Category Archives: Litigation

Federal Appeals Court: Company May Fire HR Director Conducting Investigation; Harassment/Discrimination Policies Not a Defense Where Alleged Harasser is High-Ranking Supervisor

By Andrew M. Moskowitz, Esq.
amoskowitz@pashmanstein.com

Martha Townsend was an office manager and receptionist.  She alleged that, over a near two-year period, Hugh Benjamin, a vice-president, shareholder and husband of shareholder Michelle Benjamin, had sexually harassed her.  On March 17, 2005, Ms. Townsend reported the sexual harassment to the company’s HR Director, Ms. Grey-Allen.  Five days later, the company fired Ms. Grey-Allen, allegedly because she had discussed Ms. Townsend’s allegations with an outside party.  A day after Ms. Grey-Allen’s termination, Ms. Townsend resigned.

In Townsend v. Benjamin Enterprises (2d Cir. May 9, 2012), the Second Circuit Court of Appeals—which covers federal district courts in New York, Connecticut and Vermont—  addressed the above scenario..  The Court held that the HR Director’s initiation of an internal investigation did not constitute participation “in an investigation, proceeding, or hearing” as defined by Title VII of the Civil Rights Act of 1964.  The Court therefore affirmed the dismissal of the HR Director’s claim.

The Towensend Court also addressed when an employer may claim the Faragher/Ellerth affirmative defense.  This defense permits an employer who has not fired, suspended, or demoted an employee to assert as a defense its implementation of appropriate HR policies and the employee’s failure to avail herself of these policies.  The Towensend court held that, where the supervisor holds a sufficiently high position in the organization, the Faragher/Ellerth defense is not available.The Towensend Court noted that Title VII prohibits an employer from retaliating against an individual who has opposed an unlawful practice or who has participated in any manner “in an investigation, proceeding, or hearing.”  The HR Director, Ms. Grey-Allen, had not alleged that she had opposed an unlawful practice.  Instead, she argued that, by conducting an investigation into Ms. Townsend’s allegations of sexual harassment, she had “participated” in an investigation.

Although the U.S. Equal Employment Opportunity Commission (EEOC) had submitted a brief in support of Ms. Townsend’s position, the Towensend Court nevertheless held that participating in an employer’s internal investigation conducted apart from a formal charge with the EEOC was not an “investigation” as defined by Title VII.

The Towensend Court also addressed whether the Faragher/Ellerth affirmative defense remained available when, by virtue of his high position in the organization, Hugh Benjamin, the alleged harasser, functioned as the employer’s “proxy” or “alter ego.”  The Court held that, under such a scenario, this defense was unavailable.  The Court held that the jury did not err in holding that, as the company’s only corporate vice president, second-in-command and shareholder, Mr. Benjamin served as the employer’s proxy or alter ego.

Therefore, under the holding in Towensend, an employee who conducts an internal HR investigation of a claim that is not the subject of a formal charge with the EEOC does not possess a valid retaliation claim under Title VII.  Moreover, pursuant to Towensend, where a supervisor with a sufficiently high position in a company is the alleged harasser, an employer may not claim as a defense that it exercised reasonable care to prevent and correct sexual harassment and that the employee unreasonably failed to take advantage of any preventive or corrective opportunities provided by the employer.

Demand for Mediation Considered “First-Filed” for Purposes of Jurisdiction

By Jennifer Castranova, Esq.
jcastranova@pashmanstein.com

When New Jersey companies have disputes with out of state vendors or customers, absent a contractual provision providing for the venue in which disputes will be resolved, there often is a question regarding where a lawsuit should be venued.  New Jersey courts have often followed a rule that the matter will be venued wherever the first lawsuit between the parties is filed.  On January 27, 2012, the Appellate Division issued an opinion expanding this rule and holding that a demand for mediation should be viewed as the first-filed action by which a court acquires jurisdiction over another court acquiring later jurisdiction.

In CTC Demolition Company, Inc. v. GMH AETC Management/Development, LLC et al., 34 A.3d 1258 (App. Div. 2012), plaintiff CTC Demolition Company, Inc. (“CTC”) served defendant with a demand for mediation to be held in New Jersey based on a mediation clause contained in a series of contracts between the parties.  Less than two weeks after the demand for mediation was served, defendant filed a suit in Pennsylvania seeking a declaratory judgment that CTC lacked standing to enforce or sue on the contracts.  After the Pennsylvania suit was filed, CTC filed an action in New Jersey seeking a declaratory judgment that its demand for mediation was proper.  The question before the Court was how did the first-filed rule apply to the above sequence of events.

The first-filed rule states that a court with jurisdiction should defer to the court that first acquired jurisdiction.  Yancoskie v. Del. River Port Auth., 78 N.J. 321, 324 (1978).  Here, Defendant argued that the Pennsylvania action is the first-filed and plaintiff argued that the demand for mediation in New Jersey was the first-filed.  The Court acknowledged that the creation of the first-filed rule related to which of two lawsuits should proceed; however, in light of the favorable view of arbitration and mediation, the Court considered plaintiff’s argument that a demand for mediation should be treated like the filing of a complaint.  The Court held that the demand for mediation should be treated like the filing of a complaint and in doing so relied on the often cited public policy in favor of arbitration.  CTC, supra, citing Nolan v. Lee Ho, 120 N.J. 465 (1990); Southland Corp. v. Keating, 465 U.S. 1, 10 (1984).

The Court went on to say that even if it were to disregard the demand for arbitration as irrelevant as to which matter was first filed, special equities required that the matter be litigated in New Jersey.  Specifically, the Court held that, “once mediation was demanded to occur in New Jersey, the later institution of the Pennsylvania action represented an untoward attempt to move the situs of this dispute, giving rise to special equity that warrants a disregarding of the Pennsylvania action.”

The Court’s ruling in CTC means that a demand for mediation or arbitration will now be considered the first-filed action for purposes of jurisdiction.

New Jersey Becomes the 47th State to Adopt the Uniform Trade Secrets Act

By Sean Mack, Esq.
smack@pashmanstein.com

On January 9, 2012, Governor Christie signed into law the New Jersey Trade Secrets Act.  N.J.S.A. 56:15-1 to -9.  New York, Massachusetts and Texas are now the only three states that have not adopted a version of the Uniform Trade Secrets Act.

The Act (i) brings better clarity to the definition of a trade secret and the remedies available, (ii) provides a guide to litigants and judges regarding protecting trade secrets during court proceeding, and (iii) specifically sets a statute of limitations for misappropriation of trade secrets claims.

The Act builds off of prior judicial decisions and should not significantly change the meaning of what is a trade secret.  Under the Act, a trade secret is specifically defined as:

information, held by one or more people, without regard to form, including a formula, pattern, business data compilation, program, device, method, technique, design, diagram, drawing, invention, plan, procedure, prototype or process, that:

(1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

The Act also makes clear that injunctive relief, and damages or royalties may be available for prevailing parties.  The Act clarifies that damages may be calculated based on the actual losses caused by the misappropriation and based on the unjust enrichment obtained by the wrongdoer as a result of the misappropriation.  Royalties may be awarded instead of, but not in addition to, the award of damages.  The Act also provides for the awarding of punitive damages if the misconduct is willful and malicious.  Punitive damages are capped at twice the damage award.  In a departure from the common law precedent in New Jersey, the Act expressly authorizes the award of attorney’s fees to the prevailing party (plaintiff or defendant) in appropriate cases.

The Act should be a warning to companies hiring new employees that they can be held liable for misappropriation of trade secrets if they induce the employee to wrongly disclose trade secrets or if the company has reason to know of the employee’s breach.

In an effort to balance New Jersey’s long standing public policy in favor of public access to legal proceedings against a company’s legitimate need to maintain the secrecy of its trade secrets, the Act mandates that courts take reasonable means to protect the secrecy of the information.

Finally, under the common law parties usually relied on New Jersey’s six-year statute of limitations in connection with misappropriation claims.  The Act now specifies that misappropriation of trade secret claims must be brought within three years of the discovery of the misappropriation or three years of when the party should have had reason to know of the breach.