• $18 Million Award for Sexual Harassment Against Wall Street CEO

                

     

    Benjamin Wey is the chief executive officer of the United States division of the New York Global Group (NYGG). That firm has been operating for 20 years as a business consultant, venture capital advisor, and private equity investment group that services clients worldwide.

    Wey and the firm were sued for $850 million by a woman who was hired by Wey as Marketing Director. She was subsequently fired by him and is claiming sexual harassment and defamation. The jury returned a verdict of $18 million in favor of plaintiff.

    The plaintiff, Hanna Bouveng, a former model, started working at NYGG in July, 2013. Beginning in December of that year, Wey allegedly began giving her many gifts, and asking and then demanding that she have sex with him. Due to threats and persistence, she regrettably gave in. Several more sexual encounters followed despite her alleged repeated refusals. Meanwhile, he directed her to dress more provocatively around the office and made “relentless” sexual comments. Once she refused his advances, she was fired. At the trial, she sobbed on the stand as she testified about these events.

    Per testimony of Wey’s wife, who also worked at NYGG, Wey helped plaintiff pay for rent at an upscale apartment near NYGG’s offices. Wey explained this to his wife as necessary for plaintiff to live close to the business, and due to Bouveng’s limited credit history, the landlord required a co-signor.

    Per Bouveng’s testimony, Wey told her if she would not sleep with him, he would fire her, evict her from the apartment, and have her deported (she is Swedish). At one point Wey went to plaintiff’s apartment uninvited while she was at work. He found her boyfriend there and became irate. Wey fired her that same day. Wey then wrote emails to Bouveng’s father, with whom Wey had some business dealings, saying that “Hanna’s boyfriend is dirty, drunk, naked, lying in her bed” and “cheapens her and hurts your image.” He also wrote, “Do you think our customers like to see my assistant with a late night partier like this?”

    Wey’s harassment did not end there. He made several online posts calling plaintiff a prostitute and a drug addict. He also involved her aunt, Helena Bouveng, a member of the Swedish parliament. Wey included in a post, a picture of the aunt and wrote, “Helena Bouveng. Cocaine dealer sponsor?”

    Wey’s attorney denies that Wey had any sexual contact with plaintiff and instead accused her of extorting Wey (obtaining money by threats of harm). The lawyer alleged that the relationship between Wey and Bouveng was business only. He further asserted that Bouveng had threatened Wey she would tell police that he raped her unless he agreed to settle the case for a substantial amount of money.


    Sexual harassment is a form of sexual discrimination and constitutes a violation of Title VII of the Civil Rights Act of 1964. When a boss seeks sexual favors and threatens job-related retaliation for refusing, this is called quid pro quo sexual harassment. “Job benefits” include continuation as an employee. Thus, if a worker is terminated for rejecting her supervisor’s sexual advances, or is threatened with termination if she refuses or ceases to have intercourse with the boss, this constitutes quid pro quo sexual harassment. In such cases the employer is liable as well as the employee, based on respondeat superior, meaning the employer is liable for the wrongful acts of its employee. The purpose behind this rule is to encourage employers to hire, train and supervise responsibly.

    Once liability is established, plaintiff must prove damages (loss or harm). This includes lost wages and benefits, money to compensate for emotional distress, and medical expenses to address emotional and physical injuries. Bouveng might also be seeking punitive damages, which is money in excess of her damages which a jury can award when the harasser’s conduct is particularly outrageous, malicious or shock’s the conscience. Of the $18 million awarded by the jury in the Wey case, $16 million was for punitive damages.  Other remedies for sexual harassment include an injunction, which is a court order prohibiting further acts of harassment. When a plaintiff is successful, the judge has the option of also awarding the plaintiff attorneys’ fees.

    A plaintiff has a duty to mitigate the loss, meaning minimize it. Thus, plaintiffs such as Bouveng must seek alternate employment or otherwise reduce the loss if possible. Failure to do so may negate a plaintiff’s right to damages. This is because the law does not like economic waste.

    Defamation, plaintiff’s second cause of action, means untruthful and demeaning statements published to a third party.

    For more information, click here.

    DISCUSSION QUESTION:

    What might NYGG have done to avoid this lawsuit?

    How might plaintiff mitigate her damages?

     

  • The Turtles, Taylor Swift, and Mick Jagger: Big Week for Music Royalties

    Music royalties continue to give us a great deal of intellectual and business law instruction. In just the past week, we witnessed a battle over royalties between Taylor Swift and Apple. Apple, scheduled to begin its paid streaming service on June 30, was not going to pay royalties for the free period. Taylor Swift, whose music does sell, announced via Tumblr, that she would not allow her music to appear on Apple Music. Ms. Swift explained, "Apple Music will not be paying writers, producers, or artists for those three months." I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company. "It's not too late to change this policy and change the minds of those in the music industry who will be deeply and gravely affected by this. We don't ask you for free iPhones. Please don't ask us to provide you with our music for no compensation." Without Swift’s “1989” album, Apple lost its product distinction from other streaming services.

    With Taylor out, Apple recognized an issue with its new offering. Eddy Cue of Apple responded, "#AppleMusic will pay artist for streaming, even during customer's free trial period," tweeted Eddy Cue, Apple's senior vice president of Internet Software and Services. "We hear you @taylorswift13 and indie artists. Love, Apple."

    Music copyrights require permission and compensation when the songs are provided in any format.

    However, the Swift Apple dust-up was just one part of the week of royalties. SiriusXM was able to settle its lawsuit over royalties on songs made before 1972. The suit, brought by 1970s artists such as the Turtles, the Rolling Stones, and others. The basis of those suits was that songs written before that time, although no federally copyrighted, were still under copyright protection by state laws, including those in New York, California, and Florida. SiriusXM has agreed to pay $210 million to major record companies for songs that it broadcasts that were written before 1972. However, the record companies supplies about 80% of the pre-1972 songs because copyrights were assigned to them. Ben Sisario, “SiriusXM Settles a Lawsuit on Songs Made Before ’72,” New York Times, June 27, 2015, p. B3. The Turtles will continue their class-action litigation, with the size of the case reduced by the record company settlement. However, SiriusXM won summary judgment against the Turtles in Florida even as those same Tutrles have some procedural victories in New York and California. The royalty battle continues.

    DISCUSSION STARTERS

    1. Explain copyright and royalty rights.

    2. What does Apple need to do to be able to use a particular artist’s work in its streaming services?

  • The U.S. Supreme Court's Housing Decision: A Disparate Impact Approach

    The U.S. Supreme Court decision, Texas Dept. of Housing and Community Affairs v. Inclusive Communities, _____ S. Ct. _____, 2015 WL 2473449 (2015), is an important real estate law case. The case changes the standards for housing discrimination cases from required proof of disparate treatment to required proof of disparate income. As in employment cases, plaintiffs alleging discrimination need not prove intentional unequal treatment. Plaintiffs alleging violations of the Fair Housing Act now can use disparate impact as a form of discrimination. Disparate income does not establish discrimination acts such as, “We won’t rent to people like you.” Rather, disparate impact results from the application of policies that result in an impact on protected class individuals.

    In employment law, disparate impact is established when for example, an employer imposes a height rule for a job position. The disparate impact of such a rule is that the job would automatically exclude more women than men. Employers must be careful in establishing such guidelines. A guideline that might meet the employer’s need for a certain level of strength (such as for a prison guard) would focus on strength and not height.

    In the Texas case, the issues arose because the federal government provides low-income housing tax credits that are distributed to developers through various Texas agencies. Texas distributes these federal credits through its Department of Housing and Community Affairs. A developer's application for the tax credits is scored under a point system that gives priority to statutory criteria, such as the financial feasibility of the development project and the income level of tenants. The Texas Attorney General has interpreted state law to permit the consideration of additional criteria, such as whether the housing units will be built in a neighborhood with good schools. Those criteria cannot be awarded more points than statutorily mandated criteria.

    The Inclusive Communities Project (ICP) is a non-profit organization that assists low-income families in obtaining affordable housing. The ICP brought suit because it alleged that the award of the tax credits resulted in segregation because too many were granted in predominantly black neighborhoods and very few were granted in white neighborhoods.

    The district court founds that it found “from 1999–2008, [the Department] approved tax credits for 49.7% of proposed non-elderly units in 0% to 9.9% Caucasian areas, but only approved 37.4% of proposed non-elderly units in 90% to 100% Caucasian areas and that “92.29% of low-income housing tax credit units in the city of Dallas were located in census tracts with less [sic] than 50% Caucasian residents.” The district court imposed a remedial program on Texas to eliminate the disparate impact. The court of appeals issued a mixed-bag opinion that focused on procedures and burdens of proof and Texas appealed.

    In a 5-4 decision, the U.S. Supreme Court held that disparate impact claims were permitted under the Fair Housing Act. The court noted that local housing authorities must “foster diversity and combat racial isolation with race-neutral tools, and mere awareness of race in attempting to solve the problems facing inner cities does not doom that endeavor at the outset.” In other words, the granting of the tax credit must take into account the impact of granting a credit on the racial diversity of an area within a city or town.

    In one of the dissenting opinions, Justice Alito noted that in St. Paul, Minnesota, a ordinance required landlords to clean up that city’s rat infestation. The end result was that landlords increased rents, forcing minorities into concentrated areas. Efforts on the part of St. Paul would, with this new decision, make the city liable when the concentration of minorities increased as they fled to areas with lower rents, although perhaps more rats.

    DISCUSSION STARTERS

    1. Explain the difference between disparate impact and disparate treatment.

    2. What system will Texas need to use?

  • Bible Study Murders in South Carolina; Understanding Hate Crimes Laws

               

     

    The law's appropriate disdain and intolerance for discrimination is reflected in both civil and criminal law.  Not only is prejudice against protected classes prohibited in employment and in places of public accommodation, but the concept of hate crimes reflects similar sentiments in criminal law. 

    Nine people of color were killed during a Bible study class at a predominantly Black church in Charleston, South Carolina. A 21 year old Caucasian male named Dylan Storm Roof is charged with the murders. Among his comments as he opened fire was the statement, "You are raping our women and taking over the country."

     

    The murders are being investigated as hate crimes. In a picture on the killer's Facebook page, he was wearing symbols of two former white supremacist governments, apartheid- era South Africa and Rhodesia which is today Zimbabwe. Other photos show him displaying a confederate flag.

     

    A hate crime is a criminal act motivated by bias against the victim’s race, religion, ethnicity, and in some states, sexual orientation, gender, gender identity, or disability . A few states’ hate crimes also cover age, political affiliation and homelessness.  Forty-five states and the District of Columbia have hate crime statutes.[1] Typically they elevate the level of a crime when the perpetrator is motivated by prejudice. This increases the penalties.   For example, in New York a hate crime is deemed to be one level higher than the offense committed. Thus, an assault that results in an injury that isn’t permanent or prolonged (for example, a broken arm) is a misdemeanor with a maximum jail sentence of one year and a fine of $1,000. If however the defendant was motivated by hate of one of the protected classes, the crime elevates to a felony with potential jail time expanding to two to four years. Potential fines increase to $5,000.        .

    The reason these criminal acts are treated more harshly is that not only is the victim injured, but also many in the community are offended, and left feeling fearful, violated and vulnerable. Such crimes also spark dangerous and damaging reprisals, sometimes violent, from the victimized community and others.

    The federal government enacted in 2009 a hate crime statute called the Matthew Shepard and James Byrd, Jr. Hate Crimes Prevention Act. Mathew Shepard was a student at the University of Wyoming targeted, at least in part because he was gay, for a brutal beating that resulted in his death. James Byrd, Jr. was an African American killed by white supremacists who tied him alive to the back of a truck and dragged him three miles over rough terrain.

    The 2009 federal law added gender, sexual orientation, gender identity and disability to the classes protected by federal hate crime laws. Note: This was the first federal statute to provide protection to transgender people. Additionally, the federal statute authorizes the federal government to provide aid to states in the investigation and prosecution of hate crimes. Further, if a locality if unable or unwilling to prosecute a crime as a hate crime, federal law enforcement is now authorized to do so. The Hate Crimes Prevention Act also provides federal money to states to help underwrite the expenses of investigating and prosecuting hate crimes.

    The constitutionality of elevating penalties for criminal acts motivated by dislike of a protected class was challenged in the landmark case of Wisconsin v. Mitchell (508 US 47 (1993). It involved a murder motivated by racial hate, which elevated defendant’s sentence by a state hate crime statute. The court rejected the defendant’s claim that the legislation violates a person’s free speech rights and upheld the stricter sentence. Wrote Chief Justice Rehnquist, “[T]his conduct is thought to inflict greater individual and societal harm . . . bias-motivated crimes are more likely to provoke retaliatory crimes, inflict distinct emotional harms on their victims, and incite community unrest.”

    Note: Hate crimes do not outlaw hateful speech. Such commentary, short of an incitement to immediate violence, is protected by the Right of Free Speech in the Constitution and is not covered by hate crimes laws. These statutes apply to criminal acts only, and only those that are directed to specific victims because of their race, religion, ethnicity, sexual orientation .

    The investigation to date suggests Ruff was motivated by hate of African Americans. If the prosecution can prove that, Ruff’s alleged criminal acts will be prosecuted as hate crimes. South Carolina has a death penalty statute that applies when multiple victims are killed. The hate crime aspect of Ruff’s acts will influence the prosecution of the case as a death penalty case.

    For more information, click here.

    DISCUSSION QUESTION:

    Do you agree that criminal acts motivated by hate of a protected class of people should result in higher penalties?  Why or why not?



    [1] The states without such a law are Arkansas, Georgia, Indiana, South Carolina (the venue of the recent killings) and Wyoming.

     

  • The Raisin Growers Win

     Back in April, this blog included a post on a pending U.S. Supreme Court decision. In Horne v. U.S. Department of Agriculture, 750 F.3d 1128 (9th Cir. 2014), cert. granted, 135 S.Ct. 1039 (2015), raisin growers challenged the constitutionality of the Department of Agriculture’s efforts to stabilize the raisin market.

    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.

     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.

    The Secretary of Agriculture, responsible for the RAC program, 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. The federal district court held that the RAC program was a taking, but the Ninth Circuit reversed. The Hornes appealed, and the U.S. Supreme Court held (June 22, 2015) that the Fifth Amendment requires that the Government pay just compensation when it takes personal property, just as when it takes real property. Any net proceeds the raisin growers receive from the sale of the reserve raisins goes to the amount of compensation they have received for that taking—it does not mean the raisins have not been appropriated for Government use. Nor can the Government make raisin growers relinquish their property without just compensation as a condition of selling their raisins in interstate commerce. Horne v. Dept. of Agriculture, --- S.Ct. ----, 2015 WL 2473384

    The Department of Agriculture will have to modify the program to provide compensation as well as the opportunity for growers to be heard regarding any disputes in valuation.

    Discussion Starters

    1. What will the RAC program have to do to go forward with the program?

    2. What type of due process protections do administrative agencies provide?

  • Memo: The Site for Employee Gossip, Whining, Complaints, and Venting and Employers Can Respond

    Click on www.getthememo.com and you will find employees posting comments about their companies.  Some comments are good, some are warnings, some are bad, and some are employees seeking information about companies with good practices.  And some are responses to the employees from the companies called out on the site.  For example, a Delta employees expressed reservations about, well, Delta’s reservation system.  Another employee of a mortgage lender expressed a more generic concern:  that lenders did not learn from the 2008 crash – that “greed still rules” and “just close more loans” is the new motto.

    Some posts are just workplace issues – the use of adderall on the job, layers of management, and, of course, benefits.  Ryan Janssen, the CEO of Memo, says that his goal is to just get the truth out there, “The problem with companies isn’t that they don’t think the truth can help them.  It’s that they don’t know the truth and aren’t acting on it.” Erin Griffith, “Snitch’s Brew,” Fortune, April 1, 2015, p. 46. Memo goes beyond the original employee gripe sites such as Glassdoor; it wants employers to know the truth and is willing to provide employers with data collected from its site.  Memo also has an app that employers can purchase that allows them to respond to the data and information collected on Memo.  However, the sales of the services and app are not brisk.  Employers believe that venting without proposed solutions is not very helpful to them.

    Some companies have signed on, and other companies are skeptical. Employers often respond by indicating that through their own survey processes they are already aware of any issues that might emerge on Memo.  However, Memo responds that surveys in the workplace are not perceived as anonymous because demographic information in those surveys often makes employees readily identifiable.  Memo also runs surveys for employers with their selling tool being that it has responses without identification of individuals except through posts in which the individual names his or her company. The Wall Street Journal sees Memo as a chance for employers to find out how employees truly feel about their companies, their jobs, and workplace issues.  

    There are other employee sites such as Yik Yak and Whisper, but those sites do not offer the employer tools offered by Memo. Mr. Janssen says, “Employees all know exactly what’s going on, but for some reason it’s being kept from management.”  “An Open Office (No Names),” New York Times, January 17, 2015. 

    Memo has the most users, employees and employers, from large companies where that communication line seems to be established so that what employees REALLY think gets to managers. 

    DISCUSSION STARTERS

    1.  Explain the differences between Memo and the so-called “gripe sites.”
    2. Why are employees not as candid on company surveys about issues?

     

  • Broadway Show that Uses “Who’s on First” is Sued for Copyright Infringement

         

    A play currently running on Broadway titled “Hand to God” includes a performance by a sock puppet of part of the famous “Who’s on First?” comedic routine.

    “Who’s on first?” was originally performed in March, 1938, on the radio by Abbot and Costello, the most popular American comedy duo in the 1940’s and early 50’s, In the routine, the first baseman was named “Who,” the second baseman, “What,” and the third baseman “I Don’t Know.”

    In 1940, the routine was registered at the Copyright Office by Universal Studios. The movie company owned it due to a work-for-hire agreement (the employer and not the creative employee becomes the owner of a copyright).   The comedians died in 1974 and 1959, respectively. The copyright was relinquished to the families by Universal in 1984.

    Those families have sued the principals of the play alleging copyright infringement. A copyright gives authors, composers and artists several exclusive rights including the right to perform the works publicly. The rights are of limited duration and generally expire 70 years after the creator’s death. Copyright infringement means a violation of the exclusive rights.

    Per the complaint, the play “copied the very heart” of the routine. The sketch in the show lasts one minute and seven seconds.

    Costello’s daughter was quoted as saying, “The legacy of my father is important to me and my family, and we felt that this lawsuit was necessary to protect us.” She said the heirs license (authorize others to use, usually for a fee) the material with regularity for use in live performances, television, film and advertising.

    The play is about a demonic hand puppet controlled by a quiet student in a small town. The puppet becomes the pupil’s alter ego. The show has received critical acclaim and enjoys favorable ticket sales. The student in the story performs part of Who’s on First to impress a girl, and later in the show references it as a “famous routine from the 50’s.”

    Attorneys for the play assert that the partial use of the comic dialogue is protected by the fair use doctrine, a defense to an infringement case. The doctrine legalizes the use of copyrighted material without permission when the use is for a limited and transformative (adding new insights, understandings, or expression) purpose. Examples that might be considered fair use, depending on several factors, are commentary and criticism of a copyrighted work, and parody,

    When determining if a use qualifies as fair use, the court explores the following: the purpose and character of the use, the amount taken, the nature of the copyrighted work, and the effect of the use on the potential market for licensing the work. 

    The attorney for the play asserts that the sketch is not used just to produce laughs, but rather to reveal the main character’s “darker side and deep insecurity.”

    The heirs’ attorney rejects the claim that the play’s use is transformative . The complaint states, “The purpose of the scene is exactly the same one which Abbott & Costello had – to elicit laughs, at which it succeeds very well . . . “

    Two precedents may have a bearing on the court’s decision in the case. In 1995 Jeff Foxworthy, the comedian who developed the routine known as “You might be a redneck if . . . . “ sued a T-shirt company that displayed versions of his redneck jokes in conjunction with a clothes display. The comedian sued for trademark infringement and won. The court granted an injunction (a court order requiring a party to refrain from doing something),, finding that the phrase, “You might be a redneck if . . .” had acquired a secondary meaning, that is, it had become popularly recognized as a tagline widely associated with Foxworthy, and so was protected.

    The second case involves the hit Broadway musical Jersey Boys, about the famous 1960’s band, The Four Seasons. While an actor on stage informs the audience about the band’s early history, a seven second clip from the Ed Sullivan show is displayed on a screen behind the actor, showing the band preparing to perform. The owner of the copyright in the Ed Sullivan shows sued. The court ruled in favor of the Broadway show, finding the use transformative. In so doing, the court expressed a desire to promote, not inhibit, creativity.

    The fair use doctrine is the subject of much litigation and the outcome of cases, including the one by Abbott and Costello’s beneficiaries, is not easy to predict.

    The case seeks several remedies including an injunction, damages (money), and reimbursement for plaintiff’s lawyers’ fees. While customarily in lawsuits each party pays for his own attorney regardless of who wins or loses, the copyright law modifies that rule. To encourage artistic creators to vindicate their rights, the law provides that a successful plaintiff in an infringement case may be awarded attorney’s fees.

    For more information, click here. 

    DISCUSSION QUESTION:

    Based on the available information, if you were the judge how would you rule in this case? Why?

     

  • Is It Overtime When Your Boss Calls You At Home?

    There was a time when employees who held critical positions carried beepers. They were beeped by their bosses when they were needed. Often, in the case of power-plant engineers or 24-hour factory operations, the beep meant that they had to go into work. However, technology has given employers and employees the smart phone. Contact from employers is no longer limited to emergencies. The constant e-mailing, text-messaging, and, on occasion, phone calls have resulted in a workforce of critical and not-so-critical employees who are on call 24 hours per day.

    A survey by the Pew Research Center found that 44% of employees have performed some type of job task outside the workplace during the past year. Lauren Weber, “Overtime Pay for Answering Late-Night E-Mails?” Wall Street Journal, May 21, 2015, p. B1. As a result, there are several class-action suits pending by employees against their employers for their work during off-hours, work that results from digital devices (iPhones, Blackberrys, iPads, etc.)


    In addition, the Department of Labor is preparing new proposed rules (under a memorandum order from President Obama) that would change the number of employers covered under the overtime provisions of the Fair labor Standards Act. Here are the current rules:

    • If you make more than $455 per week(or $23,660 per year), you are not eligible for overtime compensation.

    • If you have a job that requires the use of judgment and discretion, you are also exempt from overtime pay. Some professional jobs are salaried, but do not require discretion and judgment and would, therefore, require overtime.

    • If you are paid by the hour, even if you use discretion and judgment (like many assistant managers in restaurants), you are entitled to overtime pay. For example, if you an hourly worker who handles closing at a store and the manager calls you each night to verify closing and also get the sales numbers for the day, you are entitled to overtime for responding after hour.

    The large T-Mobile class-action suit brought by its employees centered on the requirement that the employees give out their cards with their cell phone/Blackberry numbers on them so that customers could contact them whenever they had problems. The employees received for about 10-15 hours per week in overtime pay because of the additional calls. The suit was settled with T-Mobile explaining that the employees failed to report the hours and that if they had, they would have been paid.

    Professionals may not be exempt from overtime. For example, a contract lawyer earning $25 per hour has filed suit against a law firm for being required to work more than 40 hours per week.

     Under the proposed Department of Labor rules, the figure for coverage would be raised to $50,000. Only after you make $50,000 per year would the overtime pay provisions apply. The increase would bring in large numbers of employees and would increase the number of class-action suits.

    Some companies are working to stop off-the-clock work hours. Some actually stop outgoing e-mails. For example, Volkswagen does not allow outgoing e-mails sent via the company server after 9:30 PM. At law firms, the firms pay overtime when employees submit the hours, but then they write up the employees for violating the firm rules on overtime. However, even when companies take precautions and have rules against overtime, they are not immune from owing overtime pay because of implicit expectations that managers set about being available.

    DISCUSSION STARTERS

    1. Explain when overtime rules apply.

    2. Discuss what the proposed changes would do to overtime rules.

  • The Audrey Hepburn Museum and Her Estate’s Battle with a Swiss Village

    Breakfast at Tiffany’s star, Audrey Hepburn, lived the final 30 years of her life in a small village in Switzerland ( Tolochenaz), home to about 1,800 people.  When Ms. Hepburn died in 1993, she asked to be buried in the small village in a cemetery across the street from her estate.  The grave attracted thousands of visitors each year and the villagers decided to capitalize on the tourism.  In a two-room school located near the cemetery, several people in the town created a small museum that included some memorabilia that were contributed by her two sons such as posters, photographs, and her Academy Award (Oscar) for performance in Roman Holiday.  Her sons said that they donated the items on the condition that they would be on loan for just five years.

    When the sons requested that the items be returned, the villagers were upset and resistant because the admission tickets to the museum had provided a source of funding for children’s hospitals, a cause they say that Ms. Hepburn, who worked worldwide on behalf of UNICEF, would have approved. However, the sons persisted and the museum closed in 2002, leaving some bitterness among the villagers.

    Ms. Hepburn’s sons donated a small sculpture to the village, which was placed in the center of the village and unveiled by her sons in a formal ceremony.  The bitter feelings, however, remain among about half of the villagers who felt that the museum was an important and philanthropic part of their community.  Ironically, the sons are now in a dispute over the personal items their mother left to them -- hats, scarves, etc. 

    There are many lessons in this experience.  First, the agreement between the museum and Ms. Hepburn’s sons as administrators of her estate should have been in writing.  The friendliness of the villagers to them and to their mother over the years perhaps resulted in the trust.  However, when there is to be a time limit, that time limit should be spelled out in a formal agreement.

    The dispute was one over a bailment.  The museum was given temporary possession of the memorabilia and it was to be returned, as would be required under a bailment. Title did not pass; there was only possession.

    Sometimes, when dealing with entertainers and the value of their image and legend, we underestimate the value.  Ms. Hepburn’s sons were thinking that after five years, their mother’s popularity would disappear.  They were wrong as the steady stream of tourists came and increased as the popularity of Breakfast at Tiffany’s crossed generations. Future rights in entertainers and entertainment itself should include a futures clause to cover unanticipated forms of use of image, likeness, and productions (such as the use of films via different sources).

    A final lesson is that the simplest of actions always involve issues of law.  Understanding the potential legal issues before entering into agreements is a way to prevent future disputes.  Disputes over a source of revenue can even grip small hamlets in Switzerland.

    DISCUSSION STARTERS

     1. What was the nature of the arrangement between the Hepburn estate and the museum?

      2. What should Ms. Hepburn’s sons have done differently? 

  • Those Secondary Mortgages Cannot Be Stripped Off in Bankruptcy

    In a 9-0 decision, the U.S. Supreme Court has eliminated a discharge interpretation of the bankruptcy code that allowed debtors to escape their obligations under secondary mortgages.  In Bank of America, N.A. v. Caulkett, --- S.Ct. ----, 2015 WL 2464049, the court dealt with two debtors who had underwater mortgages. Two bankruptcy cases were consolidated to take care of the issue universally.  In Mr. Caulkett’s case, he had a $183,264 first mortgage and a secondary mortgage of  $47,855.  At the time of his bankruptcy, his Forida home used as security for the loans was valued at $98,000, so since the value of his property was below the amount that he owed, his mortgage is referred to as being underwater. 

    You can view the full background on the case here:

    In these situations, the bankruptcy and appellate courts had held that the secondary mortgages did not qualify as secured loan in underwater situations because the mortgages were so under water that there was, in effect, no security or little value to the property.  However, the lenders (in this case Bank of America) disagreed and sought to have the law clarified. The secondary mortgages were stripped off from the bankruptcy proceedings and voided as secured debt.

    However, the U.S. Supreme Court held that the definition of a secured claim was very clear under the bankruptcy laws. A secured claim is a secured claim, regardless of the value of the property.  The court noted that if Congress wanted to change the law, it could do so.  Until then, the secondary mortgages of lenders were secured claims for purposes of bankruptcy proceedings and could not be stripped off, and, therefore, for all purposes, discharged.  Without secured creditor status, the mortgage lenders dropped into the large pool of unsecured creditors where recovery is unlikely. 

    There are public policy questions that surround the issue consumer debtors experience in declaring bankruptcy. A ruling in favor of stripping off the mortgage would have created hesitancy on the part of lenders to grant secondary mortgages to homeowners.  However, the ruling that gives lenders rights means that bankruptcy does not afford as much relief for debtors when they are in underwater mortgage situations. In Florida, where the property involved is located, 23% of debtors who declare bankruptcy there have underwater mortgages and also have a secondary mortgage.  In Chapter 13 proceedings, that secondary secured loan is one that is part of the debt-restructuring plan created for consumers for secured creditors have priority.  The debtors have higher payment requirements and other creditors that are unsecured usually lose their amounts due.

     DISCUSSION QUESTIONS

     1. Explain the issues with secondary mortgages.

    2.  Who benefits from this holding? 

  • Disney and other Animation Companies Learn Anti-Poaching Violates Antitrust Law

        

     

    In a recent lawsuit, animation studios (creators of cartoons characters such as Bugs Bunny and Mickey Mouse, etc.) have been accused of the antitrust violation of anti-poaching, meaning an agreement among competitors to refrain from hiring each other’s employees. The defendants include DreamWorks, Disney, Sony Pictures Animation and Blue Sky Studios. All are alleged to have conspired (agreed among themselves to do something illegal) to restrict advancement opportunities of animators and limit wage increases.

    Among the abuses claimed are: meeting at least annually to discuss and agree upon compensation wages,; exchangingf information about each company’s future salary increases; commiting to notify each other whenever an employee of one applied for a position at another; and, before hiring an applicant working for another member business, obtaining the latter’s permission.

    Anti-poaching agreements, also called non-solicitation clauses, may or may not be legal, depending on the circumstances. Such clauses are permissible if the agreement is narrowly tailored and is associated with the sale of a business or the development of a joint venture. In these circumstances each side will undertake due diligence (research and analysis done of a company in preparation for a business transaction)                and in the process will learn a lot about the other’s key employees. Without a no- solicitation clause, poaching would be foreseeable.

    Unlike those circumstances, in the animators’ case the defendants’ sole purpose was to keep the cost of labor artificially low. This is likely a per se violation of the antitrust laws, meaning an act so harmful to competition that it is almost always illegal, and no explanation or defense justifies it.

    The defendant studios moved to dismiss the case based on the statute of limitations. This is a law that specifies time periods within which a plaintiff can sue, and beyond which the plaintiff cannot sue, no matter how good the merits of the case might be.

    Plaintiffs’ claims are based on the Sherman Act, a federal law that prohibits every unreasonable “contract, combination or conspiracy in restraint of trade.” The statute of limitations for Sherman Act violations is four years.

    The parties disputed when the four year period began to run. Defendants asserted it began at the time plaintiffs were first injured by defendants’ actions (the “injury rule”). Plaintiffs however argue the time did not begin to run until they discovered or reasonably should have discovered their injuries (the “discovery rule”) which they asserted was much later. The court followed precedent (prior case law) and held  

    that the injury rule applies in antitrust cases. So the statute begins to run when a defendant commits an act that injures a plaintiff’s business, even if plaintiff did not know of or discover the injury until a later date.

    An exception exists and plaintiffs argued it should apply. If defendants wrongful actions were ongoing and continued anytime within the four years immediately prior to the filing of the complaint, the lawsuit would be timely.  According to this continuing violation doctrine, each overt act that is part of an antitrust violation and injures the plaintiff, starts the statutory period anew. Stated differently, a continuing violation is one in which the plaintiff’s interests are repeatedly violated and a cause of action arises each time the plaintiff is damaged.

    In the animators case, the last of the plaintiffs to be hired was 2007. The four year statute of limitations ended at the latest in 2011. The claims are thus time barred absent a continuing violation. Plaintiffs allege in the complaint (the first pleading in a lawsuit) that “Defendants’ conspiracy was a continuing violation in which Defendants repeatedly invaded Plaintiffs’ and class members’ interests by adhering to, enforcing and reaffirming the anticompetitive agreements described herein.” The court, referring to this statement as a “bald assertion,” found it insufficient to prove a continuing violation. Required are specific factual allegations of alleged wrongful communications or specific overt acts with identified dates during the four years immediately prior to filing the complaint.

    The court thus granted defendants’ motion to dismiss the case but the dismissal may be short-lived. It was granted without prejudice, meaning not final. Rather, the court authorized plaintiffs to submit an amended complaint within 30 days if they can cure the noted deficiencies.                                                                                           

     For more information, click here or see In re Animation Workers Antitrust Litigation,  __F.Supp.3d__. 2-15 WL 1522368 (N.D. Cal., 4/3/2015)

    DISCUSSION QUESTION:

    How does antitrust laws relating to non-solicitation clauses protect employees?

    Why did the court give the plaintiffs an opportunity to amend the complaint?

      

     

     

     

  • The Business Law Lessons of the FIFA Scandal

    The World Soccer League’s international governing body, Federation Internationale de Football Association (FIFA), is experiencing a business law crisis. Nine FIFA executives have been indicted and arrested by the United States for Foreign Corrupt Practices Act (FCPA violations. Five executives from marketing companies and CONMEBOL (the South American futbol federation – one of six continental federations of FIFA) have also been indicted. Two others from a federation and a marketing company have entered guilty pleas.

     

     FIFA is a huge worldwide organization, with 209 member associations. By comparison, the United Nations has 193 members and the International Olympic Committee has 205 members. In short, FIFA is one of the largest international organizations ever. FIFA runs the World Cup, the international championship that involves 32 teams and nearly shuts down certain countries as the competition unfolds. FIF’s revenue was $5.72 billion from 2011-2014, and $4 billion of that amount came from the sale of TV and marketing rights for the 2014 World Cup and licensing rights. And that amount of money is the key to the US case against FIF and various company officials. Stephanie Clifford & Matt Apuzzo, “U.S. Vows to Rid Global Soccer of Corruption,” New York Times, May 28, 2015, p. A1.

    Like the Olympics, countries and cities compete to have the World Cup. That competition seems to result in payments going from companies, marketing firms, and others to members of FIFA in order to influence their votes or even influence who gets elected to FIFA offices and positions. For example, Qatar is named in the indictment for having made bribes to obtain the World Cup for 2022. The award of the World Cup to Russia for 2018 is under investigation. The allegations are that some FIFA executives received $1 million to $10 million in exchange for their votes. The total amount of bribes alleged in the indictments is $150 million.

     

    Here are the business law lessons from the FIFA indictments:

    1. FCPA applies to NGOs. That is, bribery under the FCPA applies not just to government officials but to organizations such as the Olympic Committee and FIFA. In fact, the FCPA was expanded following the Olympic Committee bribery scandal regarding the award of the 2000 Winter Olympics that took place in Salt Lake City.

    2. Those who give and those who accept the bribes (bribers and bribes) are covered under the FCPA.

    3. The United States has jurisdiction over individuals from other countries if they have engaged in receiving bribes from US citizens or done business in the United States. Also, the allegations are related to efforts directed at a growing U.S. soccer market. The indictments allege the use of U.S. financial institutions are the sources for payments and that meetings were held in New York and Miami during which payments were discussed or made. Setting foot in the United States or using U.S. financial institutions gives the U.S. Justice Department jurisdiction. Devlin Barrett, Christopher M. Matthews, & Aruna Viswanatha, “Charges Show U.S. Justice Department’s Long Reach,” Wall Street Journal, May 28, 2015, p. A11

    4. Extradition processes will be necessary. The Swiss have an unusual understanding with the United States. The Swiss government will turn over all individuals arrested there to the United States, except for tax crimes except for tax crimes. Extradition of the FIFA executives from Switzerland will be swift and easy.

    5. The Swiss government cooperated with the United States in the investigations as well as the arrests. FIFA was meeting in Switzerland when the pre-dawn arrests were made at a swanky hotel.

    DISCUSSION STARTERS

    1. Explain the application of the FCPA.

    2. Discuss how the United States has jurisdiction and can bring the defendants to the United States.