• Large Store Chain Settles Claim of Discrimination against Battered Women

            

    Bon Ton Stores, Inc. is a company that operates 200 department stores. It recently settled a discrimination claim investigated by the New York State Attorney General, the state’s chief law enforcement officer, concerning a sales clerk at the Williamsville store near Buffalo who was a victim of domestic violence. When she reported for her shift one day, she informed the store manager and security personnel that she had received death threats from her estranged husband, she had filed a police report, and was seeking an order of protection from a court. The manager sent her home and told her not to return until she had the order of protection in hand and had provided a copy to the store manager. The court order was not readily obtainable because the abuser had fled the jurisdiction following the issuance of an arrest warrant against him. The employee was given no indication from Bon Ton that her forced leave would be paid. The lack of income created an additional level of emotional distress in addition to the angst experienced from the abuse. She said, “Being sent home made me feel like a victim all over again. It was like a slap in the face.”

    Not infrequently, when a batterer threatens harm at the employer’s place of business, the employer terminates the employee to deflect the threat. In a handful of states, such termination is illegal. Those states include New York, Illinois, Rhode Island, Connecticut, and California.

    Under New York Human Rights Law, victims of domestic violence are a protected class. This means it is unlawful for an employer to refuse to employ, or to discharge or discriminate against an individual in compensation or in terms, conditions or privileges of employment, based on such individual being a victim of domestic violence.

    To resolve the attorney general’s claim, Bon Ton agreed to modify polices and procedures. The store initiated a safety plan that included allowing the victimized employee to park closer to the store, providing a safe room to facilitate the worker eluding her husband, and allowing her to use her cellphone while working (which is otherwise prohibited) in the event of a threat. Additionally, the store no longer will require employees to obtain a protective order as a condition to remain at work, will provide educational materials and training on discrimination against domestic violence victims to all of its 1,200 employees in New York state, and will pay $5,000 to the Erie County Sheriff’s Department’s Domestic Violence Unit.

    Employment is often a key factor that enables a domestic violence victim to escape an abusive relationship. If an employer discriminates, the abused victim often doesn’t have the resources, time and ability to fight while dealing with the trauma of the abuse. Said the Bon Ton employee, “With all that I was going through in my personal life, I wanted to go to work to maintain some stability in my world. The last thing I wanted was to be forced to stay home and let my estranged husband think that he can control my life.”

    This case will go a long way to raise awareness of the workplace rights of victims of domestic violence. It illustrates the importance of employers having a relevant policy in place so that lower level management employees are not making ad hoc rules on how to proceed.

    Few states have statutes protecting the domestically abused, and no federal statute defines domestic violence as a protected class. Nonetheless, the Equal Employment Opportunity Commission ( the federal government agency that enforces anti-discrimination laws) has suggested that some protection can be gleaned from the American with Disabilities Act, a federal statute that protects disabled people from discrimination. For example, the agency warns that employers must stop harassment directed toward an employee as a result of injuries suffered due to domestic violence. The employer may also be required to make reasonable accommodations. For example, if the abuser and victim work in the same company and the victim develops depression which is made worse by working near the attacker, the employer may be required to reassign the victim to another location. An August, 2014 landmark decision by the Board of Immigration Appeals, this country’s top immigration court, ruled that some migrants escaping violence may qualify for asylum (protection granted by a nation to someone who has left his/her native country as a political refugee) in the United States.

    For more information, click here.

    DISCUSSION QUESTION:

    If you were a legislator in any of the 45 states in which domestic violence victims are not a protected class, would you vote to include them on the protected list? Why or why not?

  • Cox Cable: Copyright Infringement Liability for the Failure to Cut Off Infringing Customers?


    In what is a significant ruling regarding the protection of copyright laws and vicarious liability for ISPs, a federal judge has held that the safe harbor provisions of the Digital Millennium Copyright Act (DMCA) do not provide cover for liability for Cox Communications. The reason Cox is not entitled to the protection under a federal judge’s ruling is that BMG Rights Management and Round Hill Music, the plaintiffs in the case, produced evidence that they had provided Cox with “hundreds” of repeat infringement of copyrighted works and that Cox allegedly failed to take steps to crack down on the repeat-offender customers. You can view the original complaint in the case here.

    Under the DMCA, ISPs are entitled to immunity or protection from vicarious liability for the copyright infringements of their customers if they take certain steps to stop the customers from continuing their activities once they have been notified by the copyright holders of the problems with infringement by certain customers. DMCA was largely a product of lobbying by colleges and universities because of their potential liability when students use their university ISPs to download copyrighted music without paying. As long as the colleges and universities took reasonable steps, including warning students when they are given their accounts and cutting off the usage rights of students once they are notified of their illegal downloading by copyright holders.

    Judge Liam O’Grady found that Cox had failed to set up and enforce a repeat-infringer policy that is required for the immunity under DMCA. The ruling means that the case can go forward because Cox is not entitled to the protection under the DMCA for vicarious liability.However, the case still has additional procedural difficulties because of questions about the plaintiffs’ standing. The plaintiffs are a sort of civil enforcement arm for copyright holders and the procedural issue is whether they have standing to bring the suit when they are not the exclusive owner of the copyrighted songs. They are, in effect, acting as agents for thousands of copyright holders, an approach that allows artists who might not have the resources to have their claims asserted in a sort of pre-existing class action that they have joined through their affiliation with the two plaintiffs. The court held in its ruling on the DMCA safe harbor that the suit could go forward because the companies qualified as copyright holders even though their rights were not exclusive. 

    Nonetheless, the case will begin trial next week with the proof of Cox’s liability because there was (1) infringement; (2) Cox was aware of the infringement; and (3) Cox took little or insufficient steps to stop the infringement. The plaintiffs have the burden of establishing all three elements of a copyright case with DMCA in the background. Ashby Jones, “Cox Loses Ruling in Copyright Case,” Wall Street Journal, November 27, 2015, B7. 

    While this case is ongoing, there are technology issues evolving under the DMCA notification provisions and protections.  For example, Rightscorp is  a company that policies the Internet, looking for infringement activity.  Rightscorp then forwards their findings to ISPs, something that Rightscorp believes requires the ISPs to respond with some sort of policy.  Rightscorp plans to make money by asking ISPs to pay $20 per notification that it provides to ISPs.  The company's strategy is simple:  Pay $20 for notice and take action or risk thousands in litigation and copyright infringement actions by those who hold the copyrights to the songs, videos, movies, and series that are being downloaded on the ISPs without permission or compensation. 

    DISCUSSION STARTERS                                                                 

    Explain what protections the DMCA provides and to whom.

    Discuss what the holding of the court means for ISPs going forward.

  • Brain Cancer and Your Cell Phone: 15 Years of Litigation

    Some of the suits are almost 15 years old. The suits are those brought by cell phone users who claim that their cell phones caused them to develop cancerous brain tumors. The defendants are nearly all providers as well as phone manufacturers: AT&T, Verizon, Apple, and Samsung are among the defendants.

    The original case, Murray v. Motorola, was brought by Michael Murray and his wife in 2001. Mr. Murray claimed that his work as a Motorola handset technician caused him to develop a brain tumor. Mr. Murray died in 2003, but his case has been the point of consolidation for 13 other cases with 29 total plaintiffs. Eight of the plaintiffs, in addition to Mr. Murray have died during the procedural processes.  Ryan Knutson, “Cellphone Case Back in Court,” Wall Street Journal, November 23, 2015, p. B4.

    The case has survived several motions to dismiss as well as a motion to have the case moved to federal district court. However, case remains in the Superior Court of the District of Columbia. After nearly 15 years in court, the plaintiffs and defendants have yet to hold a trial. In addition to the motions to dismiss, the parties have been sparring over the evidence. The plaintiffs moved to have the court admit testimony from five scientists regarding the link between cell phone use and cancer. The trial court judge admitted the evidence, the defendants appealed, and the case is scheduled for oral argument next week.

    At issue in the appeal are the Frye and Daubert standards for the admission of expert testimony. Under the Frye standard, 293 F. 1013 (D.C. Cir. 1923) the judge is permitted to only examine the expert’s or researchers’ methodology in determining whether to admit the research and testimony. Under the Daubert standard, decided by the U.S. Supreme Court, 113 S.Ct. 2786 (1993) the judge has greater discretion in determining whether to admit the research and evidence. Most scholars believe that the Frye case was reversed by Daubert. Daubert was a case in which the mothers who had taken the antinausea drug, Bendection, during their pregnancies, and filed suit for the birth defects in their children that they alleged resulted from the drug. The court held that the court could consider relevance and reliability of expert research and reports and that general acceptance of the research was not a prerequisite to its admission. When the case was remanded, the lower courts held that the scientific evidence was not admissible. 43. F.3d 1311 (1995)

    However, Frye and Daubert are federal decisions, and, as noted, the cell phone case remains in the District of Columbia, not federal, court. The trial judge in D.C. held that the scientific community had not reached consensus on whether cell phone radiation causes cancer or other adverse health effects. If the plaintiffs win the admissibility issue in the pending appeal,  then the discovery phase of the case will begin as the plaintiffs try to establish that the cell phones caused their individual cancers.

    Most believe that the scientific consensus on the nexus between cellphone use and cancer has not been established. http://www.saferemr.com/2014/08/major-breakthrough-in-cellphone.html However, there are other studies,  and establishing causation in court is required for recovery, despite scientific evidence, and that task remains to be seen until the pretrial procedural aspects of the case are completed.

    Most cases would have settled at some point over the 15-year period. However, the plaintiffs are asking for $1.9 billion in damages and the precedent would expose cell phone providers and manufacturers in a precarious position. Indeed, all of the companies have disclosures in their public filings with the SEC that they could “incur significant expenses in defending these lawsuits. In addition, we may be required to pay significant awards or settlements.”

    DISCUSSION STARTERS

    Describe the history of the cell phone/brain cancer case.

    Explain why the case has not gone to trial for 15 years.

  • Charlie Sheen, HIV, the Duty to Disclose, and Extortion

                         

     

    Charlie Sheen, once the highest paid actor for his TV role on Two and a Half Men, and more recently notorious bad boy, has admitted that he is HIV-positive. Turns out the diagnosis was made about four years. Until his recent disclosure, Sheen was not only hiding the fact, but also paying for the silence of one-time friends with whom he unwisely shared his secret. In total, he shelled out about $10 million for confidentiality.

    Sheen told Matt Lauer, interviewer on the TV show Today, that he informed every one of his sexual partners that he was HIV positive. Several of his girlfriends have since publicly stated that they were not so advised.

    Thirty-two states and some cities have adopted laws that require partner-notification, meaning that people diagnosed as HIV-positive are legally obligated to inform their sexual partners of that status. Failure to disclose can result in criminal prosecution. Many of these statutes were enacted because the federal government required such laws as a condition for states to receiving federal funds for aids research. One of the states with a mandatory disclosure law is California where Sheen resides. If an HIV-positive person in that state fails to reveal and has unprotected sex with the intent to infect a partner, the already infected person thereby commits a felony that can result in a prison term of up to eight years. A significant difficulty with that statute for prosecutors is establishing proof of intent. California also has a misdemeanor charge of willfully exposing others to communicable diseases, including HIV. Proof of intent to infect is not necessary. The maximum jail sentence is six months.

    Statutes in some other states render prosecution even easier. For example, Georgia makes nondisclosure alone a felony.

    Despite the many states criminalizing failure to inform, the medical advances in treatment of patients who are HIV positive have been significant and have lessened the risks of spreading the disease. Modern antiretroviral therapy (ART) prevents the HIV virus from replicating. This medical protocol often suppresses the virus to levels deemed undetectable.[1] As a result, there is a movement to revisit the penalties associated with nondisclosure. Among the organizations advocating for reduced sentences are the American Civil Liberties Union, the Department of Justice, and the Center for Disease Control. Reported the Department of Justice in 2014, “While HIV-specific state criminal laws may be viewed as initially well-intenioned and necessary law enforcement tools, the vast majority do not reflect the current state of the science of HIV and, as a result, place unique and additional burdens on individuals living with HIV.” The CDC has encouraged states to “re-examine these laws, and assess their alignment with current evidence regarding HIV transmission risk.”

    Some states have modified their laws according. For example, failing to disclose used to be a felony in Iowa. It carried a maximum sentence of 25 years in prison and lifetime inclusion on the sex offender registry, an official and public record that provides information about sex offenders. Within the last year and a half Iowa has significantly lessened the penalties. And Baltimore, Maryland provides a defense if an HIV-positive person has a doctor’s note stating he is not at risk of spreading the virus.

    Concerning the hush money Sheen paid, it was likely the result of extortion. That crime consists of forcing a person to do something against his will, usually payment of money, by threat of damaging the person’s reputation or otherwise harming him. Some of the people who extorted the star include prostitutes he hired over the years. One woman even took a cellphone photo of the antiretroviral HIV medication he had in his bathroom and threatened to sell the picture to the tabloids unless Sheen paid up. This is a classic example of extortion.  

    For more information, click here.

    DISCUSSION QUESTION:

    if you were a state legislator in one of the 32 states criminalizing failure to disclose a positive HIV diagnosis, would you vote to modify the law given the medical advancements?  What factors would you consider when deciding how to vote?



    [1] HealthlineNews, March 17, 2014, “Quiet About Your HIV Status? You Could Go to Jail in Many US States,” by David Heitz.

  • The Enforcement of Companies’ Failure to Disclose Global Warming Impact

    The Securities Exchange Commission (SEC) and state attorneys general have begun taking enforcement action against energy companies for their failure to disclose the potential financial impact of global warming on their future financial performance.  For example, Peabody Coal, the largest coal company in the world, reached a settlement with New York’s attorney general for allegedly making public disclosures about the financial impact of global warming that did not match the company’s internal communications and calculations.  As part of the settlement, Peabody agreed to amend its SEC public company filings to disclose that “Concerns about the environmental impacts of coal combustion . . . could significantly affect our demand for our products or securities.” Kevin McCoy, “Peabody Reaches Climate-Change Deal,” USA Today, November 10, 2015, p. 2B.  Peabody’s filings disclosed the possibility of climate-change regulations but indicated that it was unable to quantify the impact on the company’s earnings. 

     The attorney general indicated that full and fair disclosure would force the company to make better decisions about its products and operations and their impact on the environment. 

    https://www.youtube.com/watch?v=exwYbtX_BF0

     The New York attorney general is now investigating Exxon for its failure to make disclosures about the impact of global warming on its business risk and financial performance.  The attorney general has accused the company of disseminating disinformation and indicated that as the world’s largest oil company should have been taking the lead in researching other forms of energy.  John Schwartz, “Exxon Inquiry Both Mirrors and Contrasts With Tobacco Industry Case,” New York Times, November 7, 2015, p. B3.  

     The New York statute being used as a basis for the investigation was used by former New York attorney general Eliot Spitzer to reach settlements with Wall Street firms for their misrepresentations in analysts’ reports and directly to financial investment clients.  

     The public SEC filings require that companies be forthcoming about potential risks the company faces and the possible impact of those risks on the companies’ earnings.  However, companies are also permitted to state the risk and conclude that the risk cannot be quantified accurately.  That provision for when quantification is possible is difficult to establish unless the agency is able to find internal documents and communications that indicate the companies had begun to quantify the impact but had not disclosed it.

     You can expect that coal, gas, and oil companies will continue to be the targets of these types of investigations.  Fossil fuel energy companies are already reconsidering their disclosures in their financial statements about the impact of global warming on their operations and earnings.

     DISCUSSION STARTERS

    Explain who is investigating whom and why.

    What laws are being used for the foundation of the investigation. 

  • The Little Tree Air Fresheners in a Mighty Legal Battle

    If you have been in a cab in New York City, you have seen the little pine tree cut-out hanging from the rear-view mirror, spreading its aroma throughout the cab.  Car-Freshener Corporation manufactures the cabbie air freshener in the shape of a mighty pine.  CFC has competition from Exotica Fresheners Company, whose shape is a palm tree, including large leaves and coconuts. 

     The two companies have one particular scent, both calling it “Morning Fresh,” and their respective trees are in the exact same rosy pink color.  Car-Freshener has brought suit against Exotica because it maintains that the color is likely to cause trademark confusion. The lawyer for CFC argues that the identical color is no accident but a ploy to create consumer confusion.  Randy Newman, "Car-Scent Rivals Fight in Trademark Suit," New York Times, November 16, 2015, p. A16. 

     This suit is not the first between the two companies.  In 1995, Exotica agreed to stop using CFC’s trademark scent names (“Royal Pine” and “Vanillaroma”).  In 2011, CFC successfully litigated and stopped Exotica from using “Black Ice” and Icy Black,” two scents that appeared after CFC’s introduction of it manly “Black Ice” scent. 

     On the surface, it would seem difficult to confuse a palm tree and a pine tree, but the packaging concept does look similar.  The yellow background and the presentation of the trees on a yellow card makes the two products look very similar. The case may not be one of trademark infringement, as with the previous cases, but with trade dress.  Trade dress is the distinct appearance of a product, and can be the source of consumer confusion.  The concept of trade dress is not, however, like litigating a registered trademark.  

     The key element of proof at the trial will be that consumer confusion.  Look carefully at the block of pictures above.  Were you confused? There is some similarity that could find a consumer quickly grabbing one product thinking it was the other company.  The past history of CFC’s legal victories and the infringement by Exotica will also be a factor because those incidents demonstrate intent.

     DISCUSSION STARTERS

     Explain what is registered in protecting products.

    Discuss the importance of proving consumer confusion in an infringement case.

     

  • Apple Wins Lawsuit; Security Checks of Employees’ Bags Not Work Time

    Apple won a class-action lawsuit (a case with many plaintiffs, all injured from the same cause) involving bag checks at the company’s 52 California stores. Per company policy, the retail employees must submit to a security inspection when leaving work at the end of the day, and also if they leave for lunch. In the company employee manual , the policy is called the “Employee Package and Bag Search.” The inspections are mandatory, and include employees’ bags, purses, backpacks and briefcases. In the lawsuit, the workers asserted that the time in line for the bag check should be on the clock. They argued the time should be compensated as overtime under the Fair Labor Standards Act.

    The security checks were instituted to deter theft of store inventory, much of which is high priced electronics. The procedure consists of managers inspecting bags and personal devices like iphones after the employee clocks out at the end of the workday and, in some circumstances, at lunch breaks. The workers calculated the time spent waiting equated to about $1400/year per employee.

    A federal district court judge ruled against the workers, primarily because they have the option of avoiding the inspection by choosing not to bring bags to work. Said the judge, “That free choice is fatal to their claims.” In so ruling, the court rejected the workers’ argument that the freedom to bring a bag to work was a “standard freedom.” Indeed, the decision recognized that Apple could have adopted a rule prohibiting workers from bringing any bags or personal Apple devices to work at all. Instead, said the judge, “Apple took a milder approach to theft prevention and offered its employees the option to bring bags and personal Apple devices into a store subject to the condition that such items must be searched when they leave the store.”

    The court made the decision in response to a summary judgment motion (a request to a judge for a judgment early in a case without the need for a trial) made by Apple.  Because the judge granted the motion, the case was dismissed without a trial, and the loss-prevention screenings can continue.

    The class consisted of “current and former hourly-paid and non-exempt employees of Apple, Inc. who worked at one or more Apple California retail stores from July 25, 2009 to the present.” The total number of plaintiff in the class was 12,400.

    For more information, click here.

    DISCUSSION QUESTIONS:

    Do you agree with the judge's decision?  Why or why not?

     

     

  • The Department of Labor and Rhea Lana: Minimum Wages for Consignors of Baby Clothes?

    Rhea Lana is a clothing consignment company started 18 years ago in Arkansas by Rhea Lana Riser.  Ms. Riser’s company began in 1997 with the realization that she and many other young families could not afford cute clothing for children.  Using her living room, Ms. Riser held used clothing sales for neighborhood mothers.  The business continued to grow and eventually Rhea Lana went online and computer technology allowed national consignment sales.  With the growth, Ms. Riser decided to convert to a franchise model.  The company has 80 franchises in 24 states. 

    The company has two sales each year that run from two to eight days.  All the items placed for consignment sales are placed on the company’s website along with the location for its purchase and price.  Consignors keep 70% of their sales proceeds and Rhea Lana takes 30%.  Volunteers often work the sales themselves and preparation for the sales.  They are then given the perk of first choice of the merchandise or prime locations for the display of the items they are trying to sell.

     In 2013, the Department of Labor started an audit of Rhea Lana’s employment practices and concluded that the volunteers were employees and had to be paid.  The Department of Labor has not filed a formal complaint against Rhea Lana, but it did send a letter to its volunteers encouraging them to file a class-action suit to collect back wages.  The volunteers have declined to do so. 

    Presently, the Department of Labor is threatening to assess hundreds of thousands of collars in fines.  The State of Arkansas has audited Rhea Lana and determined that there are indeed volunteers for the company and no compensation is needed.  Rhea Lana Riner, “Franz Kafka in Footie Pajamas,”  Wall Street Journal, October 31, 2015, p.A11.

    Ms. Riner filed suit to stop the Department of Labor, a suit that a federal judge dismissed as not ripe because the Department has not filed a formal complaint and taken no action against the company. AN administrative agent can file a civil complaint against a company.  Following that action, the company can defend against the complaint or settle the allegations brought. 

    DISCUSSION STARTERS

    Explain the issue the Department of Labor has raised.

    Is it possible for a business to have volunteers who need not be compensated?

  • Arbitration Clauses Are Quashing Class Action Lawsuits

                 

     

    More and more, companies that sell consumer products and services, and also employers, are including in their contracts an arbitration clause. These clauses require that disputes be submitted to arbitration (an alternative dispute resolution method in which a third person makes a binding decision), and typically include a waiver of class actions (a lawsuit with multiple plaintiffs, all of whom were injured by the same cause). The effect of these clauses is to prevent consumers from joining together to bring class-action lawsuits. Yet a class action is often the only practical way for people to seek redress in court for losses that may seem small in the scheme of things but are are significant to them. The potential loss to a defendant company however is big when that small amount is multiplied by potentially millions of customers or thousands of employees.

    Often plaintiffs’ losses are the result of illegal or deceitful business practices on the part of the seller. Without a class action to challenge unsavory practices, they could continue indefinitely.

    Among the many companies that use arbitration clauses are Sears, Macy’s, Nike, Walgreen’s, and PF Chang’s, to name just a few. Additionally, most suppliers of credit cards, internet services, car rentals, and nursing home care insert arbitration clauses into their contracts. So too do sellers of cell phones and many products purchased on line.

    Issues raised in class action lawsuits that were dismissed due to arbitration clauses are concerning. They include allegations of excessive charges on customers’ bills, racial and gender discrimination by employers, higher interest rates on car loans charged to minority borrowers, wage theft, fraud, wrongful death, predatory lending, conspiracy to fix hotel prices by a travel booking website, and excessive banking fees.

    The attorneys general (the chief consumer protection lawyer in each state) in 16 states have warned that unlawful business practices can flourish with the proliferation of class-action bans.

    The move to restrict class actions was masterminded by a group of lawyers representing credit card companies and retailers seeking ways to save their clients from costly class action lawsuits. Those clients had paid billions of dollars to resolve class actions.

    One large corporation sought to justify the class action ban by noting that each plaintiff often receives only a small recovery, while plaintiffs’ lawyers can make substantial fees. Said one of Citibank’s lawyers, “These lawsuits were not about protecting consumers but about plaintiffs’ lawyers.” Consumer advocates disagree. Class actions by their very nature are intended to help large groups of people seek compensation for small amounts of money. Further, as noted by a lawyer for consumers, when large companies do something wrong, they tend to do it many times to many people. Since arbitration is private, it keeps any discussion of discriminatory practices hidden from other workers or buyers who might be experiencing the same thing and do not know how to address it.

    Corporations also assert that class actions are not needed because arbitration provides a remedy for injured plaintiffs. Likewise, small claims court can be utilized. That is a court with relaxed procedures intended for plaintiffs with cases seeking limited amounts of money, and appearing without an attorney. But court and arbitration records show that, once a class action is blocked due to an arbitration clause, most plaintiffs drop their claims.

    Courts are beginning to recognize that employees and consumers do not have bargaining power when signing these agreements. Still, the United States Supreme Court (USSC) has upheld an arbitration clause and class action waiver, and so stare decisis binds judges. In a case of alleged wage theft against Applebee’s franchises, Judge Schiller of Philadelphia begrudgngly upheld an arbitration clause, citing the USSC case. But he commented that the state of legal affairs concerning the clauses is “lamentable.”

    California has rejected class action bans as unconscionable (grossly unfair and therefore void and unenforceable).  That ruling however is being challenged on appeal.

    For more information, click here.

    DISCUSSION QUESTION:

    Should other states follow California’s lead and decline to enforce class action waivers? Why or why not?

     

  • Investment Opportunities for Those Who Make Less Than $200,000 Per Year: Crowd-Funding Expanded

    The Securities Exchange Commission (SEC) has approved a modificationto Regulation D 504 offerings.  Prior to the change, the offerings were somewhat limited because of the requirements for accredited investors – those who had $250,000 or more in income or $1,000,000 or more in assets.  With the changes, any individual can invest up to $2,000 or 5% of their net worth, whichever is greater, in any offering of  up to $5,000,000 in a 12-month period. That amount is an increase from the $1,000,000 under old Rule 504. Scott Martin and Yuka Hatami, “SEC Lowers Barrier for Investing in Start-up Firms,”  Wall Street Journal, ,October 31, 2015 – November 1, 2015, p. B2.

    In addition, the SEC clarified the rules for these types of offerings, based on feedback from the crowdfunding crowd.  The ongoing modifications are part of the SEC implementation of the JOBS Act -- Jumpstart Our Businesses Act that Congress passed following the 2008 market collapse and the resulting recession. Those refinements include:

    • No audited financial statements required for first-time security offerings
    • The offerors need not file their tax returns – they will only be required to disclose certain information from their tax returns 

    The benefits are that companies will be able to attract a wider pool of investors at lower cost.  However, the downside is that because there will be less scrutiny and disclosure, the door could be opened for fraudsters.  The presence of large investors such as venture capital firms provides investors with some protection because the VC firms do their homework and investigate the offerors before investing.  Under the expanded small-investor structure the SEC has created, it will be possible for companies to obtain funding without the rigor of registration or the protective investigation of the venture capitalists. 

    Although Kickstarter and Indiegogo do not sell equities, they have been helpful in getting companies started through online funding efforts.  

    The new rules for crowd funding become effective in 180 days and the new filing forms will be available in January 2016.  

    DISCUSSION STARTERS

    Explain what crowdfunding is.

    What are the changes the SEC has made and what effect will they have on fundraising. 

     

  • T-Mobile’s Interference with Sirius? FCC Refereeing Dispute Over Cell Phone Disruptions

    Drivers who have Sirius service in their cars have experienced it. They are driving along when suddenly Sirius drops out. Drivers who have Sirius and commute notice the drop-out comes at the same place each day.

    What the drivers are experiencing is interference from some T-Mobile cell towers. The T-Mobile towers that use the AWS-1 spectrum are creating intermodulation, which results in the Sirius drop-out. Intermodulation results when two frequencies combine to create a third frequency. T-Mobile has been using the AWS band to support its LTE network, and with that network slated for 20% expansion by the end of 2015.

    T-Mobile has indicated that the problem is that Sirius receivers have inadequate filtering that results in the problem. Sirius has asked the Federal Communications Commission (FCC) to intervene in the dispute. However, T-Mobile is also trying to work with Sirius to solve the issue.Thomas Gryta, “Sirius, T-Mobile Spar Over Airwave Interference,” Wall Street Journal, October 1, 2015, p. B4.

    One of the problems is that the technology has expanded so rapidly that the interaction (intermodulation) was not anticipated nor was the size of the market for cell phones and the resulting tower expansion. The interaction is unprecedented in terms of the amount of electronic interaction.

    In addition to the technology problems, the legal issues have not been resolved because the law did not anticipate the issues of the use of the airwaves. At the federal level, the Federal Communications Act of 1996 prohibits state and local authorities from banishing cell phone towers through zoning and other regulations. In City of Arlington v. FCC, 133 S.Ct. 1863 (2013), the U.S. Supreme Court upheld the federal statute as well as the FCC procedures requiring liberal approval by local authorities for the tower erection. However, those battles continue and the problem of intermodulation is now addressed as part of the local processes for approval.

    The FCC’s rules are based on the interpretation of the Federal Communications Act, which requires that state and local authorities act in a timely manner on applications for cell phone tower sites. In the Arlington case, the court basically deferred to the FCC on its rules and guidelines for local approvals.

    The issue T-Mobile and Sirius presents new questions and jurisdictional issues as well as technical questions. The FCC’s intervention may be necessary because both Sirius and T-Mobile are operating within the law, but the result is that users are affected.

    One of the issues that Sirius has raised is whether the FCC processes are too slow and cumbersome to resolve the types of issues that new technology brings. The filings and documentation required are burdensome and introduce delays in resolving immediate and ongoing concerns with interference.

    The Samuelson-Glushko Technology and law Policy Clinic st the University of Colorado School of law has proposed allowing administrative law judges to resolve the issues, such as the one Sirius raises with T-Mobile, more expediently. The proceedings on these new rules are In re: Amendment to Commission Rules Concerning Adjudication of Spectrum Interference Disputes, RM-11750, before the Federal Communications Commission.

    Discussion Starters

    Describe the regulatory structure for cell phone tower locations and construction.

    Explain the technology issues that result in interference.

  • Employees’ Facebook Comments Protected as Concerted Activity under NLRA

      

    A sports bar terminated two employees because of communications on Facebook. One was a bartender who made derogatory comments about the owner on the social media site. The other was a cook who “liked” the drink server’s posts. The workers sued, claiming their conduct was protected, concerted activity (action taken by two or more employees together for the purpose of improving terms and conditions of their employment). If so, their discharge violated the National Labor Relations Act, a federal law that protects rights of employees and employers (hereinafter The Act).

    The bartender was unhappy because the bar’s owner allegedly failed to deduct sufficient taxes from his paycheck. He posted on Facebook the following, “Maybe someone should do the owners of Triple Play a favor and buy it from them. They can’t even do the tax paperwork correctly!!! Now I OWE money . . . Wtf!!!!” A later post read, “I would never give that place a penny of my money. The owner fucked up the paperwork . . . as per usual.” A third post said, “It’s all Ralph’s fault. He didn’t do the paperwork right. I’m calling the labor board to look into it bc he still owes me about 2000 in paychecks.” These comments evoked unflattering posts from other employees, a few customers, and a “like” from another worker.

    The Act entitles fellow workers to take joint action addressed at a condition of employment. The bar argued that the posts were not protected and the terminations were justified because they were visible to customers, contained obscenities, and otherwise damaged the tavern’s reputation.

    The case was first heard by the National Labor Relations Board (hereinafter “the Board”), an agency that investigates and prosecutes unfair practices by employers who allegedly interfere with rights of workers. The Board sided with the employees, finding that their firing was improper. The bar appealed. The Second Circuit Court of Appeals (federal appeals court located in New York City; hears appeals from New York, Connecticut and Vermont) affirmed, ordering the company to reinstate the plaintiffs and pay them lost wages.

    The court determined that the workers’ Facebook comments constituted protected concerted activity because it was part of an ongoing sequence of discussions that was about a condition of employment – calculation of employees’ tax withholding. The court also ruled that an employee’s endorsement of another worker’s posts about conditions of employment was also entitled to protection. Said the court, the communications here were made to “seek and provide mutual support looking toward group action, and were not made to disparage Triple Play or to undermine its reputation.”

    In rejecting the eatery’s arguments, the court stated, “The Board decided [and we agree] that the Facebook activity at issue here did not lose the protection of the Act simply because it contained obscenities viewed by customers. Such visibility accords with the reality of modern-day social media use.”

    The court also concluded that Triple Play violated the Act by threatening employees with termination for their Facebook activity, and interrogating employees about that activity.

    The case also addressed Triple Play’s blogging policy. It included the following: “[W]hen internet blogging or other forms of communication extend to employees . . . engaging in inappropriate discussions about the company, management, and/or co-workers, the employee . . . is subject to disciplinary action, up to and including termination of employment. The Board and the court held the policy was impermissibly broad because it encompassed some protected legal concerted activity.

    DISCUSSION QUESTION:

    1) What were the key factors identified by the court as the reasons why the Facebook posts in this case constituted protected activity?

    2)  Draft a Facebook post that would likely not be protected by the Act.