• The Fed Whistleblower Who Was Fired and Lost Her Retaliation Case

     

    Carmen Segarra was a bank examiner at the New York Federal Reserve Bank.  Ms. Segarra had concluded in one of her reports that concluded that Goldman Sachs did not have adequate conflicts of interest policies.  Ms. Segarra was told to change her report, and when she refused to do so, she was fired.  She then filed suit under federal law for retaliation regarding her allegations about Goldman. 


    However, her suit was dismissed by a federal judge (whose husband works for Goldman Sachs) because Ms. Segarra was not able to tie her allegations to a specific law being broken.  In order to be entitled to protections against retaliation, the federal employee must establish that he or she was fired because of raising concerns about violations of the law by the agency (in this case, the Fed).

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    The Federal Reserve Bank was able to establish that the conflicts of interest policies were only part of an “advisory letter” and not either law or regulation.  As a result, there was no violation of the law by the Federal Reserve, and the whistleblower protections require that the employees who was retaliated against be able to establish that he or she was trying to report a violation of the law. The judge ruled that the standards for conflicts were merely part of advice to banks and did not require banks to implement them.  The Federal Reserve Bank argued that Ms. Segarra's refusal to modify the report would have meant changing the advisory letter into unauthorized regulation.  Changes in the conflicts rules would have required regulatory notice, hearings, and a comment period.  Had the conflicts rules been changed pursuant to that process, Ms. Segarra would have been protected against retaliation under federal law.

    There are often misunderstandings about the protections afforded whistleblowers.  Generally, the whistleblower must experience retaliation as a result of objecting to or reporting violations of the law.  What is law?  That question was at the heart of this case.  And the court ruled that policy and advisory letters are not legally binding and violations of those policies does not afford protection for employees who attempt to demand compliance with policy.  The message for whistleblowers is to be sure that you know what you are reporting and why to be sure you have no liability.

    DIscussion Starters

    1.  What led to Ms. Segarra's dismissal.

    2.  Explain why she cannot recover on the basis of retaliation.

     

  • New York Times Woos New Editor; Sued for Interference with Contractual Relations

                   

    The New York Times has announced  the name of its new editor-in-chief of the Sunday Magazine, a widely-read and highly acclaimed publication.  His name is Jack Silverstein  and for the past six  years he has served as editor-in-chief of the periodical Texas Monthly which has a much smaller circulation than the New York Times. Texas Monthly  is published by Emmis Publishing. Under Silverstein’s leadership the magazine was nominated for 11 National Magazine Awards and won four for general excellence, feature writing, and public interest. 

    The New York Times first contacted Silverstein in December, 2012 and repeatedly communicated with him over the next 15 months.  When the president of Texas Monthly learned about the NY Times’ overtures, he advised the Times that Silverstein had an employment contract valid through February 18, 2005, and if Silverstein was hired by the Times Emmis expected to be compensated.

    The New York Times has not paid and Texas Monthly is now suing for interference with contractual relations.  Emmis seeks compensation for the cost of finding a replacement editor which the company estimates will be between $200,000 and $1 million.   

    The tort of interference with contractual relations, also known as tortuous interference with contractual relations, occurs when a party causes another, usually by encouragement and urging, to breach a contract.

     The elements of the tort are as follows:  1) a valid contract exists between two parties;   2) a third party, knows of the existence of the contract; 3) the third party convinces one of the  contracting parties to break the contract;  and 4) the non-breaching party suffers damages as a result of the breach.

    A valid employment contract apparently exists between Emmis and Silverstein.  The New York Times wooed Silverstein, ultimately succeeding in convincing him to leave Emmis and join the Times.  To accept the position, Silverstein must breach its contract with Emmis, which will then have to incur the cost of a new search for an editor-in-chief.  Thus, if the facts as alleged are accurate, and assuming Emmis can show actual damages, it should be successful in the case.

    Note: Emmis could but is not suing Silverstein for breach of contract.  Rather, the Texas Monthly publisher appreciates the career step represented by the Times' offer to Silverstein, and  Emmis is on record not wanting to hinder his departure.

    For more information click here: http://www.indystar.com/story/money/2014/04/13/indianapolis-publisher-sues-new-york-times-million-editor-hire/7675879/

    DISCUSSION QUESTION:

    1) How might Emmis support its claim of damages?

     

  • Student Loans, Death of a Co-Signer, and Forgiveness

    If a parent or grandparent or friend co-signed your student loan, be prepared.  There is a clause in most student loan agreements that accelerates the loan when one of the co-signers dies.  The full amount becomes due and owing, and the remaining co-signer lives through the financial shock, often ending with a default. The clause kicks in whether the student who borrowed the money passes away or the parent who co-signed passed away.

    The co-signer clauses can be renegotiated, but few people realize the availability of this option.  Once the student has been out of school for a few years and developed a good credit history, the lender is willing to renegotiate the loan and release the co-signer or substitute a new co-signer. Richard Perez-Pena, “When Co-Signers Die, Student Loans Are Suddenly Coming Due, “ New York Times, April 22, 2014, p. A15.

    Even though the co-signer did not receive the money, the failure to pay affects the co-signer’s credit rating if the loan is not repaid. The average amount of student loans ranges from $35,000 in education to $135,000 for medical degrees.  Law lands in at $128,000 and MBAs at $36,000. And the number of outstanding student loans has increased by almost one-half million during 2013-2014. Total students loans have doubled since 2007 to over $1 trillion. 

    One of the reasons for the increase in the amount and number of student loans is the ready availability of loan forgiveness programs that many graduates believe they will use.  For example, one program allows graduates to pay only 10% of their discretionary income as their total repayment if they work in the public sector or a non-profit.  And if they stay in the public sector or working for a non-profit for 10 years, the balance of the loan is forgiven by the federal government. Josh Mitchell, “Federal Plans That Forgive Student Debt Skyrocket,” Wall Street Journal, April 22, 2014, p. A1. The 10% payment requirement was cut from 15% in 2010, and Congress continues to modify the availability of the forgiveness programs.

    B

    Bankruptcy courts cannot help because student loans are non-dischargeable debts.  A default allows the creditor to proceed to collection, but sometimes the student/debtor is judgment proof.  Even a judgment for the creditor is only as good as the amount of assets the creditor can attach.  Those just out of college often have few assets to attach.  But defaults and judgments do harm your credit rating.

    The advice for student borrowers and co-signers?

    1.    Read before you sign.

    2.    Understand the effects of default and death on co-signers.

    3.    Determine whether the loan terms are renegotiable after graduation.

    4.    Look into possible career opportunities in lines of work that can result in lower monthly payments as well as loan forgiveness after 10 years in that type of work.

    5.    Once graduate, see if the lender is willing to negotiate a release for your co-signer. 

    Sometimes the best legal advice is the simple common sense of reading and understanding your loan agreement. 

    Discussion Starters 

    1.    What do student loan agreements provide for in terms of liability for the co-signer?

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    2.    What are the options when a co-signer wants out of the loan?

  • Sampling Leads to Copyright Infringement Case against Kanye West and Vanity Fair

    Singer Kanye West appears on this month’s cover of Vanity Fair Magazine with his love interest and baby momma, Kim Kardashian.  The magazine supplemented the cover shoot with a video accessible on the magazine’s website.  It includes pictures of the couple kissing and hugging, posing with their child, baby North. The background music is from a song on Kanye’s album Yeezus called “Bound 2.” 

    That track is the subject of a copyright infringement lawsuit against the rapper brought by Rickey Spicer, lead vocalist for a now obscure, one-hit-wonder group from the 70’s called The Ponderosa Twins Plus One.  The track contains a sampling (a portion or sample of a sound recording reused in a different song) from the group’s hit song that featured Spicer’s unique, high-pitched voice.   

    Vanity Fair chose to use Bound 2 as the background music for the “Kimye” (Kim and Kanye) video. Spicer is now also suing Vanity Fair for copyright infringement. He asserts that his voice comprises approximately 44% of the lyrics on the video.

    A copyright gives the creator of music the exclusive right to perform or otherwise reproduce the piece.  Without the copyright owner’s permission, others are precluded from using or reproducing  the song. 

    What defense Kanye or Vanity Fair might assert is unclear.  While the law on sampling is not fully settled, there have been several cases that hold that unauthorized use of even a small portion of the sampled work violates copyright laws.  The safe route for a musician who wants to use samples is to secure permission from the copyright owner. If permission is granted, the copyright owner will likely require an up-front fee and/or a portion of the royalties.  Such income-potential is part of  the value of a copyright.

     The process of securing authorization is called sample clearance.  Failing to get clearance can result in a successful copyright infringement (unauthorized use)  lawsuit. If  the owner is successful, the infringer may be liable to remove the offending recordings from sale, compensate the owner for damages, pay a share of profits made,  and pay for the owner’s court costs and attorney’s fees.. Thus, Kanye and Vanity Fair would have been well-advised to seek permission from Spicer.

    To help avoid this problem, the music industry has begun producing pre-cleared sample CDs.  These contain sounds and riffs that have been approved for use by copyright owners.  The purchase fee includes sampling clearance, enabling the buyer to legally  use the samples without further payment of fees or request for permission.

    DISCUSSION QUESTION:

    Should small amounts of sampling be permissible under the doctrine of fair use?  Why or why not?

  • Title and Ethical Issues; Orchestra Returns Art Looted by Hitler

       

    The internationally acclaimed Vienna (Austria) Philharmonic Orchestra was involved with the Nazi government during World War II, recently discovered documents reveal. Included among the revelations is the history and ownership of a painting gifted to the orchestra by Hitlers henchmen. 

    The orchestra may be best known for its widely-acclaimed New Year's Eve concert of primarily waltzes and polkas broadcast to 50 million people worldwide.  The concerts began in 1939, and were quickly adopted by Nazi propaganda minister Joseph Goebbels.  He exploited the ensemble as an example of cultural advancements under  Hitler's rule.  

    The Nazi government gave the orchestra a painting by French artist Paul Signac that depicted a sailing ship moored in a harbor, titled Port-en-Bessin. The gift was given in appreciation for three concerts performed for the Nazi army. Today the artwork is valued at half a million dollars. Current orchestra management suspected the piece might have been stolen by the *** from victims of its harsh measures.  In an attempt to track down the owner almost 70 years after the war, the group hired an art historian.

    Ownership of the piece was traced back to a well-known member of the French resistance (those who worked to defeat Hitler) named Marcel Koch. 

    Turns out before the war the painting hung in a school he directed until the work was  misappropriated.

     Koch never married and died childless. This made the process of locating heirs difficult.   Their identity has just been discovered with the help of the French ambassador. Plans for transferring the art are underway.  The musicians now plan to re-examine other valuable items the orchestra accumulated during war years including musical instruments, rare musical manuscripts, and other artifacts.

    There is an interesting title issue that underlies this case.  If US law applied (which it does not; instead French law would apply), *** could not pass good title to the orchestra because *** stole the art. Thus, the owner or heirs of the painting would be entitled to its return even if the ensemble had resisted.  

    This situation also provides an example of an international agreement.  In the 1990's the issue of compensation for wartime looting gained international attention and favor.  In 1998, 44 countries, including Austria, signed an agreement, known as the Washington Principles, that addressed rights to art stolen by ***. This document committed governments to identify plundered art in museum collections and report them on a registry.  It also encouraged survivors of Nazi Germany and their heirs  (a person with the legal right to receive property when another dies) who lost art during the war to submit claims.. Numerous artworks were thus returned to their rightful owners. The agreement contained a three year statute of limitations, the time period within which the owners could pursue return of the works. 

    These facts also illustrate a principle of ethics, a system of moral principles.  Not infrequently, conduct is legal but not ethical.  In this case, the right of the heirs to claim ownership and retrieve the painting had arguably passed due to the statute of limitations.  Thus, retention of the painting by the Philharmonic would not have been illegal.  But the orchestra acted ethically by returning the work to its rightful owner.

     For more information, click here: http://www.nytimes.com/2014/04/12/arts/design/vienna-philharmonic-finds-owners-of-a-nazi-gift.html?_r=0

    DISCUSSION QUESTIONS 

    1)    What do you think prompted the orchestra to seek the original owner of the artwork?

     2)    Why does the law in the United States prevent a thief from passing good title?

     

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

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

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

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

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

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

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

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

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

    DISCUSSION STARTERS

    1.    Why would this case be in federal court?

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

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

     

  • Yelp, Negative Reviews, Fraud, and the First Amendment

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

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

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

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

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

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

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

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

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

     

    DISCUSSION STARTERS

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

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

     

     

     

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

             

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

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

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

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

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

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

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

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

     For more information, click here:  http://www.nytimes.com/2014/03/29/business/women-charge-bias-and-harassment-in-suit-against-sterling-jewelers.html?_r=0

    DISCUSSION QUESTION

    Why do employers not want class actions in arbitration?

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

     

     

  • Celebrity Chef Gordon Ramsay Sued by Partner for Fiduciary Breaches

          

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

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

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

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

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

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

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

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

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

    For more information. see http://www.nydailynews.com/entertainment/gordon-ramsay-sued-business-partner-10-million-article-1.1744285.

    DISCUSSION QUESTION:

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

     

  • Samsung and the Presidential Selfie With Ortiz: Commercial Appropriation

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

     

     

     

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

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

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

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

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

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

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

    DISCUSSION STARTERS

    1.      Discuss the permission issue and commercial appropriation.

     

    2.     Explain the remedies for commercial appropriation. 

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

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

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

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

    0 0 1 128 730 Arizona State University 6 1 857 14.0 Normal 0 false false false EN-US JA X-NONE

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

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

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

    Discussion Starters

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

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

     

     

     

  • Resume Fraud; Hiring Negotiations between Coach Masiello and USF Terminated

                

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

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

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

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

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

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

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

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

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

    For more information, click here: http://www.nytimes.com/2014/03/27/sports/ncaabasketball/manhattan-coach-denied-south-florida-job-after-resume-check.html?_r=0

    DICUSSION QUESTION:

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