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It is very rare for employment law attorneys to post entire decisions from any court as a part of a blog. It is even more rare for us to talk about our ongoing cases. I am making an exception here for what I consider a very impactful, articulate opinion from Cuyahoga County Court of Common Pleas Judge Peter J. Corrigan. The critical aspect of this opinion is that employment discrimination and retaliation claims under R.C. § 4112.99 allow for employees to directly sue a boss, manager, or supervisor that participated in the decision to discriminate, wrongfully terminate, or otherwise retaliate against an employee based on their: Race; Religion; Age (over 40); Disability; Gender; or National Origin; for the employee opposing such discrimination; or for the employee participating into an investigation into such claims. These claims allow for punitive damages against both the corporate employer as well as any boss, manager, or supervisor that participated in the unlawful conduct. In a lot of cases, on employment defense attorney or law firm will defend both the corporate employer and the boss, manager, or supervisor that is also being sued. Sometimes the corporate employer will promise to indemnify the boss, manager, or supervisor for any damages. This creates a lot of problems in that the boss, manager, and supervisor no longer have any risk, are less likely to agree to any settlement, and will have no fear in sticking to lame stories because there is no consequence to their lying. But, the biggest and most important problem, in my eyes, is that it rewards bosses, managers, and supervisors that engage in unlawful discrimination and/or retaliation by rewarding them with indemnity. It says, don’t worry, if you discriminate, we, the employer, will protect you and provide you attorneys. It promotes discrimination where the laws attempt to prevent discrimination by making these law breakers accountable.

Judge Corrigan nailed it in this decision (my only change to the opinion is that I did not include the footnotes:

In an effort to resolve certain issues prior to trial, the parties engaged in settlement discussions. As a result of settlement demands to Lisa Weth in relation to resolving the compensatory and punitive damage claims against her, a potential conflict of interest for defense counsel was brought to the attention of this Court. Therefore, at this time, the Court must consider whether defense counsel has a non-waiveable conflict that would preclude him from continuing to represent both NM Residential and Weth. For the reasons stated herein, I conclude that a non-waiveable conflict does exist that precludes defense counsel from continuing to represent both NM Residential and Weth.

There are certain basic facts that the parties do not dispute. NM Residential hired Durrah on September 24, 2012 as a bedbug exterminator. Durrah’s supervisor was Weth. Durrah has presented some evidence that workers for NM Residential would find, then discuss and joke about pornography and sex toys found in residential units. Weth admitted that she made a joke about another employee’s genitals in Durrah’s presence.

The parties dispute whether Durrah reported or complained about these issues to HR. It is undisputed that during a meeting on October 3, 2012, Weth met with Durrah and informed him that he had been terminated. The parties dispute whether Durrah complained to Weth about his perceptions that the work environment was sexually hostile before or after Weth told Durrah that he had been terminated.

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On April 16, 2013, Durrah filed a complaint against Indian Hills Properties, Inc. After some discovery, NM Residential was added as a Defendant on November 13, 2013, and Weth was added as a Defendant on March 25, 2014. Count I of the Complaint for Hostile Work Environment based on Sexual Harassment under R.C. § 4112.02, et al. was dismissed by summary judgment on August 18, 2014. However, the Court denied summary judgment on Count II of the Complaint for Retaliatory Termination pursuant to R.C. § 4112.02(I) and set that claim for trial.

Critical to the issue at hand, Durrah sought punitive damages against NM Residential and Weth for their alleged willful and intention retaliation under R.C. § 4112.02(I). On February 4, 2015, the parties agreed to bifurcate the punitive damage claims against NM Residential and Weth.

The Ohio Supreme Court has held that a “trial court has the ‘inherent power to regulate the practice before it and protect the integrity of its proceedings’ including the ‘authority and duty to see to the ethical conduct of attorneys . . . .’” Mentor Lagoons Inc. v. Rubin, 31 Ohio St. 3d 256, 259, 510 N.E.2d 379 (1987) (quoting Royal Indem. Co. v. J.C. Penney Co., 27 Ohio St. 3d 31, 33-34, 27 Ohio B. 447, 501 N.E.2d 617 (1986)). “This includes the inherent authority of dismissal or disqualification from a case if an attorney cannot, or will not, comply with [Ohio’s rules governing ethics and professionalism] when representing a client.” Id. The Supreme Court has emphasized that this power of the trial court “is distinct from the exclusive authority of the Supreme Court of Ohio over attorney disciplinary proceedings, and does not conflict with such power.” Id. (citing  [15] Royal Indem. Co., 27 Ohio St. 3d at 34) (noting that a trial court’s revocation of pro hac vice admission is a “separate and distinct method of addressing attorney misconduct” that is in no way dependent on disciplinary proceedings of the Ohio Supreme Court based on the same misconduct.); see also Columbus Bar Ass’n v. Ross, 107 Ohio St. 3d 354, 358-359, 2006-Ohio-5, P25-P26, 839 N.E.2d 918, 922-923 (2006); Ohio Const. Art. IV, § 2(B)(1)(g); Gov. Bar R. V.

When an employer and employee are being sued for the negligence of that employee, it is not unusual for the same lawyer to represent both parties upon the employer agreeing in writing to waive its indemnification rights against the employee, and both employer and employee waiving that conflict in writing. An argument advanced in this case is that no conflict can exist because NM Residential has agreed to indemnify or otherwise insure Weth.

The Court finds that employment claims based on intentional conduct, especially those seeking punitive damages present challenges different from claims based on negligent conduct. Ohio law provides that intent, as opposed to negligence is needed to prove certain employment claims, including the remaining retaliation claim. “In order to prevail on a claim of retaliation where the employer has articulated a legitimate, nondiscriminatory reason, the plaintiff must prove not only that the proffered reason was a pretext, but also that the real reason for the employer’s action was unlawful retaliation. Imwalle v. Reliance Med. Prods., 515 F.3d [531, 544 (6th Cir. 2008). In other words, it is not enough to disbelieve the employer; the trier of fact must also believe the plaintiff’s explanation of intentional retaliation. St. Mary’s Honor Ctr. v. Hicks, 509 U.S. 502, 519, 113 S. Ct. 2742, 125 L. Ed. 2d 407 (1993). However, a trier of fact may infer the ultimate fact of retaliation from the falsity of the employer’s explanation. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 147, 120 S. Ct. 2097, 147 L. Ed. 2d 105 (2000).” Smith v. Ohio Dep’t of Pub. Safety, 2013-Ohio-4210, P76, 997 N.E.2d 597, 618 (10th Dist. 2013). See also Meyers v. Goodrich Corp., 2011-Ohio-3261, P14, (8th Dist 2011)(“If the employer does so, then the burden shifts back to the plaintiff to show that the employer’s proffered reason was a mere pretext to mask its true retaliatory intent.”)

In Rice v. CertainTeed Corp., 84 Ohio St. 3d 417, 704 N.E.2d 1217, syllabus (1999), the Ohio Supreme Court held that punitive damages are recoverable in R.C. § 4112 civil employment actions: “In Ohio, punitive damages are awarded only upon a finding of actual malice.” Moskovitz v.  [1221]  Mt. Sinai Med. Ctr. (1994), 69 Ohio St. 3d 638, 652, 635 N.E.2d 331, 343. True disparate-impact defendants, therefore, as a matter of law, will not be subject to exemplary liability.” Unlike in disparate impact claims, retaliation claims, if proven, inherently contain an element of revenge, which satisfies the actual malice requirement. As the Ohio Supreme Court held in Preston v. Murty, 32 Ohio St. 3d 334, 512 N.E.2d 1174, syllabus (1987), “[a]ctual malice, necessary for an award of punitive damages, is (1) that state of mind under which a person’s conduct is characterized by hatred, ill will or a spirit of revenge, or (2) a conscious disregard for the rights and safety of other persons that has a great probability of causing substantial harm.” Id. (Emphasis added); see also Calmes v. Goodyear Tire & Rubber Co., 61 Ohio St. 3d 470, 575 N.E.2d 416 (1991). Revenge is synonymous with retaliation.
Ohio law generally prohibits the indemnification or insuring of intentional or willful torts, including those that give rise to punitive damages. In Wedge Products, Inc. v. Hartford Equity Sales Co., 31 Ohio St. 3d 65, 67, 181, 509 N.E. 2d 74, 76 (1987), the Ohio Supreme Court held that “public policy is contrary to insurance against intentional torts.” Id. (citing Blankenship v. Cincinnati Milacron Chemicals, 69 Ohio St. 2d 608, 615, 509, 433 N.E. 2d 572, 577 (1982); Rothman v. Metropolitan Cas. Ins. Co., 134 Ohio St. 241, 246, 16 N.E. 2d 417, 420(1938)). In this regard, “actions brought under R.C. § 4112 are ‘tort actions.’… Ohio courts reason that discrimination claims are tort actions because Ohio law defines such actions as ‘civil action[s] for damages for injury or loss to person or property.’” Williams v. Sims Bros., Inc., 889 F. Supp. 2d 1007, 1007 (N.D. Ohio 2012); Geiger v. Pfizer, Inc., 2009 U.S. Dist. LEXIS 34982, 2-3 (S.D. Ohio Apr. 15, 2009); Ridley v. Fed. Express, 2004-Ohio-2543 (8th Dist. 2004); State ex rel. Ohio Academy of Trial Lawyers v. Sheward, 86 Ohio St.3d 451, 537, 1999-Ohio-123, 715 N.E.2d 1062 (1999); Reilly v. Alcan Aluminum Corp., 1999 U.S. App. LEXIS 8739 (6th Cir. 1999); McCombs v. Meijer, Inc., 395 F.3d 346, 355 (6th Cir. 2005); McIntyre v. Advance Auto Parts, 2007 U.S. Dist. LEXIS 1944 (N.D. Ohio Jan. 10, 2007); Smith v. Glaxo Wellcome, Inc., 1998 U.S. Dist. LEXIS 22455 (S.D. Ohio 1998).

Further, Ohio law provides that “a contract which purports to obligate a party to indemnify an actor against a civil action for intentional acts … violates public policy, and is, therefore, unenforceable to that extent.” Diamond Wine & Spirits v. Dayton Heidelberg Distrib. Co., 148 Ohio App. 3d 596, 598, 2002-Ohio-3932, ¶ 1, 774 N.E.2d 775, 776. See, also, State Farm Mut. Ins. Co. v. Blevins, 49 Ohio St. 3d 165, 551 N.E.2d 955 (1990); Harasyn v. Normandy Metals, Inc. (1990), 49 Ohio St. 3d 173, 176, 551 N.E.2d 962, 965; Casey v. Calhoun (1987), 40 Ohio App. 3d 83, 86, 531 N.E.2d 1348, 1351. In Key v. Vattier, 1 Ohio 132 (1823), the Supreme Court held that the “right of making contracts at pleasure is a personal privilege of great [7]  value, and ought not to be slightly restrained; but it must be restrained where contracts are attempted against the public law, general policy, or public justice.” Id. at 147. Cf. Lamont Bldg. Co. v. Court, 147 Ohio St. 183, 184-85, 70 N.E. 2d 447, 448 (1946); John Hancock Mut. Life Ins. Co. v. Hicks, 43 Ohio App. 242, 247, 183 N.E. 93, 95 (1931); Portaro v. American Guar. & Liab. Ins. Co. (N.D. Ohio 1962), 210 F. Supp. 411, 416, affirmed (C.A. 6, 1962), 310 F. 2d 897.

In Casey v. Calhoun, 40 Ohio App. 3d 83, 84, 531 N.E.2d 1348, 1349 (8th Dist. 1987), the Eighth District Court of Appeals held: “Punitive damages are awarded to punish an offender for the wanton, reckless, malicious or oppressive character of the act committed and to deter others from committing similar acts. Atlantic & Great Western Ry. Co. v. Dunn (1869), 19 Ohio St. 162, 170; Saberton v. Greenwald (1946), 146 Ohio St. 414, 32 O.O. 454, 66 N.E. 2d 224. … the deterrent effect of punitives is greatly diminished if potential tortfeasors know that they can be indemnified against both compensatory and punitive damages. See, e.g., Northwestern Natl. Cas. Co. v. McNulty (C.A. 5, 1962), 307 F. 2d 432; see, generally, 1 Ghiardi & Kirchner, supra, at Section 7.13. Cf. Ranells v. Cleveland (1975), 41 Ohio St. 2d 1, 7, 70 O.O. 2d 1, 4, 321 N.E. 2d 885, 888.”

The Court finds that the agreement by NM Residential to indemnify Weth against retaliation claims, intentional employment torts, and for punitive damages is void and against public policy and requires Weth to have her own counsel. Lawyers should not be put in the position of perpetuating a client-employer’s empty and unenforceable promise to indemnify a client-employee against his or her liability for intentional conduct and punitive damages. Upon learning of NM Residential’s promise to indemnify Weth in this case, defense counsel was placed in conflict as to whether an agreement that inured to the benefit of only one client could be enforced. This is particularly so when Weth has an independent opportunity to resolve the claims against her, including the punitive damages, by way of settlement.

In Wood v. Ga., 450 U.S. 261, 262, 101 S. Ct. 1097, 1099, 67 L. Ed. 2d 220, 225 (1981), the United States Supreme Court addressed a similar situation where the employer promised to indemnify its employees for fines assessed for distribution of pornography in the course of the employer’s business to gain cooperation. When the employees left their employment following the case, the employer refused to pay the fines, which are similarly non-indemnifiable, and the employees ended up in jail. The United States Supreme Court held: “the record suggests that petitioners may be in their present predicament because of their counsel’s divided loyalties.” Id. It is better to address this conflict situation now as the conflict arises and before any violation occurs as opposed to on appeal later after a violation may occur and a client has been placed in a predicament because of their counsel’s divided loyalties.

Additionally, I put no stock in any argument that Durrah created the conflict by attempting to negotiate a resolution with just one defendant to the detriment of the other defendant. It is not an uncommon strategy for a plaintiff to negotiate a resolution to carve out a single defendant. Such a strategy may provide leverage against the remaining defendants, or it may just simplify the case for trial. Had NM Residential and Weth been represented by separate counsel during these negotiations, I do not believe that anyone would question Durrah attempting to settle with just Weth or just NM Residential. If Durrah’s counsel believes that strategy is sound and in the best interest of Durrah, they have an obligation to pursue such course of action because their duty is to zealously do what is best for Durrah, not to protect opposing counsel from a potential conflict of interest conundrum. If the only reason to not negotiate a carve out settlement with one defendant is that such defendant is represented by the same counsel as another defendant, plaintiff’s counsel must ethically pursue that settlement to the benefit of their client. Stated more simply, one defendant cannot block discussions for a carve out settlement simply by having one attorney or one law firm represent multiple defendants. Again, this is particularly so where each defendant may be individually liable for non-indemnifiable punitive damages and damages arising from intentional conduct.

Although in a criminal setting, the Ohio Supreme Court’s decision in Columbus Bar Ass’n v. Ross, 107 Ohio St. 3d 354, 358, 2006-Ohio-5, P22-P24, 839 N.E.2d 918, 922 (2006), is illustrative on this point. Attorney Leo Patrick Ross represented James Jeffrey Brown II and Shawnte Hollins in criminal drug proceedings. The Supreme Court held:

Respondent advised Brown to cooperate with authorities and name his supplier to obtain a reduction in sentence. Hollins, however, was the supplier that the government wanted Brown to incriminate, and the government refused to negotiate unless Brown proffered that information. Clearly, respondent could not recommend that Brown inform on Hollins without compromising one client’s interests at the expense of another.

Relator [Bar Association] maintains that respondent’s judgment was thereby “ineluctably clouded by the fact that the right strategy for one client would necessarily have harmed his other client.” Thus, in its best argument, relator claims that the situation presented such a great potential for conflict that it could not be obvious that respondent could represent both clients. Stated differently, even if respondent did disclose the risks of dual representation and did obtain his clients’ consent, a waiver that relator disputes, the DR 5-105(C) exception still did not permit respondent to defend both of these clients.

We agree.

* * *

Indeed, the availability of “a plea by one defendant in exchange for testimony against the other in the same matter is virtually certain to place lawyers involved in representing both in an untenable position.” People v. Mattison, 67 N.Y.2d 462, 469-470, 503 N.Y.S.2d 709, 494 N.E.2d 1374. … When the prosecution asked Brown to incriminate Hollins, a trial or plea negotiations in which their interests were irreconcilable became practically inevitable.

Id. @ P22-26. See also Carnegie Cos. v. Summit Props., 183 Ohio App. 3d 770, 775, 2009-Ohio-4655, P1, 918 N.E.2d 1052, 1056 (9th Dist. 2009)(“This Court affirms the trial court’s disqualification of the law firm of Ulmer & Berne LLP because the firm’s simultaneous representation of two clients with directly adverse interests violates Rule 1.7 of the Ohio Rules of Professional Conduct.”).

Durrah principally offered to accept a consent judgment in exchange for releasing Weth from punitive damages and a limited ability for Durrah to collect on that consent judgment. The consent judgment was presumably sought by Durrah to use against NM Residential at trial. Defense counsel cannot be placed in a position to advise Weth on the potential merits of the settlement, particularly in the context of an unenforceable indemnity agreement, while concurrently knowing that a settlement on the proposed terms may adversely affect NM Residential. At that point, the interests of Weth and NM Residential became irreconcilable.

Additionally, because individually named defendants are also employees, their participation in litigation automatically gives them rights under R.C. § 4112.02(I) that are intrinsically conflicting with the interests of the business entity employer. This is particularly true where testimony may differ or the individually named defendants can resolve the claims against them via settlement to the detriment of their employer. Individually named defendants must be able to get sound and complete counsel on the protections afforded to them under R.C. § 4112.02(I) when weighing to accept or decline a settlement offer that my harm their employer. Defense counsel cannot advise the business entity employer and the individually named defendants on their respective rights and obligations under R.C. § 4112.02(I).

Where punitive damages are sought for intentional employment claims under R.C. § 4112, including but not limited to retaliation claims, it is likely that a conflict will arise preventing counsel from representing both the business entity employer and individually named employers as a result of settlement discussions, change in employment status of the individually named defendants, or incompatible defense strategies. Defense counsel timely raised these issues and satisfied his ethical obligations. Nonetheless, a non-waiveable conflict exists that prevents defense counsel from continuing to represent both Weth and NM Residential.

I suspect that a lot of defense counsel and employers will be discussing the impact of this decision today.

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