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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.

 

Noncompete Clauses -- Now Used By Competing Campgrounds

06-10-2014 8:49 PM with no comments

 

Here’s a list:

Summer camp counselor

Hairdresser

Event planners

Yoga instructors

Lawn maintenance workers

Social media firm jobs

Chefs

This list indicates the types of jobs that now carry non-compete clauses.  Interestingly, many who signed the contracts for summer employment or internship. What used to be a clause that showed up in executive’s contracts and the sales of businesses is now a way of life.  If you are going to be employed, particularly by a small business, expect that you are going to have a non-compete clause in your employment contract. Steven Greenhouse, “Noncompete Clauses Increasingly Pop Up in Array of Jobs,”  New York Times, June 9, 2014, p. B1.

A non-compete clause is valid (except in California and in other states where there are substantial restrictions on such clauses) when the following conditions are met:

1.    It is necessary for the protection of the employer – being necessary means that the employee would have had access to proprietary information such as trade secrets, customer lists, unique training or skills, etc.

2.    The non-compete clause is reasonable in time and geographic scope.  It is necessary to stop an employee who leaves from opening a competing business next door.  However, a competing business in the same city could not be stopped if there is sufficient economic base to support competition.  Likewise, a non-compete in the high-tech industry is generally limited to one year to 18 months.  For a chef, the time could be longer because restaurant trends move more slowly.

The litigation will be increasing as hairdressers seek to leave one hair salon and work at another, or as chefs seek to leave one restaurant and start their own businesses.  A recent study by MIT professor Matthew Marx found that one-half of the engineers in the United States had signed non-compete clauses.

Employees who sign them argue that the clauses limit their opportunities to leave their employment and work elsewhere, perhaps for more money. Small businesses argue that the clauses are necessary to protect them and the costs they expend in training employees and the investment they make in allowing them access to their customer bases. Others, such as companies in the Silicon Valley, argue that the ban on non-compete clauses in California has allowed the high-tech industry to blossom and grow.  If employers are not interested in their employees’ ideas, they are leaving to start their own companies, something that cannot be prohibited under California law.

Lawyers indicate that they are seeing an increase in non-compete clause litigation as companies seek injunctions to stop employees from going to work for competitors or from starting a competitive business.  The injunction tends to end the litigation because the employee, unable to afford legal counsel, ends working at a competitor or closes the competing business and tries a different field. 

Watch what you sign when you accept a job – those non-compete clauses can stop you from undertaking another job in the same field, even when you are only a 16-year-old summer camp counselor.

DISCUSSION STARTERS

1.    Discuss the pros and cons of non-compete clauses.

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2.    Explain the law on non-compete clauses.

 

Posted by Marianne Jennings

Filed under: ,

NCAA Settles Players’ Lawsuit over Publicity Rights to Video Games

06-10-2014 6:35 PM with no comments

        

The National Collegiate Athletic Association (NCAA) settled a lawsuit involving allegedly unauthorized use of college players’ likenesses in video .games. The NCAA agreed to pay $20 million to current and former Bowl Subdivision football players and Division 1 men’s basketball players. 

The games were produced by Electronic Arts, a multibillion-dollar gaming industry giant.  It too settled with the athletes, agreeing to pay $40 million. The videogames subject to the lawsuit sported  the NCAA logo and contained close portrayals of college football and basketball players. 

The case was started in 2009 and was pursued as a class action, meaning  a case with multiple plaintiffs, all of whom were injured in a similar way by the same defendant.  The named plaintiff (the lead plaintiff who files the case and represents the group in court)  was Sam Keller, a former quarterback at Arizona State and the University of Nebraska.  More than 100,000 players are eligible to seek compensation from the settlement. The attorney for the plaintiffs estimates that each will receive between $400 and $2,000. Before any pay-out can be made, all class action settlements, including this one, must  be approved by a judge.

NCAA rules prohibit players from receiving payment for their athletic skills.  The Association has announced that current players who receive a share of the settlement will not be considered to have violated this rule. 

The case was based on the tort called right of publicity which is the right to control the commercial use of a person’s name, image, persona or likeness.  The right is associated with celebrities, people whose images have value. The right does not prevent the media from using a celebrity’s likeness for news purposes.  This tort is an outgrowth of the right of privacy which prohibits the use of an unknown person’s name or likeness for commercial purposes

The motivation for the NCAA to settle this case apparently was a separate case with more far-reaching potential.  The plaintiff athletes in that class action claim they should receive half of the revenue generated from NCAA’s contracts with TV stations for broadcast rights to games. As an example of the value of those rights, CBS and Turner networks pay the NCAA an average of more than $770 million per year for the right to televise the men’s collegiate basketball tournament.  The plaintiffs claim the NCAA is violating antitrust laws (rules that encourage competition and outlaw practices that restrict commercial rivalry) by excluding them from the financial benefits of the players’ publicity rights.  The trial in the case just began and is expected to last three weeks. The plaintiffs in that case are not seeking payment but rather voiding of NCAA rules that prohibit college athletes from receiving pay for use of their images in broadcasts.  By settling the video game case, the issues in that case are less likely to cloud the television broadcast trial.  

For further information, click here:http://online.wsj.com/articles/ncaa-unveils-20-million-settlement-with-ex-players-over-videogames-1402330931.

DISCUSSION QUESTION:

1) Should college players be entitled to a share of the income made by the NCAA from selling broadcast rights? Why or why not?

 

Posted by Karen Morris

SEC Mandated Disclosures About Congo Minerals -- We Don't Know!

06-07-2014 10:24 PM with 1 comment(s)

 

In 2012, under requirements passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (15 U.S.C. §§ 78m(p), the SEC promulgated rules that require publicly traded companies to publicly file a Conflicts Minerals Report.  The purpose of the rule is for companies to disclose minerals (gold, tantalum, tin, and tungsten) used in their products if those minerals could have been produced in the Democratic Republic of the Congo (DRC) because of concerns that the money flowing into the DRC for the minerals was resulting in human rights violations. Known as Form SD, its filing is required by 1934 Act companies by May 31st of each year.

 


In late 2010, the Commission proposed rules for implementing the Act. The Commission twice extended the comment period and held a roundtable for interested stakeholders.  By a 3–2 vote, it promulgated the final rule, which became effective November 13, 2012. 17 C.F. R. §§240.13p-1, 249b.400.  

The final rule adopts a three-step process. Step one requires the company to determine if it is covered by the rule.  Step three requires a company to “exercise due diligence on the source and chain of custody of its conflict minerals.”

 

Companies found compliance with the rule to be confusing, difficult, and time-consuming. In a suit filed by the National Association of Manufacturers against the SEC, a court has held that the rules on conflicts minerals are within the SEC jurisdiction and are valid. National Association of Manufacturers v. S.E.C., 748 F.3d 359 (C.A.D.C. 2014). However, part of the rule was struck down on constitutional grounds – the court held that the disclosure requirement was tantamount to requiring companies to admit that they had “blood on their hands.”

However, in a similar case, American Meat Institute v. USDA, 746 F.3d 1065 (C.A.D.C. 2014) the same court is grappling with a constitutional challenge to similar USDA rules that require meat producers to disclose the sources of their products.  The meat producers argument is that it is a violation of their First Amendment rights because the effect is to require the meat producers to take a particular position on issues related to meat production that should be a matter of individual choice.

There are rehearing motions pending in both cases and the SEC has asked that the cases be heard in tandem because the same constitutional issues are involved.

As these constitutional issues proceed, there is another issue emerging.  That is that the first round of disclosures under the SEC rules have proven to offer little information.  Most companies have taken advantage of the phase-in period and opted to disclose only that they are looking into the issues related to conflicts minerals in their supply chains.  For example, Alcatel Lucent has disclosed that there is a “potential presence” of conflicts minerals.  Halliburton, Northrop Grumman, Target, and Walt Disney have stated that they are unable to determine whether there is a presence of conflicts minerals.  Google, Deere & Co., and Alcatel Lucent have disclosed that there is a “potential presence” of conflicts minerals. John Kester and Maxwell Murphy, “Conflicted Disclosure,” Wall Street Journal, June 2, 2014, p. B1. 

The complexity and costs of compliance will cause continued litigation and these types of “iffy” disclosures as companies struggle to apply the disclosure rule to their operations.

Discussion Starters

1.      Explain the purpose of the conflicts minerals rule.

 

2.     Discuss the legal status of the rule and the companies’ responses and disclosures. 

 

Posted by Marianne Jennings

How Did Golfer Phil Mickelson,Carl Icahn, and a Gambler End Up Under Investigation for Insider Trading?

06-07-2014 4:14 PM with no comments

The three traded call options on Clorox (CLX) just a few days before Carl Icahn, a billionaire investor, announced that he was making a bid to buy Clorox.  Icahn’s announcement sent the share price of the company up, and the result was that the three call options owners profited by millions.  The three were Carl Icahn, golfer Phil Mikelson, and Las Vegas gambler, Billy Waters. 

The FBI is investigating the three for insider trading.  In fact, the FBI showed up at a golf tournament with questions for Mr. Mickelson. The problem is that the three don’t really have any or just limited contact, so how did the three become the target of a federal securities law investigation?  Mr. Icahn does know Mr. Walters, who is a prominent sports bettor.  The two met when Mr. Icahn owned the stratosphere hotel and casino in Las Vegas, from 1998 until 2008.  Mr. Icahn does not know Mr. Mickelson, but sources told Wall Street Journal reporters that the FBI believes that Mr. Walters passed the Clorox information on to Mr. Mickelson.   The following diagram shows the market activity along with the timing of the trades of the three.

 

Well, an insider trading issue can creep up fairly easily.  All the SEC and FBI need to do is look at stock activity in the days prior to major corporate announcements, i.e., material kinds of issues that affect the share value – such as a merger, earnings announcements, or, in this case, a bid for shares from an outsider.  Transactions in those shares, including buying and selling shares, options, puts, and calls (positions taken depending on what is happening with the company when the material information is made public) are easily detected through FINRA software and reported to the SEC.

The SEC, and in some cases, the FBI then investigate to determine whether the transactions were serendipitous, as when someone sells off shares in a portfolio or shares are sold to pay debt or sold because they were inherited, or if it looks as if those involved may have been “tipped” off about the forthcoming information. 

The FBI/SEC investigation focuses on whether Mr. Icahn may have shared information with Mr. Waters who may have then passed that information along on the golf course or through some other connection to Mr. Mikelson.  However, in addition to having and using the advance information, proof of insider trading requires establishing that the “Tippee” was not aware that the information he was being given was non-public.  It is one thing for someone to hear, “Hey, you ought to think about buying Clorox stock,” and make a purchase and quite another (and possibly a crime) to hear, “Hey. Icahn is making a hostile takeover bid for Clorox.”  The second is specific, non-public information that is a foundation for an insider trading charge.  The first is non-specific and is a more general tip that makes it difficult to show that the tippee knew that private information was being dispensed. 

 

 

Mr.Mickelson’s friend, Paul Azinger, believes that Mr. Mickelson falls into the second category and that although Mr. Mickelson is a smart man he can be naïve.  Mr. Azinger believes that what may have been simply a tip on the golf course to Mr. Mickelson is being turned into an insider trading case. http://www.nydailynews.com/sports/more-sports/azinger-naive-mickelson-incapable-insider-trading-article-1.1818777

The existence of the investigation became public just prior to the FBI obtaining wiretaps on phones that would have assisted them in obtaining any evidence of intent.  

DISCUSSION STARTERS

1.      Describe what must be proved for an insider trading charge.

 

2.     What is the difference between a stock tip and trading on inside information. 

 

 

Posted by Marianne Jennings

Ticketmaster Settles Class Action Lawsuit Over Deceptive Add-On Fees

06-05-2014 11:12 PM with no comments

 

          

Ticketmaster - the seller of tickets for concerts, plays and other entertainment events - has settled a class action lawsuit (a case with multiple plaintiffs, all of whom were injured in a similar way by the defendant).  The complaint  alleged a deceptive trade practice (an intentional act or omission occurring during  a business transaction that is designed to mislead consumers; deceptive trade practices are made illegal by state statute).  Specifically,  plaintiffs asserted that Ticketmaster deceived purchasers by charging “order processing fees” and “UPS delivery fees” but did not use all of the money for processing or delivery services.  Instead, and unknown to plaintiffs, the fees constituted profit for the company. Plaintiffs referred to them as “secret profit-generators”.

The settlement calls for Ticketmaster, now owned by Live Nation, to give $400 million in credit to 50 million ticket buyers.  Class members will receive discounts for future ticket purchases and/or additional discounts on future UPS ticket deliveries. If you do the math, each plaintiff will likely receive no more than eight dollars ($8.00) in credits. The plaintiff’s lawyers are seeking almost $15 million in fees plus $1.5 million in expenses the attorneys incurred in pursuing the case.  This disparity in the amount of individual plaintiffs’ recovery and the attorneys’ fees is not rare in class action cases.

Settlements in class action cases must be approved by a judge. S/he  must first conduct an inquiry  into the fairness of the proposed settlement, and then preside at a Final Approval Hearing . If class members disapprove of the settlement they can appear at the hearing, with or without a lawyer, and explain to the judge why they object.  At the end of the hearing, the judge can either approve the settlement or send the parties back into settlement negotiations to modify the terms. The Final Approval Hearing for the Ticketmaster case is scheduled for January 13, 2015 at 10:00 a.m. in Los Angeles Superior Court, California.  Also, as part of the settlement, Ticketmaster has changed the language on its website to clarify that order-processing and delivery charges may include a profit for Ticketmaster.

If you are a concert fan, you may be a member of the class.  You qualify if you meet the following criteria: 1) you bought tickets on Ticketmaster’s website anytime from October 21, 1999 through February 27, 2013; 2) you were a resident of the US when you made the purchase; 3) you paid money to Ticketmaster for an order processing fee that was not fully refunded; and 4)  you did not opt out of the class. People who qualify as plaintiffs  in a class action can decline to join the class and instead, proceed alone against the defendant .

If you qualify for the class, be sure to pursue your credits.  Live Nation expects the settlement will only cost it $35 million (rather than $400 million) because participation rates in class-action settlements are low.

For more information, click here: http://www.wjla.com/articles/2014/06/ticketmaster-lawsuit-settlement-could-mean-millions-in-fees-credited-to-past-customers-103761.html

DISCUSSION QUESTION

What role does the disparity between each plaintiff’s  recovery and the amount of attorney’s fees have in the maintenance of  class action cases?. 

 

Posted by Karen Morris

Classic Negligence, and Warranty Breach; A “Sweet” Dog Bites Two Kids

06-03-2014 2:41 PM with no comments

     

A New Jersey man adopted a cute pit bull from an animal-rescue organization.   The dog, named Melo, had been housed for several weeks at the Brooklyn Animal Control Center (BACC) because his owner had been evicted (forced to leave his home by court order) and was no longer able to care for the animal. Thereafter BACC brought it to an animal rescue organization that assists in locating adoptive placements.  BACC included an advisement with the canine against placing it in a home with children.  It had been assessed by a BACC volunteer as follows, “When approached in his kennel, Melo freezes in the back of the kennel, hard stares and lip curls, low growls, and then charges the front of the kennel while hard barking.” 

Two weeks later a subsequent assessment included the following, “It seems Melo has finally acclimated and is letting his guard down – revealing the sweet, playful affectionate boy I knew was always there!”

The man who acquired Melo from the rescue association was advised of the second assessment but not the first.

Within a day of bringing the pit bull home, it locked its jaws on the leg of the man’s nine year old daughter while she sat on a swing in her backyard. Her 13 year old brother came to the rescue and was able to pry the dog’s teeth from the young girl’s leg.  In the process,  Melo turned on the brother and bit his nose, reportedly almost off.  Both children were rushed by ambulance to a hospital.  The nose required  numerous stitches to repair.

Releasing the dog to an adoptive family without disclosing the warnings about its aggressive nature and incompatibility with children is negligent, meaning careless or failed to act as a reasonable person would act under the circumstances.  Likewise, release of the dog to a family with kids, knowing that it had exhibited aggression, was negligent. If the rescue organization did not ask if the man had children, that too would be negligent  given the circumstances.

Another cause of action (ground on which to sue) is provided by the Uniform Commercial Code (UCC) (laws relating to sales and other commercial transactions adopted in virtually all fifty states).  The UCC covers goods, which are moveable things including animals.  A pet that is sold is considered a good and so comes with an implied warranty of merchantability, meaning a guarantee implied in contracts for sale of goods  that the items sold are fit for their ordinary purpose.  A dog sold as a pet typically should be affectionate, playful, reasonably  gentle, and capable of  providing companionship to its owner.  A dog that is aggressive is not fit to be a pet in a family with children. 

Another applicable guarantee is express warranty, a written or stated promise made by the seller about the characteristics of a good. Here, the rescue organization  represented that Melo was sweet, playful and affectionate.  This description was not accurate and so violates the express warranty.

Note: Dog rescue organizations sometimes give rather than sell dogs to good homes. If the transfer of ownership of Melo was a gift, the UCC warranties would not apply.

After Melo attacked the two youngsters, he was euthanized, meaning put to death in a humane way (least painful and quick).  Most states have laws that permit euthanizing a dangerous dog, but only after the owner’s due process rights are honored.  This means the owner is entitled to a fair legal procedure at which the dog’s temperament is explored.   A hearing must be held and the owner must be given the right to cross-examine witnesses and  present mitigating evidence.  If a decision is made by the court that the dog is dangerous, the judge can impose numerous sanctions depending on whether the dog attacked a person or another animal.  These include neutering or spaying, microchipping, evaluation by a certified behaviorist and training if  indicated, payment for any doctor or vet bills incurred by the victim, and muzzling and/or use of a leash whenever the dog is in public.  While the laws vary from state to state, euthanasia is usually an option only when the dog causes serious physical injury to a human, or attacked more than once another animal.  

 For more information, click here: http://nypost.com/2014/05/26/dad-says-shelter-lied-about-pit-bull-before-it-bit-my-kids/

DISCUSSION QUESTION:

What could the rescue organization have done to avoid liability in this circumstance?

To what due process rights, in addition to those mentioned, will a dog owner be entitled?

 

Posted by Karen Morris

Amazon and Book Publishers: They Got Nailed for Price-Fixing and Amazon Now Controls Prices of Books

06-02-2014 9:48 AM with no comments

 

When antitrust laws backfire, it is not a pretty sight.  The battle between Amazon and book publishers continues.  As documented in this blog over the course of the past year, the Justice Department brought suit against Apple and the major book publishers for their agreement to stand firm on pricing against Amazon.  The goal of their agreement was for the publishers to refuse to do business with Amazon unless it stopped deeply discounting e-book prices.  Apple would work with the publishers to charge the higher prices for e-books.  All of the publishers settled the case with the Justice Department, with some of them settling before the case against them was even announced publicly.  Apple went to trial, was found guilty, and is now battling in federal court over the authority and role of a monitor that the court required following the finding of price-fixing by Apple with the publishers (also documented on the blog).  The monitor will be with Apple for three years in order to be sure that the company does not engage in price-fixing or anti-competitive behavior again. 

However, as that battle proceeds, Amazon is staging a pricing battle with publishers in the united States and Europe. The heart of the battle is between Amazon and Hachette, the parent company of Little Brown, and publisher of authors such as Malcolm Gladwell.  Hachette and Amazon are negotiating pricing, and the negotiations have gone so poorly that the private discussions have spilled over into the media.  Hachette wants more money for its books, and Amazon wants to sell at lower prices. However, Amazon is delaying shipments of Hachette books and raising book prices so that the sales of Hachette titles are affected.  Indeed, Amazon is also recommending other books for customers in lieu of the Hachette books. The authors affected the most by the Amazon tactics are the new authors who do not have a fan base. (see video for one author's description of the situation) Those in the publishing world say that Amazon is thereby controlling market entry in terms of new authors’ works being able to compete with established authors.  Jonathan Mahler, "Toe-to-Toe With a Giant," New York Times, June 2, 2014, p. B1. 

The interesting aspect of the situation is whether there can be antitrust implications in a situation in which the refusal to deal is the result of Amazon trying to get lower book prices for its customers.  The Justice Department is not involved because it cannot see why a drive for lower prices is anti-competitive. However, antitrust experts point to the creation of a monopoly, and not for reasons based on skill, foresight or industry (hard work).  The risk of monopolization allegations is real. 

In addition, for Amazon, an evolving issue is whether customers will become irritated by not being able to buy certain books from their favorite “point, click, and buy” site.  

A question to contemplate is whether the first publisher to reach a deal with Amazon will leave the other publishers behind, and will we be reduced to a one-publisher world.  But, an aspect of Amazon’s business that prevents monopolization there is that Amazon runs a highly successful self-publishing business for authors.  Amazon is able to offer more types of books by a wider array of authors.

The strategic planning of Amazon is a case study that must accompany the discussion of the legal issues.  Oh, and one more interesting tidbit, Jeff Bezos, the CEO of Amazon, purchased the Washington Post.  The newspaper has covered the Hachette battle, but it has not been able to get a comment from its owner on his company’s tactics.  The Post stories on Amazon have disclosed who owns the paper – the guy at the center of the story.

DISCUSSION STARTERS

1.      Describe the original antitrust suit in the publishing world.

 

2.     Explain the antitrust issues in the current Amazon negotiations. 

 

Posted by Marianne Jennings

The Kettle Falls 5: Pot Growers Who Are Constitutional Law Experts

05-30-2014 8:30 AM with no comments

 

Five marijuana growers may give us definitive precedent on state vs. federal law and the issues of preemption under the U.S. Constitution.  

The Kettle Falls 5 have been charged by federal prosecutors with drug-trafficking for growing 68 marijuana plants on their property in eastern Washington state.  However, the Kettle Falls 5 are also one of 30 holders of licenses under Washington state law for operating retail pot shops.  Under Washington’s state laws, which permit marijuana use and which permit the pot shops as of July 1, its Liquor Control Board can issue licenses for sale and production. 

The U.S. Justice Department, representing the United States, which has laws that make the use, growth, sand sale of marijuana federal crimes, has taken the position that it will not interfere with state laws allowing marijuana production and use except in circumstances where there are additional issues that arise such as when crime syndicates become involved in sale and production.  The DOJ has taken the position that those in compliance with state laws regulating the production, sale, and use of marijuana should not be prosecuted.

However, Washington has a limit of 45 plants per co-op, and the Kettle Falls 5, which consists of a Larry Harvey, his wife, their son, and two others, went over with 68, with the federal government alleging that going over the state limit constituted drug-trafficking. Mr. Harvey maintains that he believes the state limits is 15 plants per person, which would get us to 7 below the legal limit, but, it turns out that it's the lesser of 15 per person or 45.  In fact, federal prosecutors became involved when a sheriff executed an order to cut down the plants of the Kettle Falls 5 that were over the 45-plant limit. The sheriff’s actions made the news and caught federal prosecutors’ attention. 

As one constitutional lawyer put it, federal prosecutors have discretion and “it hangs over everybody.”  The states where marijuana is being sold, in addition to Washington, are Colorado and California. Jolie Lee, “Case Against Washington Pot Growers Challenges State Law,” USA Today, May 19, 2014, p. 3A. 

What we have here is a classic confrontation between inconsistent state and federal laws, which gives us a case of preemption.  When state and federal laws conflict, which law takes priority?  That question has been explored a number of times by the U.S. Supreme Court and requires the examination of the following factors:

1.    How extensive the federal regulation is

2.    Whether the state and federal regulatory schemes can co-exist

3.    Whether Congress intended to preempt state laws with the federal statutory scheme

4.    What confusion or uncertainty would result if the state regulatory scheme were permitted to stand

Federal laws on marijuana are clear, but state laws have been chipping away at that clarity for years, with medical marijuana exceptions, and now wider spread availability and use.

Drug trafficking offenses carry up to 10 years in prison.  However, it is clear that even if the Kettle Falls 5 are convicted, their sentences will be delayed as their lawyers seek a clarification on which law applies – state or federal?

DISCUSSION STARTERS 

1.    Explain what laws are in conflict.

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2.    When are state laws preempted?

 

 

Posted by Marianne Jennings

Filed under:

US Indicts Chinese Hackers Who Targeted US Companies; Economic Espionage Act

05-30-2014 12:49 AM with no comments

          

The United States Justice Department has obtained indictments (formal charges issued by a grand jury, a panel of citizens convened by a court to determine if charges should be brought against a suspect)  that   against five Chinese hackers.  They are believed to be part of a Chinese military unit whose mission is to hack the computers of well-known American companies and also government agencies. The defendants allegedly broke into computers at numerous US companies including Westinghouse Electric Co., Alcoa, Allegheny Technologies, Coca-Cola  and United States Steel Corporation.

The charge in the indictment is economic espionage, meaning the use of stolen or misappropriated trade secrets for commercial or economic gain of a foreign government.  Such practice is outlawed by the Economic Espionage Act passed by Congress in 1996. Penalties are substantial and include a fine up to $500,000 and up to 15 years in federal prison. Violations are prosecuted by the United States Department of Justice with assistance from the Central Intelligence Agency (CIA) and other international enforcement agencies.  

The information the hackers have wrongfully obtained includes plans for a next-generation nuclear power plant from Westinghouse, technical details of valuable American technology, and data on deals U.S companies transacted with Chinese  companies.  For example, in 2009 Coca-Cola attempted a $2.4 billion acquisition of China’s Huiyan Juice Group.  Hackers infiltrated Coke’s computer systems and took information about the transaction. This deal would have been the largest foreign takeover of a Chinese company ever, but it was halted by the Chinese Ministry of Commerce based on China’s Anti-Monopoly Law.   

The Chinese military unit to which the accused belong is well known to the Western cybersecurity industry which dubs the unit Comment Crew.  This name arises from the group’s practice of penetrating computers by using hidden code on web pages known as comments.

The Chinese defense ministry denies the government is connection to the hackers, saying the military “has never supported any hacker activities”. To the contrary, US internet security firm reports that the unit has targeted 141 companies of which 115 are located in the US. The industries targeted include aerospace, satellite and telecommunications, and information technology.  These are industries identified in China’s five year plan for 2011 - 2015.

Perhaps the best known of the hackers is Wang Dong, age 37, nicknamed UglyGorilla.  He has been linked to 100’s of computer break-ins.  While most hackers modify their online personas with regularity to hide their identity, Wang has been surprisingly consistent with his.   The apparent explanation is misplaced pride in his hacking successes.

One of the tactics reportedly used by the hackers is spear-phishing.  This is a trick that makes scam emails appear to be from a sender the receiver knows.  So the emails typically would be personally addressed to an employee in a hacker’s target company, and would appear to be signed by another employee in the same company.  Spear-phishers often scan social media to find out personal details about a victim to make the fake emails appear legitimate.

Hacking in China is quite common.  It is even promoted at trade shows, in classrooms, and on internet forums.

Western cybersecurity experts are tracking at least 25 “active Chinese-based threat groups”.

It appears the US may never have the opportunity of prosecuting the case. To move the case forward the court needs jurisdiction over the defendants.  That would require their being in the United States.  Knowing the indictments are outstanding, we cannot anticipate the defendants will voluntarily come to this country.  And given that they were working for the Chinese government, we can anticipate China would not cooperate with our government in extraditing  (transferring the defendants from China to the US).

 For further information, click here: http://www.nytimes.com/2014/05/23/world/asia/us-case-offers-glimpse-into-chinas-hacker-army.html?_r=0

DISCUSSION QUESTIONS;

1) What do you think prompted Congress to pass the Economic Espionage Act?

2) If the US is not going to be able to prosecute the cases, why did it seek indictments?.

 

Posted by Karen Morris

Hackers Holding Your Files Hostage for Ransom

05-26-2014 7:46 PM with no comments

Hackers are getting more sophisticated in their attacks, and with sophistication comes easy money.  Hackers are now invading vulnerable computers and infecting them with a virus that encrypts the files of the computer owner.  Once encrypted, the computer owner is unable to access his or her files.  However, the computer owner will then receive a request for payment to sites such as bitcoin, PaySAFE, or MoneyPak. These anonymous payment systems allow the hackers to collect their ransom from the computer owners without fear of detection.

The amounts that the hackers seek is relatively small -- $300 to $500 because the hackers understand what the market will bear in term of rescuing those files.

 The virus has struck about 250,000 computers in the first 100 days of 2014.  The figure as 11,000 for March with a total of $34,000 collected. Donna Leinwand Leger, “Hackers Hold Computers Hostage,” USA Today, May 15, 2014, p., 1A

When your computer is hacked, you receive a warning about the need to pay and the warning has a time clock on it that shows you how much time you have to make the payment. 

Computer companies, such as Dell SecureWorks and CrytoLocker are working to find prevention tools. Law enforcement struggles with trying to identify the hackers because they have been very careful to set up numerous accounts for depositing the funds so that the act of became untraceable.

Why do experts advise if you get a hacker demand for ransom? Well, computer experts are frustrated because they have not been able to come up with a way to stop the virus once it makes its way into the computer. There have been few arrests of the hackers, and those arrests have come only because police infiltrated existing hacker rings, and not because they were able to determine the sources of the attacks. There is little that you can do once the virus in in your computer.

However, prevention is the key.  Watch out for e-mails that appear to come from the FBI and law enforcement agencies. Do not open files and do not click on links unless you have a known sender. Don’t go to pornographic sites or sites that you are led to with the lure of free gifts. 

DISCUSSION STARTERS

1.    What are the secrets to the hackers’ anonymous success?

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2.    What warnings have computer owners been given about the hacking scheme?

Posted by Marianne Jennings

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The Aaron Hernandez Tattoo Artists: Witnesses for the Prosecution?

05-24-2014 5:49 PM with no comments

 

Former Patriots player, Aaron Hernandez, is facing multiple murder charges.  However, it is the investigation by the police in Boston that is charting new territory when it comes to evidence.  Prosecutors in the case are seeking to speak to tattoo artists who created the tattoos on Hernandez’s right forearm between February 2012 and June 2013.  The investigators are not saying which tattoos (Mr. Hernandez is fully tattooed on both forearms) because they do not wish to influence what the tattoo artists may or may not have to say about the tattoos and their work on Mr. Hernandez’s right forearm.

The investigators are looking to find tattoo artist in Hermosa Beach, California, Bristol, Connecticut, Palm Beach, Florida, Miami, Boston, and Rhode Island.  The tattoos were obtained following the two new murders with which Mr. Hernandez was just charged that were committed in 2012. Jim Corbett, “Hernandez Ink of Interest,” USA Today, May 22, 2014, p. 8C.

A statement released by the prosecutor’s office explained the reasons the tattoo artists are needed for statements: "In order not to taint any potential statements, authorities are not publicly describing the specific tattoos or the nature of the inquiry -- only that the artists may have made observations of evidentiary value in the pending Suffolk County murder prosecutions.” Ray Sanchez, CNN News, May 22, 2014. The evidence would be related to charges filed last week against Mr. Hernandez for the alleged murder in 2012 of two individuals who had angered Mr. Hernandez. 

There are certain types of tattoos that signify life events, and that are obtained following these life events or even achievements, achievements that are sometimes the commission of a crime.  Investigators did view Mr. Hernandez’s arms and concluded that there is some artwork present that traditionally signifies participation in certain crimes, such as murder. Birds, tear drops, and other images are often linked to a type of bragging about crimes committed. 


The use of Mr. Hernandez’s physical features as evidence in a case would not be unusual.  Physical marks, including tattoos, are often used by witnesses in cases in order to make identifications.  However, in this situation, the physical markings would then be tied to cultural symbols and gang-related symbols to signify the commission of crimes. 

The investigators and prosecutor have emphasized that the tattoo artists have not committed any crimes. However, a possible use of the tattoo artist would be to obtain information about discussions they had with Mr. Hernandez in his decisions on the type of tattoo and their purpose.  Such discussions, if they involved Mr. Hernandez's admission of committing the murders (proof of the matter at issue in the trial), could run into hearsay issues at trial, but something Mr. Hernandez may have revealed to the tattoo artist could lead to additional evidence in the case.

Another possible result of the exploration of this type of evidence  is that a tattoo artist could be used as an expert on the symbolism of certain tattoos.  Again, physical appearance is evidence in a case.  The novel legal question here is whether the commentary on the physical attributes could be used.  And in this case, the attributes were added by the defendant.  Those tattoo additions are something the prosecutors want to establish are tied to two 2012 murders with which Mr. Hernandez is charged.  However, there is also the explanation that many who wish to mimic the body art of those who have committed crimes simply copy the symbols.  There are some tricky evidentiary questions ahead in the trial.   

DISCUSSION STARTERS

1.      Discuss the use of physical appearance as evidence in a case.

2.     What is different about the possible use of the Hernandez tattoos as evidence in the murder case?

 

 

 

 

 

Posted by Marianne Jennings

Pub Excludes Children; Illegal or Permissible Discrimination?

05-24-2014 2:45 PM with no comments

        

The Hot Bird Pub in Brooklyn recently posted a sign stating, “Children Are Not Allowed”. This set off a firestorm on a mom message board, beginning with a mother who, along with her young child, was asked to leave the restaurant.  She posted her discontent about exclusion of children.  “Hotbird no longer allows babies/toddlers/kids.  So I wanted to spread the word, before you go and get kicked out.”    

Not surprisingly, not everyone was unhappy with the rule.  Said one bar patron, “Kids shouldn’t be running around where people are trying to drink and hook up.”

The bar’s owner weighed in.  “When children are left unattended, which happens constantly because parents treat Hot Bird like a playground, kids run around, go up to patrons who smile because it’s a child but are in fact annoyed. . .Unattended children fall, climb on stools, etc. [and the bar might be liable] . . . Some parents would ask us to turn down the music because their five month old baby was trying to sleep . . my staff is there to serve drinks, not to watch over children and deal with unreasonable demands from parents.”

In legal terms, a tavern is a place of public accommodation.  This means the public is invited in and discrimination is prohibited against protected classes. These include race, color religion, national origin, disability, gender, and in some states, sexual orientation.  Age is not a protected class in places of public accommodation.  Thus, refusal by a restaurant to permit admission based on age is not illegal discrimination.  This is true regardless of the age excluded.  Thus, Hot Bird’s refusal to permit entry to youngsters is not illegal.  Likewise, if a bar wanted to cater for example to just twenty-somethings, it could legally exclude as customers people younger than 20 and older than 30 or 40 or whatever cut-off age it chose.

But note, age is a protected class in employment. By a federal law called the Age Discrimination in Employment Act of 1967, people aged 40 and older are protected against discrimination.  Most states supplement this statute by prohibiting age discrimination against any and all ages, whether young or old.  Therefore, a restaurant cannot refuse to hire people who are of a certain age, be it young or old (assuming the applicant is legally old enough to do the job).

 Concerning the owner’s  apprehension about possible liability if children are injured while inside the restaurant,  the liability, if any, would be based on negligence, failing to act as a reasonable person.  All places of public accommodation must make reasonable inspections of the premises at reasonable intervals (depending on traffic) to look for dangerous conditions and correct them.  An additional consideration with children is the attractive nuisance doctrine which recognizes that children do not always appreciate danger and places a heightened responsibility on facilities to maintain their property in a manner safe for children.

For more information, click here:http://nypost.com/2014/05/21/brooklyn-pub-bans-kids-after-being-swamped-by-families/

DISCUSSION QUESTION:

Why is age protected in employment but not in places of public accommodation?

Why does the federal employment law protect only people 40 and order?

Why do you think most states have chosen to extend the age protection for employment to all ages legally able to work?

Posted by Karen Morris

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Judge Denies Change of Venue in Boston Marathon Bombing Cases

05-21-2014 9:58 PM with no comments

        

A criminal case generated by the bombing at the 2013 Boston Marathon raises questions about the proper venue  (location of a trial) in high profile crimes. The case in question involves criminal charges against three friends of Dzhokhar Tsarnaev, the suspect in the bombing which killed three people and injured more than 260.

 The friends are charged with trying to help Tsarnaev allude the police. The charge is obstructing justice (interfering with the work of police, or lying to an officer about an investigation) .  Two of the friends are charged with removing Tsarnaev’s laptop and backpack from his dorm room, precluding the police from finding and searching those items for evidence.  The third friend is accused of lying to investigators about the removal of the possessions.  Each will be tried separately

Usually the venue is the locality where the crime occurred.  Change of venue is the legal term for moving a trial from that location to another.  A change may occur where an impartial jury will be hard to achieve because of widespread publicity.   The media is a powerful force in our society, relaying the news and molding public opinion.  People in another community who were exposed to considerably less media coverage are likely to be more objective.  

The Sixth Amendment to the United States Constitution guarantees defendants the right to fair trial.  This right  includes an unbiased jury.  The First Amendment guarantees freedom of the press, precluding courts from barring the media from reporting truthful information about crimes and trials.  In the bombing case, and other particularly heinous crimes that effect many people and so garner much media attention, the two Constitutional rights seemingly collide.

 The defense lawyers seeking to move the obstruction of justice trials to a location outside of the state of Massachusetts.  They claim that an unbiased jury will be impossible to find in that state based on the massive media coverage. The judge denied the motion, wanting first to conduct a voire dire (the jury selection process consisting of questioning of potential jurors by the judge and usually also by the lawyers) and determine from that whether an impartial jury can in fact be impaneled.  If not, the judge will reconsider the motion. 

This is not a surprising ruling because the impact of the media on the jury pool is difficult to assess without jurors being questioned  about whether they have formed opinions based on the publicity.  Further, the marathon bombings were covered extensively by the press nationwide, not just in Boston or Massachusetts.  Thus, there is no certainty that jurors outside Massachusetts are any less impacted by the media than those within the state.

The judge’s hesitation is likely due to inconvenience and related cost of a transfer.   The parties, judge, lawyers and witnesses typically are situated in or near the original venue. Thus, transportation issues can arise.  Additionally, transplanted lawyers and judges will not have ready access to their offices, computers, and support staff.  Further, the original locality, which usually has the greatest interest in the trial, loses the opportunity to conveniently observe the case up close.

The first of the three trials begins June 30th.  Stay tuned to see if an unbiased jury can be found.

For more information, click here: http://cambridge.wickedlocal.com/article/20140513/News/140518775.

 

DISCUSSION QUESTION:

1) What do you think is the likelihood of finding an unbiased jury in the vicinity of Boston? 

2) If you were the judge, how would you have ruled on the motion to change venue?  Why? 

 

Posted by Karen Morris

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GM Lawyers and the Confidential Settlements

05-20-2014 9:18 PM with no comments

As the internal and government investigations into GM’s defective switch and ignition problems, new evidence has emerged that GM lawyers entered into confidential settlements with plaintiffs in order to avoid disclosure of documents and depositions of various employees, including officers and engineers.  Bill Vlasic, “Inquiry by G.M. Is Said to Focus on Its Lawyers,” New York Times, May 18, 2014, p. A1.  

As the documents continue to emerge through federal court filings in the litigation over the defective cars, we are gaining a picture of lawyers trying to keep information about a company’s internal decision-making (including memos and e-mails) from falling into the hands of plaintiffs’ lawyers who were representing car owners or those killed in the cars.  For example, Jim Federico, a top engineer who left GM shortly after the problems became public, was scheduled to be deposed by one of the plaintiff’s lawyers. Mr. Federico had been in charge of GM’s internal investigation into the switch and ignition problems.  However, one day before his scheduled deposition, the lawyer settled the case for his client, a settlement that included a confidentiality agreement.  GM settled the case after having gone through two years of discovery. That settlement, entered into in July 2013, was the fifth of a series of settlements with confidentiality agreements.  By September 2013, GM would begin the process of issuing recalls for the cars with the design problems.  

 


GM settled the cases rather than proceed with depositions and, possibly, a trial.  Companies settle cases for many reasons:  expense, fault, costs to the company in terms of loss of the time managers devote to depositions and discovery, and public disclosure of information.  In this situation, settling meant that whatever testimony Mr. Federico had to offer  was not going to be recorded, under oath, for use by other plaintiffs in their litigation against the company.  The decisions by GM illustrate how there is a business decision side to all litigation.

The situation also illustrates how slowly litigation can move as the parties seek documents and schedule depositions.  In GM’s case, the longer time required for the scheduling of depositions allowed the company to understand the facts underlying the ignition and switch problems.  The discovery stage helps the parties understand  the facts in their cases and determines the strength of their position.  The longer the discovery process goes, the more information the parties uncover and the clearer the fault, negligence, and other legal theories become, or do not become, depending on how the facts unfold.  Discovery in this situation for GM was truly a matter of discovering the depth of the issues with its cars, something that resulted in a multi-million car recall.

The goal of the settlements was to not only head off the depositions, but also keep the facts from public disclosure.  Confidential settlement agreements mean that the parties cannot discuss the terms of the settlement with others.  Since the time of the asbestos litigation, lawyers have used this tool to settle suits and prevent the use of litigation information by other potential plaintiffs.  However, in this day of rapid information dispensing, confidential agreements are less helpful as facts find their way into the public eye through other means, documents, and, in GM's case, government regulator information being disclosed.  For example, the NHTSA lists all of the consumer complaints it receives by type of vehicle.  Even if the plaintiffs are quiet, the problems emerge through other avenues. 

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 DISCUSSION STARTERS

1.    Explain the purpose of discovery.

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2.    Why do parties settle a case AFTER discovery has been ongoing for some time?             

Posted by Marianne Jennings

Quiznos Secures Court Approval for Its Bankruptcy Reorganization Plan

05-15-2014 10:32 PM with 2 comment(s)

          

Quiznos, a chain of sandwich shops, has filed for chapter 11 bankruptcy. The company had been experiencing sales declines for several years, in part due to the competition from the aggressively expanding Subway restaurants as well as other sandwich establishments such as Jimmy John’s, Which Wich, Firehouse Subs and Potbelly.  At Quiznos’ height in 2008, it boasted about 5000 locations.  That number has been reduced to 2100, virtually all owed by franchisees (owners of individual shops authorized to do business using the Quisnos trademark).

Like most fast food franchisors (trademark owners who authorize others to use the mark provided they comply with various conditions), Quiznos’ income comes from royalties (a percentage of income) paid by franchisees for the use of the Quiznos name, and the sale to them by Quiznos of food and other products.  As the number of franchisees shrinks, so too does the franchisor’s income.  This circumstance led to the financial issues that caused the bankruptcy filing.

A company pursuing a Chapter 11 bankruptcy hopes to stay in business. The proceeding is usually initiated voluntarily by the bankrupt company.   Typically, a goal is to restructure debt, meaning the company is seeking relief from high debt payments it cannot afford. Typically, the bankrupt business develops a plan, called a reorganization plan, designed to increase revenues and reduce debt.

The business’ creditors - including lenders, shareholders and other interested parties - review the plan and either give it a thumbs up or a thumbs down.  If the creditors approve it, the debtor continues to run the business with modifications required by the plan. In effect, the plan serves as a contract between the debtor and its creditors on how the debtor will operate and pay its obligations going forward.

If creditors do not approve the plan, they can propose an acceptable plan. Either way, a bankruptcy judge must approve it, The approval is called confirmation. The judge bases the decision on three factors – feasibility (is the plan likely to be successful?); good faith (does the bankrupt have a sincere intention to deal fairly with all interested parties?); and fairness and equity (is the plan in fact fair to all?).

Prior to filing in bankruptcy court, Quiznos worked with its creditors to develop the plan and obtained their approval. Such pre-approval from the creditors results in a quicker and cheaper Chapter 11.

 Per Quiznos’ plan, the company’s creditors agreed to reduce the debt by $400 million which constitutes about two-thirds of the company’s obligations.  In exchange, the senior creditors received all the equity (ownership interest) in the chain and $200 million in new debt.

Another component of the plan concerns franchisees.  They were an unhappy bunch claiming the cost to operate a sandwich shop was too high. Quiznos’ reorganization plan includes reductions in food costs for franchisees, and financing to assist them in making restaurant improvements.

The CEO summarized the company’s objectives for its chapter 11 proceeding as follows: enhance customers’ experience at the sandwich shops, elevate the brand, increase sales, and improve profitability for franchisees.

For more information, click here: http://www.forbes.com/sites/spleverage/2014/05/12/leveraged-loans-quiznos-prepackaged-bankruptcy-reorganization-plan-nets-ok/

 DISCUSSION QUESTION:

Why is approval by creditors of a bankrupt’s reorganization plan required?

 

 

 

 

Posted by Karen Morris

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