• Airbnb and Rent Stabilized Apartments; the Two Don’t Mix

        

    Violation of rules has consequences. This lesson was learned the hard way by New York City artist, Eileen Hickey, age 72, whose artwork appeared in the popular movie Eat Pray Love. The film was adapted from the best selling book by the same name. Hickey is also a former curator at the venerable Guggenheim Museum in NYC.

    Hickey lived in a rent-stabilized loft in that city.  This means the rent is regulated by a government agency. In New York City that agency is the Division of Housing and Community Renewal (NYCDHCR), Rent stabilization applies to buildings with six or more units that were built before 1974. Some newer buildings are also rent-stabilized in exchange for tax abatements given to developers. To qualify for a NYC rent stabilized apartment, the renter’s household annual income must be less than $200,000. The NYCDHCR convenes every June to vote on how much stabilized rents can be increased, or if they should be frozen. Landlords cannot raise the rent beyond the amount specified by the NYCDHCR.

    Numerous other cities have similar rent stabilization laws.

    Hickey paid $1,500 per month for an apartment with a fair rental value of at least three times that amount. In violation of the NY Rent Stabilization Code, she rented out the apartment through Airbnb, earning up to $4,500 per month.

    Rent stabilization laws bar tenants from making a profit on their rent-stabilized units. Additionally, NY’s Multiple Dwelling Law bars tenants from renting out their apartments for less than 30 consecutive days.

    Hickey’s landlord brought an eviction action against her for violating the law. The tenant claimed she used Airbnb only briefly to assist in paying her former husband’s medical bills, a brief family emergency, and not to earn a living. She asserted she earned only a total of $14,000 from using the online site. The court ordered her to produce bank and credit-card statements.   She repeatedly failed to provide those documents. The court granted the eviction and authorized a city sheriff to “take all necessary steps . . . to effect the removal and ejection of Eileen Hickey . . from 460 Greenwich Street.” In addition, she was ordered to pay a fine of $185,000 for illegally renting out the rent stabilized apartment.

    Hickey owns a condominium also in Manhattan. The landlord argued this fact proves she is not living in the rent-stabilized apartment. Hickey however claimed she uses the condo as an office. Apparently the judge found Hickey’s claim to be not credible.

    The NYC Comptroller has reported, “Our city is facing an affordability crisis with rents constantly on the rise. A new study by my office shows one of the reasons why New Yorkers paid an additional $616 million in rent is because residential apartments are being used as tourist rentals b Airbnb.” Think supply and demand.

    In an effort to combat the limited number of available rental units, NYC has recently heightened its enforcement of the Multiple Dwelling Law prohibition against rentals of apartments for less than 30 days. One goal of fines as punishment for violation of laws is to deter both the defendant and others from engaging in the illegal activity. Hickey’s $185,000 fine will no doubt catch the attention of many who currently use Airbnb illegally, and others who may have been considering such endeavor.

    DISCUSSION STARTER:

    1) Recognizing that rent stabilized apartments result in significantly reduced income to landlords, what government policies prompted the development of rent stabilized apartments?

    2) Are those policies still relevant today? 

     

  • A Tarp-Covered MotorCycle in Your Driveway: A Warrant is Required to Lift That Cover

    Officer David Rhodes, of the Albemarle County Virginia Police Department was one of many officers in search of a driver on a distinctive black-and-orange motorcycle.  The driver has twice eluded police officers, and in one case there was a chase during which the rider exceeded 140 mph.  Using Facebook, Officer Rhodes found one Ryan Collins sitting atop what seemed to be the distinctive motorcycle.  Officer Rhodes was able to track Collins' location down to his girlfriend's address.  Officer Rhodes visited the property, warrantless, and invitationless.  He noted a tarp covering something in the driveway.  Officer Rhodes lifted the tarp and found the infamous black-and-orange cycle.Tracing the plates, Officer Rhodes learned that the infamous cycle was stolen. 

    After losing his motion to suppress the search in the driveway, Collins was convicted of receiving stolen property.  He appealed the verdict to the Virginia Supreme Court, which held that the search was covered by the automobile exemption to the Fourth Amendment.  However, the U.S. Supreme court granted certiorari, and  in an 8-1 decisionheld that Officer Rhodes was required to have a warrant. You can listen to the oral argument here. Justice Sotomayor, writing for the majority, held that the "automobile exception" is jsut that -- an exception for automobiles.  Her opinion noted that the property was located inside the curtilage of the home.  "Curtliage" is an old English term for a house and its fenced or bounded area.  Justice Alito was the lone dissenting judge and quoted Mr. Bumble from CJarles Dickens' Oliver Twist, . Justice Alito noted that Mr. Bumble responded, when told of a legal rule that did not comport with reality, "If that is the law, the law is an ass -- an idiot."  Collins v. Virginia, 2018 WL 2402551 (2018)

    The majority opinion noted that the tarp was the equivalent of a garage.  Those with lesser means who could not afford a garage would not be entitled to the same protections as those with garages even though the tarp accomplished the same purpose as a garage in providing protection and privacy.  

    DISCUSSION STARTERS

    Do you believe it would have made a difference if Mr. Collins had been home at the time?

    Is the tarp the same as a garage?

  • Tying Arrangements: Did McDonald's Quarter Pounder With Cheese Violate Antitrust Laws

    Cynthia Kissner and Leonard Werner have filed a class action suit against McDonald's in federal court in Florida.  The two, seeking class action status, allege that they were forced to pay 30 to 90 cents extra for cheese on their Quarter Pounders, cheese that they did not want.  They allege that they had to place a special order for their Quarter Pounders or order a regular Quarter Pounder and remove the cheese.  The cheese-free option for Quarter Pounders has since been removed from the drive-through menu.  

    Lawyers bringing the suit claim that McDonald's actions violated the Sherman Act that prohibits tying arrangements, or sales that require customers to be one product in order to get the product that they really want.  Unless they take the cheese, they cannot have a Quarter Pounder.  Their argument is that they are thereby forced to pay extra for something that they do not want.  The lawyers have also argued that McDonald's is unjustly enriched because it receives payment for cheese it does not furnish to its customers.  The plaintiffs seek the remedy of McDonald's offering a Quarter  Pounder sans cheese as a menu option.  They also request damages of 30-90 cents per Quarter Pounded that they have purchased over the past few years.  Ziati Meyer, "Quarter Pounder Fans Sue Over Cheese Charges,"  USA Today, May 23, 2018, p. 4b.  Lawyers for the plaintiffs have claimed that the refunds will total about $25 million. 

    McDonald's practice is not unusual.  For example, at Subway, customers pay the same price whether they have their subs "fully loaded" or "plain." McDonald's offers both a Quarter Pounder and a Quarter Pounder with Cheese options in it ordering app. However, that option is not available for order in the physical stores, only for pick-up of app orders.  

    Tying is generally associated with activities between and among competitors. The law against tying was recently clarified in Suture Express, Inc. v. Owens & Minor Distribution, Inc., 851 F.3d  1027 (10th Cir. 2017). In that case, Suture Express was a new upstarts specializing in the medical supply network by selling on Suture.  Owens & Minor was a medical supply distributor that carried all types of medical supplies, including suture.  Owens & Minor began bundling provisions that required its customer to pay a premium for all medical products unless the customer agreed to purchase its sutures. Suture Express brought suit alleging a loss of its business to Owens  & Minor through anticompetitive practices.  To squelch tying the under the Sherman Act, the plaintiff must prove that the defendant had market power, The court held that there are many places to buy both medical supplies and sutures and the tying was not anticompetitive. In that case and in the McDonald's case, this element is critical.  There are many other places to purchase burgers and McDonald's will probably not be established as monopolistic.  

    McDonald's has been a defendant in a number of suits, including the one-napkin limitation suit, the hot-coffee suit, the no-more-toys in Happy Meals suit, and value meals costing 41 cents more than ordering the same items ala carte.  You can read a history of these suits here. The claims are splashy and make the news, but the substantive cases have only been at a ratio of ` out of six for McDonald's losing.

    DISCUSSION STARTERS

    Explain tying under the Robinson-Patman Act.

    Discuss the issues of damages in the suit. 

  • Student Loan Default Rate: Educational Institutions Gaming the Metrics and Graduates End Up Paying More

    Educational institutions can lose their federal funding if they have an excessive number of loan defaults among their graduates. An excessive rate is measured using the figure of how many of an institution's graduates default within 3 years of graduation (called the cohort default rate). The intent is to measure whether the institutions are producing graduates who can earn a living and repay their loans.

    However, educational institutions have found a way to game the metric. They are contacting their graduates and asking them to put their loans in forbearance (i.e., on ice), which means that the students can avoid default. They are not paying their loans when they are on ice, but loans on ice do not count against the institutions' cohort rate. The forbearance rate has doubled since 2009. Erica L. Green, "Loophole Lets Colleges Mask Loan Default Rates Among Their Graduates," New York Times, May 12, 2018, p. A19. However,, graduates who are talked into going on ice face consequences for this forbearance option. Their loans accumulate interest, their credit ratings are affected, and they cannot obtain loans for buying homes. In some cases, their low credit scores can affect their eligibility for certain jobs. The educational institutions benefit by talking graduates into forbearance, but the graduates suffer. Taxpayers foot the bill for forbearance too. The likelihood of a loan being repaid after forbearance is reduced substantially because the amount of the loans continues to grow. Graduates find themselves in a hole and the interest keeps digging them in deeper.

    Legislation has been proposed to close the forbearance loophole and provide graduates with new options, including a longer 25-year repayment plan with lower monthly payments as well as government service loan forgiveness programs. The graduates buy time on repayment, but at great expense.

    DISCUSSION STARTERS

    Explain the metric used for educational institutions on student loans.

    Discuss the consequences for graduates. 

  • MoviePass: The Too-Good-To-Be-True "All You Can See Movies" Company and Dishonesty in Customers

    MoviePass offered what the public wanted. Originally, for just $99 (beginning last August), you could go to one movie per day. Then in August 2017, the company went to $9.95 per month and its subscriptions soared. Ben Fritz, "Plot Thickens for MoviePass,"  Wall Street Journal, May 17, 2018, p. B1.   That's right!  Download the app and use that app to pay for your ticket.  MoveiPass then paid the theaters the full price of the ticket. In short time, MoviePass went to 20,000 subscribers, then to 2,000,000, and then to uh-oh!  Figure out the cash drain when the average movie ticket cost in the United States is $9.16.  The business model had a slight flaw:  No one anticipated how many movies folks would see.  It turns out that there are quite a few people with lots of movie time on their hands.  Or, was it dishonesty?

    MoviePass has changed its terms of its original subscribers, back and forth.  Now you cannot see a movie more than once.  MoviePass said this is a good change because now the "little movies" can gain some traction at the box office. That new restriction came in tandem with issues of fraud.  Subscribers may have been sharing the app with friends.  Hence, the seeming habit of subscribers seeing movies more than once. In fact, MoviePass suspects that there are scalpers out there selling movie access for less than in the theaters using multiple MoveiPass subscriptions. Now, subscribers must take a picture of their ticket stub and send it through the app along with a photo, after every movie admission.  Failure to provide the photo results in subscription termination. Patrick Ryan, "MoveiPass Changes in Search of the Right Balance," USA Today, May 9, 2018, p. 4B. Can a company make such changes?  If the "subject to change" provision is built into the original agreement, yes.  However, in this case, the customer backlash is controlling, not the legal issues.  Backlash means the subscriber base cannot continue to grow.  

    But MoviePass is now offering different terms to new subscribers.  In April MoviePass sold the service with a 4-movies per-month limitation and streaming music from iHeartRadio for $29.95 per month.  Sufficient backlash resulted in MoviePass reversing that subscription decision just two weeks later. Again, new subscribers can be legally bound to new terms, but it is the backlash the drives what start-ups dependent on new customers must respond to.  The company is clearly struggling. Helios (the company that offers MoviePass) external auditor stated that it had "substantial doubts" about its ability to continue operating. Helios lost $98.6 million on $48.6 million in revenue for the first quarter of 2018. The price of its shares have dropped 93% since January, with the stock plummeting from going from a high $33.00 per share in October 2017 to a May 16, 2018 price of $1.68. Helios and Matheson Analytics (a company run by a former Netflix vice president) purchased MoveiPass. 

     USA Today remains sold on MoviePass calling it a better deal than the Cinemark Movie Club and Sinemia.  Still, those two companies are not struggling to stay alive. A contract ends in bankruptcy even if you still had movies left on your subscription. 

    DISCUSSION STARTERS

    Explain why the terms for MovePass keep changing.

    What are the legal rights of subscribers?  What do those right mean in light of the company's financial condition?

  • The SEC Wants to Question JayZ: He Says That He Is Busy with His Global Concert Tour

    Grammy-award-winning singer JayZ is also a businessman with significant investments.  Shawn Carter (his birth name) was a founder of  Rocawaer, an apparel company.  In 2007, Iconix Brand Group, Inc. paid $200 million to purchase assets from  Rocawaer. Iconix then wrote down the value of the Rocawaer.  by $169 million in 2016 and by another $34 million in 2018.  In \November 2017, the Securities Exchange Commission (SEC) issued a subpoena to Mr. Carter as part of its investigation into the accounting practices of Iconix. Iconix is now a failed clothing company. Mr. Carter did not respond to the original subpoena, and the SEC issued another subpoena in March 2018.  Mr. Carter also did not respond to that subpoena.  Mr. Carter's lawyer has said that Mr. Carter has agreed to one day of testimony for the SEC, but that the subpoena is "burdensome," because of Mr. carter's schedule and his upcoming 45-date global concert tour.  "Rapper JayZ Pushes Back Against SEC Demands," USA Today, May 8, 2017, p. 1D.

    Mr. Carter is not accused of any wrongdoing.  However, he has been ordered to appear and explain why he should not be required to respond to the subpoena.  JayZ's lawyer has argued that his client has no knowledge about Iconix's accounting practices,“Mr. Carter had no role in that reporting or Iconix’ s other actions as a public company. Mr. Carter is a private citizen who should not be involved in this matter.”

    Rocawaer was launched in 1999 and expanded from a rapper clothing company to an international brand. Iconix paid $200 million for Rocawear's baseball cap design.  Mr. Carter maintains that he has no knowledge.  However, even private citizens are subject to judicial subpoenas, even rap rap stars are subject to subpoenas, and even Grammy winners have to show up offer, under oath, that they have no knowledge of a purchaser's accounting practices.  In relity, the SEC is probably seeking information from Mr. Carter about the value of the baseball cap acquisition as part of its investigation into the write-down of its value. Absent limited causes, such as health and working around work schedules, even super stars are subject to federal subpoenas. 

    DISCUSSION STARTERS

    Explain the relationship between Iconix and JayZ.

    Discuss the rights of those who are subpoenaed. 

  • Ability to Work Rotating Shifts held an Essential Function of Burger King Assistant Managers

                

     The Americans with Disabilities Act continues to generate many lawsuits. A recent decision held that the ability of management personnel to work rotating shifts was an essential function of a job.

    A Puerto Rican Burger King franchisee owns several restaurants, some of which are open 24/7 (at all times).   The assistant managers rotate the time and location of their shifts so that the desirable work periods as well as the undesirable ones are evenly distributed among them. The franchisee delineates three work shifts in the course of a day – 1) 6:00 a.m. to 4:00 p.m.; 2) 10:00 a.m. to 8:00 p.m.; and 3) 8:00 p.m. to 6:00 a.m.

    The plaintiff assistant manager was making a bank deposit in 2011 when he was robbed at gunpoint and hit on the head. Since that attack he has suffered from post-traumatic stress disorder and major depression.

    To better manage his medical conditions, plaintiff requested a fixed work schedule rather than a rotating one, and a permanent assignment to a location away from a high-crime area. The franchisee agreed to this request on a temporary basis but after awhile insisted plaintiff again work rotating shifts. Plaintiff resigned In 2013, and sued claiming defendant’s failure to allow him a fixed schedule violated the duty to reasonably accommodate his medical conditions.

    A plaintiff suing for failing to accommodate under the ADA must prove the following three elements: 1) he is disabled within the meaning of the ADA; 2) he is nonetheless qualified to perform the essential functions of the job, with or without reasonable accommodation; and 3) the employer knew of the disability but refused to make an accommodation when requested to do so by the employee.

    An essential function of a job is one that is fundamental to the job, as opposed to marginal. Whether or not a task is an essential function is determined on a case-by-case basis. The contents of a written job description by an employer is one form of evidence of essential functions. A few other factors a court considers when determining whether a task is an essential function are the consequences to the employer of not requiring the incumbent to perform the task, the work experience of past incumbents in the job, and the current work experience of employees in similar jobs.

    Here, accommodating plaintiff permanently would have disproportionately burdened the other assistant managers who would have to work an increased number of undesirable shifts. Further, the job application for the position, which plaintiff signed when hired, informed assistant managers they they had to be able to work a variety of shifts at different sites.

    The court concluded that working rotating shifts was an essential function of the job of assistant manager in defendant’s Burger King franchises.

    The ADA protects qualified individuals, which is defined as a person “who, with or without reasonable accommodation, can perform the essential functions of the job.” Since no accommodation would enable plaintiff to work rotating shifts, and since rotating shifts are an essential function of the job, plaintiff was not a qualified individual per the ADA. Therefore, the store did not violate the Act by declining to adjust plaintiff’s work schedule as he requested. Summary judgment for the employer; case dismissed.

    For more information see Sepulveda-Vargas v. Caribbean Restaurants, LLC, __F.3d__, 2018 WL 2000012 (1st Cir., 4/30/2018)

     DISCUSSION QUESTION:

    Do you concur that the ability to work rotating shifts was an essential function of defendant’s job? Why or why not?

  • Fidelity Fires 200 Employees Over Fitbits and Laptops

    Fidelity Investments had two programs for its employees.  One was an offer for the company to reimburse employees who purchased Fitbits.  The Fitbit program was one designed to have encourage healthy living among employees.  The second program was one that wold reimburse employees 20% of the purchase price of $10,000 worth of computer equipment.  Fidelity discovered that 200 employees made qualifying purchases and submitted their receipts for reimbursement, but then returned the items and kept the Fidelity reimbursements.  Most of the 200 employees were located in the brokerage department.  In releasing a statement about the terminations, Fidelity explained that Fidelity has a culture of "compliance and integrity."  Sarah Krause and Rob Barry, "Fidelity Employees Fired After Alleged Misuse of Reimbursement Programs," Wall Street Journal, May 7, 2018, p. B2.   In some cases, employees submitted altered receipts in order to up the amount of their reimbursement. 

    One employee had purchased a laptop and was given reimbursement.  Because he was getting married and had wedding expenses, he returned the laptop and forgot to pay back the reimbursement.  He said, “Was it poor judgment on my part? Absolutely. Do I think I should have been fired for it? No.”  Fidelity's position is that honesty and integrity are critical for customer trust and that misuse of company resources shows a lack of commitment to fairness, disclosure, and honest. The Fidelity code of ethics prohibits the use of company resources for personal gain.  The result was that the code of ethics provided for termination as a remedy for misuse of company property.  A broader inquiry is underway because of the concerns about other activities by the brokers

    When an employee violates a company's code of ethics, the offense is one that permits immediate termination.  In most other issues, such as performance, tardiness, and behavior, the employer must build a record in order to be sure that there is notice and grounds for termination.  However, breach of the code of ethics, because such a breach often involves compliance with statutes and company reputation, the termination can be immediate.  The employer need only have the proof of the breach of the code. For example, in the situation with Harvey Weinstein, the board was facing many accusations by actresses and some employees about Mr. Weinstein's behavior.  However, Mr. Weinstein would have been entitled to some form of internal due process on the allegations before he could be terminated.  Mr. Weinstein was ousted so quickly because the board was able to establish a pattern of expenditures by Mr. Weinstein in violation of the company's code of ethics on the use of company resources. Misuse of company funds is one of those automatic termination areas   In the case of Fidelity, internal audit had gone through all of the employees' reimbursements and found the irregularities in the 200.  The documentation was then used to question the employees.  Those employees without contradictory proof or an explanation were then terminated.  An investment firm, such as Fidelity, is dependent upon public trust and must take swift action against employees, particularly with employees such as brokers who have contact with customers. 

    DISCUSSION STARTERS

    Explain the standards for termination of employees.

    How does termination for breach of the company code of ethics vary?

  • Why a Federal Judge Said "C'Mon, Man!" to Special Counsel Robert Mueller's Attorney

    Former Trump campaign adviser, Paul Manafort has been indicted by a grand jury empaneled by Special Prosecutor Robert Mueller.  Mr. Mueller was hired to look into alleged collusion between the Trump campaign and Russian agents to influence the outcome of the 2016 election.  Mr. Manafort's lawyers mad a motion to dismiss the tax and wire fraud charges against him on the grounds that the ability to charge Mr. Manafort exceeded the authority Mr. Mueller was granted in his appointment as a special prosecutor.  Under federal law, the U.S. Attorney General (or in the case the deputy U.S. Attorney General, Rod Rosenstein because U.S. Attorney General recused himself from handling the appointment because he was involved in the Trump presidential campaign) appoints a special prosecutor who is directed in scope and the type(s) of crimes to be investigated.  

    Mr. Manafort's lawyers argued in court before U.S. federal district judge T.S. Ellis III that the charges agaisnt Mr. Manafort dated back to activities in 2005 and were unrelated to the scope of the special prosecutor's work.  They argued that just as Mr. Mueller's team turned over the investigation into Michael Cohen, one of Mr. Trump's private lawyers, to the Southern District of New York prosecutors, that Mr. Manafort's case should be turned over to the Virginia federal prosecutors, where Mr. Manafort resides.  Mr. Manafort's lawyers also argued that because the crimes and dates are beyond the scope of the appointment that the charges should be dismissed. Judge Ellis asked the assistant solicitor general arguing the motion for Mr. Mueller, "The scope covers bank fraud from 2005?" Aruna Viswanatha, "Judge Questions Charges for Manafort," Wall Street Journal, May 5, 2018, p. A3. 

    Judge Ellis went on to say, "You don't really care about Mr. Manafort. You really care about what information Mr. Manafort can give you to lead you to Mr. Trump and an impeachment, or whatever."  He added, "The vernacular is 'to sing, or tighten the screws."  Sharon LaFraniere, "Federal Judge Questions Counsel's Pursuit of Manafort," New York Times, May 5, 2018, p. A13. The judge asked to see the memo of appointment so that he could assess the scope for himself and the Mueller team lawyers assured Judge Ellis that is was not necessary.  Judge Ellis then responded, "Your argument is 'We said this was what [the] investigation was about, but we are not bound by it and we were lying.'" The judge then referenced the common exclamation from NFL announcers, saying, "C'mon man!" 

    Judge Ellis concluded by saying that the Mueller team needed to produce the memo because, "I am sure you're sensitive to the fact that the American people feel pretty strongly about no one having unfettered power." 

    The issue and motion is unique in that it represents a challenge to the special counsel law, a statute that provides for appointment of a prosecutor independent of the Justice Department, but under the authority of the Justice Department.  There have been special counsels in the past, such as Kenneth Starr's investigation into then-President Bill Clinton's false testimony in a harassment suit by Paula Jones and Patrick Fitzgerald in the investigation of an alleged leak of CIA information by Bush administration officials.  The concerns about the power of such special prosecutors, the length and scope of their investigations, and accountability have been debated, but this challenge in court represents the first time a defendant has mounted an aggressive challenge to the procedures and perhaps constitutionality of the work of special prosecutors. 

    Judge Ellis will rule on the motion after receiving the Rosenstein memo of appointment.  The release of that memo has been a point of contention between congressional committees investigating possible Justice Department and FBI abuses of power.  So far, the memo has not been released except in heavily redacted form.  The case is one in which the various branches of government are pressing each other for information and raises questions about the issue of separate but equal and who supervises whom and to what extent.  The judicial branch will have its say through Judge Ellis (and any appeals that follow) and the congressional demands, including subpoenas, will continue.

    DISCUSSION STARTERS

    Explain the role of special counsel investigations.

    Why is Judge Ellis concerned about the Manafort case? 

  • Copyright Law and the Monkey Selfie

    In Burrow-Giles Lithographic Co/ v. Sorony, 4 S.Ct. 279 (1884), the U.S. Supreme Court dealt with a copyright issue that involved a photograph of Oscar Wilde. The court held that the photo was protected by copyright law because it was not a "emere mechanical reproduction" but, rather, was "an original work of art." The court noted that the photographer is the "author" or "inventor" of the photo.  That principle and precedent has been followed for over a century.  How could such clarity spawn disputes?

    Enter Naruto, a monkey (actually macaque) living on the island of Sulawesi in a wildlife reserve.  Naruto lived close to a village and had experienced tourists and their cameras all of his life.  Naruto is intelligent and uses his hands quite deftly.  Over the years he had learned to operate a camera and had seen tourists smile as they used the cameras. British photographer, David Slater, set his camera down whilst visiting the reserve, and Naruto grabbed it and began playing around, an activity that eventually resulted in a series of selfies that became part of one of Mr. Slater's books, published by Blubr, Inc.,  and that went viral on the Internet.  People for the Ethical Treatment of Animals (PETA) filed suit in federal court in the United States on behalf of Naruto in order to ensure his copyright protections on the photos. Naruto v. Slater, 2018 WL 362231 (N.D. Cal. 2016). 

    PETA argued that Naruto was the creator of the pictures because he understood the correlation between pressing the buttons and producing pictures.  However, the court dismissed the litigation and the Ninth Circuit affirmed the dismissal because, in the court's words, "the Copyright Act does not “plainly” extend the concept of authorship or statutory standing to animals. To the contrary, there is no mention of animals anywhere in the Act. The Supreme Court and Ninth Circuit have repeatedly referred to “persons” or “human beings” when analyzing authorship under the Act."  2018 WL 19021414 (9th Cir. 2018). The appellate court found the evidence so compelling that Naruto did not have standing to bring suit and was not protected that it awarded Mr. Slater and his publishers attorneys' fees and costs. Interestingly, the parties settled their case before it went to the U.S. Supreme Court, but the court agreed to hear it anyway because Naruto was not a party to the settlement and the court felt the need to seek a final and universal decision on the rights of animals on campus (or those depicting themselves as such). 

    While the precedent seems unique, there have been animal rights suits in the past.  Most notably there were the suits on behalf of the whales against Sea World and the suits brought by various mammals against the U.S. Navy for its low frequency detection devices in the oceans. In those cases, the courts also held that the animals did not have rights that could be violated.  Cetacean Community v. Bush, 386 F.3d 1169 (9th Cir. 2004). In addition, there is an area of law that requires some copyright clarification.  Computers create certain images and are they entitled to exercise copyright rights over those creations?  However, there are humans behind what the computers have generated -- the computers do not create images sua sponte. The United Kingdom and India do grant copyright protections to the humans who are behind computer generations. The United States has not, as yet, developed its position on this issue of copyright laws.

    Sometimes technology gets ahead of the law.  So it is with the battle between monkeys and photographers, programmers and their computer-generated products.  More clarification is certain to come.

    DISCUSSION STARTERS

    Explain what happened with the monkey and the photographer.

    Why does the monkey not have rights?

  • Canada Dry Ginger Ale Has No Ginger In It: Federal Judge Orders That the Class Action Can Proceed

    In Hashemi, et al. v. Dr Pepper Snapple Group Inc., et al., Case No. 2:17-cv-02042, three plaintiffs, representing a class of consumers who purchased Canada Dry Ginger Ale, filed a suit to recover for misrepresentation by Seven-Up and the Dr. Pepper Snapple Group that the soft drink contained ginger.  Tests submitted to the federal district court in California showed that there were not even traces of ginger in the product. The suit is one of several class actions around the country seeking compensatory damages for the missing ginger. 

    The plaintiffs also submitted evidence of advertising claims by the companies about the ginger ingredient. One of the ad quotes was, “Made from Real Ginger."  Real ginger sells for about $2 per pound.  Most interesting about the cost is that a pound of ginger is a substantial amount.  The irony is that the $2 per pound figure in the complaint may itself be deceptive.  Ginger, like most powdered spices, is the weight of air. 

    The suit is part of a movement by consumer groups, such as the Truth in Advertising effort that finds deception in ads, such as calling a "sale" a "sale" when the prices are really no different from other days or that the price was simply marked up.  The "My Pillow" company is a target for its "limited offers" of two-for-one pillows.  Called BOGO (Buy One, Get One (for free)), this type of sales promotion earns companies an "F" rating from the Advertising group because the pillows sold in the BOGO offer are not the same quality as pillows sold individually.  The Federal Trade Commission has been targeting BOGO offers for deception in advertising because the companies are generally offering a lesser quality product in the BOGO offers than the product purchased singularly. Other types of lawsuits filed include the "slack fill" suits in which customers are misled by the size of the package that actually contains much less of the product than represented by the size of the package.  Defendants in those cases include Jolly Ranchers, Hot Tamales, Mike and Ikes, Whoppers, Ice Breakers, Reese’s Pieces and pepper.  There have been 81 "slack fill" class-action suits since 2016.

    The consumer movement on ads, labels, and offers has resulted in a class-action industry for attorneys.  The lawsuits are based on the provisions in Article 2 Sales of the Uniform Commercial Code (UCC) that provide that ad content, product descriptions, product samples, and product photos constitute express warranties.  Buyers are entitled to rely on those descriptions in making their purchases and can recover compensatory damages if those descriptions are inaccurate.  The compensation per class-action plaintiff may be small, but the overall amount recovered by their attorneys is significant when the class is made up of hundreds of thousands of plaintiffs (and in some cases, millions)> . The lawyers receive 1/3 to 1/2 of the total recovery.  Th remainder goes to costs and is then distributed to the plaintiffs.  Ironically, in many settlements, the consumer plaintiffs actually do not receive cash compensation but instead receive coupons for the purchase of the product.

    DISCUSSION STARTERS

    Explain the consumer class-action movement.

    Discuss the legal basis for the claims.  

  • Is HR a Legal Problem? The Microsoft Class Action Suit by 8,630 Female Engineers

    Microsoft is a defendant in a class-action suit brought by women who worked at the company between 2011 and 2016.  The 8,630 female engineers and IT specialists are asking for between $100 million and $238 million in back pay as well as damages for 508 denied promotions.  The documents in the suit finds that the women raise an interesting question because the descriptions of their experiences at Microsoft seem to indicate that when HR at Microsoft got involved, things seemed to get worse.

    In the cases established in the documentation, managers who were found to have sexually harassed female employees were not terminated, but, rather, were transferred. When the women reported retaliation by managers who were retained after they had filed complaints, no action was taken.  An engineer's documents allege that a manager told her that he was not giving her a promotion because she had just had a baby and would probably want to have another and that he "did not want to waste a promotion on her."  Erika Fry and Claire Zillerman, "HR Is Not Your Friend." Fortune, March 21, 2018, p. 99. 

    The sexual harassment cases in the Microsoft suit present some interesting dilemmas because the legal definition of sexual harassment is quid pro quo, sexual favors in exchange for promotions and other benefits at work, or hostile environment, which is defined as an atmosphere of harassment.  In some cases, the alleged harassment is that a supervisor asked for a date twice.  That level of interaction may not reach the legal standard.  However, one of the issues in the case is whether HR was taking sufficient steps when conduct was reported to curb the behavior, which could ripen into behavior that did meet the legal standard. The interesting aspect of the Microsoft case is the alleged inaction of HR in responding appropriately to the complaints.  Is a transfer of a supervisor enough or is termination necessary?  If the conduct does not meet the legal standard, must HR take any steps, such as discussing the concern with the supervisor?

    Still other issues arose because HR did address the issues with supervisors and then the complainants returned to HR when they experienced retaliation in the form of reduced bonuses, poor performance evaluations, or being passed over for promotions.  The issue that has arisen as a result of the case is whether HR is the best place for employees to turn.  Former FOX News anchor Gretchen Carlson, who settled her lawsuit for harassment with the network, believes not, “Is human resources really the right place to go?” Because what I always equate it to is: Who’s giving them the paycheck? In the end, if the culture’s being set from the top and it’s trickling down to the lower levels, human resources may not be looking out for you.”

    have begun the process of reexamining the roles of HR and have begun using different approaches.  For example, many companies are relying more and more on third parties -- hiring outside law firms to investigate allegations so that HR employees, who do get their paychecks from the company, do not feel pressures or view issues as fairly as they should. Many companies are also abandoning the annual performance evaluation in favor of more frequent one-on-one discussions with employees about performance, concerns, and plans for improvement.  Some companies are even sending weekly surveys that allow employees to give a "thumbs up" or "thumbs down" in describing their work week as a way of tracking were problems are arising in the organization. Some companies are even hiring third-party HR companies that can serve as a sounding board for employees and as a source for advice. 

    With the annual number of cases filed with the EEOC increasing and reaching almost 85,000 in 2017, organizations are looking at HR with new eyes to see if they can adjust their processes and interactions to better understand what is happening in their workplaces before the class-action suits are filed. In the Microsoft case, many of the documents filed indicate that HR did not follow up on some of the complaints that employees made or did not take sufficient steps to stop the behaviors or take disciplinary action.  The focus is now on the HR function and how it can be improved to address the increasing litigation and regulatory complaints. 

    DISCUSSION STARTERS

    Explain what is happening with the Microsoft case.

    Discuss what issues are being addressed with the HR function.

  • David Copperfield Sued for Trick Gone Wrong; Judge Refuses to Close Courtroom

                  

    David Copperfield is a famous magician with a long-running show at the MGM Grand Hotel & Casino in Las Vegas. It sells out with regularity.

    He is being sued for negligence by an audience member who suffered serious and permanent injuries while participating as a volunteer in one of the magician’s signature illusions. Copperfield has used that trick as the finale to his show for more than 10 years. The trick involves 13 audience members selected at random. Copperfield appears to vanish them from onstage and causes them to quickly reappear in the back of the theatre.

    The illusionist was forced to disclose how the trick was done. Audience members are chosen at random and are brought to the stage. They all stand on a platform. A giant curtain is flung over it, removing the 13 from sight. In 60-90 seconds, the curtain is re-opened and the 13 people are nowhere to be seen. Copperfield then invites the audience to turn their attention to the back of the theatre. Lo and behold, there are the 13 audience members!

    Turns out, stagehands with flashlights hustle the 13 through passageways, around corners, outdoors, back indoors, and through an MGM Grand resort kichen in time to enter the back of the theatre for their reappearance. After the illusion is completed, Copperfield meets with the group of 13 and asks them not to disclose how the trick is performed.  

    In the lawsuit , plaintiff described the route as “dark and dusty,” and alleged that the outdoor portion was coated with “construction dust.” The floor surfaces changed rapidly in the passageways from linoleum to cement, to carpet, sidewalk, and tile. While traversing the passages, plaintiff tripped and fell, hitting his head on the floor. When he returned home from his trip to Las Vegas he had chronic pain, headaches and confusion. A brain scan showed a lesion. Due to his injuries he is not able to continue his successful career as a chef to the stars.

    Copperfield had sought to close the courtroom to the public to avoid making the big reveal for all to hear. Generally, courtroom proceedings in civil cases are open to the public with the objective that proceedings be conducted fairly. A judge can however close the courtroom temporarily to the public if it has a compelling reason to do so.

    Copperfield argued that the courtroom should be closed when testimony was presented about how the trick was performed because that information is a trade secret. A trade secret is information that is important to a business and is maintained confidentially, meaning shared only with a few people who all have a need to know in order to do their job. In assessing whether the machinations of the trick constitute a trade secret, and so might justify closing the courtroom to the public, the court noted that at each performance the 13 participants learned how the trick was done. The court calculated 55,000 plus people have participated in the trick over the 10 years that Copperfield has performed it, and so that many people know how the trick is done. This does not a trade secret make.

    At the trial, an exchange between Copperfield and the plaintiff’s attorney sums up liability in negligence cases. On cross-examination Copperfield was asked if he would be liable if an audience volunteer was hurt while participating in the show. The magician responded, “It depends on what happened. If I did something wrong, it would be my fault.” The attorney pressed on, “Your defense in this case is . . . if they participate and someone gets hurt, it’s their fault, not yours. Is that accurate, Yes or no? Copperfield’s response – “It’s not a simple yes-or-no answer.”

    Note: The defense of assumption of risk would not apply because the 13 audience members were unaware of what their participation would entail. Therefore, they did not voluntarily agree to take part in a knowingly dangerous activity, a prerequisite for assumption of risk to apply.

    According to Forbes magazine, Copperfield has an estimated net worth of $900 million, making him the richest magician in the world and one of the wealthiest entertainers in the world.

    The illusion in question is no longer being performed by Copperfield.

    DISCUSSION QUESTION:

    Do you agree with the court's ruling that the secret behind the trick did not constitute a trade secret?  Why or why not?

     

     

     

  • Starbucks, Anti-Bias Training, and Defamation

    The story about the Starbucks manager who is no longer a Starbucks manager has gone viral.  Holly Hylton, a former manager at a Philadelphia Starbucks, denied two male customers the use of the facility restroom because they had not ordered or purchased anything at the store.  The manager also asked the men to leave because they had not ordered anything and they refused.  The men explained that they were waiting for a friend for a business meeting.  Ms. Hylton called the police and when the men refused to leave they were arrested.  The men were not creating a scene nor were they being disruptive.  The men were black and Ms. Hylton was accused of racial bias.  Shortly following the incident, Ms. Hylton no longer worked at the Starbucks, which the company has explained was the result of mutual agreement.  Starbucks founder Howard Schultz was interviewed and said that the company's 8,000 stores would close on Sunday so that employees could participate in anti-bias training.  Mr. Schultz indicated in an interview that he had watched the tape of the actions and concluded that it was clear to him that there had been bias. 

    Ms. Hylton was following Starbucks's policy, which requires a purchase in order to use the facility's restroom.  She was also following Starbuck's policy to simply call the police when customers who have not ordered anything will not leave the store.  Ms. Hylton has been labeled a racist on social media, and Mr. Schultz's comments have portrayed Ms. Hylton in a bad light.  

    There are several legal questions that result from the incident and subsequent actions.  When can customers be asked to leave a store or restaurant?  Charisse Jones, "When Is It OK to Lick Someone Out of a Store?" USA Today, April 19, 2018, p. 1B. Businesses can have policies on handling customer behavior.  Most companies develop such policies in conjunction with legal counsel.  The key to the policies is uniform enforcement. And that enforcement cannot be tied to how the customers are dressed.  Customers should have the rules explained.  If they refuse to follow the rules then the warning about calling the police should be given.  If the customers still refuse, then the store policy of calling the police should also be followed, consistently. The goal in such policies is to prevent altercations and injuries to either or both employee and the individual involved. If the business treats everyone farily and equally, the policy is not considered racist.  The key is uniformity and treating the customers with dignity.

    Many lawyers have come forward, however, to offer to represent Ms. Hylton because of the comments made by Mr. Schultz.  His comment suggests that her behavior was racist and no one has, as yet, spoken to her or determined t=exactly what was said.  Portraying her in a bad or false light is the stuff of defamation.  In addition, there are questions related to her termination, particularly if she was following and had consistently followed store policies on customers who do not order anything at the store. 

    Starbucks acted quickly to handle the public relations issues by announcing its training.  Termination of Ms. Hylton also became public and added to the company's public relations strategies.  Protests of companies following such incidents have been common and Starbucks acted quickly to avoid additional backlash.  However, those actions, when accompanied by Mr. Schultz's statement, could have a long-term effect on Ms. Hylton's reputation as well as her ability to find employment.  Those types of damages are part of a defamation case. As one lawyer noted, "Mr. Schultz should be prepared to get out his checkbook."

    DISCUSSION STARTERS

    Explain the events and the legality of asking customers to leave.

    Discuss the elements of defamation. 

  • Recruiting Women to Have Surgery In Order to Bolster Damages in Product Liability Class Action Suits

    Lawyers are taking a step back in product liability cases and recruiting clients.  Using marketing firms and funding from banks and hedge funds, lawyers are locate women who have had a mesh implant -- either the the Boston Scientific or Johnson & Johnson brand.  They then use the information from their medical records (and it is unclear how they obtained those medical records) ot urge the women to have their mesh implants removed. The lawyers then provide the location for the surgery along with a doctor and other staff.  The women do not pay for the removal because the cost of the removal and resulting pain and discomfort will be part of the lawyers' damage recovery in their class action suits against Boston Scientific and Johnson & Johnson. If the lawyer recovers damages, the women pay nothing and, in fact, obtain damages for their pain and suffering.  If the lawyer does not recover any damages, the women must pay back the cost of the surgery plus double-digit interest. Matthew Goldstein and Jessica Silver-Greenberg, "How Profiteers Coax Women Into Surgery," New York Times,  April 15, 2018, p. A1. However, the bulk of their recovery goes to reimburse for the surgery costs (which have had interest running) and their lawyers' contingent fees. 

    The doctors participating in the program earn up to $14,000 per day for the surgeries.  The firms financing the surgeries, such as Medstar Funding, maintain that no women have undergone unnecessary surgery/ . They cite doctors' willingness to perform their surgery, according to the lawyers involved, means that the surgeries were not unnecessary because no physician would risk his license. 

    The women who have had the surgeries have been experiencing permanent damage resulting from them.  Several of them are now suing the firms that financed their surgeries.  The lawyers being named in the suits say that they had no relationship with the marketing firms that were involved in recruiting women for the removal surgeries.  During the litigation by the women, those involved in the marketing firms have taken the Fifth Amendment in depositions.  They are unwilling to disclose any financing arrangements they have had or their relationships with the lawyers who took the women's cases after their surgeries. 

    The ethical issues involved in this network that builds clients for mass tort litigation are extensive and, as yet, unaddressed. The litigation is based on claims of nondisclosure as well as the contract defense of duress and undue influence.  The women felt that they were receiving medical counseling because the marketing firms knew so much about their specific medical conditions and history.  No one has, as yet, determined how those firms got the private information on the women. 

    DISCUSSION STARTERS

    Explain what the financing, marketing, and law firms are doing with patients who have mesh implants.

    Discuss the ethical issues in the program. 

  • Marriott Fires Employee for Tibet Tweet: Beijing Makes Western Companies Toe the Line on Political Commentary

    Randy Jones worked for Marriott International managing the company's social media accounts.  As part of that job, Mr. Jones monitors what is being said about Marriott online. Marriott had emailed a survey to rewards members asking them their native countries.  The options includedTibet, Hong Kong, Macau, and Taiwan. A Canadian vendor had prepared the survey for Marriott. On January 9, 2018, the Internet began popping with outrage over Marriott's country listings.  China considers Tibet part of China and not a separate country..  However, a Tibet separatist group tweeted praise for Marriott for listing Tibet as a separate country.  Mr. Jones clicked on"like" for that Tweet.  By January 11, 2018, the Shanghai Municipal Tourism Administration questioned Marriott about the "like" Tweet as well as the country listings.  The officials asked Marriott for a public apology and demanded that it "deal seriously with the people responsible."  HR interviewed Mr. Jones, and by January 14, 2018, he had been fired.  

    The incident shows that although China censors Internet content within its own country, it also monitors the international Internet and reprimands Western companies when they appear in Internet content that criticizes China. During the past year, Delta Airlines, Zara Clothing, and Mercedes Benz have also been taken to task by Beijing for ads, posts, and statements. Mr. Jones's termination rather than a reprimand or suspension indicates the extent to which Western companies bend in order to be able to do business in China is great characterized by deference. China prohibits Internet postings that harm "the dignity of the state. Wayne Ma, "Marriott Firing Tied To Tweet Over Tibet,"  Wall Street Journal, March 5, 2018, p. B1. Mercedes was chastised by China when one of its ads featured a quote from the Dalai Lama, who is know to support Tibet separatists. 

    Mr. Jones was an hourly, at-will employee and was terminated for a violation of "company policy." However, Mr. Jones says that he was not aware of the significance of his actions, explaining that he had never been trained in Chinese social graces. An at-will employee, depending upon the particular state, cane be fired for good cause or no cause.  However, most companies follow a progressive process with preliminary steps of warnings, performance improvement plans, and ongoing reviews before taking the ultimate step of termination. 

    DISCUSSION STARTERS

    Explain the Chinese policies.

    Discuss why Marrioot had to act so quickly.  Does that change teh gradual discipline process requirements>

  • Family Dollar Pays $45 Million to Settle Gender Discrimination Wage Case; Ninth Circuit Outlaws Salary History Inquiries

        

    37,000 female managers of Family Dollar Stores, Inc, sued the company in a class action (a lawsuit with multiple plaintiffs, each of whom suffered an injury or financial loss from the same cause) claiming gender discrimination in pay. The company has settled the case for $45 million.

    The lawsuit alleged that female managers were paid less than their male counterparts for doing the same job. The suit covers the time period from July, 2002 to November, 2017. The plaintiffs referenced the Civil Rights Act of 1964 and the Equal Pay Act of 1963, federal laws that require employers to pay men and women equally for equal work, subject to differentials based on education, experience and performance.

    An additional component of the settlement is Family Dollar’s agreement to perform a “systematic review” of its process for setting starting salaries for store managers. The company also agreed to consult with experts in the fields of labor economics and industrial/organization psychology to make salary adjustments to the pay of female store managers “as deemed necessary and appropriate.”

    The settlement notwithstanding, the company denied any wrongdoing, claiming it “has treated all employees fairly with regard to salaries and other compensation at all times, regardless of sex.” Dollar Tree, which purchased Family Dollar in 2015, has not commented on the settlement.

    When a class action is settled, the judge must be involved. The judge is required to schedule a hearing to determine if the proposed settlement is fair, reasonable and adequate for class members. The judge in the Family Dollar case, US District Judge Max Cogburn in Ashville, North Carolina, has approved the settlement finding the amount reasonable, and also helpful in avoiding further litigation.

    Family Dollar is a chain of discounted variety stores. It has 8,000 stores throughout the country and is headquartered in Mathews, North Carolina.

    Cases like this one alleging unequal pay based on gender prompted many businesses to undertake pay audits and ban salary history questions in an effort to avoid gender bias because basing an employee’s salary on prior earnings perpetuates unfair pay practices including the gender pay gap. Massachusetts, California and New York City adopted laws that prevent managers from asking about an applicant’s prior salary.

    Bans on inquiries about salary history received a major boost this week with a decision from the U.S. Court of Appeals for the Ninth Circuit (Alaska, Arizona, Californian, Idaho, Montana, Nevada, Oregon and Washington) in a case involving a school math consultant. She discovered she was making $10,000 less than her male colleagues who had less experience and were doing the same work. She sued claiming a violation of the Equal Pay Act. The Fresno County California Office of Education defended the case on the ground that her salary was based on her previous wages and had nothing to do with her gender. The court rejected this arguement , noting that the Equal Pay Act was enacted to address pay inequity based on sex. The court held, “Employers cannot justify paying a woman less than a man doing similar work because of her salary history.”

    For more information, see Rizo v. Fresno County Office of Education, Ninth Circuit, No. 16-15372 (April 9, 2018)..

    DISCUSSION QUESTION:

    How does banning salary history questions from interviews with job applicants help eliminate unequal pay?

     

    Rizo v. Fresno County Office of Education

  • Your Retail Equation Score: If It's Bad, You Can't Return Stuff

    It's an algorithm, developed by a third party for retailers. It's a risk score for each customer that is based on the customer's shopping and return history.  Retail Equation is the company and it sells it service to retailers such as JCPenney, Sephora, CVS, Advance Auto Parts, Best Buy, and Dick's Sporting Goods. Khadeeja Safdar, "Unsatisfied Buyers Beware," Wall Street Journal, April 5, 2018, p. B3. Here are the factors that are used to determine your risk score, a score that tags you for possible fraud:

    • Percentage of purchased items that you return
    • Returning many items in a short period of time
    • Returning high dollar amounts
    • Returning items without a receipt
    • Returning items that are most likely to be stolen
    • Returning items after the time period the retailer has imposed
    • Returning items just as a store is closing

    A report on an individual will include, by retailer, the number of items that you have returned per year, with a complete history going back to at least 2015. When you bring in an item to return, retailers using Retail Equation ask for ID and run your name through the database to obtain information. Depending on the score, the retailer may refuse to make an exception for you, if you are beyond the time period for returns.  Or, you may be able to return the item but will receive a warning about future returns.  In some cases, you receive a cut-off-  you will not be able to return any items for 60 days.

    The social Internet sites and Yelp are full of complaints about this new process.  However, the retailers are using the service because the data base is accurate in detecting fraud, such as shoplifters.  Estimates are that retailers lose $22.8 billion to shoplifters in 2017.  Total returns last year totaled $351 billion. In short, the losses for retailers are great.   

    From a contract perspective, a retailer can set its conditions for returning goods:  receipts required; time limits; not worn (in the case of undergarments), and original packaging.  If a customer does not meet those requirements, the retailer can refuse to grant an exception.  Retailers are now adding additional restrictions to their return policies that cover the situations tagged by Retail Equation.  Return policies now include warnings about excessive returns and even that the returns are at the retailers' discretion.  If the terms of returns are disclosed, the customer is bound by them.  One of the issues with the terms is whether customers are aware of them.  Printing the terms on the back of the receipt is the safest way to establish knowledge. Some retailers post the terms online and in visible areas in their stores.

    Another issue that arises from this new use of analytics is the data base itself.  Consumer rights are affected but there are no legal mandates on copies of the report or offer corrections, similar to the regulation of consumer credit scores.  However, Retail Equation does offer free copies of your report as well as explanations of scores and the problems with retail return fraud. You can check your report here. As retailer use continues, this new niche in consumer spending may be subjected to legislation and/or regulation. The Consumer Credit Protection Act would be a model for such access and correction issues. 

    DISCUSSTION STARTERS

  • Overtime for Car Dealer Service Advisors: The U.S. Supreme Court Has Ruled for a Second Time and Rebuked the Ninth Circuit Again

    Under the regulations promulgated under the Fair Labor Standards Act (FLSA), a "salesman" who is "primarily engaged" in "servicing automobiles" is exempt from the overtime pay requirements.  29 CFR Section 779.372 (c)(1)(1971).  The provision of the law is decades old and means that service advisors cannot collect overtime for hours in excess of 40 per week. Five service advisors employed by Encino Motorcars, LLC, filed suit claiming the Encino had violated the FLSA by failing to pay them overtime when they worked longer than 40 hours per week. The workers filed suit in 2012 after the Obama administration, in 2011, revoked the rule that including service advisors as exempt employees. Encino Motor Cars, LLC v. Navarro, 2013 WL 518557 (C.D. Cal. 2013).

    The federal district court dismissed the complaint sua sponte, because it found that the statute was clear and that the promulgated rule was not within the scope and clear language of the statute. The former service advisors appealed their case to the Ninth Circuit, which reversed the lower court decision holding that it would ere on the side of the agency in its 2011 interpretation. The appellate court held that the suit could go forward and awarded the plaintiffs the costs of the appeal. Encino Motor Cars, LLC v. Navarro, 780 F.3d 1267 (2015). However, Encino Motors appealed that decision to the U.S. Supreme Court, and the court held then, in a 6-2 decision, that the Ninth Circuit could not disregard decades of a clear standard promulgated by the agency that service advisors were exempt.

    However, when the case was remanded to the Ninth Circuit, 845 F.3d 925 (9th Cir. 2017), the court discussed  that in In 1966, Congress repealed the exemption for all employees of an automobile dealership and replaced it with a limited exemption for only three specific vocations: salesmen, partsmen, and mechanics. The court then noted that the Occupational Outlook Handbook listed many common vocations. Among those categories of workers that one might have expected to find at automobile dealerships in 1966, three job titles—emphasized below—clearly align with the three job titles exempted by Congress:

    • Automobile body repairmen
    • Automobile mechanics
    • Automobile painters
     Automobile parts countermen
    • Automobile salesmen
    • Automobile service advisors
    • Automobile upholsterers
    • Bookkeeping workers
    • Cashiers
    The court went on to hold that service advisors were not exempt because they were not salesman engaged in selling cars and that they were not repairing cars or selling parts.  However, on appeal to the U.S. Supreme Court for the second time, in a 5-4 decision, the court held that although service advisors may not actually repair the vehicles or sell the parts that they are primarily engaged in servicing automobiles and, as such, are exempt. Justice Thomas wrote:
    The Ninth Circuit concluded that service advisors are not covered because the exemption simply does not apply to “salesm[e]n ... primarily engaged in ... servicing automobiles.” The Ninth Circuit invoked the distributive canon to reach this conclusion. Using that canon, it matched “salesman” with “selling” and “partsma[n] [and] mechanic” with “servicing.” We reject this reasoning. 2018 WL 1568025 (2018). Justice Thomas wrote, "True, service advisors do not spend most of their time physically repairing automobiles, but the statutory language is not so constrained. . . . Partsmen do not spend most of their time under the hood."  Justice Thomas noted that a service advisor is a salesman who is engaged in servicing automobiles. 
    The case clarifies the exemption status at automobile dealerships, but also provides insight into statutory interpretation and the restrictions federal agencies face in trying to go beyond the plain meaning of statutory authority and definitions. 
    DISCUSSION STARTERS
    Explain the history of the case.
    Discuss why there is this exemption under the FLSA for certain car dealership employees. 

     

     

  • Angler Fails Polygraph and Loses $2.8 Million Prize Money; Passing Test Was Condition Precedent

                        

     

    This is not the typical tale of a fisherman misrepresenting the size of the fish that got away. Instead, it’s a story that underscores the importance of following tournament rules.

    Ocean City, Maryland hosts the largest billfish fishing tournament in the world, called the White Marlin Open (WMO). (Billfish are large, predatory fish found in oceans and tropical and subtropical waters. Billfish include sailfish, marlin, swordfish, and big eye tuna.) In the 2016 tournament, plaintiff caught the biggest fish, a white marlin weighing 76.5 pounds , arguably entitling plaintiff to the first prize purse of $2.8 million.

    A set of rules govern the competition. Those rules state that “all anglers winning $50,000 of more may be required, at the discretion of the White Marlin Open, to take and pass, at the determination of the test administrator, a polygraph test prior to the distribution of any awards.” In addition, the rules state that the WMO may, at its discretion, also request that a polygraph test be taken by other anglers or crew members present on the boat from which winning fish were caught. The rules also permit a winning angler who fails the lie detector to arrange for a second test at his own expense by an operator approved by the WMO who must conduct the test in compliance with specified standards. An additional tournament rule is that fishing lines cannot go in the water before 8:30 a.m. or after 3:30 p.m. on tournament days.

    Consistent with the rules, the WMO required the four top 2016 prize-winning anglers to report for polygraph examinations to ensure compliance with tournament rules. The results for plaintiff were “inconclusive.” The WMO and plaintiff agreed that plaintiff and two of his boat crew would undergo additional polygraph tests. These tests were administered consistent with the standards laid out in the WMO rules. None of the three men passed. The test results and the evidence established that plaintiff’s fishing lines were deployed and in the water before 8:30 a.m. on the day plaintiff’s apparent prize-winning fish was caught. The pre-8:30 a.m. start violates the tournament rules. As a result, the WMO notified plaintiff that it would not award him the prize money.

    Plaintiff took issue with the results of the polygraph tests, and he alleged deficiencies in their administration. He sued to secure the prize money, claiming breach of contract by the WMO.

    The court identified the requirement of passing a polygraph test as a condition precedent which is an event that must take place before a contracting party is obligated to perform. Thus passage of the test is a prerequisite to the tournament’s obligation to award prize money of $50,000 or more to participants catching the largest qualifying fish. Reciting a basic rule of contract law, the court held, “It is fundamental that where a contractual duty is subject to a condition precedent, whether express or implied, there is no duty of performance and there can be no breach by nonperformance, until the condition precedent is either performed or excused.” Passage of the polygraph test was not excused by the WMO. By failing the test, plaintiff did not satisfy the condition precedent. Therefore, plaintiff was not entitled to the $2.8 million prize money, and his case for breach of contract was dismissed.

    The lesson of this case: Know the rules for activities in which you participate, and comply with those regulations!

    For additional information, see White Marlin Open, Inc. v. Heasley, 262 F.Supp.3d 228 (D. Md, 2017); aff’d, 2018 WL 1531427 (4th Cir., 3/28/2018).

    DISCUSSION QUESTION:

    If you were advising the White Marlin Open concerning modification to rules, would you recommend any changes relevant to polygraphs? Why or why not?

     

  • Olivia de Havlland, 101, "Miss Melanie," Loses Her Appropriation Suit Against FX For "Feud"

    Olivia de Havilland, 101 years old, the legendary two-time Oscar-winning actress who played Melanie Wilkes in "Gone With the WInd" had her suit against the FX Network dismissed.  The suit alleged that the film produced by FX, "Feud: Bette and Joan," about the strained relationships between Bette Davis and Joan Crawford used Ms. de Havilland's name and image without her permission.  Ms. de Havilland alleged in her suit that the film depicted her inaccurately and no one from Fox had contacted her for permission. Ms. De Havilland alleged that the film depicted her as a gossiping, vulgar person when, as the suit noted, she is known for her "honesty, integrity, and good manners." 

    Courts have traditionally relied on the First Amendment in this biographical types of films because of the need for interpretive history in presenting life stories. The case is particularly relevant because of the current crop of biographical films about which those depicted have raised questions of accuracy.  ("I, Tonya" and "Darkest Hour"). Ms. de Havilland has lived a different Hollywood life, remaining quiet about her personal life and never agreeing to cooperate in any biographical projects.  She has only been to court one other time, when she was 28 years old and sued to get out of her studio contract with Warner Brothers.  She had signed the contract in 1936 with the studio, but she refused to participate in certain films that the studio wanted her to do.  Each tie that she refused to appear in films, which she found to be of lesser quality, Warner Brothers tacked on additional time to her contract.  The end result of that case was a victory for Ms. de Havilland and the "de Havilland law," its name, a statute that prohibits personal services contracts for longer than 7 years.  Paul Brownfield, "Hollywood Legend Heads to Court," New York Times, March 4, 2018, p. SS1. 

    Ms. de Havilland was not successful this time. The suit survived a motion to dismiss by FX under the so-called anti-SLAPP law.  The California statute, Strategic Lawsuits Against Public Participation, was passed to allow defendants to have suits dismissed that result in a chilling effect on First Amendment rights.  Many predicted that the suit would be dismissed.  However, the trial judge permitted the suit to go forward because it was based on Ms. de Havilland's right of privacy.  On appeal. the California appellate court held that, "Books, films, plays, and television shows often portray real people.  Some are famous and some are just ordinary folks.  Whether a person portrayed in one of these expressive works is a world-renowned film star -- "a living legend"-- or a person no one knows, she or he does not own history." FX Networks, LLC v. de Havilland, 2018 WL 44732 (Cal. App. 2018). 

    Lawyers for FX, who were joined in amicus briefs by Motion Picture Association of America and Netflix, called the decision a victory for the First Amendment and the creative community.  The Screen Actors Guild (SAG) had filed an amicus brief in support of Ms. de Havilland's position.  The decision permits film makers to proceed with biographical depictions despite challenges from the subjects.  Ms. de Havilland, who was portrayed by Catherine Zeta-Jones in the film took issue with an interview shown in the film that depicted her as called her sister, Joan Fontaine, a name.  Ms. de Havilland said the interview never occurred and that FX fact checkers had done spotty work in their research.  Ms. de Havilland also took issue with some of the scenes that depicted her with Bette Davis.  Ms. de Havilland has called Ms. Davis a "dear friend" and did not feel that the film did justice to their strong friendship. 

    For now, history in cinema, whether true or false, good or bad, stands protected under the First Amendment and does not require permission of the subjects depicted.  Ms. de Havilland, and her estranged sister, Joan Fontaine, were given the title 'f "dame" by Queen Elizabeth to honor the sisters for their contributions to drama. The two sisters were born in England and then raised in Northern California. 

    DISCUSSION STARTERS

    Explain the legal rights at odds in the suit Ms. de Havilland filed.

    Discuss the implications for historical biographies if Ms. de Havilland had won her case.

  • Waterpark Owners Face Criminal Charges for Death Caused by Substandard Slide

            

     

    A ten year old boy was killed while riding the world’s largest waterslide at the Schlitterbahn Waterpark in Kansas City, Kansas. After climbing up 264 stairs, riders descend the slide on a three-person raft that ends in a pool of water. The slide was built to thrill. Its name is “Verruckt” which means “insane” or “crazy” in German. Prior to the boy’s death, at least 14 riders were hurt on the attraction. Among their injuries were concussions and broken bones.

    The raft on which the hapless boy, Caleb Schwab, was riding derailed. It hit a pole supporting netting designed to keep riders from flying off the ride. An autopsy revealed the boy was decapitated when the raft hit a pole while airborne.

    An investigation has revealed that the ride’s design violated many aspects of longstanding industry standards. Not surprising given that the designer was a high school drop out with no technical or engineering credentials. Accusations were made that the design and construction of the attraction were rushed to impress producers of the Travel Channel’s “Xtreme Waterparks” series.  

    The ride originally had an age restriction of 14 but that requirement was abandoned in favor of a minimum total weight requirement per raft. Workers were directed to cover up the age restriction notice on signs.

    On the day of the incident causing death, others had complained about improperly working Velcro straps used to secure riders in their seats.

    The boy’s family pursued a civil case. The parties settled for approximately $20 million.

    An indictment just issued against park officials. The operations director has been arrested and charged with 20 felony counts including involuntary manslaughter, meaning recklessly (aware of and consciously disregards a substantial and unjustified risk of injury or death) killing another person[1]; aggravated endangering of a child, meaning recklessly causing or permitting a child under the age of 18 years to be placed in a situation in which the child’s life, body or health is endangered[2], and aggravated battery meaning knowingly or recklessly causing great bodily harm to another person[3]. The manslaughter charge refers to Schwab’s death. The other two charges relate to injuries to riders in the 14 mishaps on the slide prior to the death. Also facing charges are the park’s owners and the park itself.

    A corporation can be liable for criminal charges. Some states require that a “high managerial agent” (senior management) be involved by either participating, encouraging, or recklessly disregarding the criminal act. In Kansas the statute reads, “A corporation is criminally responsible for acts committed by its agents when acting within the scope of their authority.” An agent includes directors, officers, and employees.[4]

    The sentence for manslaughter ranges from 3-11 years in prison with a maximum fine of $300,000. The sentence for aggravated child endangerment is 5-17 months in jail and a maximum fine of $100,000. The sentence for aggravated battery includes a 1-11 year sentence and maximum fines of $100,000 - $300,000.

    The indictment reads in part, “In place of mathematical and physics calculations, [the builders] rushed forward relying almost entirely on crude trial-and-error methods. . . When rafts began going airborne during testing, the park started testing at night to avoid scrutiny.”  The complaint also alleges that company officials admitted in a televised interview that they feared for their own safety when they went down the slide. This suggests they were aware of the risks the ride created. By failing to address those risks, they arguably acted recklessly. 
     

    The park responded to the indictment, “Our staff has demonstrated the highest dedication to safety, to ensuring all rides have operated in accordance with our strict protocols.” Yet investigators found park employees ignored serious issues such as the passenger restraints being too weak and the rafts being poorly designed and tending to derail at the crest, putting riders’ heads dangerously close to the netting and the poles.

    Per the indictment, while the investigation was underway, the operations director hid or destroyed relevant documents.  

    He and the park are also charged with interference with law enforcement[5] which includes concealing evidence and giving false information to a police officer. The sentence ranges from 5-232 months in jail and a potential fine of $100,000.

    For more information, click here.

    DISCUSSION QUESTION:

    What actions should the waterpark have taken before opening the waterslide in question?



    [1] Kan. Stat. 21-3404.

    [2] Kan. Stat. 21-5601.

    [3] Kan. Stat. 21-5413.

    [4] Kan. Stat. 21-5211.

    [5] Kan. Stat. 21-5904

  • New Orleans Saints Cheerleader Who Was Fired Files an EEOC Complaint for Disparate Treatment: The Rules Apply to Cheerleaders, Not the Players

    The New Orleans Saints fired cheerleader, Bailey Davis, after she had been with the team for three seasons, and all without trouble.  Ms. Davis was terminated for cause for the following reasons:

    • She posted a photo of herself on Instagram in a one-piece outfit that the Saints said violated the rule that cheerleaders cannot appear nude, seminude, or in lingerie. 
    • She attended a party where there were also Saints players (Cheerleaders are prohibited from attending parties that include Saints players

    Ms. Davis has filed a complaint with the Equal Employment Opportunity Commission (EEOC) on the grounds that the Saints have two sets of rules, one for the players and different ones for the cheerleaders. Ken Belson, "Men Play by Own Rules, Fired Cheerleader Says in Filing Against Saints,"  New York Times, March 26, 2018m p. SM 1  Ms. Davis's mother had been the choreographer for the "Saintsations" for 18 years, but resigned following her daughter's termination.

    For example, from the handbook for cheerleaders:

    • The Saints have an anti-fraternization policy that requires cheerleaders to avoid contact with players but which does not require football players to do the same
    • Players are not penalized for contact with cheerleaders either in person or oneline
    • The cheerleaders must block players from following them online, but players are not prohibited from seeking to follow them, and often disguise their identities in order to follow the cheerleaders
    • Cheerleaders cannot post pictures of themselves in Saints gear, but players do not have to follow this rule
    • Players are not required to monitor who is following them on their social media sites
    • Cheerleaders cannot dine in the same restaurant as players.  If a cheerleader enters a restaurant and sees a player, she must leave.  If a cheerleader is eating at a restaurant and a player enters, the cheerleader must leave.

    The NFL explains that the rules are necessary to protect the cheerleaders from the players.  However, the onus is all on the cheerleaders to stop their behavior in order to prevent the players from preying on them. 

    The Buffalo Bills have disbanded their cheerleading squad, but prior to their elimination, management monitored the cheerleaders' Facebook pages without the knowledge ot consent of the cheerleaders. There has also been litigation over wages, which resulted in the cheerleaders earning minimum wage and overtime. 

    If the goal of the Saints' policy is to prevent fraternization, then the rules must not put the burden entirely on the women.  The rules that are designed to prevent fraternization should apply to all employees of the Saints, male or female.  Ms. Davis may actually have a valid argument about the disparity in applications of the rules. 

    DISCUSSION STARTERS

    Explain the disparity in treatment between players and cheerleaders.

    What theory could the EEOC apply to the claim of Ms. Davis? 

  • Google's 4-cent Checks to 129 Million Class-Action Plaintiffs: The Doctrine of 'Cy Pres' Shows Up at the U.S. Supreme Court

     In 2015, a federal district court developed a solution for Google's struggle to issue 4-cent checks to 129 million Google and G-mail users as a settlement for violation of their privacy rights. The total settlement in the case was $5.3 million, with the lawyers being given 25% of that amount, the three lead plaintiffs being given $5,000 each, and the remaining amount distributed to the members of the plaintiff class. The plaintiffs had successfully established that Google had taken their private information obtained through Google's search engine and sold that information to marketing firms. Sarah Randazzo, "For Some Class-Action Lawyers, Charity Begins and Ends at Home." Wall Street Journal, March 24-25, 2018, p. B4

    The parties proposed a settlement using the trust doctrine of cy pres (pronounced sigh pray and means "as near as possible," meaning trying to carry out the intent of those who established the trust). Under this doctrine, when the expense and difficulty of finding beneficiaries is great, the trustee (in this case the court) can exercise discretion and make charitable distributions in lieu of finding the beneficiaries.  Google proposed giving the funds to the World Privacy Forum, AARP Foundation, Carnegie-Mellon University, and the Center for Internet and Society. In re Google Referrer Header Privacy Litigation, 87 F. Supp. 3d 1132 (N.D. Ca. 2015).  The court approved the settlement and some of the parties appealed. 867 F. 3d 737 (9th Cir. 2017). However, the 9th Circuit affirmed the decision.  The case has been appealed to the U.S. Supreme Court and the decision on certiorari is pending. 

    The effect is that the settlement in this case will go to third parties who were not involved in the litigation.  In addition, the 9th Circuit has established a precedent for the use of cy pres in class-action suits. Along with the Google appeal is another case with the same cy pres issue that involves a class action suit between the United States and Native American farmers. Chief Justice John Roberts has expressed concerns about the 9th Circuit's approach to the distribution of class-actions, particularly when the funds are distributed to those who were not parties to the litigation.  Ted Frank, "For Some For Some Class-Action Lawyers, Charity Begins and Ends at Home." Wall Street Journal, March 23, 2018, p. A19. Prior to the Google case, the federal standard had followed the cy pres principles that the amount involved was de minimis and that distribution was just not feasible.  In re BankAmerica Corp. Securities Litigation,  775 F.3d 1060 (8th Cir. 2015). In cases before the Google case, the 9th circuit held that the cy pres distribution need not be perfect, and applied a standard of "next best distribution."  However, in some situations, that "next" choice meant that the alma maters of the class-action plaintiffs' lawyer received donations from the settlement.  Lane v. Facebook, 696 F.3d 311 (8th Circ. 2012). 

    DISCUSSION STARTERS

    Explain the doctrine of cy pres.


    What concerns does the Chief Justice have about using the doctrine in class-action settlements?

  • Richard Simmons Loses Transgender Defamation Case against National Enquirer ; Sanctions Imposed for Frivolous Lawsuit

     

    The National Enquirer, a sensationalist tabloid, reported in a cover story that Richard Simmons, the quirky work-out guru, had “undergone shocking sex surgery to change from a man to a woman.” The headline read, “Richard Simmons: He’s Now a Woman!”. Simmons strongly denied the statement and sued the tabloid for defamation, the tort of making an untruthful and demeaning statement about another person to a third person.

    A false statement is not sufficient to establish a case for defamation. In addition, the assertion must subject a person to hatred, contempt, ridicule, or cause that person to be shunned or avoided. Stated differently, the statement must result in damage to reputation. Without such injury, a claim for defamation will not be successful in court.  For example, a newspaper reported that the plaintiff had died. Turns out he was well and alive. He sued the paper for defamation, and the case was dismissed. The court, while recognizing that the statement was false, held that dying is not demeaning since, alas, we are all mortal and will all die.

    Note: The issue of whether a statement is reasonably susceptible to a defamatory interpretation is a question of law (an issue within the judge’s authority to decide as opposed to a jury; an issue that involves application or interpretation of legal principles or a statute) for the trial court and not a decision for the jury.

    In the Richard Simmons case, the court analogized misidentification as transgender to misidentification of race, being sick with cancer, and being homosexual. Most recent court decisions have rejected the notion of such claims being defamatory.                  

    Simmons’ attorney argued, “There are giant segments of society in this country who endorse the kind of prejudice and hatred and shunning of transgender persons in a way that is dramatically different than the way we treat race in this country.”  The newspaper’s attorney responded, “There is nothing inherently bad about being transgender.”

    The court stated, “While being transgender may be held in contempt by a portion of the population, the court will not validate those prejudices by legally recognizing them.”

    This ruling is among the first to address whether the label of being transgender is damaging to one’s reputation. The case thus sets a precedent that being described as transgender is not defamatory

    The fake story was leaked to the paper by Simmons’ former assistant who allegedly sought to blackmail the exercise star. The tale had added credibility because Simmons, who aggressively sought media attention during much of his career, had not been seen publicly for awhile. Simmons’ spokesperson countered that Simmons had reduced his schedule following knee surgery, but he continued to work with clients to help them with motivation and weight loss.

    Not surprisingly, Simmons is appealing the court’s decision to dismiss his case.

    The defamation decision was issued on September 1, 2017.  The court just ruled (late March, 2018) that Simmons must pay the tabloid $128,625 for general costs of defending the case and lawyer fees. The media company had sought $220,000. Such awards are used to compensate a losing party for time, resources and legal fees when a lawsuit or a defense argument is frivolous. This means that the argument has little or no chance of success because of lack of legal merit. Sanctions are typically reserved only for those cases that are wholly without merit, or brought for a plainly improper purpose, such as to harass the other side.

    For more information, see Simmons v. American Media, Inc., 2017 WL 5325381 (Cal.Super., 9/1/2017).

    DISCUSSION QUESTIONS:

    1)      Do you think Simmons will be successful on appeal? Why or why not?

    2)      Do you think the judge’s imposition of sanctions against Simmons were justified in this case? Why or why not?