Conglomerate Blog: Business, Law, Economics & Society

May 19, 2015

Franchises and the Waco Twin Peaks "Melee"

Posted by Christine Hurt

I used the word "melee" in the title because it is one of the words I saw journalists use to describe the melee/brawl/shootout/riot/gunfight/gang war that occurred at the Twin Peaks restaurant on I-35 in Waco, Texas. (For those of you non-Texans, Waco is equidistant from Dallas and Austin on I-35.) According to reports, two motorcycle gangs, the Bandidos and the Cossacks, were having a "meeting" there when a fight in the bathroom and/or in the parking lot spread into the restaurant, the patio area, and the parking lot, resulting in the deaths of 9 people and in injuries to 18 more. (Some reports give an account of a coalition meeting with up to five gangs represented.) Around 170 bikers have been arrested. None of the diners, employees, bystanders or police officers were among the injured or killed. A lof ot folks on social media are talking about interesting civil rights and criminal aspects of the case, but there is also a fascinating corporate/contracts aspect to the case.

Twin Peaks is (according to Google maps) a "sports pub with scantily clad waitresses," but more important to this post, a franchise. (Apparently, after doing some research, I've discovered that the word for this type of establishment is "breastaurant." Nice.) According to Entrepreneur.com, in 2014 there were 34 TP restaurants, and 20 were company-owned. Franchises are not cheap ($50k/year) and require a substantial outlay and proof of liquidity ($1.5 million a store net worth and $500k liquidity), but TP franchises seem to have a good reputation online for being a good buy. Until possibly this week.

Last semester, Gordon and I (and Matt Jennejohn and Clark Asay) taught a colloquium on Law & Entrepreneurship. One of our fantastic students wrote her paper on the reputational hits a franchisee takes when a rogue franchisee damages the brand. Examples she gave were mostly of health, safety and labor problems, such as when the franchisee down the street gets bad publicity from having a horribly filthy restaurant. My read of the problem was that the franchisor, particularly when the franchisor owns many of the stores itself, has a strong incentive to monitor all franchisees and contract for control and/or damages to mitigate the possibility of brand-damage. I believe we are seeing this played out in the TP case.

Shortly after the shoot-out (a strangely mild phrase, evoking thoughts of a Six Flags theme park ride), TP revoked the franchise from the Waco establishment, widely publicizing the decision and distancing the brand from the actions of the Waco restaurant management. Why is any of this the fault of TP-Waco? According to Waco police, TP-Waco had been warned about hosting the biker "meetings" and encouraging well-known organized criminal gangs from hanging out there. I have not seen any identification of the owner(s) of TP-Waco and do not know if there are any familial or business connections between the owner(s) and a motorcycle gang, so the incentive of TP-Waco to encourage biker clientele is unclear. In fact, the Waco police contacted TP (national) and advised them of the situation, and TP (national) contacted TP-Waco. According to TP (national), it had no power to physically close TP-Waco on the day of the meeting, cancel the "patio reservation," or change any of its decisions. Its remedy was to revoke the franchise after the fact. Now, TP (national) says it is revising its franchise agreements to give it more power to act earlier -- I would love to see a copy of the new franchise agreement!

Anyway, our student's paper highlighted this very concern. Now, other TP franchisees surely will see lost business as patrons will associate the brand with violence or at least an unsavory biker culture. Not only did something awful happen there, but the management is being painted in the media as being an active participant. TP-Dallas has already sent out a press release trying to mitigate brand-damage, focusing on the fact that no patrons or bystanders were hurt. So, if TP-Dallas loses business, what can it do? I've looked everywhere to see if business interruption insurance covers this, and I can't find an insurance product for this type of loss. However, I have found evidence that franchisees often sue franchisors for a number of things, including "errors and omissions" in the franchise disclosure documents. The disclosure documents aren't public, but the TP website does stress that franchises are only given to a select few candidates who are very qualified. While criminal law types monitor the ongoing investigation, the boring corporate types will monitor the franchise situation!

February 19, 2015

Gary Osen, Scourge of Banks

Posted by David Zaring

Here's an interesting profile of the guy who is going after banks that held money eventually used in terrorist activities by clients - a potentially long list of defendants, if he can make the legal theory stick. He came up with that theory, by the way, by noodling it out with one of his law school professors. HT: Matt Levine

January 29, 2015

The Intracorporate Conspiracy Doctrine and D&O Litigation Incentives

Posted by Josephine Sandler Nelson

My previous blogposts (one, two, three, four, five, six, seven, and eight) discussed the dangers of granting intracorporate conspiracy immunity to agents who commit coordinated wrongdoing within an organization. The last two blogposts (here and here) highlighted the harm that public and judicial frustration with this immunity inflicts on alternative doctrines.

In addition to exacerbating blind CEO turnover, substituting alternative doctrines for prosecuting intracorporate conspiracy affects an executive’s incentives under Director’s and Officer’s (D&O) liability insurance. This post builds on arguments that I have made about D&O insurance in articles here and here.

In traditional conspiracy prosecutions, the Model Penal Code (MPC) provides an affirmative defense for renunciation. The MPC’s standard protects the actor, who “after conspiring to commit a crime, thwarted the success of the conspiracy, under circumstances manifesting a complete and voluntary renunciation of his criminal purpose.” This means that the executive who renounces an intracorporate conspiracy faces no charges.

In contrast with conspiracy prosecutions, responsible corporate officer doctrine and its correlates fail to reward the executive who changes course to mitigate damages or to abandon further destructive behavior. Although the size of the damages may be smaller with lesser harm if the executive renounces an organization’s course of conduct, the executive’s personal career and reputation may still be destroyed by entry of a judgment. Modest whistle-blower protections are ineffectual.

Specifically, because of the way that indemnification and D&O insurance function, the entry of judgment has become an all-or-nothing standard: an employee’s right to indemnification hinges on whether the employee is found guilty of a crime or not. To receive indemnification under Delaware law, for example, an individual must have been “successful on the merits or otherwise in defense of any action, suit or proceeding.” Indemnification is repayment to the employee from the company; D&O insurance is a method that companies use to pass on the cost of indemnification and may contain different terms than indemnification itself.

Indemnification and D&O insurance are not a minor issues for executives. In fact, under many circumstances, employees have a right to indemnification from an organization even when the alleged conduct is criminal. Courts have acknowleged that “[i]ndemnification encourages corporate service by capable individuals by protecting their personal financial resources from depletion by the expenses they incur during an investigation or litigation that results by reason of that service.” And when hiring for an executive board, “Quality directors will not serve without D&O coverage.” Because of this pressure from executives, as many as ninety-nine percent of public U.S. companies carry D&O insurance.

So what does this standard mean for executives prosecuted under responsible corporate officer doctrine instead of for traditional conspiracy? Executives are incentivized either not to get caught, or to perpetrate a crime large enough that the monetary value of the wrongdoing outweighs the potential damage to the executive’s career. Because an executive’s right to indemnification hinges on whether he is found guilty of a crime or not, he has an enormous incentive to fight charges to the end instead of pleading to a lesser count. Thus, unless the executive has an affirmative defense to charges, like renunciation in traditional conspiracy law, there is no safety valve. Litigating responsible corporate officer doctrine cases creates a new volatile high-wire strategy. Moreover, as discussed in my last blogpost, responsible corporate officer doctrine imposes actual blind “respondeat superior” liability. Regardless of the merits, the executive may be penalized. So you can see the take-home message for executives: go ahead and help yourself to the largest possible slice pie on your way out the door.

I argue that in sending this message, and in many other ways, our current law on corporate crime is badly broken. My last blogpost for the Glom will introduce the book that Lynn Stout and I propose writing to give better direction to business people in search of ethical outcomes.

January 28, 2015

The Intracorporate Conspiracy Doctrine and CEO Turnover

Posted by Josephine Sandler Nelson

My previous blogposts (one, two, three, four, five, six, and seven) discussed why conspiracy prosecutions were the best method to penalize coordinated wrongdoing by agents within an organization. Using alternative doctrines to impose liability on behavior that would otherwise be recognized as an intracorporate conspiracy results in flawed incentives and disproportionate awards.

The fundamental problem with substituting responsible corporate officer doctrine and control person liability for reforming the intracorporate conspiracy doctrine is that these alternative doctrines represent exactly what Professor Martin objects to: actual imposition of blind “respondeat superior” liability. For example, under these doctrines, “in most federal courts, it is not necessary to show that the corporate official being charged had a culpable state of mind.” Instead, the issue before the court is merely whether the officer had control and responsibility for the alleged actions. Accordingly, it is not a defense to control person liability that the officer did not “knowingly participate in or independently commit a violation of the Act.”

But simply penalizing the officer who is in the wrong place at the wrong time does little to define and encourage best practices. Moreover, with these and other explosive hazards for corporate service, it should be no surprise that top executives are demanding and receiving ever-increasing compensation for often short-term positions. Since 2009, the year that the NSP case establishing “control person” liability was settled, the discrepancy in pay between top management and the average worker has been growing dramatically. In 2013, the CEO of J.C. Penny Co., for example, was exposed for making 1,795 times what the average U.S. department store employee made. From 2009 to 2013, as measured across Standard & Poor’s 500 Index (S&P 500) of companies, “the average multiple of CEO compensation to that of rank-and-file workers” has risen to 204, an increase of twenty percent.

It is true that the financial crisis did reduce executive compensation packages before 2009, and that there has been a historical trend towards the growth of executives’ salaries as a multiple of average workers’ salaries. For example, “[es]timates by academics and trade-union groups put the number at 20-to-1 in the 1950s, rising to 42-to-1 in 1980 and 120-to-1 by 2000.” But the jump in executives’ salaries from 2009 has been extraordinary. The new emphasis on vicarious liability for individuals under the responsible corporate officer doctrine since that date must be considered part of executives’ demands for such high compensation in exchange for their risky positions.

The average duration of a CEO’s time in office has diminished as well. In 2000, the average tenure of a departing S&P 500 CEO in the U.S. was ten years. By 2010, it was down to eight years. In 2011, merely a year later, the average tenure of a Fortune 500 CEO was barely 4.6 years. In 2013, that former CEO of J.C. Penny Co. served for only eighteen months.

With an eighteen-month tenure, how much can the chief executive of a large company discover about the wrongdoing that his or her new company is committing? Furthermore, how much can that person design and institute good preventative measures to guide his or her subordinates to avoid that harm? A blindly revolving door for CEOs does not help those interested in effectively reducing the wrongdoing of agents within the corporation. Incentives without intracorporate conspiracy immunity would be different because they would reward the agent who abandons a conspiracy. (More about this argument here, here, here, and here.)

My next blogpost will examine how substituting alternative doctrines for prosecuting intracorporate conspiracy affects incentives under Director’s and Officer’s (D&O) liability insurance.

January 22, 2015

Sex Abuse, Priests, and Corporate Conspiracy

Posted by Josephine Sandler Nelson

My previous blogposts (one, two, and three) introduced the topic of how the intracorporate conspiracy doctrine prevents the prosecution of coordinated wrongdoing by individuals within organizations. This post illustrates the doctrine’s effect in the context of a specific organization—here a religious one: the Roman Catholic Archdiocese of Philadelphia and the systematic transfer of predator priests. This post is based on my article The Intracorporate Conspiracy Trap to be published soon in the Cardozo Law Review. The article is available in draft form here.

For twelve years, from 1992 to 2004, as Secretary for Clergy, Monsignor William Lynn’s job within the Philadelphia Archdiocese was to supervise priests, including the investigation of sex-abuse claims. In 1994, Monsignor Lynn compiled a list of thirty-five “predator” priests within the archdiocese. He compiled the list from secret church files containing hundreds of child sex-abuse complaints. On the stand, Lynn testified that he hoped that the list would help his superiors to address the growing sex-abuse crisis within the Archdiocese. But for twelve years Lynn merely re-assigned suspected priests, and he hid the abuse within the church. His superiors never acted on the list that Lynn gave them—in fact, they ordered all copies of the list destroyed—and Lynn never contacted outside authorities. As late as 2012, one of the “predator” priests on Lynn’s list was still serving in a parish.

All parties agree that Lynn’s actions in transferring priests who molested children allowed those priests to continue to abuse children, sheltered the priests from potential prosecution, and directly protected the Philadelphia Archdiocese’s reputation.

In fact, Lynn’s actions had been ordered by the archbishop on behalf of the Archdiocese. Lynn reported what he was doing to his superiors, who rewarded Lynn with twelve years of employment and a prominent position within the Archdiocese for doing his job as they saw it. Moreover, the archbishop himself inadvertently revealed the existence of the number thirty-five “predator” priests to the media, and he was the one who ordered all copies of the list to be shredded to keep it from being discovered in legal proceedings.

The instinct here is that this behavior—the transferring of predator priests to cover-up the sexual abuse of children—should have been illegal for Monsignor Lynn to pursue. But the Commonwealth could not prosecute Monsignor Lynn and the Archdiocese for conspiracy. Furthermore, immunity for Lynn’s behavior is now the rule in most state and federal jurisdictions around the country. As described in an earlier blogpost, the intracorporate conspiracy doctrine provides immunity to an enterprise and its agents from conspiracy prosecution, based on the legal fiction that an enterprise and its agents are a single actor incapable of the meeting of two minds to form a conspiracy.

My next blogpost will further investigate why this behavior was not illegal under our current system, and how we should have tried Monsignor Lynn.

April 23, 2013

One Fund Boston, Torts and Social Capital

Posted by Christine Hurt

The past week has been a whirlwind of tragic loss, law enforcement drama, and catharsis in the wake of the Boston Marathon bombings. As the machinery of the U.S. criminal law system ramps up to prosecute the surviving member of the bombing team, its civil side will have to address the human suffering left in the bombers' wake.

The torts system theoretically provides victims with a compensation scheme when bad actors harm them, but here, as happens regularly, the personal wealth of the bad actors will be woefully insufficient and any insurance, unavailable or nonexistent. For recent mass tragedies, particularly politically heartbreaking ones, federal or state governments have created funds to help fill this vacuum. The 9/11 Compensation Fund was the largest and most notable, but smaller ones were created after the Virginia Tech tragedy (by the State of Virginia) and the Aurora, CO shooting (state of CO and private donations). One Fund Boston (city, state and private donations) promises to dwarf the latter two. Ken Feinberg, compensation fund master of many of these past funds, including the BP fund, will oversee OFB.

The torts system generally calculates compensation in two ways. For those who are killed by intentional acts, by replacing the future economic income stream of that person for dependents. This is a morally chilling calculation and one that torts students are reluctant to embrace. For those who are injured, torts damages try to reimburse past and future out-of-pocket costs for medical expenses, lost wages and limitations to daily activities. For the severely injured, these costs/damages can be extraordinarily large. For those who are killed, these damages can be small (of the three killed at the marathon, two had no income or dependents and one was a restaurant manager). Compensation funds have veered from "the shadow of torts,' probably because of a finite pool of money and political considerations. Funds may be less generous, by considering effects of private insurance and pensions (a proposal for the 9/11 Fund, which did not last long) or by excluding victims with merely emotional harm, though severe. Funds may also be more generous, by establishing minimum payouts, even for those with lesser physical injuries or for deaths of those with no income (such as the Virginia Tech students or child victims). Funds must balance traditional legal theories of bad actor-funded compensation with political realities of back-stop fund compensation.

One Fund Boston introduces two new wrinkles to fund compensation. First, many of the injured were residents of Massachussetts and covered by "Romneycare." If the fund chooses a "backstop" approach, then much of at least the initial care would be covered by insurance. Fourteen victims lost limbs, so we will see how much of these extraordinary costs will be covered by insurance. Second, many of those with grievous injuries have already set up there own funds and are raising large amounts of money. The NYT article on OFB today mentions one site up by alumni of Lawrence Academy for the White family (three injured), which has raised over $58,000. The Corcoran family, who saw the mom lose both legs and a daughter who was injured in the leg, has a site that has raised ten times that amount ($589,000) on their site. As an improvement to fund compensation, these victims have instant access to these funds, though the donors would not seem to have a charitable deduction available. However, I wonder about whether victims who are more telegenic, web-articulate, or networked have an advantage in attracting donations from strangers that might have gone into a general fund. Corporate donations seem to be headed toward OFB, but individuals like to bypass bureaucracy and give directly to those they feel a connection to, so the success of these funds is understandable. However, I wonder whether under a backstop theory of compensation, these funds should be deducted from payouts from a general fund.

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March 02, 2012

New Orleans Saints form criminal conspiracy

Posted by Gordon Smith

Players and coaches from the New Orleans Saints created a system of "bounty" payments for injuring opposing players severely enough to get them removed from the game. According to ESPN:

Payments were made for plays such as interceptions and fumble recoveries. But the program also included "bounty" payments for "cart-offs," meaning that the opposing player was carried off the field, and "knockouts," meaning that the opposing player was not able to return.

Instead of talking about "putting this behind us and winning more championships in the future for our fans," shouldn't Saints owner Tom Benson be talking about getting criminal defense lawyers for his players and coaches?

January 24, 2012

The Duty to Rescue Examined

Posted by Gordon Smith

Having recently blogged about The Man in the Water, I was hooked rather easily on David Hyman's 2006 article, Rescue Without Law: An Empirical Perspective on the Duty to Rescue. Start here: "six times as many Americans lose their lives every year trying to rescue someone else than have lost their lives to a non-rescue in the past ten years combined."

Really? Are these numbers reliable? This is the most challenging issue for the paper. David taps various sources for accounts of rescues and non-rescues, but he readily admits the problem: "It is likely that there is under-reporting of both rescues and non-rescues, but the actual magnitude of such under-reporting cannot be quantified." On the other hand:

The number of verifiable instances of rescue exceeds the number of verifiable instances of non-rescue by approximately 800:1, and that ratio is based on multiple years and multiple independent data sources. It seems unlikely that the under-reporting ratio for nonrescues is so much larger than the under-reporting ratio for rescues to overcome this huge disparity in the number of verified cases.

Ok, I am not sure that will be convincing to all, but I am willing to play along. Assuming he is more-or-less right about the numbers, why do we care? Because they may change the way we think about this area of law:

The problem of non-rescue has attracted considerable scholarly attention over the past century. Every torts textbook features a section on the subject. More than a hundred law review articles and several books have been written on the subject, with dozens more touching on it in passing. These articles follow a consistent strategy of recounting the horrific details of a particular anecdote or two, and then offering vague generalities to the effect that the anecdotes illustrate a larger problem. None explore the typicality of such anecdotes, or attempt to specify the frequency of non-rescue and rescue. For most commentators, the inevitable conclusion is that there is a problem with non-rescue, for which “there ought to be a law.” The willingness of average Americans to rescue one another is typically discounted or dismissed entirely. Attention is called to the moral superiority of the European countries which have adopted a duty to rescue.

As you might imagine from the title, Hyman not only questions the existing scholarship on the duty to rescue, but he talks about Ellikson's Order Without Law, at least for a bit toward the end of the paper. Nevertheless, his conclusion there seems somewhat surprising: "'Rescue without law' is unlikely to be the result of social norms, because these patterns developed in the teeth of laws that encourage the opposite behavior, [and] they involve strangers who are unlikely to ever meet again.... Instead, research into behavioral psychology suggests that 'rescue without law' is most likely the result of 'hard-wired' altruism, which induces rescue even at significant personal risk."

There's lots more, but as you can see, I enjoyed reading this piece. Any law review article that calls into question the moral superiority of Europe is usually worth a little time.

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May 09, 2010

More on the Philip Morris case

Posted by Tamara Piety

I mentioned last week that there were more interesting arguments raised in connection with the cert. petition in the Philip Morris case which bear on on my claim that Citizens United will be used to bolster arguments for more protection for commercial speech. As I observed, The Washington Legal Foundation and the National Association of Manufacturers asserted in an amicus brief that Citizens United supported their argument about commercial speech. Here it is:

(1) Because the health consequences of tobacco use is a matter of public concern; and

(2) Because much of the communication on which liability was predicated took place in the form of newspaper articles, op-eds, congressional testimony, press releases, and television appearances and was in response to public criticism the speech in question was speech on "a matter of public concern."

(3) Because it was speech on a matter of public concern it should have been fully protected.

[Notice that the same thing that makes something a matter of public concern is also was makes it a legitimate object of governmental regulatory efforts. So it can't be enough to say that full protection follows from the observation that something involves a matter of public concern.]

The trial appellate courts apparently failed to give this speech the protection to which, in the Foundation's view, it was entitled "because the speakers had an economic motive for their communications." (Brief at 6). The brief go on to say, "But economic motive is insufficient to transform fully protected speech into commercial speech. See Citizens United v. Federal Election Comm'n, 130 S.C. 876, 899 (2010) ('First Amendment protection extends to corporations.')." (Id.)

It seems to me that the connection between the reference to economic motive and the observation about the rights of corporations is a non sequitur unless the Foundation is making the following assumptions: (1) "corporations" in this sentences = for-profit corporations; and (2) all speech by for profit-corporations has an economic motive. I make these same assumptions; so I think they are fairly reasonable and I understand why the authors believe Citizens United supports their cause. I think it does too, even though I disagree that commercial speech ought to be fully protected. However, I've often encountered objections to these same assumptions when I make them (i.e., "But not all corporations are for-profit!"; or "Not everything a for-profit corporation says is commercial speech!"). But as you can see; these arguments aren't original to me. I got them from the proponents of full First Amendment protection for commercial speech.

I've also argued that many of these proponents are essentially arguing for a constitutional right to lie. See Grounding Nike: Exposing Nike's Quest for a Constitutional Right to Lie. Some think this overstates it. But the Washington Legal Foundation's brief seems to corroborate it. In footnote 2 the Foundation argues that although the Court of Appeals did not "explicitly label" the speech in question "commercial" that must have been the standard the Court was applying because it rejected the First Amendment defenses "solely on the grounds that the speech was (in the court's view) fraudulent" and that only commercial speech could be "punish[ed]" (?!) on that ground; fully protected speech "even if false - is entitled to 'breathing space'...."

Res ipsa loquitur.

A dear former colleague used to argue with me that the First Amendment didn't protect fraud and that there was no "right to lie" even under the strict protection offered in N.Y. Times v. Sullivan. There may not be an right in the abstract to lie. But that can be the practical effect of a high evidentiary standard. As any litigator can tell you (and I have been one), there is a difference between an abstract principle and how it plays out "on the ground." I will have more on that later. Suffice it to say that the "breathing space" the Foundation argues for here would cover an awful lot of fraud.

And that brings me to the next point. How do you prove that a corporation has the specific intent necessary for fraud?

The Foundation claims that the judgment below was flawed because the government did not show sufficient evidence of specific intent to prove fraud because the government relied on a collective intent theory. (Id. at 8). It argues that the court should have looked to the state of mind of the individual officer and employees because "a company - as opposed to an individual - can never entirely know what information it possesses." Just so. Sounds awfully close to an argument that the company, qua company, can never commit a fraud because it can never have specific intent.That certainly turned out to be the Achilles heel of the prosecution of the Arthur Andersen accounting firm in the wake of the Enron scandal.

I actually think there may be something to this argument and it is part (not all) of the problem I see with imposing criminal liability on entities like corporations. Without revisiting the whole issue of corporate criminal law though it is sufficient for my purposes here to note that this argument too would increase the difficulty in restraining fraud. I'm not sure that we should be too sanguine about throwing up additional legal obstacles to prosecuting fraud.

In any event, the record, all 1700 or so pages of findings of fact and conclusions of law, offers what seems to me to be ample evidence of specific intent and plenty of false statements (including that by now notorious false testimony before Congress. See some of it in this clip from 1994 here). For a summary of some of Judge Kessler's findings in this case, as well as a summary of tobacco company marketing efforts to children and the addictive properties of nicotine from the Campaign for Tobacco Free Kids see this.

Is it really a matter of constitutional significance that tobacco companies be able to advertise in Rolling Stone or market their products in pink packages or other specific trade dress?

May 03, 2010

St. Louis' City Museum: The Timorous May Stay at Home (or Come Anyway and Sue)

Posted by Christine Hurt

In Murphy v. Steeplechase Amusement Co., my favorite jurist Justice Cardozo wrote this famous short sentence while dismissing a case brought by a young man injured by "The Flopper" at an amusement park: "The timorous may stay at home."

Well, it seems that Bob Cassily, the founder (artist, sculptor and "serial entrepreneur") of St. Louis' amazingly fun City Museum agrees and wishes there were more Cardozos out there. As the WSJ notes, lawsuits are not a rare occurrence against the unique children's museum. And, in our modern comparative negligence jurisdiction, assumption of the risk isn't what it used to be! You know at the start that this children's museum is different -- the website recommends you wear closed-toe, closed-heel shoes. It also recommends long pants. So, you're on notice that there could be a little rough-n-tumble there. Then you drive up to the museum. Half the museum is coming out of the side, a crazy play structure, climbing contraption made out of rebar and what seems to be a wecked airplane. All of this adds up to our favorite museum anywhere. And even non-personal injury attorneys should love it for another reason -- it's in the old International Shoe building!

But, it seems that every once in awhile someone gets hurt and sues them. And the founder likes to fight these lawsuits, and the museum's insurance premium reflects this ($600,000 a year, or $1 out of every $12 ticket). In fact, to fight these suits, the museum has installed cameras so that actual injuries are recorded along with the significant absence of many recorded injuries. The museum even has a note about frivolous lawsuits and these cameras on their webpage.

We understand that by creating a place where kids and adults can run, jump, and play, that there is a risk for injury. We are constantly doing everything we can to mitigate that risk all the while trying to protect the integrity of the museum. What exhausts us are the people that see the museum as an opportunity to perpetuate insurance fraud. We would like to let everyone know that there are cameras in the museum and people are watching to make sure that everyone is safe. In the same vein, if you say you were injured, we'll be able to see that too.

Note that the WSJ article mentions a lot of adult plaintiffs -- and so does the website. This isn't a place where kids seem to get hurt a lot because of too much danger -- this may be a place where adults begin to act like kids and then are embarassed when they get hurt.

We find it interesting that 75% of all injures involving lawsuits are adults. Adults who run and jump into a ball pit that says both “Do not jump” and “For 6 and under”. Adults who go down a slide no less than six seconds after another adult when the sign says “One at a time” and “Wait until bottom is clear.” (These are actual things we are dealing with now.) Adults who know better or adults that don't know their limitations.

So, does our family find the City Museum to be a dangerous place? No. We find it very fun. That being said, we lost one shirt there (ripped when climbing by snagging on something). And I have to say that I fell on the skateless skate park. I would say the clumsy middle-aged should stay on the sidelines there. But, here are some pictures to try to give you a glimpse of the three-story indoor slide and the outside climbing structure. (My only picture of the skateless skate park makes me look fat, so I'm not posting it.) Notice we wore sneakers, but I think the long pants recommendation is new.

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March 02, 2010

The Austin Pilot, Underlitigating and Litigation Motives

Posted by Christine Hurt

Though corporate law is the subject of my research, I teach Torts for fun, and one issue that fascinates me is why folks litigate losses, particularly insured losses. Another topic that interests me during the year is "underlitigating" -- the choice to litigate an intentional tort as negligence, presumably because negligent acts are insured acts. (My favorite case is one known to Texans in my age cohort -- Boyles v. Kerr, in which a young woman whose high school friend intentionally made a certain kind of videotape of them unbeknownst to her and then showed it to all his friends sued him unsuccessfully for negligent infliction of emotional distress. Texas does not recognize direct NIED.)

These two interests are aligning as Valerie Hunter, the widow of the IRS employee killed when Joseph Stack intentionally crashed his plane into IRS offices, has sued Stack's widow under a theory of negligence. As we learn in the first weeks of Torts, Stack seems to have committed an intentional battery against Vernon Hunter. Of course, Stack's estate seems to be light on assets now that he burned down his house and crashed his plane. But negligence? Against Sheryl Stack? The theory seems to be of the duty to control/duty to warn type (Remember Tarasoff?): Ms. Stack knew that Stack was on the edge because she took her minor child and left him the night before, staying at a hotel for her safety. I would hesitate to put my money on this cause of action unless we know that Stack told his widow the night before that he was specifically going to do harm to the IRS or the government, or some other identifiable victim. The facts seem to suggest that the widow was worried for her safety, not the safety of a specific third-party. (And I have no idea how the rules of evidence fit in here --someone else will have to advise me on spousal privilege in this type of civil case.)

Hunter's attorney claims that though her heart goes out to Ms. Stack, she needed to file the lawsuit to (1) see what types of insurance are available in Stack's estate (probably not homeowner's insurance after the time Stack burned his house down, I would guess) and (2) get an injunction so that Vernon Stack's autopsy report would not be released. Hmmm. I wonder what's in that report?

So this leads me to my other curiosity -- why? Is it just the money? There doesn't seem to be a lot of money to go around here, and Ms. Hunter, whose children are grown and is also an IRS employee, would seem to a little better off financially than Ms. Stack, who has a minor child but no home or personal possessions to her name and possible lingering mortgages and debts. Possibly Ms. Hunter could have become very irritated by Mr. Stack's grown daughter (from a former marriage) calling her father a "hero" on Good Morning America and seeing facebook and twitter messages repeating the same misguided meme.

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August 21, 2009

Quick Torts Quiz

Posted by Christine Hurt

So, I switched Torts books this year to Twerksi & Henderson's Torts: Cases and Materials (2d ed. 2008). I felt like using the same book for years was tricking my brain into a narrow view of the universe of Torts, so I thought switching books would freshen up my perspective. So, in the Introduction, I find this sentence:

"Tort liabilities that run in the hundreds of billions of dollars have forced entire industries into bankruptcy."

So, here's the quiz: Name two.

Putting aside the logical problem of concentrating on outliers and not medians, I went up and down my hall this morning asking my colleagues to name two industries. The first one is obvious -- asbestos. But what is the necessary second to get us to the plural of "industries"? I guess it depends on how you define "industry."

Was there a first-generation IUD industry? I think of that more as a product line, not an industry, but it is clear that the American birth control industry did not develop new products for this market for quite awhile. Whether this was a product of tort litigation or political pressure (morning-after-pill) is a toss-up. Saline breast implants -- same. Nuclear power? Close -- but I'm not sure we can blame (the threat of) tort litigation when regulation was the death knell.

Two thoughts. One, for cases other than asbestos, where the tort judgment does not create the insolvency, there is one problem. Huge tort lawsuits probably send a message to the market not to purchase the product or other products from the manufacturer. (Tobacco being the anomaly, being an addictive product with inelastic demand.) Second, do we bemoan the fate of the first-generation IUD? Would we have preferred that product stay on the market?

Keep your industry examples coming.

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August 19, 2009

Buying Precedent (or Lack Thereof): The Klein v. Amtrak Problem

Posted by Christine Hurt

So, let's say that you are a very large defendant who is a repeat-player in the torts litigation arena. You lose a very big case that sets a particularly bad precedent for you. The payout is substantial, but doesn't affect your bottom line -- unless you multiply it by future cases that can rely on the bad precedent. You appeal, and you're not sure which way the panel is going to decide. This isn't the kind of case that would probably be granted cert by the Supreme Court, so whichever way the case comes down, you're stuck. So, you make an offer to settle, maybe at an even greater amount than the trial court verdict. But then you still have that silly federal district court decision for years to come, until the line of cases may or may not be reversed. What do you do?

What if you could make a settlement offer and get the circuit court to remand the case back to the district court judge, who has agreed to vacate all of the opinions in the case, including his opinions that upheld the jury's verdict? Who wouldn't love that, but what judge would do it? Well, this judge apparently.

So, for all you Torts professors out there who would have loved a fun case on attractive nuisance, I hope you saved copies of the documents. Lexis and Westlaw has agreed to remove all the opinions from their databases, standard procedure when cases are vacated. (I don't know if the opinion is old enough to have hit the F. Supp. hard volume/index.) In this case (Klein v. Amtrak), two teenagers (almost 18), climbed on a railcar owned by one defendant in the railyard owned by Amtrak. Electricity was left on for the car for 4 days. Although employees are trained in avoiding electrocution in wired cars (which seems trickier than I originally would have thought), no signs were posted. They were trespassers, yet the presence of a large amount of graffiti in the railyard seemed to indicate that the frequent presence of trespassers was probably known by the landowner, Amtrak. The jury returned a $24 million verdict for the severe injuries sustained by the plaintiffs, which was upheld by the district court judge. The two defendants appealed, and the Third Circuit heard oral argument on what exactly is the state of the law as it applies to older teenage trespassers and railcars. But, we'll have to wait to find out the state of the law for now.

UPDATE: After looking around Westlaw (Klein v. National Passenger R.R.), I'm a little confused. Most of the documents have no text anymore, except for one, which is the district court granting summary judgment to Norfolk Southern Corp., the owner of the railcar, on all claims against it (2006 wl 1997369). According to news reports, this defendant was involved in the trial, received a judgment against it, and argued on appeal. So, I would think that the dismissal by summary judgment must have been overturned at some point. However, I can't find a Third Circuit opinion (or citation) for that. Could the settlement have vacated opinions against the defendants, but not opinions for them?

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April 17, 2009

christyTV Blogging: The Biggest Loser Meets the Personal Injury Lawsuit

Posted by Christine Hurt

So, in order to write this post I have to admit that I love The Biggest Loser. I'm fairly obsessed with it, actually. I've never seen any of the other season-long reality shows where people get voted off, so this is my first foray into the strange game theory of the survival reality show. This season, the contestants were in teams of two (married couples, sisters, cousins, brothers, best friends, engaged couples, parent/child teams). The point of the show is to exercise a lot with a personal trainer and eat better in order to lose weight each week at the "weigh-in." The people that lose the least are in jeopardy of getting voted off. I missed the first part of the season, but by the time that I started watching how this voting off happened varied from week to week. For awhile, the lowest couple had one of their team voted off. Then, all couples were either on the Blue or the Black team, and the lowest losing team had to vote one of their own off. Now, with 8 left this week, the "bigger losers" vote to decide which one of the two "lowest losers" will go home. The last one standing wins $250k. At this point, most of the contestants left have lost substantial amounts of weight (100-plus pounds). The strategy is very interesting.

Anyway, this week poses some interesting Torts questions (spoiler alert below -- I know my friend Tracy McGaugh hasn't watched it yet because she's with Touro law students in NOLA, so Tracy -- stop reading.)

One of the contestants, Laura, has suffered a stress fracture in her hip. Laura has probably lost the least weight (both absolute and as a percentage) of any of the other viable contestants; however, she was immune from elimination for awhile because she has a very strong partner and then was on the stronger team (Blue), which never lost a weigh-in. Anyway, much of the TV time that Laura receives focuses on how lazy her trainer thinks she is. Jillian, the trainer, yells at her and gets in her face and has her other team members tell her that she is the weakest member of their team. When Laura says she's going to pass out or that she can't breathe, Jillian mocks her. Jillian often tells the camera in the "monologuing sessions" that Laura obviously has some mental issues to work through. All that being said, in the last few of the 15 weeks, Laura seems to have turned the corner. Until this week.

Laura was found to have this stress fracture and told not to do anything that hurt. This seemed to translate (possibly for good television) into her not walking anywhere and being carried. So, she gained weight and was booted off my her fellow contestants who told her it was so she could go home and get well. The host of the show told her that The Biggest Loser was not going to let her go home and face this alone -- she would receive the best doctors, etc., blah, blah, blah.

So, all of you out there thinking about writing Torts exams, is there a cause of action? I assume that Laura will get much more out of NBC by not suing, but let's play this out. I'm sure she signed a waiver. Here is the short-form application with the waiver that applies to just the audition, but I also assume that there are more to be signed once you are a contestant. And, I'm sure that Laura signed several things before she actually left the Ranch! (Here is the American Gladiator release, which may be is drafted by the same NBC attorneys.) Did Laura assume the risk of injury? What if she relied on Jillian's judgment the way she would a doctor who told her something was not risky? (I like the way page 24-25 of the AG release affirm that the contestant is solely responsible for deciding whether she is capable of any activity, and that the NBC doctors are no substitute for their own judgment, or the judgment of their own doctors (who of course aren't staying at the Ranch)).

March 24, 2008

Law and Order and "Libel-in-Fiction"

Posted by Christine Hurt

I am an admitted L&O junkie, and everytime the "all persons portrayed herein are fictional" disclaimer pops up, viewers know that this means that the plot will be "ripped from the headlines." Although some of these episodes are really cheesy (i.e., ones that mirror the lives of Anna Nicole Smith), some of these episodes are my favorites. The earliest one that I remember recognizing was from Season One and centered around a character reminiscent of Hedda Nussbaum. However, not everyone loves these episodes. For the first time, someone has sued the producer, Dick Wolf, over an episode from November 2003: Floater.

In Floater (IMDB page here), a bald family law attorney, Ravi Patel, repeatedly bribes a Brooklyn judge, Ruth Alexander, to receive favorable treatment for his clients in divorce cases. A court clerk is also being paid to make sure that Patel's cases are heard by Judge Alexander more frequently than random assignment would allow. However, one party in a divorce case is not happy about this and is killed by the judge in order to silence her. Both Patel and Alexander ultimately confess to the crimes. (The victim's body in the river is the "floater.") Real life bald Manhattan attorney Ravi Batra finds this plot too close to home. Batra, who has never been charged with a crime or confessed to one, was implicated in a Brooklyn bribery scandal shortly before the Floater episode aired. In the real new story, Judge Gerald P. Garson was charged with accepting bribes from Paul Siminovsky, a divorce lawyer. Garson, however, wore a wire to gather evidence for the police regarding a judicial bench seat-buying scheme and captured an Assemblyman on tape. An attempt to capture Batra, a noted political heavy weight and colleague of the Assemblyman, on tape during a meeting with Garson was unsuccessful. Not content with being vindicated in the law, Batra now wants to vindicate himself on TV.

Batra has filed a lawsuit on the theory of "libel-in-fiction." Because Ravi Patel is so close in appearance and name to Ravi Batra, Batra attests that viewers will assume that Batra is as crooked as Patel was in the similarly-depicted bribery situation. Although this theory is not generally a winner, a judge in NY has allowed Batra to proceed over a motion for summary judgment. Will this mean the death of "ripped from the headlines" plot lines? NYT story here and New York Law Journal story here.

Interestingly, I never would have recognized the similarities here because the underlying case is a local NY one.

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