Business Litigation Perspectives - Insights & Commentary on Business Legal Issues

Many people when they think of small claims court think of the people's court.  Small claims court offers ordinary people the chance to resolve small disputes at a low cost and without a lot of complication.  Generally, the parties are not represented by lawyers and the rules of evidence and procedure are nonexistent.

But, when you think class action lawsuit, you don't think small claims court, right?  Well, not Heather Peters who after opting out of a class action lawsuit against Honda sued the motor car company in small claims court and won.  Peters, a non-practicing attorney, decided to take her chances in small claims court after learning that class members of the lawsuit would receive between $100 and $200 each and a $1,000 credit toward the purchase of a new car. 

In a 26 page decision, the judge ruled in favor of Peters and awarded her $9,867 in damages. The judge included in his decision numerous misleading statements made by Honda including that the Honda Civic hybrid would "use amazingly little fuel," it "provided plenty of horsepower while still sipping fuel," and that it would "save plenty of money on fuel with up to 50 mpg during city driving."

While Honda intends to appeal the decision, Peters has decided to renew her legal license so she can represent other Honda Civic owners who have had the same problems as her.  It is Peters' hope that she will inspire the other 200,000 people whose Honda Civic hybrids are covered by the class action proposed settlement to sue in small claims court.  If all 200,000 owners sued and won in small claims court, it could cost Honda $2 billion.  Now that would be a BIG collective victory in small claims court!

While small claims court often levels out the playing field between individuals and corporations, claims brought in small claims court should be taken seriously even though the dollar value is small.  For example, in Florida, if you are a defendant and fail to appear at the first pretrial conference, a default judgment can be entered against you.  The judgment may or may not be overturned but it will inevitably cost considerably more in time and potential damages as opposed to if it is dealt with in an appropriate manner when it is first received. 

The lesson learned is that a lawsuit no matter how small should be treated carefully to minimize costs and potential damages.

As most employers know, the Family Medical Leave Act ("FMLA") protects employees of covered employers who take leave for specified family and medical reasons by affording the employee unpaid, job protected leave with continuation of group health insurance coverage.

To be eligible for leave, the employee must have worked the requisite number of hours and be entitled to leave because of a triggering event such as the birth of a child.  In a case of first impression for the Eleventh Circuit Court of Appeals, Pereda v. Brookdale Senior Living Communities, Inc., the Court held that the FMLA does, in fact, protect employees who make a pre-eligibility request for post-eligible leave.

Pereda began working for Brookdale, a senior living facility, in October 2008, and was terminated 11 months later in September 2009.  In June, she advised her employer that she was pregnant and that she would be requesting FMLA leave in November 2009.  Pereda claims that after Brookdale learned of her pregnancy, she was harassed and later placed on a performance improvement plan, which caused her stress and other complications with her pregnancy.  She was then terminated.

Brookdale argued that because Pereda was not eligible for FMLA leave, they could not have interfered with her FMLA rights or retaliated against her.  The district court agreed, but that decision was overturned by the Eleventh Circuit.

In finding that Pereda did state a claim for both interference and retaliation related to her FMLA rights, the Court relied on the FMLA regulatory scheme, which includes the 30-day notice requirement and the Department of Labor implementing regulations. 

The Court reasoned that "without protecting against pre-eligibility interference, a loophole is created whereby an employer has total freedom to terminate an employee before she can become eligible.  Such a situation is contrary to the basic concept of the FMLA."

The lesson for employers to take away is that they should be very careful in how they handle FMLA issues, specifically pre-eligible requests.  The purpose of the FMLA is for the protection of the employee and the law will be construed in that fashion.

The Florida Supreme Court recently weighed in on the enforceability of severability clauses in the case of Shotts v. O.P. Winterhaven, Inc. 36 Fla. L.Weekly S665.  The case involved an action by the Personal Representative (Shotts) of a deceased nursing home patient against the nursing home (OP Winterhaven). Winterhaven moved to compel arbitration in accordance with an agreement signed when the decedent entered the nursing home. The case is a must read on the enforceability of arbitration provisions in contracts. It contains a good overview of both State and Federal law relevant to the enforceability and grounds for challenging an arbitration agreement.

It was the Court’s treatment of the severability clause in the arbitration agreement at issue however, that caught my eye. In the contractual context, a severability clause is a provision which provides that a contract’s valid provisions remain enforceable even if its other part or parts are determined to be unenforceable.

Although the Court did not frame its opinion in these terms, the Court’s severability analysis can be expressed in golfing parlance as, “Whether a severability clause will work depends on whether your golf game is match play or stroke play.” In match play, each hole is a separate competition. The player with the fewest strokes on an individual hole wins that hole; the player winning the most holes wins the match. In stroke play, every shot counts towards the total score. The player with the lowest 18 hole score wins the game.

In match play, the outcome of every hole stands on its own.  A player can have one terrible hole and still win the match so long as he or she wins the majority of the 18 holes.  In stroke play, every single stroke counts towards the player’s final score.  A player might play superlatively for 17 holes. But if he or she had 1 sufficiently bad hole, the score on that hole could cause the player to lose the match. 

Severability clauses lend themselves to the same sort of analysis.  Many practitioners insert severability clauses in documents as a matter of course.  The inclusion of a severability clause however, can also be a signal that the drafter recognizes that he or she is “pushing the envelope” with a particular clause and so the drafter wants to hedge against the entire contract failing should that clause be determined invalid.  

The situation is not unlike the predicament faced by a golfer having found him or herself deep in the rough choosing between  safely “punching out” to the fairway or attempting to hit the “miracle shot” between two trees with a low boring hook in an attempt to reach the green.  In match play, if the miracle shot does not work and instead careens off a tree coming to rest against the base of another tree, the consequence may be simply the loss of that hole.

In stroke play however, it may take so many shots for the player to recover from the ill advised miracle shot, the contest will be lost.  In other words, in stroke play, one terrible hole can so infect the round that the game is lost. Similarly, in a contract, the unenforceable provision may be so essential, that without it, there may be no agreement left.

The Shotts Court had before it the issue of whether an arbitration clause was or was not enforceable.  For purposes of this discussion, it is sufficient to note that the contract provided as follows:

1. The arbitration will be conducted in accordance with the American Health Lawyers Association (AHLA) Rules; and
2. The arbitrators will have no authority to award punitive damages.
3. The provisions of the Agreement were severable, so that “if any portion of this Agreement will be determined invalid or unenforceable, the remainder of the Agreement will be deemed to continue to be binding upon the parties hereby in the same manner as if the invalid or unenforceable provision were not a part of the Agreement (hereinafter referred to as the “Miracle Shot” or the “Severability Clause”).

As you may have guessed, the Miracle Shot hit the tree, and the Court decided the “contract game” between the nursing home and the personal representative of the deceased nursing home patient was stroke play.

After first determining that it was for the Court and not the arbitrator to decide whether the arbitration provision violated public policy, the Shotts’ Court held that the imposition of the AHLA rules and the limitation of punitive damages violated public policy and hence those provisions were unenforceable. Like Johnny Miller  providing color commentary from the 18^th Hole Tower, the Court then analyzed the nursing home’s unsuccessful “Miracle Shot.”

The Court held that the offending provisions were not severable. Citing to its decision, Local No. 234 v. Henley & Beckwith, Inc., 66 So. 2d 881, 822 (Fla. 1953) the Court stated “… a bilateral contract is severable where the illegal portion of the contract does not go to its essence, and where, with the illegal portion eliminated, there still remains of the contract valid legal promises on one side which are wholly supported by valid legal promises on the other.”  The Johnny Miller translation of the Court’s application of that rule to the nursing home’s Miracle Shot might have been, “I’m not sure what he was trying to do there!”

The Shotts’ Court concluded, that notwithstanding the Severability Clause, “… the AHLA provision goes to the very essence of the Agreement. If the provision were to be severed, the trial court would be forced to rewrite the Agreement [a/k/a the scorecard in stroke play] and to add an entirely new set of procedural rules and burdens and standards, a job the trial court is not tasked to do. See Local No., 234, 66 So. 2d at 821-22.”

I suppose it could be said that in drafting as in golf, “no guts-no glory!”  But better to save those really gutsy clauses for contracts where you are sure the Court will score the contest as match play and not stroke play. In the latter, if your Severability Clause is held to have cut more deeply than you had planned, you may have cut your own throat.  When it doubt, just punch out to the fairway!

In a recent about face, the Eleventh Circuit Court of Appeals has reversed an earlier ruling in the case Ash v. Tyson Foods, Inc.

The case at one point involved multiple claims and multiple plaintiffs.  It was later whittled down on appeal to one plaintiff and one claim, and that claim involved John Hithon, an African American, who sued Tyson Foods for racial discrimination for the failure to promote him to shift manager.

As proof of his claim at trial, Hithon presented evidence that a white manager had referred to him as "boy." Hithon also presented evidence that a white individual with less experience was hired over him.  At the conclusion of the trial, Hithon prevailed and was awarded $365,000 in compensatory damages and $1 million in punitive damages. 

What later followed were three additional appeals, including one appeal to the Supreme Court of the United States.  On this last round, the Eleventh Circuit upheld the initial trial award of $365,000 in compensatory damages and upheld the prior decision to strike down the $1 million punitive award.

In upholding the compensatory damage award, the Court noted that Hithon presented sufficient evidence for a jury to find in Hithon's favor.  Perhaps most unusual about the case is the fact that this latest decision is a reversal from a prior ruling on rehearing.  Rarely will a court reverse its own ruling on rehearing. 

The opinion provides an important lesson to employers in that they must have legitimate business reasons for failing to promote an employee, which can uphold scrutiny.  For example, in Ash, the job called for an individual with 3 to 5 years experience and the individual Tyson hired had only 2, while Hithon had 13 years experience.  These facts just don't look good to a jury so employers need to be cognizant of these types of issues.

The U.S. Department of Labor's Wage and Hour Division intends to publish a Notice of Proposed Rulemaking that could make far-reaching changes to minimum wage and overtime protections for nearly two million workers who provide in-home care services for the elderly and infirm.

The proposal will revise the companionship and live-in worker regulations under the Fair Labor Standards Act to more clearly define the tasks that may be performed by an exempt companion, and to limit the companionship exemption to companions employed only by the family or household using the services.

In addition, the Department proposes that third party employers, such as in-home care staffing agencies, could not claim the companionship exemption or the overtime exemption for live-in domestic workers, even if the employee is jointly employed by the third party and the family or household.

It's too early in the process to predict, but these changes could eventually lead to a big increase in the number of FLSA complaints and lawsuits against employers, including families who employ such individuals as caretakers.  

Upon publication, interested parties will be invited to submit written comments on the proposed rule at www.regulations.gov.

More information on the proposed rule is available at the Department of Labor Website.