• Flotillas, JetPacks, Water, Alcohol, and Liability

    The water brings people together for good times, boating, sunning, floating, and even jumping.  The cities and towns that are located sea-side in California and Florida face the unusual challenges of controlling flotillas of boats and Jetspack jumping experiences.  They soon discover that they do not have sufficient regulation and that there are too many accidents. For example, off the shores of Newport Beach, California there is a growing business that involves Jetpack.  These small, rocket-packs propel those wearing  them out of the water and up to 40 feet in the air, a feeling that will cost you $179 for 15  minutes but is described as making you feel "magical super-human powers" are yours. Jennifer Medina, "Thrill Ride Flies in the Face of Gravity as Well as Cautious Officials," New York Times, August 9, 2014, p. A2. 

    Jetpack America operates this thrill-ride business in both Newport Beach and Honolulu. and they average about 20 customers per day.  The problems are many and keep growing the more popular the business becomes.  For example, those who are participating do not have much opportunity for learning how to work the controls on the Jetpack.  The result is that there are human beings flying through the air with tourists who are not quite sure what they are seeing.  As a result, the Coast Guard and other local authorities receives calls reporting the Jetspack fliers as safety concerns.  City managers are stepping back to review licensing, operation locations, operation requirements, and notifications for others in the area of the activity.  The Jetpack industry has grown rapidly because of so many Internet videos of participants.

    In terms of liability, there is clearly an assumption of risk by those who sign up for the self-propelled ride.  The disclosures and risks are many and complicated.  However, those disclosures do not change the fact that those who agree to participate may not have the skills or training for controlling their journey and the potential for harm to others in busy tourist waters is great.  The others who are on the waters do not necessarily assume the risk of being hit by flying humans.  

    The industry will continue to grow because those who have not participated wish to do so and those who have want to do it again and again in order to gain the skills for effective navigation in their blasts from the water.  

    On the other side of the country, in Florida, the saying is that no matter where you are in Florida you are no more than 60 miles from open water.  As a result, Florida is a boat-intense state.  The boats, however, often end up in flotillas, a gaggle of boats that have anchored off-shore on a sandbar and tied themselves together for a day of swimming, drinking, and jumping from boat to boat. Apart from the loud music and the dangers of those with high blood alcohol levels jumping from boat to boat in the risk inherent in the tethered boats breaking apart and the boats returning to dock.  With as many as 32 boats tied together, the boats, particularly those with drivers who blood alcohol level is high, sometimes get into close-calls as well as collision.  On July 4, 2014, a flotilla that broke up just after the Fourth's fireworks found too many boats headed in the same direction (to shore) at too high speeds.  Two of the boats collided and four people were killed with another three critically injured. Lizette Alvarez, “Safety Advocates Call for Florida to Curb Floating Watering Holes,”  New York Times, August 27, 2014, p. A13.

    State and local officials in Florida are now examining the issues of regulating flotillas, licensing boat drivers, and doing more to prevent DUIs on boats.  For example, one of the issues being explored is whether training ought to be required as a condition for owning and/or operating a boat. Currently, DUI arrests for boat drivers is very small because of the difficulty in administering sobriety tests on a boat that is bobbing on the water. In addition, the large gaggles of tethered boats are difficult for law enforcement officials to access, and they are often consigned to the edge of the flotillas as a means of patrolling or being nearby if anything should go wrong.  

    As recreational activities expand, state and local authorities are forced to reconsider their statutes and ordinances so as to cover activities in order to ensure safety for those on their waters.

    DISCUSSION STARTERS

    1.  What kinds of regulation and at what levels would be needed in these two types of water activities?

    2.  What would be the liability of the local governments when there are injuries and accidents from unregulated activity that they are aware of but have not taken any action to address?

  • McDonald’s Forced to Close Outlets in Russia; Unsanitary Conditions or Politics?

           

    International trade represents potentially new and lucrative markets for US companies. But expansion to new locations is not without risks. Political upheavals in other countries can impact US businesses.

    McDonald’s has a strong presence in Russia. Indeed, profits from Europe represent one-third of the chain’s overall operating profit, and roughly 10% of that is generated in Russia, making the country significant in the fast-food giant’s business plans.

    Russia and the United States are at loggerheads and exchanging sanctions. The US is seeking to curb Russia’s aggressive conduct towards the Ukraine, previously a republic of the USSR and now an independent country, and Russia is retaliating.

    That country has now ordered the temporary closing of four McDonald’s restaurants located in Moscow, including one that is the most frequented McDonald’s location in the world. The official explanation is sanitary violations at the sites discovered by inspectors from the state’s food safety agency, known as Rospotrebnadzor. It is true that governments have a duty to protect the health, safety and welfare of the citizenry. This gives governments the right to insist that restaurants comply with sanitary practices and sanitation codes. Nonetheless, suspicions are running high that the suspension order is related to the deteriorating relationship between Russia and the US.

    McDonald’s is viewed as a symbol of US global expansion and so, despite the company’s impressive popularity in Russia and long lines for service, its widespread presence (437 restaurants) has been criticized by Russian nationalists.

    The US has accused Russia of usurping Ukrainian territory (Crimea), interfering with the government of Ukraine’s democratic processes and institutions, and threatening its sovereignty. The United States has imposed such sanctions as reducing financing to Russia’s largest banks and two energy companies, suspending credit programs in this country that encouraged exports to Russia, restricting financing for economic development projects in that country, and denying export of items Russia desires. (Note the consequences to US companies of these sanctions. These are additional risks of doing business internationally.) The sanctions have been coordinated with international partners including Canada and the European Union, heightening the negative impact on Russia.

    McDonald’s would not be the first to question the real reason for the closings. Other foreign food producers who likewise were identified by the Rospotrebnadzor as displaying sanitation issues have accused the agency of acting in furtherance of political interests of the Russian government. For example, Rospotrebnadzor banned wine from the former USSR state of Georgia, now a separate country, when its president strengthened ties with Washington DC. Russia likewise stopped imports of alcohol from Moldova, another former Soviet republic, when it sought to partner with the European Union. Further, Russia banned all meat, fish, dairy, fruit and vegetable imports from the US, Canada and the European Union for one year in retaliation for sanctions imposed by those countries. Interestingly, Russia has lifted a few restrictions recently to allow import of some items desired by Russia’s food and agriculture industries. These include vegetables for planting, and salmon and trout hatchlings.

    McDonald’s employs more than 37,0000 people in Russia, and 85% of its products used there are purchased from Russian suppliers. In 2011, the chain won an award as the country’s best employer.

     For more information, click here.

    DISCUSSION QUESTION:

    1)    Assume that you are Vice-President for International Sales at a company that sells consumer goods. Given the potential for political issues in other countries to interfere with your business plans, what facts and circumstances about a host country would you research before deciding to open outlets there?

  • U.S. Investigates GM Lawyers for Alleged Concealment of Switch Problems

    Federal prosecutors have launched an investigation to determine whether lawyers at GM concealed the problems with a faulty ignition switch on certain GM models that is believed to be the cause of at least 54 accidents and 13 fatalities.  Christopher M. Matthews and Joann S. Lublin, "Prosecutors Probe Lawyers at GM," Wall Street Journal, August 22, 2014, p. A1.   The allegations are that the lawyers working at the company were aware of the problems with the switches but did not notify regulators nor did they report the problems up the chain in the corporation in order to get some action taken to halt the use of the switches.  

    Three of the lawyers involved have already been dismissed by GM as part of the group of 15 employees who were fired following the findings of an external review by an outside law firm. The cause for their dismissal was their failure to take action on the faulty switches.  GM General Counsel, Michael Millikin was not terminated because the findings of the external report were that the lawyers who worked for him were not required to report settlements on cases unless the amount was over $5 million.  Thus, the pattern of settlements on the switch case was, as the report indicated, not communicated to Mr. Millikin.  Congress has been highly critical of GM's retention of Mr. Millikin following revelations about the activities of lawyers in his group working to keep the information about the switches contained.

     

    The prosecutors and investigators are using the Toyota "sudden acceleration" case and issues as a template to follow.  GM has not yet paid a fine related to the switches, but Toyota paid a $1.2 billion fine to settle fraud charges over its failure to recall the cars.  Proof of fraud requires establishing that employees know of the safety problems and then deliberately failed to take action to remedy the safety issues.  One GM report by an outside firm concluded that the secretive culture of the legal department contributed to the failure to disclose the switch issues.  For example, lawyers were discouraged from taking notes in meetings in order to avoid any written documentation of conversations.

    The addition of lawyers to the case is a new twist in automobile safety investigations and presents additional legal challenges because the lawyers could assert attorney-client privilege.  But, GM could waive that privilege in order to allow the investigation to go forward.

    GM is placed in an awkward position by the investigation.  If it waives privilege, there could be damaging evidence that emerges.  If it does not waive the privilege, public skepticism results about GM's claimed dedication to finding out what happened and to change its culture.  GM has hired an outside law firm to review its process for handling settlements of claims by customers.

    DISCUSSION STARTERS

    1.  Explain the risks for GM and the government in investigating company lawyers.

    2.  Discuss the level of proof necessary for criminal charges in this situation.  

  • Park City Slopes: What Happens When You Forget to Renew Your Lease?

    Powdr Corporation runs Park City Mountain.  It owns the parking lots, the land at the foot of the mountains, and benefits from the skiers and tourists who visit year-round.  It employs 1,200 people and benefited in 2002 when the WInter Olympics were held there.  However, there is one interesting aspect of its operations that is creating serious concerns about its survival.  Powdr Corporation leases the actual ski slopes of Park City from Talisker Land Holdings.  Powdr had a long-term lease at the rock bottom price of $155,000 per year. But, through what a local paper has called "one of the most monumental blunders in Utah business history," Powdr forgot to renew its lease in 2011.  Jack Healy, "Ski Town May Face Winter Without Popular Path to Slopes," New York Times, August 20, 2014, p. A11. Powdr claims that it was simply a delay in giving formal notice and that Talisker was aware that there would be a renewal. Talisker has maintained in the court proceedings that executives for Powdr backdated the renewal notice.  

    There were three years of litigation as a result, but a judge has ruled that the lease required formal written notice and Powdr did not give that notice.  The judge concluded that when a lease ends, it ends.But, the judge in the case ordered the parties into mediation and also stayed the eviction order under August 27, 2014.  Talisker has found a new tenant because it says that Powdr has been making millions from the leases. That new tenant is Vail Resorts, a company that runs 10 ski resorts around the country.  

    While the legal battle has been depicted as the battle of small-town owners against a big corporation, Powdr actually has its own national structure, operating or owning ski resorts around the country, including in Vermont and Nevada. And Powdr has two advantages in the dispute.  It owns all the land up to stye slopes.  In other words, anyone who leases the slopes cannot get to those slopes without crossing Park City Mountain's property.  In addition, Park City Mountain owns the water rights, something that is necessary for producing the extra snow necessary early in the ski season.  

    The case illustrates a distinction between legal rights and business realities.  The legal issues are clear.  The tenant did not renew, the lease expired, and the landlord can evict and put a new tenant in place.  However, the access at the base of the mountain and the water rights are controlled by the previous tenant.  Someone has to do some negotiating in order to resolve the issue despite the clarity of the law.  As of today, the mediation has not produced any resolution. 


    For businesses generally, the lesson here is to put those renewal dates on the calendar and no matter how long the relationship or the how often the verbal renewal is expressed, follow the terms of the lease and get that formal notice to the landlord.

    DISCUSSION STARTERS

    1.  If the judge has ruled in the case, why is the tenant refusing to leave?

    2.  What lessons can businesses learn from this experience?

  • Celebrity Chef Sued by Muslim Employee for Religious Discrimination

         

    A new lawsuit claims celebrity chef David Burke discriminated against employees based on religion.  Burke is the owner of  ten upscale restaurants in New York, New Jersey, and Chicago. He was a competitor on several food shows and a finalist in one. The plaintiff in the lawsuit is a Muslim who claims he was fired for taking a break to engage in required Friday prayer. He began working for Burke in June, 2012 as a cleaner at a New York City eatery. The complaint alleges, “Muslim employees are obligated to ignore their religious requirements due to the fear of retaliation and termination from the management.”

    The plaintiff asserts he informed the restaurant manager before he was hired that he could not work on Fridays because he needed to pray from noon to 2:00 at a mosque. The manager reportedly responded that the day off would not be a problem. Per the complaint, a few weeks later plaintiff was scheduled to work on Fridays. Plaintiff said he would work but needed to leave for prayer during the midday hours. Ordered to remain at work, he defied the manager and was fired. In the case, plaintiff seeks an injunction (a court order requiring a party to cease certain conduct) to end the discriminatory practices, and compensation for lost income.

    In response to the complaint, a lawyer for the chef asserts that Burke is a responsible employer who abides by all applicable labor laws.

    As a general rule, the law protects workers from discrimination based on religion. An employer could not, for example, refuse to hire people who are Quakers or Buddhists. The law does however recognize that employers have a business to run. An employee’s religious practices can interfere with the operation of that business. So the law has struck a compromise. When an employee’s religious practices conflict with work hours or an employer’s rules, the employee can ask for an accommodation (a change in the work rules specific to a particular employee). Such an accommodation might include time off to attend services, consent to wear certain religious garb such as a Sikh wearing a turban, or allowance for otherwise unacceptable grooming practices such as a Rastafarian sporting dreadlocks. An employer has a legal responsibility to permit such accommodations provided they are reasonable. For example, if an employee needs a one-time half-day off, or a religious waiter is able to switch shifts with another server enabling the former to attend a prayer service, in most situations the employer must permit the limited time off or substitution of worker.

    If, however, the required accommodation presents an undue hardship (a significant burden on the operations of a business), the employer can refuse the accommodation request. For example: weekend nights are typically busy at restaurants. Orthodox Jews celebrate Sabbath from sundown on Friday through sundown on Saturday. Assume an Orthodox Jewish restaurant server is hired to work part-time on Wednesdays-Saturdays for the dinner rush. She requests Fridays off all year to attend Sabbath services, and also seeks Saturday nights off in spring, summer and fall when sundown occurs mid-evening. The request to work only half the time required by the job would presumably create an undue hardship for the employer, enabling the company to terminate the employee or decline to hire such an applicant, without liability .

    Factors that a court assess in determining whether an accommodation request would cause an undue hardship include whether the proposed accommodation is costly, compromises workplace safety, sacrifices efficiency, infringes on the rights of other employees or requires them to do more than their share of potentially hazardous or burdensome work. A yes to any of these circumstances elevates the chance that the requested accommodation will be treated as an undue hardship.

    For more information, click here.

    DISCUSSION QUESTION:

    If you were the judge in this case, how would you rule - Is time off for prayer during a restaurant's busy lunch hour a reasonable accommodation or undue burden?  What additional information might you like to know before making the decision?

  • Diaper Arbitrage: When Dollar General Shoppers Swamp Wal-Mart for Price-Matching

    The classic retailer price-matching offer goes like this:  We will match (sometimes "beat") any competitor's prices."  Generally, the retailer stores are in line with each other with just a few pennies in price differences.  However, Wal-Mart and Target found themselves in a bit of a mess, caused by diapers.  Both stores promise to match competitor prices.  However, Dollar General threw the two retailers for a loop this summer when it promised a price of $9,50 for "all counts and sizes" of Pampers Swaddlers diapers and $6.50 for all lower end Luvs diapers.  The problem arose because Dollar General only stocks smaller sizes of diaper packages.  For example, Dollar General stocks the 27-count packages of Pampers Swaddlers, which resulted in about a 50-cent discount for purchasers.  Wal-Mart and Target stock all size packages of the Swaddlers, which range from the 27-count package all the way to the Economy Pack Plus package, which contains 162 diapers.  Hauling the Dollar General "all counts all sizes" ad over to Wal-Mart and Target, diapers purchasers received a 75% discount on the 162-count package of Swaddlers.  The result was a great deal of posting and bragging on Twitter and Facebook, with resulting lines at Target and Wal-Mart for the phenomenal discount.  

    Within a few days, Wal-Mart stopped the price-matching and its customer service lines stretched into the stores, customer complaints on Facebook skyrocketed, and ill-will swelled.  The result has been a whole new look at price-matching, particularly in this era of rapid knowledge exchanges due to social media..

    In terms of contract law, the ads are invitations for offers, and the price-matching is also an invitation for the customer to come to the store and ask for the price-matching.  However, in terms of fair practices under FTC standards, the language in ads is a basis for regulator action against a retailer and a sanction of honoring the ad language or providing consumers with a substitute coupon or equivalent. In terms of competitor relationships, one of the arguments floating around following the great diaper debacle was that Dollar General simply ran the ads to increase traffic flow, knowing that its discount would amount to less than a dollar per package.  However, the same can be said of matching retailers -- the goal of the matching offers is to get the customers into their stores.  

    The practical problems that Wal-Mart has experienced are that the ads from retailers such as Dollar General are not specific.  Wal-Mart's new policy is that matching applies only when the competitor specifics the size of package or the amount in the package.  Wal-Mart is also reconsidering the price-matching because of the delays that it causes in their check-out lines as cashiers try to determine if the matching applies to what a customer has brought for purchase. 

     And then there are the ethics of the shoppers.  Steve Lapinski, the founder of the website, Couponholic.net, says that the shoppers took advantage of Wal-Mart and Target, "While there is some gaming in coupling as you're trying to get the best price by combining coupons and store offers, abusing stores' price-matching policies in this manner wasn't right."  Serena Ng and Shelly Banjo, "Wal-Mart Gets Stuck In a 'Diaper Arbitrage,'"  Wall Street Journal, July 24, 2014, p. B1. 

     

  • Debt Collection Churning Suits: CFPB Sues Georgia Law Firm

    The U.S. Consumer Financial Protection Bureau (CFPB) has filed suit against a Georgia-based law firm for violation of the Fair Debt Collections Practices Act (FDCPA). The suit alleges that the law firm (Frederick J. Hanna & Associates) filed 350,000 credit card collection suits against consumer debtors.  However, the debts were not verified with the consumers and some of them owed nothing.  The CFPB suit alleges that the lawyers involved spend less then one minute reviewing each of the suits filed.  Because the defendants in the case are consumer debtors, they often do not respond to the notices of actions filed against them.  The result is that the law firm wins a default judgment that includes cost, interest, and lawyer fees that are generally very large in comparison to the amount that the debtor actually owed the creditor for whom Hanna is working.

    Under the FDCPA, third-party collectors (and Hanna as a law firm falls into the category of a third-party collector) are required to verify the debt and its amount prior to proceeding with collection or litigation.  The blanket approach of litigation allows the firm to obtain a judgment that can then be executed on the debtor’s property or income. Of the suits Hanna filed, 40,000 were dismissed due to the inability to establish the validity of the debt. You can view a report on an investigation that led to the suit here.

    Hanna has been targeted by state officials in the past, but a judge halted the investigation on the grounds that the state consumer group lacked jurisdiction over the law firm’s actions.  However, state bars around the country are resisting the CFPB suit as an intrusion into the regulation of lawyers, which has been under the jurisdiction of the states and not the federal government. Alan Zibel and Jacob Gershman, “Debt Collectors Under Fire,” Wall Street Journal, August 4, 2014, p. B5.

    In addition to the litigation, the CFPB is considering adopting new rules that would require creditors to take more steps to verify the debt as well as the amount prior to any pursuit of litigation.  Judges in the cases have noted that many of the debtors fail to appear in the cases brought against them for collection but that their hands are tied because they cannot act a defense lawyers for debtors to help them through the suits.  

    DISCUSSION STARTERS

    1.   How would law firms profit from filing so many suits all at one time?

    2.    What changes will the CFPB be making to slow down the suits?

  • Predatory Lender to Military Families Forced to Dissolve; $92 million of Debt Erased

        

    The attorneys general of thirteen states announced a settlement with a consumer lender known as Rome Finance Company which loaned money to people in the armed services. The business was accused of predatory and abusive lending practices that violated the Credit Fair Practices Act and the Military Lending Act. See descriptions of both below. Among the alleged illegal acts are failing to accurately disclose finance charges and interest rates, knowingly financing purchase contracts for consumer goods with inflated prices, charging excessive interest rates, failing to provide required periodic disclosures, charging excessive interest, and requiring allotment payments  (amounts of money taken from a person’s paycheck automatically to pay back a loan) and required that borrowers give Rome access to borrowers’ bank accounts.

    The terms of the settlement are severe and include that Rome Finance and any successor corporations must stop doing business. The companies and their principals are barred from doing any new business in the credit or financial industries. Additionally, 17,800 service members will be excused from paying amounts owed to Rome, which total more than $92 million. Rome will take that huge loss. Further, Rome will report to consumer finance reporting agencies that all the outstanding debts have been “paid in full” and the service members can keep all the merchandise they bought using the loan money. For cases where Rome Finance sued for unpaid debt, all resulting judgments will be vacated.

    Consumer Financial Protection Act revised the Fair Credit Reporting Act and provides that consumers have a right to know what is in the files kept about them by a consumer credit reporting agency (a business that compiles data regarding credit-worthiness of borrowers and furnishes the information to subscribers in the form of a report) and so the agency has the duty to disclose your credit file upon request. The Act also gives the right to obtain your credit score upon request (for a fee), to dispute inaccurate information, have such information corrected on the record, limit access to your file, requires the agency obtain your consent for reports to be provided to employers, plus the additional rights for identity theft victims.

    The Military Lending Act imposes on lenders a 36% interest cap, requires creditors to disclose both orally and in writing, and before a loan is given, interest rates and other fees imposed both orally and in writing before a loan is issued, prohibits lenders from requiring that borrowers waive consumer protection laws, precludes mandatory arbitration, outlaws mandatory allotments, and prevents prepayment penalties.

    In addition to these and other statutes that restrict actions of lenders, usury laws outlaw interest rates on loans that exceed the legal maximum rate. A usurious contract, also known as loansharking, is illegal and therefore void. The lender cannot collect interest or principal on the money loaned. If Rome had sought to enforce in court the loans made at illegal interest rates. it would have been unsuccessful.

    The states involved with the case against Rom include Colorado, Delaware, Florida, Georgia, Indiana, Iowa, Kentucky, Massachusetts, Michigan, New York, North Carolina, Tennessee and Vermont.

    For more information, click here.

    DISCUSSION QUESTION:

  • FedEx Drug Charges: Criminal Liability for Doing Business with Fly-By-Night Pharmacies

    FedEx is facing drug trafficking charges.  A federal grand jury indicted the company for conspiracy charges related to its shipments for online pharmacies that the indictment indicates are known drug dealers.  FedEx denies that it has violated the law and points to repeated requests it made to the Drug Enforcement Administration for a list of the online companies with which is should not do business.  The company also indicated in a statement that when it became aware of a company's criminal status, it stopped its shipping services to that firm. 

    However, the indictment indicates that FedEx set up special credit arrangements with the online companies that differ from its other customers because of its worries that it might not be able to collect the shipping charges if the firms were shut down suddenly.  The indictment includes 15 criminal counts and penalties could be up to $1.6 billion if the company is convicted.

    Corporations can be convicted of crimes if the government is able to establish knowledge of illegal activity.  The level of knowledge required is one of showing that many within the corporation were aware of the nature, in this case, of the companies and the products that they were shipping. The indictment indicates that FedEx was warned four times since 2004 about the nature of the companies that were its customers. The two companies named in the indictment are Chhabra-Smoley Organization and Superior Drugs.  The delivery addresses for the packages from these firms included parking lots, schools, and vacant lots. Individuals in cars were found in the lots waiting for the FedEx deliveries. Donna Leinwand Leger, "FedEx Facing Charges Over Drugs," USA Today, July 18, 2014, p. 3A. While marijuana use has been legalized in some states, the federal government has made it clear that it will still use the federal prohibition to stop interstate shipment of the drugs and also to halt criminal enterprises.

    Individual officers and employees of corporations can be held criminally liable if they had personal knowledge of the illegal activity and failed to take steps to stop the contracts or other business relationships involved.  No individuals at FedEx are named as defendants in the charges.  You can hear a discussion about FedEx and criminal liability of corporations here.

    DISCUSSION STARTERS

    1.  When is a corporation criminally liable?

    2.  Explain when individual corporate officers could be liable?

  • The Admissions and President Mess at UT Austin

    It all began when a regent, Wallace Hall, began asking questions about the University of Texas admissions system.  What he uncovered was referred to the Board of Regents at large for their review and consideration:  86 letters from lawmakers to University of Texas Austin Chancellor, Bill Powers, requesting special consideration for friends and family members when they applied for admissions.  UT Austin has a 15.8% admission rate.  Those named in the letters from legislators had a 58.7% admission rate.  In the law school, there was a 22.5% acceptance rate, but those with letters had a 50% acceptance rate. As a result, the Regents charged that political favoritism was entering into the realm of  of academia.  A movement began to impeach Wallace Hall as a Regent.  The nine regents are appointed by the governor.  

    Two legislators then began an investigation of Mr. Hall and accused him of mishandling confidential documents. They asked that no one at the University be adversely affected in their employment while they conduct their investigation, including Mr. Powers.

    Underlying all of this activity was an already tense relationship between Mr. Powers and the Regents. The issue with political favoritism was one of many issues about which Mr. Powers and the Regents had clashed.  The issues of cost and tuition increases had been a regular source of contention.  As a result, the Regents asked Mr. Powers to resign.  Mr. Powers refused because he felt his abrupt resignation would be too harmful to the university and its ongoing programs.  Around the country, academics voiced concerns about the "politicization of higher education."  Nathan Koppel, "Board Seeks University President's Resignation," Wall Street Journal, July 9, 2014, p. A3.  

    Mr. Powers agreed to resign -- with a period of transition.  The chairman of the Regents then also resigned.  And the voters removed their Lt. Governor from office in a recent election because his campaign pledge to impeach Mr. Hall.  

    These types of employment battles are different from company battles because the executive branch is involved in making appointments to the Regents, the legislative branch is involved because of their approval, and the university (a sort of agency in the state) is involved because its budget is controlled by the executive and legislative branch.  The legislative branch is investigating the agency, and the Regents are challenging the authority of the legislature to conduct such an investigation.  

    The legal tussles will take some time to resolve, even after the investigations are complete because there are questions about authority of the branches of government.  However, the underlying battle is simply a question of whether admissions should be subject to political influence.  

    DISCUSSION STARTERS

    1.  Explain who is battling whom in the scenario.

    2.  Why are the legal issues difficult to resolve? 

    Note:  Just as the Powers' resignation was announced, a federal appeals court upheld the University's race-based admissions program at its law school, one year after the U.S. Supreme Court had struck down the program and required that more scrutiny be applied with additional evidence.  Amidst the political turmoil, the admissions process faces yet another possible U.S. Supreme Court review.

  • $27 Million Negligence Verdict Against McDonald’s; Supervening Act?

     

    McDonald's is no doubt reeling from a $27 million verdict against it. In the case, plaintiffs alleged inadequate security resulting in the deaths of two teen-age college students in the wee hours of the night. Both were attacked, kicked and stomped by 15-20 attackers in the eatery’s parking lot in College Station, Texas.  One teen died there, and the other was killed in a traffic accident while en route to the hospital. The police had been summoned to the restaurant over 200 times in the three years prior to the deaths, often to break up fights and quell unruly crowds between 2:00 and 4:00 a.m. . The plaintiffs argued that McDonald’s was negligent in failing to provide security officers or cameras, given the foreseeability of brawls and injuries.

     The car incident that killed the second victim occurred because the driver, who was the victim's girlfriend, was understandably in a hurry to reach the hospital and failed to stop at a red light. Her vehicle was struck in the intersection by a pickup truck.

     The jury awarded the teen who died at the scene $16 million, and the other, $11 million.  

     Who is at fault? Lots of wrongdoers here. The rowdy crowd that beat up the two teens clearly are responsible. But they are not alone. Given the history of disruptions at the restaurant, McDonald’s knew it had a crowd control problem and should have instituted a security plan. 

    The driver of the car who ran the red light was likewise careless. The purpose of traffic lights is to control the flow of traffic through intersections so cars heading in opposite directions do not crash. A driver who fails to stop at a red light should foresee the substantial possibility of an accident.

     An Interesting question is whether the girlfriend driving through the red light is a supervening cause of the accident. In law, such a cause severs the nexus between defendant’s (McDonald’s) negligence and plaintiff’s injuries, and relieves the defendant of liability. The definition of a supervening event is an occurrence that causes injury and is extraordinary under the circumstances, not foreseeable in the normal course of events, and independent of and far removed from the defendant’s conduct.

    The issue of whether an occurrence is a supervening cause is usually a question for the jury. In the McDonald’s case, the jury apparently determined that the girlfriend’s driving was not a supervening cause, evidenced by the verdict against the restaurant The panel apparently determined that McDonald's should anticipate that, when its negligence causes injury, a loved one will naturally attempt to rush the injured person to the hospital for possible life-saving treatment. Accidents from fast driving are foreseeable. Not surprisingly, McDonald’s disagrees and plans to appeal the case.

    The driver of the pickup truck probably cannot be faulted. Presumably he entered the intersection on a green light, expecting the crossroad to be free of traffic coming from the opposite direction.

     The hoodlums, if captured, would be liable for criminal wrongs as well as civil. The charge would likely be murder or manslaughter. Murder consists of intentionally causing someone's death. Manslaughter includes causing someone's death while intending to cause serious physical injury but not death.

     The plaintiffs’ lawyers handled the matter on a contingency fee basis, meaning they are paid only if the plaintiffs are successful. The lawyers will be entitled to a percentage of the verdict. The percentage amount is determined in part by an agreement between the lawyer and the client entered when the lawyer was originally hired, and in part by state law which usually imposes a maximum, typically in the vicinity of one-third of the verdict.  

     For more information, click here. See also Robida v. Rommel, 723 NYS2d 580 (App.Div., 2000).

     DISCUSSION QUESTION:

     How should the appellate court rule? Was the girlfriend’s conduct in disregarding the red light a supervening cause or not?

     

  • The Professor of Organic Chemistry: Deferred Prosecution for RA Death, A Failure to Supervise


    Sheharbano Sangji was a research associate in the Department of Chemistry and Biochemistry lab at UCLA.  She was hired by Professor Patrick Harran, the Cram Chair in Organic Chemistry, and supervisor of the lab as the principal investigator on a number of research projects.


    Ms. Sangji reported to Professor Harran.  Ms. Sangji was hired on October 13, 2008, but she did not receive training or instructions on lab safety or the wearing of proper equipment while performing lab work. She had a degree in chemistry, but had decided to go to law school in order to become an environmental lawyer.  She took the lab job as she waited to hear from law schools on acceptances. 

    On December 29, 2008, Ms, Sangji was performing her duties in the lab and was transferring a highly flammable chemical agent -- one that ignites when exposed to the atmosphere.  Generally, the chemical is to be handled only by experienced and properly trained personnel.  Ms. Sangji was not wearing a lab coat or protective equipment when she transferred the agent, and the agent spilled onto her hands, arms, and torso and burst into flames.  She was burned on all of those areas and died 18 days later of her injuries. Sadly, her letter of acceptance from Berkeley -- her first choice for law school -- arrived days after her death.

    The state of California and OSHA conducted an investigation of the accident and determined that the lab had failed to meet both OSHA and state safety standards.  Professor Harran was charged with four felony counts of violations of OSHA's labor code as well as of California law for his failure to train, supervise, and instruct Ms. Sangji, his failure to implement safety protocols and procedures at the lab, his failure to provide the training required for combustible materials, and his failure to require protective clothing in the lab. 

    Following a preliminary hearing, at which the judge refused to dismiss the charges, Professor Harran entered into a deferred prosecution agreement.  Under a deferred prosecution agreement, the felony charges are put on hold for a period during which the defendant must accomplish certain things such as community service and, also, not commit any further offenses.  Under the terms of his deferred prosecution agreement (which will last 5 years), Professor Harran must do the following:

    1. Compensate Ms. Sangji's family for all the medical, burial, and economic losses they have experienced.

    2. Complete the development, supervision, and implementation of an organic chemistry preparatory course for the South Central Scholars program -- a program for highly motivated, inner-city high school students that is designed to help them succeed in college and graduate school.  

    3.  Under the development of the course, Professor Harran must teach the students five days per week, four hours per day, for seven weeks each summer from 2015-2018, with the course developed in the summer of 2014).  He must give the students homework assignments each night and grade them.  The course is to be taught at UCLA or USC and Professor Harran must provide one graduate student for every 8 students in the program.

    4.  UCLA and Professor Harran will bear the cost of all expenses of the program, including transportation for the students.

    5.  Professor Harran must speak to all incoming students at UCLA, who will be majoring in chemistry, twice each year on the importance of lab safety.

    6.  Professor Harran must perform 400 additional hours of community service during the five years.

    If Professor Harran completes all the requirements of the agreement, the felony charges will be dismissed at the end of the five years.  

    The case represents a new trend in OSHA of holding supervisors accountable for shortcomings in training and supervision of employees.  Managers need to be responsible for the implementation and supervision of safety programs.

    DISCUSSION STARTERS

    1.  Explain the events and why they occurred.

    2.  Why do you think the service demands of the deferred prosecution are so great? 

  • Learning Estate Planning from Hollywood: Planning and Those Estate Taxes

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    Philip Seymour Hoffman's sudden death has brought to the forefront some of the issues, even those who are young, need to consider in having our affairs in order.  For example, from Heath Ledger's estate we learn that it is important to keep your will updated.  Mr. Ledger had not updated his will following the birth of his daughter. Mr. Hoffman's will only mentioned his first child, not the two who were born following the will's execution.  While courts can step in and include the other children, there is always the chance of misunderstandings, challenges, and, perhaps most importantly, how the children's inheritance and care is to be handled. 


    When there are partners who are not mattered, there are complications.  Who will manage any inheritance the children receive?  Is the partner to be the trustee.  Also, part of estate planning could include marriage because marriage does save estate taxes.  For example, Mr. Hoffman gave his $35 million estate to the mother of his three children, Marianne O'Donnell.  If the two had been married, there would be no estate tax.  Because they were not married, there is a personal exemption of $5.34 million and the remainder of the estate is taxes, at about 50%, so $15 million of Mr. Hoffman's estate will go to the federal government. Robert Wood, "New Clues in Philip Seymour Hoffman's Costly Estate Plan," Forbes, July 22, 2014. 

    If Mr. Hoffman had established a trust for his children and partner, his estate would have simply "poured over" into the trust and his probate would have been completely private.  However, you now know everything about his estate because probate consists of public documents filed with the court.  Mr. Hoffman, however, made it clear that he did not want his children to be "trust fund kids," and he deliberately avoided the creation of a trust. 

    James Gandolfini's untimely death resulted in a payment of $30 million in taxes of his $70 million estate.  He had likewise not structured his estate to minimize taxes.  His young daughter will receive the bulk of the estate when she turns 21. Likewise, Heath Ledger's daughter received his estate, but not without a battle among his relatives, including his uncles and his father.


    DISCUSSION STARTERS

    1. List the factors you should think about in planning your estate.

    2.  Explain what happens with estate taxes, depending upon whom inherits your property.