• The Deadly Bungee Jump: Criminal Charges Due to Language Barriers

    She was a 16-year-old from the Netherlands on holiday in Spain.  It was the last jump of the night at the 130-foot-high bridge in Cantabria near the northern coast of Spain.  At 8:30 PM, Vero Mol was in the jumping harness and the instructor, not really proficient in English, gave her an order, “No jump.”  Ms. Mol misunderstood his pronunciation and thought he was saying “Now jump.”  The harness had not yet been hooked to the bridge, and Ms. Mol fell jumped untethered and fell to her death. Dan Bilefsky and Raphael Minder, “Deadly Bungee Jump in Spain Could Lead to Criminal Charges,” New York Times, June 29, 2017, p. A5. 

    In tragedies such as these, we look for lessons learned and we look to the law.  An appeals court in Spain has just ruled that the instructor for the Aqua21 Aventura, the company that organizes the jumps, could face criminal charges for his role in the teen’s death. The company had appealed a decision that permitted the charges to go forward on the grounds that the teen jumped prematurely and that her death was an accident.  The court held that the instructor’s English was not sufficient and that he should have said, “Don’t jump!”  His use of “No jump!” created confusion. The court noted that the ability to communicate with foreigners in “something as precarious as jumping into the void from an elevated point” was critical.  

    The court also noted numerous regulatory violations by Aqua21 Aventura: 

    • The company did not determine whether Ms. Mol was underage
    • There was no permission form from the parents of the 16-year-old
    • The company had not been issued a permit for jumps in that area

    Flowtrack, a company based in Belgium that had organized the trip for the teens and contracted with Aqua21 said that the Spanish company did not comply with regulations, as required under its contract.  Flowtrack vicarious liability would be an interesting question, whether they knew or should have been aware of the nature of Aqua21’s operations. 

    The issue of different languages in the workplace has arisen in the United States with English-only policies permitted in situations that demand careful communication (operating rooms, emergency medical treatment, certain types of equipment (nuclear power operators), military operations, etc.).  Bungee jumping should be added to that list.

    DISCUSSION STARTERS 

    Who is an agent of whom in this situation?

    Why is compliance or non-compliance with regulations important in the case?

     

  • When Jury Selection Goes South: The Martin Shkreli Voir Dire

    No television show or movie has written stuff this good.  Jury selection for the securities fraud trial of Martin Shkreli began on Monday, June 26, 2017.  The judge anticipated having a jury empaneled by noon, with the trial beginning in the afternoon.  The judge was given an education by the panel of 100+ potential jurors.

    Mr. Shkreli is the former CEO of Turing Pharmaceuticals and became widely known when he increased the prices of the company’s drugs, one, the prescription drug Daraprim, which is used to treat toxoplasmosis, a parasitic disease that generally occurs in patients with weakened immune systems, such as pregnant women or patients suffering from AIDS. Turing Pharmaceutical acquired the patent rights to Daraprim, which had been selling for $13.50 per pill.  Upon acquisition of the patent rights, Turing raised the price to $750 per pill.  The Infectious Diseases Society of America and the HIV Medicine Association wrote that hospitals and pharmacies are no longer able to stock the medication. The two societies offer the following calculations for a year-long treatment: The cost would be $336,000 for those who weigh less than 132 pounds, and $634,500 for those who weigh more than that. 

    The public outcry was so great that Turing announced that it would reduce the price.  But, the public impression was made.

    Here is a sampling of the potential jurors’ thoughts on the case and Mr. Shkreli: 

    "I looked right at him, and in my head I said, 'That's a snake' -- not knowing who he was.""He is the face of corporate greed in America."

    "You'd have to convince me he is innocent."

    "Who does that?  A person who puts profit above everything else."

    "The most hated man in America."

    "I honestly don't think I can be impartial."

    The judge reminded the panel of potential jurors about the presumption of innocence. But, jurors were not buying this justice stuff. One responded, "I understand that, but everything I've seen. . . " 

    The judge interrupted him mid-sentence and had to hold a side bar because the defense raised the legitimate point that the jurors who were being excused for cause were tainting the remainder of the pool with their comments. 

    Sixty-nine jurors were dismissed -- dozens for cause.  “For cause” means that the potential jurors have stated that they are unable to be impartial, their comments indicate that they are not capable of being impartial, or they have a conflict with any of the parties involved in the case.  Other jurors were dismissed because of work or health issues. There are also a limited number of peremptory challenges that lawyers can use to strike jurors.  The lawyers do not have to give explanations for peremptory challenges – they use them when they have a bad feeling or discomfort about a juror. Some jurors could say that they could be impartial and thus be acceptable for the panel, but a lawyer may not feel comfortable about the assertions. Forty potential jurors from the original panel have returned for further screening.  The judge asked for 100 more for the panel.

     

    The case is an interesting one because the defendant has had so much media coverage and presence on Twitter and the Internet.  However, the publicity is, for the most part, related to the alleged securities fraud.  The jurors were not really familiar with the charges or Mr. Shkreli’s alleged conduct.  They were, however, familiar with Turing’s price increases and how it had affected family members and friends.  As indicated, some potential jurors confessed that the pricing issue would prevent them from being impartial.  In addition, the judge and lawyers have to anticipate that should Mr. Shkreli choose to testify that the prosecutors would have questions about the pricing in order to provide insight into his character. The judge has denied a request to restart the selection process. 

    The case is also interesting because the coverage of voir dire only makes it more difficult to find jurors because more people become familiar with Mr. Shkreli’s  background.  The judge has a tough slog ahead because of unrelated activities of a defendant.

    DISCUSSION STARTERS

    Do you think that you could be impartial in determining securities fraud guilt or innocence of Mr. Shkreli?

    How could the judge manage the jurors’ thoughts?

  • When Walmart Meets Jet: The Office Rules Change

    Walmart purchased Jet.com, Inc. for $3.3 billion. Acquisitions are generally fraught with accounting issues, employee reductions in force, and problems with combining IT systems.  However, in the case of Walmart’s acquisition of Jet, there was one additional obstacle.  Walmart’s Bentonville, Arkansas manners, rules, and culture did not mix well with those of a Manhattan start-up.  Jet had the following environment: 

    • Its purple haze universal decorating style
    • Pool tables, ping pong in the offices
    • Free healthy snacks
    • Cold-brew coffee available to employees
    • Conference rooms named after comic-book lore
    • Thursday evening happy hours that allowed employees to drink in the office (listed as a perk on the company website)

    Sarah Nassauer and Brian Baskin, “It’s 5 O’Clock Somewhere – Unless You’ve Been Bought by Wal-Mart,”  Wall Street Journal, June 26, 2017, p. A1. 

    By comparison, Walmart has the following rules: 

    • No drinking in the office (Benton County, where Bentonville is located was a dry county until 2012)
    • No expensing of drinks on outside office meetings, dinners, etc.
    • Employees have happy hours at bars near the office, but those events are not talked about in the workplace
    • Walmart does not approve of swearing in the office

    These differences were recognized by the CEOs prior to the Jet acquisition and Walmart agreed to pay for a post-work happy hour at bars near the Jet offices. However, many employees did not participate in the off-site drinking, so Walmart has allowed the return of the Thursday night happy hour with beer, wine, and food. Walmart has pretty much surrendered on the no-swearing rule at Jet. 

    With other acquisitions, Walmart has been more flexible. For example, Walmart allowed Moosejaw, a Michigan outdoor sporting goods store to keep its “4 PM beer fridge” on Thursday for its beer happy hour. 

    When it comes to workplace culture and rules, companies are free to establish what they will and will not allow within the legal parameters.  Those legal parameters include antidiscrimination laws.  That is, the rules, if established and known by employees, and disclosed as part of the hiring process, can be enforced, but they must be enforced uniformly.  In addition, rules related to dress codes must be developed with sensitive to gender-neutral terms. For example, the happy hour would have to be available and open to all employees, whether on- or off-site.  No-swearing rules would also have to be uniformly enforced across genders, race, nationality, etc. 

    Another legal parameter was set years ago when breweries allowed employees to have beer at lunch.  Issues arose as to whether the alcoholism that resulted in some employees was a condition that resulted for their employmentGacioch v. Stroh Brewery Co., 426 Mich. 612 (Mich. 1986).  Because of its Manhattan location, Jet might not have considered the possible liability of the company for employees driving while under the influence following one of the Thursday happy hours.  In short, there can be liability from these free-wheeling cultures. 

    The issue in acquisitions is one of understanding the rules the employees have lived under in the two companies being combined and make decisions about which rules stay and which ones will be eliminated or modified.  The changes in the culture must be made clear to all employees. 

    DISCUSSION STARTERS 

    Explain the types of culture issues that can occur in combining companies.

    Discuss the legal parameters for company rules. 

  • FTC Objects to Proposed Merger of DraftKings and FanDuel

                  

    If you are a fantasy sports fan, you are likely familiar with DraftKings and FanDuel, the two largest fantasy sports sites. Together, they have captured 90% of the U.S. market for paid daily fantasy sports contests. They are now seeking to merge their businesses. The Federal Trade Commission (FTC) has announced it will bring a legal action seeking to block the merger on the ground it would create an illegal monopoly. The two companies dispute this assessment.

    The legal action referenced by the FTC begins with the agency seeking a preliminary injunction (a court order requiring a party to a lawsuit to refrain temporarily from engaging in certain action) to prevent DraftKings and FanDuel from closing the merger deal. A some point thereafter a trial is scheduled at which the government seeks to block the merger permanently.

    This country values competition based on the proposition that competition helps to keep prices low and the quality of goods and services high. Said an FTC spokesperson, “The FTC is committed to the preservation of competitive markets, which offer consumers the best opportunity to obtain innovative products and services at the most favorable prices and terms. . . . “

    The government gets involved in proposed mergers in the following manner. Parties to certain large proposed combinations must file a premerger notification (called a “Notification and Report Form”) with the FTC’s Bureau of Competition and the Department of Justice’s Antitrust Division. Together they are responsible to perform the reviews of proposed mergers. In each case only one agency investigates; they decide between them which agency will review which proposed combinations.

    The notice must contain submissions by both parties to the proposed merger about their business and also data about the industry.   Once the reports are submitted, the parties must wait 30 days before the merger transaction can close. The government can extend the waiting period and seek additional information if necessary to determine the effects of the merger on competition. Once the investigation is complete, the agency can do one of three things:

    1)    Close the investigation and let the merger proceed unchallenged;

    2)    Enter into a negotiated consent agreement with the companies that permits the merger to proceed but includes terms to promote competition after the merger. For example, one party sells several lines of merchandise and only one competes with the other merger partner. A consent agreement might require the overlapping line to be sold.

    3)    Seek to stop the transaction by filing for a preliminary injunction in federal court pending an administrative trial on the merits.

    The FTC has indicated its intention to engage in the third option vis-à-vis the sports fantasy firms. If the matter is not resolved, a trial is expected in November.

    The requirement for the filings and government approval of large mergers is contained in the Hart-Scott-Rodino Antitrust Improvements Act of 1976 which was signed into law by President Ford.

    Sometimes when the parties learn the government is planning to challenge a merger, the parties abandon their plans. So far, FanDuel and DraftKings are undeterred.

    DraftKings was founded in 2012 and is the country’s largest provider when measured by entry fees and revenues. It offers contests in many sports including football, baseball, basketball, hockey, golf, stock car racing, mixed martial arts, soccer and esports (video game tournaments). FanDuel is the second biggest, and was founded in 2009. It offers contests in football, baseball, basketball, hockey and golf.

    For more information, click here.

    DISCUSSION QUESTION:

    1) Should the government have the authority to block a merger?

  • Can a Lender Repossess Your Car and Still Collect What’s Due on Your Loan?

    Yes!  Much to the surprise of millions of Americans who have poor credit and resulting subprime auto loans, creditors can just keep collecting even after your car is gone.

    Under UCC Article 9, creditors have the right to demand payment, repossess the car without a civil suit, sell the car without court approval, and then demand payment if the sale does not bring enough to satisfy the debt.  That amount still due and owing, known as a deficiency remains available to the creditor.  The creditor can bring a suit, win a judgment, and then obtain a garnishment for wages, bank accounts, and/or property to collect the amount due on the debt along with interest, the costs of collection, and costs of the suit. 

    In most lending situations, the sale of the car is enough to satisfy the debt. Indeed, the if the debtor has repaid 60% or more of the total purchase price of the car (not 60% of the amount of the loan, and that 60% of the purchase price is always a lower bar).  For example, suppose you purchased a used car for $10,000.  The cost of the financing for your car was a loan at  6%  over six years for a total of $1932.48 in interest over the life of the loan or $11,932.48 for the total cost of financing and the car to you.  Once you have paid $6,000 in principal, the creditor must sell the car upon repossession. It is not 60% of $11,932.48, but 60% of $10,000. The idea of this required sale is that once you have paid that much of the car off, the sale should bring enough to satisfy the remaining $4,000 in principal due on the loan. However, if the car does not bring enough at the sale, you still owe the principal, plus interests, and costs.  And the interest keeps running until you get the amount due following the sale paid.

    The situations in which the sale does not bring enough to satisfy the debt are generally with used car loans, something subprime auto lenders do as a specialty.  In addition, the interest rates and penalties on subprime loans are significantly higher, so paying off that deficiency stretches into years.  And the debtor is paying without have a car for transportation. Jessica Silver-Greenberg and Michael Corkery, “The Used Car Was Repossessed, But the Lender Is Still Collecting,” New York Times, June 19, 2017, p. A1.  For example, the article gave this example: 

                Debtor bought a 1997 Mitsuibishi

                The car was repossessed in 2007

                The creditor has garnished $4,133 from the debtor

                The debtor has paid an additional $2,743

                The debtor still owes about $6,500 on the car

    Subprime interest rates on autos average about 24%. Subprime and deep subprime loans are about 25% of the auto loan market. That debt has been securitized into a $20-billion market. Although national figures are not available for the number of lawsuits subprime lenders have filed for collection of post-repossession deficiencies, Credit Acceptance, a subprime lender, has filed 17,000 lawsuits against debtors since 2010 in just the New York state courts. Credit Acceptance has a return on equity of 31.1% (per its annual report for 2016). About 70% of Credit Acceptances loans are performing loans, i.e., not in default.

    The total amount of auto lending in the United States is $1.1 trillion. Big market, high-performing lenders with many loans, and loans that bring in continuing income, even after repossession.

    DISCUSSION STARTERS

    Explain rights of repossession and collection.

    What do you think will happen with this industry as a result of the press coverage?

  • The Rocker Group “Slants” Wins at the U.S. Supreme Court

    We’ve been covering the rocker band, the Slants, here on the blog since December 2015. Simon Tam, the front man for the rock band, The Slants, wanted to register the band’s name with the U.S. Patent and Trademark Office (PTO). The examiner denied the registration because of a 70-year-old provision in the Lanham Act (15 U.S.C. §1052) that prohibited the registration of names and marks that are disparaging, “immoral,” or “scandalous.” Mr. Tam appealed the denial, and he had some fairly high-powered amici (friends of the court) on his side, including the Washington Redskins, themselves in a battle of survival for their trademark.

    Initially, the federal court of appeals for the federal circuit upheld the denial by the U.S. Patent and Trademark office. However, upon rehearing, the court held on December 22, 2015, that the trade name should not have been denied. In re Tam, 785 F.3d 567 (Fed. Cir. 2015) and In re Tam, 808 F.3d 1321 (Fed. Cir. 2015).  The U.S. Supreme Court granted certiorari (137 S.Ct. 30 (2016)), and on June 19, 2017 issued a 8-0 decision in favor of the rock band. 2017 WL 2621315 (New Justice Gorsuch did not participate in the decision).

     One of the issues the court examined is whether trademarks are a form of government speech because if they are government speech than the government can control what it wishes to say and what it wishes to not say. Justice Alito, writing for the majority, concluded that it is not, “If the federal registration of a trademark makes the mark government speech, the Federal Government is babbling prodigiously and incoherently. It is saying many unseemly things.  It is expressing contradictory views. It is unashamedly endorsing a vast array of commercial products and services. And it is providing Delphic advice to the consuming public. For example, if trademarks represent government speech, what does the Government have in mind when it advises Americans to “make believe” (Sony), “Think different” (Apple), “Just do it” (Nike), or  Have it your way” (Burger King)?” The court concluded that trademarks are private speech by the companies and individual, not government speech.

     With that issue resolved, the court moved to the question of the disparagement clause in the patent regulatory framework.  That is, whether the ability of the PTO to nix a patent application because it has determined that the trademark disparages a person or group. The court held that the disparagement veto power permitted the PTO to discriminate on the basis of viewpoint and that type of discrimination is prohibited.  The court noted that, “Giving offense is a viewpoint.” The court struck down the veto-due-to-disparagement portion of the federal trademark law as unconstitutional.  

     Finally, the court dealt with the question of whether trademarks were commercial speech, something that permits the government greater regulatory latitude.  The court concluded that trademarks are given to individuals and organizations that are not commercial enterprises so that a wide swatch of individuals is affected by government regulation and its veto of their speech.

     As a result, the U.S. Supreme Court affirmed the Fourth Circuit Court of Appeals decision in favor of Tam and the Slants.  The band can register its name as a trademark.  The PTO cannot veto its application on the grounds of disparagement.

     The suits that await possible U.S. Supreme Court review include many of the amici in the case, including sports teams whose logos have been threatened by trademark revocations or denial.  Their day in court will come, but this definitive decision makes it clear that patent vetos are no longer possible on the basis of disparagement.

     “Offensive” is no longer a basis for government control of this form of speech. Watch for the list of new trademark application that have been denied previously under the disparagement provision of trademark registration.

    DISCUSSION STARTERS

    Explain the issue of offense and whether it can be a basis for denying a trademark application.

    Why isn’t the PTO permitted to regulate commercial speech more closely? 

  • Jury Deliberations in The Bill Cosby Case

                     

    Bill Cosby was on trial for sexual assault, accused of drugging and molesting Andrea Constand in 2004. Constand testified that Cosby, once a popular comedian, drugged and molested her.

    The defense is consent; that Constand was a willing partner to the sexual acts. Concerning the drug used, Cosby claimed it was Benadryl, an antihistamine used to treat cold and allergy symptoms. Prosecutors argued it was something much stronger based on the testimony that it left the victim incapacitated, unable to move.

    On the fourth day of deliberations, the jurors, seven men and five women, reported to the judge at about 11:00 a.m. that they were deadlocked. The judge directed them to return to the jury room and try again to reach a verdict. The jury then recommenced deliberations and continued until 9:00 p.m. when the judge ended the discussions for the night. Early the next day the jury reported again that it was deadlocked. The judge then declared a mistrial.

    When jurors inform a judge that they are deadlocked, the judge does not just accept that assessment and dismiss the jury. Instead, the judge is required to read an additional charge (instructions to the jury) encouraging them to continue deliberating and try to reach a verdict. The goal is to prevent a hung jury (a jury that is not unanimous) by encouraging jurors in the minority to reconsider.

    Included wording is the following, “ Do not feel bound by how you felt before, whether you favored conviction or acquittal. . . Be willing to change your position if a reevaluation of the evidence convinces you that a change is appropriate. . . Please make every effort consistent with your conscience and the evidence in this case to harmonize your views and decisions with those of the other jurors.”

    This charge is called an Allen charge because it was adopted by the United States Supreme Court decision Allen v. US, decided in 1896. The charge is given whenever a jury reports that it is unable to reach a verdict.

    Jurors in all trials are expected not to discuss the case with others, and avoid media coverage of the proceedings. With high profile cases the concern is heightened that such discussions or exposure might occur. The Cosby jury has been sequestered since the beginning of the trial. This means the jury is isolated to avoid accidental or deliberate “tainting” by exposure to media and/or views of others that might influence the juror.   They stayed in hotel rooms, paid by the county, away from their families.

    On the fourth day of deliberations the jurors asked for clarification of reasonable doubt. This term is critical in a criminal case because a defendant is considered innocent unless and until he is proven guilty beyond a reasonable doubt. Stated one way, this means the evidence must be so strong that there is no reasonable doubt that the defendant committed the crime. It does not mean that no doubt exists as to the accused’s guilt, or that guilt must be proven to an absolute certainty, but only that no reasonable doubt is possible from the evidence presented. One version of a judge’s charge reads, “A reasonable doubt is “not mere whim, guess or sumise . . .A reasonable doubt is such a doubt that a reasonable person may entertain it after a careful review of all the evidence. It must be founded in reason.”

    Beyond a reasonable doubt is the highest standard or burden of proof (the degree of certainty a jury much reach to issue a verdict for the plaintiff) that must be met in any trial. In civil cases, the standard is preponderance of the evidence, which means simply more than 50%.

    When the jury reported a second time that it was deadlocked, the judge declared a mistrial. This term refers to a trial that ends without a verdict. This happens because of error, prejudicial misconduct, or a hung jury. Most state laws require that juries be unanimous (all in agreement) for a verdict. If the jury is unable to reach a unanimous decision, it is said to hung. That triggers the right of the prosecutor to retry the case.

    The constitutional right against double jeopardy protects defendants against being tried twice for the same offense. Prosecutors usually get only one attempt at trial for conviction. However, that rule applies only when the first trial results in a verdict, be it guilty or not guilty. When there’s a hung jury, the prosecutor can retry the case without violating the double jeopardy clause. The prosecutor in the Cosby case has declared his intention to proceed with a second trial. The judge has indicated the new trial will be scheduled for sometime within the next four months. Stay tuned.

    For more information, click here.

    DISCUSSION QUESTION:

    1) How long do you think a judge should allow a jury to deliberate before declaring a mistrial?

    2) Do you agree with the rule that double jeopardy does not apply if a trial ends in a hung jury?

    3) Do you agree with the judge's decision to sequester the jury from the beginning of the trial?  Why or why not?

  • Noisy Neighbor – Condominium Dwellers Sue Health Club

                         

    Part of the appeal of fitness clubs is their hard-hitting, fast-paced group exercise classes, complete with loud music, jumping and running, and instructors calling out fitness moves using hands-free microphones like those used by rock stars at concerts. For members who thrive on high energy, it’s a perfect environment.   However, if you live upstairs from a fitness club, that same music and bellowing instructors is the bane of your existence.

    Owners of luxury New York City condominiums (individually-owned apartment-like units within a building) are suing Equinox Fitness Club which occupies the bottom three floors of their building. Residents have complained they can hear music blasting and exercisers “dropping or throwing weights” onto the floors and related sounds as high up as the fifth floor above the club.

    Residents comments include, “There’s non-stop stream of loud music.” “It’s like living above a dance club.” The condominiums in the building sell for up to $15 million.

    The lawsuit seeks a court order requiring the gym to reduce the noise plus post a $100,000 surety bond (a promise by a guarantor to pay a certain amount of money if another party – the fitness club – fails to meet a specified obligation) to ensure compliance with noise limitations. The condominium dwellers also seek an unspecified amount of money damages.

    The lawsuit asserts a violation of the building’s by-laws and the NYC Noise Code. Every condominium development has a board of directors that makes decisions concerning the management of the building. Those boards adopt by-laws to regulate the affairs of the organization, and to provide rules to facilitate multiple unit living. The bylaws are binding on the condominium owners and include such topics as kinds and sizes of permissible pets, whether owners can use their units for business purposes, whether signs can be displayed, and penalties for lack of compliance. Apparently, and predictably, one of the bylaws prohibits loud noises.

    The NYC Code requires commercial establishments that play music to limit the level of “unreasonable or disturbing noise . . . that is heard in nearby residences.” The code outlaws sounds that exceed 42 decibels “as measured from inside nearby residences”. To understand the permissible level, the noise of a vacuum cleaner 10 feet away is 70 decibels. Condominium residents commissioned a study which found that the gym sounds reached 68 decibels in the condominiums on the floor directly above the club.

    As the lawsuit unfolds, Equinox will likely have to investigate ways to curb the noise. No easy feat for an active health club.

    If instead of condominiums, the living units were apartments, the effected tenants could have claimed a breach of the warranty of quiet enjoyment. This is a right of tenants implied by law in every lease to peacefully occupy the space without recurring disruption. If there is an ongoing disturbance, the landlord is responsible to find a solution. Thus, if one tenant is causing unnecessary noise, the landlord must resolve the situation. Tenants’ remedy for breach of the warranty is relief from the obligation to pay rent, or the tenant can terminate the lease and move out without liability.

    For more information, click here.

    DISCUSSION QUESTION:

    Might the outcome of this case vary, depending on whether the health club or the residents moved in first?  Why or why not?

  • The New York Times, Sarah Palin, the Washington Shootings, and Libel

    On June 15, 2017, the New York Times ran an editorial about the shootings that occurred during a baseball practice of the Republican congressional team on June 14, 2017.  "America's Letha Politics," New York Times, June 15, 2017, p.A22. House Majority whip Steve Scalise (R. La) was critically injured and two Capitol security officers and two other participants were shot with others injured in their escape efforts.

     The editorial established this information about the assailant:

    The sniper, James Hodgkinson, who was killed by Capitol Police officers, was surely deranged, and his derangement had found its fuel in politics. Mr. Hodgkinson was a Bernie Sanders supporter and campaign volunteer virulently opposed to President Trump. He posted many anti-Trump messages on social media, including one in March that said “Time to Destroy Trump & Co.”

    However, this part of the editorial was followed by analysis and observation:

     Was this attack evidence of how vicious American politics has become? Probably. In 2011, Jared Lee Loughner opened fire in a supermarket parking lot, grievously wounding Representative Gabby Giffords and killing six people, including a 9-year-old girl, the link to political incitement was clear. Before the shooting, Sarah Palin’s political action committee circulated a map of targeted electoral districts that put Ms. Giffords and 19 other Democrats under stylized cross hairs.

    Following factual questions Mrs. Palin raised on her Facebook page about what the editorial included as facts, the New York Times issued a correction later in the day on June 15th and revised online the original portion of the editorial  that referenced Mrs. Palin to read:

    Was this attack evidence of how vicious American politics has become? Probably. In 2011, Jared Lee Loughner opened fire in a supermarket parking lot, grievously wounding Representative Gabby Giffords and killing six people, including a 9-year-old girl. At the time, we and others were sharply critical of the heated political rhetoric on the right. Before the shooting, Sarah Palin’s political action committee circulated a map that showed the targeted electoral districts of Ms. Giffords and 19 other Democrats under stylized cross hairs. But in that case no connection to the shooting was ever established.

    In the print version on June 16th, the Times issued the following correction (which was also placed online on June 15th):

    Correction: June 16, 2017 

    An editorial on Thursday about the shooting of Representative Steve Scalise incorrectly stated that a link existed between political rhetoric and the 2011 shooting of Representative Gabby Giffords. In fact, no such link was established. The editorial also incorrectly described a map distributed by a political action committee before that shooting. It depicted electoral districts, not individual Democratic lawmakers, beneath stylized cross hairs.

    Mrs. Palin has announced that she is considering a libel suit against the New York Times.  Because she is a public figure, she would have to establish the following:

    1. That information published about her was false
    2. That she was harmed by the false information (her character, her reputation, her livelihood)
    3. That the New York Times published the information knowing that it was not true or with reckless disregard as to whether it was true or false (known as the element of malice)

    The piece was opinion in nature, which gives the Times latitude, but the factual portions were inaccurate, as the correction and revision reflect. The issue is not one of characterization, but factual. The swift retraction by the Times somewhat mitigates the damage claim, but the distribution via the Internet and inability to completely eliminate the original information is problematic in this era.

    DISCUSSION STARTERS

     List the factual inaccuracies that Mrs. Palin would target.

    What types of damages could Mrs. Palin claim?

  • Harvard Revokes Acceptance Over Offensive Memes

    They had been accepted at Harvard.  So, in December 2016, they started a Facebook messaging group that they called “Harvard memes for Horny Bourgeois Teens.” The group continued to grow, to 100, and with that growth the postings made their way back to Harvard officials.  The postings were offensive at best, racist and frightening at worst. Some students joked about finding sexually molesting children to be arousing. One post labeled the hypothetical hanging of a Mexican child, “piñata time.” Other memes mocked sexual assault and the Holocaust.”  Naomi Schaefer Riley, “Harvard Admits It Can’t Teach Everyone,Wall Street Journal, June 9, 2017, p. A13.  Not all admitted students participated in what was called the dark meme group.  Admission to this subgroup of the Facebook site for admitted students required those seeking to join the group to post something provocative.  

    When Harvard officials became aware of the posts, they sent letter to those involved with the following, "The Admissions Committee was disappointed to learn that several students in a private group chat for the Class of 2021 were sending messages that contained offensive messages and graphics . . . We are asking that you submit a statement by tomorrow at noon to explain your contributions and actions for discussion with the Admissions Committee." The admitted students who were part of the group but did not participate were not sent the letter.  After the letters were submitted, Harvard revoked the acceptance of 10 students who had been admitted. 

    Harvard receives 40,000 applications for admission each year, and it admits 2,056 (5.2%). An acceptance has certain conditions.  For example, acceptance comes before final grades are computed for the applicants’ final year in high school, so the acceptance has the condition that all things remain about the same as reflected in the students’ applications, including grades and behavior. Harvard’s admission letter includes the following: “As a reminder, Harvard College reserves the right to withdraw an offer of admission under various conditions including if an admitted student engages in behavior that brings into question his or her honesty, maturity, or moral character.” Harvard’s decision to rescind admission is a final decision.  There is no appeal for a revocation of admission.

    Be careful what you post.  These are not private conversations and universities and potential employers can take steps to disassociate from those who post controversial content.

    DISCUSSION STARTERS

    Explain what the students were posting.

    Explain Harvard’s right to revoke.

  • Pay Issues: Overtime at Chipotle, Sick Days at Walmart; and Uber Commission Errors

    If there is one thing that is certain, employees will eventually realize when they are not being paid properly.  Over the past few weeks, several large companies have experienced possible class-action suits, state regulatory action, and federal sanctions for compensation issues.

    A lawyer has filed a class-action suit against Chipotle Mexican Grill, alleging that the business has not been paying overtime as required under changes to the law by the Department of Labor.  Under the new rule, employers have to pay overtime to employees who earn up to $47,476 per year.  Previously, the rule required overtime pay only for employees who earn up to $23,600 per year.  However, a Texas court issued an injunction against the rule, something Chipotle says allows it to continue paying overtime only for those in the lower amount range. The injunction was issued because there is a question about the authority of the Department of Labor to change the wage threshold because of the statutory limitations that appear to reserve that right to Congress.  The lead plaintiff in the case is Carmen Alvarez who was an “apprentice” in training to become a general manager.  She was working 10 overtime hours per week and earning $43,082 per year.  When she applied for overtime pay, Chipotle denied it on the basis of the injunction.  More to come on this overtime issue as the new Secretary of Labor reviews the regulation.  Sophia Tulp, “Chipotle Could Face Class-Action lawsuit Over Overtime Pay,” USA Today, June 8, 2017, p. 2A. 

    Uber’s commission issue emerged when Uber drivers discovered that Uber was taking its commission on fares and sales tax.  The commission should be based solely on the fare.  Including the sales tax means that Uber gets a higher commission rate.  For example, if 10% of a ride’s total cost is taxes and the total is $20, Uber’s commission should be based on $18, not $20. Uber has agreed with New York regulators that its computation of its commission was incorrect.  However, some evidence seems to suggest that Uber was aware of the faulty computation issue as early as 2005, but continued with its full-fare formula.  As a result, Uber faces possible class-action suits from drivers who seek to recover their lost fare portions. More to come in resolving the payment portion of this issue.  Noam Scheiber, “Uber’s Awarenee of Error in Paying Drivers May Date to at Least 2005,” New York Times, June 2, 2017, p. B3.

    The final issue is Walmart’s policy on allowing workers to take sick days.  Rachel Abrams, “Walmart Is Accused Of Punishing Workers For Taking Sick Days,”  New York Times, June 2, 2017, p. B3. Based on a survey of 1,000 employees, a group has alleged that Walmart refuses to accept doctor’s notes, penalizes workers who need to care for a sick family member, and has other punishments for employees who are entitled to sick days. Walmart employees are alleging that they were fired because of missing too many days as a result of surgery, pregnancy complications, etc. 

    Walmart has not seen the final report of the advocacy group’s survey buts says that Walmart uses a point system.  Employees who are given disciplinary points for unexcused absences can be fired if they have more than 9 points in a six-month period.  New employees are allowed 4 points in their first six months. Walmart also notes that there could be some confusion among employees and managers regarding various forms of leave that are available to employees, such as Family Medical Leave or Walmart’s allowances for leaves and accommodations under the Americans with Disabilities Act. The employees may not have taken advantage of what the laws provide for them or company policy covers.  More to come as the facts are litigated. 

    In all of these cases, there was confusion about the law – what applies when and to whom and how.  The cases illustrate the importance of knowledgeable front-line managers as well as payroll professionals.

    DISCUSSION STARTERS

    Explain each of the company’s labor and pay issues.

    Discuss what the companies could do to prevent problems in the future. 

  • The "Pink Slime" Defamation Trial: When Is Beef Defamed?

    Beef Products, Inc.(BPI) filed suit against ABC News in 2012 for a report the unit of Walt Disney Co. aired in 2012.  In the report, correspondent Jim Avila described BPI’s meat product as “pink slime” made from “beef trimmings . . . once used only in dog food” and “sprayed with ammonia to make them safe to eat and then added to most ground beef as a cheap filler.” Jacob Gershman and Lukas L. Alpert, “Food-Libel Trial Set to Begin,” Wall Street Journal, June 5, 2017, p. A3. 

    BPI says that its product, called lean finely textured beef (LFTB) results from extracting more lean beef from cows. The product was approved by the U.S. Department of Agriculture in 1993 and is made from beef trimming that are put through centrifuges to remove fat. Ammonia gas is used to kill pathogens.

     

    After the ABC News report ran, BPI had orders canceled, and because of lost sales, laid off 700 workers and closed three of its four processing plants. ABC News says that it did not convey the message that LFTB was unsafe for human consumption.  ABC News has responded that its report included several reminders that LFTB is safe to eat. 

    In addition to its defamation claim, BPI is suing under South Dakota’s food-libel law.  South Dakota’s Agricultural Food Products Disparagement Act is similar to food-libel laws passed in 12 other states to address publication of knowingly false information about agricultural food products. Originally known as the “veggie libel laws,” these statutes permit suit for generic defamation of natural foods such as eggs, milk, broccoli, and beef.  One of the first big cases involved an $11-million suit by Texas cattlemen against Oprah Winfrey for a show she did on mad cow disease.  After interviewing Howard Lyman on her show, Ms. Winfrey stated, “It has just stopped me cold from eating another burger.  I’m stopped.” The cattlemen alleged that as Oprah goes, so goes the nation.  They did establish that cattle future prices dropped 10% and beef prices went from 62 cents per pound to 55 cents per pound following the airing of the Lyman show. However, the jury rejected their claims, and found for Ms. Winfrey.

    A defamation (libel in this case because it is recorded in the form of the television video) suit requires proof that the information published was false.  The ABC/BPI case is a difficult one because there are questions of impression and editorial comments (the term “pink slime”).  The trial will focus on whether any information ABC included in the report was false.  Mr. Avila’s descriptive term could be considered opinion and not, there fore defamation.  ABC’s defense focuses on the factual correctness of the report.  BPI will focus on the overall impression and failure of ABC to give equal time to the FDA approval of the product and its safety.  BPI has asked for $1.9 billion in damages. 

    UPDATE:  June 29, 2017 . About half-way through the expected two-month trial, the parties reached a settlement.  The terms of the settlement were not disclosed.  However, both parties issued statements defending their actions, ABC defending its reports and Beef Products stating that the process showed that they were selling real beef that is "Safe, wholesome, and nutritious."  

    DISCUSSION STARTERS

    Explain food defamation laws and why you think they were passed.

    Discuss the defenses ABC has available at the defamation trial. 

  • Target Settles Data Breach Lawsuit for $18.5 Million Plus

     

    Target, the discount retailer, has settled a multi-state credit card data breach case for $18.5 million dollars. The case arose in 2013 during the holiday season when the credit information of over 40 million Target customers was compromised due to inadequate data security by the store.

    Statutes in most states mandate that businesses implement and maintain reasonable security procedures and practices to protect consumer information they collect from unauthorized access or disclosure.[1] The lawsuit accused Target of failing to execute and maintain the necessary security practices to protect personal consumer information.

    Per the complaint, “an intruder (or intruders) gained access to Target’s remote-access system and deployed memory-scraping (or RAM-scraping) malware to Target’s point-of-sale systems. The malware was designed to capture, in real time, payment card data from the magnetic strip of credit and debit cards, which the attacker eventually exfiltrated [smuggled] out of Target’s internal network.” As a result, some Target shoppers reported fraudulent charges on their payment cards.

    Components of the settlement agreement, in addition to the $18.5 million Target will pay, include the following.

    1)    A permanent injunction (a court order requiring a party to do a specified act) requiring Target to comply with state laws that mandate companies develop and comply with security practices appropriate to protect personal information of its consumers.

    2)    Within 180 days after the effective date of the settlement, Target must develop, implement and maintain a comprehensive information security program reasonably designed to protect the security of personal information it collects. The program must be in writing and appropriate for the size and complexity of Target’s activities, and the sensitivity of the personal information the company maintains.

    3)    Target will employ an executive or officer with appropriate background and experience in information security who will be responsible for implementing and maintaining the information security program. The position’s responsibilities include advising Target’s chief executive officer and its Board of Directors about the following: “Target’s security posture, security risks faced by Target, and security implications of Target’s decisions.”

    4)    Target is required to ensure that its information security program receives the resources and support (including money and attention from senior officers) reasonably necessary for the program to succeed.

    5)    Target must develop and implement relevant policies and procedures for auditing its vendors to ensure their compliance with Target’s information security program.

    6)    Target must submit to an audit of the company’s information security program to be performed by a qualified and certified third party.

    The requirements imposed on Target as part of the settlement establish new industry standards for companies that process credit cards. The message to other companies that collect credit card information is that they are responsible for protecting their customers’ personal information. Such companies will be held accountable if they fail to protect that information.

    At the time of the security breach Target operated 1,793 stores in 49 states and the District of Columbia.

    Target is not the only company to discover that settling data breach cases is costly. In March, 2016, Home Depot agreed to pay $19.5 million to compensate approximately 45 million consumers impacted by a huge data breach. In April 2018 Sony Pictures paid $15 million to settle a class action based on a data breach.

    For more information, click here.

    DISCUSSION QUESTION:

    1) What is the lesson from this case for businesses other than Target?



    [1] See, for example, California Civil Code, section 1798.81.5, subdivision (d)(1).

  • The FAA Lacks Authority to Require Drone Registration

    In 2015, the FAA promulgated what it called its Registration Rule that required small unmanned aircraft operated for recreational use. John Taylor, a model aircraft hobbyist, who was required to register his drone, filed suit challenging the authority of the FAA to regulate unmanned aircraft.  Taylor v. Huerta, ---F.3d ---, 2017 WL 2192935 (U.S. C.A. 2017)

    Under authority given by Congress (49 USC §44701(a)), the FAA has required “aircraft” to be registered before operation. To register, aircraft owners must complete a registration process that is quite extensive. 

    But the FAA had not previously interpreted this statutory authority to apply to model aircraft. Instead, the FAA issued an optional set of operational guidelines for model aircraft. The FAA's Advisory Circular (Model Aircraft Operating Standard), published in 1981, provided suggestions for the safe operation of model aircraft. Under that Advisory Circular, compliance was voluntary.  

    As unmanned aircraft technology has advanced, small unmanned aircraft have become increasingly popular. In response, in 2007, the FAA promulgated a notice announcing a new regulatory approach to unmanned aircraft. Unmanned Aircraft Operations in the National Airspace System, 72 Fed. Reg. 6689 (2007).  But, in 2015, the FAA expanded its regulatory approach to unmanned recreational aircraft. Under the new regulatory approach, commercial unmanned aircraft were subject to mandatory FAA regulations. Those regulations require operators to report the aircraft's intended use, time or number of flights, and area of operation, among other things. 

    Mr. Taylor wanted to continue with his usual recreational filing without registration, and filed suit challenging the authority of the FAA to impose those requirements on individuals who are engaged in the recreational flying of unmanned model aircraft.  The court held that Mr. Taylor was correct, noting that the 2012 FAA Modernization and Reform Act provides that the FAA “may not promulgate any rule or regulation regarding a model aircraft.”  The court held that the FAA's 2015 Registration Rule is a “rule or regulation regarding a model aircraft.” Noting its conclusion, the court held, “Statutory interpretation does not get much simpler. The Registration Rule is unlawful as applied to model aircraft.”

    The court noted that the enabling statute, as modified by the congressional changes, specifically prohibited any regulation of model aircraft.

    The FAA changes also prohibited model aircraft from flying in certain areas, such as in the Washington, DC area.  However, the court never dealt with Mr. Taylor’s challenge to this part of the FAA changes.  Any challenges to changes such as these must be filed within 60 days, and Mr. Taylor brought his suit well beyond the 60-day limitation. That part of the rule on location restrictions, which can apply to all aircraft, was not addressed in the 3-0 decision.

    The case illustrates how important the authority of agencies, as granted by congress, is.  The impact of drone technology may be significant, but those who operate drones as model aircraft are not, under the decision, subject to FAA registration requirements. The court held that the FAA had clearly stepped beyond its congressional authority, making its registration requirement ultra vires and void. Mr. Taylor is free to fly his drone, registration-free. 

    DISCUSSION STARTERS

    Explain the enabling statute for the FAA.

    Why was the registration requirement for unmanned model aircraft (i.e., drones) ultra vires?