• Disney: Not Lately the “Happiest Place on Earth”

    Disney‘s tag line for its amusement parks, now found around the world, carries a certain irony these days as the tragedy of a toddler’s death by an alligator attack hangs heavy over Disney World, visitors to that park, and even the Disney brand.

    Sadly, a two-year-old boy from Nebraska, Lane Graves, was snatched by an alligator while he was playing on a lagoon beach area near the Grand Floridian resort. While Lane’s father was able to startle the alligator as he attempted to open its jaws, his son was still dragged underwater and drowned.

    The issues of liability and negligence have emerged. The Seven Seas Lagoon where Lane was playing did have “No Swimming” signage, there was no warning about alligators. Disney closed all beaches in the park out of an “abundance of caution.” Since the time of the death, both fencing and warning signs with drawings of alligators have been placed at the site. Disney has eliminated all references to alligators and crocodiles on its rides and shows.

    Before the accident, Disney had employees who patrolled all water areas in the park and routinely removed alligators. The Seven Seas Lagoon is connected to a series of canals that feed into larger bodies of water that are part of the park. Videos from park visitors have emerged showing alligators in the waters very close to Splash Mountain riders, children feeding alligators popcorn in Disney lagoons, and pictures of a small boy who was bitten by an alligator at the park over 30 years ago.

    Alligators are common in Florida, as are warning signs. Folks from Florida might not have gone near a lagoon at night, but tourists from Nebraska (the Graves’ home) would not be familiar with the risks. When a landowner (Disney) is aware od dangers on its property, it has the duty to either eliminate the danger and, if the danger cannot be eliminated (something that seems to eb true of alligators in Florida), then post warning signs and instructions for those on the property. This level of duty is owed to invitees, those who are on the property as the guests of the landowners. Hotel and park guests would all be classified as invitees.

    They key will be Disney’s knowledge in terms of liability, should the parents decide to seek recovery. Landowners are not required to protect invitees from wild animal attacks, but if the landowner has knowledge of problems with the animals attacking, then the duty to warn arises. There are reports from attorneys in Florida that staff members at the Polynesian Village Resort had been warning Disney of problems with guests feeding alligators, but the fencing that the staff members suggested to afford guests some protection was not installed. Roger Yu, “Disney May Be In For More Trouble,” USA Today, June 20, 2016. p. 1B

    No one knows if the family of this little boy will pursue litigation, but going forward, Disney needs the following:

    • More warning signs

    • Some form of disclosure for guests when they check into resorts or buy their tickets to the park

    • Taking action when staff and guests provide information about alligators

    • Increase alligator monitoring and patrols

    Discussion Starters

    Explain the liability of landowners for wild animals on their premises.

    Discuss what would need to be proved in a case of negligence against Disney.

  • FedEx Charges Dismissed: No Knowing Violations of Drug Laws

    In 2014, a federal grand jury indicted FedEx for conspiracy charges related to its shipments for online pharmacies that the indictment indicates are known drug dealers. (You can read the original blog post by going to the blog for August 12, 2014). FedEx denied that it has violated the law and pointed to repeated requests it made to the Drug Enforcement Administration for a list of the online companies with which is should not do business.  The company also indicated in a statement that when it became aware of a company's criminal status, it stopped its shipping services to that firm. 

    After a two-year battle, a federal judge dismissed most of the charges against FedEx because the prosecutors could not produce evidence that the company knowingly shipped drugs without valid prescriptions. Judge Charles Breyer confronted the prosecutor in the case with two questions:  (1) Why the DEA did not furnish the information FedEx kept requesting; and (2) Why the federal government was not prosecuting the postal service for doing the same thing.

    Under the Controlled Substances Act, common carriers are protected from criminal liability if they are able to show that they were shipping packages in the usual and lawful course of business.  However, the Justice Department had threatened FedEx with a $1.6 billion fine and had already settled a 2013 UPS case for $40 million despite shareholder protests that UPS had “rolled too easily.” “FedEx’s Vindication,” Wall Street Journal, June 20, 2016, p. A12.

    Judge Breyer dismissed the remainder of the charges on June 17, 2016, noting, “The government should take a very hard look at how they made the tremendously poor decision to file these charges.” Josh Beckman, “FedEx Says Pharmacy Charges Dismissed,” Wall Street Journal, June 20, 2016, p. B3. The judge went on to say that FedEx was “factually innocent.”  He also added, “the act of dismissal is entirely consistent with government’s overarching obligations to seek justice, even at the cost of some embarrassment.”

    Scienter, or criminal intent, is necessary in every crime, even when prosecuting corporations.  However, FedEx has had to foot the bill for two years of legal fees in fighting the charges.

    What was critical in the case was the paper trail that FedEx had created in asking the DEA for information and that it dropped customers about whom they obtained knowledge of problems with their prescriptions.  Good records are often a defense for corporations in these cases of third-party involvement that touches potential criminal activity.


    Explain the obligations of federal prosecutors according to the federal judge.

    What does it mean that the court found FedEx “factually innocent”?

  • Dweezil, Moon, Ahmer, and Diva Zappa: Children of Frank and a Trust Battle

    Frank Zappa, of the 1960’s group, the Mother sof Invention, had four children with his wife Gail:  Dweezil, Moon, Ahmer, and Diva.  Frank died in 1993, and his wife, Gail, died in 2015.  After Gail passed away, the Zappa Family Trust had two trustees: Ahmer and Diva.  The beneficiaries of the trust are Moon and Dweezil. 

    Dweezil then announced a tour entitled, “Zappa Plays Zappa.”  Ahmer told Dweezil that the name was trademarked and could only be used if Dweezil paid $1.00 for its use.  Dweezil refused to pay the $1.00 because he said that the trust owed him $2.5 million for merchandise sales. Dweezil then changed the name of the tour to Dweezil Zappa Plays Frank Zappa.  Objections followed once again.  The name of the tour has been changed yet again to “50 Years of Frank:  Dweezil Zappa Plays Whatever the Heck[1] He Wants – The Cease and Desist Tour.” It has been 50 years since the Mothers of Invention’s first album was released, “Freak Out!” Ben Sisario, “In Zappa vs. Zappa Spat,” New York Times, June 18, 2016, p. B2.

    The issue is whether Dweezil’s use of the Zappa name is fair use.  The trust holds trademarks for the name, and those who use it must pay for the right to use it, even the son of Zappa.  Dweezil said he changed the name because “I don’t want to keep having to pay $30,000 every time they send me a letter.” The $30,000 refers to his legal expenses in the matter.

    The payment of $1.00 would protect the trust’s rights in the trademark.  By not allowing its use without permission, the trust preserves the trademark and its rights.  The amount of the consideration is not important, only that it be paid to the trust.  Ahmer’s solution was a reasonable one, but disputes over trust distributions of earnings have apparently created hard feelings in the family.

    Frank Zappa apparently did some careful estate planning to be sure that his children held ownership and beneficial rights in his name and works.  What Frank did not plan for is something that affects nearly all families with wealth – that there are disagreements about the administration of both estates and trusts. More often than not, those disputes are reduced to personality battles coupled with resentment and disagreements over who is entitled to how much. The end result is the expensive legal battles witnessed here, or, as an alternative, retaliatory names of concert tours. Some family trusts are set up with third-party trustees to eliminate family dynamics in their management and distribution.


    Explain the reason for the $1.00 payment demand.

    What could be done in setting up the trust to prevent disputes?

    [1] Dweezil actually uses a different word for “heck,” but this is a family-hour blog.  No salty language allowed. 

  • Disability Accommodation, Resume Untruths, and Retaliation


    A bartender with forged employment documents sued the Hotel La Concha in Puerto Rico for disability discrimination and retaliation. The result is a case with much intrigue and several good lessons.[1]

    Plaintiff was hired as a part-time bartender in the lobby bar. On her application she attested to the truth of the information but provided an incorrect social security number and a forged social security card. The employee handbook states that false information on application documents is grounds for dismissal. Unknown to the hotel, plaintiff was not a lawful permanent resident. She did however become one a year later.

    Plaintiff voluntarily quit her position after sixteen months for unrelated reasons. She was rehired a year later as a nighttime lobby bartender, using a different, and this time legitimate, social security number. The hotel’s payroll manager identified the discrepancy, alerting the hotel for the first time that there may be an issue with the drink maker’s documentation. An investigation followed. However, it stalled and no action was pursued against plaintiff.

    Ten months later the bartender developed a medical condition that precluded her from working nights. The hotel sought to accommodate her circumstance. No openings existed for daytime bartenders. She was offered a wait job at the hotel restaurant serving breakfast and lunch. She accepted but over time earned less and so asked to be assigned to a daytime lobby bartender position. She thereafter observed that other workers had been recruited and hired for that job despite her requesting it. Believing she should have been offered the position, she sued the hotel claiming disability discrimination



    The law does not favor the plaintiff. An employer’s duty to a qualified person with a disability is satisfied by assignment to an alternate, vacant position. The duty to identify openings arises when the employee requests reassignment and ends after the employer either reassigns the employee, or determines that no positions are available or will become available in the fairly immediate future. The employer is not required to offer the employee a job that becomes available well after the employer learned of the employee’s disability.

    In her complaint, plaintiff does not identify when the bartending vacancies she sought became available. Noted the court, the positions may have become open well after plaintiff accepted the restaurant server assignment. The court also commented that an employer has no duty to remove another employee to create a vacancy for a worker with a disability.

    Based on these rules, plaintiff failed to prove that the hotel discriminated against her based on her disability. Case dismissed!.

    Lessonl: Faced with an employee with a disability, an employer must make a good faith effort to accommodate her. Once having done so, the employer’s legal duty is satisfied. No further attempts to match an employee with a desired job are required.


    The hotel terminated the bartender, claiming as grounds the discrepancies in her employment documents. In addition to her discrimination claim, plaintiff sued for retaliation. She argued that the document issue was a pretex, and the real reason for her dismissal was instead her participation in legally protected activity. Indeed, requesting a disability accommodation, lodging a disability discrimination charge, and participating in the related court proceedings are all protected activities. Retaliation by the employer, including firing because of such activity, is illegal.

    Said the court, “Providing false information to an employer during the application process is surely a legitimate non-retaliatory reason for terminating an employee.” BUT the inquiry does not stop there.

    One way for an employee to establish pretext is by showing proximity in time between the protected activity and the adverse employment action. Plaintiff argued that her termination occurred very close in time to her protected activity (42 days separated them) and was distant in time from when the document discrepancy first came to the employer’s attention (21 months earlier). Referring to the 42 day period, the court said, “This relatively short time frame would allow a reasonable jury to infer a retaliatory animus.”

    Upshot? The hotel may be liable on plaintiff’s retaliation claim. The court denied the inn’s motion to dismiss the case without a trial. Plaintiff will get her day in court on the retaliation issue.

    Lesson: If grounds exist to discipline an employee, do the necessary promptly. Waiting has consequences. Also, do not penalize workers for engaging in legally protected activity. That constitutes illegal retaliation.


    1)    Do you agree that an employer’s duty to provide an alternate job to accommodate an employee with a disability should end once the original accommodation is made? Why or why not?

    2)    Do you think plaintiff’s termination was retaliation? Why or why not?



    [1] Cervantes v. International Hospitality Associates d/b/a Hotel La Concha, 2016 WL 3080774 (Puerto Rico, 5/31/2016).

  • Easy Returns Wreak Havoc on Employee Commissions

    Amazon led the way – return whatever, at our expense. Other online retailers as well as the brick-and-mortar stores have had to adjust. As a result, store such as Macy’s have adopted very liberal return policies. Macy’s advertises that it will take anything back, anytime. The horror stories abound. Macy’s employees in the luggage department call their area “the rental luggage department,” because customers buy the luggage, use it on a trip, and then return it. If the customer says he will be leaving in the morning and returning in a week, the clerks note that they can time the return of that luggage; they will also be back to return their newly purchased luggage in a week. Rachel Abrams, “The Sting of a Liberal Retail Returns Policy,” New York Times, June 14, 2016, p. B1.

    An unanticipated consequence of the liberal returns policies is the effect on employee pay. Employees who are on commission plan for a certain amount of income in a week, or believe that they have earned a certain amount of income. However, with these types of return policies, they can lose their commissions on any returns within six months after purchase. The policies on commission were created to stop employees from having friends and family come in and purchase goods, allowing the employee to earn the commission but then returning the goods. Without the hit to the employee on commission loss for returned goods, there would be gaming of the system. However, customers seem to be gaming the system. In 2014, customers in the U.S. returned $284 billion in goods, a 53% increase in five years. The amount retruned is 8% of total sales.

    Union leaders are pressing the major department stores to change their return policies to 150 or 120 days instead of 180 days so that employees can better budget and plan on incomes, and possible reductions in income due to returns. A recent university study found that sales employees believe that returns have become too lax. The impact on earnings for retailers from so many returns has resulted in reductions in the number of sales employees, with many who remain being reduced to part-time schedules.

    Watch the latest video at <a href="http://video.foxnews.com">video.foxnews.com</a>

    On the customer side, and from the legal perspective of contracts, if the store advertises a 180-day-no-questions-asked return policy, the store must honor what has been advertised. However, notification of a change would apply to all purchases after the time the change is advertised and disclosed.

    On the ethics side, the fairness of customers returned used goods or perfume with one drop left in the bottle is an issue for debate. Return policies assumed some element of good faith on the part of customers. In fact, Nordstrom has a returns policies that is not specific and provides as follows:

    Returns & Exchanges

    We stand behind our goods and services and want you to be satisfied with them. We'll always do our best to take care of customers—our philosophy is to deal with you fairly and reasonably; we hope you will be fair and reasonable with us as well.

    The return of used goods after their usefulness to the customer has waned may not have been anticipated as part of good faith.


    Explain the impact of return policies.


    Can return policies be changed? How?

  • OSHA Settles Employee Safety Lawsuit Against Ashley Furniture


    Ashley Furniture, one of the world’s largest furniture manufacturing and retailer companies, has agreed to settle (resolve without a trial) safety claims by paying $1.75 million in penalties and implementing new safety measures. The home furnishing company was accused by the Occupational Safety and Health Administration (OSHA) of unsafe conditions and disregard of safety standards at its manufacturing plant in Arcadia, Wisconsin where 4,500 employees work.

    The case was prompted in part by a 2014 OSHA inspection which identified 12 willful violations, another 12 repeated violations, and 14 serious safety violations. A willful violation is one committed with intentional, knowing or voluntary disregard for the law’s requirement, or with plain indifference to employee safety and health. A repeat violation is one for which the employer had been previously cited within the last five years.

    The company had already been placed on the agency’s Severe Violator Enforcement Program, an enhanced enforcement effort for employers who “continue to expose workers to very serious dangers even after receiving citations for hazards causing serious injuries, illnesses, and deaths.” Per OSHA findings, workers had suffered more than 1,000 injuries over a recent three and a half year period, including severed fingers while operating furniture-making machinery. Said US Secretary of Labor Thomas E. Perez, “Ashley Furniture has created a culture that values production and profit over worker safety, and employees are paying the price. Safety and profits are not an ‘either, or’ proposition. Successful companies across this nation have both.”

    Ashley responded that it strongly disputes the allegations.

    Under the Occupational Safety and Health Act of 1970, employers are responsible for providing safe and healthful workplaces for their employees. OSHA’s role is to set workplace safety standards, enforce those standards, and provide training, education, and assistance. One of the ways OSHA enforces standards is by regular inspections of company plants.  

    .The allegations against Ashley include that the company failed to implement safety procedures to protect workers, failed to mandate that operators use locking devices to prevent unexpected machine start-ups and other movement while workers changed blades, cleaned machines and cleared jams. Additionally, Ashley was accused of failing to report serious injuries to OSHA, and failing to maintain required incident reports. The furniture maker was also accused of electrical safety violations, failing to equip some of the machines with readily-accessible emergency stop buttons, and lacking adequate drenching facilities for workers exposed to corrosive materials. Other accusations charge Ashley with failing to properly train employees on using equipment safely, and offering employees incentives to work faster which predictably results in less concerns about safety precautions because of the time they require.

    The requirements of the settlement include expanded employee safety training, development of a training program directed at preventing machines hazards, and correcting safety violations at several of Ashley’s plants.

    In recent years Ashley has paid numerous fines for safety lapses including $431,000 in 2015..

    Ashley employs approximately 20,000 workers at 30 locations nationally. The company had annual revenues in 2015 of close to $4 billion.

    For more information, click here.


    1. What is the government’s interest in worker safety?

  • Thwarting Ticket Scalpers? Raise the Prices, and Broadway's “Hamilton” Shows How

    When a Broadway show, such as “Hamilton” is sold out through January 2017, the producers make money, but the ticket brokers make more. The ticket brokers purchase tickets for $139-$177 and then resell those tickets to those who are visiting the city and are willing to pay much higher prices in order to catch the show while they are in town. Using “bots,” professionals are able to corner the sale of tickets immediately. The tickets are in the hands of the brokers and scalpers and are then sold on the secondary market at a substantial profit, estimated at $240,000 per week.

    “Hamilton’s” creator and star, Lin-Manuel Miranda, has written an op-ed in support of a law that is before the New York Assembly that would regulate the use of “bots” for ticket purchases. Mr. Miranda wrote, “I want you to be there when the curtain goes up. You shouldn’t have to fight robots just to see something you love.” Jayme Deerwester, “’Hamilton’ Raises Prices to Thwart Scalpers,” USA Today, June 10, 2016, p. 1D.

    Under the new pricing, “Hamilton” will sell 200 premium seats for $849. That price nearly doubles the previous record of “The Book of Mormon” premium price of $477. The remaining seats in the 1,075-seat theater will sell for $179-$199. The show will still sell 46 $10 lottery seats for each show. Those seats are in the first two rows and can be purchased only by American Express cardholders. The new pricing goes into effect today – the day after the Tony awards. “Hamilton” won 11 of the 16 nominations it received.

    Ticket “scalping” always occurs when tickets are underpriced, i.e., limited supply (seats in a theater or, for sporting events, stadium) and extraordinarily high demand. The tickets are underpriced because the producers do not want to create cost barriers. The law on ticket “scalping” has changed dramatically since the 1980s. Originally illegal, ticket “scalping” was eventually permitted with time, place, and licensing regulations. The changes brought about the ticket brokerage industry, generally consisting of small business owners who purchase tickets and then resell them to those willing to pay the fair market value in light of the demand. With online sales, the brokerage industry has become more sophisticated and the use of “bots” has often allowed some in the industry to corner ticket markets. However, the code of ethics for the ticket brokerage industry prohibits the use of “bots,” and, like New York, many states are passing laws that prohibit their use.

    In some cases, the primary and secondary ticket markets have joined forces, as with sports where the team licenses ticket resellers and requires the use of authorized resellers. Under this vertical integration, the team is able to share in the profits on the secondary market. There are questions about competition in this vertical integration that are also being addressed legislatively around the country.

    The history of trying to control high demand-limited supply markets has been ever-evolving and the work of economist Stephen K. Happel and Marianne M. Jennings provides a summary of that history.

    In the mean time, hope you win the “Hamilton” lottery or save up your $849.


    Explain what “bots” are and why they are used.

    Explain the pricing mechanism on high-demand events and the effects of vertical integration.

  • Nike Sues Boris Berian for Breach of Contract: Rio in LImbo?

    Boris Berian was participating in a track meet in Los Angeles, but one of the world’s fastest men could not dodge a process server. Mr. Berian was served with a lawsuit from Nike. The suit alleges that Mr. Berian breached his endorsement contract with Nike by accepting a similar deal with New Balance.

    Mr. Berian signed a contract with Nike on June 17, 2015 that expired on December 31, 2015. However, Nike had the right to match any offer from a Nike competitor that Mr. Berian received within 180 days from the termination date. Known as a “right of first refusal” clause, once Nike matched or bettered another offer, Berian was still obligated to Nike. However, Mr. Berian rebuffed the Nike matching offer and accepted an offer from New Balance in January 2016. Nike filed suit seeking an injunction against Mr. Berian from wearing or endorsing New Balance shoes because it would experience “serious, substantial, and irreparable harm.” Sara Germano, “Nike Plays Hardball To Keep Its Athletes,” Wall Street Journal, June 7, 2016, p. A6.

    Nike uses the clauses to keep athletes it signs in the early parts of their careers. Nike is also known for being aggressive in enforcing the clauses. Mr. Berian, known for working at a McDonald’s in Colorado Springs from 8 AM to 2 PM, and then training until dusk had a break-out season in 2015 and is headed to the Olympics in Rio. His trainer believes he will be the American record holder following the Olympics. However, Mr. Berian has said he would rather skip the Olympics than race for Nike after being sued.

    The judge has issued a temporary injunction that prohibits Mr. Berian from wearing New Balance shoes. Mr. Berian attended Adams State and won indoor and outdoor titles as a freshmen, but his grades kept him from being eligible for further college competition. He decided to work at McDonald’s, sleep on a friend’s couch, and bike the three miles to work each day to save money for training and traveling to meets. A former coach at Adams State connected Mr. Berian with a trainer, and he enjoys the “cute comments,” such as, “From ‘Golden Arches’ to a gold medal.” Pat Graham, “Sponsorship Dispute Could Keep Boris Berian Home from Rio,” San Francisco Chronicle,” June 12, 2016.

    Many contracts have 180-day periods after their expiration. For example, real estate listing agreements generally have 90-180 day periods that allow the listing broker to still collect a commission if a sale results from a potential buyer brought to the property during the period of the contract. These types of clauses are enforceable. However, Mr. Berian is arguing that Nike's contract includes a clause that can reduce Nike's payment for poor performance by the athlete.  Although such clauses are standard in athletic endorsement agreements, Mr. Berian is arguing that because New Balance did not include such a clause that Nike's offer is not a matching offer and that New Balance, overall, offers a better deal. New Balance does not include reduction clauses in its athlete endorsement contracts.

    The interesting aspect of celebrity and sports endorsement contracts is that they favor the company. For example, the contracts also provide that the company can end the contract for a variety of reasons, including, as was the case with Michael Phelps, due to a morals clause. The morals clause is used to drop athletes when the run afoul of the law, use drugs, or otherwise gain negative press (spousal abuse, pictures of drug use at parties, and rape allegations) are examples of when morals clauses have been used by companies to withdraw their sponsorships.

    In this situation, the federal district court in Oregon will handle the claims and the contract interpretation, with the next hearing scheduled for June 21, 2016. AN executive with Brooks shoes has filed an affidavit in the case indicating that it also does not include reduction clauses in its athletes' contracts.


    Explain what “right of first refusal” clauses are.

    Is it possible to a company to have a lifetime lock on an athlete because of the 180-day matching provision?

  • Nuisance Is Basis of NY Attorney General Lawsuit against Demolition Debris Company


    The Attorney General of New York, Eric Schneiderman, has sued Battaglia Demolition Inc, a demolition debris processing facility in Buffalo, NY. The lawsuit seeks to declare the business a nuisance, meaning use of real property in a way that substantially interferes with neighbors’ enjoyment of their property. A nuisance lawsuit seeks to stop the objectionable conduct.

    Battaglia’s facility borders on numerous lots containing private homes. The company stockpiles and processes construction and demolition debris, meaning materials salvaged from destruction, construction, alteration, and repair of houses, buildings, and roadways. These materials can include brick, concrete, stone, drywall, lumber, roofing, plumbing fixtures, heating equipment, insulation, carpeting, metal, and more.

    Nearby residents complain of noise, dust, vibrations, odors, vermin infestation, noxious air pollution, and truck traffic. Neighbors say they are forced to keep their windows shut, and abandon their porches and backyards. Said the AG, “Communities have a right to a safe, clean and healthy environment.”

    The lawsuit also alleges that Battaglia is operating without permits required by the New York State Department of Environmental Conservation, including a permit for controlling air pollution from a concrete crusher used by Battaglia. The purpose of the permits is protection of both the environment and health of surrounding communities.

    The lawsuit includes 30 affidavits (sworn statements) from neighborhood residents describing the “unbearable” and “sickening” conditions.

    Prior to the lawsuit, the facility had been cited for numerous violations of law by the City of Buffalo, as well as six notices of violation issued by the Department. of Environmental Conservation.

    The law values the right of people to the peaceful, uninterrupted enjoyment of their property. Nuisance is a tort typically invoked when neighbors sue a neighbor because the defendant’s use of his property interferes substantially and continuously with the plaintiff’s use and enjoyment of his property. Nuisance is not based on a physical invasion of plaintiff’s property. That would be trespass. As a remedy, plaintiffs typically seek an injunction, which is a court order requiring defendant to cease objectionable conduct.

    Said Attorney General Schneiderman, “I am committed to bringing these harms to an end and holding Battaglia fully accountable for blatantly and knowingly disregarding both the law and the well-being of the community.”

    For more information, click here.


    1) Name several other examples of uses of real property that would constitute a nuisance.


  • Wetlands, Peat, and Permits: The U.S. Supreme Court Makes Challenges to the Clean Water Act Easier

    Hawkes Co., a North Dakota-based corporation, wanted to harvest peat from wetlands in the northern area of Minnesota on a 530-acre tract that it owned. The Army Corps of Engineers determined that the property with the peat was located on “waters of the U.S.” and could not be used by Hawkes without a permit under the Clean Water Act (CWA). The Army Corps of Engineers said that the wetlands were of exceptional quality and had a significant nexus with the Red River that required federal supervision. Hawkes argued that the land was far away from the Red River (120 miles) and that it had no connection to any navigable waters. U.S. Army Corps of Engineers v. Hawkes, Co., Inc., 2016 WL 3041052 (2016)

    The Army Corps of Engineers, as an administrative agency, argued that Hawkes had to first go through the process of permitting to exhaust administrative remedies before it could have a court make the determination of whether the wetlands constituted navigable waters for purposes of the CWA. However, if Hawkes just went ahead without the permit and incurred penalties, those penalties could be $37,500 per day.

    The federal district court found (Hawkes Co. Inc. v. U.S. Army Corps of Engineers, 963 F. Supp. 2d 868 (D. Minn. 2013) for the Corps. The appellate decision reversed that lower court decision and remanded (782 F.3d 994 (8th Cir. 2015)), but the U.S. Supreme Court granted certiorari. In a decision in which six justice concurred, and Justice Ginsburg mostly concurred, the court held that the permitting process was “arduous and expensive” and that companies needed the right to have a determination made on the jurisdiction of the CWA before requiring the permit process. Determining whether a particular piece of property contains waters of the United States is difficult, but there are important consequences if it does. The CWA imposes substantial criminal and civil penalties for discharging any pollutant into waters covered by CWA without a permit from the Corps. (33 U.S.C. §§ 1311(a), 1319(c), (d), 1344(a)). The costs of obtaining a permit are average about 788 days and $271,596 in costs.

    The case was argued for Hawkes by a lawyer for the Pacific Legal Foundation, who said that the case is a victory for the property rights of individuals who have had their rights curbed by unilateral determinations of agency jurisdiction under CWA.

    Several of the concurring opinions took aim at the Clean Water Act’s “notoriously unclear provisions” that allow federal agencies such broad jurisdiction against property owners who may not have the means to litigate the claim of navigable waters.

    The EPA has issued new regulations attempting to clarify (and actually broaden) what wetlands are covered under the Clean Water Act, but those regulations are under legal challenge.

    The court’s nearly unanimous holding means that companies can challenge federal agency’s unilateral determination of CWA application before either seeking permits or incurring fines. The court concluded its decision with this summary:

    the Corps emphasizes that seeking review in an enforcement action or at the end of the permitting process would be the only available avenues for obtaining review “[i]f the Corps had never adopted its practice of issuing standalone jurisdictional determinations upon request.” True enough. But such a “count your blessings” argument is not an adequate rejoinder to the assertion of a right to judicial review under the APA.

    Discussion Starters

    Explain what the Corps had done and why.

    Explain why the exhaustion of administrative remedies is not necessary for a review of an agency’s determination of CWA application.

  • Failure to Warn Results in $55 Million Verdict against Johnson & Johnson

    A South Dakota woman who claimed that Johnson & Johnson’s talcum powder caused her ovarian cancer has won her case. She was awarded a jury verdict of $5 million in compensatory damages (money to reimburse a plaintiff for her loss) and $50 million in punitive damages (money to punish the defendant because of particularly reprehensible conduct). The plaintiff had used the company’s talc-infused powder on her genitals as part of her hygienic protocol for decades. Her lawsuit faulted the company for failing to warn of the cancer risks.

    Johnson & Johnson maintains that its products are safe. The company plans to appeal the verdict.

    Among the products plaintiff used were baby powder, body powder and talc powder.  The attorney for the plaintiff presented evidence that the link between talcum powder and ovarian cancer has been identified in studies since the 1970’s. Researchers then found talc embedded in 75% of all ovarian tumors studied. The International Agency for Research on Cancers found in 2010 that talc-based body powder is “possibly carcinogenic to humans.” A 2016 study placed the increased risk of cancer from talc powder use at one-third. These studies report that talc applied to a woman’s genital area can travel through the vagina and into the uterus, fallopian tubes and ovaries.

    Internal documents presented at trial confirmed that Johnson & Johnson had been aware for decades of the studies linking their products to ovarian cancer. Despite these studies, Johnson and Johnson did not issue warnings or include notice on its packaging. .

    A failure to provide warnings renders a product defective in strict products liability (a ground on which to sue that holds manufacturers and sellers liable for defective products regardless of fault). Makers and sellers are required to provide adequate warnings on products known or expected to be dangerous in a way not obvious to users. The law requires manufacturers and sellers to stay informed about their products. If it is possible to discover a risk through reasonable research, testing and investigation, defendant should discover the problem and warn about it. Makers and sellers are liable for failing to warn about a risk they should have discovered. Thus, the law bars a manufacturer or seller from profiting by the sale of a product it knows or should know carries risks of injury or illness unlexx those risks are revealed..

    Since Johnson & Johnson knew of the cancer danger associated with talc powder for feminine hygiene, the company should have warned consumers. Failure to do so renders the product defective, and Johnson and Johnson liable.

    This case follows another similar verdict against the powder company in which the plaintiff, who died of ovarian cancer, was awarded $72 million.(When a deceased plaintiff wins a monetary verdict, the money goes into her estate and is distributed pursuant to the directions stated in her will, or if no will, pursuant to state law). See blog post titled, “Laminate Floors and Baby Powder: The Cancer Findings and One Verdict,” dated February 24, 2016. .

    Over 1,200 lawsuits are pending against Johnson & Johnson claiming inadequate warnings.

    Note: Talc powder is generally recognized as safe when used other than for feminine hygiene.

    For more information click here.


    1) Why are warnings to consumers of a product's links to illness  important?

    2) Rather than require warnings, should the law ban products that are known to have links to illnesseses? 

  • Lynn Tilton Learns the Expensive Way About Exhaustion of Administrative Remedies

    In 2015, the Securities Exchange Commission (SEC) issued a cease and desist order against Patriarch Partners LLC and its founder Lynn Tilton. Tilton and her company provide financing to distressed companies with the goal of turning the companies around. The SEC charged the company with securities fraud, alleging that investors in Patriarch were misled because losses hidden were hidden in the loan funds that fed cash to the various troubled companies Patriarch acquired.

    Lawyers for Ms. Tilton and Patriarch attempted an interesting legal battle. With the passage of Dodd-Frank, the SEC was given the authority to impose civil penalties against private individuals through its administrative proceedings. Prior to this change in the law, the SEC had to go to federal court in order to obtain civil penalties. Ms. Tilton’s lawyers filed suit challenging the constitutionality of this authority on the grounds that the administrative law judges who hear the cases on whether to impose civil penalties are employees of the SEC and, as such, are conflicted in their roles. The argument is that defendants in these civil actions are deprived of their rights to due process because they do not have the opportunity to have their cases heard by an impartial arbiter, judge, or hearing officer.

    The federal district court heard the constitutional arguments and held that it lacked jurisdiction to make such a determination because the hearing had not yet been held. The court noted that Ms. Tilton and her company had to exhaust their administrative remedies at the SEC before they could have a court determine whether their rights had been violated. In Tilton v. SEC, 2015 WL 4006165 (S.D.N.Y. 2015), the court held that Ms. Tilton must go through the SEC process before raising the constitutional issues. The court also noted that she was free to take the case to the court of appeals for a determination of the issue. On June 1, 2016, the Second Circuit held in a 2-1 decision that the federal district court was correct and that Ms. Tilton must first go through the SEC process before she can turn to the courts for judicial review. Peg Brickley, “Appeals Court Denies Tilton’s Challenge to SEC Case,” Wall Street Journal, June 1, 2016.

    Ms. Tilton’s lawyers were unsuccessful in eliminating the requirement that plaintiffs exhaust their administrative remedies in agencies before turning to the courts. That requirement applies even when, as here, the plaintiff is raising constitutional issues about the nature of the hearings and the components of due process. One exception to the exhaustion doctrine exists if the plaintiff can show that it would be futile to continue with the administrative proceeding. Ms. Tilton only argued theoretically that it would be futile based on the ALJs’ inherent conflicts in working for the SEC. Her case had not been finalized to determine whether there was indeed a conflict that affected the decision in the case. At present, for all anyone knows, Ms. Tilton and her companies could be exonerated.

    The SEC case will proceed, and whatever the outcome, Ms. Tilton then enjoys the right of appeal for a review of the agency’s decision.

    Discussion Starters

    Explain what change Dodd-Frank made and how it affected the SEC.

    Discuss the exhaustion of administrative remedies.