W. Dudley McCarter
Behr, McCarter & Potter
St. Louis
The widows of George Lopez and Ken Jones brought a wrongful death action against Three Rivers Electric Co-Op arising from the death of their husbands, who were killed when their helicopter crashed into unmarked power lines over the Osage River. The power lines did not require marking under FAA regulations, because they were less than 500 feet above ground. The wires were 3/8" in diameter and were more than 900 feet long between the supporting structures. The lines had no marking devices or warnings and, since their installation in 1975, had turned greenish brown in color, thereby blending with the background. The jury awarded both widows $2,500,000 in compensatory damages and $500,000 in punitive damages; the jury also assessed fault of 10% to Lopez and 20% to Jones. The Supreme Court reversed, however, and remanded the case for a new trial in Lopez v. Three Rivers Electric Co-Op., No. SC 82244 (Mo. banc 2000).
First, the Court discussed the foreseeability of the accident and the duty owed by Three Rivers to pilots. For the purposes of determining whether a duty exists, foreseeability is defined as the presence of some probability or likelihood of harm sufficiently serious that ordinary persons would take precautions to avoid it. There was evidence that power lines of Three Rivers in the vicinity of this accident caused other accidents and other near misses. The wires were difficult to see because of their relatively small diameter and their greenish brown color. The evidence at trial supported the conclusion that Three Rivers knew or should have known of a risk of harm to pilots sufficiently probable to create a duty.
Next, the Court discussed the appropriate standard of care. The circumstances of this accident did not involve the inherently dangerous properties of electricity. Where electricity is not the agent of the injury, the proper standard of care is ordinary care. Since the jury was instructed that Three Rivers was held to the highest degree of care standard, the instruction was erroneous.
Prejudice is ordinarily presumed when a jury instruction imposes upon a party a standard of care greater than that required by law. The Court has consistently held that an instruction imposing upon a party a standard of care higher than that required by law is prejudicial, requiring a new trial. Three Rivers should have been able to argue to the jury, under a correct instruction, that an ordinarily careful person would not have placed warnings on the power lines. The jury might have determined that Three Rivers was not liable because it did exercise ordinary care. The submission of the erroneous instruction imposed an undue burden on Three Rivers and was prejudicially erroneous. Discussing issues likely to be raised on retrial, the Court held that evidence of similar, prior accidents was admissible, but that there was not clear and convincing evidence to support an instruction for damages due to aggravating circumstances.
Non-Solicitation Agreement Not Enforceable Against Former Employee
An accounting firm, Schmershal, Treloar & Co., filed suit against McHugh, a former employee, alleging that he violated a non-solicitation agreement he signed while an employee. It prohibited him from soliciting or encouraging other employees to terminate their employment. Twenty months after leaving Schmershal, McHugh told one of the firm's employees about an opening with his current employer. The Schmershal employee did not pursue the opportunity, but advised Schmershal of the conversation with McHugh. Schmershal sought liquidated damages from McHugh under the terms of the non-solicitation agreement. The trial court entered judgment in favor of McHugh and the Court of Appeals affirmed in Schmershal, Treloar & Co. v. McHugh, No. E.D. 76363 (Mo.App.E.D. 2000).
No Missouri court has addressed the enforceability of a non-solicitation agreement against a former employee. A non-solicitation agreement is in restraint of trade. It can be used to restrict the employee's post-employment ability to solicit employees for himself, his new employer, or anyone else. It has the effect of reducing competition in the labor market.
A restrictive covenant in an employment agreement is only valid and enforceable if it is necessary to protect one of two well-defined interests, trade secrets and customer contacts, and if it is reasonable as to time and place. Missouri courts have limited the interests that may be protected by a restrictive covenant to trade secrets and customer contacts. The rationale for protecting trade secrets and customer contacts does not extend to protecting an employer's interest in keeping at-will employees from leaving their employment. Because an employer's interests in customer contacts and trade secrets are proprietary, the courts will, in appropriate circumstances, protect them against unfair competition. An employer does not, however, have a proprietary interest in its employees at-will or in their skills.
Soliciting at-will employees does not constitute unfair competition. There is no wrong in making an offer of employment to an at-will employee, even though the employee and his new employer may compete with the former employer. The employer can protect itself against competition from its employees by entering into restrictive agreements with those employees to prohibit the solicitation of clients or the disclosure of trade secrets. An employer's interest in protecting the stability of its at-will work force is not, however, one of the interests that may be protected by a restrictive covenant in Missouri. A non-solicitation of employees agreement is not enforceable.
Corporate Officer Has Fiduciary Duty to Corporation Even if the Officer Had No Secret Profits
Thomas Zakibe was the president of Ahrens & McCarron, a plumbing supply company in St. Louis. While president, he invested $50,000 in American Showcase, a wholesale cabinet company, and held 25% of its shares. He told other shareholders of Ahrens & McCarron that his wife (not he) had invested in American Showcase. He authorized Ahrens & McCarron to sell products to American Showcase at no profit, but told the other shareholders the products were sold at a 10% profit. Contrary to the company policy of allowing customers a credit line of no more than $25,000, he allowed the American Showcase account to exceed $455,000. He also had Ahrens & McCarron buy products for American Showcase and pay American Showcase's vendors directly. When other shareholders learned of this arrangement, Mr. Zakibe was terminated. The $450,000 account of American Showcase was uncollectable. Zakibe filed suit against Ahrens & McCarron, seeking the recovery of severance pay and bonuses he claimed under his employment agreement. Ahrens & McCarron filed a counterclaim for breach of fiduciary duty. The jury returned a verdict in favor of Ahrens & McCarron on both Zakibe's suit and its counterclaim and awarded damages to Ahrens & McCarron of $150,000. This verdict was affirmed in Zakibe v. Ahrens & McCarron, No. E.D. 76080 and 76081 (Mo.App. E.D. 2000).
First, the Court of Appeals rejected Zakibe's argument that because he did not personally profit from the self-dealing, there was no breach of fiduciary duty. Fiduciary duties may be breached in a number of ways; it is not necessary that the officer obtain a secret profit to establish the breach. An officer or director may breach a fiduciary duty by engaging in undisclosed transactions with another company in which he has an interest, which are not fair to the corporation. Neither an officer nor director has the right to convert company assets to another use, or give them away, or make a self-serving disposition of them against the interests of the company. If a corporation suffers losses to its corporate assets as a result of a director's or officer's breach of fiduciary duty, it can bring an action in tort to recover those damages. An action for damages for breach of fiduciary duty does not depend on whether or not the officer or director realized a monetary profit.
Next, the court rejected Zakibe's argument that authorization for his conduct was not required. If a corporation contracts with or engages in a transaction with an officer or director, or an entity in which the officer or director has an office or financial interest, in order to avoid the conflict of interest otherwise created by self-dealing, that officer or director must disclose all material facts relating to the relationship or interest and to the transaction. Such transactions must be authorized by the disinterested directors or, in certain situations, by shareholders who have received full disclosure.
Finally, the court upheld the verdict denying Zakibe's claim for bonuses and severance pay he would otherwise have been entitled to under his employment contract. A corporate officer forfeits all rights to compensation that might otherwise be due when the officer engages in activities that breach the officer's fiduciary duty of loyalty to the corporation. Regardless of contract terms, a corporate officer forfeits all rights to compensation, including his or her entitlement to bonuses, if that officer breaches his or her fiduciary duty to the corporation. A corporate officer's breach of fiduciary duty is a defense to the officer's claim for salary and compensation. Here, by breaching his fiduciary duty to Ahrens & McCarron, Zakibe forfeited his rights to all compensation, including bonuses and severance pay otherwise due under his contract.
Missouri's Grandparent Visitation Statute is Constitutional
Mary and Joseph Cabral, the parents of a two-year-old daughter, appealed the judgment of the circuit court granting the paternal grandparents of the child two hours of supervised visitation with the child every three months. The parents asserted that Missouri's grandparent visitation statute, § 452.402 RSMo., infringed upon their fundamental liberty interest as protected by the United States Constitution. The Court of Appeals upheld the constitutionality of the grandparent visitation statute in Cabral v. Cabral, No. E.D. 76060 (Mo.App. E.D. 2000).
First, following Herndon v. Tuhey, 857 S.W.2d 203 (Mo.banc 1993), the court found that Missouri's grandparent visitation statute did not unconstitutionally infringe on the right of parents to raise their children as they saw fit. The grandparent visitation statute contemplated only “occasional, temporal visitation,” which would only be allowed if a trial court found visitation to be in the best interest of the child and would not endanger the child's physical and emotional development. Under these circumstances, where the intrusion is minimal and the statute is narrowly tailored to protect the interests of parent and child, the statute is constitutional.
Next, the court addressed the recent United States Supreme Court ruling in Troxel v. Granville, No. 99-138 (U.S. June 5, 2000), which held that the Washington statute granting visitation rights violated a parent's due process rights pertaining to child rearing and child care. Troxel, however, does not require a deviation from Herndon. The Missouri grandparent visitation statute provided much greater protection for parents' decisions than the Washington statute did, because the Missouri statute only grants visitation rights to grandparents. Also, the Missouri statute establishes a judge's power to appoint a guardian ad litem. Moreover, the facts of the two cases differ significantly in the amount of visitation the grandparents had before and after trial. The Missouri statute provides significant protections to parents in Missouri that are unavailable under the Washington statute. In Troxel, the United States Supreme Court invalidated the Washington statute only as applied, and the application of Missouri's statute in this instance, under Missouri and U. S. Supreme Court precedent, does not violate the U. S. Constitution. Nothing in Troxel indicates that the Herndon court erred by using a less demanding standard of review when the statute involved a minimal intrusion, nor does anything in Troxel invalidate the precedent upon which Herndon based its justification for using a lower standard of review. The differences in facts, statutory language and precedent, combined with the unanswered questions of Troxel, lead the court to conclude that the application of Missouri's grandparent visitation statute in this case was constitutional and that the statute itself remains viable post-Troxel.
Adult Business May Be Subject to Contempt For Continued Operation in Violation of Ordinance
California Exotic Novelties sold adult-oriented videotapes and sexual novelties within 1000 feet of a church, in violation of St. Louis County ordinances. When California Novelties continued operating after the circuit court granted an injunction against it, St. Louis County filed a motion for civil contempt. The ordinance defined an adult business as one that sells “a substantial portion” of adult-oriented items and further stated that a business was presumed to be an adult business if more than 25% of the value of its merchandise consisted of adult-oriented items. The circuit court found that the retail value of California Novelties' adult-oriented items was less than 25% of its total merchandise and denied St. Louis County's motion for contempt. The Court of Appeals reversed, however, in St. Louis County v. BAP, Inc., No. E.D. 77383 (Mo.App. E.D. 2000).
Provisions of an entire legislative act must be construed together and, if reasonably possible, all provisions must be harmonized. A statute must not be interpreted narrowly if such an interpretation would defeat the purpose of the statute. It is presumed that every word, clause, sentence and provision of a statute have effect and that idle verbiage or superfluous language was not inserted into the statute.
The ordinance specifically defines adult business as any business that offers its patrons goods of which a substantial portion are adult-oriented items. This language was not meaningless or perfunctory. If the 25% threshold is not met, no presumption is established; the business may, however, still be operating as an adult business if a “substantial portion” of its merchandise consists of adult-oriented items. The case was remanded for a determination of whether California Novelties was operating as an adult business as defined by the ordinance.
The Filing of a Workers' Compensation Claim Partially Waives the Physician-Patient Privilege
In State of Missouri ex rel. Maloney v. Allen, No. W.D. 57512 (Mo.App. W.D. 2000), the court held that medical evidence is admissible in workers' compensation proceedings and that the filing of a workers' compensation claim waives the physician-patient privilege to the extent that medical information relates to the injury for which the employee seeks compensation.
The purpose of the physician/patient privilege is to enable the patient to secure complete and appropriate medical treatment by encouraging candid communication between the patient and the physician, free of fear of the possible embarrassment and invasion of privacy engendered by an unauthorized disclosure of information. The privilege can only be waived by the patient, and the physician must protect the patient by asserting the privilege when applicable. The physician/patient privilege survives the patient's death; it continues indefinitely and those who represent the patient after his death can waive the privilege.
The physician/patient privilege is not absolute. Once a party places the matter of his physical condition in issue in litigation, the party's physician/patient privilege is waived insofar as information from doctors or medical and hospital records bear on that issue. In such case, the opposing party is not entitled to any and all medical information. Rather, the opposing party may discover only those medical records that relate to the physical condition at issue under the pleadings. Waiver of the privilege does not automatically extend to every doctor or hospital record a party has had from birth regardless of the bearing or lack of bearing, as may be, on the matters in issue.
There is not an unlimited waiver of the physician/patient privilege when an employee files a workers' compensation claim and such filing does not allow unlimited discovery of any and all medical information about the employee regardless of whether it is related to the claimed injury. The privilege is applicable to workers' compensation claims, but the filing of such a claim waives the privilege to the extent that medical information or testimony relates to the condition on which the employee seeks compensation.