• More Classic Negligence; Hot Coffee Spilled on Child at Denny’s Leads to Half a Million Dollar Settlement

                

     

    A Denny’s restaurant at a Thruway stop in western New York has settled a lawsuit brought by the parents of a five year old girl who was badly burned by a cup of hot coffee. When she was 14 months old she suffered first and second degree burns “all over her neck, and abdomen,” and was hospitalized for several weeks. The waitress placed the coffee within the infant’s reach and, sure enough, the youngster grabbed the hot drink and spilled it on herself.

    The trial in the case was underway when the settlement offer was made by Denny’s insurance company. Apparently the case was not going well for Denny’s. The actual settlement figure is not known because the parties agreed to keep it confidential, but is believed to be in the vicinity of $500,000 based on earlier known proposed settlement figures. The amount was approved by the judge.

    The evidence established that the lifetime medical care the girl will require will cost $340,000. The balance of the settlement was likely justified by pain and suffering. This is an element of damages that covers physical and emotional pain endured by a person injured by negligence. Burn injuries are known to be very painful. Additionally, the young girl in this case will have to endure the mental anguish of scars on significant parts of her body, including her neck which is visible even when she is dressed, for the balance of her life.

    The perils of hot beverages are well known to restaurateurs. There have been many lawsuits involving plaintiffs burned by them. Restaurants and other businesses that serve hot drinks need to train, retrain and closely supervise employees who serve these items to be sure precautions are taken. Among those: when serving coffee tableside, the cup should be removed from the table when pouring; when the cup is returned to the table, the server should place it away from the edge and away from the reach of youngsters. If serving the beverage to-go, lids and sleeves should be provided, and wording on the cup should alert the patron that the contents are hot.

    In this case, the settlement agreement came during the trial. This happens sometimes. As the evidence is presented, the parties sometimes determine that their case is stronger or weaker than they anticipated, and so they became willing to propose or entertain settlement discussions despite being intractable previously.

    A settlement agreement is a contract and can be entered at any time, including even as late as when a jury is deliberating. The contract consists of a promise on the part of the defendant to pay plaintiff an agreed upon amount of money, and a promise by the plaintiff to accept that amount in full satisfaction of plaintiff’s claim and to refrain from pursuing defendant for any additional monies.

    In this case, Denny’s insurance company determined when to settle. A responsible business will purchase liability insurance. which is insurance coverage for lawsuits claiming negligence and other specified torts. The relationship between the business and the insurance company is a contractual one. The business pays premiums, the cost of the insurance, and the insurance company agrees to pay the cost of defending negligence claims against the company, and the amount of any resulting settlement or judgment minus the deductible amount. This is an amount of money, specified in the insurance contract, that the insured (Denny’s) must pay when a loss occurs before the insurance company’s obligation to pay is triggered. The smaller the deductible, the more will be the cost of the insurance.

    One other matter should be noted. When a settlement is reached in a case in which the plaintiff is under age 18, a judge must approve t before the settlement is finalized. The reason is to ensure the resolution of the case fair to the youngster who, because of age, is considered unable to make that assessment herself.

    For more information, click here.

    DISCUSSION QUESTION:

    How can a restaurant protect itself from this type of liability?

     

     

     

     

  • Classic Negligence: Restaurant Switches Customers’ Orders; Patron with Severe Allergy Gets Offending Dish

             

     

    A mix-up of dishes at a popular eatery led to a life-threatening consequence. A teen-ager who ate at a Sugar Factory is allergic to nuts. Upon arrival, the sixteen year old, Emily Eicher, informed the hostess that she has a severe allergy to nuts. The hostess advised her to alert the server. This the teen did, and the server helped Emily and her companions select food that would not trigger an allergic reaction. Ms. Eicher’s order was a S’more crepe. So far, so good.

    Alas, a different server brought the food to the table and apparently mixed up the girl’s order with an order for a Nutella crepe. Uh oh! Nutella, as the name suggests, is made from nuts, specifically roasted hazelnuts. After a few bites Ms. Eicher began to experience anaphylactic shock, a life-threatening reaction to an allergen, which is something that triggers an allergic reaction. Her throat began to constrict (squeeze together), making breathing labored and difficult.

    Ms. Eicher summoned her waitress who immediately recognized the error. 911 was called. Aware of the risks of her allergy, Ms. Eicher carried an EpiPen, an automatic dispenser of epinephrine which temporarily stops anaphylactic shock. She injected herself before being rushed to a hospital.

    She is now suing the eatery for $400,000. The basis of the lawsuit is negligence, meaning carelessness. The legal definition is failing to act as a reasonable person. Emily claims that the restaurant was negligent when it confused her order and delivered a nut-filled dish after the hostess and server were informed of her allergy. On the issue of liability, she has a strong case.

    Once a plaintiff proves negligence and proximate cause (a direct cause and effect relationship between the negligence and an injury), plaintiff must also prove the amount of her damages, meaning financial loss. How does Ms. Eicher intend to prove $400,000 worth of damages? She will need to show medical bills, lost time at work, and pain and suffering, which is an item of damages covering physical and emotional pain caused by an injury.

    It is possible that the EpiPen reversed the effects of the allergy long enough for her to reach the hospital and receive treatment for her constricted throat, resulting in the condition quickly subsiding. If this is the circumstance, her damages will be limited. Another possibility is that she was in great fear for some period of time that she would die from the Nutella crepe. Perhaps she suffered some permanent physical condition as a result. Maybe she endured emotional trauma with long-lasting effects including persistent anxiety. A plaintiff is only entitled to collect damages for losses she can prove.

    For more information, click here.

    DISCUSSION QUESTION:

    What precautions should the restaurant have taken to avoid the mix-up that occurred in this case?

     

     

     

  • Those Guardrails on the Highways, False Claims Act, a Competitor, and Fraud, Oh, and Product Liability

    Trinity Industries is the manufacturer of a product you see every day – the guardrails in the middle of highways, freeways, toll ways, and byways around the country. However, Trinity will be paying $525 million to the United States Treasury and Joshua Harman, one of his competitors. The story of intrigue, whistle-blowing, and a small competitor finishing first began in 2005.

    Trinity was the manufacturer of the ET-Plus guardrail system, the preferred system used by state and local governments in road construction. However, in 2005, Trinity made a change to its guardrail, a change that could cause the system to fail and result in the parts of the guard rail piercing cars involved in accidents. The design change to the rails actually resulted in more and greater injuries to drivers and passengers and more vehicle damage. While the rails were designed to prevent cross-overs and additional vehicle involvement in accidents, they were wreaking havoc on the roadways. The change did result in a $2 saving for every rail for Trinity.

    Enter competitor Joshua Harman who discovered that the design change was not disclosed to the Federal Highway Administration, a notification that is required in order to have the rails certified for highway use. Indeed, Trinity had conducted safety tests of the ET-Plus guardrails but never shared those test results with the federal government. The five tests concluded that the ET-5 Plus failed the tests. The federal government does not build the highways (state and local governments do), but these government agencies are not eligible for federal funds if they do not build roads in compliance with federal standards and requirements. And if a company receives federal funds or reimbursement and has not complied with standards or provided false information, it is liable to the federal government under the False Claims Act.

    Mr. Harman reported the change to the federal government as a whistleblower in 2012. And he filed suit under the False Claims Act, a suit that the federal government was eligible to join, but did not. In addition, after Mr. Harman reported that there had been no disclosure of the design change, Trinity still did not disclose the information about the five failed tests. Aaron M. Kessler and Danielle Ivory, “Guardrail Tests Went Unreported, Court Hears,” New York Times, October 15, 2014, p. B3. On October 21, 2014, a Texas jury awarded $175 million to Mr. Harman, an amount that is tripled under the False Claims Act. Mr. Harman will receive $   million even though he was not an employee but a competitor because he reported the fraud to the federal government.

    This is actually the second trial of the case. The first trial ended in a mistrial when there were allegations that Trinity had tried to intimidate a safety expert. Aaron M. Kessler and Danielle Ivory, “Guardrail Tests Went Unreported, Court Hears,” New York Times, October 16, 2014, p. B3.

    States have begun demanding the tests results, and a University of Alabama study (by the expert who was allegedly intimidated in the first trial) has concluded that the ET-Plus is three times as likely to cause a fatality as the federally approved standard guardrail. For example, the state of Virginia is demanding to see the safety tests and it has 11,000 of the guardrails. In the meantime, the product liability suits by crash victims and their families have begun. Trinity’s $525 million fine may be only the beginning. Aaron M. Kessler and Danielle Ivory, “Virginia Threatens to Remove Guardrails Unless Manufacturer Performs New Tests,” New York Times, October 15, 2014, p. B3.

    DISCUSSION STARTERS

    1. Explain the False Claims Act and who gets how much when a contractor makes false statements or fraudulent claims for federal monies.

    2. Think about the product liability claim. Can passengers who did not buy the guardrails recover?

    3. What ethics lessons can a business learn from this case?

  • Papa John’s Pizza Sued for Alleged Labor Law Violations

                

     

    The New York State Attorney General, the highest ranking law enforcement officer in a state, has sued a New York City Papa John’s Pizza franchisee (purchaser of the right to use a business’ trademark and other proprietary knowledge for the purpose of opening one or more branches of the business). The case alleges various labor law violations. The alleged illegal acts all relate to pizza deliverers who transport the food on bicycle, an expedient way to traverse the traffic of the Big Apple.

    The franchisee owns four outlets, all in Harlem. The allegations are that the franchisee did the following.

    1)    Reduced the hours worked on employees’ time card by rounding down employees’ time to the nearest whole hour and not paying for the fraction of an hour. For example, if an employee worked 35 hours and 45 minutes, the franchisee allegedly would pay for only 35 hours. The law requires that workers get paid for all time worked, including portions of an hour.

    2)    Paid the workers less than minimum wage. The Fair Labor Standards Act (FLSA) is a federal law that requires all employers to pay workers minimum wage. The Papa John franchisor paid $5/hour, considerably less than the $7.25 per hour minimum wage that was in effect for most of the time period covered by the lawsuit. (The current minimum wage in New York is $8.00).In New York, employers could pay tipped food service workers $5.00/hour, and tipped non-food service employees $5.65. The attorney general is apparently of the opinion that pizza deliverers are not food service workers.

    3)    Failed to pay overtime to employees who worked more than 40 hours a week. The FLSA requires that employers pay workers 150% of their hourly rate for every hour worked in excess of 40 in a week.

    4)    Failed to pay call-in pay. New York requires employers to pay workers a minimum of four hours pay for reporting to work, even if the employer has no work for them to do and sends them home early. 12 NYCRR 137-1.6. If however the scheduled shift is less than four hours, the employer need only pay for the number of hours in the shift.  

    5)    Failed to maintain sufficient records of wages and hours. The FLSA requires employers to keep accurate records of employees’ names, social security numbers, hours worked each day, total hours worked each week, basis on which wages are paid (e.g. hourly rate, piecework, or otherwise), total wages paid each pay period, and date of payment. The records must be kept for three years. Inspectors from the Department of Labor are entitled to examine the records upon demand.. 

    6)    Failed to pay “spread of hours” pay. This type of pay is unique to New York and refers to a mandatory extra hour of pay at minimum wage rate payable when the interval between the start and end of an employee’s workday exceeds ten hours. Spread of hours pay is due even if the employee has a split shift with time off in between. The law authorizing this type of pay became effective in the state on April 1, 2013. Some other states can be expected to follow suit. Some collective bargaining agreements (contracts that regulate working conditions at a company, negotiated between management and a union representing employees) contain a similar provision. 

    7)    Failed to provide bicycle equipment required by NYC law. The goal of the statute is to make commercial bicycling safer. It requires that businesses provide delivery cyclists with retro-reflective upper-body apparel imprinted with the business’ name, a bicycle helmet in good condition, a bell, headlight and taillight, reflectors on each wheel plus the front and back of the bike, and brakes. Additionally, the employer must display an approved bicyclist safety poster in a place where the bicyclists will easily see it.

    The remedy sought is compensation, fines, and an injunction (a court order requiring a party to a lawsuit to discontinue certain action) requiring the franchisee to discontinue illegal practices.

    All employers must educate themselves about the laws relating to employee pay. Noncompliance can result in unwanted and expensive lawsuits.

    For more information, click here.

    DISCUSSION QUESTION:

    How might an employer become educated about labor law rules applicable to the company?

  • Proxy Fight Results in Ouster of Darden’s Entire Board

                 

    In a rare victory for dissident investors, the shareholders of Darden Restaurants, Inc. voted to oust the entire board of directors in favor of the full slate proposed by Starboard Value, LP, a New York-based investment advisor. The vote, per Starboard, will “erase years of poor performance and oversight.”

    Darden Restaurant, Inc. is a corporation that owns numerous restaurant chains encompassing a total of 1,504 casual dining restaurants. The brands include Olive Garden (850 restaurants), Bahama Breeze, Longhorn Steak, Seasons 52, Yard House, Capital Grille, Yard House, Eddie V’s, and until recently, Red Lobster. Darden’s headquarters are in Orlando, Florida. Darden is the largest operator in the United States of full-service restaurants with 8.55 billion in sales in 2013. In recent quarters it experienced losses.

    Darden’s annual meeting was held on October 10th. A corporation is required to have a meeting of shareholders (owners) at least once a year. At that meeting shareholders elect the company’s board of directors, a group of individuals who establish management-related policies for the corporation and elect the officers.

    Leading into the meeting, Darden management had sparred with Starboard, the second largest Darden shareholder with 8.8% of the shares,

    Starboard determined that the market price of Darden stock significantly understated the value of the company’s businesses and real estate assets, and nudged the board to take certain initiatives to realize the company’s value. Starboard’s proposals included operational improvements, separating Olive Garden and Longhorn Steakhouse into a separate company, and designing a domestic and international franchising program for Darden’s brands. Additionally, Starboard took aim at Olive Garden’s decision to stop salting the water used to boil the pasta, a decision Starboard claimed detracted from the product’s taste. Starboard also proposed simplifying Olive Garden’s menu, scaling back the size and number of breadsticks each tables receives at one time, plans for increasing alcohol sales, and using technology to eliminate “false waits” for tables. Darden’s board of directors did not agree with Starboard’s approach.

    Recently the Darden board made a decision to sell Red Lobster because that brand was suffering a decline in profits. Starboard and other shareholders questioned the wisdom of selling the chain, believing it represented unrealized value. The shareholders, including Starboard, voted to have a special shareholder’s meeting to permit shareholders to address the pros and cons of the sale, and take a nonbinding vote before the sale was finalized. A special meeting is a meeting of shareholders other than the annual meeting. One can be called by the directors, officers or shareholders owning a minimum percentage specified in the corporation’s bylaws, it’s internal rules of operation.. Darden’s board declined and executed the sale. This action enlarged the rift. Starboard characterized Darden’s response as “tone deafness to investor wishes,” and said the board sold the brand only “because they didn’t know how to improve their own restaurants.”

    A proxy fight followed. This occurs when a group of shareholders is persuaded to join forces and solicit shareholder proxies (authorization to vote other shareholders’ voting rights) sufficient in number to win a corporate vote. Both Darden and Starboard sought such authorization from the company’s shareholders. A majority vote determines the outcome. Starboard’s slate obtained more votes and were announced as the winners. Starboard’s slate included a former executive from Olive Garden, the founder of TGI Friday’s, a former CEO of Burger King and a former chief financial officer at Chili’s parent, Brinker International, Inc. .

    There is no universal agreement on the optimum size of a board of directors The average number is about nine, and is usually an odd number so that ties are avoided. Darden’s board consists of 12 members.

    For more information, click here.

    DISCUSSION QUESTION:

    What might Darden have done differently to avoid the total loss on the vote for new directors?

     

  • Dentists vs. Teeth-Whitening Services

    The market for teeth whitening began in the 1990s.  North Carolina dentists grew a market for the application of concentrations of peroxide to teeth to create a chemical reaction that results in whiter teeth. In about 2003, non-dentists also started offering teeth-whitening services, often at a significantly lower price than dentists. Day spas, chain whitening franchises, and other businesses offered the service.  Shortly thereafter, dentists began complaining to the North Carolina State Board of Dental Examiners and sought to have the non-dentist whitening services shut down because allowing such services to be performed by non-dentists created public health, safety, and welfare concerns.  The purpose of the Board lies in a classic constitutional foundation:  government action that is necessary to protect the public health, safety and welfare.  The board is comprised of eight members, including six licensed dentists, one licensed dental hygienist, and one consumer member. 

    After receiving complaints from dentists, the Board opened an investigation into teeth-whitening services performed by non-dentists. As a result of the investigations, the Board issued 47 cease-and-desist letters to 29 non-dentist teeth-whitening providers. The letters were issued on official letterhead and noted that the companies were subject to misdemeanor charges for the unauthorized practice of dentistry if they did not cease and desist their operations. The result was that non-dentist teeth whitener businesses and franchises were driven from North Carolina. No more white teeth in North Carolina unless a dentist performed the cosmetic procedure or you trekked across the border to South Carolina or Virginia. The FTC filed a complaint against the board charging it with unfair competition. The Board moved to dismiss the complaint, and an administrative law judge refused to grant the dismissal. In response, the Board filed a federal declaratory action, requesting that a federal court stop the administrative proceeding against it. The district court dismissed that action as an improper attempt to enjoin an ongoing administrative procedure. North Carolina State Bd. of Dental Examiners v. FTC, 768 F.Supp.2d 818 (E.D.N.C.2011)I.

    The FTC then issued a final order that prohibited the Board from issuing the cease-and-desist orders, and the Board appealed the final decision.  The federal court of appeals held that:

    (1) board did not satisfy the requirements for immunity under state action doctrine;

    (2) board had capacity to conspire under Sherman Act;

    (3) board engaged in combination or conspiracy; and

    (4) board's cease-and-desist letters were likely to cause significant anticompetitive harms. North Carolina State Bd. of Dental Examiners v. F.T.C., 717 F.3d 359  (4th Cir. 2013)

    The Board appealed and the U.S. Supreme Court heard oral arguments this past week.  North Carolina Bd. of Dental Examiners v. F.T.C., 134 S.Ct. 149 (2014) The justices, through their questions, seemed skeptical in believing that the Board’s actions were necessary for the public health, safety, and welfare. Government regulation, however noble, cannot be used in a way to limit competition unless there is a compelling reason for the regulatory oversight. Regulatory bodies that supervise professions cannot be used to eliminate competition for services that are not regulated by other state laws and/or regulations. 

    DISCUSSION STARTERS 

    1. What are the restrictions on state regulatory bodies prohibiting businesses from competing?
    2. Explain all of the steps in the FTC action against the Board. 
  • Tom Clancy: The Stepmother and His Children Locked in an Estate Tax Battle

     

    Tom Clancy, an author of Cold War novels who sold over 53,000,000 books, died last year and left behind an $83-million estate.  Two-thirds of the estate goes to Mr. Clancy’s widow and the remaining one-third is to be split between and among Mr. Clancy’s children from a previous marriage. 

    The battle is over responsibility for the $6 million in estate taxes.  Mrs. Clancy says that the children should pay most of that because her property is held in a trust. However, the children argued that their portion of the estate is limited and, therefore, their share of the tax burden should be limited as well. The court found in favor of the children and required Mrs. Clancy to pay the estate taxes.  Mrs. Clancy plans to appeal and argue that her husband amended his will just before his death with the idea of protecting her from the heavy tax debt.  Neither Mr. or Mrs. Clancy anticipated the children's reaction and, as a result, the will was never amended.  Scott Calvert, “Disputed Will Spurs Tom Clancy Intrigue,”  Wall Street Journal, Sept. 18, 2014, p. A8.

    Mr. Clancy is free to distribute his property as he sees fit as long as his intentions are made clear in the documents.  The only other avenue for challenging the will would have been to have it set aside, which would have left Mr. Clancy intestate and resulted in a different distribution of his estate, a distribution that might have left Mrs. Clancy with about the same net because the children would have been responsible for more of the estate taxes.  To set aside the will, Mrs. Clancy would have had to establish that Mr. Clancy lacked sound mind at the time he made the will, or any modifications. Mr. Clancy passed the sound mind test, and since he made no specific provisions regarding the estate taxes and had no modification to the will, the court was left to simply apply the law.  She who inherits most of the money pays most of the taxes. The court found that since Mrs. Clancy received the bulk of the estate that the bulk of the taxes were her responsibility. 

    Discussion Questions 

    1. Explain the issues that the heirs have taken to court.
    2. Can Mr. Clancy give less to his children than he did to his wife?               
  • Developments in Same-Sex Marriage Litigation – A Lesson in Appeals, Certiorari and the High Court

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    In Business Law we study the possibility of a statute conflicting with the constitution. If a litigant (a party to a lawsuit) believes that has occurred, s/he can challenge the law as unconstitutional. If a law in fact conflicts with the constitution, only one be enforced.   Since the Constitution is the foundation of our law and the supreme law of the land (as established by the constitution, Article Six, Clause 2), the statute will be declared unconstitutional and therefore void.   Of our four sources of law (Constitution, legislators, judges and government agencies), it is a judge who will assess whether a law is unconstitutional

    Numerous states adopted laws that ban weddings between two people of the same gender. In several of those states, the law was challenged in a federal district court, which are courts of original general jurisdiction in the federal court system. Several cases were appealed to a federal Court of Appeals, which is a court with appellate jurisdiction in the federal court system . The judges in each of those cases declared the marriage prohibitions unconstitutional because they violated the equal protection clause of the Constitution. Five of those states (Indiana, Oklahoma, Utah, Virginia and Wisconsin) sought to appeal to the United States Supreme Court (USSC). Those states argued that the ban on same-sex marriage passed constitutional muster.

    Business law students learn that there is but one USSC. That court hears cases from all fifty states as well as the federal courts, making it an incredibly busy court. It cannot possibly hear all cases seeking the court’s attention. Instead, it picks and chooses. For those cases that it agrees to hear, the court issues certiorari (“cert” for short), meaning authorization to argue the case before the nine top judges. Approximately one out of 100 cases that seek certiorari are granted it.

    The high court has announced that it is not giving certiorari to any of the same-gender marriage cases. The practical effect of this development is that the decision from the Court of Appeals in each case becomes the final decision. Thus, bans on same-sex marriages in the five states are void, and same-gender couples there can marry. Indeed, issuance of marriage licenses to them in those states began within hours of the USSC’s ruling.

    The federal court system includes 13 Courts of Appeals. There are of course 50 states. Thus, the jurisdiction of each Court of Appeals encompasses several states. Decisions of appeals courts are binding on all the states within the court’s jurisdiction. Six additional states with bans on gay weddings are within the jurisdiction of those Courts of Appeals that have declared such prohibitions unconstitutional. Those bans will likely be invalidated shortly.

    Many states whose laws have been invalidated are disappointed with the USSC’s refusal to grant certiorari. Nonetheless, the authority of the federal court takes priority over state law. Commented the Governor of Utah, a state whose ban has been voided, “I believe that states should have the right to determine their own laws regarding marriage. That said, we are a society of laws and we will uphold the law.” Same sex couples in Utah are already exchanging vows.

    When the high court denies certiorari, it does not give the reasons why. Typically however, the USSC declines cert when federal appeals courts are in agreement on an issue. Concerning the gay marriage question, all the appeals courts that have ruled to date are in agreement that the bans conflict with the Constitution. If one of the remaining Courts of Appeals splits from those rulings and decides a ban is constitutional, the USSC may be more willing to look at the issue.   Other appeals courts are expected to rule on the question in upcoming months, including some courts viewed as more conservative than those that have already ruled. Stay tuned.

    For more information, click here.

     

  • Predatory Lending and Active Duty Soldiers: New Protections

    It all began as the Soldiers and Sailors Relief Act (a law from 1899), and was updated with the Military Lending Act  (2007)– the credit protections for active duty soldiers.  Initially, the protection provided by the federal law was against foreclosure.  Creditors could not foreclose on a soldier’s home as long as the solider was classified as “active duty.”  The expanded protection covered leases, car loans, and other forms of credit lending. 

    However, the latest version of the act does not cover what seems to follow soldiers who are desperate for cash or unable to meet payments.  Under proposed changes, made by the Department of Defense, the Military Lending Act would be amended to include and/or extend or expand the following protections:

    1. The top interest charge of 36% would apply to installment loans and credit cards.  Presently, the 36% cap applies only to short-term loans.
    2. Soldiers would not be required to agree to arbitration (a provision included in virtually all credit card agreements)
    3. The definition of short-term loans has been changed because lenders were finding loopholes in the law.  For example, the limitation on interest applied to loans that were for 180 days or less.  So, military-type lenders were making 181-day loans and charging higher interest rates. Omni and Pioneer Lending were the two military lenders that carried the one-day longer-than-short-term loans.
    4. There was also use of the allotment system, an agreement that allowed the lenders to take the loan payments directly from the military member’s paycheck, which often meant that the greater part of the soldiers’ paychecks were going to the predatory lenders. That allotment system will be changed and limited under the proposed law. Jessica Silver-Greenberg, “Tougher Shield for Soldiers Against  Predatory Lenders,” New York Times, September 27, 2014, p. B1.

    There is pressure in Washington, D.C. to get the hearings done and the amendments to the law passed. However, the military lenders are pushing back and are running ads stating that the changes would deprive the soldiers of their frequently used product.  Presently, those in favor of the changes are making their own ad campaigns.  They are running ads in newspaper near military bases that indicate the soldiers should not allow the federal government to take away one of the sources they use for financial relief.

    DISCUSSION STARTERS

    1. What was the purpose of the original law related to soldiers’ borrowing?
    2. What would the new law do?
    3. What circumstances do you think will evolve if these changes are not made? 

  • States, OSHA, and Roofer Safety

    Roofing contractors in Arizona do not have their employees or contract workers wear harnesses when they are working on roofs.  Nor do the contractors put up any safety netting to catch those roof workers should they slip and fall.  The roofing contractors are not violating Arizona law.  However, the federal government, through its workplace safety agency, OSHA, is battling Arizona in order to increase its roofing contractor safety requirements.  In an effort to balance state and federal power, OSHA defers to state regulators if the state regulations are as strong or stronger than the federal standards.  OSHA has notified Arizona officials that it does not believe that Arizona standards are as strong as OSHA's.  Arizona requires harnesses and use of the netting when the roof workers are 15 or more feet above the ground.  The contractors say that such safety precautions will cause them to have to shut down their operations because the costs would be $300 per worker per project. The OSHA standard is six feet. Alexandra Berzon and Kris Hudson, "Fight Erupts Over Protecting Rooftop Workers,"  Wall Street Journal, September 28, 2014, p. B1.  

    Arizona experienced a fatality of a roofing worker several months ago, and, overall, the number of construction worker injuries and deaths has increased 23%.  Many workers have had their construction careers ended with falls from just six feet. OSHA has the power to force states to adopt the federal standard as a minimum.  There are six other states in the same position as Arizona.  OSHA has formally proposed a takeover of construction safety regulation in those states.  Arizona and the other states have the opportunity to respond to the federal agency's proposal and have the issue adjudicated through the agency. 

    DISCUSSION STARTERS

    1.  When is there a discrepancy between federal and state laws under OSHA?

    2.  What is the state required to do if its standards do not meet federal OSHA standards?

  • Spider Man and the Incredible Hulk: Now The Sole Property of Marvel Comics

    Jack Kirby worked for Marvel Comics in the 1950s and 1960s and helped create Spider Man , Captain America, and the incredible Hulk.  Mr. Kirby died in 1994 and his heirs (Mr. Kirby’s four children) filed suit  n 2009 against Marvel (now Marvel Enterprises LLC) to terminate Marvel’s rights in the characters from 2014 through 2019 (those created from 1958 to 1963. 

    However, Marvel argued that Mr. Kirby created the characters while employed by Marvel and they, therefore belonged to Marvel.  The long and winding path of litigation resulted in a Federal District Court ruling (Marvel Worldwide, Inc. v. Kirby, 2010 WL 1655253 (S.D.N.Y. 2010) that the characters were “work for hire: and belonged to Marvel.  A court of appeals affirmed (Marvel Characters, Inc. v. Kirby, 726 F.3d 119  (2nd Cir. 2013), and the case was headed for the U.S. Supreme Court.  The high court denied certiorari when the parties settled the case.  Kirby v. Marvel Characters, Inc., --- S.Ct. ----, 2014 WL 4799706 (U.S.)

    The parties settled their dispute, so the case will not make it to the U.S. Supreme Court. Marvel is now owned by Disney, and the company issued a statement indicating that it looked forward to working with Mr. Kirby’s family and honoring his role at Marvel.  “Marvel Will Settle Lawsuit With Family of a Superhero Creator,” Wall Street Journal, September 29, 2014, p. B7.

    If the relatives had won, their victory would have affected all of the many licensing arrangements that Marvel had made for the use of the characters in movies and television programs.

    The case turned on Mr. Kirby’s role with Marvel. Kirby was a freelancer. He was not a formal employee of Marvel, and not paid a fixed wage or salary. He did not receive benefits, and was not reimbursed for expenses or overhead in creating his drawings. He set his own hours and worked from his home. Marvel was free to reject Kirby's drawings or ask him to redraft them. When Marvel accepted drawings, it would pay Kirby by check at a per-page rate. The court held that the work was performed for Marvel at Marvel’s initiation and was, therefore, work for hire.  Work done for hire at a company belongs to that company. 

    DISCUSSION STARTERS

    1. What would the filmmakers owe the Kirby estate if the court had found that the characters belonged to Kirby?
    2. Why was Kirby’s work not that of an independent contractor?
  • Untruthful Claims of “Made In US” Can Lead to False Advertising Lawsuits

                      

    A company that sells basketball hoops, and labels them “Made in USA,” is being sued for misrepresentation. True, although more than 90% of the component parts of the hoops made by Lifetime Products, Inc’ (Lifetime), are made in the United States. Most of the work is performed in the state of Utah, including cutting, shaping, painting and assembling. However, some bolts and the net are imported from China.

    Lifetime is also being sued for its Made in America claim on a related product – a hoops and backboard system which is made with German shock absorbers.

    The company employs 1500 people and occupies 38 buildings. It was founded in 1986 by Barry Mower, a basketball player and religious Mormon.

    There are state and federal laws that define the meaning of “Made in USA,” and the definitions vary. California has the strictest law. That state outlaws the use of the phrase unless all parts are made in this country and all assembly is done here. If even one bolt comes from elsewhere, the promotional phrase is considered false advertising. However, the state legislature is reconsidering the all-or-nothing aspect of the statute. The lawmakers are debating whether to lower the threshold to permit use of some minor amount of foreign parts and still be labeled “Made in America.”

    The Federal Trade Commission (FTC), the federal agency charged with preventing deception and unfairness in the marketplace, has issued guidelines that provide a bit more leeway. The label can be used if “all or virtually all” of the product is made in the US. For this application, the United States includes the 50 states, Washington DC, and the US territories and possessions. The guidelines further provide, “ ‘All or virtually all’ means that all significant parts and processing that go into the product must be of US origin. That is, the product should contain no – or negligible – foreign content “

    Lifetime claims the imported parts of the basketball hoops are not even produced in the US, and for the company to open a plant for that purpose would be cost prohibitive.

    The two cases were settled with Lifetime agreeing to modify the label to read, “Made in the USA from US and imported parts.” Additionally, Lifetime will pay the plaintiffs $4,500 and $3,500, respectively, cover plaintiffs’’ attorneys fees of $485,000, donate $325,000 to charity, and give discounts to consumers who had previously bought the company’s basketball equipment. Additionally the company had to pay its own legal team $535,000.

    Plaintiffs’ attorney has represented numerous claimants in similar lawsuits. He has been accused of “going shopping” for cases and, in the process, hurt producers that are struggling to keep production in the US. The purpose of these laws is to protect domestic manufacturers from competitors who might benefit from a pricing advantage by using imported parts. The law, passed in 1961, sparked only minimal litigation only until the late 1990’s when outsourcing of production expanded quickly.

    Another product Lifetime makes is plastic folding chairs. The only parts not made in the US are eight rivets. Says the company spokesperson, “Everyone else who makes these has packed up and left the US. And we’re getting hit over eight rivets.”

    Lifetime Products, Inc. is only one of many companies sued. Other businesses that have been a defendant in a case involving false claims of origin include manufacturers of door locks, hand tools, blenders, helium tanks, and flashlights.

    For more information,click here.

    DISCUSSION QUESTION:

    What factors should the Florida legislature consider when deciding whether to  loosen its standard for use of the “Made in America” label? IF you were in the legislature, how would you vote and why?

  • Buckyballs Seller Seeks to Have His Product Ban Lifted

    Shihan Qu, a 27-year-old business owner of Zen Magnets, built the largest company selling Buckyballs.  But his business was halted when the Consumer Product Safety Commission (CPSC) banned Bucky Balls from sale in the United States because of a number of deaths and intestinal injuries that occurred when children swallowed the magnets, which are so powerful that they can cause magnetic pull across the bowels and cause death quickly.  The CPSC has issued regulations that required Bucky Balls to be too large for a child to swallow or have magnetic power that is 1/50th the amount of the original Bucky Balls. 

    Mr. Qu filed suit against the CPSC halt to the sales of Buckyballs, and the case is pending.  One of the legal twists in the case is whether the CPSC can go forward with a rule when the authority and action of the agency is an issue in a pending case.  Mr. Qu has, in effect, brought an ultra vires challenge to the agency's authority to ban products all together.  The agency believes that its authority was expanded by Congress and that requiring a new design or prohibiting the product's sale are within the scope of that expanded authority.  The case is scheduled for an administrative law judge hearing in December.  

    The CPSC has argued that the toy simply cannot be made safe.  The magnets can fall on the floor, into corners, and beneath the carpet and younger children can then have access to them.  Mr. Qu has argued that the CPSC does not have the right to eliminate businesses through rules.  He refers to his battle as "quixotic," but feels he has no choice. Rachel Abrams, "Last Maker of Strong Magnets Deemed Hazard to Children Fights Safety Ban," New York Times. October 3, 2014, p. B3.

    DISCUSSION STARTERS

    1.  Explain the issue of ultra vires.

    2.  What is the purpose of the administrative law hearing?

  • Pension Plans and Bankruptcy

    Before all of the municipal bankruptcies (particularly in California), we held a legal assumption:  public pensions were immune from the laws of bankruptcy.  That assumption meant that in working the city's way out of bankruptcy, the pensions could not be touched as an asset or in terms of reduction of benefits as a result of the bankruptcy. Mary Williams Walsh, "Judge Rules Calpers Lien Is Invalid," New York Times , October 2, 2014, P. B1. 

    However, the bankruptcy judge in the Stockton, California bankruptcy has held that Calpers (the California government employee pension), is not entitled to a lien on the pension funs.  The judge in Detroit's bankruptcy reached a similar conclusion with that state's pension plan late last year.  The judges both concluded that the states cannot edit federal law and changes rights and priorities in bankruptcy.  As a result, the pension plans can be reduced as part of the bankruptcy and not not enjoy protected status.  Pensioners are unsecured creditors and are left to federal priorities they may have in other areas. 

    The Detroit case is already on appeal. In re Police and Fire Retirement System of the City of Detroit v. City of Detroit, 14-1208.  You can find the case here.  With this ruling, the pension fund stands with bondholders, who are unsecured creditors. 

    DISCUSSION STARTERS

    1.  Explain the difference between a debt that cannot be discharged and what has now happened to the state/government employee pensions.

    2.  What are the chances that the pension fund will recover its monies in the bankruptcy?

  • Chickens, California, Constitution, and State Power


    The state of California passed its cramped chicken law, a law that prohibits the sale of eggs produced by chickens in cramped quarters.  The law was passed through the lobbying of animal rights activists because of their concern about laying hens’ living conditions. 

    After the statute was passed, the Attorney General of Missouri brought suit challenging the statute as unconstitutional on the grounds that it violated the commerce clause because its effect was the imposition of new business requirements on all egg producers in all states if they wanted to do business in California.  Six other states joined the lawsuit after it was filed. State of Missouri, ex rel., Chris Koster, Attorney General of Missouri v. Harris. Together, the six states produce 20 billion eggs per year, and two billion are sold in California. In filing the suit, the Attorney General said, “[The case] is not just about farming practices, [but presents] a question whether elected officials in one state may regulate the practices of another state’s citizens, who cannot vote them out of office.”  “U.S. Judge Dismisses 6-State Suit Over California Egg Law,” New York Times, October 4, 2014, p. B3. 

    The Humane Society and other animal rights groups joined the suit as well. California has a number of similar laws, including one that resulted from a ballot proposition that required that pigs, calves and other animals have enough space to lie down and fully extend their limbs.

    However, a federal judge dismissed the suit on the grounds that the attorneys general did not have standing because they brought the suit on behalf of egg producers and there was no proof that citizens of their states would suffer harm.  You can read the complaint in the case here.

    The case centers on the police power and general welfare clause of the U.S. Constitution that gives states wide latitude in passing laws for their citizens that deal with public health and welfare. However, the states do not enjoy unrestricted license. Although the courts try to protect the police power, so long as the benefit achieved by the statute does not outweigh the burden imposed on interstate commerce. 

    In all likelihood this case will go on to the U.S. Supreme Court, a case the court may take because of the burden on egg producers outside of California, and because the result of the statute is to favor California egg producers in that market. 

    DISCUSSION STARTERS

    1. Explain the statute and its impact on egg producers.
    2. Does this statute allow California to control commercial activity in other states?