• Student Loans Cancelled Due to Schools’ Fraud



    An obscure (until now) federal statute passed in 1994 provides that student loans will be forgiven if the borrower establishes that the school violated a state law. The statute has recently come to light and is being used by students seeking to have loans forgiven on the ground that their institution committed fraud (an untruthful statement on which someone relied, resulting in financial loss). The claims are that educational institutions recruited students using false promises about graduation rates, job placement following graduation, and likelihood of a well-paying career.

    The statute gained attention in August, 2015, when the Department of Education, relying on that law, forgave loans of 1,300 students who attended Corinthian College, a vocational school in Santa Ana, California. It went bankrupt due in significant part to unethical marketing and lending practices. The amount of canceled debt was $28 million.

    The Education Department has recently begun negotiations with representatives of students, colleges and lenders to devise clear rules on when the law is applicable. Among other matters, the new rules should clarify when lenders can claw back (due to special circumstances, retrieve money that was previously given) tuition funds paid to schools as student loans.

    In the meantime, the floodgates have opened. In the last six months more than 7,500 students with a total of $164 million in debt have applied to have their loans extinguished due to exaggerated guarantees of graduation rates and job placement. If successful, the students not only receive debt forgiveness, but also reimbursement for any part of the loan they already re-paid.

    Examples of fraudulent action that may result in student loan cancellations include the following. Ivy Tech Community College in Indianapolis, Indiana promoted in ads the expected increase in graduates’ future salaries and success. But relevant data proved that only nine percent of students graduate. Another school, Martin University, also in Indianapolis, claims to be a “Haven of Hope, a Community of Support, and a Premier Leader among Institutions of Higher Education.” Yet the graduation rate is only 12%; and six years after graduation, 57% of graduates earn less than $25,000/year.

    The Art Institute in Tampa, Florida enticed gaming design students with claims that its program had “great facilities, great teachers, and uses industry standard software.” The school also promised to help students secure an “industry job.” Turns out the school used outdated software, was taught by an unqualified instructor, and after graduation placed students in an $8/hour job at an Office Depot.

    These schools and others are predicted to argue their low graduation numbers and poor job outcomes result from serving a disadvantaged population that is less likely to graduate, or the ability of enrolled students is beyond the control of the school and its faculty. These arguments however do not explain the vast discrepancy between the recruitment representations and the actual facts.

    In addition to the application of fraud vis-a-vis the federal statute concerning student loans, fraud is also, per contract law, grounds to cancel a contract. A person who enters an agreement having been misled by fraud did not genuinely agree to the terms and so can cancel the deal. Fraud is also a tort enabling the victim to sue for monetary damages. As a litigation strategy, when a plaintiff has several grounds on which to sue, plaintiff’s lawyer will include in the complaint all of the grounds. If a judge later determines the evidence is insufficient on one or more causes of action, the others may survive.

    For more information, click here.


    Why are so many remedies for fraud provided in our law?

  • How Uber, Lyft, Home Health Care, and Business Models Are Changing Employment Law

    Who works for whom? The traditional workplace has changed and is continuing to change. The U.S. Department of Labor has been struggling to keep up with how the rules on wages, hours, and employment taxes apply when we have so many in the workforce who work their own hours or drive their own cars. From Uber rides to pizza delivery to staffing agencies, we no longer have the structure of employees reporting to work at one place and working at one desk and being paid by one company.

     On January 20, 2016, the Department of Labor’s David Weil issued an administrative ruling (Administrator’s Interpretation No. 2016-1) on situations in which workers may have two or more employees. In the changing economy employers are sharing employees, using third-party management companies, or hiring independent contractors. The multiple employer model is prevalent in construction, janitorial, warehouse and logistics, staffing, and hospitality industries. The purpose of the ruling is to provide guidance on employee rights and employer responsibilities in these situations. While the ruling is not binding, it could provide courts with guidance in situations in which multiple-employer employees seek to enforce their rights under the Fair Labor Standards Act (FLSA). Here are the key elements of the ruling:

     The FLSA applies to joint (horizontal and vertical) employment relationships

    • In horizontal employment arrangements, both jobs count for the 40-hour overtime clock. If the employees work for more than 40 hours at the two restaurants, they are owed overtime because the two restaurants are owned by the same person or company. The ruling gives the following example:

       Casey, a registered nurse, works at Springfield Nursing Home for 25 hours in one week and at Riverside Nursing Home for 25 hours during that same week. If Springfield and Riverside are joint employers, Casey’s hours for the week are added together, and the employers are jointly and severally liable for paying Casey for 40 hours at her regular rate and for 10 hours at the overtime rate. Casey should receive 10 hours of overtime compensation in total (not 10 hours from each employer).

       However, if there are no shared functions between horizontal employers, then the overtime rules do not apply.

    An employee is employed at two locations of the same restaurant brand. The two locations are operated by separate legal entities (Employers A and B). The same individual is the majority owner of both Employer A and Employer B. The managers at each restaurant share the employee between the locations and jointly coordinate the scheduling of the employee’s hours. The two employers use the same payroll processor to pay the employee, and they share supervisory authority over the employee. This is joint employment.

    In contrast, an employee works at one restaurant (Employer A) in the mornings and at a different restaurant (Employer B) in the afternoons. The owners and managers of each restaurant know that the employee works at both establishments. The establishments do not have an arrangement to share employees or operations, and do not otherwise have any common management or ownership. This is not joint employment.

    • For vertical employment (such as those who work for subs who always work for the same contractor or builder), the factors for joint employment are:

      • whether the general contractor controls or supervises the work

      • whether the general contractor controls employment conditions (rate or method of pay)

      • The length of the relationship

      • Joint handling of payroll, insurance, facilities by vertical companies

    The old business model of a builder hiring carpenters no longer exists. The new model inserts a company that provides carpenters, thus escaping all the payroll costs. Sometimes the builder started the carpenter company. But, this ruling means that builders cannot set up shell companies to hire carpenters to escape protections of the FLSA for those carpenters. Overtime, insurance coverage, workers’ compensation, and the right to organize are now applicable to situations in which companies are structured to avoid traditional employment relationships that are there through the corporate veils of shell companies.


    Explain what joint employees are and are not.

    Why is the Department of labor issuing the ruling?

  • The Former Virginia Governor Goes to the U.S. Supreme Court for Quid Pro Quo Questions: Taking Stuff Such as Rolexes and Oscar de La Renta Dresses for Official Action???

    When Robert McDonnell was elected governor of Virginia in 2009, he and his wife Maureen were facing significant financial challenges as well as the costs of a wedding for one of their daughters and the expenses of hosting state events.

    Shortly after the election, the McDonnells met Jonnie Williams, the founder and CEO of Virginia-based Star Scientific Inc. Star was close to launching a new product: Anatabloc. For years, Star had been evaluating the curative potential of anatabine, an alkaloid found in the tobacco plant, focusing on whether it could be used to treat chronic inflammation. Anatabloc was one of the anatabine-based dietary supplements Star developed as a result of these years of evaluation. Williams was counting on research by academics to boost sales of his new product.

    The McDonnells had used Williams's plane during his campaign, and he wanted to thank Williams over dinner in New York.  During dinner, Williams ordered a $5,000 bottle of cognac and the conversation turned to the gown Mrs. McDonnell would wear to the inauguration. Williams mentioned that he knew Oscar de la Renta and offered to purchase Mrs. McDonnell an expensive custom dress. Following this dinner, the McDonnells and Mr. Williams began a relationship that involved Mr. Williams paying for the McDonnells’ daughter’s wedding, allowing the McDonnells to use his vacation home, shopping sprees for Maureen, a Rolex for Governor McDonnell, and the use of Mr. Williams’s Ferrarri. 

    The McDonnells were indicted on corruption charges and convicted with the Governor sentenced to two years and Mrs. McDonnell to one year in prison.  Both appealed their cases, although separately.  The Fourth Circuit affirmed Governor McDonnell’s conviction (Mrs. McDonnell’s case is pending before that circuit), but the U.S. Supreme Court has granted certiorari and will hear the case in April 2016. McDonnell v U.S. 792 F.3d 478 (4th Cir. 2015), certiorari granted 2016 WL 205948

    The findings in the case are clear:  The McDonnells took stuff from Mr. Williams.  The basis of Mr. McDonnell’s appeal is that he took no official action in exchange for all the gifts, favors, and opportunities.  There is, however, clear evidence that the McDonnells did much, upon receiving favors and gifts, to move Mr. Williams in circles of those who could help promote and/or study favorably his company’s drugs. Mr. McDonnell held a reception for Mr. Williams to meet doctors/researchers at the University of Virginia.  Mr. McDonnell also suggested to his chief of staff that the state employee health plans cover the Star drugs.  There were follow-up calls to the doctor/researchers and two of them spent the night at the governor’s mansion.  Mr. McDonnell argued at the Fourth Circuit that he did not issue an order, influence the research results, or require the Star drugs to be part of the health plan.  Mr. McDonnell argued that he facilitated connections but did not actually take any action for Mr. Williams and that there was no quid pro quo, something that is the essence of  bribery and corruption cases.

    The U.S. Supreme Court has grappled with this issue before and always required more of a direct connection between gifts and public actions. When the court decides the case, the decision will be an important one in providing legal clarification of what actually constitute a bribe for purposes of the public corruption crimes.  However, beyond the legal issues, there remains the appearance of impropriety issue, something that has also made its way into the Supreme Court opinions.  The justices are not  n favor of the conduct, but are careful in determining criminal intent and that all important quid pro quo.


    Explain the difference between “taking stuff” and bribery.

    Why is “official action” a critical part of a public corruption case?

  • Appeals Court Reverses $7.1 Million Verdict; Rejects Constructive Termination in Sports Columnist’s Case;



    Imagine winning a $7.1 verdict and having it overturned on appeal (review by a higher court). Los Angeles Times sports writer T.J. Simers, age 65, experienced this roller coaster ride. He sued the newspaper for wrongful termination based on age and disability discrimination. The jury held in his favor and issued a judgment that included $330,000 in lost wages, $1.8 million for future economic damages, and $5 million for past and future emotional distress.

    The case turns on an interesting rule of law called constructive discharge. This refers to a situation where an employer creates an intolerable working condition such that an employee quits the job to avoid a toxic environment. An example would be a hostile environment created by persistent criticism and/or tolerance of caustic, demeaning comments and actions based, for example, on race, religion or natural origin.

    The circumstances leading to Simers’ departure were as follows. Simers worked for the L.A. Times for 23 years with an ending salary of $234,000. He suffered a mini-stroke in March, 2103. He was later diagnosed with complex migraine syndrome, which consists of brief, recurrent headaches, and is sometimes accompanied by neurologic and gastrointestinal symptoms, and changes in mood or emotion. In May, 2013, the newspaper cut the number of Simers’ weekly columns from three to two. In explanation, his bosses said several of his then-recent articles were “poorly written or reflected poorly” on the paper.

    In June, Simers was suspended with pay for failing to disclose to the paper that he was participating in the development of a TV show based loosely on his life. The paper argued this violated its ethics guidelines on conflicts of interest.

    That August, his supervisor demoted him from a columnist to a reporter, although he was allowed to retain his full pay and benefits. Subsequently he was offered a one-year contract to resume the column on the condition that he abide by the paper’s ethical guidelines.

    These events prompted Simers to quit. He went to work for the competing Register newspaper for a salary of $190,000. In Simers’ lawsuit, the Times argued that Simers left voluntarily and so he was not discharged. Obviously, per this argument, Simers could not sue successfully for wrongful discharge.

    The jury was not convinced by the paper’s position and so decided on the $7.1 million judgment in Simers’ favor. In response, the newspaper, like any litigant unhappy with the decision in a court of original jurisdiction (authority to hear a case when it is first brought to court; the court with authority to preside over a trial of the case), decided to appeal. The paper framed the issues as protecting its fundamental principles of journalistic ethics. The trial lasted six weeks. Said the court on appeal, “[A]n employee who is demoted is not simply permitted to quit and sue because they do not like the new assignment. While it may be difficult to be criticized and demoted, an employee’s embarrassment and hurt feelings do not transform a resignation into a constructive discharge.”

    For more information, click here.


    In your opinion was the jury right that Simers was constructively discharged, or was the appeals court correct in its holding that Simers was not constructively discharged?  What is the reasoning for your decision?

  • Johnson & Johnson: Liability for Complying with FDA Label Requirements on Children’s Motrin

    Samantha T. Reckis was seven years old in late 2003, when she developed toxic epidermal necrolysis (TEN), a rare but life-threatening skin disorder, after receiving multiple doses of Children's Motrin. Children's Motrin is an over-the-counter (OTC) medication with ibuprofen as its active ingredient that is manufactured and sold by the McNeil–PPC, Inc., whose parent company is Johnson & Johnson.

    Lisa and Richard Reckis, Samantha’s parents claim that Samantha developed TEN as a result of being exposed to the ibuprofen in the Children's Motrin.  They brought suit alleging that the warning label failed to warn consumers adequately about the serious risk of developing TEN, a life-threatening disease. After a lengthy jury trial, the trial court found for the Reckis family and awarded $63 million in damages to them. Johnson & Johnson (McNeil) appealed on the grounds that the state suit was preempted because the FDA has exclusive authority over drug labels and the Motrin label complied with the FDA requirements.  In fact, the FDA had prohibited McNeil from adding any discussion of possible risk of TEN because it was rare and would confuse consumers. Reckis v. Johnson & Johnson, 28 N.E.3d 445 (Mass. 2015)

    The Massachusetts Supreme Court held that the FDA regulatory scheme did not preempt state tort liability law and affirmed the trial court judgment as well as the $63 million in damages.  Johnson & Johnson has filed for certiorari at the U.S. Supreme Court (Johnson & Johnson v. Reckis, 84 USLW 3219 (2015)). Johnson & Johnson raises the issue that if it follows the FDA requirements, despite bringing label issues to the attention of the FDA, then it is subjected to decisions such as this one in 50 states and full liability when it is not given a choice by the FDA. 

    The FDA preemption issue has arisen before and the law is unclear because of differences among the states and even at the Supreme Court. In Wyeth v. Levine, 129 S.Ct. 1187 (2009), the court held that Diana Levine was entitled to collect damages for the loss of her arm because nausea medication was inserted directly into her vein. Wyeth had requested an FDA review of its label with regard to direct injection of the drug, but the warning was not added.  Compliance with FDA regulations is required, but that does not mean that the label is adequate for purposes of product liability. The decision affirmed that of the Vermont Supreme Court. Levine v. Wyeth, 944 A.2d 179 (Vt. 2006).

    There are other cases pending around the country that find differently, so the U.S. Supreme Court may want to take jurisdiction of the Reckis case or another or several together in order to clarify the law. There have been amicus briefs in the cases because the drug companies are concerned about which law to follow:  the FDA regulations or the warning label requirements to satisfy product liability requirements. The FDA has ordered stronger labels on various types of OTC drugs.


    1.  Explain the conflicting laws.
    2. What is the FDA process for changing labels? 
  • GM Loses Another Motion to Dismiss: First Engine-Switch Trial Begins This Month

    Robert Scheuer of Oklahoma was injured when his 2003 Saturn Ion was forced off the road and he hit two trees head on. The air bags in the Ion did not deploy, something that Scheuer has alleged was the result of the defective ignition. The Ion was one of the GM models with an ignition problems for which GM has paid $900 million to settle issues with the federal government, including a delay in issuing the recall. GM has recalled 2.59 million Ions. In addition, GM paid a $35 million fine to the National Highway Traffic Safety Administration (NHTSA) for not complying with the notification of changes in switches. GM used a different switch eventually in its cars, but did not change the part number or notify NHTSA, as required by law. GM also did not issue recalls for cars with the old switches. Private litigation is still ongoing, and Mr. Scheuer’s case was one of 300 that GM indicates are pending around the country. There is also litigation pending in Canada. About 100 of the cases are economic loss cases and the remaining 200 are personal injury or death cases. Melissa Burden, “GM Headed for Ignition Switch Trial in January,” Detroit News, December 31, 2016. GM took a $575 million charge in its financials to cover the potential costs and damages in the litigation.


    Federal District Court Judge Jesse M. Furman, who presides over the case in the Southern District of New York, found that there was enough evidence to go forward with the trial. He denied GM’s motion for summary judgment. GM had filed a motion to dismiss in October 2014, but later withdrew the motion.


    The problem with the Ion was that the ignition switches could slip out of the “run” position, which caused the car to shut down, including the problem of losing power steering as well as the ability of the air bags to deploy.


    GM argued that because the Ion was destroyed in the crash and disposed of as salvage that the evidence would not be available. GM also argued that the air bags not deploying was not the cause of the injuries Mr. Scheuer experienced.


    Mr. Scheuer had applied to the claims fund that GM had established for those who were injured because of the switches, but his claim was denied. As a result, he brought suit on the basis of strict tort liability as well as breach of the implied warranty of merchantability. The warranty claim was dismissed, but an additional claim under an Oklahoma consumer protection statute remains as part of the suit. Stephanie Gleason, “GM Loses Bid to Skip Trial Over Switches,” Wall Street Journal, January 2-3, 2016, p. B4.




    Explain what Mr. Scheuer will need to prove for his case.


    What possible defenses could GM establish?

  • Bill Cosby Arrested for Sexual Assault; Statute of Limitations A Squeaker



    Bill Cosby is charged with three counts of the felony aggravated indecent assault (includes sexual intercourse when the victim is immobilized due to a drug administered by the defendant) based on an incident that allegedly occurred in 2004. The crime carries a minimum prison sentence of five years and a maximum of ten. The complainant (the person who accuses a defendant of criminal wrongdoing), Andrea Constand, was at the time Director of Operations for Temple University women’s basketball team. She viewed the actor and comedian, who is 37 years her senior, as a mentor. Cosby allegedly invited her to his home, gave her drugs and then sexually attacked her.

    According to the complaint, the attack occurred while Cosby and Constand were having dinner at his home. It was the third such dinner. The first was unremarkable. During the second, Cosby unbuttoned Costand’s pants “out of the blue” and touched her. She stopped him, he then left the room and she left his house. At the third dinner, which occurred on January 15, 2004, she told him she felt “drained.” He gave her three blue pills saying they would “make you feel good” and “take the edge off.” He then encouraged her to drink some wine. Within a half hour she lost strength in her legs (they felt “like jelly”), she became dizzy, nauseous, experienced blurred vision, and had trouble talking. The next thing she remembers is waking at 4:00 a.m. and discovering evidence of a sexual attack.

    Also per the complaint, Constand told her mother a year later what had occurred. The mother called Cosby and states that he corroborated her daughter’s claims. The next day Cosby called the mother back and offered to pay for therapy and the daughter’s education. He also offered to fly both of them to Florida to “iron out” any problems.

    Costrand sued Cosby in a civil case in 2005 and received a settlement from him. A deposition (sworn evidence from a witness prior to trial) in that case included the following question and answer: “[W]as it in your mind that you were goint to use these Quaaludes for young women that you wanted to have sex with? Answer: “Yes.”

    Bail (a sum of money paid by or on behalf of a defendant to secure his subsequent appearances in court) was set at $1 million which Cosby quickly posted. An additional condition of bail was forfeiture of his passport. This helps to ensure he will not leave the country.

    Almost 50 other women have recently claimed Cosby did the same to them, in most cases decades ago. Now that these allegations have resurfaced, questions arise why more women are not seeking criminal prosecutions. The answer is the statute of limitations, a legal rule that limits the time period within which a lawsuit can be commenced. The statute seeks to provide adequate time to sue, and thereafter eliminate for the defendant an otherwise indefinite period of uncertainty about a possible prosecution. In most states, the statute of limitations for rape or sexual assault varies from 5-15 years, while a few states do not limit the time at all for these crimes. In Pennsylvania, the statutory period is 12 years. It would have expired for Constand’s lawsuit on January 15, 2016; the case was commenced on December 30, 2015, just 16 days before the permissible time period expired. For other accusers, the time has expired

    A related question is why did the woman not pursue criminal cases soon after the alleged crime? There are several answers to that question. Rape victims sometimes decline to testify fearing trauma in telling the circumstances in a courtroom which, by definition, is adversarial, and often hostile. Others choose not to testify because they worry they will not be believed, particularly because there are typically no witnesses other than the perpetrator and the victim. This fear is magnified when the accused is a powerful or beloved figure like Bill Cosby. Other inhibitors include self-blame and doubt. Plus, not infrequently, law enforcement officials are resistant to pursue these cases because of little physical evidence and lack of eyewitnesses. Recognizing these obstacles, the district attorney in some of the Cosby cases discouraged and/or declined prosecution when the cases first occurred.

    For more information, click here.


    Is  a 12-year statute of limitations for sex crimes  too long?  Not long enough?

    How should the prosecutors have reacted when first presented with the cases of Cosby's alleged victims?

    What proof problems might the prosecutor face in this case?



  • The Defense of Self-Defense; Grand Jury No Bills Police Shooting of Tamir Rice


    A Grand Jury (a panel of citizens that decides in felony cases whether police officers had probable cause to arrest a defendant) in Cleveland, Ohio has issued a no bill (a finding by a Grand Jury that the charges alleged were not sufficiently supported by evidence to warrant a prosecution) in the case of a white police officer who shot and killed a 12-year old African American boy who was carrying a toy gun. The deceased is Tamir Rice. The incident occurred on November 22, 2014. The case is one among a series of cases nationwide in which white officers shoot black victims. These cases gave rise to the Black Lives Matter protests nationwide.

    Two officers, Loehmann and Garmback, responded to a dispatch about a man with a gun outside a local recreation center. Rice had been pointing his gun at imaginary bad guys. The caller mentioned to the dispatcher that the person was “probably a juvenile” playing with a gun that was “probably fake,” but sadly, that information was not relayed to the officers. Unaware, the officers handled the call as an active shooter situation.

    Upon arrival at the recreation center, the officers immediately exited their vehicle yelling continuously “show me your hands”. But Rice did not comply. Loehman, the officer who shot Rice,told the grand jurors, “ I kept my eyes on the suspect the entire time. I was fixed on his waistband and hand area. I was trained to keep my eyes on his hands because hands can kill.” Rice lifted his shirt and reached into his waistband. Speculation suggests that Rice intended to show the officers that his supposed gun was a toy that shot plastic pellets. However, Rice’s failure to follow the officers’ directives  caused the officers to run behind the cruiser for protection. When Rice’s elbow then moved upward with the weapon in his hand, Officer Loehmann fired two shots, one fatal.

    Explaining the Grand Jury’s decision, the prosecutor said that enhanced surveillance video confirmed the officer’s testimony that the lad had reached into his waistband for the toy, and it was “indistinguishable” from a real gun. Further, per the officers’ testimony, Rice appeared to be much older than 12. He was large for his age, weighing in at 175 pounds, sporting size 12 shoes, and size 36 pants. Additionally, the prosecutor noted that it was difficult for the officer to decipher the difference between the pellet gun and a real one because the orange safety tip used on pellet guns had been removed, and the firearms otherwise looked similar.

    The prosecutor called the shooting a “perfect storm of human error, mistakes and miscommunications by all involved.” The boy’s mother was “devastated”. Protesters, measured in dozens not 100’s, marched and chanted “No justice, no peace.”

    Police, who often must make split-second decisions about when to shoot in self-defense, and everyone else, are legally justified in using deadly physical force (physical force that is readily capable of causing death or serious injury) when they reasonably belief that someone is about to use deadly force against them or another person. If the defense applies, the person causing injury or death in self defense will not be criminally liable for those injuries. The Grand Jury concluded that Officer Loehmann’s belief that Rice posed a threat of serious physical harm or death was objectively reasonable, as was the officer’s response to that perceived threat.

    Summarizing the circumstances, the prosecutor asserted, “The death of Tamir Rice was an absolute tragedy. It was horrible, unfortunate and regrettable. But it was not, by the law that binds us, a crime.”

    For more information, click here.


    Do you concur with the court that the officer acted within the boundaries of self defense?  Why or why not?

  • Two More Criminal Cases on Food Safety: Blue Bell and Chipotle

    With the conviction and sentencing of the former CEO of Peanut Corporation of America, there was hope that the food safety risks were front and center and the warnings to companies clear. However, the Justice Department has announced two additional criminal investigations and Chipotle and Blue Bell are the targets.

    Blue Bell issued massive recalls over listeria contamination that resulted in three deaths and at least ten illnesses. The investigations are focusing on what executives knew about the presence of listeria in its plants. Blue Bell, headquartered in Texas, is one of the largest ice cream brands in the United States. Blue Bell recalled all of its products in 23 states in April and did not ship products again until August. Blue Bell determined, after an internal investigation, that its processes for cleaning after finding listeria in its plants, were not adequate.

    The Justice Department has implemented a policy of opening investigations in food safety cases when the product contamination results in deaths. The focus of these investigations is whether managers and leaders in the companies were aware of sloppy processes, findings of contamination, etc. For example, there are allegations that Blue Bell did not follow practices recommended by both government regulators and industry groups, something that resulted in the listeria problems. Fortune magazine reports that Blue Bell found listeria at the plant in 2013, but did not take the appropriate steps to correct the problem nor was there disclosure about the issue. “The FDA released inspection reports showing that the company had found the bacteria in its Oklahoma plant, on surfaces such as floors and catwalks, on 17 occasions beginning in March 2013.” Peter Elkind, “How the Ice Cream maker Blue Bell Blew It,” Fortune, September 25, 2015. What experts refer to as “recall creep” will be a focus of the investigation. “Recall creep” occurs when companies begin with small recalls and assure the public of very limited numbers of products being affected. However, as more listeria was found, Blue Bell had to increase the recall from what was initially just single-serving cups to all of its products.

    Chipotle disclosed in an 8-k, an SEC filing that publicly traded companies must make when there are material business developments, that it had received a subpoena from the federal grand jury for the central California district. The investigation focuses on an outbreak of norovirus that occurred among 230 patrons of several of the Chipotle stores. The food inspectors for Ventura County found violations in their inspections of the Simi Valley restaurant, including storing food at temperatures below the 135-degree requirement, dirty and/or broken utensils, lack of necessary hand washing by employees, and 17 employees who had become sick from eating food at the restaurant. You can read these inspection reports here. The inspection include failures to address previous violations. In criminal investigations, the failure of managers to take action when they are aware of violations of the law is sufficient under U.S. v. Park to hold them criminally liable. Chipotle’s 8-K and public statements assure the public that the chain’s food is safe and that all facilities are complying with the law and cooperating with investigators. Chipotle’s stock price has been dropping since the norovirus was discovered and dropped further upon announcement of the criminal investigation.


    What advice would you give restaurants and food manufacturers when issues about their products emerge?

    What advice would you give to a company that finds bacteria in its production facilities but there have been no customer effects?

  • When CEOs Face Suits and Criminal Charges: “I am not a crook!” Tweets and YouTube Videos

    The draw of Twitter and Facebook is just too strong. The “No comment” CEO is a rarity these days. When CEOs find themselves facing civil suits or criminal charges, mum is not the word. They launch videos, post comments, and proclaim their innocence all online. Any defense lawyer worth his or her salt will tell a client to remain silent, advice that keeps their clients from making inconsistent statements or accidental admissions. Those types of off-the-record statements are the kinds of things  prosecutors and plaintiffs' lawyers use to trip up CEO claims before and during their trials.  In civil cases, the statements may give the lawyers for the government or plaintiffs stronger bargaining positions because of the online admissions. The new generation of CEOs has proven tougher to control.

    Just after entering a not guilty plea to charges of securities fraud, Martin Shkreli posted “I am not a criminal” on his Twitter account. When Lynn Tilton, head of a private equity fund, was sued by the Securities Exchange Commission (SEC) for defrauding investors, she posted a video denying the charges and attacking the SEC. Charlie Shren, an advocated for Bitcoin, gave a speech to a Bitcoin conference. He did so via Skype because he was under house arrest for the operation of an unlicensed money transmission business. He would later plead guilty and then and the following tag to his Twitter account, “Bitcoin pioneer & first felon.” Matthew Goldstein and Alexandra Stevenson, “No Comment? Not in Their Playbook,” New York Times, December 23, 2015, p. B1.

    Defense lawyers refer to these client postings, something they find difficult to control with such strong personalities, “a recipe for disaster.” One lawyer noted that self-proclaimed innocence does not carry much weight and added a Abraham Lincoln quote, “Folks with no vices have very few virtues.”

    Lawyers are remaining quiet, understanding the risk of self-incrimination. Even the most seemingly innocuous statements the CEOs make can be turned against them at the trial. For example, admitting that there was a market downturn may seem to be simply a factual statement. However, that statement could be used to show that the CEO was aware of market conditions and did not make the necessary disclosures in company filings about that risk.

    If CEOs do not use Twitter pre-trail, they take advantage of an online presence after the trial. Mark Cuban, the owner of the Dallas Mavericks who was acquitted of insider trading charges, now uses Twitter to poke at the SEC.

    The desire for a positive media image and the change to be heard are drivers behind the CEO online presence despite the risks for their cases. Against their lawyers’ advice, these iconic leaders continue to demand control over their cases at times when they should heed their lawyers’ advice to remain silent until resolution of their cases.


    Explain the risks with off-the-record and media statements by CEOs when charges and suits are pending.

    Give an example of how a seemingly factual statement might harm a CEO during a trial.