Legal Wrangling

Staff Writer
Columbus CEO

Whether it’s intellectual property infringement, a discrimination claim or a contract violation, American companies large and small face a myriad of lawsuits every day. In some industries, the cost of commercial litigation has (almost) become a cost of doing business.

If lawsuits filed by other companies, individuals and class action attorneys weren’t enough to juggle, governmental regulatory agencies are more active than ever in the legal arena. “The biggest increase in the past few years has been in the number of matters that are driven by increased regulation. This is true at all levels—state, federal and internationally,” says attorney Aneca Lasley, a partner in the Columbus office of Squire Sanders, by email.

“With revenue shortfalls at the state and federal levels, regulatory enforcement actions are one way to realize increased revenue. There are more regulations today and more financial incentive to enforce them,” says attorney Jon Secrest, an associate at Roetzel & Andress.

Though there’s a lot of legal wrangling, many business litigation cases never see the inside of a courtroom, thanks to settlements and alternative dispute resolution options. Still, Central Ohio attorneys say they’re handling more employment, health-related and contract law cases than in the past. Here’s a look at the types of litigation they’re handling and the factors that are driving filings.

Job-action Claims

It’s no surprise that layoffs, weak hiring and lingering high unemployment are behind many labor-related legal actions.

“Layoffs tend to spur employee lawsuits,” says Albert Lucas, senior litigation partner at Calfee, Halter & Griswold. “We’ve seen an increase in the number of labor-related claims and expect to see another increase in 2012 as the country’s economic uncertainty continues.”

“Five years ago when an employee was terminated, it was fairly easy to find new employment,” Secrest says. “As people experience longer terms of unemployment, they’re resorting to other means of supplementing their income. That includes lawsuits. Whether it’s a true case of discrimination or not, more people are willing to take their chance suing even though it’s not an easy case for plaintiffs to prove.”

Discrimination complaints are initially filed with the U.S. Equal Employment Opportunity Commission (EEOC). In fiscal year 2011, the EEOC received 99,947 charges of discrimination, the most in its 46-year history. It obtained more than $455.6 million in relief for victims of workplace discrimination. That, too, is a commission record.

“EEOC investigates, issues a preliminary determination letter, and, if warranted, prosecutes an action on the worker’s behalf. Even without the letter, though, the employee can ask for a right to sue letter that allows them to file suit in federal court within 90 days,” Secrest says. “Retaliatory complaints are by far the most commonly filed, but they’re usually a companion complaint to other discrimination claims. Racial discrimination is the No. 1 claim.”

The Fair Labor Standards Act (FLSA) is another hotbed for commercial litigation. “Individuals or groups of employees are suing for not being paid adequate overtime. They’re suing over how overtime is calculated and their employee classification. They’re also suing over time such as when they eat lunch at their desk, but are still answering the phone,” Secrest says.

Purposeful wrongdoing is rare, attorneys say. “Usually employers aren’t aware that the employee worked through their lunch period or how FLSA rules actually applied to a situation,” Secrest says. He says overtime as it relates to salaried employees generates a lot of lawsuits because of a lack of employer understanding.

Health-related Claims

The Genetic Information Nondiscrimination Act (GINA) of 2008 is tripping up some businesses. “It’s generating litigation, generally around health benefits,” Secrest says.

GINA makes it illegal to discriminate against employees or applicants because of genetic information. The law’s employment-related provisions took effect in 2009 and prohibit using genetic information in employment decisions. It also restricts employers from requesting, requiring or purchasing genetic information about job applicants or employees.

Say a mother and daughter work for the same company and the employer learns the mother is diagnosed with cancer. If the employer now thinks the daughter is predisposed to cancer and treats her differently benefits-wise because of her mother’s diagnosis, Secrest says, that’s a potential GINA claim.

“I’ve not seen a lot of direct discrimination because of an employee’s health history. It’s usually technical violations or, more commonly, not keeping confidential health information in a protected file,” Secrest says.

Some employers have been sued over amendments to the Americans with Disabilities Act (ADA) that took effect in 2009, broadening the definition of disability. Individuals with cancer, diabetes and epilepsy are now covered.

“Previously, an individual had to suffer from a condition that impacted a major life activity such as walking or caring for yourself. Now the impairment doesn’t have to do that to be considered a disability. The amendments also don’t take into account the ameliorative effects of medications, such as in the case of epilepsy and diabetes,” Secrest says.

Prior to the ADA amendments, employers could prevent an employee from taking time off beyond their sick leave and vacation. “Not anymore. Unpaid time off now is considered a reasonable accommodation, so employers can no longer take a hard stance on vacation and sick leave. They have to relax enforcement of relevant policies and procedures to accommodate the employee’s condition,” Secrest says.

Contracts, IP and Trusts

Businesses historically haven’t devoted a lot of time and energy to regularly reviewing and updating their contracts’ terms and conditions. But that’s changing.

“In today’s competitive environment, more firms are looking over each and every form to make it stronger and to ensure its contractual relationships are defined in a way that avoids litigation,” Lucas says. He says that’s true whether a contract is with other businesses, vendors, customers or employees.

Noncompete, confidentiality and trade secret clauses in employment contracts are getting a particularly hard look. “To the degree employees move from company to company, I think we’ll see more frequent and stronger enforcement of them,” says Alexander Andrews, partner-in-charge at Ulmer & Berne. “Companies invest a lot in their employees. They don’t want to lose income or proprietary knowledge when they walk out the door because a contract has been violated.”

“Companies are increasing noncompete and proprietary litigation because they’ve invested a lot of time and money in developing that employee. Departing employees often have relationships in the industry. Those relationships are valuable and can bring new business to a new employer. The original employer is willing to pay to protect that part of their business,” says attorney John Zeiger, presiding partner of Zeiger, Tigges & Little.

Intellectual property also has become fertile ground for commercial litigation. Patent, trademark and copyright lawsuits are growing, in part because IP has become such a large part of the economy.

“Litigation can be a means of last resort for emerging businesses to either stake out new market shares or protect their ideas and equity,” Squire Sanders’ Lasley writes. She adds that interest in data protection and privacy, particularly for companies doing business around the globe, is growing.

“In today’s economy, companies are maximizing the value of their assets, so they’re protecting their IP and challenging others when they infringe upon it,” Lucas says.

Zeiger says trust-related litigation is becoming another hotbed. “Privately held businesses can become a significant asset to the family. Financial planning has created a lot of wealth that’s held in trusts. Those that control the trust control the underlying business, the wealth in the trust or both. So when a family company is controlled by trustees, disputes of various sorts can arise. We’re seeing beneficiaries challenging the trustee, whether it’s a bank or an individual,” he says.

Future Trends

Andrews predicts commercial real estate will be an area ripe for litigation in 2012. “Commercial foreclosures spin off more litigation than residential foreclosures. The parties have more at stake, a lot more people are involved and the dollar amounts are higher,” he says.

“I think we’ll also see a small increase in consumer claims as they pertain to Ohio’s Consumer Sales Practices Act. We’re seeing an uptick among business clients who have dissatisfied customers bringing claims against them,” Andrews says. The law clarifies the legality of specific business practices and defines legal advertising claims.

Additionally, claims are emerging related to a 2011 U.S. Supreme Court ruling (Kasten v. Saint-Gobain Performance Plastics Corp.) that bars employers from retaliating against workers who make verbal statements alleging FLSA violations. “An employee who files a FLSA complaint is entitled to protection from retaliation [by the employer]. Now it doesn’t have to be a written charge. What the court didn’t clarify, though, is when a verbal complaint is made, who does it have to be said to to qualify for protection? There’s no clear guidance on third-party eligibility,” Secrest says.

Another 2011 high court case (Staub v. Proctor Hospital) holds employers liable for the bias of non-decision makers in the hiring process. “Say an individual has a discriminatory bias, but only influences an employment decision. The ultimate decision maker demonstrates no discriminatory bias. The U.S. Supreme Court ruled if discrimination is found anywhere in the decision-making chain, there’s potential for a claim,” Secrest says. “It’s problematic, particularly for large employers. Now they must second-guess their decision makers and conduct considerable fact-finding in a lot of situations.”

A Local Snapshot

While litigation is up overall nationwide, local federal and state court filings are a mixed bag. Federal court statistics show that civil filings across all U.S. district courts rose 4.3 percent, from 282,307 cases in 2010 to 294,336 in 2011. (Both reporting periods were for the 12 months ended March 31.) Case terminations climbed 13.5 percent to 324,190 from 285,603. As terminations exceeded filings, pending cases dropped 10 percent from 298,099 to 268,258.

But in the U.S. District Court for the Southern District of Ohio, total case filings dropped 2 percent, from 2,699 in 2010 to 2,646 in 2011. Terminations rose 8.2 percent, from 2,561 to 2,771 in 2011, while pending cases were down 4.4 percent from 2,801 to 2,678.

At the state level, the each county’s Court of Common Pleas’ General Division has jurisdiction over civil actions that exceed $500. It handles medical, legal and product liability tort cases, workers’ compensation, complex litigation and the catch-all category of “other.”

From 2001 to 2008, the number of “other” civil filings grew from 39,718 to 72,121. It’s since fallen to 62,859 in 2010. “It’s hard to put a finger on why, though, since they’re not all one kind of case,” Andrews says.

Nationally, only 2 percent of civil cases go to trial. “In Ohio in 2010, it was 1.3 percent, or a one in 100 chance,” Andrews says.

Why such a low trial rate? “Most cases settle beforehand, or the business files for summary judgment arguing that as a matter of law the company wins and so there’s no reason to go to trial,” Lucas says. “Companies are controlling costs by avoiding litigation where they can and managing it when it occurs.”

“Corporations with in-house counsel are under pressure to maintain or reduce their costs. They want to resolve claims before they spend a lot of money defending court cases. That puts pressure on outside counsel to get through litigation at less cost and faster to provide value,” Andrews says.

Delivering value helps keep clients in the fold. “In the general marketplace, legal fees spent by companies on litigation aren’t expected to increase in 2012. It’s a predators market, so law firms are going after each other’s litigation business,” Lucas says.

In the search for value and economy, Lasley writes that clients are asking for detailed litigation work plans tied to budgets. There’s a greater emphasis on the use of technology. More clients utilize early case assessment to better understand the legal issues and associated risks of a particular matter.

“If you have a strong position, there’s no need to be afraid of litigation. If it’s weak, then consider all of the alternatives,” Zeiger says. Those alternatives include arbitration and mediation.

“Arbitration resolves disputes more administratively than the courts. A professional arbitrator hears arguments and decides the dispute one or way or another, like a judge,” Lucas says. “Mediation is a process where the dispute is negotiated with a third party who works to get the two parties to common ground.”

To resolve legal woes faster—and cheaper—Andrews says more companies are putting dispute resolution clauses in their contracts. ”It binds both parties to mediation or arbitration prior to and in place of litigation,” he says. “If the economy stays as it is, you’ll see those clauses being used more and more.”

Lisa Hooker is a freelance writer.

Reprinted from the March 2012 issue of Columbus C.E.O. Copyright © Columbus C.E.O.