Category Archives: Oregon Law

Aviation Law Update: Oregon Supreme Court Rules Doctrine of Forum Non Conveniens is Available in Oregon

On April 16, 2016, the Oregon Supreme Court ruled for the first time that Oregon law included the doctrine of forum non conveniens.  Espinoza v. Evergreen Helicopters, Inc., 359 Or. 63 (2016).  The opinion illustrates how state standards for dismissal based on forum non conveniens vary, even though most state courts adhere to the framework generally set out in Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947), and discussed in Piper Aircraft Co. v. Reyno, 454 U.S. 235 (1981), and cases since.

On March 11, 2008, a ten passenger 2007 Bell 412EP crashed into remote mountainous terrain near Santa Cruz, Cajamarca, Peru.  Impact forces and a post-crash fire killed the United States certificated airline transport pilot, the Peruvian co-pilot and eight Peruvian miners.  The helicopter was owned by Evergreen Helicopters, Inc., and leased to Helinka S.A.C., a Peruvian commercial aviation services provider.  Evergreen provided the helicopter, pilots, mechanics, parts, and an on-site contract administrator.

In its motion to dismiss the wrongful death lawsuits filed by relatives of the deceased Peruvian miners, Evergreen argued:

  • The majority of evidence was in Peru.
  • Third-party witnesses were in Peru.
  • A crash site view would only be possible in Peru.
  • There were practical difficulties in Oregon such as a need for interpreters.
  • Evergreen would be unable to implead Helinka as a third-party defendant in Oregon.
  • The crash occurred in Peru, plaintiffs were Peruvian nationals, and Peru had the strongest interest in the controversy.

In response, plaintiffs argued:

  • The doctrine of forum non conveniens had never been expressly recognized in Oregon.
  • Oregon courts are barred from dismissing an action based on forum non conveniens whenever there is jurisdiction and venue in Oregon.
  • Evergreen was headquartered and had its principal place of business in Oregon and evidence was located in Oregon.
  • A factor in the cause of the crash may have been defects in avionics installed by Evergreen in Oregon.

359 Or. at 71-72.

The trial judge granted Evergreen’s motion to dismiss based on forum non conveniens.  The Oregon Court of Appeals reversed, based in part on the trial court’s failure to make sufficient findings on the availability of evidence in Peru.

The Oregon Supreme Court granted Evergreen’s petition for review and considered two issues: (1) whether the doctrine of forum non conveniens is available under Oregon law, and (2) what standards guide its application.

Plaintiffs argued that the doctrine of forum non conveniens should be rejected entirely, contending its origin was “dubious” and that it “is a parochial, xenophobic and outcome-determinative doctrine that permits reverse forum shopping by powerful corporations seeking to altogether avoid accountability in their home forum for transnational torts.”  359 Or. at 76.

Evergreen argued (in part) that the Oregon Court of Appeals gave too much deference to plaintiffs’ choice of Oregon as their chosen forum.  In support of its argument, Evergreen relied on one aspect of the holding in Piper Aircraft Co., that the ordinary presumption in favor of the plaintiff’s forum choice applies with less force where the plaintiff is not a resident of that forum.  359 Or. at 75 (citations omitted).

The Oregon Supreme Court rejected Evergreen’s argument and agreed with the Washington Supreme Court that there “is no principled reason to vary the degree of deference afforded to the plaintiff’s choice of forum…we defer to a plaintiff’s choice…because it is the plaintiff’s right to choose from those forums that are available to it.”  359 Or. at 105.

The court ruled that the trial judge did not err when it found that Peru was an adequate alternative forum.  However, the court was critical of the trial judge for ruling that a trial in Peru would “best serve” the convenience of the parties.  The court concluded that the trial judge applied the “wrong substantive standard” and abused its discretion when it ruled that a trial in Peru would be “more convenient” rather than “so inconvenient as to be contrary to the ends of justice”.  359 Or. at 119-120.

The Oregon Supreme Court adopted a strict standard, ruling that a trial court may dismiss an action based on forum non conveniens only when

“…the relevant private-and public-interest considerations weigh so heavily in favor of litigating in that alternative form that it would be contrary to the ends of justice to allow the action to proceed in the plaintiff’s chosen forum.”

359 Or. at 102.

 

Best practices for enforcement of noncompetition agreements and restrictive covenants

Noncompetition agreements are used routinely by businesses in the United States to protect goodwill, client relationships, trade secrets, confidential and proprietary information, and to develop a competitive advantage.

The validity and enforceability of noncompetition agreements varies according to the jurisdiction of the particular state or federal circuit court.

This article will survey a limited number of states and federal circuits concerning the use and enforcement of noncompetition agreements.  The following jurisdictions will be examined: The First Circuit, the state of Massachusetts, the state of Maine, the Second Circuit, the state of New York, the Ninth Circuit, and the states of California and Oregon.  In each jurisdiction, we will explore the standard aspects of non-competes that courts generally consider, including: reasonableness; duration; protectable interests; modification; and, in some instances, the way that noncompetes are applied in the context of specific professions.

First Circuit

Restrictive covenants “upon an employee’s exercise of a gainful occupation after leaving the employer are, and were at common law considered to be, void as in restraint of trade.”  Am Eutectic Welding Alloys Sales Co., Inc., v. Rodriguez, 480 F.2d 223, 228 (1st Cir. 1973).   However, a court will allow a restrictive covenant or a noncompetition agreement “if the restriction is reasonable, and not wider than is necessary for the protection to which the employer is entitled[.]”  Id.  (Internal quotation marks and citation omitted.)  If there is a valid non-solicitation agreement “and an employee departs for greener pastures, the employer ordinarily has the right to enforce the covenant according to its tenor.”  Corporate Technologies v. Hartnett, 731 F.3d 6, 8 (1st Cir. 2013).

Reasonableness

An overly-broad noncompetition agreement “is enforceable to the limited extent reasonable.”  Am Eutectic Welding Alloys Sales Co., Inc., 480 F.2d at 227 (1st Cir. 1973).   Whether an agreement is “reasonable” depends on the facts and circumstances of each case.  Ferrofluidics Corp. v. Advanced Vacuum Components, Inc., 968 F.2d 1463, 1468-69, 1470 (1st Cir. 1992).  The “appropriate inquiry” is “whether the employer has exploited an inherent imbalance by placing deliberately unreasonable and oppressive restraints on the employee.”  Id. at 1470.

Duration

Time period must be “reasonable”.  Corporate Technologies , 731 F.3d at 8.  Five years is generally too long.  Ferrofluidics Corp., 968 F.2d at 1469.

Protectable Interests

Goodwill, Corporate Technologies, 731 F.3d at 8; customer lists, id.; confidential information, id. at 14; and trade secrets, Lanier Prof’l Services, Inc., v. Ricci, 192 F.3d 1, 5 (1st Cir. 1999), are recognized as protectable interests.  However, a noncompetition agreement “cannot make secret that which is not secret[.]”  Id. at 5 (internal citation and quotation marks omitted).

“The line between solicitation and acceptance of business is a hazy one, and the inquiry into where this line should be drawn in a particular case is best executed by the district court.”  Corporate Technologies, 731 F.3d at 10.   Whoever first makes contact “is just one factor among many that the trial court should consider in drawing the line between solicitation and acceptance in a given case.”  Id. at 12.

Modification

A court may modify an overly-broad noncompetition agreement, and the agreement is unenforceable until it is modified.  Astro-Med, Inc., v. Nihon Kohden America, Inc., 591 F.3d 1, 14 (1st Cir. 2009).   Once an agreement has been narrowed by the court, “the breaching party is being held to a more narrowly circumscribed agreement than the one he signed, and the more restrictive terms of the agreement remain as effective as the day they were agreed to.”  Id. at 15.

Massachusetts

In deciding whether to enforce a particular agreement, a court considers whether the noncompete “(a) is necessary to protect a legitimate business interest of the employer, (b) is supported by consideration, (c) is reasonably limited in all circumstances, including time and space, and (d) is otherwise consonant with public policy.”  Bowne of Boston, Inc. v. Levine, 1997 WL 781444, at *2 (Mass. Super. Nov. 25, 1997).

Whether the employee or the employer is granted deference in the context of a restrictive covenant or a noncompete can vary in Massachusetts.  For example, according to the Supreme Judicial Court of Massachusetts, “[e]mployees occupying positions of trust and confidence owe a duty of loyalty to their employer and must protect the interests of the employer.” Chelsea Indus., Inc. v. Gaffney, 449 N.E.2d 320, 326 (Mass. 1983).  In that case, the court also explained that an employee “is bound to act solely for his employer’s benefit in all matters within the scope of his employment”.  Id.  Furthermore, the court in that case explained that an “executive employee is barred from actively competing with his employer during the tenure of his employment, even in the absence of an express covenant so providing .”  Id. (internal quotation marks and citations omitted).

However, the Superior Court of Massachusetts has stated that, “Contracts drafted by employers to limit the employment prospects of former employees-even those at a very high level-must be construed narrowly against the employer.”  Veridiem, Inc., v. Phelan, No. 034418BLS, 2003 WL 22481390, *3 (Mass. Super. Sept. 26, 2003).

Generally, a noncompete that is “contained in a contract for personal services will be enforced if it is reasonable, based on all the circumstances.”  All Stainless, Inc. v. Colby, 308 N.E.2d 481, 485 (Mass. 1974).

In order to determine whether to enforce a noncompete, “the reasonable needs of the former employer for protection against harmful conduct of the former employee must be weighed against both the reasonableness of the restraint imposed on the former employee and the public interest.”  Id.  If the employer “has protectable and legitimate business interests, the employer’s reasonable need to protect its business interests must then be weighed against the reasonableness of the restraints imposed by the noncompete covenant as well as any public interests that may be at stake.”  Boch Toyota, Inc. v. Klimoski, 18 Mass. L. Rep. 80, 2004 WL 1689770 , *4 (Mass. Super. 2004).

Courts “look less critically” at covenants “arising primarily out of the sale of a business”. Alexander & Alexander, Inc. v. Danahy, 488 N.E.2d 22, 29 (Mass. App. 1986).  However, “any covenant restricting competition is to be enforced only to the extent that it is reasonable in time and space, necessary to protect legitimate interests, and not an obstruction of the public interest.”  Id.

Reasonableness

“What is reasonable depends on the facts in each case.”  Novelty Bias Binding Co. v. Shevrin, 175 N.E.2d 374, 376 (Mass. 1961).  Reasonableness of restrictions is determined with reference to “the nature of the [employer’s] business * * * the character of employment involved * * * the situation of the parties, the necessity of the restriction for the protection of the employer’s business and the right of the employee to work and earn a livelihood.”  Richmond Bros. Inc. v. Westinghouse Broadcasting Co., 256 N.E.2d 304, 307 (Mass. 1970).

A noncompete is likely to be deemed reasonable if it has a “narrow geographic scope” and a “relatively short time frame.”  Boch Toyota, Inc., 18 Mass. L. Rptr. 80, 2004 WL 1689770 at *4 (Mass. Super., June 28, 2004) (upholding a covenant not to compete spanning a duration of twelve months and a geographic scope of thirty-five miles).  Generally, a noncompete is “reasonable if its purpose is to protect an employer’s legitimate business interests.”  Id. at *3.

Courts will uphold broader restrictions outside of the conventional limits of the employer-employee relationship, e.g., in the context of the sale of a business.  “Concern about the restricted individual and the probability of unequal bargaining power between an employer and an employee recedes when the restriction arises in the context of the sale of a business or * * * the sale of an interest in a business.”  Wells v. Wells, 400 N.E.2d 1317, 1319 (Mass. App. 1980).  Therefore, courts will usually look “more critically” at the circumstances of restraints placed on employees in a post-employment context.  Id.

In analyzing restrictions imposed as part of the sale of a business, courts “consider whether the parties entered into the agreement with the assistance of counsel and without compulsion (an element frequently not present in the employer-employee context).”  Boulanger v. Dunkin’ Donuts, Inc., 815 N.E.2d 572, 577 (Mass. 2004) (internal citations and quotation marks omitted).

Duration

“Each time an employee’s employment relationship with the employer changes materially such that they have entered into a new employment relationship a new restrictive covenant must be signed.”  Lycos, Inc. v. Jackson, 2004 WL 2341335, at *3, 18 Mass. L. Rep. 256 (Mass. Super. Aug. 25, 2004); see also Cypress Group, Inc. v. Stride & Assocs., Inc., 17 Mass. L. Rptr. 436, 2004 WL 616302 (Mass. Super.  Feb. 11, 2004) (same). Similarly, in F.A. Bartlett Tree Expert Co. v. Barrington, 233 N.E.2d 756 (Mass. 1968), the Massachusetts Supreme Court voided an employment agreement containing a restrictive covenant because there were subsequent changes in the defendant’s employment that changed the employment relationship.  In particular, the court noted that “the defendant’s rate of compensation and sales area were changed” and “[s]uch far reaching changes strongly suggest that the parties had abandoned their old arrangement and had entered into a new relationship.”  Id. at 758.

In an employment context, a five-year restriction will generally be found to be unreasonable, whereas a three-year restriction will generally be found to be reasonable.  Richmond Bros., Inc. v. Westinghouse Broadcasting Co., 256 N.E.2d 304, 307 (Mass. 1970) (five-year restriction unreasonable; court refused to enforce remaining two years on a five-year non-competition agreement for a radio broadcaster where he had complied with the agreement for almost three-year period); Wrentham Co. v. Cann, 189 N.E.2d 559, 562 (Mass. 1963) (five-year restriction unreasonable; affirmed enforcement of non-competition agreement for three years).

However, in the context of a sale of a business, restrictions for five years or more are more likely to be upheld as reasonable.  Alexander & Alexander, Inc. v. Danahv, 488 N.E.2d 22, 29-30 (Mass. App. 1986) (upholding customer-based covenant for five-year period; finding it was not unreasonable to include prospective customers within the ban and finding covenants were not unreasonably restrictive despite the fact they prevented individuals from “receiving” business; holding that in the context of the sale of a business, a covenant not to compete was proper where the seller received proceeds from the business); Bonneau v. Meaney, 178 N.E.2d 577, 579 (Mass. 1961) (enforcing 20-year non-competition agreement made in connection with sale of telephone answering service business);

Protectable Interests

Goodwill, “confidential or proprietary business information”, “customer or supplier lists”, Boch Toyota, Inc., 2004 WL 1689770 at *3, and trade secrets, RE/MAX of New England, Inc. v. Prestige Real Estate, Inc., 2014 WL 3058295, at *3 (D. Mass. July 7, 2014), are all protectable interests.

However, “skill and intelligence acquired or increased and improved through experience or through instruction received in the course of employment” are not protectible interests.  National Hearing Aid Centers, Inc. v. Ayers, 311 N.E.2d 573, 578 (Mass. 1974).

Modification

A noncompete may be enforced in whole or in part.  All Stainless, Inc., 308 N.E.2d 481, 485.  “If the covenant is too broad in time, in space or in any other respect, it will be enforced only to the extent that is reasonable and to the extent that it is severable for the purposes of enforcement.”  Id.

Specific Professions

Doctors—Noncompetes are void.  Falmouth Ob-Gyn Assocs., Inc. v. Abisla, 629 N.E.2d 291, 293-94 (Mass. 1994) (noncompete was unenforceable because the Massachusetts physician non-competition statute prohibits “any restriction” on the ability of physicians to practice).

Nurses—Noncompetes are void.  Mass. Gen. Laws ch. 112, § 74D (1983).  That statue provides that:

“Any contract or agreement which creates or establishes the terms of a partnership, employment, or any other form of professional relationship with a nurse registered to practice as a registered nurse pursuant to section seventy-four, or a practical nurse registered to practice as a licensed practical nurse pursuant to section seventy-four A, which includes any restriction of the right of such nurse to practice as a nurse in any geographical area for any period of time after the termination of such partnership, employment or professional relationship shall be void and unenforceable with respect to said restriction. Nothing in this section shall render void or unenforceable any other provision of any such contract or agreement.”

Broadcasters—Noncompetes are void.  Mass. Gen. Laws ch. 149, § 186 (1998).  That statute provides that:

“Any contract or agreement which creates or establishes the terms of employment for an employee or individual in the broadcasting industry, including, television stations, television networks, radio stations, radio networks, or any entities affiliated with the foregoing, and which restricts the right of such employee or individual to obtain employment in a specified geographic area for a specified period of time after termination of employment of the employee by the employer or by termination of the employment relationship by mutual agreement of the employer and the employee or by termination of the employment relationship by the expiration of the contract or agreement, shall be void and unenforceable with respect to such provision. Whoever violates the provisions of this section shall be liable for reasonable attorneys’ fees and costs associated with litigation of an affected employee or individual.”

Social workers—Noncompetes are void.  Mass. Gen. Laws ch. 112, § 135C.  That statute provides that:

A contract or agreement creating or establishing the terms of a partnership, employment, or any other form of professional relationship with a social worker licensed under this chapter that includes a restriction of the right of the social worker to practice in any geographic area for any period of time after termination of the partnership, employment or professional relationship shall be void and unenforceable with respect to that restriction. This section shall not render void or unenforceable the remainder of the contract or agreement.

Attorneys—Noncompetes are void.  Meehan v. Shaughnessy, 535 N.E.2d 1255, 1262 (Mass. 1989).  In that case, the court explained that, ethically, “a lawyer may not participate in an agreement which restricts the right of a lawyer to practice law after the termination of a relationship created by the agreement.”  The court found that this rule protects the public.  Id.

Maine

Generally, in Maine, covenants not to compete “are contrary to public policy and will be enforced only to the extent that they are reasonable and sweep no wider than necessary to protect the business interests in issue.”  Chapman & Drake v. Harrington, 545 A.2d 645, 647 (Me. 1988) (internal citation and quotation marks omitted).  The reasonableness of a noncompetition agreement “is a question of law to be determined by the court.”  Id.  A party may show reasonableness by developing case-specific facts regarding the noncompete’s “duration, geographic area and the interests sought to be protected.”  Id.  Because Maine “law does not favor non-competition agreements * * * it requires that such agreements be construed narrowly and technically.”  Id.

Reasonableness

Chapman & Drake illustrates the way that Maine courts look at the reasonableness of noncompetition agreements.  In that case, the court explained that, “There is further support for the reasonableness of a covenant not to compete when the employee limited thereby has had access to his employer’s confidential information, including customer lists, and is in a position after leaving his employer to take advantage of that information.”  Id. at 647.

 

Although the noncompetition agreement in that case did not contain a geographical limitation, the court found that it was reasonable because it was negotiated by both parties—the employee and the employer—and it “simply” prohibited the employee from “soliciting or accepting” the employer’s customers.  Id. at 648.  Therefore, the employee was not overly burdened by the noncompete and the noncompete did not violate public policy.  Id. at 648-49.

In Flaherty v. Libby, 81 A. 166, 167 (Me. 1911), the court found that it is “customary and oftentimes necessary that a person purchasing the business of another, with the good will that should follow the transaction, enters into an agreement with the seller, whereby the seller is restricted from engaging in a similar business within specified districts.”

However, “protecting an employer from business competition is not a legitimate business interest to be advanced by” a noncompete.  Brignull v. Albert, 666 A.2d 82, 84 (Me. 1995).
Duration

Although the noncompete at issue in Chapman & Drake was for five years, the court found that the duration was not per se unreasonable because the agreement did not preclude the employee from selling insurance—it only precluded him from doing business with people who were customers of the employer at the time that the employee worked for the employer.  545 A.2d  at 648.  The court also found that, “As enforced, the five-year limit also is reasonably related to protecting recognized legitimate business interests of” the employer.  Id.

Protectable interests

The sale and protection of goodwill are interests that may be protected by noncompetes. Flaherty, 81 A. at 167 (sale of goodwill); Brignull, 666 A.2d at 84 (protection of goodwill).  Trade secrets are also protectable interests.  Roy v. Bolduc, 34 A.2d 479, 481 (Me. 1943).  A “list of current patients” is a protectable business interest.  Brignull, 666 A.2d at 84.

Modification

If a court finds that a noncompete is overbroad, the agreement may be modified and enforced to the extent reasonable. Lord v. Lord, 454 A.2d 830, 834 (Me. 1983).  Maine courts will evaluate the reasonableness of a noncompetition clause as the employer seeks to apply it, as opposed to how it is written and may be hypothetically applied. Brignull, 666 A.2d at 84; Prescott v. Ross, 383 F.Supp.2d 180, 190 (D. Me. 2005).  However, the court will not impose its own draft of an overly broad provision on the parties.  Prescott v. Ross, 390 F.Supp.2d 44, 47 (D. Me. 2005).  Instead, the party seeking to enforce the noncompete, may only rely on the court to narrow the scope of the noncompete.  Id.

Second Circuit

Generally, noncompetition agreements “are narrowly construed by the courts” in the Second Circuit, “and must contain time, geographic and/or industry limitations”.  A.N. Deringer, Inc. v. Strough, 103 F.3d 243, 248 (2d Cir. 1996).

The Second Circuit generally disfavors noncompetes in the employment context, and enforces them only to the extent that they are reasonable and necessary to protect valid interests.  AM Media Communications Group v. Kilgallen, 261 F.Supp.2d 258 (S.D.N.Y. 2003).

Reasonableness

In evaluating whether a noncompete is reasonable, “courts must weigh the need to protect the employer’s legitimate business interests against the employee’s concern regarding the possible loss of livelihood.”  Ticor Title Ins. Co. v. Cohen, 173 F.3d 63, 69 (2d Cir. 1999).

A ten-mile geographic restriction is reasonable.  Singas Famous Pizza Brands Corp. v. N.Y. Adver. LLC, 468 Fed. Appx. 43, 2012 WL 89923, *3 (2d Cir. Mar. 19, 2012)

Duration

Generally short periods of time will be found reasonable.  A.N. Deringer, Inc., 103 F.3d at 248 (no one disputed that 90 days was reasonable).

Protectable Interests

Protectable interests include confidential information, A.N. Deringer, Inc., 103 F.3d at 248; “institutional know-how, reputation, and goodwill”, Singas, 468 Fed. Appx. 43, 2012 WL 89923 at *3; and “confidential information, such as customer lists and other confidential information not generally known to the public”, Am. Fed. Grp., Ltd. v. Rothenberg (American Federal Group 1), 136 F.3d 897, 906 (2d Cir. 1998).

Modification

“Generally, a contract will not be regarded as severable unless (1) the parties’ performances can be apportioned into corresponding pairs of partial performances, and (2) the parts of each pair can be treated as agreed equivalents.”  Ginett v. Computer Task Group, Inc., 962 F.2d 1085, 1098 (2d Cir. 1992)

New York

Covenants not to compete were at one time disfavored by New York courts.  Purchasing Assocs., Inc. v. Weitz, 196 N.E.2d 245, 247-48 (N.Y. 1963).  However, noncompetes are now generally enforced under New York law as long as they are reasonable and protect legitimate business interests.  Id.  Broad noncompete agreements are likely to be viewed more favorably in the context of the sale of a business as opposed to an employee who has signed an employer-drafted noncompete.  Id.  In the context of an employee who has signed an employer-drafted noncompete, those agreements are likely to be upheld if they are narrow in scope.  Id.  “Thus, a covenant by which an employee simply agrees, as a condition of his employment, not to compete with his employer after they have severed relations is not only subject to the overriding limitation of ‘reasonableness’ but is enforced only to the extent

necessary to prevent the employee’s use or disclosure of his former employer’s trade secrets, processes, or formulae * * * or his solicitation of, or disclosure of any information concerning, the other’s customers * * *.”  Id.  However, if “the employee’s services are deemed ‘special, unique or extraordinary,’ then, the covenant may be enforced by injunctive relief, if ‘reasonable,’ even though the employment did not involve the possession of trade secrets or confidential customer lists.”  Id.

Reasonableness

Generally, “reasonable” means, “not more extensive, in terms of time and space, than is reasonably necessary” to protect legitimate business interests.  Purchasing Assocs., Inc., 196 N.E.2d at 247-48.

Under New York law, “The modern, prevailing common-law standard of reasonableness for employee agreements not to compete applies a three-pronged test. A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public. A violation of any prong renders the covenant invalid.” BDO Seidman v. Hirshberg, 712 N.E.2d 1220, 1223 (N.Y. 1999) (emphasis in original).  Therefore, “a restrictive covenant will only be subject to specific enforcement to the extent that it is reasonable in time and area, necessary to protect the employer’s legitimate interests, not harmful to the general public and not unreasonably burdensome to the employee.”  Id.  (internal quotation marks and citations omitted).

Broad restrictive covenants are not likely to be enforced.  Id.

It is unreasonable to restrict competition in a case where the former employee gained clients with whom he did not have a relationship prior to leaving his former employer.  Id. at 1225  (explaining that, “it would be unreasonable to extend the covenant to personal clients of defendant who came to the firm solely to avail themselves of his services and only as a result of his own independent recruitment efforts, which BDO neither subsidized nor otherwise financially supported as part of a program of client development.”).

Duration

“To impose a continuing restraint beyond the period agreed upon is contrary to the agreement and not equitable.”  DeLong Corp. v. Lucas, 176 F.Supp. 104, 126 (S.D.N.Y. 1959), aff d, 278 F.2d 804 (2d Cir. 1960), aff’d, 364 U.S. 833, 81 S. Ct. 71, 5 L. Ed.2d 58 (1960).

However, in dealing with restrictive covenants between professionals, courts are not opposed to long durations, particularly when the restrictions are geographically limited or in rural areas.  BDO Seidman, 712 N.E.2d at 1223 (explaining that the court has upheld even permanent restrictions as well as restrictions for five years in rural locations).  Accountants are considered professionals in this context.  Id.  However, courts are not as likely to uphold lengthy restrictions in large metropolitan areas.  Id. at 1224.

Protectable Interests

Protectable interests include the sale of goodwill, Purchasing Assocs., Inc., 196 N.E.2d at 247-48; the employer’s trade secrets or “confidential customer lists, or protection from competition by a former employee whose services are unique or extraordinary”, BDO Seidman, 712 N.E.2d at 1223.

Customer lists are only protectable if they are trade secrets or are confidential.  Briskin v. All Seasons Servs., Inc., 206 A.D.2d 906, 906 (1994).  However, “an employer has sufficient interest in retaining present customers to support an employee covenant where the employee’s relationship with the customers is such that there is a substantial risk that the employee may be able to divert all or part of the business”  Service Systems Corp. v. Harris, 41 A.D.2d 20, 23-24 (1973).

Modification

New York courts exercise their “judicial power to sever and grant partial enforcement for an overbroad employee restrictive covenant.”  BDO Seidman, 712 N.E.2d at 1226.

Under New York law, if the noncompete is overly broad, the court will not simply invalidate it.  Id.  Rather, when

“the unenforceable portion is not an essential part of the agreed exchange, a court should conduct a case specific analysis, focusing on the conduct of the employer in imposing the terms of the agreement (see, Restatement [Second] of Contracts § 184).  Under this approach, if the employer demonstrates an absence of overreaching, coercive use of dominant bargaining power, or other anti-competitive misconduct, but has in good faith sought to protect a legitimate business interest, consistent with reasonable standards of fair dealing, partial enforcement may be justified”

Id. (some internal citations omitted.)

The Ninth Circuit

As explained in further detail below, the Ninth Circuit’s interpretation of a restrictive covenant or noncompetition agreement depends entirely on the state law that governs the agreement.  Generally, “Covenants by an employee not to compete have never been especially favored in equity but may be enforced if not unreasonable and if not broader than required for the employer’s protection.  There is no reason, however, to enforce a covenant which by its terms is no longer in effect.” Econ. Lab., Inc. v. Donnolo, 612 F.2d 405, 408 (9th Cir. 1979).

Reasonableness

Whether a noncompete is reasonable is either a question of fact or a question of law, depending upon the state law that governs the agreement.  Rent-A-Center, Inc. v. Canyon TV and Appliance Rental, Inc., 944 F.2d 597, 600 (9th Cir. 1991.)  Once the court determines the standard of review, it will use the appropriate state’s law to determine whether the agreement is reasonable.  Id.

Protectable Interests

The court will evaluate whether the interests that the employer or the drafter of the agreement seeks to protect are actually protectable under the applicable state law.  Safelite Glass Corp. v. Crawford, 25 Fed.Appx. 613, 2002 WL 22342, *1 (9th Cir., January 8, 2002).

Duration

The acceptable duration for a restrictive covenant or noncompetition agreement depends on the applicable state law, particularly what that state regards as reasonable in a restrictive covenant context.  Henry Hope X–Ray Prod., Inc. v. Marron Carrel, Inc., 674 F.2d 1336, 1342 (9th Cir. 1982).

Modification

The court will use the applicable state’s law to determine the scope, if any, of modification for a restrictive covenant or noncompete.  Four Seasons Freight Services, Inc. v. Haralson, 96 F.3d 1451, 1996 WL 506182, *1 (9th Cir., September 4, 1996).

California

California has statutes regarding restrictive covenants and noncompetes.  Generally, “there exists a clear legislative declaration of public policy against covenants not to compete.”  D’sa v. Playhut, Inc., 85 Cal. App. 4th 927, 933 (2000).  For example, California’s Business and Professions Code, section 16600, provides that, “Except as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.”

California allows noncompetes when selling a business.  Specifically, California’s Business and Professions Code, section 16601, provides that:

“Any person who sells the goodwill of a business, or any owner of a business entity selling or otherwise disposing of all of his or her ownership interest in the business entity, or any owner of a business entity that sells (a) all or substantially all of its operating assets together with the goodwill of the business entity, (b) all or substantially all of the operating assets of a division or a subsidiary of the business entity together with the goodwill of that division or subsidiary, or (c) all of the ownership interest of any subsidiary, may agree with the buyer to refrain from carrying on a similar business within a specified geographic area in which the business so sold, or that of the business entity, division, or subsidiary has been carried on, so long as the buyer, or any person deriving title to the goodwill or ownership interest from the buyer, carries on a like business therein.”

Under section 16601, in order to uphold a noncompete, “The transaction must clearly establish that it falls within this limited exception.  The practical effect of the transaction and the economic realities must be considered.”  Hill Med. Corp. v. Wycoff, 86 Cal. App. 4th 895, 903 (2001).  Courts will evaluate whether goodwill was considered in determining the sales price “[i]n order to restrain the seller’s profession, trade, or business”.  Id.  In other words, there must be a showing that the buyers were entitled to protection “from competition from the seller which competition would have the effect of reducing the value of the property right that was acquired.”  Id. (internal citations and quotation marks omitted.)

Similarly, when a seller transfers all of her corporate shares and when those shares constitute only a small amount of the corporate shares, the court should evaluate the agreement according to the same factors, specifically, “did the transaction take into account corporate goodwill?”  Id. at 903-04.   The seller must have sold “the goodwill of the corporation.”  Id. at 904 (internal citation and quotation marks omitted).  In other words:

“Simply selling shares to an individual vendee or back to the corporation does not necessarily demonstrate that goodwill is part of the agreement. To hold otherwise, would result in the enforceability of all covenants not to compete involving the sale of all of the vendors shares, in violation of the purposes behind sections 16600 and 16601.”

Wycoff, 86 Cal. App. 4th at 904.

Noncompetes are also allowed in the context of the dissolution of a partnership (Cal. Bus. & Prof. § 16602), or the sale or dissolution of a limited liability corporation (Id. at § 16602.5).

Attempts have been made to persuade courts to adopt “a narrow-restraint exception to section 16600”, Ret. Group v. Galante, 176 Cal. App. 4th 1226, 1236 (2009), but courts have generally held that, “Section 16600 is unambiguous, and if the Legislature intended the statute to apply only to restraints that were unreasonable or overbroad, it could have included language to that effect.” Id.  In Galante, the court left “it to the Legislature, if it chooses, either to relax the statutory restrictions or adopt additional exceptions to the prohibition-against-restraint rule under section 16600.”  Id.

Reasonableness

Generally, the above statutes will control the validity of a restrictive covenant.  However, “time, circumstances and public policy may change the reasonable interpretation of a  restrictive covenant.”  Welsch v. Goswick, 130 Cal. App. 3d 398, 405-06 (1982).  For example, in Welsch, the court looked at “whether social, economic and legal conditions have changed such that the covenant, limiting use of subdivision lots to single-family residential purposes, would currently be interpreted to prohibit operation of a residential care facility serving six or fewer persons.”  Id. at 406.

Protectable Interests

Goodwill is protectable, as explained above.  Trade secrets are also protectable.  “[It is not the solicitation of the former employer’s customers, but is instead the misuse of trade secret information, that may be enjoined.  Galante, 176 Cal. App. 4th at 1237 (emphasis in original).

Customer lists constitute trade secrets and are protectable.  Id. at 1238.  As long as the customer lists do not contain public information that is “readily ascertainable”, or easily identifiable, the lists may be protected.  Id. (internal citations and quotation marks omitted).

Preventing disruption in the workplace is generally a protectable interest.  “The restriction presumably was sought by plaintiffs in order to maintain a stable work force and enable the employer to remain in business.”  Loral Corp. v. Moyes, 174 Cal. App. 3d 268, 280 (1985).

Duration

“[D]uration alone of a restrictive agreement is not determinative of its enforceability.  Id. at 279.

Modification

“Generally, courts reform contracts only where the parties have made a mistake and not for the purpose of saving an illegal contract.”  Kolani v. Gluska, 64 Cal. App. 4th 402, 406-07 (1998) (internal citations omitted).  Courts may save noncompetes by narrowly construing them, but they will do so only when the contract is not statutorily void (a court could save a noncompete if, for example, it is ancillary to the sale of goodwill and not invalid on its face).  Id. at 407.  Courts have ‘blue penciled’ noncompetition covenants with overbroad or omitted geographic and time restrictions to include reasonable limitations.”  Strategix, Ltd. v. Infocrossing W., Inc., 142 Cal. App. 4th 1068, 1074 (2006).

Specific Professions

Lawyers—Lawyers generally may not be restricted from practicing.  Howard v. Babcock, 6 Cal. 4th 409, 416 (1993).  However, “An agreement that assesses a reasonable cost against a partner who chooses to compete with his or her former partners does not restrict the practice of law. Rather, it attaches an economic consequence to a departing partner’s unrestricted choice to pursue a particular kind of practice.”  Id. at 419.

Accountants—Accountants may be restricted if they withdraw from a partnership and if the noncompete is limited to a small geographic area.  Id. at 416.

Doctors—Doctors generally may not be restricted from practicing, “but a withdrawing partner may contract that if he exercises that privilege he will compensate his former partners to some extent at least for the business which he expects to take from them.  Id. (internal citation and quotation marks omitted).

Oregon

Noncompetes in an employment context are governed by a lengthy statute, ORS 653.295, which provides that:

“(1) A noncompetition agreement entered into between an employer and employee is voidable and may not be enforced by a court of this state unless:

“(a)(A) The employer informs the employee in a written employment offer received by the employee at least two weeks before the first day of the employee’s employment that a noncompetition agreement is required as a condition of employment; or

“(B) The noncompetition agreement is entered into upon a subsequent bona fide advancement of the employee by the employer;

“(b) The employee is a person described in ORS 653.020(3);

“(c) The employer has a protectable interest. As used in this paragraph, an employer has a protectable interest when the employee:

“(A) Has access to trade secrets, as that term is defined in ORS 646.461;

“(B) Has access to competitively sensitive confidential business or professional information that otherwise would not qualify as a trade secret, including product development plans, product launch plans, marketing strategy or sales plans; or

“(C) Is employed as an on-air talent by an employer in the business of broadcasting and the employer:

“(i) In the year preceding the termination of the employee’s employment, expended resources equal to or exceeding 10 percent of the employee’s annual salary to develop, improve, train or publicly promote the employee, provided that the resources expended by the employer were expended on media that the employer does not own or control; and

“(ii) Provides the employee, for the time the employee is restricted from working, the greater of compensation equal to at least 50 percent of the employee’s annual gross base salary and commissions at the time of the employee’s termination or 50 percent of the median family income for a four-person family, as determined by the United States Census Bureau for the most recent year available at the time of the employee’s termination; and

“(d) The total amount of the employee’s annual gross salary and commissions, calculated on an annual basis, at the time of the employee’s termination exceeds the median family income for a four-person family, as determined by the United States Census Bureau for the most recent year available at the time of the employee’s termination. This paragraph does not apply to an employee described in paragraph (c)(C) of this subsection.

“(2) The term of a noncompetition agreement may not exceed 18 months from the date of the employee’s termination. The remainder of a term of a noncompetition agreement in excess of 18 months is voidable and may not be enforced by a court of this state.

“(3) Subsections (1) and (2) of this section apply only to noncompetition agreements made in the context of an employment relationship or contract and not otherwise.

“(4) Subsections (1) and (2) of this section do not apply to:

“(a) Bonus restriction agreements, which are lawful agreements that may be enforced by the courts in this state; or

“(b) A covenant not to solicit employees of the employer or solicit or transact business with customers of the employer.

“(5) Nothing in this section restricts the right of any person to protect trade secrets or other proprietary information by injunction or any other lawful means under other applicable laws.

“(6) Notwithstanding subsection (1)(b) and (d) of this section, a noncompetition agreement is enforceable for the full term of the agreement, for up to 18 months, if the employer provides the employee, for the time the employee is restricted from working, the greater of:

“(a) Compensation equal to at least 50 percent of the employee’s annual gross base salary and commissions at the time of the employee’s termination; or

“(b) Fifty percent of the median family income for a four-person family, as determined by the United States Census Bureau for the most recent year available at the time of the employee’s termination.

“(7) As used in this section:

“(a) “Bonus restriction agreement” means an agreement, written or oral, express or implied, between an employer and employee under which:

“(A) Competition by the employee with the employer is limited or restrained after termination of employment, but the restraint is limited to a period of time, a geographic area and specified activities, all of which are reasonable in relation to the services described in subparagraph (B) of this paragraph;

“(B) The services performed by the employee pursuant to the agreement include substantial involvement in management of the employer’s business, personal contact with customers, knowledge of customer requirements related to the employer’s business or knowledge of trade secrets or other proprietary information of the employer; and

“(C) The penalty imposed on the employee for competition against the employer is limited to forfeiture of profit sharing or other bonus compensation that has not yet been paid to the employee.

“(b) ‘Broadcasting’ means the activity of transmitting of any one-way electronic signal by radio waves, microwaves, wires, coaxial cables, wave guides or other conduits of communications.

“(c) ‘Employee’ and ‘employer’ have the meanings given those terms in ORS 652.310.

“(d) ‘Noncompetition agreement’ means an agreement, written or oral, express or implied, between an employer and employee under which the employee agrees that the employee, either alone or as an employee of another person, will not compete with the employer in providing products, processes or services that are similar to the employer’s products, processes or services for a period of time or within a specified geographic area after termination of employment.”

ORS 653.295 is construed broadly, and applies to non-solicitation agreements. First Allmerica Fin. Life Ins. Co. v. Sumner, 212 F. Supp. 2d 1235, 1238 (D. Or. 2002) (stating that, “Plaintiffs’ attempt to draw a distinction between a prohibition against solicitation of former employees and a prohibition against inducing customers to terminate their relationship with the plaintiffs is misplaced given the Oregon court’s broad construction of the statutory reach of ORS 653.295.”).

Under ORS 653.295(1)(a), “Any non-de minimis delay, between the commencement of employment and when the agreement was signed, is fatal.” Konecranes, Inc. v. Scott Sinclair, 340 F. Supp. 2d 1126, 1129 (D. Or. 2004)

If an employee refuses to sign a noncompete and is fired, there is no claim for wrongful discharge.  Dymock v. Norwest Safety Protective Equip. for Oregon Indus., Inc., 45 P.3d 114, 116 (Or. 2002) (stating that, “Because ORS 653.295 does not confer on plaintiff the right to refuse to sign the agreement that is at issue in this case * * * our inquiry is at an end. Plaintiff has failed to state a claim for wrongful discharge.”).

The noncompete is enforceable even if the employee is fired.  Nike, Inc. v. McCarthy, 285 F. Supp. 2d 1242, 1246 (D. Or. 2003) aff’d, 379 F.3d 576 (9th Cir. 2004).  In McCarthy, the court explained that:

“Similarly, the fact that defendant may have been forced out of the company bears no direct relation to the validity of the contract—the severance pay package alleviates any unfairness, unconscionability or “unclean hands” in enforcing the non-compete for a 1–year period. Further, nothing in the terms of the contract invalidates its provisions based upon the voluntary or involuntary nature of defendant’s separation from the company.”

Id.

Choice of law is generally not an issue because Oregon courts will likely always interpret noncompetes according to Oregon law.  ORS 653.295(1) (which states that a noncompete “may not be enforced by a court of this state” unless it meets the statutory requirements.  Similarly, “An Oregon employer cannot circumvent Oregon laws designed to protect Oregon workers simply by decreeing that the laws of another state will apply.  Konecranes, 340 F. Supp. 2d at 1130.

Reasonableness

“A noncompetition provision in an employment contract is a covenant in restraint of trade.”  Volt Servs. Grp., Div. of Volt Mgmt. Corp. v. Adecco Employment Servs., Inc., 35 P.3d 329, 333 (Or. App. 2001).  In order for a noncompete to be valid, three requirements must be met:

“(1) it must be partial or restricted in its operation in respect either to time or place; (2) it must come on good consideration; and (3) it must be reasonable, that is, it should afford only a fair protection to the interests of the party in whose favor it is made, and must not be so large in its operation as to interfere with the interests of the public.”

  1. P. Lumber Co. v. Moore, 551 P.2d 431, 434 (Or. 1976) (citing Eldridge et al. v. Johnston, 245 P.2d 239, 250 (1952)).

These requirements must be met “[e]ven if the covenant not to compete is not void under section 653.295[.]”  McCarthy, 379 F.3d at 584.

Whether a noncompete is reasonable “must be determined in view of what is reasonably necessary to safeguard the employer’s protectible interest.”  Volt Servs. Grp., 35 P.3d at 334.

A noncompete without geographic limitation is not automatically void.  Renzema v. Nichols, 731 P.2d 1048, 1049 (Or. App. 1987).  “If possible, the noncompetition clause should be interpreted so as to make the extent of its operation reasonable.”  Id.  Whether the noncompete is reasonable will depend on the facts.  Id.

In Lease Agreements With Provisions Requiring the Consent of the Lessor, Consent May Not be Unreasonably Withheld, Unless There is an Express Provision Stating Otherwise

Olson Brooksby works with many commercial industries, including airline owners and airline insurers, regarding lease agreements.  A common issue in lease agreements is whether the lessee is totally at the mercy of the lessor if there is a provision in the lease that requires the lessor’s consent.  May a lessor unreasonably withhold consent?

Under Oregon law, a lessor may not unreasonably withhold consent to a lease provision.

Take this hypothetical, for example.  Let’s say that there is a provision in the lease that requires the lessor’s consent before the lessee can fly the plane over a certain number of miles.  What if the lessee unexpectedly needs to exceed the mileage in that lease provision and the lessor refuses to consent?  Under Oregon law, a lessor may not unreasonably withhold its consent.  To do so would be a violation of the implied covenant of good faith and fair dealing. The key issue is what is “unreasonable”?  If the lessor proffers a reason that would seem objectively reasonable to an average juror, the lessor has met its burden and the lessee probably may not fly the plane beyond the agreed-upon mileage amount.

The standard is whether an objectively reasonable juror would believe that the lessor’s withholding of consent was unreasonable.

Oregon courts have held that every contract includes an implied covenant of good faith and fair dealing, also known as a “duty of good faith”.  See Uptown Heights Associates v. Seafirst Corp., 320 Or 638, 645, 891 P2d 639 (1995); Pacific First Bank v. New Morgan Park Corp., 319 Or 342, 344 n 1, 876 P2d 761 (1994) (Oregon courts use the terms “duty of good faith” and “duty of good faith and fair dealing” interchangeably).  This covenant implies that neither party will engage in any act that will “have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.”  Perkins v. Standard Oil Co., 235 Or 7, 16, 383 P2d 107, 383 P2d 1002 (1963) (quoting 3 Arthur Linton Corbin, Corbin on Contracts §561, at 278 (1960)).  The Oregon Supreme Court has “sought through the good faith doctrine to effectuate the reasonable contractual expectations of the parties.”  Pacific First Bank 319 Or at 351 (internal quotation marks and citations omitted).

The lessee has an objectively reasonable expectation that the lessor will consent, especially if the lessor has no objective reason to refuse consent.  See Hampton Tree Farms, Inc. v. Jewett, 320 Or 599, 616, 892 P2d 683 (1995) (“jury could find that [seller’s] unilateral action in discontinuing to supply logs frustrated [buyer’s] objectively reasonable expectation”).

The lessor must act in good faith and within the bounds of the “objectively reasonable expectations” of the parties.  Uptown Heights Associates, supra.  The express terms of a contract help to define the objectively reasonable expectations of the parties.  Uptown Heights Associates, supra; see Pacific First Bank, supra; Stevens v. Foren, 154 Or App 52, 58, 959 P2d 1008 (1998) (“[t]he duty of good faith and fair dealing cannot contradict an express contractual term, nor does it provide a remedy for an unpleasantly motivated act that is permitted expressly by contract”).  Reasonable expectations include the right of either party to further its own legitimate business interests.  U.S. Genes v. Vial, 143 Or App 552, 559, 923 P2d 1322 (1996).

If there are consent provisions in a lease, it is best if there is an express contractual provision requiring the parties to act in good faith. 

It is best if there is an express contractual provision of good faith, but if there isn’t one, you can rely on the common law above to argue that the lessor, by unreasonably withholding consent, is not exercising good faith and fair dealing, which is implied under the contract.  Pollock v. D.R. Horton, Inc.-Portland, 190 Or App 1, 12–13, 77 P3d 1120 (2003).

The duty of good faith and fair dealing applies to lease agreements implicitly, even if there is not an explicit provision requiring good faith. 

In Pacific First Bank, 319 Or at 353, a landlord-tenant case, the Oregon Supreme Court held that the duty of good faith and fair dealing applies to lease agreements.  The court cited Milton R. Friedman, 1 Friedman on Leases § 7.303e2 (3d ed 1990), which notes that, “there is a rapidly growing minority to the effect that if [a] lease states ‘tenant may assign only with landlord’s consent’ or ‘tenant may not assign without landlord’s consent’ there is engrafted on this language by implication the phrase ‘which consent shall not be unreasonably withheld’”.  Pacific First Bank, 319 Or at 353.  The only way that the lessor could get around this is if there is a “’freely negotiated provision in the lease’” giving the lessor “’an absolute right to withhold consent’”.  Id. (quoting Restatement (Second) of Property § 15.2(2) (1977 & 1993 Supp) (emphasis added to the Restatement quotation by the Pacific First Bank court).

The Pacific First Bank case involved a tenant who had merged into its wholly owned subsidiary and a bank, the lessor, who refused to consent to the transfer and who argued that, under the terms of the lease, transferring the lease required the bank’s prior written consent.  Id. at 344.  The court found in favor of the tenant noting that, although there was a term in the lease that gave the lessor “a unilateral, unrestricted exercise of discretion,” in regard to the lease transfer provision, there was also a term in the lease that provided that the bank would “’not unreasonably withhold its consent to a sublease to a tenant’”  Id. at 354 (emphasis added by the Pacific First Bank court). 

It would thus be helpful if there is a term in the contract providing that the lessor cannot unreasonably withhold its consent—particularly if the lease also includes a term that gives the lessor a unilateral, unrestricted exercise of discretion in regard to the particular provision at issue.  However, in the absence of a unilateral, unrestricted exercise of discretion provision in favor of the lessor, it is not necessary to have a term providing that the lessor will not unreasonably withhold consent, given the court’s Friedman quotation above (“there is engrafted on this language by implication the phrase ‘which consent shall not be unreasonably withheld’”.  Id. at 353 (quoting Friedman, supra).

The lessor’s exercise of consent is thus tempered by the lessor’s duty of good faith and the lessor must not “unreasonably restrain” the lessee’s ability to conduct business in a reasonable and efficient manner.  Carey v. Lincoln Loan Co., 165 Or App 657, 670 (2000), aff’d, 342 Or 530 (2007).  In other words, the provision regarding the lessor’s consent is “not * * * absolute” or subject to the lessor’s “’whim.’”  Id.

 

NTSB Factual Reports and the Hearsay Rule in Oregon Aviation Cases

Oregon books

Oregon Evidence Code Rule 803(8) Provides the Necessary Exception to the Hearsay Rule for NTSB Fact Reports

Although the statements made in the Group Chairman’s reports (“the fact reports”) are arguably hearsay, the reports fall within an exception to the hearsay rule provided under the Oregon Evidence Code (“OEC”).  First, the fact reports are admissible as hearsay exceptions under OEC 803(8)(b).  That rule provides, in part, that reports “of public offices or agencies” that set forth “[m]atters observed pursuant to duty imposed by law as to which matters there was a duty to report” are admissible as exceptions to the hearsay rule.

Second, fact reports are admissible as hearsay exceptions under OEC Rule 803(8)(c), which provides, in part, that reports in civil actions “of public offices or agencies” that contain “factual findings resulting from an investigation made pursuant to authority granted by law” are admissible as exceptions to the hearsay rule “unless the sources of information or other circumstances indicate lack of trustworthiness[.]”

A factual NTSB report falls within the exception for hearsay provided by 803(8)(b)-(c) because it contains “factual findings” resulting from an investigation made by the NTSB, a government agency, pursuant to the authority granted to the NTSB investigators by law.  The NTSB “shall investigate…each accident involving civil aircraft:”  49 USC § 1132(a)(1)(A).  Moreover, by law, the investigation is required to result in a report.  49 USC § 1131(e) (“The Board shall report on the facts and circumstances of each accident investigated by it under subsection (a) or (b) of this section.  The Board shall make each report available to the public * * *.”).  The report and its attachments thus satisfy the foundational elements of OEC 803(8)(b)-(c).

The Admissibility of NTSB Fact Reports at Trial

Businesswoman standing in airplane engine

Introduction

The admissibility of NTSB fact reports at trial is a key issue for aviation lawyers.  The aviation accident defense lawyer must know how the NTSB works and what the relevant authorities are related to the admissibility of the various reports that the NTSB creates.  Aviation defense lawyers must also know what arguments plaintiffs are likely to make in a case where the factual reports prepared by the NTSB under the party system it employs, are unfavorable.  The aviation defense lawyer must be properly schooled on NTSB agency procedure, the party system, the enabling legislation, and the federal statutes that outline the NTSB mandate and system.

Finally, the aviation defense lawyer must know the local rules of evidence typically implicated in what is usually a hard fought battle to admit one or more of what may be the many NTSB group fact reports. This is extremely important for the aviation defense lawyer to understand in jurisdiction like Portland, Oregon, where state court is generally very plaintiff-friendly. Most state court judges do not have experience presiding over cases where a federal agency, let alone a federal agency as unique and specialized such as the NTSB, plays such a central role.

The NTSB Mandate

The NTSB s a unique federal agency.  It is not a federal executive branch agency, but rather is a congressionally chartered, completely independent agency.  The NTSB has a single aviation mandate: to investigate every aviation (and other forms of transportation such as rail, ferry, bus, subway) accident in the Unites States; to determine the probable cause of the accident; and to make recommendations to help protect against future accidents.  49 U.S.C. §§ 1131, 1132, 1135.  See also Chiron Corp. v. NTSB, 198 F.3d 935, 938 (D.C. Cir. 1999).   An NTSB investigation is “not conducted for the purpose of determining the rights or liabilities of any person.  Board regulations and policies are explicit in providing that parties participating in an investigation are involved in NTSB processes only to assist the safety mission and not to prepare for litigation.”  Id. (quotation marks and alterations omitted).

Under the NTSB investigative system discussed below, the operational and investigative methods of the NTSB result in the production of numerous so-called group chairman’s reports, which are intended to be factual in nature.  These are typically referred to as the NTSB “fact reports”.  At the end of the investigation, the NTSB board members may conduct a hearing during which the NTSB group chairs who lead the groups who authored the factual reports may testify.

When the investigation is complete, the Investigator In Charge (“IIC”) of the investigation issues a final report that contains conclusions and a finding of probable cause, which is then released to the public after adoption by the NTSB board members.  Although discussed in further detail below, 49 U.S.C. § 1154(b) prohibits the use of the final probable cause report prepared by the Board itself, as distinguished from it staff’s factual accident reports.

The NTSB Party System and Factual Report Process

For major aviation accidents, the NTSB typically sends a “Go Team”, one of several that the NTSB maintains in readiness so that they can typically leave within hours to go to the site of an accident and immediately begin investigating.  Rachel G. Clingman, LITIGTING THE AVIATION CASE FROM PRE-TRIAL TO CLOSIING ARUMENT 385 (Andrew J. Harakas ed., 3rd ed. 2008).  The NTSB then designates an IIC to oversee the full investigation.  Id. The NTSB and the IIC then nominate parties to participate in the investigation, and organizes themselves and the participating parties into different investigatory groups.  Id.

Each group investigates specific factors related to the accident, including operations, survival factors, meteorology, airworthiness, and aircraft performance.  Id.  Each group is headed by a chairperson who drafts a factual accident report regarding his or her subject matter that is submitted to the IIC.  Id.  The IIC submits the various chairperson factual accident reports to the NTSB, which then uses these reports to prepare the final Board accident report  Id. at 385-86.  Typically, but not always, the Board issues its final report very shortly after the final public hearing, if one is held.

Since aviation crashes can lead to incredibly complicated investigations and require countless individuals with extremely deep experience in sometimes unusual and unique skills including sound spectrum, meteorology, survival factors, CVR and FDR data recovery, aviation operations, metallurgy, airworthiness, crashworthiness, and a host of other factors, the NTSB investigation and reporting process is essential for the aviation defense lawyer to understand.  As noted above, the depth of this investigatory process is typically something most state court judges are not very familiar with.  The parties who are nominated to participate by the NTSB sign declarations attesting that they will not use or shape the information obtained during the investigation as advocates for their employers, who are often stakeholders in the investigation.  The parties agree to use their skill and knowledge and bring what they contribute to the party system investigation only for the purpose of finding the cause of the accident and making recommendations to improve safety.

The investigations conducted by some groups are incredibly broad.  For example, often the operations group will interview pilots and witnesses; travel to the scene, however remote; obtain records; travel to pilot bases; obtain and review pilot records; interview co-workers; and obtain records associated with the maintenance and flight house of the helicopter.

Method For Determining Admissibility

A motion in limine is “any motion, whether made before or during trial, to exclude anticipated prejudicial evidence before the evidence is actually offered”.  Luce v. United States, 469 U.S. 38, 40 n.2 (1984).  The court has inherent authority to decide such motions in order to manage the course of trials. Id at 41.  The court also has broad discretion to decide preliminary questions concerning the qualifications of a witness or the admissibility of evidence.  O.E.C. 104.  In State v. Busby, 315 Or. 292, 844 P.2d 897 (1993), the Oregon Supreme Court noted that it had “expressly approved the use of a pretrial motion in limine to obtain a ruling on evidence before the evidence is sought to be introduced.”  315 Or. n.16 at 305.

Other courts have permitted motions in limine to be filed by a party seeking pretrial rulings that NTSB group chairman’s factual reports were admissible, In re Air Crash at Charlotte, N.C. on July 2, 1994, 982 F. Supp. 1071, 1075 (D. S.C. 1996), or inadmissible, Brown v. Teledyne Continental Motors, Inc., No. 1:06-CV-00026 (N.D. Ohio March 15, 2007).

It is particularly appropriate to file a motion in limine well before the start of any aviation trial.  The NTSB investigation will likely be extensive, and by statute and regulation the NTSB is the only authorized investigatior into the facts and circumstances of the subject accident.  By the time the final report is released in a major NTSB investigation, thousands of hours may have been spent to produce an extensive body of evidence, all of which would be contained on the NTSB’s own public docketing system, and which would be virtually impossible to reproduce absent significant additional time and at incredible cost.

Conclusion

Aviation defense counsel should begin studying the NTSB fact reports, as well as what is virtually always a massive amount of attachments (exhibits) to the reports, as soon as possible.  The reports are virtually always primarily new information since during the pendancy of the NTSB investigation, the NTSB will use its powers as the exclusive investigating agency to voluntarily obtain or subpoena documents related to the investigation which, pursuant to the regulations, are not discoverable until released by the NTSB.  In many cases this is not until after the factual group chairman’s reports are posted to the NTSB docket, or even until after the Board’s report is due, although, as noted above, the report containing the Board’s causal conclusions and safety recommendations is inadmissible pursuant to statute.  The skilled aviation defense attorney will assess the judge’s familiarity with the NTSB and the NTSB process, if any, as soon as possible and begin educating the judge appropriately so that the proper rulings are obtained.

 

Independent Medical Examinations and Oregon Law

IME’s: Leveling the Playing Field

With few exceptions, Oregon has no expert discovery.  While Independent Medical Examinations (“IME’s”) are available, the Oregon Plaintiff’s Bar has resisted them consistently and for years has sought conditions such as the presence of “supporters” or plaintiff’s counsel, someone from their office, or audio and/or video recording, etc.  In large personal injury, product liability, or aviation cases where the defense has needed IME’s in a number of medical disciplines, plaintiffs routinely sought to, and successfully blocked multiple specialty IME’s.

Until recently, the plaintiff could retain one or more medical experts, who could then examine the plaintiff without the defendant ever knowing of the examination(s), or at best, only learning as the plaintiff’s surprise medical expert took the stand.  Obviously, it did not work the other way around and any defense IME, which usually required court intervention, would be discoverable to the plaintiff immediately.  Even if the defendant did not request a written report, the defendant’s expert was obligated to provide the report at the plaintiff’s expense.

Plaintiff Must Now Disclose IME’s and Reports, Or Have Plaintiff’s IME Provider Prepare a Report at Reasonable Expense to the Defense

Pursuant to ORCP 36, ORCP 44 and the Oregon Supreme Court’s recent decision in A.G. v. Guitron, 351 Or 465, 268 P3d 589 (2011),  the plaintiff is now required to produce a written report from any and all examining physicians and psychologists who have examined the plaintiff and not yet made a written report.  This includes the obligation to request that any examining physicians and psychologists who have been retained as  experts by the plaintiff, and who have not yet made a written report, prepare a written report of the examination at the defendant’s reasonable cost and produce it to the defendant.

Defendant May Obtain Attorney Fees If a Motion To Compel Is Required

Pursuant to ORCP 46 A(4), the defendant may also move the court for an Order requiring the plaintiff to pay the defendant’s reasonable attorney fees and costs in filing such a motion to compel, given the express language of ORCP 36, ORCP 44 and Guitron.  Unless the court finds that the opposition to the motion was substantially justified or that other circumstances make an award of expenses unjust, it may order the plaintiff and/or the plaintiff’s attorney to pay the defendant’s reasonable expenses incurred in obtaining the Order, including attorney’s fees.

The Oregon Evidence Code Contains an Exception to the Psychotherapist-Patient Privilege in Cases Where Emotional Condition Is At Issue

A plaintiff may argue that the attorney-client privilege protects psychotherapist reports until the plaintiff or the plaintiff’s testifying doctor/therapist takes the stand, thereby waiving the privilege.  However, the Oregon Evidence Code (“OEC”) provides an exception to the psychotherapist-patient privilege asserted by plaintiff.  OEC 504(4)(b) provides that,

“There is no privilege under this rule as to communications relevant to an issue of the mental or emotional condition of the patient[.]”

Defense counsel should also be aware and prepared to argue that, by definition, the work-product privilege codified in ORCP 36 B(3) does not apply to medical records.  Also, while pretrial discovery of non-medical experts is generally not permitted in Oregon, Oregon does not recognize a general “expert” privilege that would relieve plaintiff of all obligations to produce medical records.

ORCP 36 B(1) and ORCP 44 D Make Clear that Plaintiff Does Not Have the Right to Ambush Defendant With a Secret Medical Witness

A plaintiff’s medical records in a personal injury case are relevant and discoverable pursuant to ORCP 36 B(1), which is broad and allows parties discovery “regarding any matter, not privileged, which is relevant” to any claim or defense in the case.  ORCP 36 B(1) further provides that, “It is not ground for objection that the information sought will be inadmissible at the trial if the information sought appears reasonably calculated to lead to the discovery of admissible evidence.”

Under ORCP 44 C, “the claimant shall deliver to the requesting party a copy of all written reports and existing notations of any examinations relating to injuries for which recovery is sought * * *.”  Under ORCP 44 D(1), a party may request the report of an “examining physician or psychologist” who has examined the other party for purposes of litigation.   Under the Guitron case, when requested, under the proper predicate circumstances, a plaintiff is required to provide the defense with reports from that plaintiff’s IME physician.  Specifically, the Guitron court held that ORCP 44 C requires plaintiffs “to deliver to defendants, at defendants’ request, a copy of all written reports of examinations related to the psychological injuries for which plaintiff sought recovery, including, specifically, the report of an examination by a psychologist retained by plaintiff’s counsel for the purpose of the litigation.”  351 Or 465, 467.

The court in Guitron affirmed the trial court and the Oregon Court of Appeals’ decision to bar the plaintiff’s psychologist from testifying at trial pursuant to ORCP 44 D because his required written report was not produced to the defendants.  351 Or 465.  The court held that, under ORCP 44 C, plaintiffs are required to produce on request “the reports of the experts who examined them for purposes of litigation as well as for treatment.”  Id. at 485.  As the Guitron court noted, in adopting ORCP 44, the Oregon Legislature limited the reach of the protections of the physician-patient, psychotherapist-patient, and attorney-client privileges, and ordered plaintiff to produce a report that might otherwise have been protected.  351 Or at 484-85.

Plaintiffs Are No Longer Entitled to the Presence of a Supporter During IMEs Unless Extraordinary Circumstances Are Present

On March 7, 2013, The Oregon Supreme Court published an opinion which was a welcome further leveling of the playing field for the defense as it relates to defense-requested IME’s.  The issue of plaintiffs having their counsel or a “supporter” present during defense IME’s has plagued Oregon state civil defense lawyers for decades.

In Lindell v Kalugin, 353 Or 338, 297 P 3d 1266 (2013), the Oregon Supreme Court issued an important en banc opinion for the defense.  The court ruled that a plaintiff is not automatically entitled to be accompanied by counsel or a supporter at an IME requested by the defense.

An ongoing dispute for many years in Oregon is whether a plaintiff’s counsel, family member, or friend can attend a defense-requested IME.  After performing a balancing test, the court ruled that the defense was entitled to have the plaintiff examined without having a family member, friend, or their counsel in attendance.  Id. at 358.  The court noted that this was in part so that the IME examiner, and by extension the defense, could evaluate the true responses of the plaintiff and get a true sense of plaintiff’s condition, unaltered by the presence of the third person.  Id. at 357-58.

The court did not, however, rule that a third party would be prohibited to attend a plaintiff’s IME under any circumstances, but it did rule that the proper showing of need had not been made in the Lindell case.  We do not expect this opinion to alter the customary Oregon practice whereby trial court judges allow the presence of a third person such as a parent in cases involving children or vulnerable adults.

This will likely have particular importance in serious negligence, product liability, and aviation cases where serious injuries are possible and multiple-discipline IME’s are necessary.

Multi-Defendant Product Liability and Aviation Cases Under the Lasley Case

Close up of judge raising gavel in courtroom

Lasley: A road map for pleading claims related to the fault of other defendants

Olson Brooksby PC often represents one or more defendants In multi-defendant product liability actions and aviation cases.  The Oregon Supreme Court case of Lasley v Combined Transport, Inc., 351 Or 1 (2011), addressed the issue of causation in Oregon as it relates to negligence cases with multiple tortfeasors.  Lasley also contains a detailed analysis regarding allocation of fault.  It is instructive for defendants who have affirmative defenses relating to the fault of other parties, as well as cross-claims and indemnity and contribution claims against each other.

For example, in multi-party product liability and aviation cases, more often than not, there will be a two or more co-defendants who intend to present a unified, or at least not inconsistent, defense against the target defendant.

Lasley contains a road map for defendants in such cases and sets out how to properly plead claims concerning the fault of other defendants so that those claims may be appropriately considered by the jury.

 What happened in Lasley?

In the Lasley case, a truck owned by defendant Combined Transport lost part of its load of panes of glass on the I-5 freeway.  Id. at 4.  The plaintiff in the case was among those stopped in traffic on the freeway while the glass dropped by defendant Combined Transport was being cleaned up.  Id.  While the plaintiff was stopped, Clemmer, the other defendant in the case, hit plaintiff’s pickup truck.  Id.  Defendant Clemmer was allegedly driving while intoxicated.  The collision caused a gas leak from the plaintiff’s pickup which, in turn, caused a fire, killing the plaintiff.  Id.  The lawsuit against Clemmer and Combined Transport alleged “that Clemmer was negligent in driving at an excessive speed and in failing to keep a proper lookout and control of her car.”  Id. at 13.  Clemmer admitted fault.  Id.  Critically, “Plaintiff did not allege that Clemmer was negligent in driving while intoxicated.”  Id.

Based on these pleadings, the trial court granted the plaintiff’s motion in limine to exclude evidence that Clemmer was intoxicated at the time of the collision, and the jury ultimately returned a verdict against both defendants, finding Combined Transport 22% at fault and Clemmer 78% at fault for plaintiff’s damages.  Id. at 4.

On appeal, Combined Transport argued that the court should have allowed evidence of Clemmer’s negligence due to her intoxication because Combined Transport filed an answer including a general denial and filed a cross-claim against Clemmer for contribution based on negligence due to intoxication.   Id. at 13-14.  Specifically, Combined Transport alleged that Clemmer should “contribute such amount as is proportionate to her share.”  Id. at 23.  (Internal quotation marks omitted.)   However, “Combined Transport did not allege in its cross-claim that it had paid more than its proportional share of liability or seek a money judgment against Clemmer.”  Id.  (Bolding added.)    The plaintiff argued that evidence of Clemmer’s intoxication was properly excluded because the plaintiff did not allege that Clemmer was negligent in driving while intoxicated, and, therefore, Clemmer’s intoxication was not relevant to apportionment as framed by the pleadings.  Id. at 13.

The court explained that Combined Transport should have included allegations of Clemmer’s negligence due to intoxication and Clemmer’s responsibility for contribution in Combined Transport’s answer as an affirmative defense.  Id. at 23.  The court held that:

“[A] defendant that does not allege that it has paid more than its proportional share of liability and that does not seek a separate judgment against a codefendant for the amount of that excess payment, but that instead seeks to avoid paying the full damages that a plaintiff has alleged on the basis that a codefendant is more at fault in a way that was not alleged by the plaintiff, must plead the specification of negligence on which the defendant relies as an affirmative defense in its answer to the plaintiff’s complaint and not in a separate cross-claim against the codefendant.”  

Id. at 22-23.

As explained below, however, the court treated the Lasley case in a special way and allowed the cross-claim to be treated as an affirmative defense. Id. at 26. Most defendants in other multi-party cases, however, probably will not be so lucky.

Also, as explained below, the court went through a lengthy analysis of causation and negligence law in Oregon, and it also set out some critical Oregon-specific pleading rules in multi-defendant cases.

Causation in negligence cases involving multiple defendants under Lasley

The Lasley court stated that, in Oregon, “when the negligence of multiple tortfeasors combines to produce harm, each tortfeasor whose negligence was a cause of the harm may be held liable.”  Id. at 6. Oregon law focuses on factual cause.  Id. at 7.  The Oregon Supreme Court “has abolished not only the terms but also the concepts of ‘proximate’ and ‘legal’ cause.”  Id. at 6.   Factually, if the defendant’s negligence harmed the plaintiff, the defendant is liable to the plaintiff as long as the injuries that the plaintiff suffered were reasonably foreseeable as a result of the defendant’s negligence.  Id. at 7.  Therefore, causation is “a purely factual matter” and is separate from the concept of liability (which is determined by whether the harm was reasonably foreseeable–not by ‘proximate’ or ‘legal’ cause).  Id.

Under Oregon law, causation is determined based on the “substantial factor” test and is evaluated by looking at “causation in fact.”  Id. (internal citation and quotation marks omitted).  If the defendant’s conduct was a substantial factor in producing the harm that befell the plaintiff, the causation element is met.  Id.  The question is “whether someone examining the event without regard to legal consequences would conclude that the allegedly faulty conduct or condition in fact played a role in its occurrence.”  Id. (internal citation and quotation marks omitted).

In Lasley, Combined Transport argued that its conduct was so minimal when compared to Clemmer’s that its conduct could not have been a substantial factor in causing the plaintiff’s death.  Id. at 8.  Specifically, Combined Transport argued that the trial court should have admitted evidence that Clemmer was intoxicated at the time of the accident and that, when compared to Clemmer’s egregious conduct, Combined Transport’s conduct was so minimal that it should not be held liable.

The court admitted that a case might exist where the causation element is met as to the first defendant such that the plaintiff’s injury would not have occurred absent that first defendant’s negligence.  However, that first defendant’s act was so insignificant when compared to the act of the second defendant that the first defendant should not be held liable.  Id. at 10.  But the court declined to address such a circumstance, finding that those facts were not at issue in Lasley.  Id.

Rather, the court held that, “both the conduct of Clemmer and the conduct of Combined Transport were substantial factors in contributing to decedent’s death.”  Id.  Clemmer admitted fault and the jury found that Combined Transport’s act of spilling the glass on I-5 caused the plaintiff to stop.  Id. at 11.  There was expert testimony that, had the decedent’s pickup been moving at the time of the impact, the pickup would not have ignited and the plaintiff would not have died.  Id.

The court found that, even if the trial court had admitted evidence of Clemmer’s intoxication, Combined Transport’s conduct would not have been any less significant based on the evidence at trial.  Id. at 11.  The court reasoned that, “In deciding whether a defendant’s act is a factual cause of a plaintiff’s harm, the effect of the defendant’s conduct, and not whether that conduct fell below the expected standard of care, is the relevant consideration.”  Id.  Therefore, even if Clemmer was not intoxicated and did not engage in any negligent conduct, but still hit the decedent’s pickup while it was stopped, Clemmer’s conduct would have been a factual cause of the decedent’s harm.  Id.  The court explained that Combined Transport’s argument confused “causation” and “negligence.”  Id.  In other words, even if the trial court had introduced evidence regarding Clemmer’s intoxication, that would simply show “an additional way in which Clemmer deviated from the standard of care, it could not prove an additional way in which Clemmer contributed to the chain of events that caused decedent’s death.”  Id.  The focus is on “the effect of the defendant’s conduct, and not whether that conduct fell below the expected standard of care * * *.”  Id.  The court conceded that its analysis may have been different had Combined Transport proffered “evidence that showed that, because Clemmer was intoxicated, she inevitably would have killed decedent, even if his pickup had not been stationary.”  Id. at 12.  However, that argument was not made by Combined Transport at trial.

Apportionment of fault in multi-defendant cases under Lasley

Under Oregon law, when the fact finder determines that multiple defendants were at fault, the fact finder must apportion fault, based on percentages that equal 100, between those defendants.  Id. at 13.  The fact finder “is required to compare the degree to which each defendant deviated from the standard of care and is therefore ‘blameworthy.'”  Id.

The plaintiff in Lasley argued that Clemmer’s intoxication was not relevant to the fault of the parties “as framed by the pleadings” because the plaintiff did not make such an allegation in his Complaint.  Id.

Combined Transport argued that evidence of Clemmer’s intoxication should have been allowed because Combined Transport’s Answer included a general denial and it also cross-claimed against Clemmer for contribution on the basis of Clemmer’s intoxication.  Id. at 13-14.

The court held that:

“in a comparative negligence case, a defendant that seeks to rely on a specification of negligence not alleged by the plaintiff to establish a codefendant’s proportional share of fault must affirmatively plead that specification of negligence and do so in its answer as an affirmative defense and not in a cross-claim for contribution.”

Id. at 14.

The court found that, under the unique facts of Lasley, Combined Transport’s cross-claim could be construed as an affirmative defense alleging that Clemmer was negligent by driving under the influence.  Id.  The court therefore held that the trial court erred in excluding evidence of Clemmer’s intoxication.  Id.  It is important to note that the court stressed that Lasley was a very unique case and was almost a “one-off” exception to the holding that specific facts underlying a negligence claim not pleaded by a plaintiff must be pleaded by a defendant as an affirmative defense if the defendant wants to rely on those facts at trial.  As a rule, such facts should not be pled as a cross-claim for contribution.  In other words, “a defendant that intends to rely on a specification of negligence not pleaded by a plaintiff must affirmatively plead those facts to make them admissible.”  Id. at 15.  (Bolding added.)

The court explained that Combined Transport’s general denial was not sufficient to put into issue facts that the plaintiff had not pleaded in his Complaint.  Id. at 17.  A general denial only allows for evidence that contradicts “facts necessary to be proved by plaintiff * * *.”  Id (internal quotation marks and citation omitted).  In contrast, an affirmative defense pleads “a new matter” that “does not directly controvert a fact necessary to be established by plaintiff * * *.”   Id (internal quotation marks and citation omitted).

A “new matter” consists of facts “different from those averred by the plaintiff and not embraced within the judicial inquiry into their truth.”  Id (internal quotation marks and citation omitted).  In other words, “When a defendant seeks to avoid liability for the damages that a plaintiff claims by asserting that a codefendant engaged in more blameworthy negligent conduct not pleaded by the plaintiff, the defendant relies for that defensive posture on facts different from those averred by the plaintiff.”  Id.  

The court held that:

“a defendant that does not allege that it has paid more than its proportional share of liability and that does not seek a separate judgment against a codefendant for the amount of that excess payment, but that instead seeks to avoid paying the full damages that a plaintiff has alleged on the basis that a codefendant is more at fault in a way that was not alleged by the plaintiff, must plead the specification of negligence on which the defendant relies as an affirmative defense in its answer to the plaintiff’s complaint and not in a separate cross-claim against the codefendant.”  

Id. at 22-23.

Under the facts of Lasley, “Combined Transport did not allege in its cross-claim that it had paid more than its proportional share of liability or seek a money judgment against Clemmer.”  Id. at 23.  Rather, Combined Transport alleged that Clemmer was driving while intoxicated and that Clemmer should “‘contribute such amount as is proportionate to her share.'”  Id.  The court found that Combined Transport should have made those allegations as an affirmative defense.  Id.

However, the court noted that:

Combined Transport did allege, in its cross-claim, the fact of Clemmer’s intoxication and its theory that Clemmer’s intoxication should be considered in determining Clemmer’s proportional share of liability.  Combined Transport was incorrect in selecting the pleading that it was required to use, but was correct in recognizing that it must plead those allegations to make Clemmer’s intoxication relevant to the jury’s determination of comparative fault.  The trial court was correct that a cross-claim for contribution was premature, but it was incorrect that there was no role for Combined Transport’s pleading alleging negligence by Clemmer that was not pleaded by plaintiff.  A pleading was necessary to make Clemmer’s intoxication material and to allow the jury to consider that conduct in comparing the fault of Clemmer and Combined Transport.”

Id. at 26.  

Therefore, the court held that, “in the unique circumstances of this case, the cross-claim that Combined Transport proffered fulfilled the function of an affirmative defense, viz., to put the plaintiff on notice of the theory and facts comprising the defendant’s defense.”  Id. (bolding added).  The court found it significant that, at the time of trial, it was unclear (due to the trial court’s rulings) which pleading Combined Transport was required to use and Combined Transport’s cross-claim did apprise the plaintiff “of the facts on which it intended to rely and the purpose of those facts.  In that narrow circumstance, the defect in designating the pleading as a cross-claim rather than as an affirmative defense did not affect the substantial rights of plaintiff.”  Id. at 27 (bolding added).

The court added that, “However, for the reasons we have stated, the evidence of Clemmer’s intoxication was not relevant on the issues of causation, liability, or damages.  Therefore, we remand the case for a new trial limited to the degree of fault of each defendant ‘expressed as a percentage of the total fault’ attributable to each defendant.”  Id. at 27.

Pleading requirements and rules for defendants who want to ensure that fault is allocated to another party

The court also spelled out additional pleading requirements under Oregon law when a defendant wants to ensure that fault is allocated to another party:

– “When a defendant seeks to avoid liability to the plaintiff by asserting that the plaintiff or another tortfeasor should be held responsible for the plaintiff’s damages, Oregon law also anticipates that the defendant will alternatively plead the facts on which it relies.”  Id. at 16.

– “When a defendant contends that the plaintiff was at fault, the defendant must affirmatively plead ‘comparative or contributory negligence’ in its answer as an affirmative defense.  ORCP 19 B.”  Lasley, 351 Or at 16.

– “When a defendant contends that a tortfeasor who has not been joined in the action or with whom the plaintiff has settled was at fault, the defendant must file a third-party complaint against the tortfeasor or otherwise affirmatively allege the fault of that tortfeasor. ORS 31.600(3).”  Lasley, 351 Or at 16.

– “When a defendant contends that a codefendant was at fault, the defendant also must affirmatively allege the unpleaded fault of the codefendant.  * * *  ORCP 19 B requires that a party set forth affirmatively allegations of ‘comparative negligence.’  That requirement is not limited to allegations of the comparative negligence of a plaintiff.  Lasley, 351 Or at 16-17.

– “ORCP 19 B requires a defendant to set forth affirmatively ‘any other matter constituting an avoidance or affirmative defense.'”  Lasley, 351 Or at 17.

– “A general denial is required to ‘fairly meet the substance of the allegations denied.’  ORCP 19 A.  Therefore, a general denial does not put at issue facts that a plaintiff has not pleaded.”  Lasley, 351 Or at 17.

– Under ORS 31.600(3) and ORCP 19 B, “a defendant must, in some way, affirmatively plead a specification of negligence on which it intends to rely, and that has not been pleaded by the plaintiff, to establish the fault of a codefendant.  A general denial wil not permit a defendant to adduce evidence of a codefendant’s unpleaded negligence to avoid liability to the plaintiff.”  Lasley, 351 Or at 17.

– “[T]he proportional share of fault of each tortfeasor will be determined in the negligence action brought by the plaintiff.”  Id. at 18.

– Oregon no longer has joint and several liability.  “Now, under ORS 31.610, liability is several only; a tortfeasor is responsible only for its percentage of fault as determined in the action brought by the plaintiff.”   Lasley, 351 Or at 19.

– Under Oregon’s comparative negligence law, “no tortfeasor is liable for more than its percentage of fault, and that percentage of fault is determined in the original negligence action brought by the plaintiff.  ORS 31.610(2); ORS 31.805.”  Lasley, 351 Or at 21.

– “A defendant cannot bring a contribution action to seek a different determination of its percentage of fault.  A contribution action serves only to permit a defendant who has ‘paid more’ than its ‘proportional share of the common liability’ to obtain contribution from another person who is also liable for the same injury or death.  ORS 31.800(2).”  Lasley, 351 Or at 21.

– Although Oregon law allows for contribution claims under ORS 31.800(2), “Because a defendant’s liability is several only and the defendant is not obligated to pay more than its proportional share of liability, it seems that the circumstances in which a defendant will pay more than its proportional share and, therefore, have a reason to seek contribution from a codefendant will be quite limited.”   Lasley, 351 Or at 21.

– If a defendant does pay more than its proportional share and has a reason to seek contribution from a codefendant, that defendant “could use a cross-claim to assert a claim for contribution against a codefendant.  ORCP 22 B defines a cross-claim as a claim ‘existing in favor of the defendant asserting the cross-claim and against another defendant, between whom a separate judgment might be had in the action [.]’  A defendant who ‘has paid’ its proportional share could seek a separate judgment against a codefendant for the excess amount of its payment and do so by means of a cross-claim.”   Lasley, 351 Or at 21.

– A cross-clam for contribution should not be used “by a defendant to allege that a co-defendant is at fault for the plaintiff’s damages and should be held liable, not to the defendant, but to the plaintiff.  In that instance, the defendant does not seek a separate judgment against the codefendant as required by ORCP 22 B.  Even so, the comparative negligence statutes indicate that such a pleading may be permitted.”  Lasley, 351 Or at 21.

– “[W]hen a plaintiff does not join a tortfeasor as a defendant, the comparative negligence statutes permit the named defendant to file a third-party complaint against the tortfeasor.  ORS 31.600(3).  In that instance, the third-party defendant will not be liable to the defendant but, potentially, will be liable to the plaintiff.”  Lasley, 351 Or at 22.

– “ORCP 22 C(1) restricts third-party claims to circumstances in which a third party ‘is or may be liable to the third party plaintiff.'”  Lasley, 351 Or at 22.

– Even though ORCP 22 C(1) “indicates that a third-party claim is designed for the circumstance in which the third-party defendant is or may be liable to the third-party plaintiff, ORS 31.600(3) permits a defendant to file a third-party complaint to allege that a third-party defendant is at fault and potentially liable to the plaintiff.”  Lasley, 351 Or at 22.

– “ORS 31.600(2) specifically provides that the fact that a plaintiff is not a party to the third-party claim does not pervent the trier of fact from comparing the fault of the third-party defendant in the action brought by the plaintiff.”  Lasley, 351 Or at 22.

– “[T]he legislature anticipated that a defendant could file a third-party complaint against a tortfeasor who would not be liable to the defendant but who could, instead, be liable to the plaintiff.  Whether the legislature intended to permit a defendant to make a cross-claim against a codefendant who would not be liable to the defendant but, instead, would be liable to the plaintiff, is unclear.”  Id.  

– “Neither an affirmative defense nor a cross-claim for contribution is ideally designed as a mechanism for a defendant to plead the negligence of a codefendant that is not pleaded by the plaintiff and thereby to avoid or reduce the defendant’s liability to the plaintiff.  An affirmative defense is directed at a plaintiff, not at a codefendant.”  That said, “an affirmative defense is the pleading mechanism that a defendant should use.  The use of an affirmative defense is consistent with the terms of ORCP 19 B, whereas the use of a cross-claim for contribution would require modification of the terms of ORCP 22 B(1) and ORS 31.800.”  Lasley, 351 Or at 22.

– “We hold that a defendant that does not allege that it has paid more than its proportional share of liability and that does not seek a separate judgment against a codefendant for the amount of that excess payment, but that instead seek to avoid paying the full damages that a plaintiff has alleged on the basis that a codefendant is more at fault in a way that was not alleged by the plaintiff, must plead the specification of negligence on which the defendant relies as an affirmative defense in its answer to the plaintiff’s complaint and not in a separate cross-claim against the codefendant.”  Id. at 22-23.

– A cross-claim for contribution is directed at a codefendant and is not designed to avoid liability to a plaintiff.  Id. at 22.

– “[A] defendant who wishes to have the jury consider the unpleaded negligence of a codefendant in making” the comparison of fault of the parties “is required to plead the facts establishing that negligence.  The fact that the codefendant has accepted liability based on the facts alleged by the plaintiff does not eliminate that requirement.  Thus, in this case, to have the jury consider evidence of Clemmer’s intoxication in comparing the fault of the parties, either plaintiff or Combined Transport had to allege those facts.  Plaintiff did not do so, and the pleading burden fell on Combined Transport.”  Id. at 26.

 

Component Part Manufacturer Liability in Oregon

Oregon Did Not Adopt Caveat (3) In Its Adoption of The Restatement (Second) of Torts, § 402A (1965)

Component part liability is important in products liability cases and especially in aviation cases, where the aircraft may have a long air-frame life but require service or replacements of hundreds of parts over its years of service.  Although Oregon adopted the Restatement (Second) of Torts, § 402A contains a caveat (Caveat 3 (1965)) regarding whether strict liability should be extended to component part manufacturers.  The Oregon Legislature, however, did not adopt this caveat as an interpretive guide for the courts.  Therefore, both pre-codification and post-codification Oregon Supreme Court rulings hold that strict liability can extend to component part manufacturers for the sale of defective components.  See State ex rel Hydraulic Servocontrols v. Dale, 294 Or 381 (1982); Smith v. J.C. Penney Co., 269 Or 643 (1974) (fabric manufacturer held liable because of flammable character of fabric, even though fabric was sold to the coat manufacturer before reaching consumer).  If the component part is dangerously defective and it causes injury, the component part manufacturer (or seller or distributor) is subject to liability.

Oregon law also follows the Restatement (Third) of Torts: Products Liability, which takes the position that if the component part is defective and causes injury, the component part manufacturer (or seller or distributor) is subject to liability.  Additionally, if the component part manufacturer “substantially participates in the integration of the component into the design of the product,” the component manufacturer is subject to liability. Restatement (Third) Of Torts: Products Liability § 5 (1998).

Oregon Law Involving Alleged Misapplication of a Raw Material:  Misapplication of a Raw Material Does Not Give Rise To Liability As To the Supplier

The manufacturer of a component part, however, is not subject to strict liability if the component was misapplied rather than defectively designed.  In Hoyt v. Vitek, Inc., 134 Or App 271 (1995), after experiencing problems with her temporomandibular joint (TMJ), the joint that connects the jaw bone to the skull, the plaintiff, Hoyt, had a prosthetic device implanted in her jaw.  The device gradually fragmented and released particles of Teflon, which caused a serious adverse reaction.  Du Pont Company manufactured Teflon and sold it to Vitek, Inc., which used the Teflon as a component part in its TMJ device.

Vitek designed, manufactured and marketed the device.  In 1977 DuPont informed Vitek that it manufactured Teflon for industrial purposes only and had sought no FDA rulings on the safety or effectiveness of surgical uses, and that Vitek would have to rely on its own medical and legal judgment.  Du Pont was aware of studies that warned of abrasion and fragmentation with medical Teflon implants and passed along this information to Vitek.  In 1983, Vitek received permission from the FDA to market the device pending “specific performance standards.”  Hoyt, supra, 134 Or App at 277.

Hoyt sued Du Pont, contending that Teflon was unreasonably dangerous because it was defectively designed and because of Du Pont’s failure to warn the medical community.  The court of appeals found that the component part was not defective.  The court of appeals also relied on the “raw material supplier” doctrine in deciding not to apply strict liability.  When a multiuse raw material is not unreasonably dangerous in itself, but becomes unreasonably dangerous when incorporated into certain uses, the supplier cannot be sued based on strict liability.  Hoyt, supra, 134 Or App at 284-286.  See Crossfield v. Quality Control Equip. Co., 1 F3d 701 (8th Cir 1993); Childress v. Gresen Mfg. Co., 888 F2d 45 (6th Cir 1989).

Cases in Which Component Parts Are the Allegedly Defective Product

Plaintiffs did allege that defective replacement parts were supplied after the first sale of a helicopter in Evans v. Bell Helicopter Textron, 1998 WL 1297138 (D Or 1998), but the service bulletins proffered by plaintiffs were insufficient to establish that the defective component parts were installed in the engine after the first sale.  The helicopter was manufactured in 1979, and crashed seventeen years later.  Defendants’ motion for summary judgment was granted on the basis of ORS 30.905 because plaintiffs could not support their allegation that an affirmative misrepresentation occurred after the first sale of the helicopter by defendants.

In Allstate Indem. Co. v. Go Appliances LLC, 2006 WL 2045860 (D Or 2006), plaintiff alleged that a defective compressor installed on a used refrigerator caused a fire in its subrogor’s house.  The opinion does not state when the refrigerator was originally first sold and does not discuss product liability time limitations.  However, the court held that plaintiff could assert a products liability action against the defendant, who sold the used appliance and installed the allegedly defective new compressor.

The statute of ultimate repose in both strict product liability cases and negligence cases is beyond the scope of this article.  However, one of the controlling Oregon cases relevant to a replacement component part is Erickson Air-Crane Co. v. United Technologies Corp., 303 Or 281 (1987), mod. on recons. 303 Or 452.  Although Erickson discussed the application of the products liability statute of ultimate repose in the context of post-sale negligent misrepresentation, the case is relevant to a discussion regarding application of the statute of ultimate repose to a post- sale installation of a defective component part.

In Erickson, plaintiff purchased a helicopter in 1971.  Defendant allegedly made misrepresentations regarding the useful safe life of a compressor disc in 1977.  After the helicopter crashed in 1981 due to exhaustion of the compressor disc, plaintiff filed suit in 1983.  The plaintiff’s complaint alleged that defendant was negligent in providing erroneous information, failing to warn plaintiff as to the erroneous information, and failing to warn that the helicopter was dangerous after expiration of the true safe life of the compressor disc.  Erickson, 303 Or at 284-85.

The Oregon Court of Appeals found that plaintiff’s action against the manufacturer was a product liability action, and that because the action was commenced more than eight years after the first purchase of the helicopter, the statute of ultimate repose barred the action.  Id. at 285-86.  The Supreme Court reversed, holding that:  “ORS 30.905 applies only to acts, omissions or conditions existing or occurring before or at the ‘date on which the product was first purchased for use or consumption.’  Acts or omissions occurring after that date are governed by the statute of ultimate repose contained in ORS 12.115.”[1]  Id. at 286.  Because the defendant relayed the false information about the useful safe life of the compressor after the helicopter was first purchased, ORS 30.905 did not apply.  Id. at 289. (“The difference between the present case and the type of case that the legislature meant to cover under ORS 30.905(1) is that, in this negligence case, the reasonableness of certain of defendant’s actions after plaintiff’s purchase are in question while, in a product liability case governed by ORS 30.905, it is the condition of the article at the date of purchase that is in question.”) (emphasis in original).

The Erickson holding, when viewed in the context of installations of new components, supports the argument that such alterations cannot “restart” the statute of ultimate repose on the original product.  Erickson holds that ORS 30.905 only applies to “acts, omissions or conditions existing or occurring before or at the ‘date on which the product was first purchased for use or consumption,’” and a post-sale negligent misrepresentation leading to the installation of a new product necessarily occurs after the date the product was first purchased.  A manufacturer can argue that under Erickson, the statute of ultimate repose should run on the original product from the date it entered the stream of commerce, regardless of whether component parts were installed post sale.

 

 


[1] ORS 12.115 is the generic statute of ultimate repose for negligence actions, and provides that “any action for negligent injury to person or property of another” must be commenced within “10 years from the date of the act or omission complained of.”

Evaluation of Potential Claims: Direct Negligence and Vicarious Liability

Oregon Negligence Law Changed Significantly in 1987

Oregon is a state that recognizes a cause of action for direct negligence and vicarious liability.  The lawyers at OlsonBrooksby frequently defend catastrophic personal injury, product liability, and aviation claims which contain causes of action based on direct negligence and vicarious liability.

First, we will discuss potential claims for direct negligence.  An understanding of negligence law in Oregon requires a brief discussion of pre- and post-1987 common law decisions.  Prior to 1987, Oregon generally held to a conventional approach to negligence cases, requiring the existence of a duty, a breach of that duty, causation, and damages.  However, as a result of cases decided in the period around 1987, common law negligence in Oregon now depends on whether the defendant’s conduct unreasonably created a foreseeable risk to a protected interest of the kind of harm that befell the plaintiff.

A Direct Claim For Negligence Can  Exist With Or Without The Fazzolari Special Relationship

The change from the strict adherence to the traditional common law elements of duty, breach, causation, and damages was a result of the Oregon appellate court’s perceived overuse of the cliché “duty” or “no duty.”  Oregon courts, therefore, began to encourage juries and judges to decide each case on its own facts.  Duty continues to play an affirmative role when the parties invoke a particular status, relationship, or standard of conduct beyond the standards generated by common law.  This was the result of the so-called Fazzolari principle, which now governs negligence law in Oregon.  See Fazzolari v. Portland School District 1J, 303 Or 1 (1987).

A special relationship is usually defined in the form of a fiduciary, contractual, or legal relationship such as guardianship.  Typically, the school–student relationship has been deemed a special relationship as contemplated by Fazzolari.

Fazzolari typically requires a three-part test:

  1. Determine whether a particular status, relationship, or standard exists;
  2. If so, analyze that status, relationship, or standard to determine whether a “duty” beyond that of ordinary care exists;
  3. If such a standard, relationship, or status is not alleged, then analyze the case under principles of general negligence based on foreseeability of risk of harm.

For example, suppose an employee of a sports club is involved in an accident in which a club member is injured.  Although there are no Oregon cases exactly on point, given the nature of the relationship between the employee and the club member, we do not believe that the member has a strong argument that a “special relationship” existed between himself and the sports club.

Let’s suppose further that the paperwork which was executed by the member consisted of the membership application and the general waiver of liability for use of the sports center facilities.  Suppose there were no detailed contractual provisions denoting certain services, obligations, or protections provided to, or expected of, the member.  Therefore, there was no fiduciary relationship.  Under these facts, a special relationship did not exist between the member and the sports club that typically would have invoked a duty of care to the member beyond that of the ordinary care extended to a business invitee.

Although courts have often found that schools are in a special relationship with their students, we do not believe that type of relationship is comparable to the sports club and its member.  This is because of the fundamentally voluntary nature of the sports club membership (without regard to the statutory abolition of assumption of the risk discussed below).  Moreover, we should assume that the sports club member was not a third-party beneficiary of any contract that existed between the sports club and a government agency or other third party.

For these reasons, we see nothing that would clearly take this hypothetical case out of the conventional principles of negligence and create a special relationship requiring examination on its own facts.

Although a special relationship may take a case out of the typical “duty” or “no duty” scenario, the harm to the protected interest of the putative plaintiff must still be reasonably foreseeable.  Therefore, given that, in this hypothetical “sports club / member” relationship scenario, we are operating under the principles of ordinary negligence, the appropriate standard in this case is that an organization’s conduct must not unreasonably create a foreseeable risk of harm to others.

Direct negligence claims are sometimes referred to as causes of action based on negligent hiring, negligent training, negligent supervision, or negligent retention.  The organization may be directly liable for negligence claims based on hiring, retention, supervision, or training if (1) it places a dangerous person in a position that poses an unreasonable risk of harm to others, and if (2) the organization knew of the danger or could have discovered the danger through reasonable investigation.

In the event there were other facts such as the following, it may support one or more of the sports club member’s claims for direct negligence:

  • Sports club failed to screen employees, including those that may have needed specialized training, i.e., lifeguards.
  • There is no documentation that sports club ever trained its employees, let alone the employee or employees who were involved with member’s hypothetical accident.
  • Employees displayed an attitude of disinterest, which may have affected their performance of safety related duties.
  • Sports club failed to maintain adequate documentation of employee performance in employee personnel files.
  • Employees had ambiguous or uncertain understanding of the proper safety protocol.
  • Sports club has a history of failing to comply with its own club procedures, resulting in similar prior injuries.
  • Sports club employee(s) admitted they were lazy, did not like their jobs, or were apathetic toward proper performance.
  • Sports club failed to develop adequate safety procedures, i.e., requiring employees or members to obtain and renew any type of skill or safety certification.
  • Sports club employee was not properly supervised, lacked familiarity with sports clubs rules and procedures, and was less experienced at a given task, i.e., weight training safety spotting, than many of the members.

In summary, if sufficient evidence exists of the sports club’s failure to properly hire, train, or supervise, or retain, the club would have an uphill battle defending against a direct negligence claim. 

Vicarious Liability 

Oregon is a vicarious liability state.  If, as in the example above, the sports club member made a claim that the sports club is vicariously liable for his alleged injury, he would argue that sports club, as the “master” of its employee or “servant,” is liable for its employee’s negligence in failing to protect what was a foreseeable interest in the kind of harm that befell the member.  Specifically, the member would allege that, due to the employee’s negligence in failing to supervise, the member was not properly protected from the injury of the type that befell him, and that the accident was foreseeable and preventable.  The employee must have been acting within the course and scope of his employment and have been motivated, in part, to serve the interests of the “master,” i.e., the sports club.

In a claim for vicarious liability, as discussed in more detail below, the sports club need not have played any role in the negligence itself, so long as it controls the actions of the negligent employee and the employee’s actions were performed within the course and scope of employment and performed, at least in part, to benefit the employer.

Regarding course and scope, an employee is acting within the course and scope of employment if three factors are present:

  1. The employee’s actions at the time of the accident substantially occurred within the time and space limits authorized by the employment;
  2. The employee was motivated, at least in part, by a purpose to serve the employer;
  3. The act is of a kind that the employee was hired to perform.

Chesterman v. Barmon, 305 Or 439, 442 (1988).

All three factors must be present for vicariously liability to withstand a challenge.

In vicarious liability cases, the best defense is that the employee committed an intentional act that fell outside the course and scope of his employment.  Nearly all the published cases where courts have held that the employee was acting outside the course and scope involve intentional acts of force committed by security guards, bouncers, bodyguards, etc.

Foreseeability Issues

Reasonable foreseeability is still a necessary aspect of negligence, in any form.  In the example above, where a sports club member is injured, depending on the nature of the injury, the sports club would need to consider the specific facts that gave rise to the claim and whether or not a jury would conclude that the injury was reasonably foreseeable.  From a defense perspective, arguing that reasonable foreseeability does not exist is an uphill battle in most cases.  Oregon law generally finds that an intervening act negates fault only in extreme cases, such as those involving criminals.  For example, in one of the seminal Oregon foreseeability cases, Buchler v. Oregon Corrections Division, 316 Or 499 (1993), an en banc decision, a prisoner on a work crew stole the prison van in which the guard had left the keys, drove to his mother’s home, stole a firearm, and later used it to kill someone in the van.  316 Or at 502.

The court noted that, while the defendant had a history of temper problems, there was nothing in his background that would ever suggest he would commit such a crime.  Id. at 507.  The court ultimately held that an intervening criminal instrumentality caused the harm and created the risk Id. at 510-11.  The court explained that, although “it is generally foreseeable that criminals may commit crimes and that prisoners may escape and engage in criminal activity while at large, that level of foreseeability does not make the criminal’s acts the legal responsibility of everyone who may have contributed in some way to the criminal opportunity.”  Id. at 511.

Conclusion

Product liability, catastrophic personal injury, and aviation claims, all of which Olson Brooksby frequently defend, require a clear understanding of which claims contain causes of action based on direct negligence and vicarious liability, and more importantly, what the elements are, so that proper defenses can be raised, and an investigation and discovery plan can be drafted, to attempt to defeat the claims.

Oregon Law Requires Places of Public Assembly (Including Large Brick and Mortar Retailers) To Have At Least One Automated External Defibrilator

Premises owners should be aware that at least one automated external defibrillator (“AED”) may be required in their buildings.  On January 1, 2010, Senate Bill (S.B.) 556, codified as ORS 431.690, took effect, requiring certain building owners to place at least one automated external defibrillator (“AED”) on their “premises.”  The requirement applies to “places of public assembly” which are defined as “facilities” that have at least “50,000 square feet” of “floor space” and where: (1) the “public congregates for purposes such as deliberation, shopping, entertainment, amusement or awaiting transportation;” or “business activities are conducted;” and (2) at least 25 people “congregate” there on a “normal business day.”  S.B. 556 (1)(a)-(b).

In 2011, S.B. 1033 amended ORS 431.690 to require the placement of at least one AED in public and private schools and health clubs as well.

In other words, businesses and facilities with over 50,000 square feet of floor space must have a defibrillator on their premises if at least 25 people “congregate” there on a normal day.  A copy of the statute requiring AEDs is found at http://www.oregonlaws.org/ors/431.690

It is safe to assume that most product manufacturing facilities comprise 50,000 or more square feet.  However, despite the fact that this law has been in effect for more than three years, many Oregon businesses affected by the law are not compliant.

Discussion

The AED law does not provide a definition for the word “congregate,” nor does it specify whether 25 people must be present at one time or can come and go over the course of an entire business day.  When Oregon courts interpret ambiguous language, they focus primarily on the text and context of the statute and secondarily on legislative history.  State v. Gaines, 346 Or. 160, 172, 206 P.3d 1042 (2009).  When analyzing the text of a statute, it is useful to consider the dictionary definition of any ambiguous words.  The dictionary definition of “congregate” is “to come together; to assemble; to meet,” or “to collect into a group, crowd, or assembly.”   Black’s Law Dictionary 301 (6th ed., West 1990), Merriam Webster’s Collegiate Dictionary 243 (10th ed., Merriam-Webster, Inc. 1997)

Given the dictionary definitions, one could reasonably argue that the new law applies only to businesses that have at least 25 people present at some point during the day (i.e. “assembled” or “together” at one time).  However, the legislative history of the bill may suggest a different interpretation.  S.B. 556 originally had no 25-person requirement, and therefore would have applied to all businesses with floor space exceeding 50,000 square feet.  This specification requiring at least 25 people to congregate was added by way of an amendment suggested during a work session of the Health Care and Veterans’ Affairs Committee (held on April 4, 2009).  At that meeting, Senator Wayne Morse expressed concern that the bill would require industrial warehouses with very few employees to install AEDs.  One of the bill’s sponsors, Senator Jeff Kruse, agreed and said that they intended the bill to apply to “big department stores,” shopping centers, “office buildings” and the like, but not sparsely populated warehouses.  Relying on this legislative history, it is more likely that the 25 person requirement was not intended to exempt stores that have more than 25 visitors during a day even if they are not all present at the same time.

For a business such as a large brick and mortar retailer, there are two threshold questions that determine whether ORS 431.690 (S.B. 556 applies).  First, does the store or other business have over 50,000 square feet of floor space?  And, second, do at least 25 people congregate at the business on a typical business day?  If the answer to both questions is yes, the business is subject to the AED requirement.  If a minimum of 25 people did not congregate during a typical business day, then there is a good argument that the business would be exempt from the law.

Note that the statute places no limitations on the reason the 25 people have congregated in one place.  The statute provides a nonexclusive list of some of the reasons people have for gathering in these places – “deliberation, shopping, entertainment, amusement or awaiting transportation.”  In the context of a “big box” retailer, for example, the 25 people would likely consist of any person present in the store including, but not limited to, all employees, shoppers, repair or maintenance contractors, or anyone else visiting the store.

Although this insight into the legislative history may be interesting, businesses should not get lost in debating the letter of the statute or meaning of what “congregate” signifies.  If the business believes it might in any way meet the parameters of the statutory requirements, they should simply install an AED.

The law does not specify where the AED should be located or contain any provisions regarding access.  The law merely specifies that the AED shall be “on the premises.”  Based on the absence of any specification, it does not appear that the AED necessarily need be available to any member of the public in the establishment at the time the AED is needed.

Part of S.B. 556 (now codified at ORS 30.802) Provides Protection From Liability For Those Who Comply With The AED Requirement

A provision of S.B. 556, now codified at ORS 30.802, provides a fairly broad immunity provision for those locations which comply with the statutory requirement and maintain an AED on premises, so long as the business is in compliance with the particulars of the immunity provision such as making sure there are employees trained in the use of the AED.  A copy of the statute providing liability protection is found at  http://www.oregonlaws.org/ors/30.802

The cost of AEDs has dropped precipitously with increased competition and more efficient mass production.  The benefits of compliance with the Oregon statute, including immunity from suit, vastly outweigh the risks of non-compliance.  Moreover, there is conclusive evidence that AEDs save lives.  If you have questions, please contact our office.

Olson Brooksby often represents national retailers with large brick and mortar locations.