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Court Dismisses EEOC Lawsuit for Lack of Jurisdiction

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On Sept. 22, 2014, in EEOC v. Vicksburg Healthcare LLC, et al., Judge Keith Starrett of the U.S. District Court for the Southern District of Mississippi granted defendant’s motion to dismiss an EEOC lawsuit for lack of personal jurisdiction and insufficient service of process. The EEOC had filed a disability discrimination claim on behalf of a nurse who worked at a hospital owned by a subsidiary of the defendant. The court held that the EEOC, which sued a subsidiary hospital in Mississippi and its Tennessee-based parent corporation, did not put forth prima facie evidence of the necessary factors to satisfy personal jurisdiction requirements for the parent corporation in Mississippi.

While this ruling is favorable for non-Mississippi parent corporations operating subsidiaries in Mississippi, it has larger significance for employers. It shows that nationwide jurisdiction is not a given when the EEOC sues. Additionally, the ruling provides the framework for how to prevent liability by avoiding personal jurisdiction.

Case Background

The EEOC filed an action on behalf of Beatrice Chambers alleging disability discrimination under Title I of the Americans with Disabilities Act of 1990. The complaint named Community Health Systems, Inc. (CHSI) and Vicksburg Healthcare, LLC (VHL) as Defendants, alleging that both CHSI and VHL have been continuously doing business as River Region Medical Center (River Region) in Vicksburg, Mississippi.

The EEOC alleged that the defendants terminated Chambers–who had worked as a nurse at River Region for about 36 years–because of her unspecified disability, and additionally failed to provide her with reasonable accommodations in violation of the ADA. VHL was a subsidiary of CHSI, which was incorporated in Delaware and had its principal place of business in Tennessee. While VHL admitted doing business as River Region and admitted employing Chambers, CHSI denied doing business as River Region and denied employing Chambers. Further, in its motion to dismiss, CHSI asserted the affirmative defenses of lack of personal jurisdiction, insufficient process, and insufficient service of process.            

The Court’s Decision

In granting CHSI’s motion to dismiss, the court held that the issue of personal jurisdiction was controlling. The EEOC has the burden of establishing a prima facie case for personal jurisdiction. The court noted that a non-resident defendant is amenable to being sued in Mississippi if: (1) Mississippi’s long-arm statute confers jurisdiction over the defendant; and (2) the exercise of personal jurisdiction comports with the requirements of federal due process. The Mississippi long arm statute consists of three prongs, including: the contract prong; the tort prong; and the doing-business prong. It was undisputed that the “doing-business” prong was case dispositive.

CHSI submitted an affidavit from its Senior Vice President and Chief Litigation Counsel to the effect that it did not conduct business in Mississippi and that it lacked sufficient minimum contacts to be hauled into court in Mississippi.

The affidavit confirmed that CHSI is a holding company with no employees; CHSI indirectly owned subsidiaries including VHL; CHSI neither operated nor controlled the day-to-day operations of River Region; CHSI and River Region maintained separate banking records and did not co-mingle funds; CHSI did not employ nor have control over any River Region staff; CHSI never made any employment decisions regarding Chambers; CHSI and River Region observed corporate formalities (including no overlap between the Board of Trustees of River Region and the board of directors of CHSI; the respective boards of River Region and CHSI each convened separate meetings, (the boards maintained separate minutes and records); and CHSI is not qualified to do business in Mississippi–owns no property there, has no offices there, does not market there, and does not pay taxes there.

Following well-established precedent, the court found this aggregation of factors to be dispositive. It held that the EEOC lacked personal jurisdiction to sue CHSI in Mississippi.

The court rejected the EEOC’s three arguments in opposition of dismissal. First, the EEOC argued that the 10-K form submitted by CHSI to the SEC demonstrated CHSI’s intent to do business in Mississippi as it often used language such as “we” when referring to the hospital.  The court rejected this argument, noting that the 10-K form also contained a provision saying the hospitals are expressly owned and operated by the subsidiaries. Next, the EEOC mistakenly speculated that the River Region employee handbook contained references to CHSI. The court cited an affidavit from CHSI’s litigation counsel clarifying that the entity referred to in the handbook was a different indirect subsidiary, and not the parent corporation. Finally, the EEOC erroneously relied on another case involving CHSI – Bass v. Community Health Systems, Inc., Case No. 2:00cv193 (N.D. Miss.). The court noted that no facts from that case illustrated that CHSI should be amenable to personal jurisdiction.

Implications for Employers

 When out-of-state parent corporations conduct business in Mississippi through subsidiaries, it is imperative that they observe corporate formalities to clearly maintain the parent-subsidiary relationship. Further, in documents such as 10-K forms and employee handbooks, employers must explicitly indicate that subsidiaries, and not the parent, own and operate local entities. If parent corporations follow the teachings of EEOC v. Vicksburg Healthcare, LLC, et al., they can avoid unwittingly submitting to personal jurisdiction in Mississippi courts while their subsidiaries do business there.

This blog was previously posted on the Seyfarth Shaw website.

Controlling Employee Crime

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Employee theft costs businesses billions of dollars annually and it is on the rise, the U.S. Chamber of Commerce reports. Strategies for controlling these thefts include pre-employment screening, installing procedures to make theft more difficult, improving employee job satisfaction and maintaining a policy of apprehension and prosecution, according to The Hanover Insurance Group, Inc.

“Business owners spend a significant amount of time and resource protecting their business from a variety of risks, whether it’s liability for their products or services or severe weather,” Helen R.

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Savaiano, president of management liability at The Hanover said in a statement.

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“But, what can sometimes be overlooked are the risks presented by unscrupulous employees and unfortunately those types of losses happen more often than business owners think.

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”

In support of Crime Prevention Month, the company offers insights into the most common crime schemes and steps business owners can take to help prevent these schemes within their own companies.

What business owners can do:

Organizations should make sure there is clear accountability for every position and that no position has broad enough power to authorize payments without another individual’s consent. Companies also need to establish a system of checks and balances and set up an anonymous tip line to encourage reporting of any suspicious activities or business practices, The Hanover said in a report.

33% of Employees Fail to Meet Minimum Security Standards for BYOD

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Bring Your Own Devices

By 2017, half of employers will require employees to provide their own mobile devices for work use, Gartner reports. There are many benefits to BYOD policies, from greater productivity on devices users are more comfortable with to lower corporate costs when businesses do not have to purchase mobile equipment or service plans. But securing these devices poses tremendous risk that may not be worth the reward.

According to data security firm Bitdefender, 33% of U.S. employees who use their own devices for work do not meet minimum security standards for protecting company data. In fact, 40% do not even activate the most basic layer of protection: activating lock-screen features. Further, while the majority of workers could access their employer’s secure network connection, only half do so.

Bitdefender reports that there are 5 core security functionalities a strong BYOD policy should check:

  • Data encryption, for data residing on the employee’s device and for data transiting different channels.
  • Application access control, using port knocking, whitelists and intrusion prevention systems, for enterprise apps communicating with company servers.
  • Mobile malware detection and removal, to ensure clean devices enter the company and to keep them malware-free throughout their use.

  • Real-time app and website scanning, to make sure the device does not get infected by malicious apps or websites when the employee wants to download/access them.

  • App permission management, to allow employees to see exactly what types of information does an application require permission to access and share with the application vendor.

Check out more of the study’s findings below:

Bitdefender BYOD infographic

Taking Steps to Douse Factory Fire Risks

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The National Fire Protection Association (NFPA) reports that property losses at U.S. factories total nearly $1 billion annually. Between 2006-2010, about 42,800 industrial or manufacturing property fires in the utility, defense, agriculture, and mining industries were reported to U.S. fire departments each year, as well as 22 deaths and 300 injuries each year, according to the NFPA.

“Fire is the No. 1 preventable disaster at manufacturing facilities,” Cindy Slubowski, vice president and head of manufacturing at Zurich, said in a statement. “Most fires are preventable, and the risks can be reduced dramatically.”

In recognition of National Fire Prevention Week (Oct. 5-11), Zurich recommends that factory owners implement a pre-fire plan, starting with these steps:

When initial fire prevention efforts fail, automatic sprinklers are an effective secondary line of defense. They not only can protect property from fire damage, but they also play a major role in helping reduce injuries and fatalities. According to the NFPA, sprinklers have a 97% success rate in controlling fires when sprinklers operate during the blaze.

“Sprinklers are a proven method of keeping fires from raging out of control, which gives building occupants a greater chance to evacuate without injury,” Slubowski said. “On top of that, firefighters face fewer risks while working inside the building to completely extinguish the fire.” She added that insurers can help building owners develop a pre-fire plan that fits their particular manufacturing facility.

In its white paper, “Loss Prevention,” Zurich recommends weekly checks for factories including:

•     Visually checking fire protection control valves that are fitted with breakable seals to verify that they are open. Include valves inside ceilings, in pits, and at fire pumps.
•     Starting and running electric fire pumps via pressure drop for at least 10 minutes and diesel fire pumps for at least 30 minutes, exercising both sets of batteries. Verify that the diesel fire pump’s fuel tank is at least two-thirds full.
•     For dry pipe, preaction, and deluge sprinkler systems, check gauges for proper air pressure to verify that the systems have not tripped. Also check their enclosures for adequate heat to prevent freezing.

Common causes and prevention measures: