• Billionaire Investor Peter Thiel Funded Hulk Hogan’s Defamation Suit Against Gawker

    Peter Thiel, a Silicon Valley venture capitalist, revealed that he provided about $10,000,000 to fund Hulk Hogan’s defamation suit against the online company, Gawker Media.  Rolfe Winkler and Jeffrey A. Trachtenberg, “Thiel-Gawker Fight Divides Silicon Valley,” Wall Street Journal, May 27, 2016, p. B1. Mr. Hogan won the suit and was awarded a total of $140 million.  The appeals on the suit could drag on for years.  However, the revelation of the funding has resulted in debates over two issues.  The first issue is the power of Silicon Valley billionaires who have the ability to use funds to have influence over  media businesses whose coverage of them has troubled them. For example, Gawker ran a story titled, “Peter Thiel is totally gay, people.” Thiel felt the tone of the article was accusatory.  Marco della Cava, “Why This Billionaire May Be Hogan’s Hero,” USA Today, May 26, 2016, p. 3B. Those in Silicon Valley refer to Gawker and other outlets as “click-bait” journalists and are troubled by the power they wield and the tactics they use.  Many have praised Mr. Thiel for his financing of the suit against Gawker. However, other express concerns about freedom of the press if lawsuits are financed to shut down publications. Katie Rogers and John Herrman, “Thiel-Gawker Battle Raises Some Concerns About Press Freedom,” New York Times, May 27, 2016, p. B5

     The second issue is the more generic one of the ethical and legal questions in third-party financing of lawsuits.On the one hand, those involved in the financing note that without backing, most people would not be able to pursue their rights.  Barry Meier, “Lawsuits to Settle a Score Upend the Model of Third-Party Financing,” New York Times, May 27, 2016, p. B5. On the other hand, defendants are at a disadvantage in terms of paying for lawyers because lawyers involved in these suits are generally the lawyers for Silicon Valley.

     Despite the controversy, third-party financing of lawsuits is growing and certain lawyers, such as the one who ended up representing Hogan, focus exclusively on these types of client arrangements. The investors in the litigation expect to be rewarded handsomely for their patience.  And most investors do not have an “ax to grind.”  That is, they are purely investors hoping to have the clients win big as they share in that gain.  Congress has sent inquiries to several financing lawyers, but they have not yet taken action.  Congress is looking at investment disclosures before clients sign as well as rates of return when the clients wins a rather large amount. 

     DISCUSSION STARTERS

     Explain Mr. Thiel’s ax to grind with Gawker.

     Discuss the pros and cons of litigation financing. 

  • The Developer Who Got a Tall Building Out of a 4-Foot Strip: Getting Out of Zoning Restrictions

    It may have seemed strange, but the powers-that-be went right along with it. DDG Partners applied for an alternation to an Upper East Side Manhattan lot. DDG asked the city to lop of a 4-foot strip on side of the lot on 88th street, creating two lots out of the existing one lot. The city readily approved the request. Taxes on two lots are better than taxes on one lot.

    Now two years after the change in the lot division, the city understands the why behind the oddity. If a lot does not touch a street then the remainder of the lot is not subject to all the zoning and building restrictions on size, height, and shape. The result is a building about six stories taller than would be permitted if the building actually touched the street. If the building touched the street it would require a larger base, something that limits the square footage of the building. By having a narrow base, the developer was able to add six stories of residential units to the project, a big difference in terms of the profits from the building and sale of the units. The units are luxury units, with the top floor going for $15.5 million. All the units in the six stories above maximum height in the area would bring premium prices because the added height guarantees the occupants a superior view, i.e., no other buildings can block their views because of the height. These very tall, thin buildings have been part of a building boom because of this view issue.

    There are residents of the borough who are irate and have filed a challenge to the zoning as well as the building permit, which the city has already granted. The residents have noted that DDG gave a total of $19,900 to New York City Mayor Bill DeBlasio’s campaign, although there has been no allegation of any impropriety on the part of city officials in granting the lot division or permit. Those challenging the project say the actions of the developer may be legal but are “aggressive.” J. David Goodman, “4-Foot-Wide Lot, Carved Out by Builders, Creates Big Stir on Upper East Side,” New York Times, May 23, 2016, p. A15.

    Zoning laws and regulations can be complicated. It seems the developer uncovered a heretofore unrealized loophole in the regulations because they were all tied to buildings located along the street line. Buildings not built on street lines (which would be rare) are not subject to the zoning and size limitations. The city is in the process of reviewing the application, lot realigning, and permit. If the process was not in compliance with all procedures, the city could reverse out its granted authority. However, it seems as if this level of dispute will require a court interpretation of the zooming regulations and limitations.

    DISCUSSION STARTERS

    Explain what DDG was able to do with zoning laws.

    How will the issue be resolved?

  • Drug Tests: Failure and No-Show Rates Are Up

    JCB, a heavy equipment manufacturer, held a job fair in Georgia, hoping to recruit new employees. Once the recruiter had a group of applicants/potential employees assembled, he explained that the next step would be drug testing. The recruiter lost one-half of the pool.

    Employers are finding it increasingly difficult to find workers who will (a) take a drug test; and (b) pass it. The rate of failure has increased for the past two years to 4.7%, the highest rate ever, and the first increases in over a decade. The figure is deceptively small because, like JCB experienced, many of those who fill out an application never show up for the drug test because they know they would fail. Business owners have met with Georgia Governor Nathan Deal to explain that the “No. 1 reason they can’t hire enough workers is they can’t find enough people to pass a drug test.” Jackie Calmes, “One Step Short of Hired,” New York Times, May 18, 2016, p. B1. The Reagan administration shepherded through the 1988 Drug-Free Workplace Act, a federal law that requires all federal contractors or recipients of federal grants to implement drug-testing programs. Then in 1991, Congress passed a law requiring drug testing for all “safety sensitive” job that are regulated by the Department of Transportation. That law was passed following a 1987 train crash in which two of the operators tested positive for marijuana use following the accident that resulted in fatalities. Because of these federal mandates, most applicants find that they are required to pass a drug test. In addition, even those employers not subject to the federal law are concerned about safety issues for other employees and customers and find that drug-screening is necessary to avoid liability. Businesses also indicate that they save money if they use drug-screening. For example, their workers compensation payments have gone down and they have fewer workplace accidents.

    According to a recent national survey, one in 10 Americans ages 12 and older say that they have used illegal drugs within the past year. That rate is the highest in a decade. However, the drug-free workplace is one that brings employees and employers benefits in safety, reduced absenteeism, and reduced health-care costs.  The focus is now shifting to how to help those who cannot pass and will not take a drug test in order to get them drug-free.  Georgia is developing a program to get those who fail tests into some type of rehab program so that hey can meet the workplace standards.  Employers are also working with government to develop a drug-free pool of applicants and, hopefully" catch

    DISCUSSION STARTERS

    Explain the benefits of drug-testing.

    Discuss the costs of drug-testing, including potential liability.

  • Overtime Pay Entitlement Threshold Doubles

    The Department of Labor has increased the wage threshold for employees to qualify for overtime pay. Currently the threshold wage is $23,600 ($455 per week and established in 2004). At that level and below, the employee qualifies for overtime hours when the employee works over 40 hours per week. However, the new level will increase to $47,476 (that is $913 per week), and goes into effect on December 1, 2016. The Department of Labor estimates that an additional 4.6 million employees would be eligible for overtime. And the threshold will be updated every three years by indexing it to the 40th percentile of full-time salary workers in the lowest Census income region in the country (that is the South). Interestingly, the Fair Labor Standards Act does not permit indexing of any wage numbers unless there is specific, new legislation passed to allow it. There will be litigation over the rule because companies have alleged that the indexing is an ultra vires act, or an action taken by an agency that goes beyond the authority granted in the agency’s enabling act. Melanie Trottman and Eric Morath, “Administration Expands Overtime Pay Eligibility,” Wall Street Journal, May 18, 2016, p. A3.

    After the rule was proposed, the Department of Labor received 270,000 comments on the proposed rule, with many of those from employers who were concerned that the new level would force them to cut employees’ hours and would also slow their hiring of new employees. You can read the full docket of comments here.

    There are some interesting categories of employees affected by the change. For example, academics, lab technicians, and others engaged in research will be covered by the rule. Doctors will not. Groups representing colleges and universities expressed concerns about the impact of the new rule on their research labs and research park budgets. Many of their workers are graduate students who are given the opportunity to work on research projects even as they are paid. However, they tend to work long hours and the impact of the rules means that their hours will be cut, monitored, or some opportunities terminated because of the additional cost. Noam Scheiber, “White House Moves to Make Millions Eligible for Overtime,” New York Times, May 18, 2016m, p. A1.

    Some employers plan to bump up the salaries of employees so that they are just above the threshold and will not be entitled to the overtime pay. Retail and restaurant employers plan to reduce the number of salaried employees and will change about 1/3 of their workers to hourly status, hire more temps, and part-time workers.

    All employers will need to track hours of the employees at or below the threshold. Public entities can offer comp time in lieu fo overtime hours, but private employers cannot offer comp time in lieu of overtime hours. Also, employees who are salaried will lose the flexibility they enjoy in exchange for the extra hours that they work. For example, if an employee needs time off to take a sick child to the doctor and is below the new threshold, the employer must clock the employee in and out and emasure time precisely. The flexibility to take the time needed because the employee works extra hours as part of his or her job will be lost under the new rules.

    DISCUSSION STARTERS

    Explain the rulemaking process for this rule, who participated, and what their concerns were.

    What impact will the rule have on salaried employees?

  • Planned Parenthood Shooter Found Incompetent to Stand Trial

             

    A shooting rampage occurred at a Planned Parenthood in Colorado Springs, Colorado in November, 2016. Three people were killed and nine injured. Robert L. Dear admitted responsibility and has now been declared unfit to stand trial.

    Dear, age 57, refers to himself a “warrior for the babies.” He called the Planned Parenthood clinic that he attacked the most evil place in the world. He is charged with first-degree murder as well as other crimes, and could face the death penalty if convicted. His motive was to “stop abortions and the selling of baby parts.” The reference to sale of body parts originated in a discredited smear campaign against Planned Parenthood allegedly showing clinic staff selling fetal tissues. The people responsible for the videos have been indicted on criminal charges.

    A Colorado judge has determined that Dear suffers from many delusions that distorted his reality. These include that the federal government has been following him and spying on him for 20 years, and planted a listening device in his truck. Dear has expressed other paranoid ideas and has been very disruptive in court. He was examined by two psychologists who both opined under oath at his competency hearing that he was not fit to stand trial.

    During in-court rants, Dear has expressed his strong belief that he is competent. He views the trial as a means to advance his anti-abortion message. When the judge issued the incompetency ruling, Dear yelled at the jurist, “That’s called prejudiced! Prejudiced! . . Filthy animal!”

    If a defendant is not competent to stand trial, he cannot be convicted of a crime. Competency means defendant must be able to understand the court proceedings and assist in his own defense. The requirement of competency is a matter of due process, that is, ensuring the fairness of the proceedings.

    The relevant inquiry is the defendant’s mental state during the criminal proceedings, and NOT during the commission of the crime. The mental state at the time of the crime is a separate inquiry and addresses whether the defendant was legally insane when the crime was committed.

    To be competent to stand trial, a defendant should be able to adequately discuss the case with his attorney, understand and process information, make decisions regarding the case, and understand the elements (behavioral components) of the charges, the seriousness of them, and possible penalties.

    The question of competency is often triggered by defense counsel indicating to the judge an inability to adequately communicate with the client. Another circumstance that can raise competency concerns is a disruptive demeanor by defendant while in court.

    When a defendant is found incompetent to stand trial he is examined again at a later time determined by state law. In Colorado, the time period is 90 days. In the meantime the defendant is sent to a mental hospital for treatment with the goal of restoring competency. Some defendants are never found competent. In that situation they can be held indefinitely at a psychiatric center.

    For more information, click here. 

    DISCUSSION QUESTION:

    What distinguishes incompetency to stand trial from not guilty by reason of insanity?

  • Sumner Redstone, Viamcom/CBS, $40 Billion, and the Girlfriend

    This is a classic tale of the 92-year-old in failing health and the 51-year-old girlfriend who was booted from the house and her $70 million bequest taken out of the will for Redstone’s $40-billion estate. Sumner Redstone’s former girlfriend and health-care agent, Manuela Herzer, filed suit challenging Mr. Redstone’s mental competency to modify his will. following a six-month legal battle, the court dismissed the suit after Mr. Redstone’s deposition was played in court.

    In the deposition, Mr. Redstone had difficulty speaking and his answers required interpretation by his speech therapist. Nonetheless, the judge found enough in the answers to show Mr. Redstone competency. Mr. Redstone’s daughter, Shari Redstone, is now his health-care agent and the $70 million modification to Redstone’s will eliminating Ms. Herzer’s bequest is valid. Joe Flint and Keach Hagey, “Redstone Suit Is Dismissed,” Wall Street Journal, May 10 2016, p. B1.

    http://www.dailymail.co.uk/news/article-3577500/Redstone-trial-mental-competence-begins-expletives.html#v-446759492564307541

    The case illustrates the physical frailty and ailments are not the determining factors in competency hearings. While Mr. Redstone’s speech is difficult to understand, the court was persuaded by the content that he understood the proceedings and could explain why he booted Ms. Herzer from the will. Ms. Herzer’s lawyer argued that the answers were rehearsed. However, there were times during the deposition when Mr. Redstone could not be silenced or interrupted, but did have to be told to slow down .

    Ms. Herzer will appeal the court’s decision. Following the dismissal, Ms. Herzer filed suit against Shari Redstone, her sons, and members of Mr. Redstone’s household staff for working to destroy her relationship with Mr. Redstone. She is seeking at least $70 million in damages from them (the amount she lost when the will was modified).

    The battle over Mr. Redstone’s position on the board at CBS/Viacom continues. Board members reviewed his deposition and have indicated that they will visit Mr. Redstone to make a determination about his ability to continue as a board member and to make decisions about the company.

    Underlying the Herzer suit was the issue of a confidential relationship, a doctrine different from capacity that can be used as a defense to contracts and to declare a will invalid. In a confidential relationship, one party obtains control over a dependent individual. Because of the dependent relationship, the dependent individual (Redstone) gifts significant assets and property to the care-giver. Inevitably, the children of the dependent party step in to have any such transfers or planned bequests set aside. Shari Redstone did had the $70 million bequest modified.

    Ms. Herzer new suit is one for tortious interference with expectation of a gift. This theory was one used by Anna Nicole Smith when the sons of her octogenarian husband worked to eliminate her rights of inheritance following her marriage to their father. Ms. Smith’s husband, 90-year-old J. Howard Marshall, II, a wealthy oil company owner, died leaving a $1.6 billion estate. Ms. Smith was given $90 million, not from Mr. Marshall’s estate, but rather from Mr. Marshall’s son, for what Ms. Smith proved was his interference with the execution of a will by the late Mr. Marshall that would have allowed her to be an heir. Marshall v. Marshall, 547 U.S. 293 (2006). Ms. Smith still litigated her rights to Marshall’s trusts. Sadly, Ms. Smith passed away from drug ingestion in February 2007. She was not alive in 2011 when the Supreme Court affirmed the bankruptcy court’s denial of her claim against the estate. Stern v. Marshall, 564 U.S. 462 (2011).

    DISCUSSION STARTERS

    Explain the requirements for competency.

    Discuss tortious interference with expectation of a gift and how it relates to wills.

  • USSC Grants Cert to A Copyright Infringement Case Involving Cheerleaders' Uniforms

    The United States Supreme Court granted certiorari (permission to argue a case before the high court) to a copyright infringement case between two companies that sell cheerleader uniforms. The suit addresses an open question in copyright law: Can clothing designs be copyrighted?

    Star Athletica, a relative newcomer to the cheerleader market, published its first catalog in 2010 and was immediately sued for copyright infringement. The plaintiff was Varsity Brands, Inc., the world’s largest cheerleader and dance team uniform company. Varsity claimed several of Star’s uniforms looked very much like five of Varsity’s copyrighted designs. The similarities were colorful patterns of chevrons (a shape or pattern in the form of the letter V or an upside down V), zigzags and stripes.

    Copyright law allows protection of “any pictorial, graphic, or sculptural work of authorship that can be identified separately from the utilitarian aspects of an object.” Courts have to decipher what is functional and therefore not protectable by copyright, and what is decorative and therefore able to be protected.

    The question of whether clothing designs are functional or creative works of authorship has long puzzled courts. Throughout the country, judges have devised at least nine different contradictory tests. The grant of certiorari in this case is not surprising. The Supreme Court likes to resolve legal issues that have garnered conflicting decisions among various courts

    When the Supreme Court last considered the issue, it adopted the following test: Can the design be separated from the functional aspects of an object as a freestanding item? If so, the design qualifies for copyright protection. The case, Mazer v. Stein, was heard in 1954 and involved statuettes used as lamp bases. Although they had a functional purpose of holding a lampshade, they were also freestanding creative works and so qualified for copyright protection

    In the case now heading to the Supreme Court, Star argues that the colorful designs are functional because they identify the wearer as a cheerleader. The district court sided with Star, holding that Varsity’s designs cannot be detached from the “utilitarian function of the uniforms”

    On appeal, a three-judge panel (a set of judges who together hear a case on appeal) of the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee) voted 2-1 to reverse. The jurists identified the functional aspects of a cheerleading uniform as “covering the body, wicking away moisture, and withstanding the rigors of athletic movements.” The majority then held that the decorative features were not “inextricably intertwined” with the utilitarian aspects of the costume. The dissenting judge disagreed, saying that a plain white uniform (referring to a uniform without decoration) was not appropriate for the role of a cheerleader.

    The case will likely be argued during the court’s next term which begins the first Monday in October, 2016, and ends in June, 2017.

    The garment industry has long advocated for copyright protection on designs. Congress however has declined to pass such a law.

    For more information, click here.

    DISCUSSION QUESTION:

    In your view, should clothing designs be copyrightable? Why or why not?

     

  • Lenders Burned by Student Loans to Ivy Leaguers: They Pay Early and Often

    Online lenders were counting on student loans to provide them with steady interest income over a long period of time.  They invested heavily in the loans, especially those of Ivy League students because they were a good credit risk.  You could count on them to pay. Therein lies the problem; Ivy League students pay early and often.  They pay more than their monthly payments, sometimes doubling up on payments.  Their goal is to reduce the loan amount as quickly as possible to limit the amount of interest they have to pay.  In many cases, the Ivy Leaguers are paying back their loans three times faster than the lenders’ expectations. Northwester, University of Michigan, University of Pennsylvania, Columbia, University of Chicago, Duke, Harvard, UCLA, and Stanford graduates pay back at an accelerated rate.  And they hold a good chunk of the student loan portfolio because tuition is so high at the schools.  AnnaMaria Androtis and Telis Demos, “Lenders Burned by Ivy Leaguers,” Wall Street Journal, May 9, 2016, p. C1.

     The lenders’ hands are tied because the student loans do not carry prepayment penalties.  And when the borrowers pay extra, they tag the extra amount as being for principal reduction and not an advance payment on the next month.  Unless the loan terms prohibited repayment or imposed a penalty for repayment, the lenders are stuck with the loans and the reduced income streams. On average, the borrowers are paying 15-17% more per month than they are obligated to pay, something that reduces the flow of interest and the length of the loan repayment period. The goal is one of getting out of debt as quickly as possible. Read more about repayment strategies here. Online lenders assumed that millenials would want to spend money on other things as opposed to paying down their debt.  They were wrong and are now stuck with high quality, low-yield loans.

     DISCUSSION STARTERS

     Explain what students are doing.

    Discuss whether the lenders have any remedies or whether they could. 

  • E-Cigs and the FDA

    Vaporizers, vape pens, hookah pens, electronic cigarettes (e-cigs), and e-pipes are some of the many types of Electronic Nicotine Delivery Systems (ENDS). And the FDA has now promulgated regulations for all of them. Under 2016 FDA rules, the following requirements have been established for those who manufacture ENDS:

    • Submit an application and obtain FDA authorization to market a new tobacco product

    • Register establishment(s) and submit product listing to FDA by December 31, 2016

    • Submit listing of ingredients

    • Submit information on harmful and potentially harmful constituents (HPHCs)

    • Submit tobacco health documents

    • Do not introduce into interstate commerce modified risk tobacco products (e.g., products with label, labeling, or advertising representing that they reduce risk or are less harmful compared to other tobacco products on the market) without an FDA order

    Manufacture your tobacco product with the required warning statement on packaging and advertisements and the required warning reads as follows:

     “WARNING: This product contains nicotine. Nicotine is an addictive chemical.”

     For those ENDS that FDA finds during the application process do not contain nicotine, the FDA requires the following warning:

     “This product is made from tobacco.”

     Market your tobacco product in compliance with other applicable statutory requirements, rules and regulations

     The FDA estimates that it will take 5,000 hours for a company to process the premarket application that is now required for products at an average cost of $330,000. Michael E. Siegal, “The FDA’s Vaporous Thinking About E-Cigs,” Wall Street Journal, May 6, 2016, p. A13.

    Other aspects of the regulation include:

    • No sale of ENDS to those below the age of 18

    • ID checks required for everyone under the age of 27

    • No free samples

    • NO ENDS in vending machines unless the vending machine is located in an adult-only facility

       There are disagreements among physicians, researchers, and various groups about the dangers of ENDS. For example, the American Lung Association support the FDA regulations whereas others see ENDS as a way for individuals to stop smoking. Many have weighed in on the back-and-forth battle from Roling Stone to Scientific American.

       However, the rules were promulgated with comment and public input. Any changes would have to come from congressional action with legislation that would address the FDA approval process.

       DISCUSSION STARTERS

       Explain what the new rules require.

      Discuss the diversity of views on ENDS.

  • Abercrombie & Fitch Settles $2 Million California Lawsuit Over Employee Rest Breaks

                     

    A California judge has given tentative approval to a $2 million settlement reached in a class action against Abercrombie & Fitch. The complaint alleged that the retailer failed to provide legally mandated rest breaks. Abercrombie does not admit any wrongdoing.

    California law has strict rules concerning breaks, the goal of which is to ensure that employees are not overworked. Employees there are entitled to a 10 minute rest break for every four hours of work. If a worker misses a break, the employer must compensate the employee with an hour of pay at the worker’s regular hourly rate, and the payment must be made within a paycheck cycle.

    California law also requires that employees be given a 30 minute lunch break after five hours of work. If the rest period is missed, the employer must pay the employee one-hour of pay at the worker’s regularly hourly rate for each missed meal break.

    To qualify as a break that relieves the employer from liability for the hour’s pay, the employee must be excused from of all work responsibilities during the rest period.

    Note: Federal law does not require meal or rest breaks. Only nine states have laws that mandate rest time. They are: California, Colorado, Illinois (required for hotel housekeeping employees only), Kentucky, Minnesota, Nevada, Oregon, Vermont, Washington

    In the Abercrombie & Fitch lawsuit, the class includes hourly employees at California Abercrombie stores between 2012-2014, and also California workers during that time period at California Hollister stores, which are owned by the same company. Each class member will receive a portion of the settlement fund in a proportional amount based on the number of shifts worked during the designated time period.

    As with all class actions, members of the class have the opportunity to opt out of the settlement. If they do so, they will not receive any part of the $2 million settlement but will reserve the right to bring an individual civil action against the company.

    Some class members might be inclined to withdraw if they believe their financial loss significantly exceeds their proportionate share of the settlement amount.

    DISCUSSION QUESTION:

    If you were a legislator in one of the 41 states that do not have laws requiring rest breaks, would you vote to adopt such a law? Why or why not?