• Music Mogul's Offer of $1 Million Reward for Return of Stolen Computer Is A Binding Offer for a Unilateral Contract

    Music impresario and performer Ryan Leslie learned a lesson in contracts the hard way.  His computer and external hard drive were stolen.  It contained valuable data including several multitrack unreleased songs stored on the hard drive.   He sought to encourage its return by offering a reward of $20,000.  When the missing items were not forthcoming, he increased the offer to a cool one million via a YouTube video.  In response, one Armin Augstein produced the missing items.  Augstein reported that he found them while walking his dogs.  Leslie accused Augstein of involvement with the items’ theft and refused to pay.  A lawsuit resulted.

    An offer of an award is an offer for a unilateral contract, that is, a promise to give something in exchange for requested action.  The offeree must do the specified action to accept the contract.  A promise to engage in the requested behavior is insufficient.  So, for example, if Augstein had seen the YouTube video and called Leslie saying, “I promise to go looking for the computer every day until I find it,”    that would not be an acceptance.  The only way to accept the offer is to find and produce the missing things.  When Augustein did exactly that, his actions constituted acceptance.  The offer and acceptance created a binding contract.

    Perhaps Leslie argued that his offer was not valid.  For a valid offer, Leslie as the offeror must have exhibited  contractual intent (purposeful action by the offeror to begin the process of entering a legally binding contract), the terms of the offer must have been definite, and the offer must have been communicated to the offeree (so that the offer was part of what prompted the offer to engage in the conduct sought).  Leslie may have claimed that he was under such stress and anxiety from the loss of the computer that he made the offer under duress and lacked contractual intent.  In assessing contractual intent the courts utilize an objective approach.  This means the important circumstance is not what might have been in the offeror’s mind, but rather what the offeree could reasonably conclude about the seriousness of the offer based on the offer’s demeanor, tone of voice, choice of words, and the like.  Review the video and draw your own conclusions.  The jury was satisfied he objectively demonstrated contractual intent.   Further, the offer was definite; there is nothing unclear about $1 million being offered in exchange for Leslie’s lost computer and hard drive.  Since Augstein sought the reward money, we can assume the offer was communicated to him. 

    Thus the jury determined that Leslie’s offer was valid, Augstein engaged in the conduct sought by the offer, and he was thus entitled to the $1 million reward.

    Ryan Leslie is a record producer, singer, song writer, multi-instrumentalist occasional rapper, and founder of the media company NextSelection Lifestye Group. He was nominated for a Grammy in 2011, and was named one of New York’s 50 hottest bachelors 2009.   For Leslie’s sake, I hope those songs on the hard drive become major hits!

     For more information click here.

    DISCUSSION QUESTION:

    What differentiates a unilateral contract from  a bilateral contract?

  • The Price Is Right Loses Pregnancy Discrimination Case; $8.5 Million Verdict

     

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    A model for the TV show The Price Is Right won a judgment  exceeding $8.5 million for pregnancy discrimination.  Of that amount, $770,000 was for compensatory damages and $7,769,440 for punitive damages.

    Complications developed with the second pregnancy and so she took disability leave.  It was during that time that she was fired.  When she sought to return to work, the show’s producers, The Price Is Right Productions and FremantieMedia North America, refused to accept her back.  They claimed they were satisfied with the five models then working on the show and so did not need plaintiff anymore.  The jury determined that the reason she was not rehired was her pregnancy. 

    The Pregnancy Discrimination Act, a federal law, prohibits discrimination on the basis of pregnancy.  Such discrimination involves treating a woman employee or job applicant unfavorably because of pregnancy, childbirth, or a medical condition related to pregnancy or childbirth.   The Act protects pregnant women in all aspects of employment including hiring, firing, pay, job assignments, promotions, layoff, training, fringe benefits, and all other conditions of employment. 

    Compensatory damages are intended to reimburse the plaintiff for losses caused by the illegal discrimination.  The figure typically includes lost wages, mental anguish, and doctor bills if she suffered an illness requiring medical treatment as a result of anguish and stress.  Punitive damages have a different objective.  They are designed to punish the defendant for action that the jury finds is not just illegal but is also reprehensible, outrageous, wanton, and/or reckless.   Another goal of punitive damages is to deter the defendant from engaging again in the offending conduct, and likewise to deter others from such behavior.   The jury in this case was obviously displeased with the actions of producers of The Price is Right. 

    Prior to reaching its verdict, the jury advised the judge several times that they were deadlocked.  When this occurs, many judges give what is called an Allen charge.   This means the judge must inform the jury that the parties are best served when a verdict is reached, and implore the jurors to keep an open mind and reconsider their fellow jurors’ positions.  The name originates from a case before the United States Supreme Court from which the charge originated, Allen v. United States, 164 US 492 (1896).  Despite the numerous reports of deadlock in the Price is Right case, the jury was able eventually to reach a decision.

     The defendant has vowed to appeal.  A spokesperson said, “We believe the verdict in this case was the result of a flawed process in which the court refused to allow the jury to hear and consider that 40 percent of our models have been pregnant.”  The judge apparently excluded that evidence  as irrelevant.  The only  pertinent testimony was whether the show discriminated against  Cochrani; not how it treated other employees. 

    This case was not the only claim against the show of discrimination.  In the past, the show’s longtime, now retired host, Bob Barker, was sued by some of the show’s hostesses for sexual harassment and wrongful termination.

    For more information, click here.

  • Helping Business Along

    Lincoln Plowman rose through the ranks of the Indianapolis police department and, in 2003, was first elected to the Indianapolis-Marion County City-County Council. In 2008 he became majority leader of the Council.

    One of Plowman’s roles on the Council was to oversee the zoning process. Control of zoning means applicants can be granted exceptions to the rules. Plowman got his campaign manager appointed to the Metropolitan Board of Zoning appeals. The FBI smelled a rat and investigated.

    The FBI set up a sting. It used an undercover agent to meet with Plowman. The agent told Plowman he wanted to open a strip club in Indianapolis, but the zoning rules made it hard to get a good location. From the first conversation, Plowman said he would take cash in exchange for fixing things for the business. He discussed getting zoning approval for a specific property near the airport.

    Plowman was the one to raise his being given money and told the agent about his power over the zoning process. He could also help get a liquor license and had pull with the police department. He said he would pass on half the money he got from the agent and would keep half. At one meeting he asked for $5,000 in cash and for a campaign contribution too.

    The day the agent met to pay Plowman, the meeting was taped and Plowman was arrested. He resigned from the police force, was convicted of bribery and extortion under federal law, and sentenced to 40 months in prison.

    Plowman appealed, contending entrapment. The Supreme Court has held that entrapment is “the apprehension of an otherwise law-abiding citizens, who, if left to his own devices, likely would have never run afoul of the law.” A defense of entrapment means 1) the government induced the crime and 2) the defendant was not predisposed to commit the crime.

    The Seventh Circuit Court of Appeal upheld the conviction. Tapes of conversations with the undercover agent show Plowman asking for payments and discussing what services he would provide. Plowman’s claims that he was paid just to be a consultant do not fly. He was “an active and willing participant” in his discussions with the agent.

    Discussion: Could Plowman have avoided conviction if he had been a bit more coy about taking payments?

  • How Much Can Your Cell Phone Be Used Against You By the Police?

    As one expert described it, “the courts are all over the place,” and Congress may step in to clarify what and how much information can be used from your cell phone to investigate and prosecute crimes.  Somini Sengupta, "Courts Divided Over Searches of Cellphones," New York Times, November 26, 2012, p. A1.

    As the U.S. Senate prepares to consider an amendment to the Electronic Communications Privacy Act that would require law enforcement officials to obtain a warrant to search your e-mail, regardless of how old it is, lower courts are struggling with privacy issues related to text messages, pinging, and other information on cell phones.

    The law is unclear as courts grapple with Fourth Amendment privacy issues and cell phone technology and information. 

    In U.S. v. Skinner, 690 F.3d 772 (6th Cir. 2012),  DEA officials obtained warrants for the interception of wire communications from two phones that belonged to individuals believed to be involved in a large-scale drug operation.  By tracking these calls, the agents learned that their courier was an over-the-road truck driver referred to as “Big Foot” ( Melvin Skinner).  The agents were able to use their access to the two phones to learn the number for Big Foot’s pay-as-you-go-phone. Big Foot used only pay-as-you-go-phones for his work and destroyed them after each run and got a new phone for each new drug run.  Once they had Skinner’s number, they began pinging Big Foot’s phone, thereby locating his home and begin tracking him.

    The tracking resulted in agents witnessing a drug pick-up.  The agents then confronted Skinner in his motor home and found sixty-one bales of marijuana, over 1,100 pounds.

    Skinner sought to suppress the search of the motor home, alleging that the agents' use of GPS location information emitted from his cell phone was a warrantless search that violated the Fourth Amendment. The evidence was admitted, Skinner was convicted, and appealed. The appellate court found that there was no Fourth Amendment violation because Skinner did not have a reasonable expectation of privacy in the data given off by his cell phone. The court held that tracking the pings was no different from following a vehicle. The agents had not attached any device to the motor home; they were simply tracking its emitted signal.

    However, in a Rhode Island case currently on appeal, State of Rhode Island v. Patino, a judge dealt with a different use of cell phone evidence and found that the police needed to have a warrant.  Police were at an apartment investigating the events that led to a six-year-old boy being taken to the hospital (the boy subsequently died).  An officer responded to a beep on one of the four cell phones in the apartment, concerned that the child’s mother (who had gone to the hospital with her son) might be trying to reach them and relatives.  He opened a text message on that phone that read, “Wat if I got 2 take him 2 da hospital wat do I say and dos marks on his neck omg.” The cell phone belonged to Michael Patino, who was subsequently charged and convicted of the murder of the child.  On his appeal, the court held that the officer required a warrant for reading the text messages and that the evidence should not have been admitted. Yet, a Washington court, State v. Hinton, 280 P.3d 476 (Wash. App. 2012) held that text messages are like voice mail messages – anyone can hear or see them so that there is no expectation of privacy.  Likening them to letters, the court held that text messages can be seen by anyone and the expectation of privacy is not justified. 

    Discussion Starters

    1.      What are the differences in the cases and decisions on privacy?

    2.      How will the law evolve in this area?

  • I'm Sick, But Don't Tell Anyone

    Omni, a technology consulting company doing work for Thrivent, hired Gary Messier to work as a temporary programmer. After Messier had worked at Thrivent for four months without a problem he did not report to work one day. He did not notify anyone that he would be absent. Omni and Thrivent tried to contact him without success. At 5 PM, Messier sent an e-mail to his managers at both companies telling them he had been incapacitated by a bad migraine headache. He told them in the e-mail that he had migraines for the past 12 years as a result of an accident. While most migraines were manageable; this one was so bad he could not make a phone call or send an e-mail.

                Messier returned to work but quit a month later, although his contract for the job was not completed. Apparently the parties disagreed as to expectations about Messier’s work and he walked out.

    After Messier left Omni and Thrivent he had a hard time getting a new job and suspected that Thrivent was saying negative things about him to prospective employers who called to gather information. He hired a company to find out what was being said about him. It learned that his former supervisor told callers that Messier would get migraines, which was not a problem, except that he did not call to say that he could not come to work.

    Messier filed a disability discrimination complaint with the EEOC. It issued a Letter of Discrimination stating that it found reasonable cause to believe that Thrivent violated the ADA. When the parties did not settle, EEOC sued, contending that Thrivent violated the ADA by “revealing to prospective employers Messier’s confidential medical information obtained from a medical inquiry.”

                The district court dismissed the suit, holding that the ADA’s medical confidentiality rules had not been violated. Messier’s medical condition was not learned by the employer through a medical examination. Asking someone why he or she did not come to work is not a “medical inquiry” as envisioned by the statute.

                EEOC appealed, contending that all employee medical information revealed through “job-related” inquiries is protected under the ADA. The Seventh Circuit Court of Appeals disagreed, upholding the decision to dismiss the suit.

                The court noted that the EEOC requested a “liberal interpretation” of the meaning of medical inquiries protected by the ADA. The EEOC’s view violates the Supreme Court’s Chevron doctrine that the intent of Congress will be followed when a statute is clear. The plain meaning of the ADA is that it applies to information obtained from medical examinations and other formal procedures, not information provided by an employee in an e-mail about why work was missed. Courts in similar cases have upheld this view. Messier may have been disabled, but had never revealed that information to his employer.

    Discussion: Is it legitimate to discover health issues that may affect employee performance?

  • When the ATM Dispenses Double What You Withdrew, Twitter Spreads the Word, and You Can Get Away With It

    There was an ATM in Glasgow, Scotland that was drawing a crowd on November 17, 2012.  The generous ATM was doling out double the amount of cash that customers had requested.  Through the instant communication of Twitter, a line formed at the ATM and a parking jam developed in the area as the Scots lined up to double their takes.  The golden goose jamboree ended when police were summoned to deal with the crowds and traffic. 

    The Bank of Scotland says that it will not be pursuing those who experienced the windfall because it would be too difficult to determine which customers were affected and to trace the transactions to a particular ATM.  The bank will write off the double-your-money losses.

    The problem happens more than we realize.  In July, 2012, as the vide0 notes, there was another problem in England with an ATN, and, in summer 2012, in Ipswich, New York, about 30 customers benefited from a similar malfunctioning ATM.

     

    In March 2012, several customers were nabbed in Sydney as they attempted to take advantage of a malfunctioning ATM there.  These gents decided to keep things quiet adn to themselves, but the unusual amount of transactions triggered bank notification and a remote shut-down.  In a recent Spokane case, the issue of embezzlement was intertwined with a faulty ATN.  Two managers who managed to take away $200,000 from the ATM are using as a defense that they did not embezzle, but simply used a faulty ATM to withdraw money.  Any cash they received, their lawyer claims, is the bank's error and not a crime on their part.

    The money does not belong to the customers in any of these situations, but because of the difficulty of proving who got what, the bank must absorb the losses when there is a crowd.  If the tables were turned, that is is someone used your ATM card or was able to access your account and made unauthorized withdrawals, consumer credit protections in the United States limit the amount of your loss to $50 if you notify the bank in a timely fashion of the compromise or theft of your card.  The bank must always be fair to us even when we are not required to be fair to the bank. 

    However, in those situations in which the bank can make connections between individuals and their cards and the ATM, the required return of the money is very likely with continued use and no notification of the bank resulting in possible prosecution.  

    Discussion Starters

    1.      If you were a customer who learned of the magic ATM in Glasgow, would you make a withdrawal and profit or would you report the problem?

    2.     Would you return the double-cash award if you had some regrets?

  • BP: Supervisors on the Deepwater Horizon Rig Indicted for Manslaughter in Connection with Explosion

    Two supervisors who worked on board the BP Deepwater Horizon oil rig in the Gulf of Mexico have been indicted on manslaughter charges for their role in the explosion.  The charges are based on allegations that Donald J. Vidrine and Robert Kaluza made false estimates.  There were 11 workers who were killed because of the rig explosion and fire. The indictment alleged the figures used for computing flow relied on Wikipedia and that the estimates for the gas pops from the well were unrealistic.

      In addition, the two were charged with obstruction of Congress because they allegedly continued to use the same data in testifying before Congress despite additional information that had been given to them that indicated the data were incorrect. The executives indicated that the spill from the well after the explosion was 5,000 barrels per day.  However, BP engineers had prepared a memo that indicated the spill could be as high as 146,000 barrels per day and was most likely in a range between 14,000 and 82,000 barrels per day. Mr. Rainey did not disclose this information in his testimony before Congress.

    The indictments appear to be a signal from the Justice Department

    of its intent to hold corporate executives accountable because a corporation cannot be sentenced to prison.  BP agreed, on the same day that the executives’ indictments were announced, to enter a guilty plea to criminal charges in relation to the Deepwater explosion and spill and pay a fine of $4.5 billion. Clifford Krauss and John Schwartz, New York Times, “BP Will Plead Guilty and Pay Over $4 Billion,” November 16, 201, p. A1.

    Lawyers for the two men indicated that their clients deny the charges and intend to fight them to the full extent of the law.  Their lawyers also added that an accident should not be criminalized and that the indictment was “misguided.”  Clifford Krauss, “In BP Indictments, U.S. Shifts to Hold Individuals Accountable,” New York Times, November 16, 2012, p. B1

    In order to hold an officer or manager liable under criminal law, the government would need to establish that the officer or manager knowingly put the individuals who were killed in harm’s way or that they cut corners or ignored rules in such a way that their safety was compromised. The government believes that it can establish the presence of this intent through the use of allegedly incorrect or slipshod data and a culture of cost- and corner-cutting.

    The goal of individual manager and executive charges is deterrence – that the fear of individual accountability for conduct will rein in managers’ behaviors.

    Discussion Starters

    1.      What is the basis of the allegations against the two managers at BP?

    2.     What must the government prove in order to hold the managers criminally responsible for the deaths of the workers?

  • An Expert Must Be an Expert

    Henry Barabin was exposed to asbestos from 1964 through 1984, primarily when he worked at a paper mill that used materials called dryer felts that contained asbestos supplied by defendants AstenJohnson and Scapa. In 2006, five years after he retired, he was diagnosed with mesothelioma, a lung disease known to be caused by exposure to asbestos. Barabin and his wife sued the asbestos makers.

    Barabin hired Cohen and Millette as expert witnesses to testify on his behalf. Before trial, defendants moved to exclude Cohen as an expert because of his “dubious credentials and his lack of expertise with regard to dryer felts and paper mills.” They also sought to limit Millette’s testimony because his tests were “performed under laboratory conditions which are not the same as conditions” at the workplace.

    The trial court did not hold a Daubert hearing and decided to allow their testimony. The jury awarded the Barabins $10.2 million in damages, which were reduced by the judge to $9.4 million. Defendants appealed.

    A Daubert hearing is based on a Supreme Court ruling that district courts must determine the relevance and reliability of expert testimony before allowing it in court. The expert’s opinion must be deduced from proper scientific method—that is, the accepted scientific methodology; not personal opinion.

    The Ninth Circuit Court of Appeals vacated the decision and remanded for a new trial. Rather than hold a hearing to determine the credibility of the expert testimony, the judge allowed “the jury left it to the jury to determine the relevance and reliability of the proffered expert testimony.” This was an abuse of discretion that requires a new trial to be held.

    Discussion: Why did the Supreme Court require accepted scientific methodology to be the standard for evidence rather than allow any credentialed expert to testify as the expert sees fit?

  • Tax Fraud Leads to Bribery Conviction

            

    A business owner thought he could beat the tax collector.  Failure to pay federal taxes is of course a serious federal crime.  So is understating one’s income resulting in a lower tax bill.  

     Eric Hu, a New York City businessman, had been less than truthful on his federal tax return, making a bad bet that law enforcement would not catch up with him.  They did, and so staring Mr. Hu in the face were criminal tax fraud charges and likely jail time.  Along comes a rather dirty white knight - Mr. Hu’s state legislator, Jimmy K. Meng from Queens.  Claiming access to the federal prosecutor handling the case, Meng offered to exploit that relationship to achieve a lenient outcome for Mr. Hu, but at a price of $80,000.   

    Mr. Hu was between a rock and a hard place so he accepted Mr. Meng’s offer.  Per agreement, Hu paid upfront in cash which he hid in a fruit basked delivered to Meng’s office.  The deal was discovered by law enforcement.  Mr. Hu agreed to cooperate in the investigation of Meng in exchange for a lighter sentence.  The legislator ultimately pled guilty this week to bribery.   

    Bribery is the crime of soliciting, receiving or giving something of value for the purpose of influencing the action of an official in the discharge of his or her public or legal duties. The objective is for the official to betray his public responsibility in exchange for a private gain. The “thing of value” can be immediate cash, a promise of a later payment, personal favors, or other property sought by the party soliciting the bribe.  Meng both solicited a bribe from Hu, and apparently intended to offer a bribe to the prosecutor.  

    Mr. Meng, who was the first Asian-American to serve in the New York State Assembly, is not a native English speaker.  He utilized a interpreter in court to understand the legal terminology. Courts are required to provide interpreters to any defendant needed one.  The cost is born by the court. 

     Sentencing is set for March 12th.  Prosecutors intend to recommend 12 to 18 months in jail.   

    The agreement between Hu and Meng was a contract.  It’s objective was illegal – a bribe.  Thus the contract would be void and unenforceable.  If Hu has not prepaid and Meng had arranged a deal for Hu after which Hu refused to pay, Meng would be unable enforce the agreement for payment of $80,000.  Likewise, if Hu paid the money but Meng failed to contact the prosecutor, Hu could not sue for return of his money.

    Prosecutors not infrequently will negotiate a plea and sentence with a defendant who has information that will be helpful in pursuing another case.  This is what transpired with Hu.  As between Hu and Meng, the prosecutors determined Meng was more culpable and so were willing to offer Hu a plea to a lesser charge and a reduced sentence in exchange for Hu's testimony in the case against Meng.

    For more information, click here.

     

     

     

     

  • The Foreign Corrupt Practices Act: Picking Up a Bar Tab Is Not Bribery Per Justice Department Resource Guide

    Companies have been clamoring for years to have the Justice Department offer its insights and guidance on what is and is not a bribe under the Foreign Corrupt Practices Act (FCPA).  Well, the companies got their wish.  On November 15, 2012, the Justice Department issued its Resource Guide for the Foreign Corrupt Practices Act.  there are some definitions, some clarifications, and some surprising takes on what is and is not a bribe for purposes of FCPA prosecution.  The FCPA prohibits the giving of something of value to a government official or NGO official (nongovernment organization such as the Olympic committee members) in order to obtain a favorable result.

    The first series of clarifications in the guide deals with who is and who is not a government official for purposes of the act.  One of the elements of proof for an FCPA violation is showing that something intended to influence action was given to a government official or NGO. In order to constitute an FCPA violation, giving something to influence a utility executive in another country is covered only if the utility is actually controlled by the government.   

    Another clarification offered through the resource guide answers the question – what are the types of actions that are included under FCPA prosecutions.  Gifts given to government officials are not FCPA violation unless the donor/giver is seeking a favorable action on a matter. The Resource Guide gives a nifty list of what types of actions are covered for purposes of improper influence:

    1.      Winning a contract

    2.     Influencing the procurement process

    3.     Circumventing rules in order to get products imported

    4.     Gaining access to non-public bid information

    5.     Evading taxes or penalties

    6.     Influencing the outcome of lawsuits or regulatory actions

    7.     Obtaining exceptions to regulations

    8.     Avoiding contract termination

    9.     Asking regulators or officials to exclude your competitors from their country

    10. Evading customs duties

    11. Extending drilling contracts

    As you can see, the list has ten items more than just using influence to win a contract. 

    The final area of clarification in the Resource Guide deals with just what “something of value” is for purposes of FCPA prosecution. Things that do count as influence include:

    1.      Cash

    2.     Country club membership

    3.     Excessive comped travel – travel that does not include seminars or presentations and consists of, well, shopping trips to Paris

    4.     Cash to political parties

    5.     Payment of cell phone bills

    6.     Payment of government official’s utility bills

    7.     Sports cars, furs, and other such luxury items

    Things that do not count as a means of exercising influence include:

    1.      Small gifts of expressions of gratitude, provided there is transparency in the giving

    2.     Small gifts to local charities, provided the gift is consistent with the company’s general philanthropic goals and is not “large”

    3.     Wedding gift to a government official (if not too large)

    4.     Hats, t-shirts, pins, and pens offered by a company at a booth at a tradeshow that government officials take

    5.     Payment of the bar tab for drinks for 12 government officials at a group meeting

    6.     Payment for travel to the U.S. for training at a company’s facility, and the foreign dignitaries can even take in a baseball game at company expense whilst learning without the company risking an FCPA violation. 

    The 130-page guide is a welcome clarification of the FCPA for company general counsels everywhere.It seems as if businesses can entertain overseas and follow local customs on graciousness for small gifts, but going any farther than these limits will land the companies an FCPA violation. The Justice Department has referred to the Resource Guide as "one-stop shopping" for companies looking for answers on the FCPA.  Charlie Savage, "Justice Dept. issues Guidance on Overseas Bribes," New York Times, November 15, 2012, p. B10.

    Discussion Starters

    1.      What three areas does the Resource Guide focus on?

    2.     Give examples of the types of gifts that would be prohibited under the FCPA.

    3. Give examples of the types of gifts that would be allowed under the FCPA.

  • Become a Manager; Take a Cut in Pay

    A Massachusetts law, the Tips Act, states that tips given to wait staff belong to the wait staff. Starbucks required tips to be pooled. A class action suit was filed representing 2,500 employees in Starbucks in Massachusetts. The federal district court found for the employees and awarded $14 million in damages. Starbucks appealed. The First Circuit Court of Appeals agreed with the lower court.

    “Starbucks euphemistically describes the employees who staff its shops as ‘partners.’ Within that designation, however, employees are divided into four subcategories: store managers, assistant managers, shift supervisors, and baristas. Both shift supervisors and baristas are hourly wage employees, often working part-time.” Shift supervisors often serve food and beverages to customers just like the baristas.

    Many Starbucks stores have tip containers by the cash register. The tips are distributed weekly to baristas and shift supervisors based on how many hours they worked in a week. Plaintiffs contended that shift supervisors should not share in the tips because they are managers, who do not fall under the Tips Act.

    The Act clearly states that “only employees who possess ‘no managerial responsibility’ may qualify as ‘wait staff.’” Shift supervisors therefore do not qualify for tips because they have some managerial responsibility. The wording of the statute is very clear.

    It does not matter what title Starbucks gives employees, they either have managerial responsibilities or not. Calling everyone a “partner” does not get around the reality of job duties.

    Discussion: In many Starbucks it is difficult for the customer to discern who has what responsibility since the staff all seem to perform much the same work. Does it reduce the likelihood of cooperation among staff members to cut out the shift supervisors from sharing in tips?

  • The Judge Who Got Yelled At by Delaware’s Supreme Court for His Colorful Opinion on a Limited Liability Company

    Judge Leo Strine, Jr. is the chief judge of the Delaware Court of Chancery.

    The Court of Chancery is a critical on in the United States because it has been responsible for the interpretation of corporate law as well as the law on limited liability companies and limited partnership.  Because so many companies are incorporated in Delaware, the holdings of this court are followed closely for purposes of handling corporate governance issues. 

    Judge Strine is known as a capable judge with great understanding of business organizations and corporate governance.  However, he is also known for his colorful opinions and frequent meanderings in court. For example, last week he was hearing a case that involves a dispute between designer Tory Burch and her former husband, Christopher Burch.  The dispute centers on whether Mr. Burch used too many of Mrs. Burch’s designs and borrowed too much from her stores’ appearances. In dealing with scheduling issues in the case, Judge Strine said, “I didn’t see any reason to burden anyone’s Hanukkah, New Year’s, Christmas, Kwanzaa, Festivus with this preppy clothing dispute.” Peter Lattman, “In An Unusual Move, the Delaware Court Rebukes a Judge,” New York Times, Nov. 10, 2012, p. B1.

    In his opinion on a limited liability company issue, Judge Strine wrote 11 pages with his personal views on limited liability companies in general. When the Delaware Supreme Court affirmed the decision, it nonetheless admonished Judge Strine about his opinions with the following:

    Fifth, and finally, the court's excursus on this issue strayed beyond the proper purview and function of a judicial opinion. “Delaware law requires that a justiciable controversy exist before a court can adjudicate properly a dispute brought before it.” We remind Delaware judges that the obligation to write judicial opinions on the issues presented is not a license to use those opinions as a platform from which to propagate their individual world views on issues not presented. A judge's duty is to resolve the issues that the parties present in a clear and concise manner. To the extent Delaware judges wish to stray beyond those issues and, without making any definitive pronouncements, ruminate on what the proper direction of Delaware law should be, there are appropriate platforms, such as law review articles, the classroom, continuing legal education presentations, and keynote speeches.Gatz Properties, LLC v. Auriga Capital Corp.,  --- A.3d ----, 2012 WL 5425227 (Del.Supr. 2012)

    The Delaware Supreme Court was reining in Judge Strine with a warning about going too far in expressing personal opinions in his judicial opinions. In Auriga Capital Corp. v. Gatz Properties,

    Discussion Starters

    1.      What is the dicta of the case? What are judges’ limitations in their dicta?

    2.     What does the Delaware Supreme Court want to remind judges to do? 

     

  • Seal the Deal

    Frost wrote a book called “The Match” about a famous golf match. He assigned the copyright for the book to Good Comma Ink, a company he owns. Previously, Frost had developed the successful television series “Twin Peaks.” His attorney was Alan Wertheimer.

    MVP Entertainment was interested in developing The Match into a movie. Its attorney, Jacobson, discussed the matter with Wertheimer and sent him an email outlining terms of an agreement to do the movie. The email said: “Let me know if this is okay and we’ll send you paperwork….” Wertheimer responded saying: “done … thanks! Werth.”

    Was a contract created so that MVP could do the movie based on The Match? MVP said yes, Frost said no, so off to court the parties go. Under the Copyright Act, “A transfer of copyright ownership … is not valid unless an instrument of conveyance … is in writing and signed by the owner of the rights conveyed or such owner’s duly authorized agent.”

    Wertheimer contended that his reply email was merely an indication that the general proposal sounded good, but he was not accepting it. Ending his email with his name, Werth, was not a signature to a binding contract. Furthermore, Frost stated that Wertheimer only negotiated deals for him, but did not have authority to sign contracts for him.

    MVP contended that Jacobson and Wertheimer had negotiated the terms of a deal and that Wertheimer’s email led Jacobson to “reasonably believe” that Wertheimer was Frost’s authorized agent to enter into an agreement on Frost’s behalf, so a binding contract existed.

    The trial court agreed that no contract had been created and held for Frost and Wertheimer. The appeals court agreed.

    The writing requirement of the Copyright Act is more stringent than the common law. There must be a clear writing that shows intent to transfer copyright. That was not the case here. Furthermore, Wertheimer did not have actual authority to transfer copyright in The Match. Frost had not delegated that duty.

    MVP contends that Wertheimer had apparent authority which, under California law, is when “a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent to possess.” MVP may have thought such authority existed, but that would not be sufficient under copyright law, as it requires express authority from the copyright owner. Since MVP could not show that Wertheimer was Frost’s authorized agent, its case must fail. There was no contract nor was there a claim for negligent misrepresentation since Wertheimer never claimed to have signature authority.

    Discussion: How can such confusion (and costly litigation) be avoided in such matters?

  • CEOs, Office Affairs, Harassment, and E-Mails: What the Fall of General and Former CIA Director David Petraeus Can Teach Businesses and Us

    General David Petraeus, a graduate of West Point, military scholar, and a respected general who is credited with the success of the “surge” operation in Iraq, resigned abruptly as CIA Director following an FBI investigation that uncovered an affair between the general and his biographer, Paula Broadwell.

    The FBI investigation began when Jill Kelley, a social liaison at MacDill Air Force Base, began receiving threatening e-mails.  When Mrs. Kelley reported the e-mails to the FBI, the agency’s investigation linked them to Ms. Broadwell.  Upon interviewing Ms. Broadwell and General Petraeus in late October 2012, the FBI uncovered the affair, which both admitted.  General Petraeus then resigned as director of the CIA because of the fears regarding national security and, as the general explained, his “extremely poor judgment.”  Both Ms. Broadwell and General Petraeus are married.

     

    What has unfolded is what would be called in business, “a mess.”  Revelations of affairs by CEOs can cause significant damage at companies, both because of market and shareholder concerns about judgment and stability (which then affects the stock price) and also because the CEOs generally must resign because their leadership ability is questioned by employees who are skeptical about leaders who do not set a good example. Companies that have suffered significant setbacks because of affairs or alleged harassment that involved their CEOs include Boeing, Best Buy, Stryker Corporation, and Hewlett Packard.

    Prevention is the key, and there are certain best practices that companies now follow that might have helped General Petraeus avoid the trap of personal decadence:

    1.      CEOs should never meet alone with outside vendors.  Inappropriate advances and physical contact do nto occur when a third party is present. This policy carries additional benefits in that there is always a witness to potential claims about deals and promises.

    2.     CEOs should follow company policies on employees relationships.  Most companies have policies that prohibit employees who are in a reporting line relationship from dating.  The companies offer transfers or other accommodations, but they are strict when it comes to disregarding Cupid’s arrow if one employee in the relationship reports to the other employee, directly or indirectly.  The potential for perceptions of favoritism or resulting harassment are too great.

    3.     CEOs need to understand their vulnerability.  An affair leaves the CEO subject to potential blackmailing because the other party has information that the CEO would not want to be disclosed.  Ethical compromises or revelations of company inside information often result when the CEO tries to keep relationships and affairs secret.  There is also the risk of the so-called “bunny boiler,” where the person with whom the CEO has an affair begins harassing the CEO or other employees or friends and relatives.

    4.     Companies understand that there is a fine line between wanted romance and advances and harassment and tend to be strict about policies for employees, including executives and the CEO.

    5.     Companies audit expense reports of CEOs and executives frequently because unexplained expenses in travel and entertainment often lead to revelations about affairs that can then be investigated and ended before company information is compromised.

    6.     Companies monitor e-mails.  What you put in an e-mail is discoverable, can be reviewed, and is not private.  General Petraeus would have done well to understand this principle of cyber space.

    Discussion Starters

    1.     What effect does an affair by a CEO have on the company?

    2.     Why does an affair leave a company vulnerable?

    3.   What is the relationship between harassment and office romance?

  • Ski Lift Accident; Plaintiff Assumed the Risk

          

    An experienced skier at Song Mountain Ski Center in upstate New York fell off a triple chair lift just past the designated disembarkment point.  She was riding with her ten year old son and ex-husband when her skis crossed with her son’s.  To disentangle, she let him exit first and her ex-husband followed.  She was quoted in an incident report, prepared soon after the accident, as saying, “I waited too late, and when I jumped approximately six feet, I landed on my left hip.” 

    Had she waited, her skis would have hit a safety gate, stopping the lift and allowing her to safely get off.  The lift was working properly at the time.  Adequate signage explained how to exit and warned when to leave the lift and when not to.   

    The injured skier sued Song Mountain.  For its defense, the ski company presented an inspection report prepared by the Department of Labor two months prior to the incident which found no deficiencies with the design of the lift or exit ramp, the speed of the lift, or the location of the safety gate.  Additionally, the resort’s president testified that lift attendants were trained according to an industry standard training program for lift operators designed by the National Ski Areas Association.  Plus Song Mountain’s attendants were required to pass annual tests before the start of the season.   

    The court noted the cause of the accident was solely plaintiff’s failure to disembark at the designated spot, followed by her failure to remain seated once she missed the off-load ramp.

     Another factor working against plaintiff is a New York General Obligations Law requiring that skiers familiarize themselves with the safe use of any “passenger tramway” (which includes a triple chair lift), and to enter and exit only at designated locations.  

    Assumption of risk is the legal theory that prevents a plaintiff from suing successfully for injuries sustained while voluntarily engaging in an activity that plaintiff knows was dangerous.   The doctrine relieves operators of sports facilities, including ski resorts, from liability for risks inherent in the sport.  The primary but not exclusive application of the doctrine is in sports events.

     Based on the circumstances of this case, Song Mountain did not do anything wrong and was not negligent.  Instead, the court determined that plaintiff assumed the risk by failing to comply with the signs explaining when and how to exit the lift.   Said the court, plaintiff was unable to prove that Song Mountain “created a dangerous condition . . . above the usual [inherent] dangers” of skiing.

    For more information click here.  Also see Tone v. Song Mountain Ski Center, 2012 WL 54415216 (Sup. Crt, 11/2/12).

    DISCUSSION QUESTION

    1) What is the policy rationale supporting the defense of assumption of risk?

    2) If the signage informing skiers when to exit the lift had not been posted, what would the likely outcome of the case be?

  • Hurricane Sandy; Hotels' Dilemmas; Lessons in Ethics and Breach of Contract

        

       Numerous states along the east coast of the United States fell victim last week to Hurricane Sandy.  Its damage is estimated at between $30 and $50 billion.  Almost a week later 2.5 million people remain without heat or electricity.  A huge number of houses were totally destroyed.  Numerous states were declared an emergency. 

     Hotels have played a significant role in the aftermath of the storm.  Their circumstances raise several ethical issues.

     Law and ethics are different phenomena. Laws are adopted by elected officials and therefore are generally accepted by the populace and enforced by law enforcement officers.   Ethics on the other hand are determined by each person’s values and morals. 

     The millions of people without power are left in the cold and darkness, subject to looting, without means to preserve or cook food, and without sanitation.  Many have sought shelter in hotels.  Most hotels utilize a fee structure  that includes raising their prices as the number of vacancies decrease.  Some hotels continued that practice in the days and now week following the storm.   There is no law that prohibits such increase in prices.  The price system Is thus legal, but is it ethical?

     In a related dilemma, the New York City marathon was scheduled to occur within six days of the storm hitting land.  47,500 runners  were scheduled to participate, many of whom stay in hotels and eat in restaurants, creating a financial boon to NYC. Mayor Bloomberg announced soon after the storm that the marathon would be run as scheduled.  Several days later, when the full extent of the damage  became apparent, the mayor cancelled the race.  In the interim a hotel manager was interviewed on CNN TV discussing his quandary - his hotel was virtually full with storm refugees whose houses had been destroyed and likely would be unable to return home anytime soon.  For marathon weekend his hotel was fully booked with reservations of runners.  If he made the rooms available to athletes he would have to displace the storm-weary guests.  If he instead turned away the marathoners, he would be failing to perform a contractual obligation and could be liable for breach of contract. 

     Numerous hotels do regularly overbook on the theory that  some people with reservations will not show.  Inevitably for such hotels there will be nights when more people will arrive at the inn seeking a room than the hotel has rooms to let.  To reduce liability for breach, hotels in this circumstance are well-advised to assist the overbooked guest in making reservations elsewhere. Currently in NYC, because of the storm, most hotels are already filled.  So not accommodating the marathoners would have been illegal, but would it be unethical?

    For more information, click here and here.

     DISCUSSION QUESTIONS:

    1) What would be ethical price for the hotel to impose for renting rooms to storm victims?  Why?

     2) Had the marathon not been cancelled, what would have been the ethical course of action for the hotel manager to do vis-à-vis runners with reservations?  Why?

     3)  If the marathon had not been cancelled and the hotel had insufficient rooms for runners, might any of the following defenses apply – Impossibility of performance?  Commercial  impracticability? Frustration of purpose?

  • When Google Links, Newspapers Want Fees: Can Google Black Out the Internet?

    Google is fighting in Europe and other countries a new legislative trend that would require Google to pay newspapers when Google News links readers to stories from newspapers.  U.S. newspaper publishers made peace with Google years ago through their own conclusion that 'tis better to be linked by Google than never to be linked at all. 

    Presently, German has legislation pending that would prohibit the links without paying a fee.  The German legislature will debate, at the end of November, what legislators are calling their “little copyright bill,” which would allow newspapers to require that Google eliminate the links upon a newspaper’s request. There is similar legislative action being contemplated in France, and Brazil has a heated battle emerging.

    Google maintains that the effect will be to stifle news and am internet “blackout.” Google also maintains that its use of the title of a newspaper article along with a few lines from that article constitute far use and cannot be prohibited under existing copyright law, both in the United States and in Germany. 

    Publishers in Brazil are banding together to stop Google, something that U.S. publishers could not do because it would be considered a violation of the Sherman Act.  Google and the newspaper publishers are horizontal competitors and a group boycott by the newspapers would be problematic. In fact, Google’s argument is that its use of the links to the articles actually helps the newspapers survive.  However, German newspaper publishers believe, from watching the demise of U.S. newspapers, that their survival is dependent upon stopping Google. Günter Krings, a senior lawmaker in Chancellor Angela Merkel’s CDU party, calls the initiative the “little brother” of copyright law. “Just like that which protects the rights of a songwriter or music company, ancillary copyright levels the playing field between print publishers and search engines and aggregators.” Gerrit Weismann, "Google Warns on German Copyright Bill," Financial Times, November 5, 2012.

    There is one additional component in the European battle.  Google is based in Ireland, where the tax rates are very low.  The taxes it pays for its ad revenue are very small whereas publishers in Germany and France pay their own country rates.  In France, there is talk of a 75% tax rate.  Because of the tax disparity Google has an edge in terms of Internet competition.

    Eric Schmidt, the former CEO of Google, has been holding meetings with leaders in France and Germany in order to work out a settlement of the issues.  However, the battle in Brazil is now very public and less manageable. Newspapers need ad revenue, and Google lives on getting people to click and they are paid handsomely for doing so. The battle is one for survival.

    DISCUSSION STARTES

    1.      What are the antitrust issues for the newspaper publishers in challenging Google?

    2.     What are the copyright issues?

    3.     Why does Google have a competitive advantage with its base being in Ireland?  

  • Who Pays When the Heater Gets too Hot?

    The television retail sales channel QVC ordered 28,000 Soleus-brand space heaters from MJC America (d/b/a Soleus), which had the heaters produced in China. As the picture above shows, these were stand-alone heaters. You can see customer reviews here.

    Soon after sales began, QVC got reports about heaters catching fire and other problems. The company investigated and discovered problems that it discussed with Soleus. It investigated and asserted that there was no fire hazard and that some customers “may have used this heater improperly.”

    QVC hired an independent testing company, Intertek, to evaluate the heater. It found poor construction that could be a fire hazard. QVC ordered a recall. It sent a letter to all customers saying there was a recall so that payment could be refunded. It also notified Soleus that it was revoking acceptance of the heaters because of safety problems. QVC said it would notify the Consumer Product Safety Commission and would hold Soleus responsible for all “costs, liabilities, damages and expenses” related to the problem.

    The contract stated that the heaters would comply with all regulations and standards and “shall be free from all defects (including latent defects) in workmanship, material and design.” The contract noted that in case of a problem, it would refund money to the customers and hold the product vendor liable.

    QVC sued for $1.8 million in damages plus attorneys’ fees. QVC sold the heaters for $67.86, of which Soleus received $36 and $5 was paid to third parties for functions related to the transaction, so QVC had net revenue of $26.50 per heater.

    The federal district court held for QVC. There was a breach of contract. It recovered payment made for the heaters as yet unsold and returned to Soleus. It recovered the costs of the recall, shipping costs, and the lost profits due to the refund. The heaters were clearly defective and, as the contract stated, Soleus was responsible for all costs related to the recall.

    Discussion: Should the producer bear all of the cost or should the retailer share in that cost? Why? Should the Chinese producer be responsible?

  • The Business of Reporting News v. Right to Fair Trial; The Toll on Jury Selection

            

    The highest court in New York State just reversed a highly publicized murder conviction and granted a new trial to a prominent businessman convicted of murdering his wife.  The case illustrates some of the tensions between the media’s role in reporting the news, often with great detail, and the right to a fair trial which is protected by the federal Constitution. 

     The primary grounds for the reversal involved an error made by the judge during the voire dire, the process of jury selection.   The procedure includes questioning of potential jurors by the judge and lawyers.  The goal is to ensure that the jurors selected are impartial and committed to decide the case based on the evidence to be presented in court, and not on newspaper accounts, familiarity with one or more of the parties, the race or nationality of the defendant, or otherwise.  This process helps to ensure a trial is fair.

     Parties in a lawsuit can seek removal of potential jurors from the case on two grounds.  The first is for cause.  This means that the person is not qualified to participate, often because he is unable to be objective.  If a party believes a juror should be removed for cause, he so notifies the judge who then rules either that the juror will be dismissed or the grounds cited by the party seeking removal are insufficient.  Each side can seek dismissal for cause of an unlimited number of potential jurors. 

    The second method of removing jurors is a peremptory challenge.  These are limited in number and do not require any stated reason nor concurrence by the judge.  The decision rests totally with the litigant seeking removal.  Because the number of peremptory challenges is finite, they should be exercised very carefully.   Otherwise a party could exhaust all the available peremptory challenges and dislike jurors who are called thereafter.

     The juror in issue in the murder case said during the voire dire that she had read about the case, and the information she gleaned would  play a “slight part” in her deliberations.  The defense attorney asked the trial judge to remove the juror for cause but he refused.  The defendant then used one of his peremptory challenges.  Before completing jury selection defendant exhausted his supply of peremptories.

     In the opinion reversing the murder, the appeals court stated, “We have consistently held that a prospective juror whose statements raise a serious doubt regarding the ability to be impartial must be excused unless the juror states unequivocally on the record that he or she can be fair and impartial.  . . When potential jurors themselves say they question or doubt they can be fair in the case, trial judges should either elicit some unequivocal assurance of their ability to be impartial or excuse the juror,”. 

     The court in the murder trial noted that publicity surrounding the new trial, when added to the publicity the case had already garnered, may render the process of finding an unbiased jury difficult.  A cure for this in some cases is to move the venue to another location.  The appeals judge cautioned the trial judge to exercise “special vigilance . . . and if for-cause disqualifications become legion, rendering voire dire hopelessly burdensome”, the court should consider changing the venue to a locality where the case was less newsworthy.

     One other fact of interest exists in this case.  The wife disappeared during the evening of September 11, 2001, the day on which the World Trade Center and Pentagon were attacked by terrorists.  If the defendant in fact murdered his wife, and if he acted on that day because law enforcement’s attention was otherwise engaged, these facts would add to the dastardliness of the crime. 

    For more information, click here or see The People of the State of New York v. Harris, 2012 WL 4932846 (NY Crt. Appls, 10.18/12).

    DISCUSSION QUESTION:

    What role does the voire dire play in protecting a defendant's right to fair trial?  Be specific.