• Lynn Tilton Beats the SEC: The Entrepreneur Who Fought Back

    Most individuals and businesses who are accused of fraud by the Securities Exchange Commission (SEC) are given two pieces of advice:  (1) Settle; and (2) Just pay a fine and move on. The SEC’s enforcement mechanism is unique because the agency brings the charges against companies and individuals, but the SEC is also the location of the administrative law courts that will determine the outcome of the cases and the administrative law judges are employees of the SEC. 

    When Lynn Tilton was charged by the SEC with misleading investors, she decided to fight the powerful agency. As documented in this blog (June 2, 2016), the 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 alleged 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.

    Ms. Tilton challenged the constitutionality of the SEC as prosecutor and judge in all of its cases.  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 challenged the charges in court 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 U.S. Supreme Court denied certiorari. 137 S.Ct. 29 (2016).

    Ms. Tilton went to the hearing, held in a federal district court building, with many of the SEC’s top officials in attendance. Ms. Tilton spent 3.5 days on the witness stand.  Upon conclusion of the case, the ALJ for the SEC found that the “violations alleged by the SEC are unproven.” Ms. Tilton has said that she was fighting for her reputation and that buying distressed companies and giving employees the continuing dignity of work was her life's work.  She says that she fought to continue with her work in helping to save companies.


    Give the procedural history of the Tilton case.

    What happens to the issue of due process and the SEC ALJ processes?

  • The Toddler Injury By a Foul Ball: Nets, League Rules, Fan Preferences, and Liability

    At a New York Yankee game, a foul ball, clocked at 105 mph, struck a two-year-old who was sitting in the $300-lower-level seating at the game. The little girl was hospitalized and faces what one relative has said will be a long road to recovery.

    The absence of netting covering the lower-level seats has been an area of controversy in Major League baseball. In 2016, the league suggested that teams add at least 70 feet of netting to the inner edge of each dugout.  Ten teams followed the recommendations (Atlanta Braves, Houston Astros, Kansas City Royals, Minnesota Twins, New York Mets, Philadelphia Phillies, Pittsburgh Pirates, St. Louis Cardinals, Texas Rangers, and Washington Nationals).  The Major League Baseball Players Association has taken the position that more netting is needed to protect fans as well as the emotional damage to players whose hits might be responsible for any injuries to fans. Bob Nightengale, “Baseball Safety in Fans’ Hands,” USA Today, September 22-24, 2017, p. 1A.

    The teams that did not add the netting, including the Yankees, because of fan protests, as the Yankees’ COO explained, “We had fans upset that we were even considering it.” Fans in the expensive seats want unimpeded views. 

    Following the injury to the little girl, the MLB commissioner has pledged to “redouble” efforts to work with teams on the netting issue.

    In the case of baseball games, there is always some assumption of risk, because of the nature of the game.  However, each team is expected to comply with all laws and regulations.  In this case, the league had simply made a suggestion on extending the netting. The industry had not adopted the additional netting as a safety standard.  

    In negligence cases, compliance with the law is one measure of the elements of duty and breach of duty.  If the structure does not comply with existing rules and regulations, there is negligence.  However, in this situation, there were only recommendations by the league on extension of the netting, not mandates.  The question, therefore, becomes whether there was a breach of duty for the failure to the Yankees to adopt that standard. The evidence of the recommendation would be admissible in establishing whether the actions of the Yankees were those of a reasonable person.  If there is litigation that results from the injury, a jury would be faced with questions related to assumption of risk, knowledge of the extent of the risk, and whether the failure of the Yankees to extend the netting was a risk not assumed by the child and her grandparents (who took her to the game). 


    Explain the liability standards when there are rules, regulations, and suggestions involved.

    Discuss assumption of by baseball fans in stadiums.

  • Hand Scanners and the Mark of the Beast; Employee Wins Religious Discrimination Case


    A federal appeals court has upheld a jury verdict awarding $150,000 to an employee who claimed religious discrimination and constructive discharge when his employer instituted a biometric scanner to track employees’ attendance and time at work. Beverly R. Butcher, Jr. worked for 35 years at a mine owned by Consol Energy. When not working, he served as an evangelical Christian minister.

    The scanner required all employees checking in or out of a shift to scan their right hand. The shape of the hand was then linked to the worker’s unique personnel number. Butcher, like many evangelical Christians, likened the scanning process to the “mark of the beast” referenced in the Book of Revelation, Chapter 13, Verse 16, of the New Testament.

    The passage from Revelation reads, in relevant part, as follows, “If anyone . . . receives his mark on his forehead or on his hand, he himself shall also drink of the wine of the wrath,. . He shall be tormented with fire and brimstone. . . and they have no rest day or night, who worship the beast and his image, . . .” The reference is interpreted by some to mean anyone who receives the mark will be doomed to the divine sentence of eternal death.

    The scanner manufacturer, Recognition Systems, Inc., discredits any connection between the device and the mark, and recommends that people with such concerns use the scanner with their left hand.

    Butcher had requested from his employer a complete exemption. The coal company noted that Revelation references the mark of the beast on the right hand and forehead only. The company agreed to permit Butcher to scan only his left hand. Butcher found this accommodation unsatisfactory. He suggested a different arrangement – he would document his hours in writing as he had been doing before the company instituted the scanner. Consul refused and Butcher unhappily retired as a result.

    He later learned that two employees with hand injuries that precluded scanning were given the option of entering their employee numbers on a keypad attached to the scanner system. That led to the lawsuit.

    An employer has a duty to make reasonable accommodations for an employee ‘s sincerely held religious practices unless doing so would create an undue hardship for the employer. The jury determined that Butcher had sincere religious beliefs and had properly informed his employers. Since the employer offered other employees an accommodation that would have been acceptable to Butcher, failing to offer him the same accommodation constitutes illegal discrimination based on religion.

    Concerning the constructive discharge claim, to be successful plaintiff had to prove that the employer made the working conditions intolerable. A showing of more than “just” unpleasant working conditions is required. The court determined that Butcher sincerely believed the scanner would render him a follower of the Antichrist resulting in eternal torment by fire and brimstone. The court was satisfied this made the working conditions intolerable.

    The case was tried in Clarksberg, West Virginia. The $150,000 recovery covered lost salary, lost pension increases, and court costs. Butcher had also sought punitive damages which are only awarded if an employer acts with malice or reckless indifference to a plaintiff’s protected rights. The court concluded that Consul’s actions did not qualify and dismissed that claim.

    The employer is now seeking certiorari, authorization from the United States Supreme Court to appeal the decision to the nine judges. No word yet on whether the case will receive cert.

    For more information see US EEOC v. Consol Energy, 860 F.3d 131 (4th Cir., 2017).


    Given that less than one case in a hundred seeking certiorari receive it, what do you think the likelihood is that the high court will agree to hear this scanner case? Why?



  • Pfizer Files Antitrust Suit on Drug Rebates: Extending the Patent Monopoly Through Tying?

    The world of pharmaceutical sales is fraught with legal difficulties.  Pharma companies have paid fines for sales tactics touting unapproved uses of prescription drugs.  Now, Pfizer is alleging anticompetitive behavior on the part of Johnson and Johnson (J&J) for its use of rebates to retain market control over its drugs whose patents have expired or when biosimilars hit the market.

    J&J held the patent for Remicade, a prescription drug used in the treatment of arthritis. While patent litigation with J&J has absolved Pfizer of any wrongdoing in its development of Inflectra to compete with Remicade, Pfizer is now alleging that it cannot compete because J&J uses rebates to keep its customers using Remicade.

    The retention of customers is an interesting area of pharmaceutical competition.  The list price for prescription drugs is high, but no one is really paying the list price. Pharmaceutical companies enter into contracts with health insurers and drug-benefit managers that offer rebates in exchange for reimbursement. Jonathan D. Rockoff, “Pfizer Files Antitrust Lawsuit Against J&J,” Wall Street Journal, September 21, 2017, p. B1. The result is that health insurers and drug-benefit managers refuse to reimburse for certain drugs, i.e., the drugs that interfere with the rebate contracts that they have, generally with the original patent holders of the drugs.  The result is that generic drug manufacturers, who produce generics after the patent expiration or after they win infringement cases with biosimilar drugs, cannot break into the market. You can read more about the art of the pharma deal here.

    Pfizer has indicated that it will seek the contracts as part of its discovery in the case, something that those in the industry say would shed significant light on what it being done and how in pharmaceutical pricing and sales of prescription drugs. Pfizer says that J&J is not competing fairly on the basis of value, merit, and price.  J&J says that Pfizer’s claims are meritless. 

    Pfizer's sales of Inflectra were $40 million in the first half of this year, compared to $2.2 billion for Remicade.

    Although health insurers initially classified Inflectra and Remicade as the same for purposes of reimbursement, but that changed when J&J indicated that it would withhold rebates on other J&J products unless the insurers allowed only Remicade. About 90% of the insurers and drug-benefit managers authorize only Remicade 

    Pfizer did not name hospitals, physicians, and clinics because they are powerless to negotiate with companies such as J&J. J&J has indicated that physicians are reluctant to switch medications on their patients when their patients are stable on existing medications.

    In this case, the discovery and public disclosure of the sales tactics may be more important than success in the suit itself.  In this situation, litigation is a business strategy to uncover marketing techniques. 

    Pfizer is zeroing in on a type of tying.  If the health insurers want the rebates offered by a company on other drugs, they must continue to use certain drugs for which they may have better and cheaper alternatives.  Tying is an anticompetitive practice under the Robinson-Patman Act that prohibits companies from requiring customers to buy a product they may not want in order to buy a product that they really do want.


    Explain the alleged tactics of J&J.

    Discuss why those providing medical care sign the agreements to use only one particular drug from one company.

  • Rolling Stone Is Still in Court Over Fake Story on Rape: Case by Fraternity Bros Reinstated


    In 2016, Rolling Stone settled a defamation lawsuit brought by Nicole Eramo, an associate dean at the University of Virginia, for $1.65 million.  A jury had awarded Ms. Eramo $3 million, and Rolling Stone appealed the case but then settled before the appeal was heard. The suit was based on an article published in Rolling Stone magazine in 2014, Ms. Eramo was depicted as the “chief villain” in a story about a supposed gang rape that had occurred in the Phi Kappa Psi fraternity house at the University of Virginia. The article, “A Rape on Campus,” written by Sabrina Rubin Erdely, depicted Ms. Eramo as unwilling to proceed with disciplinary actions following the rape allegations by “Jackie.”   

    The Charlottesville police had investigated and concluded, “There is no substantive basis to support the account alleged in the Rolling Stone article.” Ms. Erdely began to doubt the account, based on her doubts about “Jackie.” Editors at Rolling Stone posted a note by the article, but did not retract it until after the Washington Post ran an analysis calling the piece into question. The dean of the Columbia School of Journalism conducted a review of the piece for Rolling Stone and concluded that Erdely, the magazine editors, and staff had failed to follow “basic, even routine journalistic practice” in verifying details of the story.  

    Rolling Stone succeeded in having the defamation suit brought by the three fraternity members dismissed for their failure to show that the story was “of and concerning” them personally, a requirement for proof of the tort of defamation. Elias v. Rolling Stone, LLC, 192 F. Supp. 3d 383 (S.D.N.Y. 2016). The three men were never named in the article, but argued that they were sufficiently identifiable by the story’s descriptions. This week the Second Circuit Court of Appeals reversed that decision holding that two of the three men were sufficiently identified in the article to those who were familiar with the fraternity. Elias v. Rolling Stone, LLC, ----F.3d-----, 2017 WL 4126956 (2nd Cir. 2017). Rolling Stone has already settled a defamation case with the fraternity. 

    The three men involved, George Elias IV, Ross Fowler, and Stephen Hadford, argued that those reading the article would conclude that they were involved in the alleged gang rape. The court discussed each of the men’s cases to explain the element of “of or concerning.” 

    Elias was a member of Phi Kappa Psi; he graduated in 2013 (the year that the alleged perpetrators graduated); he lived in the fraternity house in the only bedroom on the second floor that was both large enough to fit the description of the alleged location of the rape and easily accessible by non-residents. Others had concluded that he was one of the alleged attackers. The court held that he met the standard of “of or concerning.”

    Fowler was also a member of the fraternity at the time of the alleged gang rape and was actually identified by those who read the article, something that resulted in his receiving harassing texts, e-mails, and comments from peers, co-workers, and reporters. 

    Hadford was identified in the article as someone who had graduated but still rode his bike around the campus.  The court found that because many alums frequently return and ride their bikes around campus that there were insufficient identifiers to tie him to the alleged rape. He also had not experienced the ready identification of the other two members.

    The court also held that the three had established sufficient facts to allow their claim of small group defamation because he fraternity was sufficiently known on campus and the story alleged enough facts to allow others to conclude that members who were not involved were aware of the alleged rape.

    The decisions on the “of and concerning” element were unanimous, with a dissent on the small group definition. 

    The case will proceed to trial.  However, Rolling Stone is currently struggling and is for sale.  The cases have been costly financially and in brand and reputation.


    Explain why the case by the fraternity brothers was initially dismissed.

    Explain the differences in the decisions on each fraternity member on appeal. 

  • Free Press in Jeopardy at Turkish Trial


    A trial underway in Istanbul, Turkey is being criticized by many democratic countries as a crackdown on dissent, and on free press rights.

    The defendants in the case are journalists and staff of a Turkish newspaper titled Cumhuriyet, one of the last independent papers (as opposed to government controlled) in the country. The publication is strongly opposed to Turkey’s president, Recep Tayyip Erdogan. In the trial, the paper is accused of aiding terrorist organizations. The trial coincides with suppression of opponents occurring since a failed coup in July, 2016 which sought to overthrow Erdogan’s government. Since then he has imposed a state of emergency (a circumstance governments can impose when public safety and/or health is significantly threatened that enables governments to temporarily impose restrictions on fundamental liberties) , and arrested more than 50,000 people.

    The trial defendants include the paper’s editor, chief executive, accountant, and senior columnists. They are accused of publishing editorials and articles that favored several anti-Erdogan forces including Fethulla Gulen, who was accused of masterminding the coup, and also the outlawed Kurdish nationalist movement called the PKK, and a third far-left organization. Following the coup, government authorities arrested thousands of soldiers and judges. Over ten thousand education staff were suspended, and over 20,000 teachers’ licenses were revoked for alleged affiliation with Gulen. He condemned the coup and denied any involvement.

    The case is seen as a test for freedom of the press in Turkey which has jailed more journalists than any other country in the world, approximately 170. Of the 19 defendants on trial, five have been held in pre-trial detention for periods ranging from 255 -316 days. If convicted, they face up to 43 years in prison.

    Protestors at the trial accuse the Turkish president of pursuing the case to silence the country’s main opposition newspaper, and a free press generally.

    In the United States, the media enjoys freedom of the press as guaranteed by the First Amendment to the US Constitution. This right enables the media to publish opinions in print and various electronic media without interference, censorship or prior restraint (prohibiting instances of expression before they are published).  As a result, the press exercises significant power and influence in this country, and serves as a check against government overreaching.

    Many in Turkey view the current trial as a attempt to eliminate free press in favor of government controlled media, thereby enabling the government to control and restrict information and opinions that are made available to the public.

    For additional information, click here.


    Why is a free press critical to a democratic society?


  • What Commercial Bribery and Public Corruption Look Like: Ferraris, Flights, and Fancy Clothes and Shoes

    In New Jersey, Senator Robert Menendez is on trial for corruption charges that involve gifts that Senator Menendez received from Dr. Salomon Melgen, an ophthalmologist from the Dominican Republic. The trial represents the first time in several decades that finds a U.S. Senator as a defendant. 

    The prosecution is building its case on timing such as Mr. Menendez’s chief of staff asking Dr. Melgen for $60,000 on April 30, 2012.  Dr. Melgen made the donation on May 16, 2012.  The same day Mr. Menendez’s chief of staff arranged a meeting with an assistant secretary of state in the Dominican Republic to discuss port security (an area in which Mr. Menendez has a financial interest). The contributions from Dr. Melgen to Mr. Menendez and his various political organizations totaled $700,000. In addition, Mr. Menendez enjoyed private jet flights, luxury accommodations, and free vacations, courtesy of Dr. Melgen. 

    Mr. Menendez’s lawyer has argued that Dr. Melgen is just a friend and that he does not live in the state of New Jersey and so is not even one of his constituents. Mr. Menendez has said, “Never, not once have I dishonored my public office.”  Nick Corasaniti, “Senator’s Trial Opens With Arguments Over ‘Friendship,’” New York Times, September 2, 2017. 

    In another case, one that does not involve government officials, a former United Auto Workers official, Virdell King, has been charged with conspiracy to violate labor laws through her acceptance of designer shoes, clothing jewelry, and  luggage. She made the purchases using credit cards that were furnished by the UAW-Chrysler National Training Center.  In addition, she is accused of making $40,000 in purchases on the credit cards for other UAW officials. Ms. King’s role at the UAW as associate director of the center was one of negotiating and administering the contract between UAW and Chrysler. 

    The government has also charged Jerome Durden, a Chrysler executive and financial analyst at the center who helped conceal the use of funds, with conspiracy and filing false tax returns through the use of the training center to divert $4.5 million to the UAW. Mr. Durden has entered a guilty plea in exchange for the recommendation of a prison sentence of up to 37 months. A former Chrysler vice president for employee relations, Alphons Iacobelli, has been charged with making $1.2 million in payments to a UAW vice president, General Holiefield, and his wife, Monica Morgan.

     The charges against Mr.Iacobelli, who now works for GM, allege that he also used training center funds to purchasea Ferrari, a shotgun and two $37,500 Mont Blanc pens. However, he shotgun was given to a UAW official. The Justice Department is proceeding to take Mr. Iacobelli’s mansion in Rochester Hills as a means of recovering the funds alleged to have been taken.

    Mr. Holiefield retired in 2014 and died the following year of pancreatic cancer.  His widow, Ms. Morgan, was charged in July 2017 with several federal crimes. The indictment states that Mr. Iacobelli told UAW officials that they could use the training center credit cards for personal purchases, “If you see something you want, feel free to buy it.” Reuters, “Ex-U.A.W. Official Named in Fiat Chrysler Conspiracy,” New York Times, August 19, 2017, p. B4. 

    Mr. Iacobelli has entered a not-guilty plea. Chrysler has denied any knowledge of the conspiracy and corruption. The federal statute relied on in the charges against the union officials is the Federal Labor Management Relations Act (Landrum-Griffin), which prohibits union officials from accepting money and gifts from third parties.  The interesting aspect of the cases is that the gifts came through the use of the joint Chrysler/UAW training center. The issue is whether the gifts were indeed from a third party. Also, Chrysler has denied any knowledge of the scheme and offered its assurance that the gifts had no impact on its negotiation of a collective bargaining agreement with the UAW.


    Explain the similarities and differences between the two corruption cases.

    What will be the evidence required in each of the cases?

  • Insys, the Opioid Crisis, and Criminal and Civil Liability

    The story of Insys Therapeutics, Inc.is one of amazing growth, a stock that went to the moon, criminal charges, and, now, product liability. Insys was founded in 2002 and, in 2012, obtained FDA approval for a cancer pain drug it had developed, Subsys. Subsys is a synthetic opioid that fentanyl-based and taken by spray under the tongue. Because of Subsys, Insys had the best-performing IPO of its stock in 2013.  From 2013-2015, revenues tripled and profits rose 45%.  The value of Insys stock increased 296% between 2013 and 2016.

    In order to prevent oversubscription and abuse of powerful and expensive drugs, insurers use pharmacy benefit managers (PBM), a means of requiring prior authorization for the prescription in order to have insurance reimbursement. PBMs required that prescriptions for Subsys include certification that the patient had cancer and that the patient was experiencing breakthrough pain that cannot be treated with other medications.

    In a criminal indictment issued in 2016 against Insys’s former CEO and five other executives, Insys was only able to obtain prior authorization in 30% of the cases. In order to increase the approval rate, Insys created the Insys Reimbursement Center (IRC).  Headed by Insys employee, Elizabeth Gurrierri, Ms. Gurrierri told employees, “Dr. Kapoor’s not happy, we have to get these approvals up.”  This information comes from a Senate report and can be found here. 

    The strategies that were explained in the report and alleged in the criminal indictment against the officers included: 

    • The IRC obscured its identity from the PBM by obscuring its outgoing caller ID.
    • The IRC furnished a 1-800 number to the PBMs when they requested a call-back number (generally the call-back number would be to a physician).
    • IRC employees were told to say that they were calling from a physician’s office and to give the name of the specific physician for that patient, 

    In a class action lawsuit against the company by patients who became addicted to Subsys or died as a result of their addictions, only about 10% of the prescriptions approved by the PBMs were for cancer patients. In a study done by Anthem of its payments for Subsys, it concluded that it had paid over $19 million in reimbursements that were not covered under Anthem plans. 

    In addition, the criminal indictment alleging that Insys was priming the prescription pump by paying doctors for speeches that were never made in exchange for their prescribing Subsys for their patients. Physicians were also provided free meals and other perks in exchange for their willingness to prescribe Subsys. Karen Hill, a former Insys employee who has entered a guilty plea in an Alabama case, described her role at the company as follows:

    During her time as a sales representative, Hill taught other sales representatives how to entice doctors to prescribe Subsys.  In one recorded conversation, Hill told another sales representative that the key to getting doctors to prescribe Subsys was not selling them on the drug itself, but rather finding out what motivated the doctor.  She gave examples that some of her doctors were motivated by money, chocolate, and spending time with her.  When the sales representative asked Hill how to identify doctors who were financially motivated to prescribe Subsys, Hill explained that she looks for doctors that are “money hungry,” and went on to describe how to figure out if a doctor has a “light in their eyes” and is willing to “play ball.”  You can read more about her plea here.

    A 2014 report to the Board concluded that there was no formal audit plan for supervising the work of the IRC and following up with the PBM to determine whether IRC employees were following proper Insys procedures as well as being in compliance wit federal law and regulations. 

    Based on this information, the family of Sarah Fuller filed suit against Insys for her untimely death, at the age of 32, from her addiction to Subsys.  Ms. Fuller did not have cancer. There are also the class action suits mentioned above as well as suits by several states for fraud, commercial bribery, and other state-level offenses. 

    The Senate report was issued as part of an ongoing investigation into all facets of the opioid addiction crisis. Insys has responded that the employees involved in the IRC conduct are no longer with the company. The new CEO offered his assurances that the employee base has been transformed and that the company has put in ethical standards as well as policies and procedures that prevent the behaviors that were once encouraged. The executives who were charged have entered “not guilty” pleas, but other employees have entered into plea bargain agreements in exchange for their testimony about Insys operations. 


    Explain the Insys business model.

    List the types of legal issues that Insys faces.

  • Absence of Malice; Palin’s Case against NY Times Dismissed


    Sara Palin, a former Republican vice-presidential candidate, sued the New York Times for defamation seeking $75,000 in damages. A federal judge has dismissed the case. The dismissal is related to the high standard of proof required where the plaintiff in a defamation case is a public figure.

    Palin objected to a New York Times editorial that was printed in June, 2017, on the day a left-wing gunman opened fire at a baseball field where congressmen were practicing for an annual charity game. Several were injured, the most serious being Representative Steve Scalise of Louisiana. The editorial in question suggested the shooting that severely wounded Representative Gabby Giffords in 2011 was in part provoked by a list of electorial districts circulated by Palin’s political action committee. Within a day the paper issued a correction, saying there was no such link. The apology came first in a tweet, thanking readers for calling the newspaper on the mistake, followed by a printed statement at the end of the editorial saying that no link has been established between political rhetoric and the incident in which Giffords was shot.

    Defamation refers to untruthful statements or pictures that are false and damage a person’s reputation. The target can sue the person spreading lies for monetary damages. To be successful when the plaintiff is a public figure (a person of great public interest or familiarity such as a politician, government official, celebrity, business leader, sports hero, movie star, etc.), it is not enough to prove that statements were false. In addition, plaintiff must prove that the defamer acted with malice. In this context malice means the speaker either knew the information was false, or the statement was made with reckless disregard (great carelessness) of the truth. This higher standard is imposed because the constitutional right of free speech includes the right to criticize government officials and other famous people. As a society, we want to encourage uninhibited and robust debate on public issues, and not punish a speaker who makes a mistake honestly (unintentionally).

    In July of this year the newspaper filed a motion to dismiss Palin’s case. The issue was whether the defamation complaint contained sufficient allegations of actual malice. In dismissing the case the judge wrote, “What we have here is an editorial, written and rewritten rapidly in order to voice an opinion on an immediate event of importance, in which are included a few factual inaccuracies, somewhat pertaining to Palin, that were very rapidly corrected. Negligence this may be; but defamation of a public figure it plainly is not.”

    The Times responded to the ruling with appreciation for the important reminder of the country’s strong support for a free press, and expressed again regret for the error.

    The dismissal was with prejudice meaning Palin cannot start the lawsuit again. She can however appeal the dismissal. If she does, she would argue that the judge made an error of law in ruling that the error in the editorial was not made with malice.

    For further information, see the earlier KnowNow blog post published soon after Palin began the lawsuit, dated June 16, 2017.


    Why does the law require the additional element of malice when a public figure sues for defamation? Do you think it is a good requirement? Why or why not?


  • The Defamation Suits Against the Southern Poverty Law Center

    The Southern Poverty Law Center (SPLC), founded in 1971, had as its original purpose to fight the KuKlux Klan (KKK).  The SPLC was an effective warrior in that battle by targeting and bankrupting the KKK leadership. However, the strategies and focus of the SPLC have shifted.  Currently, the SPLC may be best known for its list of groups it has identified as “hate groups.” SPLC explains the list as individuals and groups "that engage in, support, encourage, or promote intolerance, hate, terrorism, violence, money laundering, or other illegal activities." 

    As of September 2017, there were 917 groups identified as hate groups on the SPLC website. The hate groups are classified under:  KKK, Christian Identity, Holocaust Denier, Anti-Immigrant, Anti-Muslim, Anti-LGBT, Black Separatists, Hate Music, Neo-Confederate, Neo-Nazi, Racist Skinhead, Radical Traditional Catholicism, White Nationalist, and General Hate.  The following individuals and organization have appeared or are currently listed among the hate list.  

    • The National Prayer Network
    • Lordship Church
    • The Brother Nathanael Foundation
    • Concerned Citizens and Friends of Illegal Immigration Law Enforcement
    • ACT for America
    • Keep South Dakota Safe

    Those who have been listed on the hate list, but then removed following requests from the groups or individuals include Dr. Ben Carson, the African American neurosurgeon who is now the Secretary of Housing and Urban Development. Dr. Carson was placed on the list because of his definition of marriage as being between one man and one woman. 

    The D. James Kennedy Ministries (DJKM) was named as a hate group on the SPLC site, described as "D. James Kennedy Ministries (formerly Truth in Action) Fort Lauderdale, Florida ANTI-LGBT."  DJKM has filed suit in federal district court against the SPLC for defamation.  CNN had done a segment on the SPLC, a segment that included coverage of the DJKM being listed as a hate group.  The result was that the group’s offices were inundated with calls, questions, and withdrawal of support from donors. DJKM was not notified in advance of the listing or the reason.  When contacted about the listing, the SPLC said that DJKM was listed because the group follows the Biblical definition of marriage.  You can find more on DJKM at al.com.

    DJKM filed suit in federal district court in Alabama, alleging that the SPLC "illegally trafficked in false and misleading descriptions of the services offered by DJKM and committed defamation against DJKM arising from the publication and distribution of false information that libels the ministry's reputation and subjects the ministry to disgrace, ridicule, odium, and contempt in the estimation of the public.”  The current president and CEO of DJKM, which is named for the late televangelist D. James Kennedy, explained that the organization had been labeled a hate group because it is following its religious beliefs.The suit is based on Title II of the Civil Rights Act of 1964, 42 U.S.C. § 2000a, which prohibits religious discrimination.  

    Other defendants named in the suit are Amazon (AmazonSmile Foundation) for its Amazon Star Program and Guidestar. These two organizations excluded DJKM from their donation or classification programs because they use the SPLC list as a criterion for organizational qualification for the program.  For example, Guidestar , that rates 1.6 million charities affected the status of 46 by including the SPLC hate classifications in the information data base, something that created backlash for Guidestar, but which the organization stood by when challenged. An Amazon employee explained to a DJKM employee, ""We rely on the Southern Poverty Law Center to determine which charities are in ineligible categories."  These programs allow customers to make a donation to the charity of their choice when they make a purchase. DJKM thus lost an important avenue of its fund raising.

    The case presents interesting issues on the elements of defamation, including whether the hate group list is opinion, something that would be protected.  However, the DJKM suit argues that the list is presented as factual information, not as opinion. Also, the issue about religion is a fascinating one, but it is not a First Amendment issue because the government is not involved in the listing.  However, the decision of SPLC to list religious groups because of their positions on marriage presents interesting public policy and ethical issues.

    There is also a lawsuit against the SPLC by British activist Maajid Nawaz, who is listed as an “anti-Muslim extremist” on the SPLC website. Mr. Nawaz, a former Islamist, founded the Quilliam Foundation, a think tank that addresses the issues related to terrorist activities.  When he appeared on comedian Bill Mahr’s show, Mr. Mahr agreed to contribute to the crowd-funding for the defamation litigation. 

    Mr. Nawaz indicated that the listing makes him and those within his organization targets of terrorist groups.

    When the Family Research Council was listed as a hate group. Its headquarters in Washington, DC were invaded by a man who wanted to intimidate the group for its position on marriage.  The attacker later entered a guilty plea to assault with intent to kill for shooting at guard at the FRC headquarters. The incident has been used as an indicator of the power the SPLC list can have to influence some individuals to do harm to the groups’ facilities and/or members/supporters. 

     Discussion Starters

    Discuss the issues of proof in a defamation case against the SPLC for its hate groups list.

    Explain the ethical and public policy issues involved in the hate group list. 

  • Best Buy Issues Apology for Selling a Case of Bottled Water for $42.96 As Hurricane Harvey Loomed: Pre- and Post-Disaster Price Gouging

    Clean water in the middle of a hurricane, even one that brings record rainfall is a rare commodity.  So, in the Houston suburb of Cypress, Best Buy was able to unload a case of bottled water for $42.96.  Such a case would normally sell for between $2.99-$5.99. The store manager apologized, indicating that it was simply a mistake by the employee who had taken the individual price of each bottle and multiplied it by 24 (the number of bottles in a case) to reach the total. Charisse Jones, “Best Buy Apologizes for $43 Bottle Water in Houston,” USA Today, August 31, 2017, p. 3B

    In fairness to Best Buy, it is not a store that normally sells cases of water.  However, on the Friday before Hurricane Harvey hit, Houston resident were desperate to stock up on this supply in anticipation of a storm that was predicted to be record-breaking (and, indeed, the predictions turned out to be correct).

    Like many states, Texas has laws against price gouging.  And with 684 complaints that have come in already, prosecutors there may have their hands full.  One gas station charged $20 for a gallon of gas, $8.50 for a bottle of water, and $99 for a case of water. Read the story here.  The Best Buy price looks like a bargain by comparison.

    There are several laws in Texas that address price gouging.  The general statute is the Emergency Price Control Act.  §17.46(b) of the Texas Deceptive Trade Practices-Consumer Protection Act provides that it is a false, misleading or deceptive act or practice to take advantage of a disaster declared by the Governor under Chapter 418, Government Code, by:

    1. Selling or leasing fuel, food, medicine or another necessity at an exorbitant or excessive price; or
    2. Demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine or another necessity.

    However, there are other statutes applicable to specific goods, goods that may not be considered necessities. One such specialized statute can be found at TX AL Bev §103.12, and is called “Ceiling Prices During Emergency.” This statute applies specifically to price gouging in the sale of alcohol during emergencies. 

    There are several appellate cases in Texas, one of which resulted from overcharging for renting generators following Hurricane Ike. That case proceeded along interesting lines of whether Texas had jurisdiction over an out-of-state firm selling generators in the aftermath of the storm. Quartz Castle, Inc. v. Jade Consolidated Management, Inc., 2010 WL 5232991 (C.A. Tex. 2010) 

    The determination of what level of pricing constitutes gouging differs among the states and is almost a formula of “you know it when you see it.”  Some states specify percentage increases, such as anything higher than 10% above pre-disaster prices.  Others use the term “unconscionable” price increases.  Still others do not allow price increases following emergencies.  The pros and cons of laws against price gouging as well as a summary of the laws can be found in this work. Geoffrey C. Rapp, “Gouging:  Terrorist Attacks, Hurricanes, and Economic Aspects of Post-Disaster Price Regulation,” 94 Kentucky Law Journal 535 (2005-2006).

    Penalties under the law in Texas are up to $25,000 per sale. If the victims of the price gouging are over the age of 65, that penalty climbs to $250,000 per sale


    Explain what anti-price-gouging statutes provide.

    Discuss the ethical issues in price gouging.


  • Subway Wins on Appeal of Footlong Class Action Settlement; High Lawyers Fees Panned

    The federal Court of Appeals for the Seventh Circuit (Illinois, Indiana, and Wisconsin) just rejected a class action settlement intended to resolve a lawsuit claiming Subway sandwich fast-food chain, which specializes in submarine sandwiches, misrepresented the size of its “footlong” subs.[1]

    Subway famously touts its “Footlong” sandwich. A social media uproar resulted when a customer measured his order and found it to be 11 inches, not 12. He posted a picture of his sandwich next to a 12” ruler highlighting the discrepancy, and it went viral. Numerous lawsuits were filed asserting violations of state consumer-protection laws which prohibit “unfair trade practices.” The cases were ultimately consolidated in a single class action (a lawsuit with many plaintiffs who are all injured from the same cause).

    To bring a class action lawsuit requires that a court certify (approve) the description of class members. The certified class in this case was “all persons in the US who purchased a 6 inch or footlong sandwich at a Subway restaurant between January 1, 2003 and October 2, 2015.”

    Discovery (the process of parties to a lawsuit exchanging relevant information) revealed the following. The weight of Subway’s unbaked bread rolls are uniform, containing the same ingredients and proportions. They are made from raw dough sticks which all weigh exactly the same, so if a roll fails to bake to a full 12 inches, it nonetheless contains the same amout of bread as its 12 inch counterpart. Differences in length are due to the “natural variability in the baking process” and are unavoidable. The named plaintiffs conceded that the exact length of the sandwiches did not impact their purchase decisions or alter their future plans to eat at the fast food outlets.

    The parties settled with Subway agreeing to pay attorneys for the plaintiffs $525,000 in legal costs, and each named plaintiff (one or more representatives of the class who select and work closely with the attorney for the class) would receive $500. The fast food company also agreed to various modifications of its policies and procedures to help ensure their sandwiches are either six or twelve inches. These included additional training of employees, periodic corporate inspections of bread and ovens, use of a designated device for workers to measure bread in the restaurants, and posting of a notice stating, “Due to natural variations in the bread baking process, the size and shape of bread may vary.” This settlement was initially approved by a Wisconsin federal judge in February, 2016.


    When parties to a class action reach a settlement, the terms must be reviewed by a court to ensure they are “fair, reasonable, and adequate”[2] to all class members. Typically there are two such hearings, called fairness hearings. The first is for preliminary approval by a judge. Next, a Notice of Proposed Settlement is sent to all class members. A Final Fairness Hearing is thereafter scheduled at which class members can object to the settlement.

    A member of the Center for Class Action Fairness (formed in 2009, the Center represents class members against unfair class action procedures and settlements), Theodore Frank, a well-known critic of class actions, joined the lawsuit as a class member and appealed the settlement. In the court’s decision, he is described as “a professional objector to hollow class-action settlements.” He and the Center take issue generally with class lawyers receiving substantial fees while class members’ interests are not adequately addressed. Asserts the Center, “When the Center prevails, lawyers get less, class members get more, and the rule of law is strengthened.”

    Frank argued that the Subway case settlement “enriched only the lawyers and provided no meaningful benefits” to the customers who made-up the class. ”[W]hen attorneys bring class actions to benefit only themselves, it’s an abuse of the sytem, and courts should not tolerate it.”

    The court was convinced. ““The settlement enriches only class counsel and, to a lesser degree, the class representatives. The procedures required by the settlement do not benefit the class in any meaningful way. The settlement acknowledges as much when it says that uniformity in bread length is impossible due to the natural variability of the bread-baking process. A class action that seeks only worthless benefits for the class and yields only fees for class counsel is no better than a racket and should be dismissed out of hand. That is an apt description of this case.”

    Subway responded by saying, “We are pleased the court recognized that Subway did not misrepresent its product. We stand behind our commitment to quality.”

    For more information, see earlier post about this lawsuit  on the KNowNow blog from June 19, 2013, and click here.



    1)    What effect is this decision likely to have on lawyers who concentrate on class action lawsuits?


    [1] In Re Subway Footlong Sandwich Marketing and Sales Practices Litigation, 2017 WL3666635 (7th Cir., 8/25/2017).

    [2] Fed. R. Civ.P. 23(e)(2).