• National Football League Settles Concussion Lawsuit for $765 Million


    The NFL has agreed to settle  (resolve and terminate) the class action lawsuit (a case with many plaintiffs who were injured by the same or similar alleged wrong) brought by retired and current players and their families relating to the effects of concussions incurred during games.  The case accused the League of concealing knowledge about the dangers of repeated hits to the head and failing to warn players that repeated concussions can cause brain damage and subject players to depression and suicide.  The settlement requires the NFL to pay $765 million, and possibly more.

    The lawsuit was prompted by the occurrence among many former players of several degenerative brain illnesses including chronic traumatic encephalopathy (ECT), a brain disease similar to Alzheimer’s which causes a loss of memory over time. Repeated trauma to the head appears to be the only cause.  Other plaintiffs suffer from Lou Gehrig’s disease, officially known as ALS, an acronym for amyotropic lateral scierosis, a progressive neurodegenerative disease that affects nerve cells in the brain and spinal cord and eventually leads to death.  Patients in the later stages of ALS may become totally paralyzed.

    The NFL has changed in recent years its medical protocols for concussions as a result of growing scientific evidence linking concussions sustained in play to long-term cognitive damage.  For example, it adopted a sideline concussion assessment protocol that requires each team’s medical staff to follow league treatment and testing rules whenever a player experiences head trauma occurring during play.  Also, a kickoff rule change was adopted that moved football kickoffs five yards forward which has resulted in reducing concussion incidence by 50%.

    Terms of the settlement agreement include: In addition to the $765 million, the NFL will pay the cost of plaintiffs’ lawyers’ fees which are estimated to possibly reach tens of millions of dollars (customarily each side of a lawsuit pays for his/her own lawyer regardless of who wins); half of the settlement will be paid out in the next 3 years, and the balance over the following 17 years; the fund will be in effect for up to 50 years; each player can collect up to $5 million, and more if his condition worsens over time;  the NFL will replenish the fund if the amounts falls below $50 million; the NFL does not admit guilt (this is not unusual in a settlement agreement).  Additionally, players are not required to prove that their health issues resulted from football.  Rather payouts will be made based exclusively on the player’s age and years in the league; not the position he played or how many concussions he sustained.  Of the settlement money, $675 million will be paid to players or their families who sustained cognitive injuries;  $75 million will be earmarked for baseline medical exams for all players; and $10 million will be used to research further the effects of concussions and how to treat them.

    Lawsuit settlements typically represent a partial win and partial loss for both sides. Parties resolve lawsuits for a variety of reasons. In this circumstance, factors that motivated the players to settle include difficulty in proving that head injuries on the field were the cause of the player’s illnesses later in life; the need of many for money sooner rather than later to address growing medical expenses; and a desire to raise public awareness about their injuries to affect further changes in NFL’s handling of head trauma.        

    Factors that motivated the NFL to settle include the large number of claimants; desire to avoid protracted litigation; and concern about negative publicity.

    The settlement was the product of mediation, an alternative dispute resolution option in which a third party called a mediator assists the plaintiff and defendant in resolving their differences but has no authority to impose a decision.

    The plaintiffs included 10 members of the Pro Football Hall of Fame, and also families of three retired players whose suicides in 2011 and 2012 focused attention on the lawsuit.

    This article updates a blog post from December 15, 2011.

    For more information, click here.


    What role did the mediator likely play in resolving this case?

    Did each side have good reasons to settle the case?  Why or why not?



  • Those Annoying Robocalls -- Hope With Nomorobo!


    The Federal Trade Commission (FTC) operates the "National Do Not Call Registry," a means for consumer to opt out of receiving certain kinds of phone solicitations. By registering, telemarketers cannot contact the consumer unless the telemarketers are political organizations, charities, telephone surveyors, or companies with which a consumer has an existing business relationship. You can read the FTC guidelines as well as instructions for registering here.  The registry was 10 years old in June.

    The current problem is that telemarketers do not seem to care about the "Do Not Call Registry," for the data show that the number of calls has increased to consumers who are registered.  The FTC does act when there are sufficient complaints.  For example, Mortgage Investment Corporation paid a $7.5 million fine in June in order to settle charges brought by the FTC that the company had violated the rights of registered consumers through its telephone solicitation program. One of the reasons for the high-figure settlement is because the company refused to take consumers off the call list even after the consumers asked to no longer be called. 

    In addition, The FTC cannot keep pace with all the violators because the number of complaints is up 69% since 2011.  In addition, so many of the calls come from offshore.  The FTC notes, "Tracking down the telemarketers . . . leads us offshore and to call centers in foreign countries, and sometimes the investigation leads nowhere because they're using a fake number." Megan Kowalski and Meghan Hoyer, "Illegal Robocalls Vary By State, Hard To Trace," USA Today, August 26, 2013, p. 1B 

    However, the FTC has given an award and an endorsement to Aaron Foss.  Mr. Foss won an FTC contest for his invention ($50,000), known as Nomorobo, is an online service that blocks robocalls before they can even ring your number. The service will launch in September and has the FTC's full support. 

    If you get a robocall, hang up, write down the number, and report it to the FTC.  The agency will still do enforcement, but Mr. Foss will offer his service free of charge. 

  • Donald Trump Is Sued for Consumer Fraud Relating to Trump University


    Trump University, which touts itself as training students to invest like The Donald, is on the hot seat.  The school as well as Mr. Trump are being sued by the New York State Attorney General , the chief law enforcement officer of a state, for deceptive acts and promises, in violation of a New York State consumer protection law.  The phrase deceptive acts and promises includes misrepresentations, concealments, false pretenses, and false promises.  The law is clear - businesses that issue advertisements that contain promises of verificable facts, as opposed to puffing (obvious exaggeration), must provide the goods or services that are promised.  Otherwise consumers who rely on the information in the ads when making their purchasing decisions will have been misled and disappointed ,

    Among the deceptive acts alleged against Trump's business school are false advertising, operating an unlicensed private school, refusing to provide refunds, and more.  In all, more than 5000 students paid between $1000 and $35,000 to learn to invest like Trump.  Said the Attorney General , “Mr Trump used his celebrity status and personally appeared in commercials making false promises to convince people to spend tens of thousands of dollars they couldn’t afford on lessons they never got.”

    The allegations in the lawsuit include the following.

    1)    Trump claimed he handpicked the instructors, suggesting they were chosen for their real estate investment expertise.  In fact, not one was “handpicked”.  Instead,  many came from jobs having little connection to real estate investment, and some had been through bankruptcy due to their own real estate investments.

    2)    Students were told to lie to their credit card companies.  Instructors urged them to call those companies during a break to request increased credit limits, and  to falsify their current income by adding projected income from future real estate ventures.

    3)    Although instructors repeatedly hinted that Donald Trump would appear at the three-day seminars, he did not.  And rather than being photographed with him, students were offered the opportunity to have their picture taken with a life-size photo of Trump.

    4)    Although ads for the school touted that the seminar material consisted of Trump’s own personal strategies, it was not developed by him but instead a third party company that develops a variety of curricula for motivational speakers.

    5)    Promotional materials promised information on how to obtain private sources of financing rather than traditional loans from banks. However,  students received  a list of lenders photocopied from an issue of Scottsman Guide, a commercially available magazine focusing on mortgage lending..

    6)    Trump University claimed the Donald was not profiting from it, but instead the school was created for philanthropic purposes.  Per the allegations , Mr. Trump netted between $5 and $10 million from the school.

    7)    Students were introduced to Trump University at a free seminar.  There they were promised they would learn all they needed to succeed in real estate at the three-day seminar. But once they paid their money and arrived at the three-day classes, they were advised they would need to purchase additional programs to receive all the information they would need for success.

    Trump denies the charges and says 90% of students rated the program “excellent” on evaluations. The Attorney General retorts that instructors pleaded with students for a high rating so Trump would retain them.  Also, students were required to complete the evaluations in the presence of the instructor.

    Several years ago Trump was pursued by the attorney general for using the term “University” without required licenses and without meeting the standards required for that designation.  Trump eventually changed the name of his training program to Trump Entrepreneur Initiatives.

    The lawsuit seeks $40 million to pay restitution to the students who were misled and did not receive what they paid for.

    For more information, click here.


    What is the connection between advertising and deceptive business practices?  If the allegations are truthful, what should Trump have done differently?

  • Regulators Want Auditors To Disclose What Worries Them About Their Clients

    The Public Company Accounting Oversight Board (PCAOB), the quasi governmental body that oversees auditors of public traded companies, has proposed new rules that will require auditors to make additional certifications when they issue their report on financial statements that will be included in SEC filings.

    The proposed auditor reporting standard would require, in PCAOB’s language, the following:

    §  the communication of critical audit matters as determined by the auditor;

    §  the addition of new elements to the auditor's report related to auditor independence, auditor tenure, and the auditor's responsibilities for, and the results of, the auditor's evaluation of other information outside the financial statements; and,

    §  enhancements to existing language in the auditor's report related to the auditor's responsibilities for fraud and notes to the financial statements.

     Why these new requirements?  A study by PCAOB indicates that overall, among the Big 4 accounting firms, 36% of audits have been deemed deficient by PCAOB inspectors. In the 2013 inspections, 72% of the audits were found to have deficiencies on material items, and 37% did not meet the independence standards.

    Watch a video here on deficiencies. 

    What will these requirements mean for auditors? Under the new standards, the auditors would still issue the pass/fail report that says the company’s financial statements are in compliance with accounting standards.  However, the auditors would have to discuss “critical audit matters,” known as “CAMs” in the proposed rules. CAMs are those areas where the auditor had to make its toughest and most complex decisions or areas in which the auditor had the most difficulty in forming an opinion. Examples would include areas where valuation is difficult, such as securities without a market that are kept as part of the company’s portfolio of assets.  In other words, auditors will be required to disclose the kinds of issues about their clients that “keep them up at night.” Michael Rapoport, “Audit Reports Add Beef,” Wall Street Journal, August 14, 2013, p. C2.

    The rule was motivated by past accounting frauds.  Some companies may meet the accounting standards and earn an auditor’s certification.  However, there could be material weaknesses that are not discussed by management and would now have to be discussed by auditors are one of those CAMs.

    In addition, auditors would be required to review management’s statements in the discussion and analysis section of annual reports to be sure that nothing is said there in there that contradicts the audit findings or is misleading based on the auditor’s findings.

    The chairman of PCAOB has referred to the proposed rules and changes as a “watershed moment” in auditor reporting standards.  The rules have been in the works since PCAOB came into existence following Sarbanes-Oxley and public hearings began in 2011.  There will be additional hearings on the proposal  with some opposition expected from both auditors and publicly-traded companies.


    Under the independent requirement, auditors will have to disclose the length of their relationship with the company.  The purpose of the rule is to remind auditors of the need for autonomy and rigor in their work. And, as one member of PCAOB noted, “Any time you say something publicly, it puts a higher bar on the firm.”  Peter Eavis, “U.S. Accounting Regulator Proposes More In-Depth Reporting,” New York Times, August 14, 2013, p. B3. 

    PCAOB has opened the comment period, and resistance from audit firms is expected. 

    Discussion Questions

    1.  Why were the new rules proposed?

    2.  Explain the two areas of focus for the new rules. 

  • Classic Negligence; Fire In A Summer Camp Cabin


    Businesses must, repeat must, exercise reasonable care for the wellbeing of their customers.  Failure to do so constitutes negligence and leads to liability if someone is injured.  This is true even if the business had no intention or desire to cause the injury. Many lawsuits are based on injuries caused by negligence.

    Unfortunately for both customers and businesses, situations involving of negligence are not difficult to find. 

    A recent example involves a summer camp named Camp Pontiac in Copake, NY, two hours north of New York City, The cost to send a child there for the summer is the significant sum of $10,500. Typical of these fun-filled getaways, campers at Pontiac sleep in cabins.  By law, the camp was required to maintain operable smoke alarms in the cabins.  The function of the alarms is to emit a loud noise when it detects smoke, thus alerting campers of the possibility of fire.

    The cabin, which housed 28 girls age 13 and 14 plus 7 councilors caught fire  at about 3:30 a.m. There was one smoke alarm but it did not emit a sound.  Fortunately, one of the girls awoke, saw the flames and started screaming, thereby alerting the others. All escaped without injury and with no time to spare.  Within minutes after the last girl exited, the cabin’s roof collapsed. The fire spread to the two buildings on either side of the dorm. 

    The camp’s website says,“ Safety is our primary concern.”  The cause of the fire was believed to be overloaded electrical outlets.  This means too many devices were plugged in, likely including computers, iPads, and cell phones.  The county Health Department had inspected the camp on July 2, 2013 and recorded that two girls’ cabins lacked smoke detectors, and noted an unspecified electrical outlet violation.

    If in fact the smoke alarm was inoperable, that would violate a statute and constitute negligence per se, which is liability for violation of a statute adopted to protect the public’s safety. If the outlets were overloaded and the camp failed to inspect the cabins  or correct the problem, that would be negligence. Although no one was physically injured, all endured mental anguish and panic.  This may cause some girls to experience nightmares, fear of the dark, panic attacks, and the like. These may be ailments or conditions for which the camp could be liable.  The camp should anticipate lawsuits growing out of  this incident.

    An additional factor to consider is the camp’s insurance coverage.  A business can purchase insurance to cover liability and damage to property.  If the camp is sued  for negligence and if it has liability insurance, the insurance company typically must represent the camp in the  lawsuit, and pay for resulting liability.  If the camp has property damage xocweFW, the insurance company will compensate the camp for the property lost because of the fire, including the dorm structure.  Insurance requires payment of periodic fees called premiums.  If the premiums are not paid, the insurance company will cancel the contract meaning the camp would have no insurance coverage.  Managing insurance and payment of premiums is an important business matter.

    For further information, click here.


    What action might the camp have taken to avoid the fire amd liability resulting from it? 

  • Robin Thicke’s “Blurred Lines” On Copyright Infringement

    Robin Thicke has the number one hit of the summer with his “Blurred Lines” song.  The song is number one on Billboard’s charts, selling four million copies in the United States.  The video for the song has 138 million views on YouTube.

    However, Mr. Thicke, along with his co-writers, Pharrell Williams and Clifford Harris, Jr. (aka T.I.), has been accused by the family of the late singer, Marvin Gaye, of copyright infringement.  The Gaye family alleges that “Blurred Lines” is copyright infringement of Mr. Gaye’s 1977 hit song, “Got To Give It Up.” Ben Sisario, “Songwriters Sue to Defend Summer Hit,” New York Times, August 17, 2013, p. B6. Because of the allegations, Mr. Thicke and his co-writers have felt compelled to clear up the allegations and so have filed suit in federal court in order to have a court determine whether there is indeed copyright infringement.  Mr. Thicke and his co-writers admit that they did talk about “Got To Give It Up” before writing their song, but explained that the song was inspiration because they wanted to write “something with that groove.” The issue in the case will be whether a song that brings back a sound of another era is copyright infringement.  Some lawyers believe that copying a sound is not infringement, while others believe that the song borrows more than just the sound.


    The case is unusual in that the Gaye family is not bringing suit for infringement; rather, the writers are suing those alleging infringement. Rather, Mr. Thicke and his co-writers have brought a preemptive suit to have the issue of infringement litigated. Once the rights have been determined, and should Mr. Thicke and his co-writers win, any further allegations by the Gaye family would constitute defamation.

    There is another defendant in the suit in addition to eh Gaye family.  Bridgeport Music is also named because Bridgeport represents Funkadelic, a group headed by George Clinton, who has alleged that “Blurred Lines” infringes on the Funkadelic song, “Sexy Ways.” You can listen to the song here. Then compare Mr. Gaye's song and make a decision for yourself. 

    Discussion Starters

    1.      Why is this infringement suit unusual?

    2.     Are there any other claims that could be made in the suit?

  • Merger of US Airways and American Airlines in Jeopardy; Department of Justice Sues to Stop It

    US Air and American Airlines have been working towards an $11 billion dollar merger (a combination of two companies where one is totally absorbed by the other, so that only one survives).  Part of the motivation is that American Airlines has been in bankruptcy  (a legal procedure involving a business or person who is unable to pay outstanding debts) and so needs to make some significant changes if it is to continue in business. To complete the merger, two necessary steps were outstanding – 1) approval  from the bankruptcy judge, and  2) antitrust clearance from the United States Department of Justice (DOJ).   

    The  DOJ is part  of the United States government and  has numerous divisions, one being Antitrust.  The mission of the Antitrust Division is to promote economic competition through enforcing and providing guidance on antitrust laws and principles.

    The (DOJ) has put a major fly in the ointment.  It sued both airlines, claiming the planned merger constitutes an antitrust violation.   The DOJ alleges that the merger will result in reduced or no competition for commercial air travel in many markets throughout the country and so result in higher prices.  The complaint outlines how airlines have raised prices, imposed new fees and reduced services in recent years. The lawsuit asks the court to permanently enjoin  (a court order requiring certain conduct to cease) the merger.    If it is approved, four airlines would control more than 80% of the commercial air travel market – American, Delta, United and Southwest.  The attorney generals from six states have joined the Department of Justice in pursuing the case.

    US Airways executives argue that the merger will benefit consumers notwithstanding the elimination of a competitor.  They say the resulting airlines will have the necessary size and financial strength to compete head-on with the other large companies.  Airlines for America is a trade association for the airline industry.  It advocates for the merger claiming that it would help consumers by ensuring that airlines are financially healthy and “can reinvest in their business with new planes, products and destinations, including expanded service to small markets and  internationally, which in turn creates jobs.”   

    Some of the airlines’ unions also objected to the case predicting that the merger would create a stronger airline better able to offer higher wages and stable jobs.    Prior airline bankruptcies have resulted in job losses, and cuts in wages and pensions. 

    However, consumer advocacy groups praised the government’s action in attempting to stop the merger.

    In numerous other circumstances where a merger was considered, the Justice Department has not brought suit and has been willing to negotiate.  In this circumstance industry insiders believe the commencement of the lawsuit suggests a serious intention by the DOJ to derail the proposed merger.  Said the Assistant Attorney General in charge of the Justice Department’s Antitrust Division, “We don’t file lawsuits unless we’re prepared vigorously to defend them, and that’s what we’re doing right now.”   The chief executive officers of both airlines have vowed to challenge the lawsuit.

    On the same day the lawsuit was filed, shares of stock of the two companies predictably fell significantly.  US Airways was down 13%, and American down 45%.

    US Airways did battle with the Department of Justice on another merger question in 2001.  At that time, United Airlines proposed to take over US Air but the deal was rejected by the government. 

    The six attorneys general who joined the Department of Justice’s lawsuit are from Arizona, Florida, Pennsylvania, Tennesee, Texas and Virginia. The District of Columbia also joined.


    Weigh the pros and cons of the merger, and recommend an outcome.  

  • Lender Charged with Usury Argues Sovereign Immunity As A Defense


    The law identifies maximum interest rates lenders can charge for loans.  Unfortunately, not all lenders comply with the law.  Usury  is the crime of lending money at higher than legal interest rates.   Many attorneys general, the chief consumer advocate in a state, are clamping down on illegal lenders.  The most recent such case was filed by the New York attorney general against a company named Western Sky Financial.  New York State caps interest rates at 25%.  The lawsuit claims Western Sky imposes rates in excess of 300% .

    That company has made almost 18,000 loans to New York residents since 2010, including alleged illegal interest and fees in the amount of $185 million. The lawsuit accuses  Western Sky of preying on New York consumers who are experiencing financial hardships with limited options.

    The remedy sought by the attorney general is an injunction (a court-ordered prohibition) barring the company from making any more loans in the state,  cancellation of those loans that have already been made, and payment of tens of millions of dollars to cover refunds for the interest payments made in excess of the state’s maximum rate, and a substantial fine.

    Western Sky claims it is affiliated with Cheyenne River Sioux Indians in South Dakota and thus is entitled to sovereign immunity. This legal principle means that government is immune from lawsuits or other legal actions except when it consents to them.  Stated differently, the rule provides that independent nations are bound by their own rules, not those of the United States or any other country.

    For example, most states in the United States prohibit gambling.  Yet many Indian reservations (areas of land in the United States managed by a Native American tribe) host full-service casinos.  While the reservations are located within states that bar gambling, the tribe is a sovereign nation and its laws permit betting. Therefore the casinos and their attendant activities are not illegal.

    Western Sky claims a similar immunity from prosecution for excessive interest rates. The attorney general is not convinced that Western Sky is sufficiently owned and operated by Native Americans to entitle it to impunity.   Other states that have successfully pursued Western Sky and like companies.  Those states include Oregon, Minnesota, Colorado and a handful of others. A precedent was set in Colorado where a court rejected the sovereign immunity claim, noting that borrowers obtain the loan within the state and not on the reservation.

    An organization exists called the Native American Financial Services Association (NAFSA).  It was formed in 2012 to advocate for Native American sovereign rights and enable tribes to offer responsible online loans.  It issued a release following the filing of the lawsuit stating, “Our member tribes follow all applicable tribal and federal laws . . to ensure that consumers can trust NAFSA members . . . Western Sky Loans does not abide by these consumer-friendly practices, is not an enterprise wholly owned by a federally-recognized tribe,  is not regulated by a tribal regulatory lending authority, does not operate according to tribal law, and breaks the covenants meant to benefit tribal governments and their members.

    For more information click here.


    What factors should determine whether a business is entitled to sovereign immunity?




  • Need a Loan? Try Borrowing on the Indian Reservation Via the Internet – Interest Only 355%!

    Plug in “Internet Loans” into your search engine and you can pull up all kinds of opportunities. $100 to $1000 approved in two minutes!  We deposit directly into your bank account once you are approved! No credit check!  Approval 100%!

    Somehow it sounds too good to be true.  Well, the claims may be true, but you will pay for the easy loans and rapid pace. On August 12, 2013, New York’s Attorney General, Eric Schneiderman, filed suit against three internet lenders for violating New York’s state usury laws.  Usury laws are maximum interest rate charges imposed on lenders.  The suit filed by the attorney general alleges that the three firms charged interest rates ranging from 89% to 355%.  New York’s maximum rate is 16%. One example given in the complaint was that of a consumer who received a $1,000 loan and was charged interest of 234%, which required a payback total of $4,942. The total number of loans examined for the suit (since 2010) was 17,970 for a total of $38 million in loans.

    The three lenders have already pushed back against the suit.  WS Funding and Western Sky Financial are Indian(Native American)-owned company and claim that they are not subject to New York jurisdiction because of no presence in that state, that is, the companies have no offices, no representatives, and no advertising in the New York, except for what is placed on the Internet. WS Funding and Western Sky Financial are located in South Dakota and their loan agreements provide that they will be governed by the laws of the Cheyenne River Sioux Tribe, Cheyenne Indian Reservation laws. CashCall is headquartered in California and WS Funding in located in South Dakota.

    The basis for the suit is that the ads and disclosures for the loans were deceptive and that borrowers were not fully informed about the total cost of the loans. The suit asks for an injunction that would prohibit the companies from further lending New York and seeks a penalty of up to $5,000 per violation.

    However, the real question in the suit will be the defense that the three loan companies have already raised:  New York has no jurisdiction over companies that have no physical presence in the state. However, CashCall has already settled similar charges in California.  Then-Attorney General (now governor) Jerry Brown negotiated a $1,000,000 settlement from CashCall for what he called their “loan shark tactics.” Interestingly, CashCall was known for its television advertisements featuring the 1970s-1980’s TV show “Diff’rent Strokes” star Gary Coleman, who agreed to be the company’s spokesman as a way to pay off his own loan from CashCall.

    New Hampshire has been seeking a cease-and-desist order against the three companies since June 2013 for their deceptive practices and has alleged that the three firms are working together in a business scheme to transfer loans so as to evade the requirement of lender licensing in New Hampshire. In fact, the New Hampshire factual statements in its court filing provide different facts from those alleged in the New York suit.  Illinois has also filed suit and has focused on WS Funding and Western Sky and the reservation lending issues. 

    The New York case will boil down to in personam jurisdiction, or whether New York courts can require CashCall, WS Funding, and Western Sky Financial to come to New York to defend the lawsuit. Again, without a presence in New York, that jurisdiction will be difficult to establish.  The fact that two of the companies were created under the sovereign laws of a tribe will make jurisdiction more difficult to establish. The three companies will be able to make a court appearance only for the purposes of challenging the state’s jurisdiction over them.


    1.      Explain what usury laws are.


    2.     Discuss why the jurisdiction issues are complicated in these cases against Internet lenders.

  • Japan, Gifts, and the FCPA

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    At the recent Dow Jones 2013 Global Compliance Symposium, Susan Angelo, the former vice president and global general counsel for The Hershey Company discussed the issues her company faced when doing business in Japan.  (see the video above for details on gift-giving in Japan) Initially, the company’s policy was nothing – no gifts.  Ms. Angelo gave an example of how easy it is to get crosswise with the FCPA once you start giving gifts.  It is traditional to provide an envelope with money to the family when you are attending the funeral of a friend.  However, in Japan, many purchasing agents are also government officials, so giving an envelope of money to the family of that agent who has lost a parent or other family member would be a violation of the FCPA.  On the other hand, it is considered very rude to attend the funeral and not offer the envelope of cash.

    As a result, the company decided to allow company employees to give an envelope with cash, but only a moderate amount.  Still, such a moderate amount is not exempt under the FCPA.  Indeed, cash is always problematic under FCPA. While Ms. Angelo was attempting to give the audience of ethics and compliance officers guidance for their international business transactions, she confused the issues.  By allowing Hershey to moderate its international gift-giving policy to a culture-by-culture basis, the company introduced uncertainty into its policy and gave license to employees to interpret what is and is not appropriate in a particular culture.

    The better practice would be to study the culture further and find alternatives to presenting the envelope.  For example, perhaps the issue of attending the funeral should have been the focus of the discussion.  Or, perhaps exploring what those who attend funerals in Japan but do not have the means to give cash do in order to show their respect, would have been a discussion.  One of the best guidelines for compliance under FCPA is to study culture more and look for FCPA exemptions less.  There are alternative ways to respect culture without running afoul of U.S. laws.  Indeed, some ethics officers note that the FCPA is so well known around the world that a simple explanation of the risk for the company is all that is needed when up against a cultural tradition such as the funeral gift.  Companies that respect culture but do not want to confuse their gift policies and risk FCPA violations have found alternative ways to respect culture.  In the case of the funeral, there are ways to pay tribute in a meaningful way.  For example, one company put together a type of professional scrapbook that depicted the life of the decedent.  That scrapbook was something cherished by the family.  Ironically, the scrapbook put the company front and center in the mind of all who attended the funeral because it demonstrated such caring.  Those who offered the case envelopes were part of a group.  The company that complied with the FCPA through a meaningful, non-monetary tribute earned distinction and recognition. 

    Discussion Starters

    1.    What iare the risks in placing culture over compliance?

    2.    What are the benefits of finding a different way of honoring tradition?


  • Deceit by Colleges and Universities: Upping Their Rankings by Figuring Creatively

    Over the last four years, the following colleges and universities have been caught “deceiving” the federal government as well as education analysts on the quality and achievements of their incoming students.

    DATE                               College or University

    January 2013                    Bucknell University

    January 2012                    Claremont McKenna

    August 2012                     Emory University

    August 2011                     Iona University

    How did the schools deceive?  Well, in different ways/  Claremont McKenna lopped points on to the SAT scores of their admitted classes because, as one expert noted, the admissions people feel the same pressures that executives do.  Bucknell University inflated SAT scores for four years (2006-2010).  Emory University provided data for admitted students, not enrolled students (whose scores are generally lower after admitted students choose other schools over Emory) for ten years.  Iona College misrepresented graduate rates, SAT scores, and alumni giving from 2002-2011.

    When the schools’ deceptions were discovered, internal and external investigations revealed some common factors:

    1.      There was a lack of internal controls.  There was generally only one person signing off on the data that was reported.

    2.     The person responsible for computing the average test scores and GPAs of entering students also had their salaries, compensation, and bonuses controlled by their schools’ final rankings for the year.  Moving up just one place in the ranking system means a great deal for the college or university in terms of attracting both students and recruiters.

    3.     There were no review processes for the data submitted.

    4.     There were not audit procedures applied to the data computation and reporting.

    As a result of the problems, the schools have developed various new processes and procedures for ensuring that accurate data are reported, including:

    1.      More than one individual signing off.

    2.     Verification of the data by everyone from committees to the provost.

    3.     Accountability of senior university and college officials for the data and report content through requiring their signatures on the report.

    4.     Regular audits of the process and the data submitted.

    Opportunity and need are generally considered the drivers when employees engage in anything from fraud to embezzlement at work.  In the case of entering class statistics, those involved had every opportunity to inflate the scores and grades because there was little oversight.  The need came from the incentives in place for them if the rankings improved.

    Private ranking systems have taken their own form of disciplinary action.  For example, Forbes magazine has removed the four schools from its ranking system.  The schools do not exist for purposes of that magazine’s coveted rating.  Abram Brown, “Schools of Deception,” Forbes, August 12, 2013.

    The data submitted to the federal government, for purposes of student loan eligibility etc., could constitute a federal crime – it is perjury to sign a document for the federal government that contains false information.  There are several attorneys general looking into the issues on the basis of consumer fraud statutes – representing a deceptive picture of the college or university’s quality.  There is also the possibility that students who relied on data such as job placement and the ranking could bring class-action suits against the schools for damages as simple as tuition refunds.  Deception always carries penalties – both civil and criminal.


    1.      Give examples of how rankings were inflated.


    2.     Discuss whether there will be legal action against the schools and by whom. 

  • Woody Allen Is Sued by Author William Faulkner's Estate for Copyright Infringement; Film Maker Wins


    Midnight in Paris is the latest movie directed by Woody Allen. The film includes a quote from the book Requiem for a Nun (hereinafter Requiem), written by William Faulkner.  The author, winner of a Nobel Prize and now deceased, is perhaps best known to college students for his book, As I Lay Dying, read by many a high school English student and on virtually every list of the top ten novels of the 20th century.

    A recent case centers around two short sentences from Requiem.  They are, “The past is never dead.  It’s not event past.”  A time-travelling character in Midnight in Paris, Owen Wilson, repeated the passage.  The full quote in question from the movie is as follows.  “The past is not dead!  Actually, it’s not even past.  You know who said that?  Faulkner.  And he was right.  And I met him, too.  I ran into him at a dinner party.”

    Faulkner’s estate has sought to exploit the value of his work.  In furtherance thereof, it organized a limited liability company (LLC)  (a legal form in which to do business that has some attributes of a corporation including limited liability, and some of a partnership). The name of the LLC is Faulkner Literary Rights, LLC. Neither Woody Allen nor Sony, the movie's producer, sought permission for use of the quote or to reference Faulkner.  Says the lawsuit, “The use of the infringing quote and of William Faulkner’s name in the infringing film is likely to cause confusion. . . as to a perceived affiliation, connection or association between William Faulkner and his works on the one hand, and Sony on the other hand.”

    The LLC sought statutory damages (a sum of money authorized by statute for a successful plaintiff in a copyright infringement case when the plaintiff is unable to prove an actual loss), disgorgement of profits (a forced surrender by a defendant of any profits made as a direct result of the alleged infringement), costs and attorney fees.

    The judge did not buy it.  Copyright law is fairly well established that a sentence or two taken from a copyrighted book is de minimis, meaning too small to impact negatively the copyrighted work.  As such, small uses are protected by the  fair use doctrine.  It permits limited use of a copyrighted work for purposes of criticism, comment, news reporting, teaching and the like, and does not constitute infringement.  Among the factors to consider is the amount and substantiality of the portion used in relation to the copyrighted work as a whole.

    The judge in the William Faulkner/Woody Allen case noted  in his decision that the movie utilized only nine words during eight seconds, a use the court labeled “miniscule” and but a “fragment” of the copyrighted novel.  Further, the court noted that “no substantial similarity exists between the copyrighted work and the allegedly infringing work.”  And further, “The court is highly doubtful that any relevant markets [for Requiem]  have been harmed by the use in Midnight.  How Hollywood’s flattering and artful use of literary allusion is a point of litigation, not celebration, is beyond this court’s comprehension.”

    Concerning Faulkner’s claim of confusion as to affiliation of the movie, the court said simply, “These arguments are without merit. 

    Note: In most lawsuits each party pays for its own attorney regardless of who wins. However, in limited circumstances where the law wants to ensure that illegal acts are remedied, successful plaintiffs can collect from the defendant the cost of lawyer’s fees. Copyright infringement is one of those cases.

    For more information about the case, click here or see Faulkner Literary Rights, LLC v. SONY Pictures Classics, Inc., __F.Supp.2d__, 2013 WL 3762270 (N.D. Miss., 7/18/2013).



    What is the policy justification for the fair use doctrine?

    Do you concur that the doctrine  should apply in this case?  Why or why not?