Corporation Required to Advance Legal Fees to Director to Defend Lawsuit Brought by the Corporation Against the Director

The Supreme Court of Ohio recently ruled that a corporation cannot avoid its duty under R.C. 1701.13(E)(5)(a) to advance the legal defense expenses of a corporate director who is sued by the corporation even when the alleged misconduct, if proven, would amount to a violation of the corporate director’s fiduciary duties to the corporation.

The case, captioned Miller et al. v. Miller, 2012-Ohio-2928, concerned Sam M. Miller, a director and co-owner of Trumbull Industries Inc., who was sued by two other directors of the corporation, Murray Miller and Sam H. Miller, for allegedly violating his fiduciary duties to shareholders and the corporation by participating in a new business venture to which Murray and Sam H. objected. The complaint sought injunctive relief and damages.

Sam M. subsequently sent a memorandum/undertaking to Murray and Sam H. notifying them that he had reimbursed himself from Trumbull Industries’ corporate funds for the costs he had incurred in preparing a defense against their lawsuit. Both sides then filed motions with the trial court seeking a determination as to whether Sam M. was entitled to the funds. The trial court ultimately ruled in favor of Sam M.

On appeal, the Eleventh District Court of Appeals reversed the trial court and held that Sam M. was not entitled to indemnification for his legal defense costs from Trumbull Industries. Sam M. sought and was granted Supreme Court review of the Eleventh District’s ruling.

In reversing the Eleventh District, the Supreme Court stated as follows: “Based upon the unambiguous language of R.C. 1701.13(E)(5)(a), we hold that Trumbull is required by law to advance expenses to Sam M. Trumbull’s articles of incorporation do not state by specific reference that R.C. 1701.13(E)(5)(a) does not apply to Trumbull. Thus we hold that appellees failed to show that Trumbull opted out of the mandatory advancement requirement. Finally, we hold that Trumbull’s statutory duty to advance Sam M.’s fees arose upon receipt of Sam M.’s undertaking.”

Corporate employers should be aware of this recent ruling and should review their articles of incorporation to ensure that company policies regarding payment of directors’ and officers’ legal fees are specifically addressed. If a corporation intends to opt out of the mandatory advancement requirement, the articles of incorporation must specifically reference that intention.

Contact: Alexander Kipp


Supreme Court to Consider Definition of Supervisor Under Title VII

On June 25, 2012, the United States Supreme Court agreed to consider Vance v. Ball State Univ., No. 11-556, a case in which the issue is whether the definition of “supervisor” under Title VII includes an employee who has no authority to hire and fire an employee but who oversees and directs the worker’s daily tasks.

In Vance, the plaintiff is an African-American catering assistant who claimed she was harassed by white co-workers and supervisors based on her race. The U.S. Court of Appeals, Seventh Circuit, determined that plaintiff failed to establish liability based on supervisor or co-worker harassment. Plaintiff contended that one of the alleged harassers actually was a supervisor and not a co-worker because this harasser directed her work. The Seventh Circuit determined, however, that this harasser did not have the power to hire, fire, demote, promote, transfer or discipline Plaintiff and was therefore not a supervisor. On this basis, the Seventh Circuit affirmed summary judgment to Ball State University on the plaintiff’s Title VII claim.

The outcome of Vance is significant because typically under Title VII, an employer is vicariously liable for harassment by a supervisor of the victim regardless of whether the employer knew or had reason to know the harassment was occurring. If the harasser is a co-worker, however, the employer is not liable unless it was negligent and knew or had reason to know the harassment was occurring.

Contact: Jon Secrest


Working Wage Loss – Job Search and Supplementation of Supporting Medical Evidence Requirements Upheld

In State of Ohio ex rel. Humphrey v. Indust. Comm. 2012-Ohio-2650, the Tenth Appellate District Court of Appeals ruled that a request for working wage loss in a worker’s compensation claim can be denied when the claimant does not engage in an adequate job search for the purpose of seeking work. Pay must be comparable to his or her former position and supplemental medical evidence must be filed every 180 days during the period being requested. In this case, the claimant obtained work, but did not present sufficient evidence of an ongoing job search as required by OAC 4125-1-01(C)(5). Simply obtaining a job within one’s medical restrictions under the allowed conditions is not enough. Also, if the job obtained is only part-time, the claimant has a duty to seek out full-time work in most instances. In this case, the claimant took a part-time job paying $8.50 per hour while his former position paid $19.58 per hour. The court acknowledges there are exceptions to this rule, but they are limited.

The court also held that when a claimant’s medical restrictions are permanent, OAC 4125-1-01 (C)(3) requires these restrictions to be supported by medical reports every 180 days. In this case, the claimant only submitted one supplemental medical report, which did not meet the requirement, and he was also barred the payment of working wage loss compensation. There has been a tendency by the Ohio Bureau of Workers’ Compensation (BWC) to not follow this portion of the rule when restrictions are permanent, and it should be challenged should this occur.

Should you have any questions, please contact any of our offices to discuss with one of our workers’ compensation attorneys.

Contact: Brian A. Tarian


Supreme Court Allows Affordable Care Act to Remain in Place

On June 28, 2012, the United States Supreme Court held that the Affordable Care Act (“ACA”) was not unconstitutional. The 5-4 decision found that the individual mandate (which requires all persons to have health care coverage or pay a penalty) was a tax and therefore was allowable under Congress’ constitutional power to levy taxes. The taxation argument was not the primary argument advanced by the government, as it previously had taken great pains to argue that the ACA was not a tax. The Supreme Court also upheld all of the other significant portions of this sweeping federal law.

Given this holding, the ACA will, within the next two years, extend health insurance coverage to millions of Americans who currently do not have coverage. Moreover, the current and future rules barring limitations as to preexisting conditions remain applicable. Beginning September 24, 2012, employees will have to be provided with a summary of benefits and coverage and, for some employers, the cost of health care coverage will be required to be reported on an employee’s W-2. Beginning in 2013, there will be additional taxes paid by highly compensated employees and those with significant investment earnings to support this law. Also, a number of other changes required by the ACA go into effect as of 2014, including imposing annual tax penalties on certain employers that do not offer health insurance to their full-time workers and on individuals who do not secure health insurance.

It is certainly likely that there will be many more challenges to the ACA, including interpretive rules that have been promulgated by various government agencies relative to doctor-owned hospitals, health insurance exchanges, Medicare panels and employers providing free birth control. It would appear that ongoing litigation and other challenges involving the ACA will not cease even with the Supreme Court’s decision.

While legislation to repeal the ACA will again be introduced in Congress, whether the ACA remains in effect will depend upon the next Congress and the presidential election in November. In the meantime, the ACA will continue to be a significant concern for employers, medical providers and insurance carriers.

Contact: Paul Jackson

Supreme Court of Ohio Rules that Evidence Must Show a Claimant to Have Actual Knowledge that Unpaid Activities Constituted Work In Order for a Finding of Fraud to Apply

On June 19, 2012, the Supreme Court of Ohio affirmed an appeals court decision that a claimant's unpaid activities precluded temporary total disability (TTD) since they constituted work by directly generating income that was consistent and ongoing. The Court affirmed the finding since the claimant did not realize his unpaid activities were work, and there was no fraud pursuant to R.C. 4123.56(A).

The case, State ex rel. McBee v. Indus. Comm., 2012-Ohio-2678, arose when claimant Garry K. McBee received TTD from October 30, 2004 through March 9, 2006. During that time, he also helped his wife with her business, but was not paid for his services. The Industrial Commission of Ohio (IC) determined those activities constituted “work” and concluded that TTD should not have been paid. Consistent with those findings, the TTD award was vacated and an overpayment was declared. In addition, the IC found McBee committed fraud by submitting disability paperwork to the IC and Bureau of Workers’ Compensation between October 30, 2004 and March 9, 2006, in which he certified that he was not working.

McBee then filed a complaint in mandamus in the Tenth District Court of Appeals. The appeals court upheld the finding that his activities for his wife’s company directly generated income, were consistent and ongoing, and that he worked while receiving TTD. However, the appeals court overturned the finding of fraud after concluding the evidence cited in the IC order did not prove that McBee knew his unpaid activities for his wife’s company constituted “work” for purposes of TTD eligibility. The IC appealed the fraud determination to the Supreme Court.

The Supreme Court held that to qualify as a knowing misrepresentation, pursuant to Gaines v. Preterm-Cleveland, Inc., 33 Ohio St.3d 54, 55 (1987), “it must be shown that McBee was aware that his unpaid activities could be considered “work.” We must determine whether the evidence cited in the commission’s order demonstrates such an awareness.” The Court’s examination revealed there was no evidence that McBee knew his unpaid activities for his wife’s business constituted work that would preclude payment of TTD, and no evidence that he knowingly misled the IC or the Bureau of Workers’ Compensation. Absent such knowledge, the Court held that a fraud declaration cannot stand.

Roetzel will continue to provide further information and guidance to assist you as developments arise in this matter. Should you have any questions, please contact any of our offices to discuss with one of our workers’ compensation attorneys.