Second Circuit Rules that Pharmaceutical Sales Reps -- Some Making $100,000 a Year with Commissions -- Entitled to Overtime

On July 6, 2010, the United States Court of Appeals for the Second Circuit found that current and former sales representatives of a pharmaceutical company were neither exempt outside sales people nor exempt administrative employees.

The Court found that the salespeople were promoting sales of other, not making sales themselves. Thus, these employees primary duty was not making sales away from the employer’s place of business.

The Court also found that the sales representatives only performed low level marketing functions. Even though they had some authority to enter into agreements which bound company and had some discretion, the Court found the employees’ duties were not sufficient to make them exempt administrative employees under the FLSA.

Read the opinion here.

Supplemental Jurisdiction Saves the Day for Amount in Controversy Deficiencies in Multiple Plaintiff Cases

In Exxon Mobil Corp. v. Allapattah Services, Inc., 545 U.S. 546 (2005), the Court held that “where the other elements of jurisdiction are present and at least one named plaintiff in the action satisfies the amount-in-controversy requirement, §1367 does authorize supplemental jurisdiction over the claims of other plaintiffs in the same Article III case or controversy, even if those claims are for less than the jurisdictional amount specified in the statute setting forth the requirements for diversity jurisdiction.” The Supreme Court concluded that §1367(a) unambiguously overruled its previous holding in Zahn v. International Paper Co., 414 U.S. 291, 294-95 (1973), and held that because several of the plaintiffs satisfied the amount-in-controversy requirement of § 1332(a), and because the claims of the other plaintiffs undeniably arose out of the same case or controversy over which the district court had original jurisdiction, supplemental jurisdiction over the claims of all the named plaintiffs was proper. See also Engstrom v. Mayfield, 195 Fed.Appx. 444, 448, 2006 WL 2456948 (6^th Cir. 2006)(if any plaintiff satisfies the amount-in-controversy requirement of § 1332(a), the claims of other plaintiffs that arise out of the same case or controversy are properly the subject of supplemental jurisdiction).

U.S. Supreme Court Adopts "Nerve Center" Diversity Jurisdiction Test

In Hertz Corp. v. Friend, 2010 U.S. LEXIS 1897 (Feb. 23, 2010), the United States Supreme Court finally resolved a split among the circuits on how to analyze where a corporation’s “principal place of business” is for purposes of diversity jurisdiction. The Court reversed a Ninth Circuit holding that Hertz Corporation was a citizen of California because of the amount of business it did in California compared to other states, including New Jersey, where Hertz claimed was its principal place of business. For example, Hertz operated 273 of its 1,606 car rental locations in California, 3.8 million of its 21 million annual rental transactions took place in California, and approximately 2,300 of its 11,230 full-time employees were located in California. Still, the Supreme Court rejected the Ninth Circuit’s “business activities” test and instead adopted the corporate “nerve center” standard used by numerous other Circuits. The Sixth Circuit, however, applied a "total activities" test, whereby a court had to consider a variety of factors, such as the location of the corporation's nerve center, its administrative offices, its production facilities, and its employees. Gafford v. General Elec. Co., 997 F.2d 150, 163 (6th Cir. 1993). The U.S. Supreme Court concluded that since the headquarters, most of the executives, and the vast majority of the decision-making took place in New Jersey, that was Hertz’s principal place of business. In a unanimous decision the Supreme Court added much needed clarity on how to define a corporation’s so-called “nerve center”—which is now defined as the “the place where the corporation’s high-level officers direct, control, and coordinate the corporation’s activities.”

Statute of Limitations Analysis in Trentadue Extended to Latent Disease Cases

The statute of limitations in negligence and product liability actions is three years. MCL 600.5805(10); MCL 600.5805(13). A claim accrues and the statute of limitations begins to run at the time the wrong was done: “Except as otherwise expressly provided, the period of limitations runs from the time the claim accrues. The claim accrues . . . at the time the wrong upon which the claim is based was done regardless of the time when damage results.” MCL 600.5827.

In Trentadue v Buckler Automatic Lawn Sprinkler Co., 479 Mich 378, 388; 738 NW2d 664 (2007), Michigan Supreme Court rejected the application of the so-called “discovery rule” to toll the statute of limitations in personal injury cases except in very specific circumstances specifically set forth by the Legislature (e.g., claims for medical malpractice and fraudulent concealment) and held:
“We hold that the plain language of MCL 600.5827 precludes the use of a broad common-law discovery rule to toll the accrual date of claims to which this statue applies. Here, the wrong was done when Eby was raped and murdered in 1986. MCL 600.5827 was in effect at that time. Accordingly, plaintiff’s claims accrued at the time of Eby’s death. The Legislature has evinced its intent that, despite this tragedy, the defendant-appellants may not face the threat of litigation 16 years later, merely because plaintiff alleges she could not reasonably discover the facts underlying their potential negligence until 2002.” Trentadue at 407 (emphasis added). The Court also ruled that the word “wrong” in the statute means “when the plaintiff is harmed rather than when the defendant acted.” Id at 388 (citing Boyle v General Motors Corp, 468 Mich 226, 231-32, n5; 661 NW2d 557 (2003)(“The wrong is done when the plaintiff is harmed rather than when the defendant acted.”).

In Bearup v General Motors, 2009 WL 249456 at 7 (Mich App), the Michigan Court of Appeals extended the Trentadue analysis to cases involving latent injuries caused by exposure to toxic substances years earlier. Plaintiffs argued that symptoms alone were not sufficient to put them on notice of their injuries or the cause of their injuries. According to plaintiffs, their cause of action did not accrue until they received medical diagnoses. The Michigan Court of Appeals, however, held: "The period of limitation in a product liability action is three years. MCL 600.5805(13). This three-year period “runs from the time the [claim] accrues,” which is defined as “the time the wrong upon which the claim is based was done regardless of the time when damage results.” MCL 600.5827. To determine whether the statute of limitations has expired, the circuit court must first identify both “the wrong upon which the claim is based,” and the date the “wrong” was done. Our Supreme Court has explained that this calculation is intended to yield “the date on which the plaintiff was harmed by the defendant's negligent act, not the date on which the defendant acted negligently.” Stephens v Dixon, 449 Mich. 531, 534-535, 536 N.W.2d 755 (1995); see also Trentadue, supra at 388, 738 N.W.2d 664 (“The wrong is done when the plaintiff is harmed rather than when the defendant acted.”) (internal quotation omitted). After determining the date on which the plaintiff sustained the injury underlying a claim, the circuit court must determine whether the plaintiff filed a lawsuit within three years of that date."