• Catching a Radio Shack and T-Mobile Robber Using Cell Tower Records: The Supreme Court on Ping Privacy

    Timothy Ivory Carpenter was sentenced to 16 years in prison for a series of robberies of Radio Shacks and T-Mobile stores.  U.S. v. Carpenter, 2013 WL 6385838 (W.D. Mich. 2013) Mr. Carpenter, along with friends, planned the robberies, supplied the guns for the robberies, and served as the lookout for the robberies. He would signal his cohorts to enter the stores.  They would enter, round up customers and employees and place them in a back room, and then take all of the smartphones in the store.

    During his trial, prosecutors presented testimony, but also introduced evidence obtained from cell phone companies.  The 127 days of cell phone records obtained from cell phone towers showed Mr. Carpenter’s phone at 12,898 locations, and those locations put him near the locations of the robberies. The data also showed where he slept each night and whether he was at church on Sunday mornings.

    The cell phone tower records were obtained without a warrant. Mr. Carpenter challenged the admission of the cell phone tower evidence on Fourth Amendment grounds, arguing that because there was a breach of his privacy that the government needed a warrant in order to obtain and use the cell tower data.  Mr. Carpenter appealed his conviction, and the Court of Appeals affirmed holding that the government did not conduct a search in using the cell phone tower records. U.S. v. Carpenter, 819 F.3d 880 (6th Cir. 2016)  The U.S. Supreme court granted certiorari. 137 U.S. 2211 (2017) The Supreme Court heard oral arguments this week.

    The case is a significant one in terms of setting privacy boundaries in this era when electronic devices have muddled the notion of privacy.  Search engines, apps, and websites know our locations, our shopping habits, and even our diets.  Our cell phones being one mean that we can be located anywhere, any time.

    The government argued in the case that under the Stored Communications Act, the government need only show that it has “reasonable grounds” for believing that the information available from the cell towers could provide information about criminal conduct. On that basis, the government obtained a court order that required the cell phone company to turn over the tower records.  However, Mr. Carpenter argued that his privacy rights required that the government obtain a warrant based on probable cause, a much higher standard that would require more specificity and detail connecting the records to a crime.

    The court of appeals affirmed the lower court decision, writing that the privacy rights relate to the content of Mr. Carpenter’s conversations, which would require a warrant to obtain.  Rather, the cell phone tower records only provide information about something that is already public – where Mr. Carpenter was at any given time.  His presence was always public.

    During oral arguments, the U.S. Supreme Court justices seemed committed to drawing some lines on privacy issues related to technological capacities.  However, they were unclear where that line should be.  Justice Steven Breyer said, “This is an open box. We know not where to go.” during his comments from the bench. 

    The government argued that the Fourth Amendment protections do not apply to records that you give to someone else, the so-called third-party doctrine.  There is certainly precedent for that position.  However, the justices pointed out that there is more a less a joint venture when it comes to your information and the cell phone company. You know that the cell phone company has your information and you live with it.  Lawyers for Mr. Carpenter questioned whether everyone is aware of the information sharing.  Justice Kennedy quipped that he is aware of that and added, “If I know it, everybody knows it.”

    The court’s decision will be issued in June. 

    DISCUSSION STARTERS 

    Make the arguments for and against requiring a warrant for access to cell phone tower records. 

    What happens if the court holds that the prosecution should not have been entitled to use the tower evidence?

  • When Your Professional License Is Revoked: You Don’t Pay Your Student Loans

    From nurses to lawyers to CPAs to firefighters to teachers to nurses to barbers, professional licenses are required.  Before that professional license is issued, there are educational requirements.  Educational programs are expensive, and many now-licensed professionals have student loans.  In 19 states, if professionally licensed individuals do not pay their student loans, their licenses can be revoked.  In South Dakota, those who do not pay their student loans lose their driver’s license, as well as hunting and fishing licenses, and being precluded from obtaining camper permits.  The states are:

    • Alaska
    • Arkansas
    • California
    • Florida
    • Georgia
    • Hawaii
    • Illinois
    • Iowa (also can revoke driver’s licenses)
    • Kentucky
    • Louisiana
    • Massachusetts
    • Minnesota
    • Mississippi
    • New Mexico
    • North Dakota
    • South Dakota
    • Tennessee
    • Texas
    • Virginia
    • Washington

    Lenders have become aggressive in enforcing loan repayments, using suits, judgments, and garnishments.  Now, the lenders are using the statutes in these states because, as one lender explained, when there is a threat of losing their licenses, they somehow find the money to pay. 

    Some states begin by sending a notification that if the licensee does not make loan payments that their licenses will not be renewed. Tennessee, Georgia, and South Dakota are examples of states that use the statute and have been successful in collecting a significant amount of the debt through use of the revocation statutes.  Other states, such as Hawaii, Alaska, Massachusetts, Iowa, and Washington, do not use the laws.  Oklahoma and New Jersey revoked their license revocation statutes in 2016.

    The New York Times identified 8,700 cases in which professionals had their licenses revoked for failure to pay their student loans.  Jessica Silver-Greenberg, Stacy Cowley, and Natalie Kitroeff, “Price of Unpaid Student Debt:  The Very Job Needed To Do It,” New York Times, November 19, 2017, p. A1.  Tennessee was responsible for 5,400 of those revocations.

    The irony of the revocation statutes is that those who have not paid are unable to work, using their education, to repay the loans.  Most of the revocations follow on the heels of suspended work activity due to health issues.  During the time of their illnesses, they were unable to work and unable to make their student loan payments. Following a judgment obtained by the lender for nonpayment, their licenses were revoked. Bankruptcy is not an option because very few student loans are discharged in a bankruptcy.

    However, even lenders with judgments have offered to work with the debtors in terms of payments, thus allowing them to get their licenses back.  In some states, there is a fee (up to $1,500) that must be paid to the state to have the license reinstated.  

    DISCUSSION STARTERS

    Explain the state laws on license revocation for nonpayment of student loans.

    Discuss what could be done as an alternative to license revocation.

  • Fertility Clinic Sued for Inadequate Genetic Testing of Egg Donor; Statute of Limitations Issue

              

    Plaintiffs husband and wife are suing a New York fertility clinic over a donated egg that contained a genetic defect. (A fertility clinic assists couples and individuals who experience difficulty in becoming pregnant because of medical or other reasons.) The couple utilized the services of the clinic, became pregnant with two donated eggs fertilized in vitro, and gave birth to male twins in 2009. One child suffers from Fragile X syndrome, a genetic condition that can cause intellectual and developmental disabilities plus hyperactive behavior, autism spectrum disorders, anxiety, and seizures. The condition was traced to the donated eggs based on post-birth testing of the egg donor.

    Plaintiffs argue that the clinic, Reproductive Medicine Associates (RMA), negligently failed to test the donor for Fragile X syndrome despite informing plaintiffs that RMA screens donor candidates for genetic diseases and other conditions.  Plaintiffs seek damages (compensation) for the added expenses of raising a disabled child. The New York State Court of Appeals, that state’s highest court, heard argument on the case in mid-November. A decision is expected sometime in 2018.

    The clinic is arguing that the statute of limitations has passed, and thus the case is untimely and should be dismissed. “Statute of limitations” refers to a time period within which a plaintiff can begin a lawsuit, and beyond which a plaintiff cannot sue, no matter how winnable plaintiff’s case may be. The concept is this – a plaintiff with a lawsuit should sue in due time. A would-be defendant should not have to worry indefinitely about the possibility of a lawsuit. The duration of the statute of limitations varies depending on the type of case involved. Generally, the time periods range from one year to five years.

    The cause of action (basis on which plaintiff is suing) is malpractice, meaning negligence in the practice of a profession. The statute of limitations for malpractice in New York is two and a half years after an alleged act of malpractice, or in the alternative, from the end of a continuous treatment during which the negligent act or omission occurred. The two embryos were implanted in the plaintiff mother on January 21, 2009. Her last appointmet at RMA was on March 10, 2009. The twins were born on September 25, 2009. The lawsuit was begun in December, 2011.   Thus, if the statute of limitations began to run on the birth of their sons, the case is timely. If the time period commences upon defendants’ last treatment of the plaintiff mother, it is untimely.

    The intermediate appellate court ruled that the statute of limitations begins to run with the birth of the impaired child, rendering the malpractice claim timely. On appeal, the clinic argues that ruling is contrary to the statute. The clinic asserts the time period began to run when the couple completed fertility treatments and became pregnant. Per this position, the case should be dismissed as having been started too late.

    The plaintiffs’ lawyer argues the parents could not sue before the condition became apparent. “It makes no sense to expect the parents to file a lawsuit before they even knew about the condition.” In response, the clinic asserts that any changes to the law should be made by the legislature, not the courts. Argued the clinic’s lawyer, the statute of limitations must run from the time of the [alleged negligent] act, unless and until the Legislature decrees otherwise.”

    For more information, click here.

    DISCUSSION QUESTION:

    1)    What steps going forward should the clinic take to ensure this problem does not happen again?

    2)    Why does the clinic argue that the legislature and not the courts should be the institution to change the statute of limitations if a change is indicated?

     

     

     

     

  • Uber and the Driver Screening Problems: Assaults and Suits and Fines, Oh, My!

    There was the suit against Uber by a Texas resident who said that her Uber driver raped her and that Uber then allegedly obtained her medical records illegally in order to undermine her credibility. The suit alleges that the compan’s business president in South East Asia was carrying around those illegally obtained records.

     That suit was followed by a class-action lawsuit by two women who represent a class of thousands of Uber passengers who say they have been subjected to a range of driver misconduct, from rape to sexual harassment. The suit alleges that Uber uses barebones screening processes in order to save money.  Background checks, fingerprinting, and other verifications cost employers time and money. Elizabeth Weise, “Women Sue Uber, Say Its Drivers Need More Vetting,” USA Today, November 15, 2017, p. 4B.

    States have begun taking action against Uber for its failure to follow state laws on background checks.  For example, Colorado fined Uber $8.9 million for its failure to follow background checks requirements for drivers. The Colorado investigation began when a police officer referred the name of an Uber driver who was charged with assault to the Colorado Public Utilities Commission (PUC).  The PUC began an investigation of cross-comparing Uber licensed drivers in the Colorado Crime Information Center and uncovered that 57 Uber drivers who were driving with suspended, revoked, or canceled drivers licenses due to DUI, DWI, and reckless driving charges. Under a 2016 Colorado law, ride-hailing companies are required to do fingerprint checks or run their own background checks.

    Other states have uncovered similar problems.  Between 2015 and 2016, regulators there found 4,000 ride-hailing drivers (97% of whom were Uber drivers) who had passed their companies’ background checks but did not meet basic state standards.  Massachusetts removed the licenses of 8,200 drivers during 2016-2017 for failure to meet state standards.  The 8,200 had passed their companies’ background checks, but 51 of them were registered sex offenders.

     Internationally, there are similar problems.  London banished Uber from the city because it discovered that there was under-reporting of assaults by Uber drivers. The attack in New York City by a man driving a Home Depot rental truck was an Uber driver and has been identified a self-proclaimed Isis fighter.

     The problems of Uber began to gain international attention when Susan Fowler wrote her blog post about the sexism and sexual harassment at Uber.  The public backlash resulted in the departure of the company’s CEO and founder, Travis Kalanick. The company’s new CEO has vowed to fix the issues related to background checks, the company atmosphere, and driver behavior. 

    The failure to properly screen employees is a breach of duty by any employer, the tort of negligent hiring. The duty is higher for employers who serve the public, are caring for children, or place customers in a position of trust with their employees. If an employee who has a history of illegal or tortious activity harms a passenger, that passenger is able to establish a clear breach of duty because the background or fingerprint checks would provide the red flags for the employer.  The expense is one factor in the failure to screen, and the “profits over safety” motivation (as it has been called and  highlighted by the Uber passengers in their suits) creates jury sympathy for the victims.

    DISCUSSION STARTERS

     Explain Uber’s history on background checks.

    Discuss whether and when there is liability of a ride-hailing company for passenger assaults, rapes, and injuries.  

    Does it matter that Uber drivers are independent contractors?

  • The Nuns Lose; Katy Perry and the Archdiocese Win the Longstanding Real Estate Case

    A case that this blog has been covering for two years came to a close with a jury verdict in a Los Angeles courtroom.  The case started when Katy Perry tried to purchase a convent (that has been closed for a number of years) from a group of nuns.

    The Sisters of the Most Holy and Immaculate Heart of the Blessed Virgin Mary have been in court fighting their archbishop, a Los Angeles real estate developer, and Katy Perry. The good sisters have an 8-acre convent (in which no one has lived since 2011) that they were given by a donor in his will.  The 1971 bequest was to the nuns, but the archdiocese has had its hand in the management and upkeep of the property but has not accounted for the funds in the bequest.  The sisters claim that they would be entitled to the proceeds, a nice retirement for all of them. 

    Two of the five surviving nuns, ages 77-89, filed court documents opposing the sale of the property to Katy Perry and signed over the deed to Dana Hollister. Ms. Hollister began renovating the 50-bedroom facility into a hotel.  The archdiocese filed suit to stop Hollister’s renovation. The nuns responded to the litigation with e-mails attached to their filings that included the following, “In selling to Katy Perry, we feel we are being forced to violate our canonical vows to the Catholic Church.” Sister Rita said in an interview, "Well, I found Katy Perry, and I found her videos and ... if it's all right to say, I wasn't happy with any of it." “I thought, is that a way to make money?”

    The three remaining sisters supported the archbishop in his decision to sell to Ms. Perry.  However, two of the sisters supporting the archbishop reneged on their signed consents, one claiming to have been “woozy” from morphine and the other no longer able to respond to questions (she is in a care facility). Michael Cieply, “Citing Vows, Nuns Remain Resistant to Sale of Convent to Pop Singer,” New York Times, July 20, 2015, p. A12.  

    At a July 2015 hearing, a Los Angeles Superior court judge banished Katy Perry from both the archdiocese and the property until the case was resolved.  At an April 14, 2016 hearing, another Los Angeles Superior Court judge held that the permission of the archdiocese was required to sell the property and that the side deal that two of the sisters made with Ms. Hollister was done without authority.  The court rescinded the deed. 

    The litigation continued on the issues of whether Ms. Hollister had interfered with Ms. Perry’s contract with the archdiocese.  A jury concluded on November 17, 2017 that Hollister tried to stop the sale with her purchase of the property from the two nuns. The jury awarded the archdiocese $3.47 million in attorney fees and Perry’s company, Bird Nest LLC, $1.57 million in fees.

    There will be a second phase of the trial for punitive damages because the jury also concluded that Ms. Hollister acted with malice. That finding allows for the recovery of punitive damages for the Hollister interference.  However, Ms. Hollister’s attorney indicated that the decision of the trial court will be appealed.

    DISCUSSION STARTERS

    Explain who claimed what and why.

    Explain how the capacity of the sisters might enter into the court’s decisions. 

  • Kushner Companies Sued for Rent Stabilization Violations

                   

     Kushner Companies (hereinafter Kushner) , previously run by President Trump’s son-in-law, Jarad Kushner, is the defendant in a class action lawsuit claiming violations of rent stabilization laws. The case is brought by residents of rental units in q building in Brooklyn Heights, a NYC neighborhood. The tenants claim Kushner is charging market rental rates rather than much lower rent-stabilized rates. The lawsuit claims the latter are required by law. An independent non-profit housing rights organization called Housing Rights Initiative (HRI) determined that the company “brazenly and systematically exploited the rent stabilization program.” This is the second such suit brought against Kushner recently in NYC. The other was begun three months ago in August, 2017, on behalf of nine tenants at another building.

    A spokesperson for the Kushner Company asserted, “We’ve reviewed the lawsuit and believe it is without merit, and that we have complied with all rent regulations applicable to the apartments.”

    Jarad Kushner resigned as CEO when he became a senior advisor to President Trump. Per his latest financial disclosure report filed with federal ethics officials, he retains a financial interest in both buildings.

    Rent stabilization laws have been adopted by numerous US cities with large tenant populations. These include NYC, Washington DC, Boston (since repealed), and the following California cities: Berkeley, Los Angeles, Oakland, San Francisco, and Santa Monica.

    Rent stabilization is a form of rent regulation. For rent stabilized apartments, landlords are limited on how much they can raise rents each year. In NYC, rent stabilization applies to buildings with six or more units that were built before 1974. For properties built after that year, if a developer takes advantage of certain tax abatements when making renovations, the resulting apartments may also be rent-stabilized. For a tenant to qualify for rent stabilization rates, the household’s annual income must be less than $200,000. The annual increase in rent is limited by an amount determined by the NYC Rent Guidelines Board (RGB). For the past two years, the RGB has voted to freeze the annual rent on stabilized apartments with one year leases, the first time it has ever done so. Two year leases were permitted a modest two percent increase. About 1 million NYC apartments are covered by rent stabilization.

    These laws also restrict a landlord’s ability to refuse to renew leases. Instead, tenants are given by law a statutory right to renew their rental contracts. One of a very few exceptions is the circumstance where the landlord needs the apartment for his/her family use. To end the lease, a landlord must give the tenant 90-150 days (3-5 months) notice.

    The two Kushner buildings house 11 studio apartments, 14 one-bedroom units, and four one-bedroom duplexes. Kushner is now seeking to sell the two properties. The company bought them in 2014 for the combined price of $7.6 million. The current offering price for both is $20 million.

    The Kushner company is reportedly also defending legal action in Maryland where it owns additional apartment units. Plaintiff tenants in that state have filed suit claiming Kushner charged them illegal fees. The business is also subject to an investigation by the Maryland attorney general (chief law enforcement officer)  following media reports of abusive debt collections practices and poor conditions at several properties. A Kushner spokesperson stated, “We are cooperating in the investigation. We are in compliance with all state and local laws.” The inquiry does not mean charges will be filed.  That will be determined by the outcome of the investigation.

    For more information, click here.

    DISCUSSION QUESTION:

    What  would justify the  government imposing rent stabilization on landlords?

  • Why Richmond, Virginia Is Becoming the Bankruptcy Capital of the United States

    Gymboree, Toys “R” Us, and other corporations seeking Chapter 11 protection increasingly file their petitions in the U.S. Bankruptcy court in Richmond, Virginia. They are not filing where their headquarters are located. Patriot Coal is a West Virginia corporation, but filed for Chapter 11 in Richmond. Indeed, the companies are not filing in any of the jurisdictions in which they have operations, which they are permitted to do under federal court rules. The companies simply register an agent in Virginia and put them in an office for purposes of the bankruptcy filing. A recent article highlighted the reasons that court is so popular. Michael Corkery and Jessica Silver-Greenberg,, “The Place To Go For Going Bust,” New York Times, November 15, 2017, p. B1.  There are three key reasons:

    • The bankruptcy court in Richmond has what is known as a “rocket docket.”  A rocket docket is a court that has a fast track for cases. Chapter 11 bankruptcies tend to drag on for years, but, for example Gymboree’s Chapter 11 took only 4 months.  The court moves through the processes and hearings quickly with an average length for a case being 12 months vs. 24.9 months for the average of other federal district courts. During the 12-month period ending in September 2012, there were 598 business bankruptcies filed in the Eastern District of Virginia. Of those, 107 were reorganizations under chapter 11 of the Bankruptcy Code, and 459 were liquidations under chapter 7. The court had a total of 23,481 bankruptcy filings (including both business and non-business filings) during the same period.
    • The federal district court for the Easter District of Virginia is fast on all cases, and you can read about the rules and fast times here.
    • The court there has through its precedent permitted companies to be discharged from union contracts.
    • Lawyers who practice there are permitted to charge fees that are 25% more per hour than those permitted in most bankruptcy courts.  As a result, the best bankruptcy lawyers practice there because they can earn as much as $1,745 per hour.  The good news is that because the cases are processed so rapidly that the total number of hours is less.

    The second most popular Chapter 11 filing location is Delaware, where many of the companies are incorporated.  The benefit of the rocket docket for Chapter 11 filers is that the issues with creditors and shareholders can be resolved more quickly so that the reorganized corporation can begin its recovery and creditors can be paid. Payless Shoes, which filed for Chapter 11 bankruptcy in April 2017, emerged from its St, Louis bankruptcy by August, a record that meets the Richmond standard.  With 17 major retailers declaring bankruptcy during 2017, the need for rapid processing allows them (mostly brick-and-mortar mall retailers) to end leases of properties, downsize, and adjust their business models.

    DISCUSSION STARTERS

    Explain why companies like the Richmond U.S. Bankruptcy Court.

    Discuss why time is critical in Chapter 11 filings. 

  • When College Roommates’ Relationship Goes South: Expulsion and Criminal Charges

    Freshman Brianna Brochu and Chennel Rowe were roommates by random selection.  They did not know each other when the University of Hartford put them together in campus housing. Ms. Brochu and Chenel Rowe did not get along, so Ms. Brochu is alleged to have begun a series of appalling tactics designed to drive Ms. Rowe out of the dorm.  Those tactics worked, but as Ms. Rowe was leaving the dorm, others told her of posts by Ms. Brochu that boasted of getting rid of her roommate, referred to in posts as “the Jamaican Barbie.”

    Ms. Brochu wrote on Instagram,”After one and a half months spitting in her coconut oil, putting moldy clam dip in her lotions, rubbing used tampons on her backpack, putting her tooth brush places where the sun doesn’t shine, and so much more, I can finally say good-bye to Jamaican Barbie."

    Ms. Rowe reported the post and the actions of what she called bullying and racism.  The day after the report the campus security office reported the events to the local police.  University officials announced that Ms. Brochu was expelled and will not be returning to the university.  Ms. Brochu was charged criminally with intimidation based on bigotry or bias.  These are felony charges that are now pending.  Ms. Rowe has posted a video detailing her experience under #justice for jazzy. Jonah Engel Bromwich, “’Reprehensible’ Roommate Is Charged,” New York Times, November 2, 2017, p. A16.

    The case has become a topic of debate on the Internet as well as among college administrators who are using the events to determine whether their existing policies and procedures are sufficient to cover these situations. 

    The due process afforded in universities is different from that of the criminal justice system.  The felony charges require full dispensation of the case through either a guilty plea or trial for proof beyond a reasonable doubt.  Universities can take action to expel or suspend students who they believe present a danger to the campus community. Universities generally do so when students are charged with crimes. The expulsion or suspension can take effect prior to a hearing for the misconduct charges that the university brings on the basis of the criminal charges.  Due process standards require that the expelled or suspended be given a hearing to confront witnesses, review the evidence, and present exculpatory evidence.  A panel, generally comprised of faculty, staff, and students then makes a determination as to whether university conduct standards have been violated and whether the suspension or expulsion is an appropriate remedy. 

    DISCUSSION STARTERS

    Explain the differences between criminal case procedure and the procedures of colleges and universities.

    What advice would you give to those struggling with their roommates?

  • When Companies Hire the Children of Government Officials: Where Is the Line Under the FCPA?

    McKinsey & Co. has served as a consultant to Saudi Arabia for its plans for economic development.  McKiney’s work there has brought it millions in revenue. Justin Scheck, Bradley Hope, and Summer Said, “McKinsey Hired Saudi Officials’ Children, Wall Street Journal, November 10, 2017, p. A9.  The summary of the children of Saudi government officials McKinsey has hired for full-time employment or internships appear below:

     Two children of the Saudi energy minister (who is also head of Aramco, the state oil company)

    • A son of the Saudi finance minister
    • A son of the CEO of the Saudi Arabian Mining Co. (state-owned company)
    • Two children of the chief of the Saudi central bank who then went on to become a royal court adviser and director of the government owner chemical manufacturer
    • Son of a Saudi military adviser who is now the ambassador to Jordan.

     Some were hired for internships, and four of those hired remain employed at McKinsey. However, McKinsey has rejected over 100 applicants who also had relatives in positions of power in the Saudi government. 

    The hiring of the children of government officials by companies that have or are seeking or seeking to retain government contracts has been a focus of SEC investigations into violations of the Foreign Corrupt Practices Act (FCPA). J.P. Morgan Chase paid $264 million to settle criminal and civil charges of the FCPA for its hiring program tat involved hiring the children of Chinese officials. The SEC made the announcement and described the Chase program as one that was “bribery” by another name.  Chase had hired over 100 full-time and intern employees during a 7-year period in order to obtain banking business from the Chinese government.  Chase had spreadsheet charts titled “Referral Hiring vs. Revenue,” in order to track the success of its program. The SEC referred to the Chase activities as “systematic bribery scheme” and noted that many of those hired were not qualified for the positions that they held.

     McKinsey’s hires are less in number and McKinsey has a worldwide program of hiring in-country talent in order to benefit from their knowledge of local customs and government programs. However, with last week’s arrests of 11 Saudi government officials for corruption, the timing of the McKinsey disclosures may be indicative of an examination of the hires.  McKinsey has maintained that all those who were hired were qualified and were not hired temporarily, except for those who were in the process of completing their education and were working as interns for experience.

    From the two situations, the SEC position on whether hiring the children of government officials is an FCPA violation examines the following factors:

    • The qualifications of the children hired
    • The nature and length of their employment (timing of hires with contracts and release of hires from employment when their family members no longer hold influential positions
    • Whether such hires from the in-country workforce are part of a worldwide strategy and not peculiar to certain countries

     Compliance officials at companies are now developing programs for review of hires in other countries that examine these factors, thus making them subject to compliance reviews prior to approval of the hires.

     DISCUSSION STARTERS

     Explain the hiring program companies have used in international business operations.

    Discuss whether such hires are a violation of the FCPA.

  • Eminem's Music Company Wins $412,000 Copyright Infringement Suit

                    

    Rapper Eminem’s song titled “Lose Yourself” was the subject of a copyright infringement lawsuit against the New Zealand National Party, one of two main political parties in that country. That organization has been ordered to pay $412,000 for unauthorized use. The copyright is owned by Eminem’s music publishing company, Eight Mile Style. Only a copyright owner can sue for infringement. Therefore, the artist was not the plaintiff.

    The tune, considered Eight Mile Style’s most valuable work in its catalogue and only rarely licensed for use, was employed in a 30 second advertisement. The commercial showed a team of rowers in a boat while a voiceover stated that New Zealand’s economy was growing faster than many other countries. Viewers were encouraged to “stay on course to prosperity” with the National Party. The alternative political group was portrayed visually by disorganized rowers paddling in different directions.

    The ad was first shown at the party’s national conference in June, 2014, and then played on New Zealand radio and television for a ten day period in August, 2014. Once Eminem learned of it, his company wrote to the National Party objecting to the use. In due time it substituted another song.

    The music in the promotion was a “sound alike” track (a recording intended to imitate the sound of a popular record and yet be sufficiently distinct to avoid running afoul of the copyright laws) promoted as “Eminem Esque.” The advertising studio that created the ad was looking for something similar to Eminem’s song. Upon first seeing the ad, a campaign manager expressed concern about copyright issues. The studio team that created the ad assured the campaign manager that a license fee (cost for authorization to use copyrighted work) was paid to Eminem Esque through the appropriate Australian musical licensing groups. These are organizations that issue licenses to use copyrighted music. They also collect royalties, and distribute the money to the copyright owners.

    T he National Party argued that the song it used is different in composition from the Eminem original. To prove infringement a plaintiff must prove substantial similarity between the copyrighted song and the allegedly offending tune. To establish or disprove the necessary likeness, litigants often present experts, called musicologists, who are learned in aspects of music other than performance, such as musical theory or the physical nature of sound. The musicologist for the plaintiff will typically emphasize the similarities between the two works, while the expert for the defendant will focus on the differences. The jury or the judge in a bench trial will ultimately determine whether infringement has occurred.

    At the trial involving Lose Yourself, each side presented a musicologist. The court determined that Eminem Esque was close enough to the copyrighted piece that the sound alike version qualified as a copy. The verdict in favor of Eight Mile Style for $412,000 was calculated based on the anticipated cost of a license that would have been negotiated between a willing licensor and licensee. Interest was imposed from the date of the first infringement. Said Eight Mile High’s lawyer, “It’s a very strong judgment and a cautionary tale for people who make or use sound alikes around the world.”

    The National Party announced that, in turn, it will pursue legal action against the supplier and licensor of the Eminem Esque music.

    Damages could have been higher but the court determined that the party’s actions were not in “flagrant disregard” of the governing law, noting that the National Party had hired a professional media consultant firm which had constructed the ad. In the US, statutory damages (an alternative to compensatory damages used when actual damages are hard to prove) can be significantly enhanced by the court in cases of willful infringement. Additionally, willful copyright infringement can be a federal crime punishable by one year imprisonment and a fine up to $10,000.

    Eminem encouraged the music publisher to donate the proceeds to hurricane relief efforts.

    For more information, click here.

    DISCUSSION QUESTION:

    On what legal basis might the National Party sue the supplier of the Eminem Esque music?

  • The Disney Force Is Being Used Against Local Theaters Who Want to Show “The Last Jedi”

    Walt Disney is imposing some fairly stringent contractual requirements on theater owners who want to be able to run “Star Wars:  The Last Jedi.”  Here is a summary: 

    • Disney will receive 65% of the ticket revenue the theater brings in for the movie (normal percentage is 55%)
    • The movie must be shown in the owners’ largest auditorium
    • The movie must run for four weeks, minimum
    • The theater cannot show any other movie in the auditorium during the four-week period.

    If theater owners violate any of the provisions, which were originally to be kept secret but which were leaked to the press, then Disney’s revenue share increases to 70%.  

    Disney is a powerful studio in Hollywood, responsible for the films that resulted in 20% of all theater revenues for the past year. Theaters simply cannot afford to not run Disney movies.  For small-town theaters with a limited population base, the requirement that they run the movie for four weeks is onerous.  The limited population base means the market for the film is quickly exhausted.  Running beyond that base means no revenue for the theater owners. 

    However, the Star Wars “The Force Awakens” was the highest grossing domestic movie of all time. Erich Schwartzel, “Disney’s Force Awakens Against Local Movie Theaters,” Wall Street Journal, November 2, 2017, p. A1. With that precedent, as well as the 5% drop in theater revenues for the year, the owners are left without options. The bigger theater chains, such as AMC, are happy to embrace the terms because they feel the Disney movie is a “a gift from heaven.”

    The contract terms are offered on a “take it or leave it basis.”  However, there is no duress involved.  The terms are difficult for some theaters, but other theaters embrace whatever terms Disney offers. There has been increasing tension between the Hollywood studios, such as Disney, and theater owners because of problems with films attracting audiences and the resulting decreases in revenue.  Some have speculated that perhaps the terms are a way for Disney to work with the larger theaters to lessen competition.  Chains such as AMC can afford the terms, but single-theater sites and smaller chains cannot. Deals such as this could drive the smaller theaters out of business or make them ripe for acquisition. 

    That lessening of competition in the vertical distribution market could be an antitrust concern.  There have been over 2200 antitrust cases challenging the terms that movie studios and distributors have imposed on theaters and theater chains.  For example, there was a time when movies were shown only in

    downtown urban theaters with theaters in the suburbs unable to attain the first-run films for their auditoriums until after those movies had run their full course in the urban locations.  Other cases have involved challenges from smaller theater chains to the terms imposed on their showings with those of the larger chains.  Theater Enterprises, Inc. v. Paramount Film Distributing Corp., 72 S.Ct. 257 (1954). The Supreme Court has held any conspiracy to limit competition through showing terms in theaters violates the Sherman Act. Using the terms to gain a monopoly is not market share gained through legitimate competition. 

    The line of cases illustrates that the use of contract terms for theaters has been a mechanism that has affected smaller theaters as opposed to larger chains. In this situation, Disney has not been working with any distributors or chains but has imposed its demanding terms on all theaters. The impact may be, however, to reduce availability of the film and competition.

    DISCUSSION STARTERS 

    Explain the Disney terms for theaters.

    What legal issues exist?

  • President Trump’s Prior Campaign Chair and Associate Are Indicted

                     

    President Trump’s former campaign chair Paul Manafort (resigned in August, 2016), and Manafort’s campaign deputy and former business partner Rick Gates, have been indicted. The charges are an outcome of the investigation into possible campaign collusion with Russialed by special counsel Robert Mueller. The indictment was unsealed on Monday.

    An indictment is a formal accusation of a crime issued by a grand jury, a body of up to 23 people (the number varies by state) that determines NOT whether a defendant is guilty or not guilty, but rather, whether probable cause exists to justify an arrest. An indictment may be sealed, meaning kept secret, until it is unsealed by a judge or prosecutor . Indictments are sometimes sealed until the suspect is apprehended.   Arrest of the suspect may be easier if he is unaware police are on his trail.

    The charges against Manfort and Gates do not involve their work for the Trump campaign but instead relate to their financial dealings. Mueller was appointed by the Justice Department and was given authority to investigate not only potential collusion between Trump’s campaign and Russia, but also any related matters that surface from the probe.

    Some of the charges against Manafort and Gates include conspiracy against the United States and money laundering. The conspiracy charge is a common charge in tax cases and consists of two or more defendants working together to defraud the country by, in the words of the statute, “impeding, impairing, obstructing and defeating the lawful governmental functions of a government agency."  In this case, the relevant agencies are the Department of Justice and the Department of Treasury.   Manafort and Gates are suspected to have sent tens of millions of dollars in income to offshore (foreign) accounts and not reporting that income on their tax return. Manafort allegedly used the money to enjoy a “lavish lifestyle” in the US, without paying taxes on that income. When questioned about these activities by investigators, both men allegedly responded with a series of false and misleading statements.

    Money laundering is a way to disguise the origin of money obtained through criminal activity. To avoid suspicion for inexplicably having large sums of money, defendants typically open a small business and represent the illegally-obtained money as profits from that enterprise.

    Other charges against Manafort and Gates include acting as an unregistered agent of a foreign principal, misleading the government about the nature of their foreign lobbying work, making false statements relating to foreign agent registration, and failing to file required documents for maintaining foreign financial accounts.

    The Foreign Agents Registration Act, a federal law enacted in 1938, contains disclosure requirements that apply to people acting as agents of foreign principals in a political or quasi-political capacity. Such agents are required to make periodic public disclosure of their relationship with the foreign principal, and also report activities, money received, and disbursements in support of that relationship.

    Per the indictment, Manafort and Gates acted as agents of the Government of Ukraine and of the Opposition Bloc, a Ukrainian political party created in 2012. Manafort’s and Gates’ work generated tens of millions of dollars of income for them. Failing to report these activities facilitated their ability to hide the money.

    Some legal commentators suggest that Mueller’s strategy for issuing an indictment against Manafort and Gates is to “flip” them. According to this hypothesis, Mueller would use the indictment as leverage to convince one or both to become an informant about the Trump campaign. Per this theory, Mueller would offer them leniency such as dropping some of the charges, recommending lesser penalties, or maybe even providing immunity ( freedom from prosecution) if they aid in the investigation. This is a typical strategy used by prosecutors when additional evidence is needed against a more culpable suspect, or would aid a case. An offer of lenience may be quite appealing because both face significant jail time: Manafort, 80 years, and Gates, 70 years.

    This same strategy was likely used to convince George Papadopolous, a former Trump foreign policy adviser, to plead guilty recently to lying to the FBI during its investigation of possible collusion between the Trump campaign and the Russians. Papadopolous has presumably provided information to Mueller.

    For more  information, click here.

    DISCUSSION QUESTION:

    What is the likelihood that Manafort or Gates might flip?

  • TripAdvisor and the Mexican Riviera Guest Injuries and Ilnesses

    It was in July 2017 that the news came from the Mexican Riviera (Cancun and Playa del Carmen) that something was wrong with the alcohol being served at the resorts. The stories of the tainted alcohol spread like wild fire. U.S. tourists staying at all-inclusive resorts in the area where experiencing sickness, blackouts, and, in some cases, injuries and robberies, after consuming alcoholic beverages at the resorts. The U.S. State Department issued warnings about kidnapping, robberies, and physical injuries.  In some cases, deaths resulted.  For example, a college student traveling with her parents was found face down in the resort swimming pool after having two drinks.  She was in a coma when she was flown back to the United States and subsequently died after being taken off life support.

    During this time, there were posts on the website TripAdvisor.  When one user asked whether she and her husband should be worried about an upcoming trip to the Mexican Riviera, she received 55 replies, but was only able to read 28 of them.  Those 28 were positive or only revealed information such as the pools being only 4.3 deep. The remaining 27 posts had been removed by TripAdvisor as “inappropriate” or “off topic.” 

    The Milwaukee Journal Sentinel conducted an investigation and asked TripAdvisor if its reporters could view the deleted posts and TripAdvisor refused.  Raquel Rutledge and Andrew Mollica, “Tourists:  TripAdvisor Blocked Warnings,” USA Today, November 2, 2017, p. 1A. You can read the full story on the investigation here. One guest from Phoenix who had written that she stayed at one of the resorts and blacked out after one drink had her review removed.

    The investigation revealed that certain “non-employees” have the authority to remove reviews from the TripAdvisor site. The investigation also revealed the17% of the posts related to alcohol and Mexico were deleted vs. an overall site deletion average of 2% deletions.  User posts about rapes at the resort have been deleted as violations of the site’s “family friendly” requirement for posts. 

     TripAdvisor responded by explaining a new system it will introduce that will direct users to news articles about issues and problems at vacation areas and hotels.

     In 2017, the Mexican Federal Commission for Protection Against Health Risk issued its report that indicated it had seized more then 1.4 million gallons of adulterated alcohol from small restaurants in the area as well as from the large hotels. The alcohol was infused with grain alcohol and methanol, components that caused blackouts.  You can read the English version here.

    In the United States, merchants who sell food and beverages (restaurants, hotels) are liable under the UCC under the implied warranty of fitness for a particular purpose, a protection against foreign matter in foods, problems with contamination, etc.  The physical types of crimes would be covered under the invitee standard of liability for landowners.  Under that highest duty, hotels and other businesses have a duty to warn guests about hazards and take steps to eliminate the risks that they know about or should have known about.

    In Mexico, injured guests struggle with filing police reports and follow-up investigations tend to be incomplete.  Some former guests have had to hire legal counsel in Mexico to obtain information about the hotels and incidents in which they were injured.  In short, it is difficult to make legal claims for injuries there.

    DISCUSSION STARTERS

    What laws would determine liability of the resorts if these events had occurred at a U.S. resort?

    What obstacles are there to recovery in Mexico?

  • $417 Million Verdict in Talc Powder Ovarian Cancer Case Negated by Judgment NOV

                  

     

    Eva Echeverria won a verdict of $417 million against Johnson & Johnson in August, 2017.   She had used the company’s baby powder daily in her genital area for more than 50 years beginning when she was age 11. In 2007 she was diagnosed with ovarian cancer. Her lawsuit claimed the company did not adequately warn consumers about talcum powder’s potential cancer risks although it knew of them for three decades. A California judge has now granted a judgment NOV (reversed the jury’s verdict because of insufficient evidence to support it), and granted plaintiff a new trial.

    When a product causes potential health risks and the manufacturer knows or should know of those hazards, a duty arises for the manufacturer to warn of those perils. In this case, plaintiff needed to prove that the talc was more likely than not the cause of her ovarian cancer, and that Johnson & Johnson knew or should have known that talc probably would cause cancer.

    Talc is widely used in cosmetics and personal care products to absorb moisture, prevent caking, and reduce friction. Its link to cancer is inconclusive. The World Health Organization classifies genital use of talcum-based body power as “possibly carcinogenic to humans.” The American Cancer Society (ACS) says more research is needed. The ACS reports that research examining a possible link between talcum powder and ovarian cancer is mixed, with some studies showing a slightly increased risk in women who used the product in their genital areas while other studies found no increased risk. The Federal Food and Drug Administration, the federal agency charged with minimizing risks associated with medical products among others, has been urged to require manufacturers of talc powders to warn of a potential link to ovarian cancer. However, it has declined to do so.

    The jury’s award included $68 million for compensatory damages (an amount of money designated to reimburse plaintiff for losses caused by the defendant) and $340 million for punitive damages (money in excess of compensatory damages awarded only when a jury determines defendant acted with malice, meaning a willful and conscious disregard of the rights and safety of others).

    In reversing the verdict, the judge determined that the evidence was insufficient to prove the necessary link between talc and cancer, and therefore insufficient to determine that Johnson & Johnson knew or should have known that talc was a probable cause of cancer. Thus, no duty to warn existed. Said the court, “. . . the best that can be said is that there was (and is) an on-going debate in the scientific and medical community about whether talc more probably than not causes ovarian cancer . . . .”

    A Johnson & Johnson spokesperson said that the company sympathizes with women suffering from ovarian cancer but “. . . it is not caused by the cosmetic-grade talc we have used in Johnson’s Baby Powder for decades. The science is clear and we will continue to defend the safety of Johnson’s Baby Powder. “

    The court noted that, if causation is proved on retrial, a $2 million compensatory award to plaintiff would be justified based on the following. Due to the cancer, Echeverria underwent surgery and multiple rounds of chemotherapy, including clinical trials, and “endured their side effects for ten years” including complications and multiple hospitalizations. She had pain from tumors that developed since her surgery. She was hospitalized with sepsis, a serious condition resulting from an infection, and can lead to death. She feared death and experienced great sadness at the potential of not seeing her young grandson grow up. Her 16 year old daughter took on the responsibility for plaintiff’s care, necessitating a delayed her high school graduation.. This too caused plaintiff much sorrow.

    While civil actions typically take numerous years to complete, Echevarria was given an expedited trial (preference in court scheduling) due to her medical situation and expected death.

    More than 1,000 similar cases have been filed. Many are still pending. Of the completed cases, some plaintiffs won tens of millions of dollars, some won much lower amounts, and other cases have been rejected by judges who, like the trial judge in Echeverria’s case, ruled that the plaintiffs’ lawyers did not present sufficient evidence linking talc to ovarian cancer.

    For more information see Echeverria v. Johnson & Johnson et al, 2017 WL 4780572 (Ca. Super., 2017).

    DISCUSSION QUESTIONS:

    1. Under what circumstances should a judge grant a judgment NOV? Under what circumstances should such a judgment not be granted?

    2. What additional evidence would plaintiff need to prove her case at a retrial?

    3. What factors might have led to the varying outcomes in cases seeking recovery for ovarian cancer allegedly caused by talc powder?

    4. How might the varied outcomes impact Johnson and Johnson’s willingness to settle the remaining cases?

  • BMW Offices Raided by EU Authority: Alleged Conspiracy Among German Automakers

    European antitrust authorities conducted a raid of BMW’s office in Frankfurt as part of an investigation into whether BMW, Volkswagen, Porsche, and Mercedes (Daimler) conspired in order to keep prices for technology low, and the focus is on emissions equipment.  Following the raid, BMW issued an interesting statement:

     “The BMW Group wishes to make clear the distinction between potential violations of antitrust law on the one hand and illegal manipulation of exhaust gas treatment on the other hand. The BMW Group has never been accused of the latter.”

     Meanwhile, Daimler has offered to provide EU authorities with evidence about the suspected conspiracy in return for lower penalties. The EU reduces company fines if they volunteer information.  The EU began its investigation following a tip from Daimler or VW.  There are conflicting reports on who went first to EU authorities.  Coming forward first would result in a substantial reduction in any penalties. Daimlers’ union leaders and workers have urged the company to come forward since the allegations emerged last week. Jack Ewing, "Raid at BMW Is Linked to Inquiry on Collusion," New York Times, October 21, 2017, p. B2

     The carmakers have met regularly and the EU authorities suspect that the carmakers may have agreed to limit competition in certain areas, such as in the effectiveness of emissions control systems.  Experts believe that the ability to make a clean diesel was a challenge and that no one company making progress would benefit all of the car companies.  There would be no competitive edge on emissions.

     While EU antitrust laws are more wide-ranging than those in the United States, it would be a violation of the Sherman Act in the United States for car companies to meet together with the goal of limiting areas of competition in the sale of their vehicles. For example, the use of cheaper components in a vehicle that would save money but not reduce emissions is part of what the EU is investigating.  The allegations are that the automakers met together to coordinate technology on brakes and transmissions in addition to emissions equipment.

     DISCUSSION STARTERS

     Explain what the automakers are alleged to have done.

    How would their actions affect competition?

    Would these types of actions violate U.S. antitrust laws?