Remora Shows Court on Consistent Path

In a recent decision by the Virginia Supreme Court, the Court continues to limit the assertion of claims for breach of fiduciary duty. The Court in Remora Investments, LLC v. Orr, 277 Va. 316, 673 S.E. 2d 845 (2009) held that managers have no fiduciary duty to members of an LLC; only to the LLC itself. This appears to be a consistent trend the Court has followed in legal malpractice cases beginning with O’Conner v. Bean, 263 Va. 176, 556 S.E. 2d 741 (2002) determining that an attorney malpractice action sounds in contract thereby excluding the ordinary attorney-client relationship claim for breach of fiduciary duty. Recalling the Court’s earlier refusals to “turn every contract into a tort,” the examination of whether a breach of fiduciary duty claim would lie was focused on how the duty was created and to whom the duty was owed. Remora evidences the Court has continued that focus.

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An Example of Administrative Exemption Error

Administrative ExemptionA few posts below, we discussed employer’s periodic over-reliance on the overtime exemption for administrative employees under the Fair Labor Standards Act. As noted, among the four primary exemptions under that act, we have found that employers most frequently misapply this exemption.

A recent federal appeals court decision highlights this point. In Whalen v. J.P. Morgan Chase & Co., the U.S. Court of Appeals for the Second Circuit held that a loan underwriter at J. P. Morgan Chase was not exempt from overtime entitlement under the administrative exemption.

J.P. Morgan Chase maintained that its loan underwriters were covered by this exemption because they met the minimum salary requirement, performed office work directly related to the general business operations, and exercised the requisite discretion and independent judgement. The trial court agreed, but the appeals court reversed that decision.

Central to the appeals court’s decision, the loan underwriter performed his duties according to detailed guidelines provided by the employer. He had no meaningful discretion to depart from those guidelines on his own. Thus, the appeals court said that the loan underwriter exercised no real independent judgment and discretion, which are key components of the exemption. Instead, the appeals court concluded that he was primarily involved in the “production” of the employer.

An employee primarily involved in the employer’s production of goods or its provision of the services it offers, in most cases, will not meet the requirements of the administrative exemption.

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Social Media: Who Owns The Rights?

Social MediaIt is no surprise that companies today actively encourage their employees to engage in marketing and business development through use of social media outlets like Twitter and LinkedIn. But when an employee decides or is asked to leave the company, a dispute can, and with increasing frequency likely will, ensue over who owns these social media accounts. They were created and developed on company time with company resources, seemingly making them a company asset. The followers (or connections in the case of LinkedIn) of such accounts are, however, unique to the individual employee. They follow the tweets of the employee typically without regard for the identity of that employee’s company. It is these followers and connections that are the real essence of social media from a marketing perspective. So, who gets the rights to these accounts? Are they an asset belonging to the company simply because the company provided the capital? Or are they really the personal goodwill of the individual employee? These issues are at the center of two unrelated lawsuits, filed only days apart, now pending in the federal courts of Pennsylvania and California.

In the Pennsylvania case, Linda Eagle filed suit against her former company, Edcomm, Inc., and a group of its new owners and employees for a variety of business torts stemming from being locked out of her LinkedIn account after she was fired. Eagle claims Edcomm hijacked her LinkedIn account, changing the password and account profile to display the new CEO’s name and picture, but maintaining Eagle’s honors, awards, recommendations and connections. Defendants responded with a counterclaim against Eagle also asserting a variety of business tort claims, including conversion, misappropriation, violation of the Pennsylvania Unfair Trade Secrets Act, tortious interference with business, and numerous others. Eagle moved to dismiss the counterclaim. As it relates to the LinkedIn account, the federal court in Pennsylvania ruled that the LinkedIn account connections are not trade secrets under the Pennsylvania statute, but declined to dismiss the common law count of misappropriation of an idea. According to the court, there was a dispute of fact regarding the role Edcomm versus Eagle played in developing and maintaining the LinkedIn account that influenced the viability of misappropriation claim. Eagle v. Morgan, Civil Action No. 11-4303, 2011 U.S. Dist. LEXIS 147247 (E.D. Pa. Dec. 22, 2011).

Owns Rights

The California case is the reverse of Eagle. Noah Kravitz was employed by PhoneDog, a mobile phone review site. While there, he created a Twitter account gradually amassing nearly 17,000 followers. Kravitz decided to leave PhoneDog and changed his Twitter handle from @PhoneDog_Noah to @noahkravitz. PhoneDog sued Kravitz for misappropriation of trade secrets, conversion and other business torts, all arising out of his departure with the Twitter account. Kravitz’s followers were likened by PhoneDog to a customer list since PhoneDog requires its employees to tweet links to PhoneDog’s website in hopes of directing traffic to the site and thereby create advertising revenue. Unlike Eagle, the Kravitz court has declined to dismiss the trade secrets and conversion counts on motion to dismiss finding the claims to be adequately pled. In another order entered on January 30, the Kravitz court also refused to dismiss PhoneDog’s intentional interference and negligent interference with prospective economic advantage claims. The court acknowledged Kravitz’s concern that Twitter followers may not be “economic relationships” for purposes of these business tort claims, but declined to rule on this issue. The court held that because PhoneDog had also pled economic relationships with its advertisers, the claim was adequately pled and the issue regarding the status of the Twitter followers was one more appropriately left for summary judgment. PhoneDog LLC v. Kravitz, 11-cv-03474 MEJ (N.D. Calif.).

The outcome in both these cases will be instructive to businesses hoping to maintain ownership of their social media accounts. One thing is already clear, however. The more engaged the company is with developing and maintaining the content for such accounts and the more a company does to track revenue derived from such accounts, the better the company’s chances are for having a viable claim to the accounts later.

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