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Recent Court Cases of Interest

[Note: This page will be updated periodically with new cases]

1. Retailer Cannot Record Customer Personal Information for Credit Card Sales.
Florez v. Linens ‘N Things, Inc. [California Court of Appeal, April 2003]. Retail store had “Telephone Capture Policy” to create customer data base. When customer brought items to cashier for purchase, cashier asked her for her telephone number and typed the information into the electronic cash register. This practice was similar to other retailers who use credit card forms with imprinted spaces for addresses and telephone numbers, leading customers to believe this information is necessary to complete a purchase. The Court ruled that these are unlawful practices. California Civil Code section 1747.8 [Song-Beverly Credit Card Act] absolutely prohibits a seller even to “request” personal information for recording purposes let alone “require” it. Retailer may request that a customer voluntary waive the provisions of the Credit Card Act but this has to be very carefully and obviously done, e.g., written waivers in bold and enlarged type.

2. California Supreme Court Logs on to Internet Jurisdiction Disputes
Pavlovich v. DVD Copy Control, Inc. [California Supreme Court, November 2002]. Plaintiff DVD Copy Control is a non-profit trade association in California and sued a student at Purdue University who was founding member of organization committed to allowing public free access to DVD’s by decrypting DVD data and posting it on web page. DVD claimed defendant Pavlovich “targeted” California companies for destruction as most DVD companies are based here. Defendant did not live or work in California, and never had a place of business, a telephone number, bank account, real property, or any other contacts with California. Supreme Court ruled 4-3 (with spirited dissent) that there was no basis for a California court to exercise jurisdiction over the out-of-state defendant. The Court distinguished “active,” “interactive” and “passive” web sites, and also “doing business over the internet.” In this case, defendant’s web site had no active or interactive features at all; it merely posted information about decryptions which others could view.

3. Even Small Corporations Can Use “Special Litigation Committees” as a Defense to Actions against Majority Shareholders/Directors
Desaigoudar v. Meyercord [California Court of Appeal. April 2003]. California has adopted the so-called “Special Litigation Committee” defense to derivative lawsuits [cases in which a minority shareholder sues a director, officer or third party in the name of the corporation]. Under this rule, the Board of Directors of a corporation (including the interested director) can appoint a special committee of disinterested directors (those not charged with wrongdoing) to investigate the merits of the alleged action and then give an opinion as to whether the corporation should pursue the lawsuit. If the Special Litigation Committee decides the claims have no merit, the corporation does not have to take any further action. If the decision of the Special Committee is challenged, a court can only consider the following issues in “two-step” approach: (1) whether the Special Committee members were truly “disinterested,” and (2) did they conduct an adequate investigation. If the answer to both questions is yes, the Court must overrule the challenge to the decision of the Special Committee.

4. Watch Out for the Small Print in Pre-printed Invoices and Purchase Orders
Chateau des Charmes Wines v. Sabate USA and Sabate France [U.S. 9th Circuit Court of Appeal, May 2003]. Chateau is a Canadian company that orally contracted with Sabate USA for purchase of corks from the parent company Sabate France. Several orders shipped with invoices. The invoices were in French with pre-printed provisions restricting lawsuits on the contract to a court in France applying French law. Chateau claimed some of the wines got a bit moldy from corks and Chateau sued both the U.S. and French companies in California (where the oral contract was made and the U.S. subsidiary Sabate USA had its place of business). Issue: Was the pre-printed language part of the contract between the parties? The Court said no. Although the Court used the U.N. Convention on International Sales of Goods (U.S., France and Canada are all signatories) the result would probably have been the same if the Court had applied California law. The issue was whether the additional pre-printed terms which were never discussed orally between the contracting parties were “material changes” to the initial oral purchase agreement. If so, they can be disregarded. California and most all other states follow Uniform Commercial Code which eliminates “war of the forms” (in California, UCC ‘ 2207). Still, some questions remain. A mandatory arbitration provision is always considered a “material” change, while choice of law clauses usually are not. It is not clear whether forum selection clauses would be considered a ?material change?, but requiring purchaser in California or Canada to litigate in France probably could be construed a “material” alteration of normal agreement. Note: special clauses limiting the time for bringing claims normally usually recognized if not less than one year, e.g., shortening time for lawsuit on contract to one year instead of 2 or 4 years.

5. Federal Court O.K.s California Lawsuit Against Foreign Companies Interfering with Contracts of U.S. Firms
Harris Rutsky Insurance Services v. Bell & Clements Ltd. [U.S. 9th Circuit Court of Appeals, May 2003]. The Plaintiff insurance agency had a contract with London, England insurance company and London-based brokers for surplus insurance line coverage in California. The brokers in London did a lot of business with California insurance agents but had no offices here nor other physical presence. The contract was prepared in London but signed by plaintiff in California. Brokers in London then terminated the contract and induced several insurance companies in England to sever their relationship with plaintiff. Court held that sufficient “minimum contacts” existed for lawsuit in California against the London brokers.

6. Employers Can Still Get Rid of “Deadwood” Without Liability Under ADEA
Pottenger v. Potlatch Corporation [U.S. 9th Circuit Court of Appeals, May 2003]. The federal “Age Discrimination in Employment Act” (ADEA) prohibits employers from discriminating against employees (or job applicants) 40 years or older on the basis of age. Persons younger than 40 are not covered by the Act. Employers subject to the Act must have at least 20 employees. In this case, Potlatch was losing money in its Pulp and Paper Division which was headed up by the 60-year old plaintiff as Group Vice President. The plaintiff had worked for Potlatch for over 30 years and was 5 years short of retirement. In 1999 Potlatch got a new president who determined Potlatch needed to impose “real and significant changes” in its Pulp and Paper Division. At a subsequent meeting with plaintiff and his staff, the president characterized plaintiff and the team as an “old management team” using an “old management model.” Within months, the plaintiff received a performance review which contained some favorable remarks but also contained negative comments about plaintiff’s inability to be a strong leader and break away from a “victim mentality.” The next month, the president and CEO decided to fire plaintiff and replace him with a 43-year old Vice President. Plaintiff’s discharge was part of an overall company effort to eliminate “deadwood” quickly. Plaintiff refused to sign a separation agreement waiving claims under ADEA and later sued. The trial court dismissed the claims as there was no evidence that Potlatch had any reasons for firing plaintiff other than as stated to him, i.e., he could not make the tough decisions necessary to turn the division around. The Court of Appeals affirmed the dismissal and pointed out phrases that do and do not equal evidence of intent to discriminate. BAD: (1) “You’re so old you must have come over on the Mayflower. (2) “You’re too damn old to do this job.” (3) “We need somebody younger for the job.” (3) “Two old farts in the department is more than enough.” APPARENTLY IMPOLITE BUT OK: (1) “We need to get rid of the old timers because they won’t kiss my ass.” (Personally, I strongly advise against this type of comment). (2) “We don’t necessarily like grey hair.” (3) Use of the phrase “old boy network.” LESSON: Stay away from any comments about age for employment purposes! Otherwise a court may interpret your remarks in an unexpected way.