• Dietary Supplements: Now There Will Be Ginseng in Your Ginseng Pills

    The dietary supplement industry that brings us our ginseng, flax seed oil, and cod liver may not have used any ginseng, flax seeds, or cod’s livers in producing those supplements. Although there has been a federal law on the books since 1994 that regulates these supplements, there has been little enforcement. The law requires that the supplements have a label that lists the ingredients in the supplements and the amount contained in the tablets, capsules, or caplets. Studies by the Food and Drug Administration concluded that 70 percent of the supplement manufacturers did not follow the federal content and labeling law. The supplements often contained fillers such as powdered rice and ground-up weeds.

     However, the state of New York, through its attorney general, began its own investigation. The office of the AG there purchased 78 bottles of supplements from 12 Walmart, Target, Walgreens, and GNC stores in the state. The results of the tests were that there was often no evidence of DNA content from any of the substances claimed to be in the supplements on the labels. For example, ginseng labels promised “vitality and overall well being” on the label, However, there was no ginseng DNA in the pills. Rather, the lab tests found powdered rice, wheat, pine, and houseplants. Anahad O’Connor, “Retailer Adds Stricter Testing of Dietary Pills,” New York Times, March 30, 2015, p. A1.

     The results of the tests have been a settlement by GNC as well as a great many consumer class-action complaints seeking recovery for the false labeling, consumer fraud, and damages for the misrepresentations about content. Under the settlement with the New York Attorney General, GNC has begun and will continue testing its products for content and consistency of actual content with labeling. The settlement ends the attorney general's actions against GNC for consumer fraud, but the agreement means a change in the way the company produces, buys, and tests its products. Other states have required destruction of mislabeled products.

     GNC released a statement that indicated its testing results differed from those of the attorney general and that its products did contain what was described on their labels. GNC’s settlement is likely to affect the entire $33 billion supplement industry. Testing or certification may become a standard in the industry. However, the FDA does not have the resources to closely monitor the supplement industry and enforcement will continue to fall to the states.

     GNC also indicated that it will continue to defend itself against the lawsuits that have been filed around the country. However, there have been 30 settlements of consumer class actions, including for the following supplements:  Anaya, hydroxyl, cartilage supplements, and green coffee bean weight loss capsules,

     DISCUSSION STARTERS

     1. Explain the test results of the New York Attorney General.

    2.  Discuss how the supplement industry escapes regulatory oversight.

  • PayPal Violated US Sanctions on Weapons of Mass Destruction; $7.7 Million Settlement

         

    The United States Treasury Department is an agency of the executive branch of the federal government responsible for promoting economic prosperity and ensuring the financial security of the country. Within that department is an Office of Foreign Assets Control (OFAC). It implements economic sanctions (penalties) programs designed to combat the proliferation in the world of weapons of mass destruction. One such program prohibits US companies from engaging in transactions with foreign persons or countries designated by the Secretary of State (a senior official of the federal government who heads the Department of State and is principally concerned with foreign affair) as engaging in proliferation-related activities. The names of foreign persons subject to the ban are published in the Federal Register, the daily journal of the federal government, and on a website maintained for this purpose by the Secretary of State. Penalties for a willful violation include up to 20 years in prison, a $500,000 fine for a corporation and $250,000 for an individual.

    PayPal, owned by EBay, Inc., is a company that provides users an online payment system.  Its online money transfers serve as electronic alternatives to traditional paper payment methods such as checks and money orders. PayPal has just settled a case for $7.7 million brought by the OFAC. That Office claimed that PayPal violated US economic sanctions for several years by inadequately screening its transactions to eliminate business with US sanction targets. For example, between October, 2009 and April 2013, PayPal processed 136 transactions to and from a PayPal account registered to Kursad Zafer Cire, a Turkish national on the OFAC’s blacklist Cire is believed to be connected with a network of affiliates engaged in developing weapons of mass destruction. That network is suspected of having supported the development of a Pakistani nuclear weapon. That same network subsequently was suspected of attempting to sell nuclear technologies to Libya, North Korea and Iran, countries on the US sanctioned list. Although PayPal’s filter flagged Cire’s transactions seven times, the company’s staff overrode the flag six times and so failed to block his account or stop the transactions until the seventh instance. Additionally, PayPay processed nearly 500 transactions worth more than $40,000 for goods and services going to Cuba, Iran, and Sudan, all sanctioned countries.

    PayPal’s actions were described by the OFAC as “reckless disregard for US economic sanctions requirements” and “an egregious case”. The penalties imposed on PayPal likely would have been greater than the $7.7 million except that it cooperated with the OFAC’s investigators by disclosing PayPal’s transactions data for analysis. Additionally, during the period of investigation, PayPay implemented corrective action including hiring new management for its compliance division and adopting enhanced and real-time scanning of payments. PayPal now screens all transactions against OFAC’s List of Specially Designated Nations and Blocked Persons, and expanded its list of sanctions-related key words used for screening transactions.

    For more information, click here.

    DISCUSSION QUESTIONS:

    How might the economic sanctions impact development of weapons of mass destruction in the targeted countries?

    What do you think prompted PayPal to cooperate with the investigationof the OFAC?

  • A Missed Statute of Limitations May Cost AT&T $40 Million; Lawyer Malpractice

                 

    Timing can be everything.

    AT&T, the high speed internet and mobile services giant, was sued for patent infringement (use of another’s patent without authorization) by Two-Way Media LLC. (Two-Way), a Colorado patent-holding company. The latter claimed that AT&T infringed Two-Way’s internet media streaming patents (the exclusive right to produce and sell an invention). A jury agreed and awarded Two-Way $40 million. ATT&T, not surprisingly, wants to appeal (ask a higher court to review the proceedings).

    A litigant who wishes to appeal a verdict must so declare within 30 days. A specified document must be filed with the court within that time limit. If the document is not submitted, the right to appeal is lost. There are no re-dos nor can the clock be turned back.

    Incredibly, AT&T’s legal team failed to file timely the necessary notice. The upshot – The company cannot appeal the $40 million verdict. Instead, AT&T will have to pay up. This smells a lot like malpractice (negligence in the performance of a professional service) by the lawyers. The internet company’s loss from the lawyers’ slip-up could be $40 million. A lawsuit by AT&T against the attorneys to recover that amount is predictable. The lawyers no doubt are very nervous. However, to collect the $40 million from the attorneys, AT&T will have to prove that the barred appeal of the jury verdict would have been successful. If on appeal the court would have affirmed the $40 million verdict, the technology company would have been required to pay the money even if the lawyers had not erred. The loss from the malpractice would be zero. Thus, resolution of the malpractice case may require adjudication of ATT’s appeal of the verdict

    This circumstance underscores the importance of a statute of limitations, time periods within which action must be taken in a legal case. Once the time has passed, the right to sue, or in this case appeal, is lost, a harsh consequence that requires lawyers to be exceedingly vigilant.

    And now for the back story. The attorneys for AT&T argued that their inaction was excusable neglect (a sufficient reason in legal proceedings to excuse a party that acted untimely).

    Following the jury trial, AT&T’s legal team, 18 attorneys strong, made a motion for judgment as a matter of law (a post-trial request made to the trial judge to reverse the jury’s verdict). Such a motion is fairly routine and rarely granted. It tolls (stops) the 30 day appeal clock from ticking until the judge rules.   The judge decided the motion against AT&T and sent email notice of that decision to AT&T’s attorneys. Denial of the motion started the 30 day appeal clock. The subject line on the email did not include the ruling on the motion. The lawyers did not realize their motion had been denied until 51 days after the decision had issued. Uh oh. This is 21 days too long.   When the attorneys realized the error, they asked the judge for an extension based on excusable neglect. The court ruled that the oversight was not excusable, and denied the extension.

    The email notice from the court denying the motion had been sent to all 18 lawyers, and was downloaded by legal assistants onto the firm’s internal computer system, but apparently none of the lawyers read it (!!). Said the court, “In this era of electronic filing . . . an obligation exists to monitor an electronic docket [to watch for the court’s decision]. . . . “.   The lawyers plan to appeal the decision denying the extension. Legal commentators are not optimistic about success on appeal.

    The moral: Time limits in lawsuits can be very punishing. Lawyers cannot be too careful when monitoring time restrictions.

    For more information, click here.

    DISCUSSION QUESTIONS:

    Is it fair that AT&T may have to pay $40 million because their lawyers made a mistake?

    What action should the lawyers take to ensure they do not miss any future deadlines on other cases?

     

     

     

     

  • Vanity License Plates and the First Amendment

    You pay extra for them, those license plates that have special designs or spell out your message to the world. However, can the states control what appears on license plates? In a case that is headed for the U.S. Supreme Court, we will have some guidelines on what states can and cannot allow on our license plates. The case, Walker v. Sons of Confederate Veterans, No. 14-144, by its name, indicates the issue at hand. The state is Texas and the Sons of Confederate Veterans sought approval for its Sons of Confederate Veteran (SCV) plates.

    Texas has a board that gives a thumbs up or down on these types of decorative plates. The board experienced public protests when the plates came up for review. Adam Liptak, “A Test of Free Speech and Bias, Served on a Plate From Texas,” New York Times, March 23, 2015, p. A1 Although the board has rarely turned down a proposed plate design, it did so in this case. The suit resulted. Texas has argued that the speech on the plates is not individual speech but is the government speaking, a means of identifying cars, and the state can decide what it will and will not say. The organizations and individuals involved in the case, who pay $30 extra for the decorative or vanity plates, have argued that they are paying for the right to communicate a message. Nine states (Alabama, Georgia, Louisiana, Maryland, North Carolina, Mississippi, South Carolina, Tennessee, and Virginia)

    In the federal district court, the court found that the use of the confederate symbol carried negative connotations for some and that the state was free to choose not to have the plates. Texas Div., Sons of Confederate Veterans, Inc. v. Vandergriff,  2013 WL 1562758 (W.D. Tex. 2013) The court concluded:

    It is a sad fact the Confederate battle flag has been coopted by odious groups as a symbol of racism and white supremacy. There is no reason to doubt the SCV and its members are entirely heartfelt in their condemnation of this misuse. It is to be hoped the passage of time, and efforts such as the SCV's resolution, will eventually remove a blight from the flag under which feats of great heroism and fortitude were accomplished. All the traditional avenues of public discourse are open to those who would fully redeem the battle flag. Nevertheless, the state of Texas has chosen to abstain from this debate, and the First Amendment does not require it to open up state-issued license plates as an additional forum in which to contest the flag's meaning.

    The court of appeals reversed the decision, holding that Texas was engaging in “impermissible viewpoint discrimination” in its approval process. Texas Div., Sons of Confederate Veterans, Inc. v. Vandergriff, 759 F.3d 388 (5th Cir. 2014) The U.S. Supreme Court has granted certiorari and will hear oral arguments today (March 23, 2015). Walker v. Texas Div., Sons of Confederate Veterans, Inc. 135 S.Ct. 752

    The decisions of the lower courts outline the issues:

    1. Is this a form of speech?

    2. Whose speech is it?

    3. Can the state discriminate in its approval process?

    4. Does the payment of a fee make a difference in the rights of those who seek to have messages on their plates?

    There is precedent on the license plate issue, but it deals with a case coming from the opposite direction. The case involved New Hampshire and several vehicle owners won their case that allowed them to refuse to have the New Hampshire motto (Live Free or Die) on their license plates. Wooley v. Maynard, 430 U.S. 705 (1997)

    DISCUSSION STARTERS

    Answer the four questions above as a way of thinking about the issues in the case.

  • The NDAs of Silicon Valley’s Execs: Painters in Their Homes Are Sworn to Secrecy

    Celebrities have nearly always wanted to protect their privacy. So, they purchase homes through trusts or business entities so that their names do not appear on the public title documents. They also require architects, contractors, and decorators to sign NDAs (non-disclosure agreements). Under an NDA, the parties agree that those who are doing the work on the home cannot disclose that they did they work (unless the celebrity gives permission), the cost, the products used, and any other information that they might glean as they are on the property doing their work.

    The NDAs have spread to Silicon Valley, and everyone from technicians who wire homes to repair persons and painters are required to sign NDAs before they can begin work on the home. Mark Zuckerberg, who is remodeling his San Francisco home, is a stickler for NDAs. Matt Richtel, “For Tech Titans, Sharing Has Its Limits,” New York Times, March 15, 2015, p. BU4. Yes, the man who founded the company that finds us all sharing photos, information, and comments about ourselves and others would prefer to remain anonymous.

    The NDAs have come become public because of a lawsuit filed by a homeowner, Mircea Voskerkician, who says that Mr. Zuckerberg made oral promises to him about introducing him to people around Silicon Valley for purposes of recruiting business clients and partners. Mr. Voskerkician alleges that Mr. Zuckerberg was trying to buy his property and that he turned down another higher offer based on the promises Mr. Zuckerberg made to him to convince him to sell the house. Part of the discovery in the lawsuit includes emails and other documents that indicate Mr. Voskerkician had to sign an NDA before the two could even discuss the purchase of his property. There is animosity reflected in the e-mails, with the real estate broker involved in the proposed transaction referring to Mr. Zuckerberg as "just a kid." You can read more about the contents of the documents here.

    The Zuckerberg NDAs prohibit disclosure of his name, that he owns the property, what work is being done, the cost, and a blanket prohibition on using any information obtained during the course of the transaction or work for commercial purposes in the future.

    NDAs are enforceable because they do not keep the individuals from working – they just cannot disclose information about their clients. The interesting aspect is the damages. Once a contractor decides to reveal information, there is generally a damage clause, but a suit by a billionaire against a painter for disclosing the color of the billionaire’s wall is not the type of suit lawyers seek. However, there is the desire on the part of the contractors for referrals from Silicon Valley leaders such as Zuckerberg. So, self-interest generally finds them remaining silent about their work.

    DISCUSSION STARTERS

    1. Discuss the enforceability of NDAs.

    2. What do contractors do when they are approached by media with questions as they are entering a home to work?

  • Lindsay Lohan’s Community Service Rejected by Judge; Requirements of Alternative Sentencing

         

     

    Lindsay Lohan – actress, model and singer - has not been the ideal criminal defendant. Sadly, she has accumulated numerous arrests for drug possession and driving while intoxicated, several violations of probation, unsuccessful in-patient stints in treatment centers, more than a few jail sentences, and continued drug and alcohol use. Her story tracks the unfortunate downward spiral a life can take when overcome by substance abuse. She is now on probation for a 2012 reckless driving case. Her sentence included 125 hours of community service.

    Currently, Lohan is performing in the London professional stage production of Speed-the-Plow. In conjunction with the performances, she has conducted numerous meet-and-greet sessions with theater-goers. She has counted towards her court-ordered volunteer activity the time she spends talking to audience members. Reportedly, she also counted time spent performing in the play. The prosecutor and judge are refusing to accept those hours.

    Community service can be imposed as a component of a sentence in a criminal case. Not infrequently, community service is used as an alternative to jail for non-violent offenders The judge orders a violator to perform a designated number of hours of work for the benefit of the community within a specified time period. In exchange, the defendant gets a reduction in a fine or avoidance of jail time.

    Often the county probation department coordinates the volunteer efforts of defendants, connecting offenders with nonprofit organizations in need of workers.

    If the hours are not completed within the time specified by the judge, the offender will be required to reappear in court for alternate sentencing, including the possibility of jail.

    The types of jobs performed include clearing litter in parks, painting, raking leaves, snow removal, preparing community gardens, clerical work, and related miscellaneous tasks. Recipient organizations include hospitals, nursing homes, social service centers and other nonprofit organizations such as the National Cancer Association or the Salvation Army. If a defendant has specialized skills, the work assignment might utilize those abilities. For example, a dentist assigned to community service might provide free dental services to residents of a homeless shelter.

    Each state has its own set of rules relating to community service. Most states require that a defendant be screened by the probation department for suitability. Anyone with a criminal conviction of a sex offense or violent crime is ineligible. If the defendant is under age 18, job assignments must be consistent with restrictions applicable to young workers by the Fair Labor Standards Act. That federal statute restricts the types of tasks a young worker can legally do. The limitations are intended to protect the safety of adolescent laborers. Some states’ rules suggest maximum assigned hours. For example, New York recommends for a misdemeanor no more than 200 hours; for a felony, 500.

    Additionally, the worksites must be certified to be safe, Further, the use of community service workers cannot result in displacement of employed workers, nor can they be used to replace workers on strike (concerted refusal to work by employees during a labor dispute) or lockout (temporary closing of a business by an employer during a labor dispute). Only public and not-for-profit worksites are permitted. Workers cannot be required to do jobs at private residences or for-profit businesses. State rules also require that placements consider the defendant’s schedule, location, skills, transportation availability, plus physical and mental capabilities.

    Typically, the offenders are interviewed to determine their activities and availability, and then are matched with jobs at qualifying worksites.

    Lindsay Lohan’s mingling with playgoers and her performances further her career and promote the for-profit play. As such, they do not qualify as community service. This alternate sentencing is intended to benefit the community, not the defendant. A circumstance that would qualify is if Lohan gave free acting classes to young star wannabees at a not-for-profit agency such as the Boys and Girls Club or a Girl Scout troop.

    For more information, click here.

    DISCUSSION QUESTON:

    1) In your opinion, is community service a good sentencing option?

    2) For what types of cases is community service well-suited?

    3) For what types of cases would community service be inappropriate?

  • The U.S. Supreme Court Rules on Teeth Whitening

    In North Carolina State Board of Dental Examiners v. FTC, 135 S.Ct. 1101 (2015), the U.S. Supreme Court issued its view on teeth whitening by non-dentists and the bid by the Board of Dental Examiners to stop them. The case had a long journey through the state regulators and then through the Federal Trade Commission.

    As reported in this blog in October 2014, 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 was to protect the public health, safety and welfare, and it consists of eight members, comprised of 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 whiteners were eliminated from North Carolina. The FTC filed a complaint against the board. The FTC found that the Board could not regulate the profession and these services unless it could show that it was adequately supervised by the state. The circuit court affirmed the agency’s decision, and the Board appealed.

    Relying on its precedent in dealing with state regulatory immunity, the court found for the FTC. Parker v. Brown, 317 U.S. 341 (1943) Under long-standing precedent, states are immune from antitrust litigation in their regulatory actions as long as the state can show that the regulatory bodies are subject to active supervision by the state. States have sovereign immunity if the regulatory boards are independent. For example, in FTC v. Ticor Title Ins. Co., 504 U.S. 621 (1992), the court struck down the state of Arizona’s regulation on title insurance fees that were set by a state board because the board was comprised only of title company representatives.

    In the case of the North Carolina board, the state delegated control over the practice of dentistry to the Board. There is nothing in the North Carolina statutory provisions that includes teeth whitening as part of the practice of dentistry. Further, those who serve on the board are dentists who are competing with the teeth-whitening industries in their practice. As a result, the court concluded the Board was not entitled to antitrust immunity and that the FTC was justified in bringing its action against the Board.

    Three justices dissented, maintaining that as a state agency the Board is immune from federal intervention on anticompetitive grounds. The dissenting justices point out that all state regulatory bodies have representatives from the industry, such as state bars, real estate boards, and insurance boards. Disallowing that type of structure deprives the boards of the industry expertise and input that they need in making decisions.

    DISCUSSION STARTERS

    1. Explain the tension between the regulators and the teeth-whitening industry.

    2. What type of board structure would give independence to that board in its regulatory activities?

  • Taylor Swift Buys Body Part Insurance; Legs Valued at $40 Million

    Taylor Swift, winner of seven Grammy Awards and one of the best selling artists of all time, is buying body part insurance for her legs. Their appraised value - $40 million!

    Insurance is a contractual relationship whereby one party pays money, called premiums, in exchange for protection against financial loss. There are various types of insurance. Body part insurance covers loss of income due to accidental injury or disfigurement of a body part that is indispensable to the insured’s career. For example, a dentist would likely buy insurance on her hands since two functional hands are necessary for the practice of dentistry. In comparison, hands are not crucial to the practice of law. A lawyer who experiences the misfortune of a major injury to his hand would not lose the ability to earn a living. The lawyer therefore would not customarily purchase body part insurance for his hands. Athletes, artists and musicians often insure legs, arms, and hands, respectively. A sommelier (wine expert) reportedly insured his sense of taste. Almost any body part can be covered if the insured can prove that loss of use would lead to significant loss of work and income.

    Taylor Swift will embark on a world tour beginning May, 2015. Aware of various plane and bus accidents that have befallen other touring entertainers, Swift and her business advisors wisely decided to review her insurance coverage. Consider also Madonna’s recent fall from a stage in London during a British awards show. Fortunately she was not hurt, but a serious injury could have resulted and at least temporarily prevented her from continuing to perform on stage. To protect against the financial loss from such mishaps, Taylor has decided to insure her legs.

    When buying body part insurance, the premium amount is dependent on the value of the part insured. The greater the value, the higher the cost. If the value is not readily determinable, an insurance appraiser (someone who estimates value) will investigate and determine the fair value. An assessment has been made of Taylor’s legs and a valuation assigned of $40 million. The appraiser noted that Ms. Swift has earned to date $200 million. Part of her appeal is her stage presence and signature performances that include dancing and prancing, often in skimpy skirts, short shorts, and hot pants, displaying her long and attractive legs. If she was to lose the use of them, her brand and her income would likely be diminished .

    Other business components of Taylor’s tour will purchase various types of insurance. For example, the concert producers no doubt have purchased business interruption insurance to cover their loss in the event Taylor becomes ill while on tour, or is otherwise unable to perform. This type of insurance would cover the producers’ lost profits.

    For more information, click here.

    DISCUSSION QUESTION:

    What other types of insurance might Taylor Swift purchase before embarking on her tour? 

    What other types of insurance might the show's producers purchase?

     

  • Credit Card and Checking Account Arbitration Clauses: Changes Ahead

    The Dodd-Frank Act of 2010 required the Consumer Financial Protection Bureau to conduct a study into the use of mandatory arbitration clauses in credit card and checking account agreements.  The study was released on March 10, 2015 and reaches the following conclusions:

    • 50% of credit and debit card accounts and 44% of checking accounts for consumers have a mandatory arbitration clause, which means that when consumers have contract breach, issues, or other problems on their accounts they are required to take the dispute to an industry arbitration panel and cannot join any class-action litigation that involves similar issues raised by other consumers.
    • From 2010-2012, there were 615 consumer arbitration cases for credit, debit, and checking accounts.
    • During that same period, 32 million consumers received some form of relief from class-action suits filed on behalf of them for credit, debit, and checking account disputes
    • Three out of four consumers did not know whether their credit, debit, or checking account card accounts included mandatory arbitration clauses.
      • In 2010 and 2011, arbitrators issued decisions in just under 33%. In approximately 25% of the cases, the parties reached a settlement.  The remaining cases appear to have simply gone inactive because the individuals did not follow through on the case or the hearing.  
      • Of the 341 cases filed in 2010 and 2011 that went through the full arbitration process, consumers obtained relief in 32 disputes. They obtained debt forbearance in 46 cases (in five of those cases, the consumers also obtained affirmative relief). The total amount of affirmative relief awarded was $172,433 and total debt forbearance was $189,107.

    You can read the full report here

    There are two views on arbitration clauses.  The financial industry maintains that arbitration is cheap and efficient.  However, class-action suits allow more consumers to resolve their problems without having to appear at arbitration panels and prepare a case for presentation to the panel.

    The CFPB will be proposing rules regarding the use of arbitration clauses.  The proposed rules are already based on this study and will be ready and available for public comment.  Consumer advocate groups favor elimination of mandatory arbitration clauses and oppose prohibitions on class-action-suits clauses.  The financial services industry believes that arbitration provides more individuals relief because the cases are based on specific facts and not general allegations.  They also maintain that the relief comes more quickly under arbitration than in full-fledge litigation.

    DISCUSSION STARTERS

    1. Explain the role of studies in the administrative rule-making process.
    2. What are the issues surrounding the mandatory arbitration clauses in credit and checking accounts?
  • Credit Bureaus: A Settlement and Better Treatment for You When Your Credit Report Has an Error

    The three credit rating agencies for consumers, Experian, Equifax, and TransUnion have agreed to a settlement with the New York Attorney General on a case brought against the companies.  In 2012, the New York office began an investigation into the process the three companies follow when consumers challenge information included in their credit reports.

    Under the Fair Credit Reporting Act (FCRA), consumers have the right to a copy of their credit report and also have the right to dispute information that is included in that report such as incorrect information, information that is included beyond the FCRA permissible date (bankruptcies longer than 7 years ago, etc), or cases of mistaken identity.  The companies have followed that process in a timing sense, but the process has been largely automated leaving consumers frustrated with trying to break through to speak with someone about their concerns.  As part of the settlement, the companies have agreed to put specially trained employees into positions where they can speak directly with consumers and handle the disputes more expeditiously. Those changes will be implemented over a three-year period.

    The function of consumer disputes had been outsourced overseas with all complaints then coded into categories that often did not address the specific issue consumers were raising.  The verification process for the challenged information was perfunctory and initial dismissals of consumer challenges were the norm in handling them.  That automation step will now be eliminated.

    There are also several other parts of the settlement that benefit consumers:

    1. The companies will wait six months before including medical debts on consumer accounts.  The waiting period allows consumers the time that is often necessary to work insurance billing and payment through the claims process. The Wall Street Journal estimates that 52% of all debt on consumer credit reports is medical debt.  Anna Maria Andriotis, “Credit Bureaus Agree to Overhaul,” Wall Street Journal, March 9, 2015, p. A1.
    2. The companies will undertake a campaign to be sure that consumers are aware that they are entitled to see their credit report at no charge once each year.
    3. If consumers have initiated a complaint and a change has been made in the content of their credit report, they are entitled to another free copy of their report.
    4. The companies must include a link on their home web pages that allow consumers easier access to their credit reports.

    The companies are not required to pay a fine as part of the settlement.  However, analysts believe that the companies will have to do significant hiring in order to meet the terms of the settlement. Tara Siegal Bernard, “Top 3 Credit Bureaus Agree to Overhaul the Industry,” New York Times, March 10, 2015, p. B3.

    Although the settlement is with the state of New York, the companies will be implementing the changes nationally. These changes move the dispute process beyond the requirements of the FCRA.  

    One in five consumers have an error on at least one of their credit reports. The three companies receive about eight million requests per year from consumers for correction. You can read the full settlement here.

    DISCUSSION STARTERS

    1. Explain the relationships between this settlement with New York and the federal laws and regulations on credit reporting.
    2. What will the companies change that will expedite the process for disputes by consumers?
  • The “Midnight Rider” Director Is Going to Prison for Involuntary Manslaughter

    The accident was tragic.  While filming “Midnight Rider” in Jesup,Georgia in February 2014, the camera crew and director and producer of the film were setting up a shoot on the railroad tracks.  They did not have clearance from the railroad to do so.  A CSX train appeared suddenly and struck a bed that was placed on the tracks.  One camera person, Sarah Jones, age 27, was killed

    Mr. Miller and other crew members were injured.  You can see a diagram of the accident and photo of the accident scene here.  More details cane be found here.

    The criminal charges brought in the case were against Mr. Miller for involuntary manslaughter, against his wife Jody Savin (a co-producer of the film), Jay Sedrish (executive producer for the film), and Hillary Schwarz (first assistant director).  Mr. Miller entered a guilty plea on the eve of his trial and will be sentenced to one to two years in prison, with the remainder to 10 years being on probation, a $20,000 fine, and a prohibition from working in physical production in the film industry for 10 years.  As part of his plea agreement, the charges against Ms. Savin will be dropped. Mr. Sedrish entered a guilty plea and was sentenced to 10 years  of probation.  Ms. Schwarz is seeking dismissal of her charges.

    There is a lawsuit against CSX that has been put on hold as the criminal charges in the case are resolved. 

    Lawyers have referred to the plea as historic because they cannot recall any case in which producers and directors have been charged criminally for accidents on a movie set. 

    The last Hollywood fatality case was in 1982 during the filming of “Twilight Zone” when a helicopter accident resulted in the death of Vic Morrow and two children who were also acting in the female.  John Landis, the director of the movie, and four others were charged with involuntary manslaughter, but they were acquitted by a jury.

    Under OSHA regulations, employers can be civilly or criminally charged for the deaths of employees.  The decision to bring criminal charges in any case, movie director or plant supervisors, depends on the involvement of the managers as well as other factors such as knowledge about risk, disregard of safety rules, or, as in the “Midnight Rider” case, the failure to follow requirements for on-site work, such as obtaining permission from land or easement owners when you are on location.  

    The difficulty for criminal prosecution is establishing that certain actions or inactions resulted in the deaths or injuries.  The failure to clear locations is an act of omission on the part of directors and producers that does tie the deaths and injuries to causation.

    DISCUSSION STARTERS

    1. Explain the standard for criminal liability under OSHA.
    2. What should filmmakers learn from this case?
  • What the Silicon Valley Venture Capital Case Teaches Companies and Individual Employees About Sex Discrimination

     Ellen Pao, now the CEO of Reddit, was once an aspiring partner at the Kleiner Perkins Caufield & Byers venture capital firm, a firm that has invested in highly successful tech companies. She has brought suit against the firm for discrimination in its refusal to make her a partner. She is seeking $16 million in damages. Although the trial is ongoing, the testimony and questions from both sides offer some lessons for companies on the do’s and don’ts in the workplace.

     For example, in the evaluation of a female partner, the review of a female senior partner’s performance included, “and mother with two young lads.” Reviews of male partners did not include statements about their children, although there has been testimony that senior executives were aware of the familial status of all partners and junior partners. CEO John Doerr testified that he included the family reference to show that the female partner was good at work/life balance. Elizabeth Weise, “Mentor Takes the Stand in Bias Case,” USA Today, March 4, 2015, p. 2B.

    Lesson #1 – Performance evaluations and hiring analysis should not include references to family status – male or female. The number of children or even their existence should be kept out of the picture.

    Other testimony revealed “locker room” talk on the company’s private jet while Ms. Pao was present. A private investigator who was hired by Doerr to investigate a charge by a female partner that she had been inappropriately pursued by a male partner provided testimony about the discussions on a 2011 flight from California to New York City. The discussion covered “hot porn stars,” dating younger women, and bringing now-Yahoo CEO Marissa Mayer onto a company board because she was “really hot.” Ms. Pao was present on the flight, but did not raise concerns during or after the flight.

    Lesson #2 – It is important for those affected to raise issues about sexual harassment or atmosphere at the time that they occur because delays undermine credibility as well as the seriousness of the discrimination charges and conduct.

    Mr. Doerr referred to Pao as “having a female chip on her shoulder.”

    Lesson #3 – Avoid using sexual stereotype language. “Has a bad attitude” is the kind of gender-neutral language that should be used. Elizabeth Weise, “Kleiner Case Turns Raunchy,” USA Today, March 6, 2015, p. 1B.

    There were reports and complaints from senior partners that the firm did not have an atmosphere that allowed women to succeed and that more female partners were needed. The CEO did not read the reports. Elizabeth Weise, “Tape Puts Doerr on Hot Seat,” USA Today, March 5, 2015, p. 1B

     Lesson #4 – If you commission reports on particular issues or complaints, the reports need to be read and acted upon. Mr. Doerr admitted that he did not read the private investigator’s report, a report that has proven problematic at the trial..

     At the trial, Ms. Pao’s lawyer played a tape of Mr. Doeer speaking at a 2008 conference saying about Google, Netscaoe, and Yahoo that they “all seemed to be white, male nerds who’ve dropped out of Stanford or Harvard and they absolutely have no social life, so when I see that pattern comining in – it was very easy to decide to invest.” Elizabeth Weise, “Tape Puts Doerr on Hot Seat,” March 5, 2015, p. 1B.

     Lesson #5 – Be careful of stereotypes, but also be careful what you say in all settings, not just the workplace.

     The trial is ongoing, but the lessons will keep coming as both sides make their cases..

     DISCUSSION STARTERS

     1. Explain the lessons learned.

    2. What changes would you recommend companies make after reading about this trial?

  • Jimmy John’s Assistant Managers Challenge Non-compete Clause

                                                                                                                         

     

    A lawsuit is pending against Jimmy John’s, a franchised sandwich business (the owner of the trademark Jimmy John’s has authorized others to conduct business using the name, subject to designated rules) . Assistant store managers are contesting the legality of restrictive non-compete clauses (provisions in employment contracts limiting the right of an employee to seek employment at competing companies) they signed when they began employment with the sandwich seller.

    The contract provisions bar the employees from working at any of the chain’s competitors for a period of three years after leaving the company. “Competitor” is defined in the agreement very broadly. It includes not just the obvious competitors such as Subway and Quiznos, but also any business within three miles of a Jimmy John’s that derives as little as 10% of its revenues from sandwiches.

    The plaintiffs are seeking to make the case a class-action (a case with many plaintiffs, all similarly situated and similarly injured). They contend that the non-compete agreement is illegal as unnecessarily broad, and oppressive because it restricts their employment options. Per the allegations in the complaint, signing the agreement was a condition of employment. If a worker wanted the job, s/he had no choice but to sign. If enforceable, the contract term would significantly restrict the businesses at which a Jimmy John’s worker could find alternate employment. The sandwich seller has more than 2,000 locations nationwide.

    Non-compete agreements are intended to protect a company from employees who could misappropriate a company’s trade secrets and other confidential information who go to work for a competitor. Such information might include customer lists and contact information, future advertising plans, recipes, scientific formulas, and the like.

    Typically, only higher level employees have access to that type of data. The lower the level of the employee, the less likely s/he would know such information . Like assistant managers in many fast food establishments, Jimmy John’s assistant managers typically spend most of their time performing non-managerial tasks such as making sandwiches, handling cash register transactions, and delivering food orders to customers.

    Jimmy John’s non-compete provision is part of a hiring packet suggested but not required by the franchisor (the owner of the name Jimmy John’s which authorizes others to do business using the name) . Since the lawsuit was begun, some franchisees who had adopted the clause have stopped using it.

    Most states mandate three requirements for a restrictive covenant to be enforceable: 1) the employer must have a valid interest to protect; 2) the geographical area within which employment is restricted must be reasonable (the referenced area must include only locations in which competition would hurt a company’s business); and 3) the duration of the restriction must be reasonable (as a general rule, two to three years likely will pass muster, maybe five, but probably not more). It is the first of the three requirements that will likely sink Jimmy John’s efforts to retain the non-compete clause.

    There are no known attempts by Jimmy John’s to enforce the non-compete clause against a departing assistant manager.

    Presumably the remedy sought by the plaintiffs is a declaratory judgment, a court order that establishes the legal status of a law or contract, finding that the contract term is unenforceable.

    DISCUSSION QUESTION:

    Do you think the court will uphold the non-compete clause or declare it void?  Why?

     

  • Elaine Wynn – The Second Largest Shareholder in Wynn Resorts Ltd. Being Ousted From the Board

    In a twist that gives new meaning to the importance of understanding boards and board elections, Elaine Wynn, the second largest shareholder in the Wynn Resorts Ltd., the casino/resort company run by her now ex-husband, Steve Wynn.

    The story has a soap opera quality. Elaine Wynn married Steve Wynn in 1963, and they were divorced in 1986. However, they remarried in 1991, and co-founded the company in 2000. However, when they divorced again in 2010, they split their ownership interests. Steve Wynn is the Chairman and CEO of the board. Steve owns 9.9% of the company, and Ms. Wynn owns 9.4%; they are the company’s two largest shareholders. The two are still in litigation in a dispute over the restrictions that Steve placed on Elaine’s shares. The restrictions deal with transfers and voting.

    Mrs. Wynn has held a board position since 2002. Elaine’s term expires as of the April shareholder meeting, but the nominating and corporate governance committees did not nominate her for another three-year term. Their reasoning was that the litigation against Steve over the shares represented a conflict of interest. They also noted that under NASDAQ rules, where the company is listed, Elaine does not qualify as an independent director and thus cannot serve on any committees. In effect, the committees reasoned, she is a board member who cannot play a role in board deliberations or votes because of her conflicts of interest.

    However, Elaine is considering her options, including using the changes under the SEC rules that would allow her to nominate herself and deliver her own proxy statement to the shareholders.  The openness of board elections has increased under Dodd-Frank with open nominations now possible. The goal of this change in governance was to make the process more open to shareholders and not controlled by board committees. Indeed, the goal was to allow more independent directors to be elected. In this case, independence, in the statutory sense, is only an issue in the sense that the director seeking to buck the nominating committee who is concerned about her lack of independence.

    The case is also instructive of the issues that emerge when entrepreneurs, such as Mr. Wynn, grow a company and then have to turn over part of that company as part of a divorce settlement. The result is that there can be dramatic battles for control.

    DISCUSSION STARTERS

    1. How and why did the battle for the board position begin?

    2. What advice would you give to a married couple that co-owns a company?

  • Robin Thicke: Litigation Reveals "Blurred Lines” Means Trouble, the Ethical Kind

    The copyright infringement suit brought by the family of the late singer and songwriter, Marvin Gaye, has proven to be much more than just a copyright infringement case. Mr. Gaye’s family alleges that Mr. Thicke’s song, “Blurred Lines: using “distinct elements” of Mr. Gaye’s song, “Got to Give It Up,” which was popular in 1977. You can watch the videos to make your own judgment about the "distinct elements."

    One surprise from the case was Mr. Thicke’s admission that despite being given credit as a writer of “Blurred Lines,” he did not write the song. Mr. Thicke indicated that Mr. Williams wrote the song (which also throws rapper, T.I. under the bus as well). Mr. Ticke explained his admission further under oath, “The biggest hit of my career was written by somebody else, and I was jealous and wanted credit. I felt it was a little white lie that didn’t hurt his career but boosted mine.” Ben Sisario, “Side Issue Intrudes in ‘Blurred Lines’ Case,” New York Times, March 2, 2015, p. B1.

    Mr. Williams agreed that he did indeed write the song but assured the court that what they did was done all the time in the music industry. One lawyer who specializes in infringement cases said that the practice of co-authorship are so common that the saying in the music industry is, “If you get a hit, you get a writ.”

    There are other similar cases. For example, Tom Petty has settled with Sam Smith (a Grammy winner) for payment of royalties because Mr. Smith’s “Stay With Me,” had parts that were very similar to Mr. Petty’s “I Won’t Back Down.” Michael Bolton paid the Isley Brothers $5.4 million to settle his infringement suit.

    So, there are indeed blurred lines in terms of infringement, but jurors are given a simple question – have significant elements of the song been copied? In the Thicke case, Mr. Thicke played a piano in the court room for the jury as he answered questions about how an artist writes a song. The jury also has to determine whether the amount that is similar is fair or goes too far, something that remains a blurred line in the industry.

    Damages in infringement cases are high, especially in the case of a hit such as “Blurred Lines.” The song has sold 7.3 million copies. Royalties for that level of sales could be about $30 million.  The jury will also decide how much of that amount should go to the Gaye family. In other words, the jury has to develop a percentage of use once it finds that there was infringement.

    DISCUSSION STARTES

    1. Explain why you think Mr. Thicke would admit that he did not write the song.

    2. Discuss the role of the jury in infringement cases and what they must determine.

  • The American Sniper’s Killer Found Guilty; Insanity Defense Rejected

    The American Sniper is a top grossing movie nominated for six Academy Awards including Best Picture.[1] The film portrays the life of US Navy SEAL (special operations force, currently pursuing elusive, dangerous and high priority terrorist targets) sharpshooter Chris Kyle. Following his military service, Kyle befriended numerous veterans who needed assistance readjusting to civilian life. One of those was Eddie Ray Routh who served in Iraq and Haiti as a weapons technician. Sadly, on an outing hosted by Kyle and a fellow care-giver serviceman, Routh shot and killed both men. The jury trial, held in Texas, just ended with the defendant being found guilty of two counts of murder.

    Routh did not contest that he had caused the death of Kyle and his friend. Rather, the issue at trial was whether the defendant, age 27, was insane as defined by the law, at the time of the shooting. He had been treated at psychiatric hospitals on numerous occasions for psychotic episodes, including shortly before the killings. Indeed, while Kyle and the defendant were driving to the shooting range, Kyle sent a text message to the other victim that described defendant as “straight-up nuts.” The prosecutor agreed that defendant suffered from post traumatic stress disorder (PTSD) and other mental illnesses.

    However, mental illness is not sufficient to escape criminal liability. Insanity is required. The term “insanity” has specific definitions in law that are different from the meaning used by mental health professionals. Also, the definition varies from state to state. A definition adopted by many states is the following: Due to a mental disease or defect, the defendant failed to appreciate that his actions were wrong (cannot distinguish right from wrong). Texas adds the word “severe” to identify the type of mental disease or defect a defendant must have to qualify for the defense.

    None of the definitions are clear cut or easy to apply. Typically the defendant calls a psychiatrist as an expert witness who testifies defendant was insane when he committed the crime. The prosecution then usually counters with a different psychiatrist who says the opposite. The definition is broad enough, and the science of psychiatry inexact enough, to permit both interpretations. The jury has the difficult task of deciding which medical opinion to accept and which to reject.

    Defendant had given several versions of why he killed. They include that he was being attacked by “pig-men and pig assassins” (referring to Kyle and his friend) who were going to kill him; he became annoyed at Kyle’s friend, who, according to Routh, was watching him suspiciously at the shooting range; and Kyle and his friend were ignoring ignored Routh.

    Customarily, before a defendant is sentenced, a thorough background investigation is done to enable the judge to craft a sentence best suits the specific circumstances of the offender. To allow time for such a report to be prepared, sentencing typically is adjourned for several weeks. In the sniper case, the judge sentenced Routh immediately following the verdict to life in prison without parole. Here’s why it happened so swiftly. In Texas, like many states, if a defendant is convicted of multiple murders, statutory law (written law adopted by legislators) permits only two possible sentences – death penalty and life in prison without parole. Due to Routh’s mental illness issues, the prosecution announced early in the case that it would not seek the death penalty. Therefore, the judge had only one option, so waiting had no purpose.

    The insanity defense is rarely used and rarely successful. Less than one percent of all defendants assert the defense. True, even though studies done by the US Bureau of Justice Statistics show that about half of all US inmates, representing 1.3 million, suffer from some form of mental illness.

    Thirty-two states have a death penalty; 18 do not plus the District of Columbia. Most research on the death penalty establishes that the possibility of being sentenced to death does NOT deter premeditated or spontaneous crimes.

    Not all countries share our views on life without parole. China and Pakistan, for example, give defendants sentenced to life the possibility of parole after 25 years. Countries in Europe are weighing banning life in prison without parole.

    DISCUSSION QUESTIONS:

    What is the effect on the death penalty definition of Texas' addition of the word "severe".

    Do you think "insanity" as a defense should encompass all mental illnesses?  Why or why not?



    [1]  It won only Best Sound Editing.