four years.  During that time, her male co-workers subjected her on a daily basis to extremely offensive gender-specific profanity–using terms like “b*tch,” “sl*t,” “wh*re,”  and “c*nt” in ordinary conversation.  Although the language was not directed specifically at Reeves, it was directed specifically at her gender.  Reeves complained first to her supervisor and then to  upper management but her complaints were ignored.  That, the Eleventh Circuit decided, was enough.

The decision arguably dispenses with “but I wasn’t talking about her” defense in Title VII harassment claims.  The facts in Reeves were so egregious, however, that it remains to be seen how broadly its holding is applied.  Nevertheless, the decision undeniably broadens Title VII–in the Eleventh Circuit at least–and should be considered a victory for victims of hostile work environment sexual harassment.

Georgia Supreme Court Strikes Software Engineer’s Non-Compete

Our firm is frequently asked to evaluate non-compete and non-solicitation agreements between employers and employees, both current and former.  On November 9, 2009, the Georgia Supreme Court issued an opinion striking a non-compete that purported to restrict a software engineer from marketing his opthamology billing software to other opthamology practices.  The decision did not alter the law in Georgia and therefore is not noteworthy from that standpoint, but it does well illustrate the rules Georgia courts apply when evaluating the enforceability of restrictive covenants.

The plaintiff, Brendan Coleman, was a software engineer.  He developed a medical billing software called Clinex.  In 2000, The Retina Eye Center (TREC) hired Coleman.  Coleman developed a new version of the Clinex software, called Clinex RE, specifically for TREC.  In 2003, Coleman and TREC signed a Software Agreement under which Coleman agreed not to “distribute, vend or license to any opthamologist or optometrist the Clinex software or any computer application competitve with the Clinex-RE software without the written consent of TREC.”

Coleman left TREC to establish a competing business and TREC sued to enforce the Software Agreement.  The trial court enjoined Coleman from marketing the Clinex software in competition with TREC.  Coleman appealed to the Georgia Supreme Court and won. 

The Supreme Court held that the non-compete was overly broad.  The Court examined the reasonableness of the restraint on Coleman with reference to the “three-element test of duration, territorial coverage, and scope of activity.”  The Court found the non-compete lacking because it contained no time limitation and no limitation regarding duration.  As the Court stated, “the non-compete clause here would prohibit Coleman from marketing Clinex and other competitive software to any opthamologist or optometrist, regardless of whether or not they are or ever were customers of TREC and regardless of where they are located.  Such a restrictive covenant is overbroad and unenforcable.”

The case is Coleman, et al. v. Retina Consultants, P.C., S09A1485 (November 9, 2009).  You can view a copy of the opinion by clicking here: Coleman et al. v. Retina Consultants

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