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July 2015 edition

Avoiding retaliation claims; DMCA best practices; Creditor standing under Delaware law

Avoiding retaliation claims

Two recent federal circuit court decisions take an expansive view of the type of complaints that can support statutory retaliation claims.

In Greathouse v. JHS Security, Inc., the Second Circuit held that an employee's internal, verbal complaint to his employer that he did not receive earned wages can support a retaliation claim under the Fair Labor Standards Act.

In EEOC v. New Breed Logistics, four temporary employees asked their supervisor to stop making sexually explicit comments and were later terminated on the supervisor's recommendation. The Sixth Circuit held that the employees' complaints to the harassing supervisor supported a retaliation claim under Title VII.

Given these decisions, employers should:

  • Update their anti-harassment and anti-retaliation policies to ensure management becomes aware of employee complaints, such as by:
    • requiring that supervisors report employee complaints about their own conduct; and
    • implementing multiple avenues for complaints so that employees are not limited to complaining to their supervisor.
  • Treat informal and verbal complaints as seriously as formal complaints made to government agencies. Conduct a thorough investigation of all complaints, even informal ones.
  • Train temporary and permanent employees on anti-harassment and anti-retaliation policies and complaint procedures.
  • When disciplining an employee, offer the employee an opportunity to discuss any concerns or complaints so that the employer:
    • understands any underlying issues; and
    • can avoid the appearance that the discipline was motivated by retaliation.

For model employee policies prohibiting harassment and retaliation, see http://us.practicallaw.com/7-501-6926 and http://us.practicallaw.com/8-503-5830.

DMCA best practices

Content owners and website operators should review their existing Digital Millennium Copyright Act (DMCA) notice and takedown practices in light of a report recently released by the US Department of Commerce's Internet Policy Task Force.

The report, DMCA Notice and Takedown Processes: List of Good, Bad, and Situational Practices, sets out best practices to improve the efficiency of the DMCA notice and takedown process for:

  • Websites that allow users to post content.
  • Copyright owners searching for, and sending notices of, infringing content.

The recommended best practices for website operators include:

  • Making notice and takedown mechanisms easy to find and understand.
  • Increasing efficiency of receiving notices, including allowing multiple URLs to be submitted simultaneously and establishing a standard template for email notice submissions.
  • In cases where a notice is withdrawn or a counter-notification is received, making reasonable efforts to reinstate material removed due to a DMCA notice.

The report also recognizes and encourages the use of:

  • Trusted submitter programs, which allow streamlined DMCA notice procedures for submitters who have a history of submitting accurate notices.
  • Automated tools to search for infringing content and automatically submit takedown notices, subject to taking specific measures to minimize errors.

The report emphasizes that parties should not use the DMCA notice and takedown process to address non-copyright legal claims.

Although the report largely incorporates existing practice standards, and does not address the DMCA's substantive limitations, it serves as a helpful checklist and benchmarking tool by which companies may assess their practices.

For a sample DMCA policy and complaint, see http://us.practicallaw.com/7-502-3328 and http://us.practicallaw.com/3-502-6258.

Creditor standing under Delaware law

A recent Delaware Court of Chancery decision confirms that creditors are not required under Delaware law to prove the "continuous insolvency" of a corporation to maintain standing when bringing a derivative claim against the corporation's directors.

In Quadrant Structured Products Co., Ltd. v. Vertin, the court, in a matter of first impression:

  • Ruled that a creditor must only establish that the corporation was insolvent at the time the lawsuit was filed.
  • Refused to apply the standard of "irretrievable insolvency" to the balance sheet test for insolvency for determining whether a creditor has standing.

The plaintiff-creditor, Quadrant, brought a derivative action in 2011, claiming that the directors of Athilon Capital Corp. breached their fiduciary duties in their preference of the corporation's equity-holder to Quadrant, a senior creditor. Athilon was a credit derivative product company that became insolvent during the 2008 financial crisis. The director-defendants moved to dismiss the claim on grounds that:

  • Even if Athilon was insolvent when Quadrant filed suit, it had improved its balance sheet to the point that it was no longer insolvent. The defendants argued that just as stockholders of solvent corporations must demonstrate their continuous ownership of stock to maintain standing, creditors of insolvent corporations should demonstrate the continuous insolvency of the corporation.
  • A 2006 Court of Chancery ruling seemingly required that creditors show "no reasonable prospect" that the corporation will return to solvency for the creditors to obtain standing. The court ruled that creditors only need to maintain a continuous debt claim, even if the corporation moves between solvency and insolvency after the lawsuit is filed. A continuous debt claim is the better analogy to continuous ownership and provides a bright-line test for courts to apply.

The Court of Chancery also ruled that the irretrievable insolvency standard is only relevant when determining whether to appoint a receiver. The balance sheet test for creditors to obtain standing, however, is satisfied when the corporation's liabilities exceed its assets, without an additional showing of irretrievable insolvency.

About Practical Law

This look at the major issues on the horizon for corporate counsel comes from Practical Law – an online legal know-how service. View all the looming issues now – compliments of Practical Law The Journal, which covers the latest transactional and compliance topics that impact your practice. To gain access to more related know-how resources, please visit http://us.practicallaw.com.

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