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FMG Law Blog Line

Women On Board

Posted on: October 16th, 2018

By: Rebecca Smith

Nearly one-quarter of California-headquartered publicly held domestic or foreign corporations have no female directors.  No later than the close of the 2019 calendar year, those companies will need to add at least one.  Senate Bill 826 (SB 826) signed by Governor Brown on September 30, 2018 has mandated this change.  And, if the board of directors of a corporation is larger than four board members, the required number of women on the board increases.  If the number of directors is six or more, the corporation must have a minimum of three directors, if the number of directors is five, the corporation shall have a minimum of two directors.  Corporations will be allowed until the close of the 2021 calendar year to add the additional female directors beyond one.

There is a strong likelihood that this new law will be challenged in the courts.  The first argument being made is that the law will displace an existing member of the board of directors solely on the basis of gender.  The new law has attempted to address this by indicating:  “A corporation may increase the number of directors on its board to comply with this section.”  The argument being made is that the law focuses too narrowly on gender instead of other aspects of diversity, including race and sexual orientation.  The government may have to prove not only that there is disparity in board representation among men and women, but also that such a divide is a sufficient reason to create a special law for women.

The other issue in the forefront is to which companies the law will apply.  While the statute provides that the companies will be determined by the location of the principal executive offices according to the corporation’s SEC 10-K form, challenges are being made that the law should not apply to businesses headquartered in California, but incorporated elsewhere.  The new Section 2115.5 of the Corporations Code has attempted to address this issue by indicating that the new requirements shall apply to a foreign corporation that is a publicly held corporation to the exclusion of the law of the jurisdiction in which the foreign corporation is incorporated.  That being said, the “internal affairs doctrine” may provide a basis for the challenge.  The internal affairs doctrine, a choice of law rule in corporation law, provides that the internal affairs of a corporation will be governed by the corporate statutes and case law of the state in which the corporation is incorporated.

So what happens if a company does not comply:  A fine of $100,000 for a first violation, and a fine of $300,000 for a second or subsequent violation.  For purposes of imposing the fine, each director seat required by the section to be held by a female, which is not held by a female during at least a portion of the calendar year is considered a violation.  For the time being, California companies with their principal executive offices in California should start to think about how to comply with the law by the end of 2019 and stay tuned for any changes.

If you have any questions or would like more information, please contact Rebecca Smith at [email protected].

An Examination of the Interpretation of Free Recreation

Posted on: October 15th, 2018

By: Kevin Stone

In Georgia, if property is open free of charge for recreational purposes, the landowner is normally immune from liability for injuries occurring on the property.  A court can decide this as a matter of law without sending the case to a jury.  When sales occur on such property, however, a court may require a jury to decide whether the property’s use is “purely recreational,” rather than commercial.  This creation of a jury issue exists even if the sales are by private vendors and the landowner receives no payment.

For example, the Court of Appeals recently found that a free concert—at which concert-goers had the option of buying concessions from outside vendors (that did not pay the property owner), and where the event may have created a marketing benefit for the landowner—was considered to have both recreational and commercial purposes.  The result being that a jury, not a judge, had to resolve the issue of the property owner’s primary purpose for the property.  This interpretation of the law allows a commercial classification even though property is open for free for recreation.

This seems at odds with the purpose of the Recreational Property Act: “to encourage property owners to make their property available to the public for recreational purposes.”  In a concurrence, Chief Judge Dillard made the keen observation that a fair interpretation of the Act strongly suggests that the only relevant economic consideration is whether an admission fee is charged.  In such a case, the immunity would apply.

The Georgia Supreme Court has decided to weigh in and granted certiorari on these issues.  The Court’s examination will provide clarification for landowners who allow free access for recreation but also allow the public the option of making purchases.  We will continue to follow this case and keep you updated with the Court’s explanation.

If you have any questions or would like more information, please contact Kevin Stone at [email protected].

Facebook And Association Criticism: How To Address Unfounded Allegations Against An Association And Its Board

Posted on: October 12th, 2018

By: Jonathan Romvary

How far can a Board go in fighting against what they believe is unfair homeowner criticism? Can they publish a formal response to unfounded allegations? How should Associations address online criticism on unofficial Facebook groups created by dissatisfied homeowners?

These issues were partially addressed in a recent unpublished California Appeals Court decision in Kulick v. Leisure Village Association (2018). Kulick involved two consecutive lawsuits between a homeowner who was anonymously publishing an unofficial newsletter that was highly critical of his Homeowner’s Association, the Association’s Board and its attorneys. Unfortunately for the homeowner, the HOAs rules specifically prohibited the dissemination of anonymous publications to the Association’s members and the Association successfully filed suit against the homeowner for breaching the Association’s covenants, conditions and restrictions (CC&Rs) and was awarded more than $125,000.00 including punitive damages.

After losing his appeal, and apparently not learning from the prior lawsuit, the homeowner began republishing his anonymous newsletter criticizing the Association’s Board, this time asserting that the Board and its officers committed perjury, extortion, obstruction of justice, racketeering, and lying and cheating. The Association’s attorneys responded to the most recent allegations by distributing an official letter to all of the homeowners addressing the allegations as a “reckless communication” containing “unfounded, inaccurate, and spiteful allegations” against the Association and detailing the prior lawsuit against the homeowner. Feeling attacked by the HOA, the homeowner filed a lawsuit against the Association for, among other things, defamation. The HOA defended itself saying its actions were protected under California’s anti-SLAPP laws which are designed to protect defendants who have been sued for acts in furtherance of a constitutionally protected right of free speech or petition. The trial court agreed, finding that the Association’s letter constituted “protected activity” as a public writing relating to an issue of public interest to the Association’s homeowners’, i.e. the lawsuit between the Association and homeowner. Ultimately the California Appellate Court upheld the trial court’s ruling.

From Kulick, it is clear that Associations may respond to individual criticisms that are not legally permissible (e.g. false assertions of fact, etc.) and have certain rights against defamation published by its members. However, it remains unclear to what extent Associations can restrict alternative forms of publications, such as Facebook community groups or anonymous Twitter accounts. In the age of Facebook, where publishing and distribution is free and easy, Associations must remain vigilant. False accusations and anonymous publications can cause significant disruption to the operation and reputation of an Association. Associations should be alert for publications containing false assertions or publications that purport to be official communication and should address any statements that defame the association, its board of directors, managing agent, or employees.

If you have any questions on how your Association can be proactive and protect itself against unofficial homeowner publications or would like more information, please contact Jonathan Romvary at [email protected].

As #MeToo Movement Takes Off, EEOC Sexual Harassment Claims Jump

Posted on: October 11th, 2018

By: Barry Brownstein

Since October 2017, when the Harvey Weinstein scandal broke and the #MeToo movement took off, the U.S. Equal Employment Opportunity Commission has filed 50 percent more sexual harassment lawsuits than it did the previous year and has seen a spike in the number of sexual harassment claims it has received. The EEOC filed 66 harassment lawsuits in fiscal 2018 of which 41 contained allegations of sexual harassment.  In addition, the EEOC recovered about $70 million for sexual harassment victims in fiscal 2018, compared with approximately $47 million it recovered in fiscal 2017.

According to the agency’s data, besides its own stepped up enforcement efforts, workers have also increasingly turned to the EEOC over the past year to report allegations of sexual harassment.  The number of charges filed by individuals alleging they were victims of workplace sexual harassment increased by 12 percent in fiscal 2018 from the prior year. The EEOC fielded 6,696 sexual harassment charges in fiscal 2017. A 12 percent increase of that figure indicates the agency fielded about 7,500 sexual harassment charges in the most recent fiscal year. That increase is the first time this decade the number of sexual harassment charges received by the EEOC has gone up from one fiscal year to the next.

Acting EEOC Chair Victoria Lipnic has ardently communicated the message that the EEOC has continued to lead the way to achieve the goal of reducing the level of harassment and promoting harassment-free workplaces. Consistent with that theme, the EEOC has also issued a report highlighting the various measures it took over the past 12 months to fight all forms of workplace harassment.  Such efforts include more than 1,000 outreach events, the development of “respectful workplaces” training seminars, and the creation of an internal “harassment prevention action team” to coordinate the agency’s anti-harassment efforts.

With sexual harassment claims soaring, employers should review their current training program, update it so it is consistent with the EEOC’s “respectful workplaces” training, and ensure all employees are provided with such training.

If you have any questions or would like more information, please contact Barry Brownstein at [email protected].

Ninth Circuit’s Decision Upholding Arbitration Clause Enables Uber To Sidestep Substantive Issues Regarding Misclassification

Posted on: October 10th, 2018

By: Laura Flynn

In O’Connor v. Uber, a case in which California Uber drivers assert they should be categorized as employees rather than independent contractors, the Ninth Circuit Court of Appeals recently issued an order reversing the district court’s denial of Uber’s motions to compel arbitration. The Court rejected Plaintiffs’ assertion Uber’s arbitration agreements were unenforceable. The Court’s decision reversing the order denying arbitration was based on Mohamed v. Uber, 848 F.3d 1201 (9th Cir.  2016) wherein the Court found the relevant provisions delegated the threshold question of arbitrability to the arbitrator, that the delegation provisions were not adhesive and were therefore not procedurally unconscionable, and that the provisions allowing drivers to opt-out of arbitrations were not illusory. The Court rejected Plaintiffs’ additional argument the arbitration agreements were unenforceable because they contained class action waivers that violate the National Labor Relations Act of 1935 pointing to the recent Supreme Court decision in Epic Systems Corp. v. Lewis, 138 S. Ct. 1612 (2018). As the class certification by the district court was premised on its determination the arbitration agreements were unenforceable, the order certifying a class of approximately 160,000 Uber drivers was also reversed.

Based on the Court’s decision, it appears Uber drivers will have to purse their misclassification claims individually through arbitration. The limited pool of arbitrators, the amount of time it takes to arbitrate an individual claim, the smaller payout for attorneys, and lack of precedential value associated with arbitrations will likely discourage some drivers from pursuing their claims.

If you have any questions or would like more information, please contact Laura Flynn at [email protected].

 

For further reading, see our blogs discussing this matter: