2nd Circuit
Connecticut, New York, Vermont

Decision clarifies misappropriation theory of insider trading

In Securities and Exchange Commission v. Obus, the 2nd Circuit clarified on Sept. 6 that an individual who receives inside information can be liable for insider trading if he knew or should have known that the tipper breached a duty to his employer.

In May 2001, Thomas Strickland, an assistant vice president at General Electric Capital Corp., was conducting due diligence for his employer’s financing of the acquisition of SunSource Inc. Strickland mentioned the deal to his friend Peter Black, an analyst at Wynnefield Capital Inc., which held stock in SunSource. Black passed the information to his boss, Nelson Obus, who traded on the information. 

The SEC sued the three men for insider trading. A district court granted the defendants summary judgment because GE had determined that Strickland didn’t breach his fiduciary duty. On appeal, the 2nd Circuit reversed and held that all three men could be liable under the misappropriation theory, which provides that non-insiders can be liable for insider trading if they are entrusted with material nonpublic information in confidence and they breach a duty to the source of the information for personal gain. Black and Obus could be liable, the court reasoned, because they knew or should have known that Strickland was breaching his duty. The court remanded the case for further proceedings.    

3rd Circuit 
Delaware, New Jersey, Pennsylvania

Circuit enforces EEOC subpoena in disability discrimination case

On Sept. 14, the 3rd Circuit enforced an Equal Employment Opportunity Commission (EEOC) subpoena directed to an employment test maker in EEOC v. Kronos Inc.

In June 2007, a hearing- and speech-impaired job applicant complained to the EEOC that Kroger Co. discriminated against her because the grocery chain required prospective employees to take a “Customer Service Assessment” test. 

During its investigation into Kroger’s hiring practices, the EEOC issued a third-party subpoena to Kronos, the test creator, seeking information about how the test is created and data on the test’s impact on diverse and disabled applicants. Kronos objected, saying the requested information was irrelevant, and producing it would require it to disclose trade secrets.

A district court limited the scope of the EEOC’s subpoena to test-related documents pertaining only to Kroger, but on appeal, the 3rd Circuit reversed and remanded the decision. The court said documents related to other tests “could reveal that the assessment had an adverse impact on disabled applicants” and could help determine whether Kroger violated the Americans with Disabilities Act.

6th Circuit 
Kentucky, Michigan, Ohio, Tennessee

Wal-Mart didn’t illegally fire employee for medical marijuana use

The 6th Circuit ruled Sept. 19 in Casias v. Wal-Mart Stores Inc. that the Michigan Medical Marijuana Act (MMMA) doesn’t bar employers from firing workers who use medical marijuana.

Joseph Casias worked at a Battle Creek, Mich., Wal-Mart store beginning in 2004. In November 2009, he injured himself at work and went to a hospital, where he tested positive for marijuana. 

Casias told his managers that he was previously diagnosed with an inoperable brain tumor and sinus cancer, and his oncologist prescribed him the medical marijuana treatment after Michigan voters approved it in 2008. But Wal-Mart fired Casias because his marijuana use conflicted with its safety policy. 

Casias sued Wal-Mart for violating the MMMA, which prohibits “disciplinary action by a business” against “a qualifying patient.”

In February 2011, a district court found Wal-Mart didn’t improperly fire Casias, and on appeal, the 6th Circuit agreed. The three-judge panel noted that courts in California, Montana and Washington also have found that their states’ medical marijuana laws don’t govern private employment actions.

8th Circuit 
Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, South Dakota

Adjusting workweek to cut overtime costs doesn’t violate FLSA

A natural gas drilling company didn’t violate the Fair Labor Standards Act (FLSA) when it changed the designated workweek of some of its employees in order to reduce overtime costs, the 8th Circuit ruled Oct. 10 in Abshire v. Redland Energy Servs.  

Redland drilling rig operators had been working 12-hour shifts for seven consecutive days, Tuesday to Monday, followed by seven days off. In May 2009, Redland changed the designation of the operators’ workweek to Sunday to Saturday, but kept their actual Tuesday-to-Monday workweek, thereby splitting their workweek into two payroll periods and cutting their overtime hours.

Five operators sued Redland, claiming the company was trying to minimize its overtime liability under the FLSA. A district court granted summary judgment to Redland. On appeal, the 8th Circuit affirmed the decision, finding that Redland’s efforts to reduce its payroll expenses didn’t violate the statute’s purposes.