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Pointers for
Avoiding Holiday Social Host Liability |
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Well, it is
that time of year again -- time to make the yuletide gay.
It is a time when friends who are dear to us gather near to us
once more. Unlike the familiar holiday song, however, our
troubles may only be as far away as the county courthouse if we
fail to exercise ordinary care during the holiday season when
planning and hosting holiday parties. This is indeed the
time of year for celebration and for being thankful for another
successful year, or simply o have survived another year.
In either case most of us have a lot to be thankful for and much
to celebrate. Of course, one way to celebrate is to throw
a party. And what is a party without the availability of
alcohol? Whether entertaining friends and family or, if
you are an employer, hosting the annual office Christmas party,
if you throw a party and decide to serve alcohol to your guests
or employees, you will do well to consider the concept of social
host liability. So what am I talking about? Suppose, for
example, a gentleman you know comes to your holiday party and
has a few drinks, stays long enough to chitchat with most of
your many guests, and bids you a happy and joyous holiday season
before getting behind the wheel of his car for the long drive
home. On the way home this person causes a horrible
automobile wreck, seriously injuring a third party. Said
third party then sues you for those serious injuries because you
provided the alcohol which impaired the driver, knowing he would
drive his vehicle in am impaired state on a public street.
You have just been introduced to the concept of social host
liability. Right about now you are probably asking
yourself if you could possible be responsible for the injuries
sustained to the third party. It is a fair question, one
that deserves a straightforward answer, but it is also a legal
question and like many legal questions, I must give you instead
a very lawyerly response: the answer is yes, maybe. In
the 1992 case of Hart v Ivey, the North Carolina
Supreme Court held that a social host can be liable for serving
alcohol to a guest who then drives on a public highway and
injures a third party. An individual, a business entity,
and organization or an employer can be a social host. In Hart
the social host served alcohol to a guest who was under the
age of eighteen. The minor guest left the party and drove
home. On his way home his car collided with another
vehicle, causing serious injury to a third party. The
third party then sued the minor guest, as well as the social
host, for damages sustained as a result of the collision.
He contended that the social host negligently served an
alcoholic beverage to a person whom the social host knew or
should have known was under the influence of alcohol and would
drive an automobile on public streets shortly after consuming
the alcoholic beverage. The Court applied a standard
negligence analysis and stated that he "law imposes on
every person who enters upon an active course of conduct a
positive duty to exercise ordinary care to protect others from
harm, and calls a violation of that duty negligence."
What does that mean? Simply put, negligence is defined as
being a breach of a duty owed to a particular person and injury
to the person that is actually and proximately caused as a
result of the breach of duty. The injurious result must be
reasonably foreseeable from the negligent conduct. The
Court concluded in the Hart case that the social host was
"under a duty to the people who travel on the public
highways not to serve alcohol to an intoxicated individual who
was known to be driving." What do we glean from the Hart
case? Namely, that the three elements a person must prove
to prevail under a social host liability theory are as follows: (1)
serving alcohol to a person; (2) when the social host
knew or should have known the person was intoxicated; and (3)
when the social host knew the person would be driving shortly
after consuming the alcohol. Now that I have put a damper on
your holiday spirits and a real crimp in your holiday party
plans, perhaps I could recommend a few pointers to reduce your
anxiety about going forward with the big bash. Of course,
the most effective way to avoid social host liability altogether
is simply not to serve alcohol in any shape, form or fashion at
your holiday party. I understand that some may think a
policy of alcohol abstinence is not very realistic or desirable
and, therefore, such a policy may not be widely embraced, but
non-alcoholic punch is a sure way to avoid social host
liability. Other suggestions that may, and I stress may,
reduce your liability if you serve alcohol at your party include
the following: (1) Before the party, provide incentives
for your guests to carpool and appoint a designated driver who
remains sober; (2) Hire someone to serve the drinks or
have a person you trust act as barkeep, so that the person can
keep an eye on your guests, mindful of the fact that you have a
duty not to serve to those you know are intoxicated; (3)
Resist any impulse to go around filling the glasses of your
guests, choosing rather to let them request a refill; (4)
Offer a variety of non-alcoholic beverages as an alternative to
alcohol and serve lots of protein on your menu because foods
high in protein absorb alcohol faster; (5) Incorporate
mental and physical agility games into your holiday festivities,
games such as Jenga, which provide an incentive for guests to
stay sober and tend to steer guest traffic away from the bar; (6)
Stop serving alcohol at least one hour before the party is
scheduled to end and never under any circumstances offer a guest
"one for the road"; and (7) Finally, if you
recognize that someone is intoxicated, do not allow the
intoxicated person to drive. You can offer to call the
person a cab or offer to drive the person home (assuming you are
sober) or to spend the night, but do not take no for an
answer. Remember, a court may hold you liable for injuries
to third parties caused by guests to whom you have provided
alcoholic beverages if you know the person is intoxicated and
allow the person to drive anyway. So, if the need arises,
take your guest's keys. Although Hart did not
specifically address the issue, it stands to reason that an
employer could be liable if an employee has too much to drink at
an office holiday party and then negligently operates a
vehicle. It should be further noted that an employer may
also be liable for serving alcohol to an employee at an
employer-sponsored, employment-related function if the employee
leaves the function and drives on a public highway and injures a
third party. Under the latter theory, employers are held
to a much higher standard known as the doctrine of respondeat
superior, which stands for the proposition that the employer
will be vicariously liable for the negligent acts of the
employee if those negligent acts were committed within the
course and scope of the employment relationship, even if the
employer exercised ordinary care in the supervision of the
employee. It is important to point out that under the
doctrine of respondeat superior, the employer does not
necessarily have to know or have reason to know that the
employee was intoxicated or impaired if the employee is within
the course and scope of the employment relationship. The North
Carolina Supreme Court has addressed the issue of social parties
as they relate to the employer/employee relationship in the 1995
case of Camalier v. Jeffries. In Camalier,
an employee of the Raleigh News & Observer attended a
retirement party for another employee at the home of the
publisher. The employee drank several cocktails before
driving home. On his way home the employee ran a red light
and collided with another vehicle, causing serious injury and
later death to a third party. Both the employer and the
employee were sued for negligence. The Court held that the
employer was not responsible under a social host liability
theory because there was no evidence that the employer knew or
should have known the employee was intoxicated or "believed
that he was intoxicated at the time he was server alcohol at the
party." In Camalier, the Court further held that
the employer was not liable under the doctrine of respondeat
superior by distinguishing between an event that is an
employment related function from a party that is merely an
employer sponsored function. Employers planning holiday
parties where alcohol will be served should be mindful of this
distinction. If you are an employer planning to host a
party this holiday season where alcohol will be served, take
steps to reduce your potential liability by incorporating the
following factors into party planning: (1) Do not hold
the party on company premises; (2) Do not hold the party
during normal business hours -- you may even consider scheduling
the party on a weekend; (3) Do not require employees to
attend the party; (4) Do not require employees to work
if they choose not to attend; (5) do not compensate
employees for the time they spend at the party; (6) Do
not make a record of employee attendance; and (7) Do not
allow any employee to engage in any work related activities
during the party. This is the time of year for giving thanks
and for celebrating our many blessings. It is also a time
for building lasting memories by gathering together with people
we love, friends and coworkers. If you are planning to
host a holiday party, choose to celebrate responsibly by
following the precautions suggested above and have yourself a
merry little Christmas, a happy Hanukkah and a joyous Kwanza. R.L.
Bit Pressley is employed in the Litigation Section of Smith
Debnam Narron Wyche Saintsing & Myers and may be reached at (919)
250-2173 or by email at bpressley@smithdebnamlaw.com. Back
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Strange
Results Abound in High Tech Bankrutpcies
The high profile
bankruptcies of large technology firms such as Global Crossing
and WorldCom have dominated the business news this year.
They are not alone. Hundreds of technology companies, both
large and small, have sought refuge in the bankruptcy courts
over the past several months. In 2001 alone, over 500
e-commerce companies either shut down or declared bankruptcy,
leaving behind creditors and investors who naively believed that
e-commerce companies were worth the billions of dollars they
poured into them. The bankruptcy courts and lawyers are
left to decide how traditional laws apply to these new misfits
of the business world. Shaped
by the emergence of the internet as a viable business tool,
these high tech companies tend to rely heavily on intangible
assets, such as information technology products, and have very
little in the way of tangible assets. Many of these
companies have developed their own technologies, while others
have chosen to license technologies developed by others.
These information technology assets are often protected by
intellectual property laws. This special protection is
mainly found in the form of patents, trademarks and
copyrights. The rights to intellectual property are often
the most valuable assets of a high tech company. Such
rights are typically managed through leases, licenses, and sales
contracts. One
of the advantages of bankruptcy is that it gives a debtor the
ability to better manage its executory contracts.
Executory contracts are those that involve continuing
performance, such as the lease for space in a shopping
center. A bankrupt debtor is generally allowed to continue
those executory contracts that are advantageous, and to reject
those that are not. For example, a bankrupt retailer might
be allowed to continue with the leases on its stores in shopping
centers where it operates profitably and to reject, or walk away
from, those shopping center leases where business is not going
well.
For financially
troubled companies whose business models rely on more
traditional assets, the ability to assume or reject contracts is
one of the key reasons to seek protection in the bankruptcy
courts. for the high tech firm whose business model relies
heavily on contracts for the use of assets protected by
intellectual property laws, however, the right to simply assume
or reject its contracts is severely limited. Intellectual
property licenses are generally treated as executory contracts
under the Bankruptcy Code. One might then assume that a
high tech company in bankruptcy would be able to pick and choose
which of its intellectual property licenses it would like to
honor on a going forward basis. Nothing could be farther
from the truth. The Bankruptcy Code greatly restricts the
ability of the debtor to terminate contracts under which it
licenses its intellectual property to third parties. The
third party will retain the right to continue using the licensed
technology throughout the term of the license, as long as it
continues to honor the terms and restrictions of the
license. This will be true even in the context of an
exclusive license which the bankruptcy e-commerce company would
otherwise be able to terminate and possibly license to another
customer at a higher price. A
very similar problem exists in the reverse situation, where the
bankrupt company wishes to continue using intellectual property
it licenses from another. Keep in mind that when a company
files for bankruptcy protection, a new entity, either a trustee
or a debtor-in-possession, is formed to operate or liquidate the
business for the benefit of creditors. Consider the result
for a high tech company that depends on patented technology it
licenses from another under a nonexclusive patent license.
If the company files for bankruptcy protection, the trustee or
debtor-in-possession wil need to continue using the patented
technology. Since patent law prohibits assignment of a
nonexclusive patent license, the bankruptcy entity may not be
able to use the key technology. While such a result
certainly seems illogical at first blush, the courts are split
as to whether a nonexclusive patent can be assumed by the
debtor-in-possession or its trustee. Thus, depending on
the jurisdiction in which the bankruptcy proceeding is filed,
the debtor may not be able to assign key intellectual property
involved, a company entering bankruptcy could lose the right to
even assume an intellectual property license it was using prior
to the bankruptcy filing, potentially hampering the value of
other intellectual property assets of the company and in turn
the enterprise itself. A
high tech company contemplating bankruptcy needs to take a
careful look at its key technology. If that technology is
protected by intellectual property law, the company will need to
consider how that technology will be treated under bankruptcy
law. If the company faces a situation where it may not be
able to assign key technology to a trustee or
debtor-in-possession, management will need to consider whether
alternatives for reorganizing or liquidating the company outside
of bankruptcy should be pursued. Jerry
T. Myers the firm's managing partner and the section head of the
Creditors' Rights Retail section. He can be reached at
919-250-2133 or by e-mail at jmyers@smithdebnamlaw.com. Back
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Don't Proceed Against that Guarantor
Just Yet A
good credit policy should be designed to protect your business in
the event that a customer fails to pay his or her bills. One
proven method to accomplish this is to have a guaranty agreement
signed, especially if the customer has a poor credit history or
is a new customer with no prior relationship with you or your company.
The assumption is, of course, that if your customer defaults and
is unable to pay his or her debts, you have the option to pursue
the guarantor for the debt. Your right to proceed against
the guarantor is severely restricted, however, in certain bankruptcy
settings as a result of the co-debtor stay provided by the United
States Bankruptcy Code in Chapter 13 bankruptcy cases. Dealing
with individual customers, in contrast to business customers, usually
means that your guarantor will be a friend, parent or other relative
of your customer. The Bankruptcy Code provides that if an
individual files a Chapter 13 bankruptcy containing a debt that
is guaranteed or secured by someone else, the creditor is prohibited
not only from pursuing the debtor for payment of the debt, but also
from pursuing the guarantor as well. Before you may exercise
your collection rights against the guarantor, you must first obtain
permission from the Bankruptcy Court. There are certain requirements
that must be met before the Court will grant such relief. The
co-debtor stay does not apply to all Chapter 13 debts. The
debt must be a "consumer" debt, which is defined as a
debt incurred for personal, family or household purposes.
Therefore, if your customer incurred the debt for business rather
than for personal use, it may not be considered a "consumer"
debt, in which case the co-debtor stay would not be applicable.
In addition, the co-debtor stay does not protect a guarantor who
becomes liable on the debt as a result of the guarantor's business
- for example, a surety or bonding company. It
should be remembered that the co-debtor stay does not relieve the
guarantor of liability on the debt, but rather postpones his obligation
to pay, and your right to collect, until your customer's bankruptcy
is completed. The guarantor remains liable for any amount
unpaid by your customer during the bankruptcy plan. Once the
bankruptcy case is closed, dismissed, or converted to a Chapter
7 or Chapter 11, you may proceed against the guarantor as if the
bankruptcy had not been filed. The
Bankruptcy Code does not distinguish a guarantor from a co-signer,
so the co-debtor stay applies equally to both. In addition,
for those businesses that deal with agricultural customers, there
is a co-debtor stay that applies to individuals that seek to reorganize
family farms under Chapter 12 of the Bankruptcy Code. A
guaranty agreement can be a useful tool for today's business and
is highly recommended, especially for new customers or if the credit
requested by the customer is more than you feel comfortable extending.
However, remember that if your customer files for bankruptcy protection,
there are certain provisions of the United States Bankruptcy Code
that may affect your ability to pursue the guarantor. To be
safe, we recommend that you refer all questions to your attorney
or call our firm for assistance. Jeff
D. Rogers is a partner in the Creditors' Rights section of the
firm and can be reached at 919-250-2112 or by e-mail at jrogers@smithdebnamlaw.com. Back
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