Unincorporated Business Entities Law

Employer lent Employee an employer-owned laptop for use at home.  Shortly before Employee resigned, she used the laptop to send and receive emails using her own email account to communicate with an attorney about suing Employer for discrimination.  After Employee resigned (and returned the laptop), she sued Employer.  Employer made an image of the laptops hard drive, and found the emails.  Were the emails protected by the attorney-client privilege?  That was the issue before the Court in Stengart v. Loving Care Agency, Inc., No. A-3506-08T1 (N.J. Super. App. Ct. June 26, 2009) (unpublished).  The Court held that the emails were protected: 

1. It was not clear that Employer had adopted and promulgated an electronic communications policy, Slip Op. at 4-8;
2. It was not clear that the purported policy applied to emails sent from a personal account, Slip Op. at 8-12;
3. As applied,the purported policy to personal email was unenforceable because it did not further any legitimate business of Employer, Slip Op. at 13-23; and
4. The policy was unenforceable because it intruded on the attorney-client privilege:

In weighing the attorney-client privilege, which attaches to the emails exchanged by plaintiff and her attorney, against the company's claimed interest in ownership of or access to those communications based on its electronic communications policy, we conclude that the latter must give way. Even when we assume an employer may trespass to some degree into an employee's privacy when buttressed by a legitimate business interest, we find little force in such a company policy when offered as the basis for an intrusion into communications otherwise shielded by the attorney-client privilege.

Slip Op. at 25-26 (emphasis added).

Hat-tip to Mike Frisch, Legal Profession Blog (No Right to Rummage).

posted by Gary Rosin

Hornbook law so basic that it has its own name, the coming-and-going rule:  employee negligence in coming and going to work are outside the scope of employment, to the employer is not vicariously liable for an employee's negligence while commuting.  To be sure, there are scattered cases imposing liability on an employer for its own negligence.  In Otis Engineering Corp. v. Clark, 668 S.W.2d 307 (Tex.1983), an employer that had sent an intoxicated worker home early, and had poured the employee into his car, was found negligent, and liable for the inevitable accident on the way home.

Nabors Drilling USA, Inc. v. Escoto,No. 06-0890 (Tex. June 19, 2009), involved yet another accident while commuting from a drilling company job-site.  The employee (Ambriz) worked one-week on and one-week off, with 12-hour shifts (alternating a week of days, a week off, and a week of nights.  One morning, the employee fell asleep at the wheel.  The plaintiff argued that the drilling company was negligent, but the Court declined to extend Otis.   First, there was no showing the drilling company knew the employee "was impaired when leaving work on the day of the accident." Slip Op., at 6.  Second, the drilling company did not

… affirmatively exercise control over the incapacitated employee.  Unlike the employer in Otis, however, Nabors did not exercise any post-incapacity control over its employee. Ambriz completed his shift without incident and was not sent home early because of any impairment. Nabors did not instruct Ambriz to drive home or escort him to his car. * * * We have never extended Otis to create a duty where an employer’s only affirmative act of control preceded the employee’s shift and incapacity and amounted only to establishing work conditions that may have caused or contributed to the accident.

Slip Op. at 7-8 (citations omitted) (emphasis in original).

posted by Gary Rosin

When talking to a former student, perhaps the most frequent observation is that they regularly use agency law in their practices.  For example, consider the opinion in Conwell v. Gary Loon Outdoor Marketing Group, Inc., No. 82S04-0806-CV-00309 (Ind. May 19, 2009).  Conwellinvolved the ownership of a website designed (and hosted) by Gray Loon for Piece of America (LP) (PoA).  When PoA didn't pay Gray Loon, it took the website off its server, and refused to give the website files to PoA.  Later the files were destroyed.  PoA sued, claiming that Gray Loon had converted its property. 

At this point, you may be wondering how agency law applies.  Under copyright law, the owner of the copyright in a work is the author of the work, unless the work was a "work for hire."  Apparently, in deciding whether there was a work for hire, it makes a difference whether the work was done by an employee or by an independent contractor.  If the former, it is presumed to be work for hire, unless otherwise agreed.  If the latter, it is presumed not to be a work for hire, unless agreed in writing.  Slip Op., at 12-15.

The only other interesting aspect of the case is the way the Court analyzed the status of Gray Loon.  The Court quoted the standard used by the U.S. Supreme Court, and then concluded:

Considering these factors, it seems plain enough that Gray Loon was an independent contractor rather than POA's employee. The website was thus not a "work made for hire."

Slip Op., at 15.  That's it.  Nothing about how the facts fit into the factors.  A great example of how not to write an opinion, or an essay on an exam. 

Speaking of exams, back to grading.

Hat tip to Ben Barros, PropertyProf blog.

posted by Gary Rosin

In Gantler v. Stephens, No. 132, 2008 (Del. Jan. 27, 2009)–an otherwise routine case involving a shareholder derivative suit involving the fiduciary duties of directors of a corporation, the Delaware Supreme Court affirmed that officers

owe fiduciary duties of care and loyalty, and that the fiduciary duties of officers are the same as those of directors.

Id., Slip Op. at 24.  It’s hard to imagine that anyone would imagine that they did not owe fiduciary duties; officers, employees and agents of corporate principals all owe the same agency-based fiduciary duties.

One interesting aspect of Gantler is the Court’s observation that fiduciary shield provisions in the certificate of incorporation do not apply to officers:

That does not mean, however, that the consequences of a fiduciary breach by directors or officers, respectively, would necessarily be the same. Under 8 Del. C. § 102(b)(7), a corporation may adopt a provision in its certificate of incorporation exculpating its directors from monetary liability for an adjudicated breach of their duty of care. Although legislatively possible, there currently is no statutory provision authorizing comparable exculpation of corporate officers.

Id., Slip Op. at 24 n.37.  By way of contrast, Section 18-1102(e)  an LLC Agreement may modify or liability for breach of fiduciary duties by "a member, manager or other person". 

I suspect that the Delaware legislature is already at work on an amendment to Section 102(b)(7) of the Delaware General Corporation Law.  I would not be shocked if they also expanded that section to allow elimination of liability for all fiduciary duties.  In a recent article, Professor Ann Conaway (Widener)suggested that they do so.  Ann E. Conaway, Lesson To Be Learned:  How the Policy of Freedom of Contract in Delaware’s Alternative Entity Law Might Inform Delaware’s General Corporation Law, 33 DEL J. CORP. LAW 789, 817-18 (2008).

Hat tip to Francis G.X. Pileggi, Delaware Corporate & Commercial Litigation blog.

posted by Gary Rosin

Update:  Over at the "Glom", Professor Usha Rodrigues (Georgia) argues that

now is not an opportune time for executives to be seeking exculpation due to the anti-executive social-political climate.

I’m not sure that will deter the strong contractarian push in Delaware for freedom to delete duties of all sorts, including fiduciary duties.  That said, even the statute gets amended, it would require an amendment to a corporations certificate of incorporations–and thus shareholder approval–to add exculpation of officers or deletion of duties.  Here, Prof. Rodrigues is probably right; shareholders will probably not be inclined to approve.  Also, for the large public corporations, the activist institutional investors would oppose it.  And if such a request got out into the press, it would draw strong negative reaction from the public.

GR