Karen Morris' Bio
Karen Morris is a Distinguished Professor of Business Law at Monroe Community College in Rochester, New York where she has taught for 31 years. She is also an elected town judge and the author of two textbooks - New York Cases in Business Law and Hotel, Restaurant and Travel Law. Karen also writes a treatise on New York Criminal Law and a column in Hotel Management Magazine. She recently published her favorite work - Law Made Fun Through Harry Potter's Adventures. Professor Morris is the recipient of numerous teaching awards and recently received the Humanitarian Award from her county Bar Association.
Marianne Jennings' Bio
Professor Marianne Jennings is a member of the Department of Management in the W.P. Carey School of Business at Arizona State University and is a professor of legal and ethical studies in business. At ASU she teaches graduate courses in the MBA program in business ethics and the legal environment of business. She served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. From 2006-2007, she served as the faculty director for the MBA Executive Program.
A recent case illustrates a growing connection between social media and proving damages in a lawsuit. The lesson is that Facebook and Instagram accounts can be damning to plaintiffs and very helpful to defendants. The accounts typically host pictures documenting aspects of a person’s life. Surprisingly often, the pictures are inconsistent with injuries a plaintiff is claiming.
Plaintiffs have the burden of proof. This means they must present sufficient evidence at trial to convince a jury or judge that the defendant did something wrong and so is liable to plaintiff. If successful in doing so, plaintiff must then prove damages. A plaintiff in a civil case typically seeks compensation for doctor bills, missed time at work, pain and suffering (physical and/or mental discomfort or distress), loss of enjoyment of life (inability to participate in activities or pleasures of life that were previously enjoyed), and limitations on activities caused by the injury.
Dominique Sharpton, 29, the oldest daughter of Al Sharpton, Civil rights leader and TV/radio talk show host, may be learning the hard way lessons about proving damages. She allegedly twisted her ankle on an uneven sidewalk in Manhattan on October 2, 2014, and apparently suffered a bad sprain. In April, 2015 she sued the city for $5 million, alleging it was negligent for failing to repair the problematical pavement. Per the allegations in the complaint, she was “severely injured, bruised and wounded” from the fall, and still suffers “debilitating and permanent physical pain.” She seeks restitution in the amount of $5 million for “permanent pain and mental anguish, loss of quality of life, future pain and suffering, future medical bills and future diminution of income.”
Sounds like serious injuries but - her Instagram account belies the claims. While she was pictured in a walking boot (a device to aid in walking when a person has an injured foot) in the weeks following the fall, her apparent recovery is likewise documented. Instagram shows her dancing in high heels at a club in December, and climbing a ladder to decorate a Christmas tree, both in 2014. Additional pictures posted since then depict her climbing a challenging mountain in Bali, Indonesia, captioned by her own commentary about the difficulty of the climb.
Also displayed are recent images of Ms. Sharpton participating in a Justice for All march in Washington, DC, partying on New Year’s Eve in Miami Beach, Florida, and climbing Red Rock Canyon in Nevada. These are feats not typically achievable by a person with significant leg or foot injuries. Said a legal analyst on CNN: “[The Instagram photo array] graphically demonstrates bad judgment and good feet. It all adds up to no case; . . . It’s a gift to the defense.”
In response to publicity generated by the pictures, Sharpton’s lawyer stated plaintiff suffered multiple ligament and tendon tears in her ankle and “has not returned to her pre-accident form.” The photos will significantly frustrate his efforts to prove that.
This is not the first and won’t be the last example of plaintiffs posting pictures or videos that shed doubt on a claimed injury. Defendants’ lawyers have become proficient at searching for such evidence. They appropriately use it to their advantage for bargaining power in settlement negotiations, and for cross-examination of the plaintiff. If your business is sued, don’t overlook this potential treasure trove of favorable evidence.
Plaintiffs should receive compensation for injuries caused by defendant’s wrongdoings, but plaintiffs should not receive an undeserved windfalls.
For more information, click here.
How does social media help insure the basic purpose of a trial - to identify the truth in disputed situations?
Actress Cindy Lee Garcia appeared in a 14-minute film, Innocence of Muslims, that was posted to YouTube and which news media reports indicated resulted in violence in the Middle East (including the attack on the U.S. embassy in Benghazi) as well as death threats against Ms. Garcia and others who had appeared in the film.
Ms. Garcia and others involved with the film filed suit against YouTube (owned by Google) in California state court to obtain an injunction against the movie. Garcia v. Google, Inc. The case was dismissed. She then filed suit in federal district court and that district court held that Ms. Garcia did not establish the merits of her claim and that she did not prove any harm would be prevented through the issuance of an injunction. The injunction against the film was denied. 743 F.3d 1258 (9th Cir. 2014). However, in 2014, the Ninth Circuit reversed that decision and an injunction was granted. After several journeys through hearings and rehearings at the Ninth Circuit (766 F.3d 929; 771 F.3d 647 (9th Circ 2014)), the court held that an actor in a film did not hold a sufficient copyright interest to be able to override the First Amendment rights of the filmmaker. No injunction would be issued, but the case will still proceed to trial to determine the copyright and free speech issues.
Ms. Garcia alleged in her suit that she was bamboozled into making her five-second appearance in the movie. She was not aware that the film would be a “blasphemous video proclamation against the Prophet Mohammed.” In fact, Ms. Garcia answred a casting call for a film that was then titled, “Desert Warrior.” Ms. Garcia was hired and paid $500 to appear in the film and say, “Is George crazy? Our daughter is but a child.” She was paid $500 for the appearance, in which she was directed to “act concerned.”
In 2012, Mark Basseley Yousef upoloaded the video to YouTube. Mr. Basseley was later arrested and remains in jail on charges that the federal government says are unrelated to the video, which was reported as the cause of the deaths of four Americans at the Libyan embassy. An Egyptian cleric issued a fatwa against the director, the producers, actors, and anyone who helped to promote the film.
The court held:
In this case, a heartfelt plea for personal protection is juxtaposed with the limits of copyright law and fundamental principles of free speech. The appeal teaches a simple lesson—a weak copyright claim cannot justify censorship in the guise of authorship.
The court noted that if actors were permitted to make copyright claims, then films would be splintered into many different versions (as actors’ desires to be protected from the film by having their appearances cut out). The court noted the possible consequences:
Take, for example, films with a large cast—the proverbial “cast of thousands”—such as Ben–Hur or Lord of the Rings. The silent epic Ben–Hur advertised a cast of 125,000 people. In the Lord of the Rings trilogy, 20,000 extras tramped around Middle–Earth alongside Frodo Baggins (played by Elijah Wood). Treating every acting performance as an independent work would not only be a logistical and financial nightmare, it would turn cast of thousands into a new mantra: copyright of thousands.
The court also noted that Ms. Garcia and the others waited months to bring suit and did not request emergency hearings on her requests for an injunction, thereby mitigating her claims of danger. The case will now proceed to trial on its merits, but the film will continue to play on YouTube.
1. Explain why copyright claims by individual actors in a film would be problematic.
2. What did Ms. Garcia do that contradicted her claim of the need for an injunction?
Charles Tendall owns a firm called Azorian Cyber Security, but he has also claimed to have created the Hacker’s List, a sort of Angie’s List for those who need help with hacking. Mr. Tendall has referred to himself as a “Certified Ethical Hacker” and has indicated that “Hacker’s List” was an “off-the-cuff idea” that has grown beyond his expectations. Matthew Goldstein, “Owner Identified of Site Offering Hackers for Hire,” New York Times, May 13, 2015, p. B1.
The problem with the growth is that some of the users are hiring hackers to steal passwords, change grades, and commandeer Facebook sites. The site, which was launched in November 2014, was intended to be a site where folks could find help for their cyber security needs. Hacker’s List gets a fee for every completed assignment between parties who connected on the site.
There are certainly ethical questions about the service, and lawyers are already raising the possibility of civil liability for the site owner for permitting customers to hire others for illegal activity. While Hacker’s List warns against its use for illegal activity, there is little that the site does to prevent or monitor such uses. Like YouTube in its early days, illegal activity (in that case copyright infringement) was rampant and YouTube claimed it had no vicarious responsibility. The courts, however, disagreed, and held that once YouTube was notified of infringement it had to take down the videos. The same would be true of Hacker’s List. Like Craig’s List, that had to conduct screening after a murder resulted from connections made from the personal sections, site sponsors must come up with some rules for screening posts so that they are not facilitating criminal activity. Hacker’s List has been labeled the “Craig’s List for hackers.” Anthony Cuthbertson, “Anonymous Creator of Hacker’s List Website Reveals Himself as Cybersecurity Consultant,” International Business Times, May 19, 2015.
That type of screening has been litigated prior to the advent of the Internet. In that case, the mercenary ads Soldier of Fortune magazine resulted in connections for murder for hire. Norwood v. Soldier of Fortune Magazine, Inc., 651 F.Supp. 1397 (W.D. Wash. 1987)
Hacker’s List has experienced problems including site crashes, fraud by those who post on the site, and, ironically, hackers trying to disrupt the site. Mr. Tendall has pledged that no one will complete illegal projects through his website. However, there are no guarantees. Twitter has suspended the Hacker’s list accounts because it saw tweets such as “Hack a PayPal account.”
Mr. Tendall has called himself a “white hat hacker,” but many cyber security experts wonder why he would create the Hacker’s List or risk his credentials because of the problems that have emerged with the site.
Like so many issues in cyber space. the uses outpace the law. As these new activities and uses emerge, the law has to catch up in order to determine levels of control and liability.
1. William L. Prosser, a legal scholar, has stated, “Nearly all human acts . . . carry some recognizable possibility of harm to another.” Why do we allow recovery for some of those harmful acts and not others?
2. Should websites consider other sources for possible ethical policies? For example, The Association of Newspaper Classified Advertising Managers, Inc. (ANCAM) has the following policy:
Advertisements containing statements that injure the health of readers, directly or indirectly, are not acceptable.
Another ANCAM section provides:
Any advertisement fostering the evasion or violation of any law or making a direct or indirect offer of any article or service that violates a city, state or federal statute is unacceptable.
The legal aid group, Advocates for Basic Legal Equality (ABLE), represented mortgagors in their defaults on loans from U.S. Bank. In representing these mortgagors, the legal aid group learned that U.S. Bank was receiving payments from the Federal Housing Administration (FHA) on these loans in default under the federal government’s loan guarantee program. However, the FHA rules require that lenders do everything that they can to get defaulting buyers current on their loans. U.S. Bank had signed the annual FHA certification that it had complied with all FHA requirements on loan processing, collection, and management.
As a result of what ABLE alleged were violations of FHA requirements for loan work-outs, ABLE filed suit under the False Claims Act seeking recovery of the funds paid to U.S. Bank for what it said were fraudulent statements made to FHA (the federal government) in obtaining reimbursement for the loans in default. The false statements alleged were that U.S. Bank had fulfilled its FHA requirement to work with the borrowers in order to make the reimbursement claim. Peter Eavis, “Judge Denies Whistle-Blower Status in U.S. Bank Case,” New York Times, May 14, 2015, p. B6.
The benefit to ABLE in filing the suit was that it believed that it became a whistle-blower and thus would be entitled to a percentage of any funds the suit recovered for the federal government from U.S. Bank. However, a federal judge held that ABLE did not meet the requirements for a whistle-blower claim.
To be entitled to a percentage of funds recovered under the Federal Claims Act or other federal statutes (SOX and Dodd-Frank), the whistle-blower must meet the following criteria:
The action must be brought by a private citizen or group
The individual or group must provide information that is original or unique
The individual or group can recover only if the action is successful in recovering funds.
In ABLE’s case, U.S. v. U.S. Bank, 2015 WL 2238660 (Ohio 2015) the court held that all of the information that ABLE provided to the court was already in the public domain so that there was no original or unique information. The court cited other cases, news media coverage, and general public knowledge that lenders had violated regulations. ABLE, the court noted, had added no additional new information to what was already known about lending practices. In short, ABLE was not an original source of information.
The case has been deemed a set-back for legal-aid organizations that have been able to recover funds under the False Claims Act through their litigation. The False Claims Act allows such recovery if the information in the suit is original and not available from other suits or through news outlets.
What is the standard for a whistle-blower’s recovery under the False Claims Act?
Why does ABLE not meet that standard?
Avon, the cosmetic company, has announced that the business is for sale. The buyer it seeks is a real one, not a hoax. However it apparently attracted the latter kind.
When a stock trader makes a buyout bid for another company, the bidder must publicly announce the offer by filing the proposal with the Security and Exchange Commission’s Edgar database. Edgar is used by publicly traded companies to file official regulatory reports.
A filing was submitted by “PTG Capital Partners” offering to buy Avon for $18.75/share, an attention-getting amount equal to almost three times the stock’s closing price on the previous day of $6.67. The offer was filed on Edgar at 11:30 a.m. on May 14th. The proposal immediately caused a significant spike in the sale of the stock as arbitrageurs, traders who bet on the likelihood of mergers, saw the filing and bought Avon stock in anticipation of a possible deal and quick profit.
However, suspicions were shortly aroused. There were numerous factors that seemed amiss in addition to the high offering price. Tender offers (a type of corporate takeover where a public invitation is made to all shareholders to purchase their stock, usually at a premium price) are not customarily made directly to shareholders unless the board of directors has resisted the overture. Given the nearly 200% premium offered by PTG, most boards would entertain a discussion about a proposed takeover, yet PTG went directly to shareholders. Also, when traders called the phone number listed in the filing, the response was a voicemail message. This is contrary to most takeover efforts where investor- relations representatives are ready and waiting to convince potential buyers of the value of the offer.
The filing referenced a lawyer in Fort Worth Texas, but neither the lawyer nor the law firm could be located. Further, the filing contained many typos, including numerous references to the filer’s own name with the first two letter transposed (TPG rather than PTG).
Additionally, the filing was written in an older computer language popular in the 1960’s. While it is still a valid SEC filing format, most filers use the more current HTML. Finally, the filing identified the bidder as being registered in the British Indian Ocean Territory, a small group of islands about 2,600 miles off the eastern coast of Africa. Turns out no companies are registered there. Indeed, the territory has no residents. Locals were relocated in the 1970’s to enable creation of a military base for British and US forces that is still in use today.
As a result of these oddities, the New York Stock Exchange stopped trading in Avon stock within a half hour of the filing. During those first 30 minutes about $91 million in the company’s shares were bought and sold, rendering the day one of the highest-ever sales volume for the stock of the beauty products firm.
By early afternoon, Avon announced it had not received an offer and was treating the filing as a hoax. The alleged fabrication appears to be a devious execution of a “pump and dump” scheme. That term refers to illegal efforts by dishonest stock traders who issue false information about a company for the purpose of increasing stock sales to drive up the price. This enables the perpetrator to sell his holdings for a sizeable profit. Methods previously used include fake press releases and spreading information through financial message boards. Filing a fake registration with the SEC is a new twist.
The matter raised some questions about the role of the SEC’s Edgar database. Investors and traders assume the information is correct because it is associated with the SEC. However, that agency does not verify all the information. This is understandable given that it receives about 4,000 filings to the Edgar system daily, and that information is automatically made available to the public. The SEC does check to be certain the applicable form is completed properly and the information notarized. Per the federal securities laws, filers are liable for the accuracy of their filings, and are subject to enforcement action if the information is false or misleading .
Pump and dump schemes constitute the crime of securities fraud. .The alleged bogus filing has triggered a criminal investigation for securities fraud by the Federal Bureau of Investigation, and a civil inquiry by the SEC.
For more information, click here.
Should the SEC do more thorough investigations of Edgar filings? Why or why not?
Pedro Hernandez, age 54, was recently tried for the 1979 murder of 6 year old Etan Patz. The lad vanished on his way to a school bus stop in New York City on the first day his parents permitted him to make the two-block walk alone. The trial began January 30, 2015 and lasted three months. The case resulted in a hung jury (unable to come to a unanimous decision) with a vote of 11-1 for guilty.
Patz’s disappearance gave rise to the national missing-children movement. The date of the incident, May 25, is now National Missing Children’s Day.
The passage of time since 1979 – three decades and six years - is significant. Most criminal and civil charges have a limited time period within which the plaintiff can sue. The law that identifies the time restrictions is called the statute of limitations. Once the designated time period has passed, a case cannot be pursued regardless of the strength of the evidence. In many states the time period for felonies is five years. There is however one exception; it is murder. For that crime there is no statute of limitations. A perpetrator can be prosecuted whenever law enforcement is able to identify the defendant, notwithstanding passage of time.
The case against Hernandez was delayed because the police lacked evidence. The boy’s body was never found. The prosecutor had little evidence until 2012 when Hernandez confessed. The case hinged on that confession. The defense argued that the confession was false, that Hernandez is mentally ill, and he has an abnormally low IQ making him susceptible to the police officers’ “aggressive and protracted” interrogation. The prosecution argued the confession was genuine, and consistent with statements Hernandez made to others on three occasions about committing a murder..
At the trial, the jury’s deliberations spanned an unusually long 17 days. Eight members of the jury spoke to the press following the verdict. They stated the group of 12 initially split 8-4 for guilty. Following discussions the vote went to 6-6, then 9-3 for guilty, then 10-2 and finally 11-1. This suggests active and fluid deliberations (review of the evidence by the jury, including discussion and advocacy).
In New York and 47 other states, a jury’s verdict must be unanimous. If there is even one holdout, the jury is hung and the judge declares a mistrial, meaning an inconclusive trial, one which is terminated before its normal conclusion. Reasons for a mistrial include a hung jury or an error in proceedings such as improperly introduced evidence or misconduct by an attorney. When a mistrial is declared, the trial has no legal effect. Instead, the proceeding is considered invalid.
Note: In two states only, less than a unanimous verdict is sufficient. In Oregon and Louisiana a vote of 11-1 or 10-2 is sufficient for a verdict. However, where capital punishment is a possible sentence, both states require a unanimous vote. In 1972, the United States Supreme Court ruled that even a vote of 9-3 would pass constitutional muster. 
The Hernandez jury twice reported to the judge three separate times that it was deadlocked. The first two times the judge gave the jurors an Allen charge and sent them back to the jury room for further deliberations. An Allen charge consists of encouragement to the jurors to reconsider their positions and try to reach a unanimous verdict , noting that trials are expensive both monetarily and emotionally, and the parties are best served with a verdict.
When a criminal case results in a mistrial because of a hung jury, the prosecutor has the option to retry the case. The second trial is not considered a violation of the constitutional right against double jeopardy, another constitutional right. It applies only where a trial resulted in an acquittal or guilty verdict. Among the factors the prosecutor will consider when determining whether to retry the case are the following: the strength of the case, the reason for the mistrial, the number of jurors who voted for guilty, the seriousness of the charge, and the amount of resources necessary to try the case a second time.
DISCUSSION QUESTION:1) What is your view of the law in Louisiana and Oregon allowing a verdict with less than a unanimous vote? Why?
 Johnson v. Louisiana, 406 US 356 (1972) and Apodaca v. Oregon, 406 US 404 (1972).
Ironically, a Ben Franklin manuscript is at the center of an ownership dispute between a private individual and the New York Public Library. The man who found the first public library is at the heart of a contentious dispute.
Margaret Tanchuck was the personal representative for her late father’s estate. While going through his property she found several old Bibles and books. One of the books contained a manuscript written by Ben Franklin. The books had library call numbers on them. These finds are quite common -- here is an example from "The Antique Roadshow."
Ms. Tanchuck took the books and manuscript to William Doyle Galleries in order to get an appraisal. When the appraisers noticed the call numbers on the books, they called the New York Public Library (with approval from Ms. Tanchuck). The library then contacted the U.S. Attorney’s office, which is no conducting an investigation as to how Ms. Tanchuck ended up with the books.
The library records indicate that the books disappeared from the library between 1988 and 1991. Ms. Tanchuck’s lawyer says that she does not know how her father got the books, but that they have been in family property for three decades and no one from the library contacted her or her father to inquire about the missing books. Nicole Hong, “Ben Franklin Manuscript Sparks a Legal Dispute,” Wall Street Journal, April 25-26, 2015, p. A3.
The library representatives indicate they could not pursue the books because they did not know who had them. The library also issued a statement indicating that it still pursues lost books after decades and that it would be wrong to allow someone to profit from stolen property.
The U.S. Attorney has issued a subpoena that seeks to seize the books from Ms. Tanchuck. Her lawyer has filed a motion asking the court to set aside the subpoena.
The case involves personal property rights as well as Article 2 of the Uniform Commercial Code. If the property is stolen, then Ms. Tanchuck does not have title to the books or the Franklin manuscript because, even with three decades in between, a thief cannot pass good title to stolen property. However, there are times when libraries have book sales and the books are sold (with call numbers) with good title passing despite the call numbers. The issue that becomes critical is that of whether the library held such sales, when, and if the books they now say are missing were really part of a public sale.
While we often say possession is nine points of the law when it comes to who owns what, the statement is actually not correct when you are in possession of stolen property, even if you did not steal it. However, the arguments will still be made through the courts because over $1,000,000 is at stake.
There are already five lawsuits filed related to fan grievances about the “fight of the Century.” Randy Maniloff, “The Sports Fans Who Cried Foul – and Call Their Lawyers,” Wall Street Journal, May 8, 2015, p. A15. One of the claims is misrepresentation. Manny Pacquiao did not disclose that he had hurt his shoulder. Some are based on the “I wanted a legitimate fight” theory. That theory was used in the suits following the Mike Tyson and Evander Holyfield fight. Mike Tyson was disqualified after he bit off part of Mr. Holyfield’s ear. The fans said they were deprived of a fight – what they had paid to see,
There is some precedent in lawsuits filed by fans who feel cheated in a contest. In the Tyson-Holyfield heavyweight championship, the fight lasted only three rounds before the ear incident, and the fans sued because the fight was not legitimate; they wanted 12 full rounds. The court held that a ticket to a sporting event only gives you the right to view that sporting event, whatever happens. Interestingly, Mr. Tyson was charged with assault as well as the “use of a dangerous instrument” in the commission of a crime for biting off the ear. In People v. Tyson, 712 N.E.2d 1228 (N.Y. 1999), the court held that Mr. Tyson’s “choppers” were a body part and not part of the scope of the definition of “dangerous instrument” under New York law. The assault charge stood, but the “dangerous instrument” charge was dismissed.
Courts rely on the theory that a ticket to a sporting event is a license, not a contract. That theory cuts off the breach of warranty, breach of contract causes of action. For example, in Bickett v. Buffalo Bills, Inc., 122 Misc.2d 880 (N.Y. 1983), the court dismissed a suit by fans seeking a refund because a players’ strike prevented them from seeing games. The courts hold that fans pay to see what happens at an event – whatever happens – and that there are no guarantees in their ticket purchases. However, some season tickets do include a refund provision for strikes, Miami Dolphins, Ltd. v. Genden & Bach, P.A., 545 So.2d 294 (Fla. App. 1989).
So, if horses scratch from a race or race car drivers withdraw (Bowers v. Federation Internationale de L’Automobile, 489 F.3d 316 (7th Cir. 2006)), or fights do not go for 12 rounds, the fans get what they get. Even when there is alleged fraud, as when New York Jets fans sued the Patriots and head coach Bill Bellichick for the “Spygate,” which resulted in penalties for the Patriots following the Jets game. Mayer v. Bellichick, et al., No. 09-2237 )3rd Cir. 2010)
There are legal issues in the fights. Mr. Tyson, as noted, faced criminal charges. The sporting organizations impose fines and, for example in the Patriots’ case, the loss of a draft pick. But, the fans have not enjoyed relief from the courts.
The Pacquiao suits have been filed in the 9th Circuit area. Some believe the hope is that the more liberal Ninth Circuit will not be as dismissive as the third and seventh circuits have been about fan cases over disappointing events. Also, the twist in the case is that the suit is not based on the fight itself but on disclosures about the fighters’ conditions prior to the event. There is a slightly different twist to the basis for the suits. The wheels of justice will turn and perhaps precedent will have some refinement for fans.
Explain why fans have traditionally lost suits for disappointing events.
Discuss the difference in the Pacquiao suits.
Manaj’ is being sued by her wig stylist.
Nicki Manaj is a rapper, singer and songwriter. Born in Trinidad, she is a fashion icon, in part due to her hourglass figure, in part her choice of outfits (form-fitting with vivid colors), and in part her elaborate wigs. The hairpieces are colorful, distinctive, and creative. Many of them were designed by her hair stylist, Terrence Davidson.
Minaj’s website includes a store. Among the items she sells are multi-colored wigs not unlike the ones she wears. Additionally, some of Davidson’s wig designs served as the templates for the bottle tops of Nicki’s perfume line. Manaj has shared none of the proceeds with Davidson.
The parties’ business relationship began in 2010. Davidson claims Manaj promised to pursue a joint venture with him to sell wigs commercially using his designs. Davidson’s lawsuit claims quantum meruit, a legal principle requiring payment by one party where no express contract exists to avoid unfairness; and promissory estoppel., a legal doctrine that holds where a party relies to his detriment on a gratuitous promise, the promise is enforceable even though a contract did not exist). The Court of Appeals for the 11th Circuit (Alabama, Georgia and Florida) recently dismissed the promissory estoppel claim and refused to dismiss the quantum meruit charge.
To prove a case in quantum meruit requires that plaintiff show: 1) he performed valuable services; 2) defendant accepted those services; 3) failure by defendant to compensate plaintiff would be unjust; and 4) plaintiff expected compensation at the time the services were rendered.
Davidson claimed that he contemplated two possible outcomes from his business relationship with Manaj. One possibility was that she would use the wigs for her personal use, for which she would pay a specified price. In the alternative, she would use the wigs and designs commercially, for which she would pay a higher price. Manaj accepted the designs and paid the first price. She also used the wig designs commercially but has not paid Davidson for that use.
Davidson claims Manaj recognized the commercial value of the designs, she understood he expected to be compensated for their commercial use, and she has realized profits in excess of $1 million but has not compensated him. Said the court, “If proven, these allegations sufficiently describe an unjust failure to compensate Davidson. . . “
Manaj claimed the wig designs were not novel but instead “nothing more than a combination of colors and a hairstyle.” Therefore, she argued, the services lacked the necessary value to support a quantum meruit claim. The court rejected this argument, holding instead that services can have the necessary value despite lacking novelty. The court held that the service of designing and constructing distinctive wigs is sufficient to support a claim of quantum meruit.
Quantum meruit applies only in circumstances where no express contract exists. While Manaj and Davidson may have had an express contract for personal wig services, the court determined the allegations in the complaint do not compel the inference that an express contract existed concerning commercial exploitation of the wig designs. The Court of Appeals thus reversed the district court’s dismissal of Davidson’s quantum meruit claim, and reinstated it..
Davidson also argued he should be entitled to compensation based on promissory estoppel. The elements of this claim require that: 1) Manaj made a promise; 2) she should have anticipated that Davidson would rely on that promise to his detriment; 3) Davidson did so rely by changing his position; and 4) an injustice can only be avoided by the enforcement of the promise.
Unlike quantum meruit, for promissory estoppel to apply an express promise is required. The promise must have been communicated with sufficient detail to enforce the commitment.
Promises merely to “work something out” about a future business venture (akin to an agreement to agree) is too vague to be enforceable. Here, Davidson alleged that Manaj promised “to pursue a wig venture” with Davidson. The court ruled that this promise was too vague and indefinite to support an action for promissory estoppel. Instead, the promise was “nothing more than offers to work something out about a future wig venture.” The appeals court thus affirmed the decision of the district court to dismiss the promissory estoppel cause of action.
What is the difference between quantum meruit and promissory estoppel?
 Davidson v. Maraj [her actual name is Onika Maraj] and Pink Personality, LLC, 2015 WL 1868143 (11th Cir., April 24, 2015).
In the past four years, 25 colleges and universities have been asked by bankruptcy trustees to pay back tuition funds paid by the bankrupt debtor prior to declaring bankruptcy. For example, NYU paid back $27,152 in tuition paid by bankrupt Minnesota parents for their NYU student-child. Pace University settled with a bankruptcy trustee and paid back $23,290.80. Katy Stech, “Colleges Pay When Parents Go Bankrupt,” Wall Street Journal, May 6, 2016, p. A1.
What allows a trustee to “claw back” funds paid to third parties? Trustees can claw back voidable preferences, those payments made in anticipation of bankruptcy that give certain creditors a favorable position or a pay-off. However, in the case of college tuition, the trustees are relying on a provision in the bankruptcy code that permits them to claw back payments made to third parties when the bankrupt did not receive “reasonably equivalent value.”
There is certainly benefit for the sons and daughters who are students, but the bankrupt does not actually receive any benefit from the school. The reality of increasing tuition levels has made it worthwhile for trustees to pursue claw backs from the schools.
Bankruptcy judges are not in agreement. For example, in In re Shelton C. Lindsay, the court held that St. Andrew’s University must pay back the tuition a debtor had paid for his son prior to bankruptcy. The court held that while there might be a societal expectation or moral obligation to pay for one’s children’s tuition, there is no legal obligation and payment can be clawed back. In fact, the court held that the payments constituted a fraudulent transfer. However, in another case, the bankruptcy judge held that the University of Chicago and Robert Morris did not need to repay the $82,000 in tuition that a lawyer father had paid for his children.
With the law unsettled, many universities are simply settling cases when trustees make a demand for a claw back. The settlements generally seem to be a split; that is, the universities pay back one-half of the tuition actually paid.
There would need to be a change in the bankruptcy code in order to clarify claw backs from colleges and universities. And there is still a debate among parents, lawmakers, and university officials about the wisdom of transferring the burden of bankruptcies to colleges and universities. In other words, there are significant public policy issues involved in this broad interpretation of the bankruptcy code and the purpose of claw backs.
Called the “Ban the Box” movement, Koch Industries is the latest large U.S. corporation (employing more than 60,000 people in the United States alone) to drop its application question about prior criminal convictions. Koch’s general counsel and senior vice president said that the reasoning behind the company’s decision was simple, “Do we want to be judged for the rest of our lives for something that happened on our worst day?” Fredreka Schouten, “Koch Gives Job-Seeking Ex-Cons a Break,” USA Today, April 28, 2015, p. 1B.
Once the question is banned, applicants are judged solely by their education and experience. The question about convictions comes up only during interviews when the applicants would have the opportunity to explain their past history. Proponents believe that this open process gives ex-felons a better chance at being hired because they are not rejected automatically from the hiring pool. See the National Employment Law Project website for more information.
Target and Walmart are two other major companies that have adopted the “Ban the Box” policy internationally. There are also 16 states that have what are called “fair chance” hiring policies. In these states, government agencies have banned the box (California, New Mexico, Denver, Nebraska, Minnesota, Illinois, Georgia, West Virginia, Virginia, Maryland, Delaware, New Jersey, Connecticut, Rhode Island, Massachusetts, Vermont, and the District of Columbia). Another 16 states have at least one county or city (for a total of 100) with a fair chance policy. In six of those fair chance states the fair chance policies also apply to private employers.
There are 70 million people in the United States who have some type of criminal record. The number of individuals returned each year to society following their incarceration is 700,000. Men with criminal records account for 34% of all unemployed males between the ages of 25 and 54.
The goal is to find jobs for these individuals in areas where they do not present a liability risk. For example, those who have convictions for violent offenses present security and safety issues for companies and potential liabilities so there must be caution in placement and supervision. Those who have been convicted of financial crimes present a risk for bonding and insurance and must be placed in non-access types of positions. Also, there are some licensed positions for which convicted felons cannot be qualified. For example, licensed insurance and securities dealers require special clearance from state and, sometimes, federal agencies in order to return to their professions following any type of felony conviction.
The fair chance goal is to open doors for careful placements as opposed to precluding those who have a criminal record from all job opportunities. For example, most Koch Industries jobs are in manufacturing, a highly supervised and structured environment where safety and security can be controlled.
Explain the distinction in the hiring process when the “box” is eliminated.
Discuss the risks employers face in hiring those who have convictions and the precautions they can take.
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A raisin farmer has gone all the way to the U.S. Supreme Court. In Horne v. U.S. Department of Agriculture, 750 F.3d 1128 (9th Cir. 2014), cert. granted, 135 S.Ct. 1039 (2015), the constitutionality of the Department of Agriculture’s efforts to stabilize the raisin market is under scrutiny.
There is a long history for raisin regulation. Raisin prices rose rapidly between 1914 and 1920, peaking in 1921 at $235 per ton. These prices spurred increased production, which in turn caused prices to plummet back down to between $40 and $60 per ton, even while production continued to expand. As a result of this market upheaval, Congress passed the Agricultural Marketing Agreement Act of 1937 to bring predictability to the agricultural markets.
The Department of Agriculture then implemented the Marketing Order Regulating the Handling of Raisins Produced from Grapes Grown in California. The Marketing Order regulates raisin supply through the oversight of the Raisin Administrative Committee (“RAC”), which sets an annual “reserve tonnage” requirement, a percentage of the overall crop. The remaining raisins are “free tonnage” and can be sold on the open market. The reserved raisins are diverted from the market to smooth the peaks of the raisin supply curve. Reserved raisins are released when supply is low. The RAC adapts the reserves annually to address changing market conditions. For example, in the 2002–03 and 2003–04 crop years at issue here, the reserve percentages were set at forty-seven percent and thirty percent of the annual crop.
The RAC has 47 industry-nominated representatives (35 raisin producers, 10 raisin handlers, one co-op representative, and one representative from the public). The RAC, which receives no federal funding, finances its operations and sales of reserve raisins.
Marvin and Laura Horne restructured their raisin operation to avoid the impact of the Marketing Order. The Hornes came up with a non-traditional packing program outside the Marketing Order definitions. Instead of sending their raisins to a traditional packer, against whom the reserve requirement of the Marketing Order would operate, the Hornes purchased their own handling equipment to clean, stem, sort, and package raisins. The Hornes then performed the functions of a handler with respect to the raisins they produced. The Hornes believed that by processing their own raisins, they would not be “handlers,” only producers. The Hornes performed the same functions for other producers for a per-pound fee. By not acquiring title to the raisins of other producers but rather charging those producers a per-pound fee, the Hornes believed they did not fall within the regulatory definition of “handler” with respect to the third-party producers' raisins. With this set-up, the Hornes believed the requirements of the Marketing Order for reserves did not apply to them.
The Secretary disagreed and an administrative law judge held the Hornes in violation of the Marketing Order and imposed a fine of $695,226.92. The Hornes then filed suit in federal court on the meaning of handlers and also alleged that the agency's order violated the Takings Clause and the Eighth Amendment's prohibition against excessive fines. The district court granted summary judgment for the government. The Hornes appealed, and the Ninth Circuit affirmed. The U.S Supreme Court granted certiorari and heard oral arguments in the case last week. A decision is expected in May or June.
The case represents a due process challenge to many administrative agency controls on pricing, crops, and agriculture programs. The Hornes argue that the government takes a portion of crops without compensation and without due process. The justices were lively in their questioning, and the decision will have significant impact on similar agricultural programs that over see markets.
Explain the economic issues in the reserve program.
What is required for due process in administrative agency proceedings.
The Stage is a popular Eastern European restaurant in New York City that has been in business for 35 years. As one on-line reviewer wrote, “The pierogies were SO good, stuffed cabbage – delicious, kielbasa-yum.” Said another, “The food is fabulous, (I had borscht and blintzes); the prices are beyond reasonable,”
But all was not kosher. Turns out, allegedly the restaurant illegally siphoned gas by installing a device to bypass the eatery’s meter. The upshot is – The Stage was not paying for the gas it used. The eatery denies the charges.
The building that houses The Stage also contains residential apartments. It is located directly across the street from the site of a fatal gas explosion and fire that occurred last month. That incident killed two people and injured 22. Investigators believe that explosion was triggered by a similar illegally tapped gas line. Prosecutors are considering filing murder charges against the person who jerry rigged that system. Note: Murder includes not just intentionally causing death, but also causing death by conduct that demonstrates a “depraved indifference to human life.” The prosecutor apparently would use this second definition.
Following the explosion across the street, tenants in The Stage’s building smelled gas and called Con Ed. The utilities workers found the improper hookup and immediately stopped service of gas and heat to the building. That occurred on March 29th. The landlord terminated The Stage’s lease, effective April 30th.
The restaurant apparently had a month-to-month lease. This means the term of the lease is one month and is renewed for another month automatically upon payment of each month’s rent. Either party can terminate this type of lease for any reason or no reason. The Stage’s landlord, upon discovery of the manipulated gas line hook up, terminated the month-to-month lease. To do so, the landlord must give the tenant one month’s notice of the termination before the end of the lease. Thus, since the landlord discovered the problem on March 29, it gave immediate notice that the lease would end on April 30th.
Another option to remove the restaurant may have been available to the landlord but was not employed. Most leases contain an anti-crime covenant. This is a contract term that forbids the tenant from engaging in any illegal conduct on the premises. While such terms are intended primarily to prevent prostitution and illegal drug sales, anti-crime provisions typically prohibit all kinds of criminal conduct, including theft of utilities.
Even when a tenant violates a substantial provision of a lease, the landlord cannot oust the tenant by changing the locks or other self-help action. Instead, the landlord must pursue an eviction proceeding (an in-court hearing seeking to remove a tenant from leased premises) and obtain a judgment (court order) directing the tenant to vacate. The Stage’s landlord avoided the need for a court case by choosing instead to give a month’s notice and terminate the month-to-month tenancy.
Another relevant legal issue involves the warranty of habitability. This is a guarantee, imposed in residential leases by most states’ laws, that apartments are safe for human habitation. Once Con Ed shut off the utilities, the residential units in The Stage building became dangerous to occupy. The remedy for tenants when the warranty is breached is to move out, or withhold from the rent an amount equal to the diminution (reduction) in rental value caused to the apartment by the unhealthy condition. In addition, the tenant is generally entitled to reimbursement for expenses necessarily incurred by the breach. The Stage’s landlord, anticipating many residential tenants were forced to take shelter at hotels, assured them of reimbursement of $200/day. The loss to the landlord will be substantial. The landlord likely will sue The Stage for reimbursement since The Stage’s illegal action was the cause of the landlord’s loss.
For further information, click here.
If you were the landlord, would you have pursued an eviction in court or utilized the month-to-month termination process? Why.