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Legal     1 - Duke Energy Employee Advocate
Legal - Page Two

“The important people don't wear suits. They wear uniforms or hard hats.” - Tommy Tomlinson

Compensatory Damages Not Prerequisite

New York Law Journal - Mark Hamblett – November 21, 2001

Compensatory or nominal damages are not a prerequisite to an award of punitive damages in an employment discrimination action under federal civil rights law, the 2nd U.S. Circuit Court of Appeals has ruled.

Clarifying the standard in the circuit for recovery of punitive damages under Title VII of the Civil Rights Act of 1964, the court said that a plaintiff's showing that an employer engaged in discrimination was sufficient for an award, even where the finder of fact refuses to award actual damages.

The ruling came in Cush-Crawford v. Adchem Corp., 00-7617, where a jury awarded a woman the statutory maximum of $100,000 in punitive damages on her claim of sexual harassment stemming from a hostile work environment.

Adchem Corp. laboratory technician Tonia Cush-Crawford had sued the company because of the behavior of supervisor Collin Mars, who allegedly tied her work performance to taking trips with him. Cush-Crawford also charged that Mars made several passes at her, and warned she could be fired if she did not comply.

The decision will be published Wednesday.

At the trial before Eastern District of New York Judge Arthur D. Spatt, a jury ruled in Adchem's favor on Cush-Crawford's claim that the company retaliated against her for complaining about Mars. But the jury ruled in Cush-Crawford's favor on her claim of a hostile work environment.

The jury declined to award Cush-Crawford actual damages, but gave her the $100,000 statutory maximum she sought for punitive damages. Spatt then denied Adchem's motion to set aside the verdict and the award. The judge also granted Cush-Crawford $54,052 in attorneys' fees, but rejected her motion for a new trial.

Before the 2nd Circuit, Adchem argued that compensatory or nominal damages must be awarded in order to recover punitive damages under Title VII, which prohibits employment discrimination based on race, color, religion, sex and national origin.

Judge Pierre N. Leval said that the 2nd Circuit had yet to decide the issue, and that "uncertainty as to the availability of punitive damages was apparent in the districts court's treatment of the issue."

Judge Spatt, he said, initially instructed the jury that punitive damages could be awarded "only if you should first unanimously award" actual damages. He then reversed course, finding there is no such prerequisite in 42 U.S.C. § 1981a(b)(1).

"In our view, Judge Spatt's second approach was correct," Leval said.

Leval noted that "The plain language of the statute does not expressly state whether punitive damages are available absent an award of actual damages, and the Courts of Appeals that have considered the question have reached different results."


Despite Adchem's argument to the contrary, Judge Leval said, there is "no one common law rule," on the issue.

One concern that has driven some courts to bar punitive awards absent regular damages, he said, has been the fear that juries would start assessing punitive damages "where the wrongs are insubstantial. ..."

But it was significant, he said, that § 1981a(b)(3) provides for a sliding-scale cap on punitive damages that ranges from $50,000 to $300,000, depending on the size of the company.

"To the extent that courts worried about unleashing juries to award limitless punitive damages in cases where no harm had occurred, this concern is eliminated by the imposition of the statutory caps," Judge Leval said.

And Leval said that the objectives of compensatory damages differ from those of punitive damages.

"There is some unseemliness for a defendant who engages in malicious or reckless violations of legal duty to escape either the punitive or deterrent goal of punitive damages merely because either good fortune or a plaintiff's unusual strength or resilience protected the plaintiff from suffering harm," he said.

And nominal damages, he added, "are generally no more than symbolic."

"The need for such a symbol of opprobrium in the absence of compensatory damages disappears where the fact finder has signified its opprobrium by making an express award of punitive damages," he said. "And to make enforcement of the jury's award of punitive damages turn on whether the jury also awarded purely symbolic nominal damages carries a likelihood of defeating the jury's intention as the result of confusion."

Therefore, Judge Leval said, regardless of a jury's decision not to award compensatory or nominal damages, punitive damages may be awarded within the limits of the statutory caps where a jury finds a defendant "engaged in the prohibited discrimination" and is shown "to have acted with a state of mind that makes punitive damages appropriate."

Senior Judge Jon O. Newman and Judge Robert D. Sack joined in the opinion.

Ira G. Rosenstein, Siobahn A. Handley and Cathleen O'Donnell of Orrick, Herrington, & Sutcliffe's New York office represented Adchem. Charmaine M. Stewart and Nadira Stewart of Elmont, N.Y., represented Cush-Crawford.

When a Company Doesn't Keep its Promises

The Charlotte Observer - By Lona O'Connor - November 20, 2001

Consult a lawyer to put together a case with others in the same boat

Kristen in California finds herself angry about broken promises of a promotion and a big raise. Here is her story: "Eight months ago, my current boss said, `I need to hire an inventory coordinator. I'll have to interview others, but you are the one.' At the time I was in an entry-level job and had just been hired after working as a contractor for six months. Previously I was a downsized marketing manager and found this temp job closer to home and stayed for the benefits.

"The company supports computer network management for Fortune 2000 companies. Four days later, my boss says, `Forget the interviewing of others, you are it.' So I confirmed with him verbally that I was officially taking over the new position. I also confirmed in e-mail to him a recap of our conversation. Eight months and 37 e-mails later, I'm still trying to get the offer letter for the new position, which I have been doing for the last eight months, as well as the retroactive pay.

"I was not the only one accepting a position and not getting the letter offer first. Close to eight people had this happen to them. My boss was demoted and is no longer boss. His boss is my direct boss. He has given my needs to the director and the head of Human Resources. Their offer: Going from 32K to 41.5 plus retroactive pay, but only for a month. They are offering me less than what this job level pays, which according to my sources is from 48K to 55K. They feel the job is worth 42K. At my original interview we discussed 55K. In my e-mails I confirmed the 55K. But my current boss doesn't feel it's worth that. There is a director of inventory management whom I indirectly worked for the last eight months who has said on my behalf that I need to be paid according to the market rate of the position because I am invaluable. And here's the clincher. We were sold to our competitors and the sale will take 60-90 days. What are my rights? Do I have to go for a lawsuit? Will they tell me that now there is a freeze on everything and they can't do anything? What should I do?"

Kristen, here are some of your options:

Consult a lawyer who has experience working with employee lawsuits. He or she will tell you if you have any chance of winning. A key question to ask the lawyer is whom are you going to sue? The ownership change may affect your case. The new owners could choose not to honor any part of what was promised you by others. If you decide to sue, copies of your e-mails will support your case. If you have not done so already, print them out or save them on a floppy disk and take your documentation home.

The other factor in your favor is the other people with similar stories. It's much easier to make your case if several other employees are in the same boat and are prepared to stand with you. Enlist them and their documents to support your case.

The larger question is should you sue? Only if you are free for the next few months and are prepared for the emotional impact a lawsuit inevitably has on your life, your health and your relationships. Whether you win or lose, expect a long and rocky road through the legal system.

Another possible choice is to take the lower salary offered you - if that offer is still on the table - and cut your losses. If you are a good negotiator, you might be able to get management to increase that figure.

If you are thoroughly disgusted, find another job and quit. During the transition to new ownership, expect this company to be in a state of uncertainty for at least three to six months, and probably longer.

Whatever you decide, you must be ready to walk away from the last eight months and learn what you can from this experience.

Ford Bias Lawsuits

Employee Advocate – – November 18, 2001

Tentative settlements have been reached by Ford Motor Company in two class action age and gender bias claims, according to The Associated Press. Seven individual lawsuits will begin negotiations.

Ford’s evaluation system favored younger workers, the lawsuits claimed.

Firms Wary of Challenging Asbestos Claims

The Deal – by Terry Brennan – November 15, 2001

The strategy of challenging the veracity and value of asbestos claims that bankrupt Babcock & Wilcox Co. is attempting in two New Orleans courtrooms was a tactical failure almost 20 years ago and lawyers watching the case don't think it has much chance in succeeding now.

Virtually all of the 30-odd companies and their attorneys facing asbestos-related claims in the past two decades ultimately have chosen to settle rather than face painstaking and costly efforts involved in challenging individual claims.

Not Chicago law firm Kirkland & Ellis and its two asbestos liability-laden bankruptcy clients, B&W and W.R. Grace & Co., which are trying to reverse the nearly two-decade trend and aggressively challenge the claims against them.

"The real issue is whether you can separate out the legitimate claims from the chaff since litigation is very expensive and very time consuming," said Harvey Miller, head of restructuring at Weil, Gotshal & Manges in New York. "It's absolutely worth the effort if there's a way to do it, but that scorched-earth policy of fighting was started with Johns Manville in 1982 and they ultimately decided it was too expensive, too time-consuming and too diverting."

But David Bernick, B&W's lead attorney at Kirkland & Ellis, believes his client's circumstances are different.

"Babcock & Wilcox is different from previous asbestos debtors because it never claimed any liability in its pre-petition settlements and only settled those claims as a sound business practice," he said. "It has a clean slate once it filed for bankruptcy and we're seeking to challenge the claims on that basis."

Kirkland & Ellis is challenging thousands of claims to B&W and Grace in an effort to keep the debtors viable enough to retain control instead of relinquishing majority control to a settlement trust. Those trusts assume at least a 51 percent control of the post-bankruptcy debtor and have often led to greater control.

"In the past, you literally filled out a form in five minutes that stated the claimant had a note from the doctor saying he was coughing and had other symptoms and showed that he worked at the site," said John Donley, another Kirkland & Ellis attorney representing B& W.

"It took five to 10 minutes to fill out the form that would routinely lead to checks for thousands of dollars. That's what we're fighting."

But one New York attorney who worked on some early asbestos-related filings but asked not to be named is skeptical. He believes Kirkland & Ellis is seeking to parlay the success it had in the Dow Corning Corp. breast implant-related bankruptcy case -- when it was able to fight a sufficient number of claims by showing that they might be based on questionable scientific claims -- into a winning strategy for clients with asbestos liabilities.

"Kirkland & Ellis won a settlement that let management keep control of the company because the breast-implant plaintiffs feared they were vulnerable to having their claims thrown out of court," he said.

The ability to challenge asbestos-related claims is considerably more difficult, the lawyer said. Only two viable defenses in such cases thus far have surfaced. One is that state statutes of limitations ranging from four years to seven years have run out for claimants to file their claim. The second is proving the plaintiff didn't actually work where the debtor handled the asbestos.

"Otherwise, the defendant always loses and I can't see how anything would suddenly change that," the attorney said.

The settlement in Dow-Corning's Chapter 11 filing was directly tied to the so-called Daubert defense, which gives the bankruptcy judge the right to determine whether an expert witness is making legitimate scientific claims or is merely professing "junk science," said the New York partner.

"The junk science defense has been tried one-by-one and failed in federal trials because it's just not there in asbestos cases, where good scientific evidence has shown a clear connection between asbestos and disease," he said.

B&W and Kirkland & Ellis have turned to the Daubert defense in trying to get expert testimony rejected. They argue that workers had only a peripheral experience with asbestos and, thus, "based on a sample, about two-thirds of claimants cannot even meet the most basic requirement on proof of claim," the company claimed in documents filed Oct. 18 in U.S. District Court in New Orleans.

The district court is adjudicating the tort matters in the case. Meanwhile, Judge Jerry Brown in the U.S. Bankruptcy Court in New Orleans heard arguments Monday by B&W on two fronts. First, that the asbestos claims shouldn't be valued 100 cents on the dollar based on past, settled claims, and second, that because of that discounted value, B&W wasn't insolvent at the time that it transferred $622 million in assets to its parent, New Orleans-based McDermott International Inc., several months before it filed for Chapter 11. Creditors claim B&W was insolvent and thus committed a fraudulent conveyance.

Brown's decision will likely influence the proceedings in the district court case.

More than $10 billion in claims have been filed against B&W both before and after its Chapter 11 filing on Feb. 22, 2000.

"There's a negotiating dynamic in all these [asbestos] cases and Kirkland & Ellis is challenging these claims at the outset to put pressure on the plaintiffs' lawyers in what might ultimately lead to a better settlement," said a second New York attorney with experience on large asbestos-related Chapter 11 filings. "The key to playing out an aggressive strategy is knowing when to cut a deal, however, and that may indeed be the strategy here."

Chapter 11 bankruptcy protection is usually the best vehicle for companies seeking to fight huge claims, he said, because it gives the debtor the chance to consolidate its defenses under a single bankruptcy judge, he said.

But if B&W, Grace and their lawyers want to buck convention, he thinks they'd have a better chance before judges by attacking the high contingency fees that lawyers are charging to represent claimants.

"I would be targeting plaintiffs' contingency fees for my client if I were at Kirkland & Ellis because they're generally up to 30 percent or 40 percent of the total recovery on asbestos and other mass tort cases," the attorney said.

NY Life Employee’s Class-Action Pension Suit

Plan Sponsor - Camilla Klein – November 10, 2001

November 8, 2001 ( - An employee suit brought against New York Life Insurance Co. has been granted class-action status by a district court judge.

The suit, which involves 50,000 workers, charges that the insurance company used workers' pension and 401(k) funds as capital to get a new line of mutual funds, MainStay Institutional Funds, off the ground.

The suit further charges that the insurance company levied excessive fees and failed to protect employees' assets when the funds underperformed.

James Mehling, the lead plaintiff, also claims that New York Life officials fired him in March 1999 because they feared he (would) tell what he knew about the situation.

New York Life denies wrongdoing in its handling of the funds and notes that the pension fund now boasts a $900 million surplus, in line with industry averages, in comparison to $25 million a decade ago.

US District Judge Bruce Kauffman withheld judgment on the merits of the case, but ruled that it would be impossible to hear each case individually due to the large number of former and current New York Life employees. Plaintiffs are seeking at least $200 million.

France Cannot Overrule First Amendment

Employee Advocate – – November 10, 2001

A French order requiring that certain items on be censored was nullified by a federal judge, according to The New York Times. All content on websites in the United States is protected by the first amendment.

More Company Stock Lawsuits

Plan Sponsor - Fred Schneyer – November 8, 2001

PALM BEACH, Florida, November 06, 2001 ( - Plan sponsors who offer company stock in their defined contribution plans will likely be hit more and more in coming months with participant lawsuits if the value of those shares drops and workers claim they weren't properly warned.

That was the caution delivered Tuesday by well-known ERISA lawyer Stephen Saxon at the convention of The Society of Professional Administrators and Recordkeepers (SPARK) in Palm Beach, Florida. Saxon is with The Groom Law Group in Washington, D.C.

In fact, anticipating a litigation growth in the company stock area, Saxon said his firm recently set up a new section of its practice.

Not only will lawsuits similar to the much publicized one against Lucent continue to proliferate, Saxon said, but case law is still unclear about the limits of plan sponsors' responsibility to warn participants holding company stock about an employer's pending financial woes. Lucent was accused of not telling its defined contribution participants that the company was struggling financially.

"(Participant lawyers) are saying 'You knew something and you had a duty to disclose it'," Saxon told during an interview. "I see that as a major problem."

Pension Anti-Cutback Rule

Groom Law Group – November 8, 2001

10/23/2001 - In Michael v. Riverside Cement Co. Pension Plan, 2001 WL 1078738 (9th Cir., Sept. 17, 2001), a defined benefit plan participant claimed that a plan amendment cut back his benefit in violation of ERISA section 204(g). A divided Ninth Circuit panel acknowledged that the participant "was better off after the amendment than he would have been without it," but still concluded that the amendment violated the anticutback rule.

This troubling decision -- which applies the anti-cutback rule to prevent amendments that offset existing benefits against future benefit accruals -- is unprecedented. Although we believe that the panel misapplied the anticutback rule, and that other courts are unlikely to follow the Ninth Circuit's lead, the decision may prompt participants to challenge typical plan amendments that reduce future accruals by "wearing away" the value of existing accruals or early retirement subsidies.

A. Background

The facts in Riverside are as follows. The plaintiff participant retired in 1983, after qualifying for a fully-subsidized early retirement benefit of $607.82 per month. He received over $30,000 in annuity payments until 1988, when he was rehired and distributions were suspended. He continued to accrue benefits under the same benefit formula through 1991.

Under the terms of the pre-1991 plan, his benefit upon subsequent retirement would be "calculated as if the Pensioner were then first retired, but [would] be based upon the sum of his Credited Service at his earlier prior retirement plus his Credited Service since rehire." The court characterized this language as providing that "reemployment with Riverside [would] not otherwise impair the early retirement benefits Michael had received" and that there would be "no deduction for benefits received during the period of early retirement. If the participant had "re-retired" in 1991, he would have received benefits of $689.94 per month.

In 1991, the plan sponsor amended the plan to significantly enhance benefits.

However, the enhanced formula also included, for the first time, an offset for the value of any prior distributions. yes" Without taking into account the offset, the participant would have received, upon his re-retirement in 1996, monthly benefits of $1,796.51. Taking into account the offset, the participant's benefit increased only to $1,035.53 per month.

B. The Decision

The participant argued that the anticutback rule afforded to him a right to accrue benefits under the new formula without having the future accruals reduced on account of prior payments.

The plan argued that the anticutback rule protected only benefits accrued through the date of amendment, without entitling a participant to any particular level of future accruals.

The plan prevailed at the district court level, but the Ninth Circuit reversed.

It is difficult to make sense of the court's analysis. The court appears to have read pre-amendment plan language describing how benefits would be calculated following reemployment as a kind of guarantee (not specifically contained in the plan) that the plan would never change that method of calculation in the future. The court stated: "[The anticutback rule] precludes an amendment that nullifies the condition on which the early retirement benefits were paid -- the condition that they would not cause a reduction in benefits from a second retirement." The court claimed that its decision in Shaw v. Int'l Ass'n of Machinists & Aerospace Workers Pension Plan, 750 F.2d 1458 (9th Cir. 1985), supported an expansive reading of the anticutback rule. However, the Shaw decision applied the anticutback rule in the traditional way -- to protect already-accrued benefits. There, the plan sponsor had attempted to eliminate a "living pension" feature (i.e., a feature that linked benefits to post-termination pay increases applicable to the position previously held by a terminated participant) as applied to already-accrued benefits. The court concluded that changing the plan's formula with respect to already-accrued benefits violated the anticutback rule. This conclusion provides no support for the proposition that the anticutback rule imposes obligations on plans with respect to future accruals.

A strong dissent in Riverside argued that the Ninth Circuit panel misapplied the anticutback rule:

In short, although the amendment at issue may not have enhanced Michael's second periodic retirement benefit as much as it enhanced all the other plan participants' benefits, he was better off with the amendment than he would have been had Riverside Cement not amended the plan. Under these circumstances, I am unable to conclude that there has been a violation of § 204(g).

C. Observations

We believe that other courts are likely to apply the dissent's traditional anticutback rule interpretation, rather than the panel's new approach. Perhaps other courts would agree that the panel's analysis should be narrowly applied to situations in which participants commence distributions in reliance on plan language indicating that their choice will not affect the calculation of future benefits. However, we also suspect that participants are likely to claim that Riverside restricts a plan sponsor's freedom to amend its plan in other more fundamental ways -- including the typical "wear-away" amendment that has generally been considered. We understand that efforts are underway to obtain a rehearing of the decision.

Early Retirement Doesn't Bar Severance

Plan Sponsor – November 6, 2001

November 5, 2001 ( – A plan administrator acted improperly in determining that workers that took an early retirement offer were precluded from also pursuing claims for severance pay, according to a federal judge.

In the ruling, the U.S. District Court for the Northern District of Illinois found that the plan administrator acted unreasonably in finding that the employees who had accepted retirement benefits during the reduction in force were precluded from claiming a right to severance pay. The court said the severance plan's language did not "necessarily eliminate the possibility that an employee could collect both retirement benefits and separation pay."

Either Or?

According to Judge Matthew F. Kennelly, Donnelley gave its employees an either-or choice. "Employees who opted for enhanced early retirement benefits were given no separation pay, ... and employees who opted for special augmented separation pay received no enhanced early retirement benefits."

Following a 1993 decision by Sears Roebuck to discontinue its catalogue operations, R.R. Donnelley & Sons decided two days later to close its Chicago Manufacturing Division, which had been responsible for printing Sears' catalog, according BNA Daily Labor Report. Donnelley outlined an enhanced early retirement option and a severance plan in one communication, followed by another letter in which employees were given the option of retiring prior to the date the division was scheduled to shut down. A number of employees reportedly challenged the either-or choice, but severance and retirement plan administrators denied the employees' claims for both early retirement benefits and severance pay. The employees brought a lawsuit under the Employee Retirement Income Security Act (ERISA) contending, among other things, that all employees discharged in the division's shutdown were entitled to benefits under the severance plan regardless of their election on early retirement benefits.

Doubling Up?

The severance plan administrator claimed that workers who opted for early retirement benefits were not "separated" from the company as required under the severance plan. Alternatively, the administrator said that allowing employees who took the severance package to also gain early retirement benefits would have been allowing them to "benefit doubly."

However, in ruling for the employees, the court rejected Donnelley's contention that it had not intended to pay separation benefits to employees who "retired," noting that it "was, indisputably, a forced retirement occasioned by reduction in the CMD workforce and discontinuation of the employees' jobs."

"Under the plain terms of the Summary Plan Description as well as the Plan itself, such employees were eligible for separation pay, whether or not they were deemed by Donnelley to have 'retired,' " the court said.

Legal - Page One