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Roger Meiners' Bio

Roger Meiners is the Goolsby Distinguished Professor of Economics and Law at the University of Texas at Arlington. His PhD in economics is from Virginia Tech; his law degree is from the University of Miami. He has taught the Legal Environment of Business for 30 years and has a Cengage textbook by that title.  He has published in various journals, including Environmental Law and the Journal of Law and Economics. He served as Regional Director of the Federal Trade Commission for the southeastern states and currently is a Senior Fellow at the Property and Environment Research Center in Bozeman, Montana.

Karen Morris' Bio

Karen Morris is a Distinguished Professor of Business Law at Monroe Community College in Rochester, New York where she has taught for 31 years.  She is also an elected town judge and the author of two textbooks - New York Cases in Business Law and Hotel, Restaurant and Travel Law.  Karen also writes a treatise on New York Criminal Law and a column in Hotel Management Magazine.  She recently published her favorite work - Law Made Fun Through Harry Potter's Adventures.   Professor Morris is the recipient of numerous teaching awards and recently received the Humanitarian Award from her county Bar Association.

Marianne Jennings' Bio

Professor Marianne Jennings is a member of the Department of Management in the W.P. Carey School of Business at Arizona State University and is a professor of legal and ethical studies in business. At ASU she teaches graduate courses in the MBA program in business ethics and the legal environment of business. She served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. Professor Jennings earned her undergraduate degree in finance and her J. D. from Brigham Young University. She has done consulting work for a multitude of companies including: Boeing, Mattel, Coca-Cola, DuPont, Blue Cross Blue Shield, and Motorola. Currently she has six textbooks and monographs in circulation. Her columns have been syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, and the Washington Post. She is a contributing editor for the Real Estate Law Journal, New Perspectives, and the Corporate Finance Review.


Apple, Google, The No-Poaching Employees Pact, and Class-Action Suits

04-17-2014 7:30 AM with no comments

About 100,000 employees in the Silicon Valley are rumored to be near a settlement with seven Valley firms (Apple, Google, Intel, Intuit, Adobe, Pixar, and Lucas Films).  The suit is based on antitrust allegations there was a conspiracy among the seven firms to not hire each others’ employees.  Referred to as non-poaching agreements, these arrangements prevent employers from getting into bidding wars over employees.  In the high-tech world, the battle for talent is intense and employees tended to move to the companies that were willing to pay more.  The allegations are that in 2005, Google and Apple (and others joined later) agreed that they would not “cold-call” each others’ employees.  That is, the companies would not seek out employees at other companies.  The agreement did not stop employees from seeking positions at the other firms.  The court documents indicate that Steve Jobs had threatened “war” if Google did not agree to the no-poaching arrangement.  War was translated to mean patent litigation by Apple.

Although there was an initial motion to dismiss the federal case on the grounds that there was no proof of conspiracy or intent to collude under antitrust laws,  the judge allowed the suit to go forward because she was convinced with the evidence made available that too much was going on between the firms to attribute the refusal to hire from the other firms a mere coincidence. There is evidence in the case, including a sworn statement from Facebook’s chief operating officer, Sheryl Sandberg, that some firms refused to participate in the agreement, which the plaintiffs in the case say was entered into by the companies in order to suppress wages. 

The case became a federal antitrust suit, which was settled by the companies last year.  The class-action suit is scheduled to begin trial in May 2014, but there are indications that the settlement talks are in high gear.  The rumored settlement figure is $9 billion.  Split among the 100,000 plaintiffs, and before lawyers’ fees, that amounts to $90,000 per plaintiff.  In a land of six-figure minimum salaries, such a recovery would be at the low end in terms of compensation. Andrew Ross Sorkin, “Tech Firms May Find No-Poaching Pacts Costly,” New York Times, April 6, 2014, p. B1.

Many experts believe that the settlement talks as intense because of the nature of the e-mails between Google HR folks and Apple executives.  For example, when Google wanted to hire a Paris engineer for Apple, the following e-mail exchange has emerged as evidence in the case:

From an e-mail to Steve Jobs from a Google vice president: “Google would like to make an offer to Jean-Marie Hullot to run a small engineering center in Paris.  Bill, Larry, Sergey, and Jean-Marie believe it is important to get your blessing before moving forward with this.  Google’s relationship with Apple is extremely important to us. If that relationship is in any way threatened by this hire, please let me know and we will pass on this opportunity.” 

Mr. Jobs objected, and Google rescinded its offer.  The same vice president then wrote:  “Steve is opposed to Google hiring these engineers. He didn’t say why, and I don’t think it is appropriate for me to go back for clarification. I can’t risk our relationship with Apple to make this happen over his objections.”

The antitrust theory centers on the collusion to control the labor markets and suppress wages through the no-recruitment policy and the no-hire pacts that appeared to be in place. The theory may be in a gray area, and the executives at the companies involved were nervous.  For example, Intel’s CEO, Paul Otellini, indicated in an e-mail that he had a handshake no-recruit agreement with Eric Schmidt of Google and said that he did not want that fact “broadly known.” 

If the trial goes forward, the case will provide some clarity on antitrust law with respect to employee recruiting.  If the companies settle, well, the agreements will be lifted for a time in response to the cost of the settlement. 


1.    Why would this case be in federal court?

2.    Explain how the plaintiffs would have the e-mails of the executives?

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3.    How is this case different from most antitrust cases?


Posted by Marianne Jennings

Yelp, Negative Reviews, Fraud, and the First Amendment

04-14-2014 7:40 AM with no comments

The problems of those online reviews.  The stars, or lack thereof, can make or break a business.  Consider Joe Hadeed’s carpet cleaning business.  A slew of negative reviews that began cropping up in 2012.  The result?  Business down by 30%.  Eighty employees laid off, and six cleaning trucks sold.  Mr. Hadeed, who has run a successful business for a number of years, filed suit against the seven Yelp reviewers.  Angus Loten, “Yelp Reviews Fuel Free-Speech Fight,” Wall Street Journal, April 3, 2014, p. B1. He wants their true identity, but Yelp refuses.  Yelp has been held in contempt of court, and the case is headed to Virginia’s supreme court.

The battle is one of legal rights between damage to businesses by false or fraudulent reviews and the right of consumers to speak freely (and anonymously) about their experiences with a business. Here are the various scenarios that have come up in litigation around the country and Federal Trade Commission (FTC) complaints.  Since 2008, the FTC has received 2,046 complaints from companies concerned about false reviews appearing in online sites.

1.     The reviews are posted by individuals hired to write negative reviews.  In some cases, there are companies that specialize in getting companies these negative reviews on competitors as a means of increasing their own business.

2.     The reviews are actually posted by competitors (or their employees) as a means of gaining business.

3.     The reviews are posted by employees of the online sites themselves as a way of forcing the businesses with negative reviews to advertise with the sites.

4.     The reviews are written by those related to customers who have had a bad experience in order to force the business into providing the customer with some remedy.

The First Amendment issues involved are the freedom to speak without the government interfering.  The issue is whether disclosure of the identity of anonymous posters is government interference with speech or a means of holding individuals accountable for their speech about a business. The case still proceeding through the courts is Yelp, Inc. v. Hadeed Carpeting Cleaning, Inc., 752 S.E.2d 554 (Va. App. 2014).

 Apart from the First Amendment claims of Yelp and those who post reviews, the additional legal issues are the defamation of the businesses that are the subjects of the negative reviews.  If the information that is posted in the reviews is false, then the review is defamatory. However, another problem is the Decency Act of 1996, a federal law that shields consumer websites (Yelp, Angie's List, Google, Yahoo, and -- from defamation liability.  However, the businesses are now pursuing the reviewers themselves.  The problem is that most of the reviews contain opinions – in Mr. Hadeed’s case, comments such as “Don’t go with Joe.”  Such opinions are not defamatory – they may harm the business, but do not constitute false statements of fact.  You can read a summary of the proceedings in the case here. 

The law is grappling with unanticipated consequences of anew technology -- the paid-for spread of false information, and the use of that technology, in an unfair manner, to win customers, but not through better products adn services, just through knocking down competitors. Hr. Hadeed's case may give us some precedent on how to handle legal rights in evolving technologies.



1.      What can you think of as a defense for someone who posts a review and whose identity is revealed to the business?

2.     Discuss the ethics of companies whose business it is to write negative reviews for competitors in order to increase business?




Posted by Marianne Jennings

Gender Discrimination Arbitration Against Sterling Jewelers Can Proceed as A Class Action

04-12-2014 7:46 PM with no comments


Twelve women at Sterling Jewelers are suing based on unequal pay, denial of promotion opportunities, and sexual harassment (unwelcome sexual advances, requests for sexual favors, and other verbal or physical conduct of a sexual nature at the workplace).   Sterling is the largest retail jewelry company in the US based on sales.  It is the parent of 12 chains including Jared the Galleria of Jewelry, Kay Jewelers, and Marks & Morgan Jewelers. Sterlingt has 1,400 stores in 50 states.

The pay discrepancies came to light when one of the women was filling in for her general manager and saw a payroll report on his desk.  It showed that women were typically paid $1 to $3 less than their male counterparts performing the same work.

The sexual harassment claims included an alleged rape of a sales manager in a hotel room during preparation for an annual meeting; a claim that when a sales associate closed a big sale, her male boss announced he had a “reward” for her, opening his legs and telling her to sit on his lap; and assertions by several sales associates that a manager rubbed up against them.  Plaintiffs also claimed the company modified written complaints of harassing conduct so they appeared less serious, and did not thoroughly investigate them. Plaintiffs hired an expert witness  (a specialist who gives an opinion on a subject not readily understood by a jury, judge or arbitrator) who investigated and determined that senior management created a “climate and culture” that devalued work of female employees. 

Plaintiffs seek back pay (the difference between the salary they received and the salary they would have made if they were paid the same as men) and punitive damages (money in excess of the amount needed to compensate plaintiff, intended to punish the defendant for particularly bad conduct). 

Sterling  responds by saying it could not corroborate some of the allegations; it took appropriate remedial action in complaints it confirmed; and some of the allegations relate to personal,  consensual relationships. The company also notes that 70% of the  sales force and assistant managers are women, and 60% of store managers are female. 

 Since 1998, Sterling has required as a condition of employment that employees agree to submit disputes to arbitration, an alternative dispute resolution matter where the dispute is submitted to a third person to decide rather than going to court.  The plaintiffs want  to designate the arbitration as a class action and represent 44,000 current and former Sterling sales associates, managers and sales associates.  The arbitration clause that the plaintiffs signed did not address whether a class of plaintiffs could be formed.

The arbitrator ruled that the plaintiffs could seek class status.  Sterling appealed and the New York district court reversed. The women appealed to the Second Circuit Court of Appeals  which ruled in the women’s favor. The United States Supreme Court has declined to grant certiorari, leaving in tact the Second Circuit’s decision. 

  Since the issue has arisen in this case, many companies that utilize arbitration clauses are now including a statement that class actions are precluded.

 For more information, click here:


Why do employers not want class actions in arbitration?

What should a company do when an employee alleges sexual harassment?



Posted by Karen Morris

Celebrity Chef Gordon Ramsay Sued by Partner for Fiduciary Breaches

04-08-2014 6:17 PM with no comments


 Partnerships, like most human relationships, are fragile.  If the affiliation deteriorates, much is at stake.

The latest partners to learn this the hard way are celebrity chef Gordon Ramsey and the owner of the popular Serendipity restaurant chain (NYC, Las Vegas, etc.)  Rowen Seibel.  Together they owned a Los Angeles burger eatery called Fat Cow.   The feisty foodies are fighting fiercely.   Seibel has sued Ramsey for $10.8 million and Ramsey is parrying the punch.

Seibel claims “egregious misconduct, fraud, self-dealing, breach of fiduciary duty (obligation of utmost good faith and loyalty), and theft of corporate opportunity.”  Specifically, Seibel alleges that Ramsay failed to consult Seibel on major decisions and instead ran the restaurant like a “dictatorship”. For example, Seibel alleges Ramsey alone decided on the name of the restaurant over Seibel's objections based on the name being a trademark (recognizable sign that identifies sources of products) owned by a competing business.   Per the complaint, Ramsey disregarded the issue and the  business was sued for trademark infringement (use of another’s trademark without authorization). an unnecessary and expensive lawsuit. 

Partnership law entitles all partners to equal say in partnership business regardless of the amount of each partner's financial contribution  ,unless the partnership agreement says otherwise.  A majority vote is sufficient for most business matters.  In a two person partnership, a majority vote requires agreement of both parties. Forging ahead with an important company decision like the name of the business without the two parties’ mutual assent violates partnership law.

Siebel also asserts that Ramsay “secretly shut down”  the Fat Cow and opened a new restaurant at the same location under the name GM Roast as a business owned exclusively by Ramsay.  Partnership law specifies a protocol for termination of a business.  The fiduciary duty of utmost good faith extends through the life of the partnership including the process of winding up the partnership affairs, including cessation of the business, payment of outstanding debts, repayment of each partner's capital contribution and allocation of the profits.

Partnership law also gives each partner the right to inspect the financial records of the business, and if they reveal questionable activity, the right to an accounting.  This is a formal determination of the value of a partnership.  These rights extend through the process of winding up.  Thus, Seibel has the right to review the books and records, and to consult an accountant to assess the partnership’s financial circumstances and determine how much money Seibel may be owed. 

Additionally, the fiduciary responsibility of partners precludes them from profiting at the other’s expense, and  from usurping a partnership benefit.  If the location of the restaurant was particularly desirable, Ramsay could not legally usurp it without Seibel’s consent. 

In response to the lawsuit, Ramsay claims Seibel was responsible for the day to day operations of the restaurant and “spectacularly mismanaged it.”  When Ramsay tried to resolve the issues, Seibel “refused to engage in any meaningful conversations, rendering the restaurant unsustainable.”  An additional obligation of a fiduciary relationship is to share information relating to the business.  Ramsey alleges Seibel violated this duty. 

Finally, Ramsay alleged Seibel diverted funds from the enterprise. Like Ramsey, Siebel had a fiduciary duty to refrain from usurping partnership property and account for money made by the business.  If Ramsey has reviewed the books and can point to questionable transactions initiated by Seibel, Ramsey would be entitled to an accounting.

For more information. see


How might partners protect against dissention among their ranks?  Consider both contract terms they might adopt and methods of dispute resolution.


Posted by Karen Morris

Samsung and the Presidential Selfie With Ortiz: Commercial Appropriation

04-07-2014 8:33 PM with no comments

President Barack Obama posed in a selfie with baseball players David Ortiz when Ortiz's team




David Ortiz, a player with the Boston Red Sox, attended a White Celebration of the 2013 World Series.  Mr. Ortiz gave President Obama a jersey with “Obama 44” on it and took a selfie with the President.  Ortiz did ask permission to take the selfie and the president insisted that the picture be a “good one.”

However, Samsung had recently signed an endorsement deal with Samsung and within minutes the selfie of the president and the ball player went out to 5 million followers on Samsung’s Tweet account.

Mr. Ortiz and Samsung used the president’s image for commercial purposes, so it was appropriation, one of the privacy torts.  Using legal language, White House Press Secretary, Jay Carney, said that no one has permission to “use the president’s likeness for commercial purposes.”  Carol E. Lee, “White House to Samsung: Butt Out,” Wall Street Journal, April 4, 2014, p. B1. President Obama gave permission for the photo, but not for its commercial use because that use was not disclosed.

The remedies for commercial appropriation include damages – payment for the use of the image – or an injunction that would prohibit further use of the image or likeness.  The White House has not taken legal action, but it has contacted Samsung and asked that the image be taken down and not be used by the company in the future.

In addition, President Obama is considering a ban on all selfies so that the White House legal counsel does not have to deal with commercial use.  S.A. Miller, “Obama Considers Ban after Papi’s Samsung Selfie,” New York Post, April 7, 2014. 

The White House has previously halted the use of pictures of the president for ads.  Weatherproof, the jacket company, was forced to remove a billboard in Times Square that showed President Obama on the Wall of China wearing a Weatherproof jacket.  The White House took swift action to have the billboard removed.

The use was clearly without permission, but the White House has clarified that selfies – even with permission – cannot be used for commercial purposes.


1.      Discuss the permission issue and commercial appropriation.


2.     Explain the remedies for commercial appropriation. 

Posted by Marianne Jennings

Filed under:

Caterpillar, Switzerland, and Offshore Income: My Accountant Said It Was Okay

04-04-2014 5:22 AM with no comments

Caterpillar, the U.S. manufacturer of tractors, earth-movers, and other industrial equipment found its officers and auditors testifying before a congressional committee on its strategy for shifting profits outside the United States and beyond the reach of federal income taxes. 

With the advice of its accountants from PricewaterhouseCoopers, Caterpillar, a U.S. company, created a tax avoidance structure through a subsidiary in Switzerland.  Since 1999, Caterpillar had used the subsidiary in Switzerland, a replacement parts unit, to place its profits in that country where the company was able to negotiate a much lower corporate tax rate (4-6%) than the 29-35% that the company pays in the United States.  As a result of the structure, Caterpillar was able to keep $2 trillion in profits offshore. 

The strategy came to the attention of both the IRS and Congress when a former employee of the company's tax department brought suit against the company for termination based on the employee's allegations that raising the issue about the off-shore operations resulted in retaliation by the company.  Daniel Schlicksup, a tax lawyer with the company, had referred to the strategy as a "tax dodge," and raised questions as to whether it would stand up to IRS scrutiny. While Caterpillar settled the suit with the employee, the settlement came after a treasure trove of e-mails were discovered in the case that were damaging to the company. Congressional committees obtained the e-mails and held the hearings.  Ironically, the IRS did not have nearly the information that congress did, and the e-mails proved to be helpful to the agency as it pursues its case. James R. Hagerty, " "Caterpillar's $2.4 Billion Tax Issue," Wall Street Journal, April 1, 2014, p. B3. 

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A PricewaterhouseCoopers wrote in one of the e-mails to Steven R. Williams, a PwC managing director, "We're going to have to create a story.  Get ready to do some dancing." Mr. Williams responded in e-mail,  "What the heck.  We'll all be retired when this comes up on audit."  The two PwC accountants had helped Caterpillar create the tax strategy.  When Mr. Quinn was asked about the e-mail exchange during congressional hearings on the issue, he responded, "Senator, that was a very poor choice of words." The hearings came about because the e-mails emerged in a lawsuit filed by a former Caterpillar tax department employee. The lawsuit was settled in 2012. What happens in e-mails never stays in e-mails. Mary Williams Walsh, "At Hearing, Caterpillar Defends Tax Practices," New York Times, April 2, 2014, p. B3. 

The off-shore shifting of income is permitted under the Internal Revenue Code if the company is able to show that the Swiss subsidiary was established in that country in order to meet demand in Europe for the company's parts.  In other words, Caterpillar must show that its parts business is indeed run out of the Switzerland operation and not out of the United States.  Otherwise, the Swiss company must pay royalties to Caterpillar in the United States, royalties which would be taxed under the U.S. rate. The complex strategy netted PwC $55 million in fees for its development.  Tax experts who testified at the hearing did not support the strategy as a means for avoiding taxes but a means of evasion because the Swiss parts subsidiary was not the center of the company's parts business. 

Because 1999 is beyond the IRS five-year limit, any back taxes recovered would be limited to the past five years.  However, the tax avoided in that time is estimated to be $300 million per year. 

Discussion Starters

1.  Explain what Caterpillar was trying to do through its foreign operations.

2.  What do you learn about e-mail communications from this example?




Posted by Marianne Jennings

Filed under: ,

Resume Fraud; Hiring Negotiations between Coach Masiello and USF Terminated

04-03-2014 11:41 PM with no comments


University of South Florida (USF) was in the market for a new head basketball coach.  They had their sights on Manhattan College coach Steve Masiello, described by the New York Times as a “coaching star.”  Indeed, Masiello and USF had reached an “agreement in principle,” subject to checking references and verifying credentials.  ESPN had reported that Masiello had verbally accepted a five-year deal worth $1 million a year. 

USF requires that head coaches have a bachelor’s degree or higher.  This appeared to be no problem because Coach Masiello’s resume, posted on Manhattan College’s website, stated that he graduated from the University of Kentucky in 2000 with a degree in communications.

But a problem lurked. A spokesman from Kentucky confirmed that Masiello attended the school from 1996 to 2000, but denied that he graduated or received a degree.  The issue was discovered by an employment consulting firm hired by USF to conduct the coach search. The Manhattan College website has now been updated to delete the reference to a degree.  Ooops!  USF has terminated discussions with Masiello about hiring him.

Manhattan College likewise requires a  bachelor’s degree for its coaches, and has put Masiello on leave pending further clarification of his degree status. 

The Manhattan College team was in the NCAA tournament but lost its first game to Louisville, 71-65.

Misrepresenting one’s credentials on a resume is resume fraud. .This term means providng fictitious, exaggerated, or otherwise misleading information on a job application or resume for the purpose of persuading a potential employer to hire that applicant.   An employer who is misled will likely terminate the employee upon revelation of the lie. Further, employers often require applicants to swear to the truth of the information in an application and resume.  In that situation, an untruth could be perjury, the crime of lying under oath.

If USF and Masiello  in fact had a contract, the agreement was subject to a condition, a possible future event, the occurrence or nonoccurrence of which terminates an existing contractual obligation.  The condition was that Masiello’s reference and record checks not reveal any problems or job-related convictions, and his resume not misstate his credentials. .  Given the misrepresentation about his degree, the condition was not met.  That triggers a termination of any contractual commitments.                                        

Employers have a duty to their constituencies – customers, clients, stockholders, or in this case, players, boosters and fans, to do a thorough investigation of a candidate’s background before extending an offer of employment..  Overlooking this important step can give rise to liability for negligent hiring by someone injured as a result of an employer’s failure to discover available information indicating an employee is untrustworthy or otherwise dangerous.  For example, a hotel hired a masseuse but failed to do a background check.  The investigation would have revealed a number of sex crime convictions.  A hotel guest was raped by the masseuse and sued the hotel.  It was liable for negligent hiring.

Manhattan College apparently was remiss when it hired the coach.  Had a student been injured by Masiello, the college might have faced liability..

For more information, click here:


What steps should an employer take to protect itself from resume fraud?


Posted by Karen Morris

Filed under: ,

Rattlesnake Roundups by Gassing: A State Law Battle with Federal Overtones

03-31-2014 2:30 PM with no comments

Sweetwater, Texas is the home of the world's largest rattlesnake roundup.  Each year, for the past 56 years, wranglers are invited to descend on Sweetwater to compete for the prize for catching the largest rattlesnake. When the wranglers bring in the snakes, the snakes are milked for their venom (used to develop vaccines and treatments), weighed and measured, and then killed for meat and their skins. The year-round residents of Sweetwater are grateful for the thinning out of the rattlesnake population because the indigenous snakes show up on their patios and driveways and often bite children and pets. Manny Fernandez, "Rattlesnake Wranglers, Armed With Gasoline," New York Times,  March 31, 2014, p. A10. 

However, the methods the wranglers use to catch the snakes have been the subject of animal rights activists' concerns and resulted in state laws in 20 states.  Many of the wranglers use "gassing," a method by which gasoline fumes are pumped into the dens (holes, cracks, and crevices) where the rattlesnakes reside in order to drive them out, thus making catching much easier. The Texas State Parks and Wildlife Commission has been looking into the practice because of complaints from animal rights activists that claim the gassing causes impairments in all creatures in the area and, in some cases, results in death. The fumes do not go away easily and environmentalists claim that there is long-term damage to areas where gassing is used, including to other animals and plants.  The U.S. Fish and Wildlife Service has concluded that the gassing affects endangered species in the area such as the Comal Springs riffle beetle, the Bone Cave harvestman, and the Government Canyon Bat Cave spider.  Following a hearing in January, the Texas commission took no action.  A legislative proposal in Texas has been resisted to date.  However, the states surrounding Texas (Oklahoma, Louisiana, Arkansas, and New Mexico) do have state laws that prohibit gassing and many other states have followed the trend generally following petitions and proposals from zoologists. 

In Texas, snake hunters are licensed, also a common requirement in the surrounding states. The snake hunters say that they pump in fumes for less than a minute from a can that holds about 50 cents worth of gas and that there is no harm. The economic consequences for Sweetwater would be devastating if gassing were outlawed because of the economic importance of the roundup.  In addition, Riley Sawyer, a Sweetwater resident, is the star of ANimal Planet's "Rattlesnake Republic," a show that features stories of capturing the snakes. 

Presently, the practice of gassing continues to be under study in Texas regulatory agencies as well as by the EPA and Department of Interior at the federal level.  In the remaining 30 states that do not have current laws prohibit gassing, the issue is either in the form of proposed legislation or under study. 

Discussion Starters

1.  What are the issues in the regulation of gassing?

2. What levels of law and regulation are involved in the issue of gassing? 

Posted by Marianne Jennings

Ruling Holds College Athletes Are Employees; They Can Now Unionize

03-29-2014 12:08 AM with no comments


A ruling this week determined that football players who receive athletic  scholarships  at Northwestern University qualify as employees  (workers who are “directed and controlled” in the performance of some compensated duties)  the school.  As such, they have the right to form a union ( an organization of workers that advocates or improvement of working conditions) and bargain collectively ( the process of negotiations between employers and representatives of employees' union addressing working conditions such as wage scales, working hours, benefits, grievance mechanisms, overtime pay, and more). This decision has been called revolutionary because no other football players in college sports have ever sought legal authorization  to unionize, and players have always been treated as student athletes, not workers.

The players receive scholarships to pay for their education in exchange for participating in both practices and also competitions during which they represent the school .The university argued that involvement in sports is part of the overall educational experience. This view was rejected in the case.

The decision, issued by a regional director of the National Labor Relations Board (NLRB) and was based on numerous factors including that the Northwestern scholarship football players devote up to 50 hours a week to the game.  As stated in the decision, this is more than many “undisputed full-time employees” work, and more time than the players spend on their studies.  , Further, the coaches control how the players' time is spent  at practice.  Additionally, the players are required to attend a one-month training camp at the end of the summer and spend 50-60 hours that week on the game. The players are recruited for their athletic ability, not their academics. Team guidelines require that players submit to drug testing, and players are prohibited from refusing a Facebook friend request by a coach. Athletes must live on campus for their freshman and sophomore years. If their grades fall below a certain threshold, they are required to attend study hall.  If the rules are disregarded, the scholarships can be revoked, a decision made by the coach.

 The NLRB s a national agency headed by a five person board, each of whom is appointed by the President of the United States. It has 26 regional offices located around the country, each headed by a regional director.

.In addition to determining who qualifies as an employee, another of the agency’s functions is to decide if an appropriate bargaining unit exists for collective bargaining.  A collective bargaining unit is a group of employees whose jobs carry sufficient similarity that the workers have common interests (“community of interests”) relating to working conditions. The football players were determined to qualify as such a unit. Therefore, an election will be conducted.

Decisions of the regional directors can be appealed to the 5 member Board of the NLRB whose offices are in Washington DC.  Northwestern University has announced that it will appeal.   If a party choses to appeal that decision, the case will be heard by a federal Court of Appeals. A final appeal would be to the United States Supreme Court.

A union is created when a majority vote of employees in a bargaining unit choose to form onw. Another function of the NLRB is to organize secret ballot elections at worksites to determine whether employees wish to be represented by a union. The next step for the Northwestern players is to have such a secret ballot election.  If a majority opt for a union, there will be a union. Once a union is formed, collective bargaining can begin.

The two issues of most concern to the players, and thus will be negotiated with the school if the election among players results in a majority decision to form a union, are better health care and limited practice hours. Another issue is handling of head injuries and coverage of medical expenses for former players with sports-related medical expenses.  Compensation to the players for commercial sponsorships is also on their list.

The National College Athletic Association (NCAA) generates billions of dollars from football and men’s basketball.  For example, the current contract for broadcasting March Madness is worth $10.8 billion (yes, that's a "B") dollars over 14 years.

The ruling applies only to Northwestern University football players who receive scholarships from the school.  But the case is now a precedent and will foreseeably be cited in similar union efforts at other private schools. The issue in public schools is governed by individual state laws.

Given the significance of the decision, the case is anticipated to wend its way to the US Supreme Court.

For more information, click here.


Do you agree with the ruling that Northwestern athletes receiving scholarships are employees?  Why or why not?



Posted by Karen Morris

Madoff Employees Convicted of Cooking the Books; 200 years in Jail Possible

03-26-2014 11:57 PM with no comments


Five former employees of Bernard Madoff, all key players in helping him defraud investors for decades, were convicted of numerous fraud-related crimes.  Madoff was prominent in the securities industry and a sought-after investment advisor and money manager.  He pled guilty in 2009 to operating the largest Ponzi scheme in history, defrauding thousands of investors of  $60 billion dollars. A Ponzi scheme is a swindle in which investors are, unknowingly, paid with sums obtained from later investors, creating an illusion of profitability. Madoff is serving a sentence of 150 years in a federal prison.

The five convicted henchmen include two computer programmers, the director of operations, and two portfolio managers  They assisted their boss in hiding from authorities Madoff’s scam, which cost many investors their life savings while enriching Madoff and the guilty five. They embellished financial data to yield non-existent earnings, made up fake securities trades, and manipulated the firm’s general ledger to deceive regulators, auditors and bankers. 

The programmers wrote computer code that printed out fake trading documents and false account statements.  The programs were complex and were intended to deceive regulators and customers by backdating internal records and printing out millions of false documents that gave the impression that Madoff’s investment-advisory unit had a vast investment inventory. In fact, no trading occurred. Per the testimony, the programmer’s sought higher pay because of the risks associated with the work, and requested payment in diamonds to facilitate hiding the money and avoiding detection.

 On one occasion, a visiting auditor asked to see a trading ledger that would have supported the firm’s representations about the securities it owned for the auditor’s client.  Panic – there was no securities in the client’s account.  The solution - the auditor was diverted throughout much of the afternoon while several of the defendants created a fake ledger. It came off the printer warm, so they cooled it in the office refrigerator.  To make it appear worn, they played toss with it.  In the end, the auditor was satisfied.

One night the group went out to dinner together on the evening before a planned audit by the accounting firm KPMG. One of the programmers offered a toast to “tricking the auditors.”

 The five were found guilty on all 59 charges. Among the crimes are conspiracy (agreeing with at least one other person to commit a crime together) to commit securities fraud (a brockerage firm giving false information to investors who use the data to make investment decisions), falsifying records of a broker-dealer, conspiracy to defraud clients, and filing false tax returns (intentionally submitting a tax return with material false information).  The maximum potential sentences range from 70 to 200 years, plus $5 millions of dollars in fines on each charge.   

The key witness against the five was Madoff’s chief finance officer, Frank DiPascali.  He previously pled guilty to fraud, perjury and tax evasion, and faces 125 years in jail.  He agreed to testify for the prosecutor in exchange for the possibility of a reduced sentence. He hopes the prosecutors will submit a letter to DiPascali’s sentencing judge explaining his cooperation and recommending a reduced sentence.  Defense lawyers, attempting to discredit DiPascali,  argued to the jury that he was desperate to avoid a lifelong prison term and wanted to please the prosecutors, so could not be believed.  Apparently the jury credited DiPascali's description of events.

Two elements are necessary to prove all crimes: wrongful conduct and a criminal mental state.(typically this means acting intentionally), The evidence establishing the wrongdoing was strong.  The primary issue at the trial was the criminal mental state. The defendants claimed they were misled by Madoff and were unaware they were perpetuating a fraud. The prosecutor argued, “The notion that these defendants didn’t know the trading was fake is an absurdity.”  A juror commented that the claim of ignorance was “embarrassing”.  Said another, “The evidence was just overwhelming.”

Sentencing will occur in July.  Over objection of the prosecutor, the five have been released pending sentencing. It is likely the judge will impose significant prison time.

If you are ever requestied or directed by a boss to do something you know is illegal or unethical, decline to participate and then share your concerns with senior management or the government agency with  oversight authority of the business..  The Sarbanes-Oxley Act adopted in 2002 provides significant protections to fired whistleblowers entitling them to reinstatement to their job, back pay, restoration of benefits and more.  The whistleblower may also be entitled to 10-30% of the monetary sanctions the wrongdoer is ordered to pay.  

For further information, read here:


1)    What should the five defendants have done long before now?

2)     If one of the five had reported the wrongdoing, how much money would s/he be entitled to collect from Madoff?




Posted by Karen Morris

The Fitbit Product Liability Suit

03-26-2014 11:40 PM with no comments


When it was introduced, the Fitbit sleek fitness tracker jumped ahead of Nike and other companies offering wrist products that track physical activity and through a website allow users to record and track their records and progress online.  The Fitbit has the added benefit of measuring sleep patterns.  However, the round-the-clock wear of the device seems to have resulted in some problems.

The customer complaints from customers about wrist rashes and blisters from wearing the wrist device are rolling into the company and consumer agencies.  A class-action suit has been filed in California, and the damages in the complaint include not only recovery for the injuries users have experienced but also a requirement that the company issue warnings to all current Fitbit users and on the packaging to future purchasers about the development of these skin conditions from use of the device.

The case is a classic product liability – Restatement 402A – case.  There appears to be a defect in the product design or material that results in rashes and rubbing on wrists of users.  Katherine Rosman, “Fitbit Faces Lawsuit Over Recalled Wristband,” Wall Street Journal, March 20, 2014. That Fitbit did not know about the problem prior to sale of the product is not a defense under strict tort liability standards.  The standard for recovery is that the product is in a defective condition that makes ti dangerous for users.  A defective condition can arise through design, poor quality manufacture, or the failure to warn of known defects.  Assuming there is causation between the rashes and the wrist product of Fitbit, that defect standard is met and prior knowledge of a problem on the part of Fitbit is not required.  And if Fitbit was aware of the problems, but did not include warnings, then there is product liability for the failure to warn.

Fitbit is now in the midst of a recall for the devices so that it can correct whatever it deems to be causing the skin problems.


1.    Explain the basis of a product liability suit.

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2.    Why is prior knowledge of the problem not an issue in strict product liability suits?


Posted by Marianne Jennings

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GM's Failure to Disclose the Cobalt Defects: Bankruptcy Fraud?

03-24-2014 9:49 AM with no comments

GM Must Pay For Pre-bankruptcy Ignition... by wochit


GM has a mess on its hands.  Oh, the product liability issues with the failed ignition problems in its Cobalts and other small cars is a large and expensive problem.  The company’s failure to tell the National Highway Traffic Safety Commission (NHTSA) will result in some kind of a fine.  GM need only loko at last week’s settlement by the government with Toyota for that company’s alleged failure to disclose problems with its cars to understand that one billion dollars are on the line.  But, there is another problem looming that brings us a fascinating intermingling of so many areas of law.  The FBI is now investigating GM for its failure to disclose in its bankruptcy filings the problems with the Cobalt and other cars.

 In the company’s Chapter 11 2009 bankruptcy restructuring, GM was split into two companies.  The old GM was given all the closed plants and liabilities from the company, including liabilities related to product suits by car owners.  The new GM was given immunity from liability for any product liability claims that were made prior to the 2009 bankruptcy.  However, one of the requirements for the deposit of the claims in the old corporation and the release of liability for the new corporation is that the bankruptcy filing must be complete.  That is, GM must disclose to the court all potential liabilities that it might have.  GM has already admitted to federal officials investigating the car safety defects that it was aware of the safety problems as early as 2001.  GM has also disclosed to NHTSA investigators that it explored fixes for the ignitions in 2004 and 2005, but took no action.  Danielle Ivory and Matt Apuzzo, “G.M.’s Bankruptcy Drawn Into Defect Inquiry,” New York Times,   March 22, 2014, p. B1.

 The withholding of material information by the debtor in a bankruptcy filing can result in the debts not disclosed or about which information was withheld not being discharged. The result in the GM case would be that any liabilities not disclosed prior to the old GM spin-off would remain with the new GM.  

 GM is cooperating with the FBI in the bankruptcy fraud investigation and has already turned over documents requested by the agency.  In addition to the NHTSA investigation into its actions related to the Cobalt ignition issues, GM is also facing congressional investigations as well as criminal investigations related to its delay in recalling the cars.  GM has already admitted that unnamed employees made the decision not to issue recalls in part because of cost issues. Jeff Bennett and Sharon Terlep, “GM. Regulator Face Pressures on Recall Decisions,” Wall Street Journal, March 23-24, 2014, p. B1.  The NHTSA Office of Inspector General is also investigating that agency to determine whether the agency followed its processes in handling consumer complaints related to the Cobalt. finally, GM has hired a law firm to conduct its own internal investigation because, as new GM CEO Mary Barra has said, “Something went wrong with our processes.”




1.      What are the implications if a debtor withholds information in its Chapter 11 reorganization?

2.     What is the effct of the admission to NHTSA in the bankruptcy fraud case? 

Posted by Marianne Jennings

Sex Crimes; Liability of Bosses; Credibility of Accusers; Politics and Prosecutions; The Case of Brigadier General Sinclair

03-23-2014 4:11 PM with no comments


Brigadier General Jeffrey A. Sinclair, a once rising star in the Army, faced numerous charges based on alleged sexual assault ( knowingly causing another person to engage in a sexual act by force or threats)  involving a female captain who worked for him. The allegations included that he twice forced her into oral sex, and threatened to kill her and her family if she disclosed his actions.  If convicted, he could have faced life in prison and permanent registration as a sex offender.  The charges also included “open and notorious sexual acts” in a parked car in Germany and on a hotel balcony in Tucson, and making derogatory comments about women.   He recently pled guilty to lesser charges.

Sinclair was deputy commander of the 82nd Airborne Division, and of American forces in southern Afghanistan.  The complainant was a military intelligence officer.  They had an apparently consensual sexual relationship for three years. 

The charges were reduced, in part because of discrepancies in the victim’s testimony, and in part because of political influence perceived by the judge.   Thus, charges of forcible sodomy  (using threats of harm to cause another person to engage in oral or anal sex ) and  wrongful sexual conduct were dismissed.   Brigidier General Sinclair, a married man throughout the affair,  pled guilty to adultery (sex by a married person with someone other than the spouse) , requesting explicit photographs from female Army officers, possessing pornography in a combat zone, and maltreatment, meaning that Sinclair treated the captain “in a manner which, when viewed objectively under all the circumstances, was unwarranted, unjustified and unnecessary and reasonably could have caused mental harm or suffering during the course of an ongoing inappropriate sexual relationship.”

None of the reduced charges involve sexual assault and do not require the Brigadier General to register as a sex offender (a registry in which defendants convicted of specified sex crimes must report their residence and activities to law enforcement; the information is publicly accessible) .  The sentence requires that he forfeit $5,000 a month in pay for four months, and no jail time was imposed.  Further, he is permitted to remain in the military, although he is expected to retire imminently.

The captain received immunity (exemption) from prosecution.  Immunity is sometimes extended by the prosecutor to secure the testimony of a necessary but complicity witness.

Concerning issues that developed with her testimony, forensic analysis (scientific examination of evidence) indicated she had testified untruthfully at a hearing.  The testimony involved dates when she discovered and used an old iPhone that contained voicemail from Sinclair described as “very loving and tender.”  The prosecution’s proof in a case charging sexual assault is typically heavily dependent on the credibility of the accuser’s testimony.  If issues develop with the complainant’s credibility, that creates a major hurdle to a successful prosecution.   

Another factor that led to the reduction of charges was a belief by the judge that the senior Army commander overseeing the case may have been motivated by political considerations.  Specifically, the military is under pressure from Congress and the public to demonstrate intolerance of sexual activity in its ranks. The judge opined this may have prompted the Army to overcharge the case.  

As a result of the reduced charges, concern exists that other military victims of sexual misconduct will be deterred from reporting sexual misconduct.

The case offers many lessons.  First, appropriately, rank does not exempt a person from accountability for misbehavior.  Second, bosses who threaten retaliation to secure sexual favors face legal consequences.  Third, when someone’s freedom is at stake, nothing short of the whole truth is required.  Fourth, Politics should have no role in the prosecution of a case.  Finally, criminal liability typically results in great regret.  The remorse is clear from the Brigadier General’s  apology, “ I squandered  a fortune of life’s blessings; blessings of family, work and friendship.”    

For more information, click here:


What makes sexual harassment by a boss of a subordinate particularly troublesome?

Why do you think the judge was lenient in the sentence?



Posted by Karen Morris

Filed under:

Fraud and Trademark Counterfeiting; Online Sales of Wedding and Prom Kockoff Gowns

03-20-2014 12:59 AM with no comments


Sale on the internet of counterfeit wedding gowns and prom dresses has become rampant. The companies that sell them download images of dresses from legitimate designers’ websites and use them on their own sites without permission.  Buyers are led to believe they are buying a designer dress with a cheaper price tag.  Instead, the companies sell knockoffs.  When the gown arrives, it often looks nothing like the picture but rather, like a cheap imitation. Buyers’ attempts to return the dress and get a refund are unavailing.  Sometimes the dress never even arrives, although full payment was made. 

Lawsuits addressed at this situation have been brought by the American Bridal and Prom Industry Association (ABPIA).  Its members lose sales to the imposters.  The basis of the lawsuit is likely fraud.  This tort consists of the following elements: 1) defendant made an untruthful statement; 2) defendant knew when he made the statement that it was false; 3) defendant’s purpose in making the comment was to induce reliance by the plaintiff; 4) plaintiff did in fact reasonably rely (the victim is required to do some investigation into the legitimacy of the product, and not just blindly accept the seller’s representations); 5) plaintiff suffered a financial loss attributable to the fraud.

An additional cause of action could be violation of a general business statute common to most states that prohibits deceptive business practices, which consist of unfair and misleading conduct while transacting business). Further, if the knockoff dresses contain the name of a designer who has no connection with the clothing item, the seller may be liable for the crime of trademark counterfeiting. This consists of offering for sale goods that bear an imitation of a trademark for the purpose of misleading buyers about the item's origin. 

 To date, the courts have sided with ABPIA and entered preliminary injunctions (a court order issued prior to trial that requires a defendant to do or refrain from doing something) against the knock-off retailers, A federal judge has ordered over 1,000 websites to cease and desist (hault) selling counterfeit   dresses and formal wear.  The judge also  froze their online payment accounts (disabled the ability to accept online  payments from customers)  such as by use of PayPal, and ordered the registrars of the website domains to disable the websites until further notice.

Keep in mind that proms and weddings are major events in a girl’s life. When the knock-offs arrive, they often look like a cheap impostor rather than the designer dress the buyer thought she ordered.  This often leads to melt downs, lots of tears, and parents conceding to invest in a second dress, a considerable added expense.

The mother of one girl who unknowingly ordered an imposter dress described the situation as follows, “My daughter looked online for a dress to save money, and she found a beautiful sea-foam green dress with gorgeous beading on the bodice on a website called  It’s the exact same image of the same dress as on the website of the legitimate designer, so she ordered it, saving more than $200.”  But the dress that was delivered was a “dramatic departure” from the designer gown.  It was baby-blue with plastic beading in an awkward pattern.  The skirt  was made of a mesh lining instead of fabric. The dress was delivered in a 10 by 12 inch envelope postmarked from overseas. The mother sought a refund but it never came.  Besides the loss of funds, the mother was forced to buy another dress for her daughter.

ABPIA has founds 1000’s of other websites that are marketing and selling counterfeit  gowns.   Additional legal action will be pursued.

Lawsuits are not the only method being utilized by ABPIA to stop the flow of bogus designer gowns.  The organization is in discussions with Google, Inc. seeking to persuade the search engine to bar offending dress companies from using Google’s Sponsored AdWords (links to websites that pay for placement next to Google search results, targeted to the topic of a search and geographical location of a searcher) and Sponsored Images (AdWords that include pictures) to generate traffic to the imitators’ websites. 

Note: Fashion designs are not protected by copyright.  Therefore knockoffs do not constitute violations of the law.  So, for example, the store Forever 21, which sells look-alike dressers imitating those created by famous designers, are not guilty of any wrongdoing.  The defendant companies in the ABPIA lawsuit transgressed by misleading customers  to think their dresses were the ones made by the designer.

For more information, see:

DISCUSSION QUESTION: How might a state attorney general be helpful in this situation?





Posted by Karen Morris

Georgetown Law Grad Indicted for Accounting Fraud – Never Took an Accounting Course

03-19-2014 10:19 AM with no comments

Zachary Warren graduated magna *** laude from Georgetown Law School.  He has held the plum position of a clerkship in the Federal sixth circuit. He has also been charged with felony fraud in a 114-count indictment, along with the chairman, the chief financial officer, and executive director of Dewey & LeBoeuf, once one of the world’s largest law firms, which declared bankruptcy in 2012.

Mr. Warren, 29 years old, has never taken an accounting course.  Yet, he stands accused of what Manhattan’s District Attorney calls, “a massive effort to cook the books” during the last days of Dewey & LeBoeuf in a vain effort to save the firm as creditors closed in and cash flow was no more.

Mr. Warren is free on $200,000 bail, Judge Gibbons, his employer at the Sixth Circuit, continues to employ him, and his job offer from the law firm of Williams & Connolly is still intact.  Mr. Warren thought he was helping in the DA’s investigation and was surprised to be indicted.  He has also cooperated with the SEC in its investigation into Dewey & LeBoeuf’s issuance of a bond offering based on allegedly false financial statements. Those who know him are stunned at the indictment. Matthew Goldstein, “4 Accused of Systemic Fraud That Sank Global Law Firm,” New York Times, March 7, 2014, p. A1.

The indictment is not a pretty picture of lawyers, who were desperate to keep the firm going. In a 2008 e-mail included in the indictment, Joel Sanders, the former CFO of Dewey & LeBoeuf, wrote to Frank Canellas, the director of finance, “Can you find another clueless auditor?” They needed $50 million in income to meet loan covenants.   Mr. Sanders, Stephen DiCarmine (former executive director), Steven Davis (former chairman), and Mr. Warren (former clients relations manager (i.e., he collected bills due from clients)) have been charged with systemic fraud because of an alleged four-year scheme to manipulate Dewey & LeBoeuf's books to keep the firm going under during the financial crisis. Their e-mails also spoke of "fake income" and "accounting tricks."   Mr. Canella did respond to Mr. Sanders, "That's the plan.  Worked perfect this year." 

Other phrases that appear in the e-mails among the indicted:  “Accounting tricks,” “fake income,” and “cooking the books.” FBI agents called the e-mails and acts of the partner/managers “brazen.” In one e-mail to Mr. Warren quoted in the indictment, an employee who is not named wrote, “Great job dude! We kicked ass!” in his joy over finding a way to overcome an income shortfall of $50 million.  Mr. Warren responded, "Hey man, I don't know where you come up with some of this stuff, but you saved the day. It's been a rough year but it's been damn good. Nice work dude. Let's get paid!” Indictment. Jennifer Smith and Ashby Jones, “Fallen Law Firm’s Leaders Are Indicted,” Wall Street Journal, March 7, 2014, p. B1.

Mr. Warren’s lawyer calls his indictment “a travesty,” and that his client was not involved in any accounting fraud.  However, Mr. Warren has been in near constant communications with investigators from both the local and federal offices.  He maintains that he was not told that he was a target.  Lawyers for the government agencies indicate that they advised him to seek legal counsel and that he was in jeopardy. James B. Stewart, “A Dragnet at Dewey & LeBoeuf Snares a Minnow,” New York Times, March 13, 2014, p. B1.

Criminal defense lawyers are abuzz about Mr. Warren’s indictment because they believe the lack of warnings and counsel were a violation of his civil liberties.  The lessons?  No matter what your job at a company, if prosecutors want to ask you questions, seek legal help first!

Discussion Starters

1.      What do the criminal charges involve?

2.     How do you think Mr. Warren might have been involved? 

Posted by Marianne Jennings

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