• Nondisclosure Clauses in Sexual Harassment Suits: An Olympic Gymnast and Fox News Producer and Host File Suit to Void the Clauses

    All three of the women settled sexual harassment suits that they had brought against men who were working with them.  All three of them had nondisclosure clauses in their settlements.  However, the three women, McKalya Maroney, a gold and silver women's gymnastics Olympian, Andrea Mackris, a former Fox News producer, and Rebecca Gomez Diamond, a former Fox Business host, are currently in litigation that has made very public their settlements with men who they say sexually harassed them.

    In the case of Ms. Maroney, she received a $1.25 million settlement from USA Gymnastics for years of alleged sexual abuse by the national team's doctor, Larry Nassar.  Ms. Maroney was represented by Gloria Allred, and, according to lawyers for the USA Gymnastics organization,it was Ms. Allred who requested a nondisclosure clause in the settlement agreement.  Under the terms of that clause, Ms. Maroney, she was prohibited from discussing the settlement and/or disparaging the organization or Dr. Nassar.  However, Ms. Maroney has used her Twitter account to disclose that Dr. Nassar began his abuse when she was 13 years old when she first joined the national Olympic team and continued until she left the sport in 2013.  She also alleged that Dr. Nassar abused her on the night that she won her Gold Medal in the London Olympics in 2012.  Dr. Nassar was the team physician for 25 years and attended 4 Olympics. 

    The basis of her suit is that such nondisclosure clauses are prohibited under California law.  The clauses are not valid in civili litigation settlements when the underlying conduct for the settlement could be prosecuted as a felony.  Rebecca Davis O'Brien, "Maroney, USA Gymnastics Had Confidential Agreement," Wall Street Journal, December 21, 2017, p. A14.  Dr. Nassar pleaded guilty to federal child pornography charges in July 2017 and was sentenced to 60 months in federal prison.  Dr. Nassar also entered a guilty plea to state charges of first degree sexual abuse. 

    Ms. Maroney has alleged that the USA Gymnastics organization was aware of the sexual abuse and took no steps to stop it. Also named in the suit as the US Olympic Committee and Michigan State, which employs Dr. Nassar. The suit alleges that these two organizations were also aware of the abuse but did not take steps to stop it.   Ms. Maroney is asking for damages as well as a release from the nondisclosure agreement. 

    Ms. Mackris and Ms. Diamond actually joined a suit that other Fox News employees had filed against Fox News as well as Bill O'Reilly, the former Fox News anchor. The suit requests a release for the women from their confidentiality and non-disparagement agreements that were part of their settlements with Mr. O'Reilly.  However, they also seeking an apology from Mr. O'Reilly and Rupert Murdoch, the head of the 21st Century Fox corporation for the statements they made alleging that their allegations about Mr. O'Reilly were false, which have resulted in damage to their reputations (defamation in that the statements made about them by Mr. Murdoch and Mr. O'Reilly were false and that both men (public figures) knew that they were false. Their damages are that their careers have suffered and that they have experienced emotional harm. For example, they suit alleges that Fox New's statements that no employee of Fox ever took advantage of the 21st Century Fox hotline to report the problems with harassment.  The two women said that they raised the complaints through their lawyers but that the corporation never undertook an investigation. They also seek releases from their nondisclosure and disparagement agreements. Emily Steel, "2 Women Who Settled With O'Reilly Over Harassment Sue for Defamation." New York Times, December 21, 2017, p. B3. 

    While nondisclosure and non-disparagement clauses are typical in settlement agreements, the concern in settlement of sexual harassment suits is that the lack of disclosure encourages a culture of fear and silence around reporting harassment nd abuse complaints. 

    DISCUSSION STARTERS

    Explain why these suits are different from sexual harassment suits.

    Discuss whether nondisclosure and non-disparagement clauses in settlements prevent further reviews of employee harassment. 

  • Speeding Leads to Lawsuits – Train Crash and Bus Rollover; Classic Negligence

                      

    On December 18, 2017 an Amtrak passenger train making its maiden run on a new route jumped the tracks on a highway overpass south of Tacoma, Washington. Three people were killed and approximately 100 injured, 70 of whom were taken to nearby hospitals. The train carried 77 passengers and seven crew members. Some of the people injured were in vehicles on the highway below the underpass. Their vehicles were hit by a falling train car which landed in the southbound lanes of Interstate 5. Five cars and two semi trucks were impacted. Two additional train cars were left precariously dangling from the overpass bridge. Others were thrust into the trees alongside the tracks.

    The accident occurred where the track curved onto a bridge above the expressway. Shortly before the accident a passenger posted a tweet referencing the train’s speed, “We are passing up traffic on I-5.”

    At a news briefing the National Transportation Safety Board (NTSB), a US government agency responsible for transportation accident investigation, reported that, at the time of the derailment, the train was travelling at 81.1 miles per hour (mph). This, despite the speed limit being substantially less at 30 mph.

    Passengers told of trying to shimmy out of windows despite broken glass, and using flashlight apps on cell phones to see in the darkened train cars. Some motorists on the highway helped pull passengers to safety. Others employed first aid kits kept in their cars. Governor Inslee of Washington declared a state of emergency, a situation in which a government is empowered to perform actions that would normally not be permitted. A government can declare a state of emergency only during a disaster, civil unrest or armed conflict.

    An investigation is underway by the NTSB and the Federal Railroad Administration, an agency within the US Department of Transportation that issues and enforces rail safety regulations, and conducts research and development for improved railroad safety.

    Numerous lawsuits are anticipated against Amtrak and others that might be found responsible. The basis will be, at least in part, negligence, failing to act as a reasonable person in the face of circumstances that can foreseeably cause injury. Exceeding a 30 mph zone by 50 miles per hour on a curve can forseeably cause loss of control of the train resulting in an accident and injury. Said Robert Gellatly, an attorney for the parents of a 26 year old passenger who suffered traumatic brain injury, “This is inexcusable. It was preventable and it never should have happened. Amtrak has shown an utter disregard for public safety.”

    Damages will include not only out-of-pocket economic loss (past and future medical expenses plus lost income from work), but also noneconomic damages such as pain and suffering, which includes physical pain and also emotional or mental injuries such as grief, worry, fear, and insomnia, plus loss of enjoyment of life, meaning a person’s inability to participate in the activities that were formerly enjoyed.

    The governor reported that Amtrak President and CEO Richard Anderson promised that the company “will pay for the costs of the derailment including all the medical and incidental expenses incurred by those injured and their families, the clean up and repair of the roadway, and the restoration of passenger rail service.” Of note is the Amtrak Reform and Accountability Act of 1997, a statute that provided federal revenue for the railroad, and included a liability cap of $200 million for rail passengers injured or killed in a single accident. The number was adjusted upward to $295 million in 2015, and is scheduled to increase again in 2020.

    One day after the train incident, on December 19th , a bus accident in Mexico killed 12 people including five Americans. The bus was en route to Mayan ruins in Costa Maya, a sightseeing destination. The passengers were on a day trip from two Royal Caribbean cruise ships.

    The cause of the accident has been attributed to excessive speed which caused the driver to lose control of the bus. When he tried to steer it back on the narrow highway, the bus flipped and struck a tree. Exacerbating the situation was the fact that the seat belts were tied below the seats, and the driver failed to advise the passengers that the belts were there or to use them.

    As with the train situation, lawsuits based on negligence are anticipated .

    For more information, click here.

    DISCUSSION QUESTION:

    If the evidence establishes that the train and bus were travelling significantly above the speed limit, how difficult will it be for the injured passengers to prove negligence?

  • Facebook: Class-Action Suit For Its Ads Targeting Younger Employees

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    Some of the nation's largest companies do their advertising for jobs on Facebook with indications that they want to reach the 18-38 age group.  T-Mobile stated so in its ads on Facebook.  Amazon also placed ads and put numbers on the ads telling Facebook to place the ads so that the company could reach "ages 22-40" or ages 18-50."  In one ad, T-Mobile included its specifications at"people between the ages of 18 and 38 who live in or recently visited the United States." Facebook let the ads go through, and the suit filed in San Francisco federal court alleges that the discovery of the targeted recruiting explains why so few job candidates over 40 ever had the opportunity to see the opportunities that some of the nation's largest employers had available.Jessica Guynn, "Facebook Ads Are Subject of Age Discrimination Suit," USA Today, December 22, 2017, p. 5B.  Cox Communications placed an age limit of 38 on who would be able to see its ads. You can read the complaint here. The suit was brought by the Communications Workers of America Union and include three individual plaintiffs.  The lawyers for the plaintiffs are seeking class-action status for the suit. 

    The employers were availing themselves of the opportunity to use Facebook's microtargeting skills, something that allows the social media page to better direct ads to those who are most likely to fit the companies' desired age ranges. However, with mircotargeting the result is that many looking for work in the age brackets excluded do not have the opportunity to know of job availability. However as the complaint notes, Facebook users who were not within the groups to whom Facebook sent the messages, those above the age range would not have been given the opportunity to apply for the jobs. 

    Under the Age in Discrimination Act(ADEA), it is unlawful for employers to discriminate on the basis of age for any applicant over the age of 40. Many companies place ads in other forms of advertising hoping to reach target candidates for jobs. The placement of the ads itself would not be a violation of ADEA.  However, putting limited numbers on the ads, as the plaintiffs cite in their suit, would be a violation of ADEA.

    Amazon recently did a study on its ads and has removed the age-range specifications in order to be consistent with its internal policy of allowing all recruiting ads to reach those over the age of 18. Facebook is not named in the suit, but Amazon, Cox, and T-Mobile are along with employment agencies. 

    DISCUSSION STARTERS

    Explain what the companies were doing in placing ads with Facebook.

    Can employers target certain audiences in recruiting without violating the ADEA?

  • Burger King Franchisee Violates Child Labor Laws; Pays $250,000

                   

    A Burger King franchisee, Texas-based Northeast Foods, LLC, has settled charges of child labor law violations by paying $250,000. Additionally, the company has agreed to update its practices to ensure compliance. The Massachusetts Attorney General had accused the franchisee of 843 violations. The company owns 43 Burger King outlets in Massachusetts and more than 500 nationwide, making it the second-largest Burger King franchisee in the country. Additionally, the company owns many Popeye franchise eateries plus additional restaurants. The company’s primary owner was named one of the most powerful people in the food service industry in 2017 by Nation’s Restaurant News, an influential publication in the industry.

    The violations included allowing 16 and 17 year old employees to work too many hours in a day, too late at night, and without work permits. The claims implicated 30 of Northeast Foods’ Massachusetts locations.

    Said the Attorney General, “Many fast food employees are young, working their first jobs, and do not know their rights. It is important that this major national Burger King franchisee, which employs a number of young people, complies with child labor laws and ensures that minors are safe in its restaurants.”

    Child labor laws are designed to prevent work from interfering with school, and prohibit work assignments that may be detrimental to the health and safety of young employees.

    The federal government has applicable laws as does virtually every state. Unlike many state laws, federal regulations do not require work permits. The federal permissible number of hours for employees under age 16 to work on school days is limited to three a day and 18 per week, and only between 7:00 a.m. and 7:00 p.m. During summer or a school vacation, a person under 16 can work eight hours a day and 40 hours a week. If the young employee works in two or more places on the same day or in the same week, the total time cannot exceed the daily or weekly maximum. Federal law has no restrictions on the working hours of 16 and 17 years old.

    Certain tasks and occupations are viewed by the federal government and most states as too dangerous for folks under 18 and so are prohibited. These include operating meat slicers and all power equipment, car deliveries, slaughtering and meat packing, roofing, excavation, firefighting, use of explosives, and more. Additional tasks are prohibited for 14 and 15 year olds but not 16 and 17 year olds. A representative list of these include driving a vehicle, cooking and baking, loading and unloading trucks, house-to-house sales, and use of ladders and scaffolding.

    These federal laws for young workers are embodied in the Fair Labor Standards Act.

    Massachusetts child labor laws have a few variations. The state requires that workers under the age of 18 have a work permit. Employees who are 16 and 17 years old can work nine hours a day and through 10:00 p.m. on school nights. Those who are 15 and 16 years old must, like federal law, clock out by 7:00p.m. and are limited to three hours on school days.   

    The Attorney General’s investigation into the Burger King franchisee began with a single complaint about a young employee working too late at one location. A six month investigation followed, leading to the 843 charges.

    The 2016 restaurant franchise revenues for Northeast Foods’ parent company totaled $1.1 billion, one of only three restaurant franchisee groups to top the billion-dollar mark. The group also operates almost 200 convenience stores, bringing its total revenues above $2 billion.

    For further information, click here.

    DISCUSSION QUESTION:

    What steps might the Burger King franchisee take to avoid violations of the child labor laws?

     

  • Walmart’s Shoplifter Deferral Program: No Charges Pressed, For a Fee

    If you are a first-time shoplifter caught at Walmart, you have a choice.  You can pay about $400, complete an education program, and, in exchange, upon completion and payment, Walmart will not refer your case for prosecution.

     

    There has been high raise for these deferral programs run by private firms, Corrective Education Company and Turning Point Justice.  The programs have a high success rate, meaning that those who complete the programs are not likely to shoplift again. Joe Palazzolo and Sarah Nassauer, “Firms Charge Shoplifters Fee to Avoid Prosecution,” Wall Street Journal, December 22, 2017, p. A3.

    However, a California court held that the program violates California’s anti-extortion laws.  The court held that only programs administered in conjunction with prosecutors would not be extortion. The court issued an injunction against Corrective Education from operating in San Francisco.   Any involvement with private companies and payments would turn the programs into extortion.  As a result, the San Francisco City Attorney was working with Corrective Education and retailers in order to allow the company to continue operating in the city. About 20% of Corrective Education’s business is done in California.  Government officials support the Corrective Education program both because it is effective  (90% of the accused shoplifters opt for the program and only 2% who complete the program shoplift again) and also because it reduces the number of shoplifting calls that come from retailers to police, freeing up police officers for other work. 

    When a retailer catches a shoplifter, the retailer can detain the shoplifter, but the standard for behavior requires that the retailers act reasonably.  Resistance, time, and possible physical contact find retailers involving the police in order to avoid the loss of the shopkeeper’s privilege that protects them from liability to shoplifters for false imprisonment and defamation and, perhaps, exceeding reasonable force to detain them. The shopkeeper’s privilege protects retailers from those torts as long as they act reasonably when they catch a shoplifter.  The private diversion programs cut down on resistance and gave the accused the chance for a clean record as long as they completed the program. About 90% of accused shoplifters take the diversion program when it is offered.

    Because of the legal questions the California decision raises, Walmart has suspended use of the diversion programs. Some states have bills pending that would make the use of what they call a private justice system illegal in their states. Retailers do receive $50-$75 in restitution from the fees the accused shoplifter pays to the private company.

    Corrective Education began after two Harvard Business School graduates heard the story of a recently promoted solider who was caught shoplifting at a sporting goods store. A friend of the two who was in charge of the loss prevention at the store explain that the soldier’s mother begged the store not to report the theft because it would ruin his military career.  However, the store had learned that letting the shoplifters go only resulted in more shoplifting.  Corrective Education was created as a solution to help the store and the accused and is used by many retailers, including Burlington Coat Factory.

    DISCUSSION STARTERS

    Explain how a program would have to be structured in order for the California court to find that the Walmart program is not extortion.

    Discuss the rights of merchants in dealing with shoplifters.

  • Porch Pirates: The Law Is Catching Up With Them

    Porch pirates are those thieves who take packages delivered by Amazon, FedEx, UPS, and the United States Post Office (USPS) to the doorsteps of online shoppers.  Some of the pirates simply follow the trucks of these services and then nab the packages after the driver has deposited them and left.

    The field is fertile because this Christmas season will bring 750 million home deliveries, up from 500 million five years ago.  While the technology of Ring and other home protection programs have been of some help, law enforcement is working to deter the pirates. 

    Seattle launched a sting operation in cooperation with the selling companies and delivery services.  Packages with tempting goods (mostly electronic) have tracking devices.  The police are then able to track the package from the moment it is picked up from the doorstep.  In one of these sting packages, the thief figured out that the package had a tracking device, so he put the tracking device in his microwave in order to stop the signals.  The microwave effort did not work.  The thief was not only charged with taking the package (with $500 worth of equipment, thus putting the crime into felony territory), but also with evidence tampering.  Nick Wingfield, “Gifts Vanish From Doorsteps.  Can the Police Deliver Justice,”  New York Times, December 20, 2017, p. A1.

    Other programs include placing plain-clothes officers in bait cars to observe neighborhood activities and catch thieves in the act of theft. This method requires manpower that police forces may not have, particularly during the holidays with significant resources required for stopping DUIs, domestic violence, and other forms of theft. 

    Until such programs are more widely used, neighbors have been using self-help methods.  Some neighborhoods have vigilantes, neighbors who are able to be at home and observe.  When they see something being taken from his neighbors’ doorsteps, he confronts the thief.  He has stopped 12 thefts in the last four years.

    Google’s Nest and Ring make it possible for the homeowners to capture the thieves on video, but these methods require matching the video with someone and then finding them, or vice versa. 

    For the merchants, the Uniform Commercial Code comes into play.  The question of who bears the loss is an interesting one.  In delivery contracts of consumer goods, risk of loss passes when the goods are tendered to the buyer (which the buyer receives when the goods are deposited on the doorstep and the buyer is notified of tender.  That last part is the tricky part because the packages are just delivered without notice unless the seller has developed an electronic means of notification at the time the goods are tendered on the doorstep.  With that notification, the risk of loss passes to the buyer. However, most merchants do replace goods stolen from buyers’ doorsteps.

    Another protection for sellers is to require physical, in-hand delivery.  However, this method requires more time on routes and scheduling with customers in advance to avoid double trips or lines at the delivery company’s hub for pick-up by the buyers who missed delivery. 

    The solution may be a combination of all of these efforts on the parts of sellers, buyers, and law enforcement in order to deter the pirates.  However, the sheer numbers are requiring changes in order to reduce doorstep theft.

    DISCUSSION STARTERS

    Describe the risk of loss issues in doorstep delivery.

    Discuss the efforts of law enforcement in stopping doorstep pirates.

  • Does a Seller Have to Disclose Flood Hazards to a Buyer? What About Paranormal Activity?

    There is a difference between a floodplain and a floodway.  Many people buy houses that are in 100-year floodplains.  They are comfortable believing that they will be flood-free, unless they go beyond centenarian status.  However, there is also the risk of a floodway.  A floodway means that runoff from rain storms runs through your property regularly.  The hurricanes in the summer of 2017 in Texas, Florida, and Puerto Rico showed vividly what rain runoff can do to properties, cities, and countries.

     Disclosure about flooding on properties is not covered by an federal statute.  These types of disclosures, from events on the property (such as crimes and murders – see below) are covered by state laws.  The laws vary significantly from state-to-state.  For example,

    The floodplain designation is a factor in insuring the property.  Floodway is an additional risk. Many buyers do not know of the floodway risk until they are closing on the property and the lender informs them that they must carry additional insurance. In those states, the disclosure by the seller is not required. New York requires only disclosures about standing water on the property.  However, there is the other end of the spectrum with North Carolina requiring a specific disclosure form on floodplains, floodways, and flood zones.

    There is a bill that has been passed in the House at the federal level that would require sellers to make full flood disclosures (of all kinds) by 2022.  In addition, buyers would be able to search Federal Emergency Management Agency (FEMA) to determine whether there had been claims filed for flood damage on the property.  The bill awaits Senate action.

     Here are the six areas Forbes magazine notes as the type of disclosures state law covers:

     Lead paint

    1. Paranormal activity
    2. Emotional defects (death on the property)
    3. Pests
    4. Property drainage issues (basements)
    5. Boundary disputes with neighbors

    Add to this list the following:

    7. Mold

    8. Radon

    9. Termite treatments

    10. Roof leaks

    11. Foundation cracks

    12. Water damage

    13. Toxic materials on the property

    14. Nearby hazards

    15. Property improvements (and if a permit was issued)

    16. Square footage (accurate)

    17. Accuracy on the number of bedrooms

    18. Sex offenders

    19. Noisy neighbors

    20. Homeowner association fees and rules

    21. Plumbing, electric, heating and AC problems

    22. Window leaks

    Some states follow a philosophy of caveat emptor, which is “let the buyer beware.”  For example, in Massachusetts, unless a buyer specifically asks about a type of property issue or risk, the seller is not required to make disclosures. On the other side of the country, California has a checklist form for sellers to use and sign certifying what is and what is not a risk for the property. Most states are in between, with some topical types of disclosures and then a common law approach to other risks.  That is, if the buyer specifically asks about a risk issue on the property, the seller cannot withhold information because that would constitute silent misrepresentation.

    When in doubt, disclosure is the best way for sellers to protect themselves in a sale.  For buyers, the best way is a pre-closing home inspection that will look at many of the 22 issues listed above.

    DISCUSSION STARTERS

    Explain what level of law covers disclosures about property.

    Explain what happens if the buyer asks about something that does not require disclosure.

  • Temp Agency Employees Are Part of a Company’s Union Ballot: The NLRB vs. Congress

    DC Circuit Considers NLRB’s Browning-Ferris Decision (with Laura Monaco) from Epstein Becker Green on Vimeo.

    Browning-Ferris Industries (BFI) of California is a waste management firm with about 60 employees. BFI contracted with Leadpoint to supply temporary employees for the sorting and cleaning of recyclable waste.  About 240 full-time and part-time employees of Leadpoint worked at BFI facilities. The National Labor Relations Board (NLRB) had long held that employers such as Browning-Ferris are only responsible for employees under their direct control, not those who were the employees of their contractors or franchisees.  Under this “direct control” standard, unionization could occur only through the vote of employees at BFI.  BFI had its own union and the Leadpoint employees were not part of the BFI union.  Under this standard, BFI was not a joint employer of Leadpoint employees.

    However, the employees of Leadpoint and BFI sought to combine into one collective bargaining unit, and in 2015, the NLRB, by a 3-2 decision changed “direct control” to “indirect control.”  The result of the decision was that construction firms that use contractors, tech firms that set social responsibility practices for their contractors, and corporations that provide support for franchisees would now be subject to unionization efforts that combined the employees of contractors with their own full-time, on-site employees. The effect would be that employees of contractors and franchisees could now bring in the contracting corporations into labor disputes. 

    The dissent in the decision emphasized that the NLRB should follow the principles of common law in determining direct vs. indirect control.  In the dissent’s view, BFI set the hours for facilities operations, and Leadpoint had to staff those hours, but BFI did not control Leadpoint employees’ work hours, compensation, vacation time, or even discipline.  If there were problems with the work of Leadpoint employees, BFI contacted Leadpoint and Leadpoint took care of the employee issues.

    With the election of President Trump, there is a new Secretary of Labor (Alexander Acosta) and the NLRB has withdrawn the BFI decision. Hy-Brand Industrial Contractors:

    Accordingly, under the pre–Browning Ferris standard restored today, proof of indirect control, contractually-reserved control that has never been exercised, or control that is limited and routine will not be sufficient to establish a joint-employer relationship.  The Board majority (3-2) concluded that the reinstated standard adheres to the common law and is supported by the NLRA’s policy of promoting stability and predictability in bargaining relationships. 

    In addition, the House has passed a bill that defines ”direct control” as that of the common law standard for independent contractors vs. employees. The bill is now in the Senate.  The legislation is needed to make the reversal of BFI permanent because it clarifies congressional intent on the statutes the NLRB has been interpreting.  Without statutory clarification, a change in administrations would mean that the “indirect control” standard could, once again, be the law via regulatory decision. The change is one supported by small businesses that found themselves being dragged into labor disputes because of their vendor and service contracts.    

    DISCUSSION STARTERS 

    Explain the direct vs. indirect control standard.

    Explain the administrative law process for implementation of the rule and the effect of possible congressional legislation.

  • Manslaughter Charges Result from Oakland Warehouse Fire; Relationship between Negligence and Criminal Law

     

    Two people have just been charged with involuntary manslaughter for their alleged roles in a warehouse fire in Oakland, California that killed 36 people in December, 2016. Both have been arrested and pleaded not guilty. The victims ranged in age from 17-61.

    The warehouse, known as the “Ghost Ship,” was approved for warehouse use only. Instead, it had been illegally converted into living space and used as an artists’ collective without the necessary permits. One of the tenants reported that he was one of 15-25 people who lived there at any given time. His rent was $565/month.

    The two arrested were Derick Almena, an artist known as the collective’s “master tenant” who did the work to modify the building and Max Harris, who identified himself as the executive director.  He collected rents and assigned duties.. Each face 36 counts of involuntary manslaughter, one for each person who succumbed to the fire. Both defendants could face up to 39 years in prison.

    The Oakland District Attorney accused the two men of “knowingly creating a firetrap with inadequate means of escape, and then filling the area with human beings. . . “

    A party was in progress when the fire occurred and the warehouse was occupied by about 50 party-goers. The building was jammed with flammable objects including yards of bright textiles hung from the ceiling and draped across the walls, cluttered tables, old furniture, many pianos, religious statues, velvet cushions, hanging lamps, rugs upon rugs upon rugs piled on the floor, replicas of human skulls, and other items. Some described the interior as appearing like an antique store or temple. One of the attendees described the place as a “tinderbox”.   Neighbors had complained about debris and illegal construction at the site. Said one neighbor, “The place is just a mess. Garbage and debris outside, huge amount of debris. It is like a garbage field there.” A city inspector had responded but was unable to gain entry. The investigation was ongoing.

    The building had no fire sprinklers or other fire suppression systems. The deceased were trapped inside. One of the two exits from the building’s second floor, where many party-goers were located, was blocked. A window was obscured from view by a projection screen. The building itself was unstable. Firefighters and structural engineers spent much of the first day following the fire shoring up the structure so entry to the building to recover bodies could be done safely.

    In California, involuntary manslaughter involves killing another person unintentionally while acting with criminal negligence. This latter term means more than just ordinary carelessness, inattention, or mistake in judgment. It requires reckless action (thoughtless, hasty, hotheaded) that creates a high risk of either death or great bodily injury, in a circumstance where a reasonable person would have known that acting in that way would create such a risk. The accusation is that Almena and Harris were criminally negligent by inviting large numbers of people to the Ghost Ship knowing that the premises constituted a significant fire hazard and an exit was blocked.

    For more information, click here.

    DISCUSSION QUESTION:

    Given that negligence is a tort and not a crime, what justifies gross negligence being treated as criminal?

  • What If the Interviewer Asks How Much You Make At Your Current Job?

    Four states (California, Delaware, Massachusetts, and Oregon), two cities (Philadelphia and New York), and Puerto Rico have laws that prohibit employers from asking those they are interviewing what their current salary is.  There is a bill in congress that would ban salary questions on a federal basis. The stated purpose of the prohibition is to allow for correction of salary disparities.  Women and minorities would bring wage disparities to their next jobs. 

    According to the Wall Street Journal, the issue of gender pay disparity is not the problem it is believed to be.  A study by the Labor Department of 23,734 federal contractors found pay discrimination in only 0.5% of the companies. Gerald Skoning, “When It’s Illegal to Ask, ‘How Much Do You Make?’” Wall Street Journal, December 13, 2017, p. A14.

    In addition, there is existing federal law that can be used to stop employer wage discrimination.  The Equal Pay Act and an Executive Order that applies to federal contractors prohibits wage discrimination on, among other things, the basis of gender. The Department of Labor continues its enforcement efforts, with one of the latest being Alphabet (Google’s parent company).  In a compliance audit, the Department of Labor found wage disparity, which Google disputes, and which the Department believes requires a fine and penalty. 

    There are already suits filed challenging the laws on the basis that they are infringement of employers’ free speech rights. The laws are so new that the court cases have not made their way through the judicial system to create any precedent. 

    Other experts maintain that the best way to check for discrimination is to determine who is promoted within a company, not the salary at which they entered the company.

    Some companies have created what they call “public salaries.”  They offer to pay an amount determined by the type of location, location of the job, and what others in the industry pay.  This approach eliminates simply carrying over a previous salary.

    DISCUSSION STARTERS

    Explain why states and cities are passing “no salary questions” laws.

    Discuss what happens if salary is discussed and what happens if it is not discussed.

  • The Waymo (Google) v. Uber Trial: Postponed Because the Judge Has Never Seen Anything Like It

    On the eve of the trial for the dispute between Google’s driverless car unit (Waymo) and Uber, the federal government turned over a 37-page letter from a former lawyer at Uber to Uber management.  The federal government found the letter as part of a criminal investigation it is conducting of Uber. The letter detailed a team Uber had created to steal trade secrets.  The letter also explained how the team had dedicated experts to help them avoid detection by regulators.  There are descriptions of e-mail destruction and devices that stored information outside Uber servers so that their activities would not surface in litigation discovery processes. The goal, according to the letter,”was to prevent Uber’s unlawful schemes from seeing the light of day.” Greg Bensinger, “Uber Formed Covert Unit to Steal Trade Secrets,” Wall Street Journal, November 29, 2017, p. A1. 

    The letter was written by Ric Jacobs, a former member of Uber’s security team, and was sent to Uber management earlier this year.  However, the letter was never turned over during the discovery process. Mr. Jacobs left Uber in April 2017, and the company reached a $4.5 million settlement with him later.

    Federal District Court Judge William Alsup said that he had to postpone the trial because even if one-half of what was written in the letter was true, that it would be an injustice to require Waymo to proceed without further time to process the contents of the letter. When Judge Alsup read the letter in the court room, everyone was silent, taken aback by the allegations.

    Uber explained that the letter was written for purposes of obtaining a settlement.  Mr. Jacobs did testify on the stand and distanced himself from some parts of the letter, explaining that his lawyer wrote the letter.

    Discovery requests in civil litigation are broad and often require parties to turn over all e-mails, correspondence, etc. to and from certain persons or divisions within a company. The failure to turn over all documents or destructions of documents and evidence can result in extra time for the other side, as in this case, or contempt charges, or the exclusion of the use of evidence at trial (if it is favorable to the side being sanctioned).

    These events are a lesson for companies in terms of turning over evidence and a lesson in how difficult it can be to hide activities when so many people are aware of them or involved in the work.

    DISCUSSION STARTERS

    Explain what Uber is alleged to have done

    Explain the penalties for withholding evidence.

  • Intricacies of Statutory Interpretation; Power of a Comma; Arbitration Clauses with Foreign Companies

                

     

    A seaman died when the fishing vessel on which he worked sank due to inadequate repairs and an incompetent crew. The deceased man, Chang Cheol Yang (hereinafter Yang), had been hired by the vessel’s owner, Majestic Blue Fisheries (Majestic). Yang’s widow sued for wrongful death. The defendants included both Majestic and the Korean company that provided maintenance and the crew for the ship, Dongwon Industries Co. Ltd (Dongwon). Yang’s employment contract included a clause that mandated arbitration rather than court proceedings in the event of a lawsuit.

    The ship had undergone significant repairs in 2010. Despite a known rudder leak, the vessel set sail from Guam in May, 2010, with Yang on board. Three weeks later, the vessel sank in fair weather after being flooded with water. The crew failed to properly respond to the flooding, resulting in the captain executing critical abandon ship procedures singlehandedly. After leaving the ship, Yang re-boarded to look for the captain. Shortly after the ship sank. Both men died as a result.

    Dongwon made a motion to compel arbitration (a request that a judge order that the court case be discontinued and instead the case be referred to an alternative dispute resolution method in which a third party makes a binding decision following a hearing at which each party can submit evidence).

    Dongwon was not a party to the seaman’s employment contract, nor did Dongwon sign that contract. Majestic and Dongwon are owned by the same family. The ship used to be owned by Dongwon but it sold the vessel to Majestic for $10. The two companies entered into contracts that obligated Dongwon to supply the ship’s crew and supervise its repairs and maintenance.

    Dongwon based it motion to compel arbitration on the Convention on the Recognition and Enforcement of Foreign Arbitration Awards (hereinafter Convention). It requires courts of the countries that are parties to the convention (157) to recognize and enforce arbitration agreements made in countries that are parties to the Convention.

    Article II, Section I of the Convention provides that each party to the Convention will enforce an “agreement in writing” to arbitrate a given dispute. Article II, section 2, in turn, defines the term “agreement in writing” to include “an arbitral [arbitration] clause in a contract or an arbitration agreement, signed by the parties . . . “

    Dongwon claimed only an arbitration agreement (separate from a clause in a contract) required signatures. Young’s widow argued both an arbitration agreement and an arbitration clause in a contract must be signed.

    There exist various rules to aid in the interpretation of statutory language that is subject to dispute. One such rule is called the rule of punctuation. It states that when a modifying phrase is set off from a series of antecedents by a comma, the phrase applies to each of those preceding items.

    Adopting this rule, the court rejected Dongwon’s argument, stating, “Section 2 [of the Convention] takes the structure, “A or B with C. This structure is exactly the circumstance to which the rule of punctuation applies.”

    The court was hesitant to use punctuation as the sole guide to interpreting the meaning of the text. Turns out the legislative history also supports this interpretation. Text from the drafting committee reads, “The expression ‘agreement in writing’ shall mean an arbitration agreement or an arbitration clause in a contract signed by the parties . . .”.

    Thus the court held the modifying phrase “signed by the parties” applies to both “an arbitral clause in a contract” and “an arbitration agreement.”

    Therefore, to be enforceable, an arbitration clause in a contract, such as the one Yang signed, must be signed by the parties in a lawsuit. If a signature is missing, arbitration cannot be compelled. Since Dongwon did not sign, that company cannot enforce the arbitration clause. Dongwon’s motion to compel arbitration was thus denied; the case against Dongwon will continue in court.

    For more information, see Yang v. Majestic Blue Fisheries, LLC and Dongwon Industries Co., Ltd, __F.3d__, 2017 WL 5894910 (11/30/2017)

    DISCUSSION QUESTION:

    1. Do you agree with the rule of punctuation and the court’s interpretation of the statute? Why or why not?

  • See the Difference in These Chocolate Bars? The Court Struggled a Bit Too

    Toblerone vs. Poundland – two chocolate companies just fought out a court battle.  Toblerone, owned by Mondelez International, an American company, made the decision to reconfigure the shape of their Toblerone chocolate bars. The company slimmed down the summits and widened the valleys in between those summits. With the change, the British customers were agitated with Mondelez because there was less chocolate and a higher price. Enter Poundland, a British company, that decided there was a niche opening and an opportunity.

    Poundland developed a candy bar with peaks and troughs, but its shape had a double set of peaks between each trough. Poundland maintained that its peaks were modeled after the English countryside and not the Matterhorn. Alan Cowell, “Toblerone vs. Poundland: A Chocolate Food Fight,” New York Times, December 6, 2017, p. A4.

    Poundland’s new “Twin Peaks” bars were sold in a golden wrapper with red lettering, just like Toblerone. And Poundland’s new bar weighed more than the reduced-weight Toblerone resdesign and cost less – one pound or $1.35. Toblerone bars were the same price, despite the smaller size

    The court found that the Toblerone design was not sufficiently unique to be protected.  Although Poundland was initially restrained in July 2017 from selling its new candy bars, the two parties reached a settlement whereby it would redesign the wrapper so that customers would not be confused as to what they were buying. The new wrapper is blue with gold lettering.  Also as part of the settlement, Poundland will sell the first 500,000 run of the bars and then offer a newly redesigned bar with peaks that better resemble the English countryside’s rolling hills.

    The litigation was ended because the parties were able to reach a settlement. The court never reached the issues of infringement or appropriation.  The extent of customer confusion as well as the number of Toblerone candy bars not sold would have been part of the case as well Both companies announced the settlement with praise for each other in handling the dispute.

    DISCUSSION STARTERS

    What intellectual property issues would be involved in a case such as this one?

    Why is the likelihood of consumer confusion an issue in these cases? 

  • When the U.S. Supreme Court Is Baffled by a Statute: When Is a Whistle-Blower Protected?

    The case of Digital Realty Trust v. Somers, 850 F.3d 1045 (9th Cir. 2017), cert. granted 137 S.Ct. 2300 (2017) has done something rare.  The case has flummoxed the justices of the U.S. Supreme Court. The case involves a whistle-blower who was terminated by his employer and the issue is whether he is protected under federal law for his actions. 

    Paul Somers was employed as a vice president at Digital Realty Trust, and he made several reports to the firm’s senior management team about possible securities violations by the company.  His reports included issues of unrecorded cost overruns on projects and his boss granting no-bid contracts to friends. He was fired, and he did not report the securities violations to the Securities Exchange Commission (SEC). Mr. Somers then filed suit against Digital for violations of federal law, including Section 21F of the Securities Exchange Act, which is called “Securities Whistleblower Incentives and Protections,” a section added by the Dodd-Frank Act and which includes anti-retaliation protections for whistle-blowers. 

    Digital moved to have the case dismissed because Mr. Somers reported the securities issues only internally and not to the SEC. Section 21F provides:

    No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower—

    (i) in providing information to the Commission in accordance with this section;

    (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information;

    or

    (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq. ), this chapter, including section 78j-1(m)  of this title, section 1513(e) of Title 18, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

    The district court analyzed the statutory provisions and denied the motion to dismiss, concluding that Congress did not intend to eliminate protections for employees who only reported securities violations internally. Mr. Somers appealed. 

    On appeal, the Ninth Circuit grappled with the issue of Section (iii) of Section 21F, which was added after the Dodd-Frank bill had gone through committee, so there is no legislative history to guide the courts when there is retaliation because of a securities violation issue but the employee does not actually make a report to the SEC. 

    There was, however, at the time of the passage of Dodd-Frank and Sarbanes-Oxley, concern about requiring internal reporting before an employee goes to the SEC. Sarbanes-Oxley does mandate internal reporting before external reporting. However, the definitional section of Dodd-Frank defines a whistle-blower as someone who reports information to the SEC. A strict application of Dodd-Frank's definition of whistleblower would, in effect, all but read subdivision (iii) out of the statute. 

    Precedent was split among the federal circuits, with some taking the statutory section at its word and affording no protection for internal whistle-blowers while other circuits held that taking the statute as a whole meant that whistle-blowers were protected.  The Ninth Circuit went with the latter view and affirmed the district court’s decision.  Mr. Somers appealed to the U.S. Supreme Court, and the court heard oral argument on the case this week. 

    The result of a literal interpretation of the law would be that employers could be held liable for firing an employee who has made a confidential report to the SEC. In addition, a literal reading could mean that any employee who has made a report to the SEC of a securities violation is protected throughout his life, i.e., once a whistle-blower, always protected. What is also unclear is the relationship between the whistle-blower protections under Dodd-Frank and Sarbanes-Oxley and whether they are different in application. Sarbanes-Oxley has a much shorter statute of limitations and requires an administrative process, which Mr. Somers did not follow, so he had to rely on Dodd-Frank.  

    Legal scholars referred to it as a fascinating session with the justices because they were confused. Justice Gorsuch said that Congress was clear in its intent to protect only those who report to the SEC.  Justice Kagan said, “It’s peculiar.  It’s probably not what Congress meant. But what makes it the kind of thing where we can say we’re going to ignore it?”  Adam Liptak, “Justices Seem Ready to Limit Whistle-Blower Protections,” New York Times, November 29, 2017, p. B3.  The justices allowed the lawyer for Digital Realty to speak for long periods of time without interruption, generally a sign that the lawyer’s arguments are succeeding.  Chief Justice John Roberts conducted a study of arguments before the U.S. Supreme Court and concluded that the side that gets peppered with the most questions generally loses.  The lawyer for Mr. Somers was a target for the justices’ questions during the argument.

    DISCUSSION STARTERS

    Who is a whistle-blower under Dodd-Frank?

    Who is a whistle-blower under Sarbanes-Oxley?

    What are the differences?

  • Tobacco Companies Forced to Publish Corrective Ads

    The latest ads by tobacco companies will leave marketing students scratching their heads. Rather than extol the virtues of the product, the ads proclaims its dangers. No, the companies have not lost their minds. But they did lose a lawsuit.

    In 1999, the US Justice Department sued the country’s largest cigarette manufacturers and tobacco trade organizations asserting claims of fraud and racketeering (engaging in ongoing, illegal business activities). The defendants include Phillip Morris USA, Lorrillard, R.J. Reynolds Tobacco Co., and Altria Group.

    The charges were based on the Racketeer Influenced and Corrupt Organizations Act (RICO), a federal law adopted in 1970 that imposes both civil and criminal penalties for racketeering activities relating to an enterprise, which is an association of individuals or corporations.[1] Penalties are steep and include up to 20 years in prison plus forfeiture of all ill-gotten gains.

    In 2006, the tobacco companies were found guilty of racketeering. Judge Gladys Kessler of the US District Court for Washington DC determined the companies had deceived the public for decades about the dangers of their product.[2] The judge’s ruling harshly criticized the tobacco industry for lying about its products beginning in the 1950’s. The decision stated the companies had worked to make profits “with little, if any, regard for individual illness and suffering, or soaring health costs. . . “.

    The sentence imposed by the judge mandated stronger warning labels, and also corrective ads (Advertisements that a business is ordered to run when it has knowingly falsified information; the ads are intended to correct inaccurate impressions that previous ads gave) detailing the health risks and addictive nature of smoking. The ads, which began last week, address the health effects of smoking, the addictiveness of cigarettes, the dangers of secondhand smoke, and of even low-tar cigarettes, and more. Among the ads content will be:

    “Smoking kills, on average, 1,200 Americans. Every day.”

    “Cigarette companies intentionally designed cigarettes with enough nicotine to create and sustain addiction,"

    “Manipulation of cigarette design and composition occurred to ensure optimum nicotine delivery.”  

    “Secondhand smoke causes lung cancer and coronary heart disease in adults who do not smoke.”

    Due to resistance by the tobacco companies, ten years of litigation followed. Issues included the wording, of the ad when they would be published, the font sizes, where they would be placed, and more.

    The warnings are being placed in prime-time TV commercials, and full-page ads in national newspapers.

    A spokesperson for R.J. Reynolds, one of the defendants, said, “We are working to address and resolve many of the controversial issues relating to the use of tobacco.”

    The American Cancer Society vice president for tobacco control said, “Now [the tobacco companies] will have to tell the truth, the whole truth and nothing but the truth to the world.”

    Other organizations supporting the outcome include, not surprisingly, the American Heart Association, American Lung Association, Tobacco-Free Kids Action Fund, and the National African American Tobacco Prevention Network.

    About one in five US adults uses some form of tobacco, mostly cigarettes, per the Centers for Disease Control and Prevention. Cigarette smoking causes more deaths each year in the US than HIV, illegal drug use, alcohol use, motor vehicle injuries and firearm-related incidents combined.

    The locations of the ads were chosen to mimic the places that defendants “historically used to promulgate false smoking and health messages.”

    Full-page ads will run online and in the Sunday issues of more than 40 newspapers, including the NY Times, on five separate days. There are also five versions of TV ads that will run on the three major networks for a year.

    For more information, click here.

     DISCUSSION QUESTION:

    Is it fair that the government can mandate that a company spend a lot of money to correct wrong impressions created by prior ads?  Why or why not?

     



    [1] 18 USC 1964.

    [2] US v. Phillip Morris USA, Inc., 449 F.Supp.2d 1 (DDC 2006), aff’d in part & vacated in part, 566 F.3d 1095 (D.C. Cir., 2009)(per curiam), cert. denied, 130 S.Ct. 3501 (2010).

  • Grocer Fines for Late Deliveries by Suppliers: Liquidated Damages Avoid Consequential Damages

    Grocers lose $75 billion in sales annually when items in their stores are out of stock.  In these days of Amazon competition with fast deliveries and their razor-thin margins, grocery stores are demanding on-time and just-in-time deliveries from their suppliers. Kroger charges suppliers $500 for every order that comes to its warehouses more than two days late.  Walmart charges suppliers 3% of the value of any shipment that arrives late, and late means not exactly on time. 

    These types of late fees has always been part of retail grocery stores’ contracts with their suppliers, but the modern Internet economy has resulted in the grocers actually enforcing the provisions. They began collecting these delivery fines in August. The fines are being levied against companies such as Kraft Heinz, Hershey, and Procter & Gamble.  Annie Gasparro, Heather Haddon, and Sarah Nassauer, “Grocers Levy Fines for Late Deliveries,” Wall Street Journal, November 28, 2017, p. A1. 

    These types of clauses in contracts are a form of liquidated damages.  The lost business and effect on customer loyalty when grocers are out of items in their stores is difficult to quantify, but winning back customers is a documented and costly expense.  The loss of customers and business is a consequential damage of late performance but because of the difficulty of establishing how much damage the grocer will experience, the fixed fees are a form of liquidated damages for the breach of on-time performance.

    Data for the retail grocery industry indicates that on-time performance happens in 75% of deliveries. The grocery stores are imposing a 100% standards.  Improvements in supply chain operations for many suppliers has gotten about 35% of suppliers to 95% on-time delivery. Oscar Mayer and other suppliers are monitoring deliveries in real time, temperatures in shipping modes, and arrival times. The focus of suppliers is not on getting their products shipped; the focus is on when the product arrives. Some suppliers have built regional warehouses and simply stock trucks for shipping with the so-called optimum product mix so that the trucks are already on the road and can simply be directed to those retailers when the retailers need the products.

    Suppliers understand the need for retailers’ on-time performance.  And retailers say having the goods on time is more important to them than penalties.  The result is a changing structure in the supply chain for delivery on both sides of the contract. 

    There are also fines for early deliveries, damaged goods on arrival, or incomplete deliveries.  The suppliers are weighing the costs of the fines vs. additional investments in delivery mechanisms and monitoring.

    DISCUSSION STARTERS 

    Explain the pressures on both sides of the grocer contracts.

    Discuss the terms of penalties, consequential damages, and the roll of grocer fines.