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Employee Terminated Because Of Bankruptcy Gets Right To Trial In Federal Court

I must admit that I don’t ever remember seeing a case involving bankruptcy discrimination --- so when I ran across a recent federal court case out of Florida on the subject, it struck me as one well worth talking about.

The case,  Myers v. TooJay's Management Corporation, is important because there are so few cases on the topic and because bankruptcy affects so many people. The case also highlights some flaws in the statute which could really use a Congressional fix.

 What Happened In The Case

Plaintiff Eric Myers filed for Chapter 7 bankruptcy in January of 2008. Around the same time, Myers moved his family to Florida to live with his parents. His debts were fully discharged in May of 2008.

At some point, Myers heard about an opening at one of Defendant TooJay’s restaurants in Sumter County, Florida for a management position.  He called the company contact, Tom Thornton, about the position. Thornton interviewed Myers and the interview went well.

Myers was then scheduled for a two day on the job evaluation which was held at on July 31st and August 1st. During those two days, for which he was paid,  Myers shadowed various employees.became familiar with restaurant procedures.

At the end of the second day, Thornton told Myers that he had performed well and according to Myers, offered him a job.  He was told that he was supposed to start work on August 18, 2008 at a salary of between $50,000 and $55,000 for a 40 hour week.

Thornton contended that he never told Myers he was officially hired, never discussed hours, salary, or a start date.

Thornton contended  he told Myers that any offer of employment was contingent on a background check.

There was no dispute that Thornton photocopied Myers' drivers license and social security card and had Myers complete and sign several employment forms including :

• an IRS withholding W-4 form

• an order form for TooJay’s uniform and shoes

• a food employee reporting agreement

• an assistant manger trade secret non-disclosure agreement

• an I-9 employment eligibility verification form.

Thornton also gave Myers a copy of TooJay’s employee handbook and sexual harassment policy, and directed Myers to sign forms indicating that he received copies. On each form, Myers signed in the blank listed for “employee signature.”

Myers was also asked to sign a document which permitted TooJay to conduct a background check and consumer credit report check.

After that, Myers notified his then employer that he was resigning so that he could start at TooJay’s.

A little more than a week later, Myers received a letter from TooJay’s stating that it was rescinding its previous offer of employment because of the credit report. He called the Vice President of Human Resources and was told that he was not hired because he had filed for bankruptcy and that TooJay’s, as a matter of corporate policy, did not hire individuals who had a bankruptcy on their credit report.

Myers went back to his prior employer and asked for his job back but it was too late. His work hours had already been distributed to other employees, and he was told that he could only be rehired at a reduced schedule.

According to Myers no one told him that his employment at TooJay’s was contingent on a satisfactory credit report.

Myers filed a complaint in the United States District Court in Florida claiming bankruptcy discrimination in violation of 11 U.S.C s. 525(b).

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Important Win for Employee in Fraud Case Against Employer

It's not often that employees sue their employers for fraud, but that's what Dan Rather did when he sued CBS in 2007. The news is that  he had a significant victory this week in his case. 

The Lawsuit

As some of you may recall, Rather filed a lawsuit claiming that his career was irreparably damaged because CBS intentionally mishandled a 2004 story about Bush's National Guard service.

The story had to do with Bush's allegedly going AWOL during his National Guard Service in 1972. The story was aired on CBS's Sixty Minutes II  during the 2004 election.

According to Rather's lawsuit, the broadcast reported that:

• political influence was used to get Bush into the TexANG so he wouldn't have to go to Vietnam
  

• after being trained as a fighter pilot in 1972, Bush failed to appear for a required physical examination
  

• high level political influence was again engaged to avoid military discharge from the military

As Jackson Williams from the Huffing ton Post put it:

[E]vidence (from the Boston Globe and others) strongly suggests that George W. Bush literally bailed on his Guard duty, got a transfer to Alabama, and then disappeared for at least the final 12 months of his military commitment, perhaps up to 17 months. Some have a lost weekend; he had a lost year.

After the story aired, according to the complaint, the broadcast was attacked by conservative political elements supportive of the Bush Administration. 

In turn, CBS announced that it was going to conduct a thorough independent investigation into the story of the broadcast and its production.

Instead, according to Rather:

Its intention was to conduct a biased investigation with controlled timing and predetermined conclusions in order to prevent further information concerning Bush’s TexANG service from being uncovered.

The complaint further alleges that CBS:

1.     planned to and did use Rather as a scapegoat to pacify the White House

2.     coerced Rather into publicly apologizing and taking personal blame for errors which were a )never established and b) not Rather’s fault

3.     breached its employment contract with Rather by terminating him as anchor on the CBS evening news and thereafter giving him few assignments, little staff, little air time, and basically nothing to do 

The Fraud Case

Generally speaking, in cases of fraud, an individual must prove:

1.  a material representation of a presently existing or past fact,
2.  made with knowledge of its falsity and
   
3.  with the intention that the other party rely on it,
   
4.  resulting in reliance by that party
5.  to his or her detriment

While there is no set way in which fraud claims come up in the employment setting, they are often seen when an employer lures an employee away from a secure position to a new job based on representations which turn out to be false.

They also come up when an employer makes false representations to employees to get them to stay on the job after they announce an intention to leave.

The meat of these cases show that representations were made (either spoken or written) which were known to be false with the purpose of inducing the person to rely on them.

The second part of the proof involves a showing that the person did in fact rely on the false statement(s), and that he or she was damaged as a result.

In Rather’s case, it is claimed that CBS, as well as individually named defendants, made false representations, which they knew to be false at the time they were made, and which they had no intention of fulfilling, including the following:

• CBS intended to conduct a fair and impartial investigation of the broadcast
  

• CBS would at all times take all necessary steps to preserve Rather’s reputation
  

• CBS intended to fully utilize Rather’s experience
  

• If Rather refrained from retained a private investigator to investigate the story underlying the broadcast, CBS would retain one and make the findings available to Rather 
  

• CBS was going to extend his contract

All of these representations were false, according to Rather, and made so that Rather would refrain from making public statements concerning the Bush broadcast in order to defend himself and preserve his reputation

As a result,  according to his compliant, his career were irreparably damaged, he was ostracized, and he gave up significant employment opportunities.

(There appears to be an amended complaint which may have more detail but that’s the gist of what’s I could find)

What happened this week is that the fraud claim, which was previously dismissed, was reinstated by the Court of Appeals in New York -- a big victory for Rather and his lawyers. It also, in theory, gives Rather the opportunity to get punitive damages awarded against the defendants.

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Technology Company Hit With Billion Dollar Award

There isn't anything particularly interesting or novel about  Paul Chester's case as far as the law goes. It looks like a straightforward breach of contract case.

What  made me gasp when I read about the case was the size of the award: $4.1 billion !!!!! It's both amazing and unheard of. It's just  SO big.  

The Case

Here's what happened in the case according to the press release from Chester's lawyers.

Paul Thomas Chester was hired by iFreedom Communications, a provider of VoIP and WiFi technology, as its Chief Marketing officer in June of 2004.

The company promised Chester commissions and overrides on gross revenues, as well as the right to receive company stock and other compensation commensurate with Chester's experience in building marketing organizations.

When the time came to pay, iFreedom refused so Chester filed suit. The defendants moved to compel arbitration based on a provision in the employment contract which provided for arbitration in the event of a dispute.

Chester worked for iFreedom until the end of September, 2005 for a total of 15 and a 1/2 months of employment.

The Award

The arbitrator, a retired judge, heard the case and found:

• the defendants obtained Chester's services by means of false pretenses and fraud

• Chester was entitled to unpaid salary, commissions, travel expenses, compensation for unissued company stock and unreturned intellectual property

• the defendants were liable for statutory penalties, interest, attorney's fees, and punitive damages equal to three times the compensatory award

The total was 4.1 billion dollars.

The Los Angeles County Superior Court confirmed the award about ten days ago against iFreedom Communications International Holdings Limited, and it's founder, Timothy Ringgenberg and entered judgment against them.

Here's the breakdown from the court if you you want to look at it and copies of the opinions and awards. Thanks to the Dennis Westlind at World of Work for bringing it to us and for answering this question -- how did this guy get all of this money?

The employment agreement guaranteed him a salary of $12,000 a month plus commissions of 5 percent of gross sales; if he was fired without cause, he would continue to receive commissions. iFreedom also was supposed to provide Chester with 1.1 million shares of common stock upon hiring and another 600,000 shares if he met certain sales targets . Apparently, iFreedom did really, really well. Sales, stock and interest added up, and in a big way.

That's how it happened. The company was earning tons of money, much of it due to Chester -- and it refused to pay him what he was clearly entitled to receive. They also lied to him and stole from him.  It's pretty simple stuff  with very large numbers.

(For more about the case, you may  also want took at  Phillip Loree's article. He makes the point that the Arbitration Fairness Act of 2009, if passed, would render pre-dispute agreements which require arbitration of employment disputes --such as Mr. Chester’s dispute with iFreedom -- unenforceable. It's a good point, but  I have no reason to believe that the outcome in this case would have been any different.)

Lessons To Be Learned

So what can we say about this case?  What lessons can we learn? How about this:

• Chester was smart to have a really good employment contract
  

• iFreedom failed to fulfill its promises when it terminated Chester without cause which entitled Chester to the compensation promised in the contract

• iFreedom engaged in "a pattern of  despicable conduct" regarding Chester, including fraud and conversion, according to the arbitrator
  

• Despicable conduct can result in punitive damages -- whether it's awarded by a judge, jury or arbitrator  
  

• Successful companies can do really stupid things

It's not rocket science. It's just the way it is.

Image: http://www.freeclipartnow.com

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I opened up this month's Lawyer USA to find a stunning piece about a swiped PC leading to a $17.5 million dollar verdict. From what's reported, here's what happened in the case of Trealoff v. Forest River Inc. out of the Superior Court of San Bernardino County, California.

Dallen Trealoff, an experienced RV salesman, was hired in 1995 as a sales manager by a start-up company called Forest River Inc., an Indiana based company.

Trealoff  worked out of the company's Rialto, California warehouse and was in charge of developing a sales network in eleven Western states according to a P.E.com story.

The company did not provide a computer so Trealoff used his personal laptop.     

Trealoff claimed that he:

•  was hired to help a fledgling company 

• took a pay cut in reliance on a promise that he would be compensated later at a higher rate

 According to Trealoff's lawyer, the raise never materialized:

It took him about five years to realize they were not going to give him the raise.  That's when he started to look for other employment and then they fired him.

Before Trealoff got fired, the company president Peter Liegl took Trealoff's laptop, stole the hard drive and deleted thousands of files.

During the time he worked for Forest River, Trealoff used his spare time to develop a software program which kept track of sales data. That information was on the computer as was Trealoff's personal financial information.

Trealoff got the computer back and tried to restore some of the files. None of it was usable.

Liegl claimed he took Trealoff's computer because he suspected that Trealoff was stealing company information and going to start his own company.

In 2003, Trealoff and his wife did start their own company called Eclipse Recreational Vehicles.

In 2005, Forest River was bought out by Warren Buffet's  Berkshire Hathway Inc.

Trealoff sued Liegl and Forest River alleging:

• breach of contract
• fraud
• conversion
• violation of a California statutory claim  for improperly accessing a computer without the owner's permission

Forest River counter sued alleging that Trealoff took proprietary information in order to start his own business.

It's important to note these points in the context of the case:

1. Trealoff had no written agreement with Forest River regarding the terms of his employment.
2. Forest River did not have a non disclosure agreement signed by Trealoff

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