http://www.bulletproofblog.com The blog on crisis communications Thu, 02 Sep 2010 19:32:01 +0000 http://wordpress.org/?v=2.8.4 en hourly 1 http://www.bulletproofblog.com/2010/08/25/whats-next-the-plaintiffs-perspective-the-whistleblower-%e2%80%9cdevil%e2%80%9d-in-the-statutory-detail/ http://www.bulletproofblog.com/2010/08/25/whats-next-the-plaintiffs-perspective-the-whistleblower-%e2%80%9cdevil%e2%80%9d-in-the-statutory-detail/#comments Wed, 25 Aug 2010 20:47:19 +0000 Larry Smith http://www.bulletproofblog.com/?p=3615 In this regular feature, Bulletproof interviews top plaintiffs’ counsel for their perspective on the crises likely to affect businesses in the near future. Today, we speak to Erika Kelton, a partner at Phillips & Cohen LLP in Washington, DC, which specializes in representing whistleblowers in qui tam lawsuits.

We spoke to Ms. Kelton about the highly significant but relatively untouted new award program for whistleblowers contained in the Dodd-Frank Wall Street Reform and Consumer Protection Act, which President Obama signed into law on July 21. Under the new law, individuals who provide "original information" to the SEC can receive a minimum of 10 percent and up to 30 percent of any successful enforcement action that exceeds $1 million.

What impact will the new monetary awards have on the financial services industry? In what way are they game-changers?

Erika Kelton: The first fundamental difference is that securities law violations are typically not covered under the False Claims Act. The SEC has instead had a limited program in place since 1988 that applied only to insider trading – and the awards were totally discretionary. With Dodd-Frank, in addition to the maximum 30% award, we also have a mandated 10% minimum. The guarantee of a minimum award is a compelling difference.

Remember that, particularly in this industry, people who are in a position to know of significant violations are usually very highly compensated. They are much less likely to risk so much personal and professional loss for what is to them a virtual pittance. It’s not usually a question of greed. It’s a question of risk, and the assurance they need and deserve that they’ll be standing on their feet at day’s end.

We simply need to look at the results of the SEC’s discretionary program over the last twenty-plus years to underscore the point. If you take the case against Pequot [Capital Management] out of the picture for a moment, the fact is that in all these years the SEC has made only five awards totaling $157,000. Pequot was a $1 million award, which is still by no means overwhelming.

There seems to be some question whether or not the law is in effect pending current rulemaking. What is your view?

Erika Kelton: It’s surprising that there is such confusion on that score. The new law specifically says that the whistleblower reward program is immediately operative.

It’s been suggested that the incentives in the new law may inspire employees to go directly to the SEC rather than first advise their employers. What is your view on that?

Erika Kelton: That criticism is coming from the expected quarters, and history shows it to be a specious criticism. In my experience, individuals raise their concerns internally first and only go to government authorities if issues are unaddressed or if they are retaliated against for questioning their employer’s illegality.

Awards for whistleblowers in the securities industry will not have the effect of motivating that kind of behavior any more so than have past awards for whistleblowers in other industries under the False Claims Act. If anything, the high compensation within the financial services industry acts as a balance against it.

In other words, there’s no reason to expect that the Dodd-Frank provisions will create a significantly new dynamic from what we’ve seen for years under existing law. That’s not to say that there won’t be specific instances of whistleblowers taking preemptive action, but people generally want to be loyal to their employers. They’ll go to the SEC, or any other enforcement body, only as a last result.    

If you were counseling businesses, how would you advise them?

Erika Kelton: More than ever, it’s time to review compliance programs, and to ensure they’re credible and meaningful. For example, you do not want compliance departments reporting to business or sales department heads. You do want programs that encourage disclosures and that absolutely protect the source.

Here again, it’s helpful to remember that Dodd-Frank presents the same issues and dynamics we’ve seen with the False Claims Act. If I were counseling business leaders, I’d tell them to look at model compliance programs and best practices that were driven by the False Claims Act, and I would model them for Dodd-Frank as well.

Click here to receive the Plaintiff's Perspective in your inbox each week.

Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.

]]> http://www.bulletproofblog.com/2010/08/25/whats-next-the-plaintiffs-perspective-the-whistleblower-%e2%80%9cdevil%e2%80%9d-in-the-statutory-detail/feed/ 1 http://www.bulletproofblog.com/2010/08/04/whats-next-the-plaintiffs-perspective-suit-targets-manhattan-condo-marketers-%e2%80%93-and-donald-trump-%e2%80%93-for-deceptive-sales-practices/ http://www.bulletproofblog.com/2010/08/04/whats-next-the-plaintiffs-perspective-suit-targets-manhattan-condo-marketers-%e2%80%93-and-donald-trump-%e2%80%93-for-deceptive-sales-practices/#comments Wed, 04 Aug 2010 18:57:20 +0000 Larry Smith http://www.bulletproofblog.com/?p=3500 In this regular feature, Bulletproof interviews top plaintiffs’ counsel for their perspective on the crises likely to affect businesses in the near future. Today, we speak to William J. Geller, a lawyer at Adam Leitman Bailey, P.C in New York, who is representing a group of 15 buyers at the Trump SoHo Hotel Condominium in Manhattan.

The lawsuit, filed in Federal District Court in Manhattan on August 2, claims that, in both sales pitches and statements to the press, Trump SoHo representatives misrepresented the number of units in the building that were already sold. After the offering plan became effective in May, buyers say they learned that just over 15 percent of the building had been sold, significantly less than what they’d been led to believe.

Plaintiffs want their contracts canceled and deposits returned. They are also asking for unspecified punitive damages. Named defendants include, among others, project sponsor Bayrock/Sapir Organization LLC, along with Donald J. Trump and Mr. Trump’s children, Ivanka Trump, Eric Trump, and Donald Trump Jr. for their part in the marketing and sales of the project.

In the New York Times coverage of your case, you say the defendants engaged in “a concerted and consistent pattern of lying about the numbers of units sold.” In what way was it “concerted and consistent?”

William Geller: The Trump SoHo was introduced on the 2006 season finale of Donald Trump’s The Apprentice, and unit sales started in September 2007 in a blaze of hype and hopefulness. As we detail in our 176-page complaint, starting from the lavish sales kickoff gala, project executives and sales representatives gave both the media and individual buyers sales figures that were grossly inflated.

Our clients each provided us with their variation of the same story, being told that 30, 40, 50, 60 or even 70 percent of the units were sold; that units they wanted were almost sold out or unavailable; and that they had to act quickly. Their stories matched what was being reported in the media about unit sales, including quotes from the Trumps. 

Why do you think they thought they could misrepresent the number sold when they knew they had to report eventually to the state Attorney General’s office?

William Geller: Ultimately, the developers did have to file the true sales with the state Attorney General, and reported that only 16% of the units were sold, just three units more than the minimum required for the offering to proceed.

I don’t know why they gave inflated sales when they knew the actual figures would come out, but they may have hoped that sales would eventually catch up with their numbers, and that nobody would bother to track when the sales they had reported were actually made. 

In the world before the market crash, where everybody knew that Manhattan real estate prices would only go up, it was easy for developers to sell out high-profile projects. So they may have gotten careless about what they were saying and, once their initial misstatement was reported, they couldn’t back down.

What is your response to the defense assertion in the Times article that there were more than 100 contracts signed (about 25 percent of the units) but the company decided to report only the minimum 15 percent as “the most prudent and conservative way to go?”

William Geller: I first saw the response when I read that New York Times article about the case. I was surprised because the regulations require that the Attorney General filing must “state the percentage of units being offered for which sponsor has accepted purchase agreements.” So stating this as the minimum doesn’t seem to be permissible, much less “prudent and conservative.”

Further, even if 100 units were under contract, it isn’t a defense, since project executives have been quoted as saying that as many as 270 units had been sold.

What should be a minimum standard of disclosure by the sellers in situations like this?

William Geller: The Attorney General’s condominium sales regulations have detailed disclosure requirements, but the basic standard should be self-evident: tell the truth.

When everything that is ever reported about a project can be found through a quick Google News search, and buyers keep their archived e-mails for years, it really is a fact that anything you say can and will be used against you in a court of law. 

Although marketers and sales people love to hype their projects, they have to be trained in what is an improper sales practice, and that training has to be enforced in the field. Outright lies about verifiable figures should, of course, be tossed right out.

Will this case have any impact on sellers and developers beyond this particular situation?

William Geller: My main hope is that it will be a cautionary tale, that you can’t just say anything to sell units and expect not to be called on it, though I guess that’s what any fraud case is about.

More specifically, I expect that any developer following the case will be more careful about complying with, not only state condominium regulations, but also federal law. Because the Trump SoHo was promoted both as real estate and as an investment opportunity, we are bringing our case under the federal securities laws, as well as under the federal Interstate Land Sales Full Disclosure Act (“ILSA”) for both deceptive sales practices and technical violations, in addition to common law fraud, breach of contract, and state consumer protection law.

Beyond this case, what other specific issues or causes of action are currently on your front broiler?

William Geller: Right now, we’re up to our elbows representing buyers in new construction condominiums. Although the Trump SoHo has the most egregious fact patterns of all the buildings we’re involved with, many projects started in 2006 and 2007 were quite careless in complying with all of the applicable development and sales laws, probably because nobody held their feet to the fire during the prior years of rising prices. We’re doing interesting things with ILSA, a federal law originally adopted in 1968 that many New York developers don’t know much about.

Click here to receive the Plaintiff's Perspective in your inbox each week.

Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.

]]> http://www.bulletproofblog.com/2010/08/04/whats-next-the-plaintiffs-perspective-suit-targets-manhattan-condo-marketers-%e2%80%93-and-donald-trump-%e2%80%93-for-deceptive-sales-practices/feed/ 0 http://www.bulletproofblog.com/2010/07/28/whats-next-the-plaintiffs-perspective-asbestos-case-redefines-summary-judgment-in-pennsylvania/ http://www.bulletproofblog.com/2010/07/28/whats-next-the-plaintiffs-perspective-asbestos-case-redefines-summary-judgment-in-pennsylvania/#comments Wed, 28 Jul 2010 19:22:53 +0000 Larry Smith http://www.bulletproofblog.com/?p=3467 In this regular feature, Bulletproof interviews top plaintiffs’ counsel for their perspective on the crises likely to affect businesses in the near future. Today, we speak to Richard Myers of Philadelphia’s Paul, Reich & Myers, P.C., who for the past nine years has litigated Summers v. Certainteed Corp. and Nybeck v. Union Carbide Corp., an asbestos case that will likely have major repercussions for most other business sectors as well, especially in Pennsylvania.

In July, the Pennsylvania Supreme Court overturned summary judgment orders issued by the trial court in 2003. The order granting summary judgment in the case of plaintiff Richard Nybeck was reversed by a panel of three Pennsylvania Superior Court judges in 2005. The defendants petitioned for en banc argument before the Superior Court, and the petition was granted.

The case by plaintiff Frederick Summers case was transferred from the Superior Court panel where it was pending and consolidated with the Nybeck case for argument. The trial court's summary judgment rulings in both cases were that non-asbestos-related medical conditions precluded a causal link to asbestos exposure. The Superior Court en banc split 4-4 with one judge recusing himself. The Pennsylvania Supreme Court accepted both the defendants’ and plaintiffs' petitions for allowance of appeal.

The Supreme Court has now said that determinations as to causation should survive summary judgment and go to juries for determination. The two plaintiffs had long histories of smoking tobacco. Beyond this “mixed causation” question, the validity of summary judgment itself is an issue.

How would you summarize the importance of this ruling?

Rich Myers: It redefines summary judgment in Pennsylvania and, as a result, you will see significantly fewer summary judgments granted in this state.

Historically, summary judgment became an accepted process in Pennsylvania in the 1960s, much later than with the federal courts. The emphasis by our Supreme Court on abuse of discretion as the defining purview of the appeal process came even later than that. Before that, the Supreme Court had done de novo reviews in which they were not bound by the fact-finding of the lower courts.

Now, Summers decisively reaffirms a new review of the facts of the case as the proper appellate standard regarding summary judgments. That means more cases will go to trial because more summary judgments will be thrown out. As significantly fewer summary judgments are upheld, there will likely be fewer motions for summary judgment, except in cases where the plaintiffs really have no basis for going forward.

The message from the Supreme Court is that juries are the proper arbiters of the facts.

How would you answer the argument that the essence of the appellate system is all about abuse of discretion – about the actual performance of the lower court judge rather than the finding of specific facts?

Rich Myers: That traditional and proper understanding of the appellate process still applies, of course, where juries have been the fact finders. In the summary judgment process, however, the “performance” of the judge, as you term it, dovetails with the fact-finding since the judge is the sole fact-finder. It is therefore a proper duty of the appellate court to review the facts from scratch and determine if, as [Pennsylvania Supreme Court Justice Max] Baer wrote, there is substantial expert opinion to warrant a jury deliberation.

In Summers, Justice Baer also wrote that “where it is clear that reasonable minds could differ on the issue of causation, precluding asbestos litigants from pursuing causes of action, supported by competent medical evidence, merely because of the existence of competing health conditions, is unsustainable.”

So the importance of your case has less to do with “mixed causation” than with summary judgment itself?

Rich Myers: Correct. There aren’t all that many cases involving mixed causation in the way this asbestos case does with respect to tobacco. Actually, in cases where the fact patterns are similar to Summers, asbestos defendants may have some advantage at trial, since these days the public has so much antipathy to tobacco and jurors may put the burden of responsibility on plaintiffs who have a history of smoking. In some cases, the worst thing for business about the Supreme Court ruling is that trials cost more than summary judgment.

A reduced summary judgment system is bad for businesses in cases where, say, consumers bring suit against them in product cases. But businesses are plaintiffs too, and the number of business-to-business lawsuits continues to increase. From that angle, the Supreme Court’s decision should be a welcome one for companies that initiate lawsuits.

What happens next with your case?

Rich Myers: Sadly, Mr. Summers passed away and his case will be dropped at the request of his family because he died of causes unrelated to asbestos exposure. Mr. Nybeck has become totally dependent on an oxygen support system, so I will be moving for an expedited trial listing.

Do the implications of the Supreme Court ruling go beyond Pennsylvania?

Rich Myers: I have no evidence that it necessarily does, but I do hope it starts a trend – and not only because of my self-interest as a plaintiffs’ trial lawyer. In general, I’d say that, except in cases where both sides agree to a bench trial, judges should never be fact-finders.

I was always taught that trial by jury is the basis of our justice system. “Trial” is not, to be sure, a four-letter word.

Click here to receive the Plaintiff's Perspective in your inbox each week.

Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.]]> http://www.bulletproofblog.com/2010/07/28/whats-next-the-plaintiffs-perspective-asbestos-case-redefines-summary-judgment-in-pennsylvania/feed/ 0 http://www.bulletproofblog.com/2010/07/14/whats-next-the-plaintiffs-perspective-ford-case-underscores-worker-recall-issues/ http://www.bulletproofblog.com/2010/07/14/whats-next-the-plaintiffs-perspective-ford-case-underscores-worker-recall-issues/#comments Wed, 14 Jul 2010 13:30:19 +0000 Larry Smith http://www.bulletproofblog.com/?p=3382 In this regular feature, Bulletproof interviews top plaintiffs’ counsel for their perspective on the crises likely to affect businesses in the near future. Today, we speak to Geoffrey Damon of Butkovich & Crosthwaite Co. LPA in Cincinnati, who is seeking to file a class action against Ford Motor Co. and the United Auto Workers on behalf of 80 union workers. The workers lost their seniority rights after they were recalled to work at a Ford transmission plant in Batavia, Ohio in 2007. The plaintiffs had taken $100,000 buyouts but were recalled a few months later when Ford reversed its decision to close the plant.

The two plaintiffs filing this case, Spicer at al. v. Ford Motor Co. et al., claim the defendants violated the Labor Management Relations Act by denying them full-time status, including seniority rights, after their return. Meanwhile, other Ford union employees in Flat Rock, Mich. had also been recalled to work but were able to obtain full-time status after going through a grievance process. In the Batavia case, the UAW rescinded a grievance filed by the plaintiffs’ local union, allegedly saying it had no merit.

The current plaintiffs are seeking at least $100,000 in back pay, front pay, liquidated damages, and loss of benefits. They're also seeking punitive damages and attorney fees and costs.

In what way do you allege Ford’s actions violated the Labor Management Relations Act?

Geoffrey Damon: Simply enough, failure by an employer to abide by the provisions of a collective bargaining agreement violates the Labor Management Relations Act. In this case, that agreement stipulates that seniority and full-time status be accorded employees who work ninety consecutive days, which my clients did. That time stipulation is irrespective of how long they worked before they accepted the original buyouts. It’s a matter of how long they were kept on the job them after they returned to work.

Throughout the period, Ford repeatedly endeavored to get the recalled employees to sign waivers of their seniority rights. Some did. My clients did not.

Does the inclusion of the union as a named defendant add an important wrinkle to the case?

Geoffrey Damon: There’s actually a type of lawsuit in which management and unions find themselves together on the defense side of labor complaints. Sometimes, as in this case, the reasons why they are co-defendants can be important in terms of understanding the dynamics at play. My clients are younger people, and I believe there was some resentment of them among the older union rank and file for accepting the buy-outs in the first place.

How might the situation at Flat Rock affect this case?

Geoffrey Damon: It could be critical.   I suspect that a simple comparison will underscore that there was no good excuse for the grievance process not to go forward in Batavia. We’ll want to know if there was something unique about the circumstances in Flat Rock but I am not aware of any distinguishing feature.

What do you imagine will be Ford’s defense here?

Geoffrey Damon: Based on my prior experience, employers can always find ways to wrangle over the terms of a collective bargaining agreement. They are characteristically vague and convoluted, so much so that exact opposite conclusions can be are argued from the same contractual language.

If you were advising Ford, what takeaways from this case would you underscore, irrespective of whether or not you finally prevail?

Geoffrey Damon: Certainly, I’d stress that the entire employee recall process has to be handled with greater clarity and with coherent guidelines in place. I don’t think Ford thought through this situation much at all before it began to unravel on them.

Just as important, there must be uniform procedures in place for presenting and soliciting waivers.

Click here to receive the Plaintiff's Perspective in your inbox each week.

Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.

]]> http://www.bulletproofblog.com/2010/07/14/whats-next-the-plaintiffs-perspective-ford-case-underscores-worker-recall-issues/feed/ 1 http://www.bulletproofblog.com/2010/06/30/whats-next-the-plaintiffs-perspective-advocacy-group-targets-mcdonald%e2%80%99s-%e2%80%98predatory%e2%80%99-marketing-to-children/ http://www.bulletproofblog.com/2010/06/30/whats-next-the-plaintiffs-perspective-advocacy-group-targets-mcdonald%e2%80%99s-%e2%80%98predatory%e2%80%99-marketing-to-children/#comments Wed, 30 Jun 2010 13:57:21 +0000 Larry Smith http://www.bulletproofblog.com/?p=3165 In this regular feature, Bulletproof interviews top plaintiffs’ counsel for their perspective on the crises likely to affect businesses in the near future. Today, we speak to Stephen Gardner, litigation director for the Center for Science in the Public Interest (CSPI), which has advised McDonald’s restaurants of its intent to file suit against the fast food giant unless it removes promotional toys from its meal packages. An advisory letter is legally required in several states before suits can be brought under consumer protection statutes.

CSPI accuses McDonald’s of “undermining parental authority” by manipulating children with, among other similar lures, promotional merchandise for the new Shrek movie – and, as a result, exacerbating the national obesity epidemic by irresponsibly marketing unhealthy food.

In April, supervisors of Santa Clara County in California voted to ban toy promotions from fast food meals sold in unincorporated parts of the county.

If this matter does go on to a lawsuit, do you feel you have a strong case? Why?

Stephen Gardner: Legally, the deception claim is very strong. Kids are per se deceived by any marketing aimed at them. No one disagrees with that developmental fact.

On unfairness, it's quite strong as well, but requires a little fact-finding to determine the substance of the unfairness. We allege that it's unfair to the kids, above and beyond tricking them into wanting McDonald’s food now, because it inculcates a life-long fast food habit, with McDonald’s the chief supplier.

And it's unfair to parents, simply because McDonald’s is intentionally trying to bypass their authority by going direct to the kids, and thus making their jobs as parents needlessly harder.

How important is the Santa Clara ban in supporting your efforts?

Stephen Gardner: Not at all important, although we certainly support it. We were developing our case around a year before we learned of the Santa Clara action.

Doesn’t all direct marketing to children undermine parental authority?

Stephen Gardner: Yes. But not all of it to this extent, or with these results.

What do you expect on this issue from the FTC later this year? How meaningful would voluntary guidelines be in this matter?

Stephen Gardner: Other folks at CSPI work more directly with the FTC on these issues than I do, so I can't speak to the question of what we can expect from the FTC on this. But voluntary guidelines are likely to be meaningless. McDonald’s is already under voluntary guidelines with the Better Business Bureau, and those guidelines permit this behavior.

Should you prevail in your effort, either in court or by influencing MacDonald’s out of court, what larger impact would it have – both on the fast food industry and other industries?

Stephen Gardner: With luck, it would send a signal to other, smaller companies, to do the same thing. Worst case, companies will [at least] know that predatory food advertising is not something that has no consequences.

]]> http://www.bulletproofblog.com/2010/06/30/whats-next-the-plaintiffs-perspective-advocacy-group-targets-mcdonald%e2%80%99s-%e2%80%98predatory%e2%80%99-marketing-to-children/feed/ 0 http://www.bulletproofblog.com/2010/06/28/what%e2%80%99s-next-the-bulletproof-interview-%e2%80%93-richard-hubner-on-proposed-changes-to-the-consumer-product-safety-improvement-act/ http://www.bulletproofblog.com/2010/06/28/what%e2%80%99s-next-the-bulletproof-interview-%e2%80%93-richard-hubner-on-proposed-changes-to-the-consumer-product-safety-improvement-act/#comments Mon, 28 Jun 2010 13:13:16 +0000 Larry Smith http://www.bulletproofblog.com/?p=3152 Each week, Bulletproof Blog™ features exclusive interviews with thought leaders on issues of critical importance to companies and countries. This week, with Congress mulling changes to the Consumer Product Safety Improvement Act (CPSIA), we spoke with Richard Hubner, co-founder and President of The Sapphire Group, to discuss proposed changes to the law and the impact of what Mr. Hubner calls “policy-based science.”

Mr. Hubner is a public health specialist with extensive expertise in the fields of strategic risk management, safety evaluation, and regulatory affairs. As an expert in product liability issues who has counseled a wide variety of clients in private industry, non-profit organizations, trade associations, regulatory agencies, and law firms, he shared his insights on the relationship between product safety and public policy with Bulletproof™:

What is the impetus behind current proposals to amend the CPSIA? The new law only just went into effect. Why does it need to be modified?

Richard Hubner: The CPSIA was in large part a reaction to recalls of children's toys and jewelry that contained excessive lead levels. In several cases, these items had been mouthed or ingested and lead poisoning resulted. But in writing the law, Congress applied the tighter content limits and third-party testing requirement to all "children's products," a category that includes products marketed to individuals as old as twelve.
 
Consequently, manufacturers of products such as ATVs, youth furniture, golf clubs, and other items rarely mouthed by infants and toddlers now face significant compliance and testing burdens. The Consumer Product Safety Commission (CPSC) has exempted a number of products from the lead provisions upon a showing that lead components were inaccessible to children. But those who have pursued such exemptions call the process cumbersome and expensive.
 
The problems also go beyond the lead provisions. The bill imposes a third-party testing regimen on all products marketed to young people. Testing is required for an array of CPSC safety standards – everything from the spacing requirements to avoid head and neck entrapment in bunk beds to the performance standards for bicycle helmets. This first-time requirement applied to dozens of products and began overwhelming laboratory capacity shortly after CPSIA was enacted. Recognizing this, the agency stayed the testing requirement, but that moratorium expires in February 2011.

What changes are under consideration? Which do you think are likely to be made?  Will that be a good thing, or will the changes just make a bad situation worse?

Richard Hubner: Section II of the draft corrections bill establishes criteria to guide CPSC's exemption of products from the lead specifications. To exempt a product, the agency would need to find that (1) removing lead from the item is not practicable or technologically feasible; (2) that the item is unlikely to be mouthed or ingested, even when misused, and; (3) that the exemption would have "no measurable adverse effect" on public health.

These provisions should improve matters by letting producers, regulators, and testing labs focus on real-world lead hazards rather than components that are highly unlikely to result in exposure.

Why is the CPSIA an example of what you have called "policy-based science," rather than "science-based policy? How serious is this problem in our current regulatory structure?

Richard Hubner: Following the 2007 "summer of recalls," Congress was under pressure to act quickly and emphatically. The public was understandably outraged that CPSC's budget, powers, and expertise had not kept up with the mounting volume of commerce in consumer products –as well as the fact that supply chains for those products increasingly stretch back into parts of the world with unreliable safety standards and enforcement. The latter point tapped into longstanding resentment by some Americans about the outsourcing of U.S. manufacturing to China and other developing countries. Taken together, the protectionist and product safety themes portended a serious political storm. By appearing to act decisively, the House and Senate protected many of its incumbents from a backlash at the polls. But predictably, the bill turned out to be better political theatre than responsible, risk-based regulation. Some of the same lawmakers who demanded zero tolerance with chemical exposures in the CPSIA are now bemoaning the burden that the law has placed on local businesses in their districts.

There is a general pattern of legislative neglect of risk-based concerns, followed by overreaction once those concerns start to receive media attention. To consider it another way, would millions of travelers be forced to remove their shoes by TSA if Richard Reid had tried to ignite his t-shirt rather than his shoes?

What's wrong with elected officials driving regulatory policy?  Isn't that what they are elected to do?

Richard Hubner: A fundamental problem is that Members of Congress and their staffs don't have the expertise or patience to deal with technical, scientific, and engineering complexities of the legislation they propose. Congress tends to pass a bill, send out a press release, and forget about the issue for a generation or two. That's what happened with the Consumer Product Safety Act, which prior to the CPSIA hadn't been comprehensively reworked since 1991.

Experience – both positive and negative – has shown that regulation works best when Congress establishes a coherent legal framework and funding scheme for the regulatory agencies, and then puts them to work developing detailed, risk-based performance standards. One thing Congress should do is demand results and ensure that the agencies deliver them. Oversight was once a prime function of the legislature. Committee chairmen wielded power and held public hearings to prod agency officials along. That role has mostly gone dormant. And a string of short comings – hurricane response and oil cleanup among them – reflect that.

What should consumer products companies be doing now to prepare for upcoming changes in the CPSIA?

Richard Hubner: Consult with your product managers, developers, testing laboratories, and other experts about your stewardship responsibilities. The Sapphire Group is hard at work helping manufacturers and importers meet their obligations under the CPSIA and other  regulations. Our goal is to identify safer materials and designs, formulate sampling and stewardship plans, and manage compliance documentation.

What's next with regard to product safety regulation? Are there issues emerging on the horizon that all consumer product companies need to be aware of?

Richard Hubner: All signs are pointing to a major overhaul of the nation's chemical regulation framework. The three decade old Toxic Substances Control Act (TSCA) has long been dismissed by environmental advocates as ineffective. Draft legislation has been introduced in both the House and Senate, and a series of public hearings is ongoing. Meanwhile, the Environmental Protection Agency is more aggressively deploying its existing TSCA authority through a series of action plans targeting persistent and bio-accumulative chemicals.  

Industry also supports the preemptive effect a more extensive national law would have on state efforts to regulate those same classes of chemicals. State legislatures have become more active in chemical policy in recent years, restricting or banning several PBDE flame retardants, as well as bisphenol A. Such actions can amount to a de facto national ban, given the difficulty of ensuring that a chemical in national commerce is not sold in a particular state. A uniform national framework for chemical regulation is therefore seen as preferable to a patchwork of state provisions.

A tight calendar this election-year will probably push final action on TSCA into 2011. The same committees share responsibility for climate legislation, and they will be unable to devote full attention to chemical legislation until that effort is completed or, more likely, abandoned. At that point, TSCA would top the wish list of many environmental organizations, and committee hearings, and perhaps markups, could proceed before Congress adjourns in early October.

Click here to receive the Bulletproof Interview in your inbox each week.

Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.

]]> http://www.bulletproofblog.com/2010/06/28/what%e2%80%99s-next-the-bulletproof-interview-%e2%80%93-richard-hubner-on-proposed-changes-to-the-consumer-product-safety-improvement-act/feed/ 3 http://www.bulletproofblog.com/2010/06/23/what%e2%80%99s-next-the-plaintiff%e2%80%99s-perspective-%e2%80%93-supreme-court-to-weigh-in-on-credit-card-interest-rate-case/ http://www.bulletproofblog.com/2010/06/23/what%e2%80%99s-next-the-plaintiff%e2%80%99s-perspective-%e2%80%93-supreme-court-to-weigh-in-on-credit-card-interest-rate-case/#comments Wed, 23 Jun 2010 16:38:18 +0000 Larry Smith http://www.bulletproofblog.com/?p=3105 In this regular feature, Bulletproof interviews top plaintiffs’ counsel for their perspective on the crises likely to affect businesses in the near future. Today, we speak to Greg Beck, a staff lawyer with Public Citizen Litigation Group. That non-profit advocacy organization is co-counsel for the respondent, James McCoy, in Chase Bank USA v. McCoy.

The U.S. Supreme Court has agreed to hear JPMorgan Chase & Co's appeal in this lawsuit, which claims that the bank violated federal law by failing to notify credit card holders before raising interest rates due to late payments or defaults. The lead plaintiff alleges that Chase Manhattan Bank violated the Truth in Lending Act (TILA) by increasing interest rates retroactively to the beginning of his payment cycle after his account was closed after a late payment.

The bank wants the High Court to overturn a lower appellate court ruling in California that had reinstated a 2006 class-action lawsuit after the plaintiff lost in a district court. Chase has argued that federal law at the time of the lawsuit did not require banks to give notice of rate changes to cardholders who were late on payments.

The bank said the initial contracts given to cardholders already contained explicit provisions that allowed the raising of interest rates for borrowers in default. In 2009, the Federal Reserve Board amended existing law with a requirement that banks give cardholders advance notice of rate increases due to default even if the default rate was already specified in the original contract.

Why does this case interest Public Citizen?

Greg Beck: We think this is an important case because retroactive rate increases subvert a central purpose of the Truth in Lending Act: ensuring that people know what interest rates they are paying before they incur debt.

A provision in the fine print of the contract providing that a bank might increase the rate under certain conditions is not a substitute for disclosure.

That a bank has discretion to increase the rate does not tell the consumer whether the bank has chosen to use that discretion or, if so, what the new interest rate actually is. As a result, consumers inevitably incur debt without knowing the applicable rate, which is exactly what TILA is supposed to prevent.

Is it a fair summation of your position that the bank should be held accountable for not complying with provisions to the Truth in Lending Act that were not imposed until 2009?

Greg Beck: We aren’t arguing that banks should be subjected to 2009 rules for agreements made before the regulations had been enacted. Our argument is that TILA has always required disclosure of interest rates. That is the purpose of TILA and, as the court of appeals held, the most “natural reading” of the statute and its pre-2009 implementing regulations.

If the plaintiff prevails in the Supreme Court, what impact do you think it will have on the banking industry?

Greg Beck: However this case is decided, it will not require any major change in the banking industry. Everyone appears to agree that disclosure is required under the 2009 amendments, and banks are therefore already required to provide notice.

Click here to receive the Plaintiff's Perspective in your inbox each week.

Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.

]]> http://www.bulletproofblog.com/2010/06/23/what%e2%80%99s-next-the-plaintiff%e2%80%99s-perspective-%e2%80%93-supreme-court-to-weigh-in-on-credit-card-interest-rate-case/feed/ 2 http://www.bulletproofblog.com/2010/06/21/what%e2%80%99s-next-the-bulletproof-interview-%e2%80%93-susan-cote-freeman-on-the-role-of-communications-in-combating-corruption/ http://www.bulletproofblog.com/2010/06/21/what%e2%80%99s-next-the-bulletproof-interview-%e2%80%93-susan-cote-freeman-on-the-role-of-communications-in-combating-corruption/#comments Mon, 21 Jun 2010 12:59:14 +0000 Larry Smith http://www.bulletproofblog.com/?p=3073 Each week, Bulletproof Blog™ features exclusive interviews with thought leaders on issues of critical importance to companies and countries. This week, with public and private sector corruption issues making headlines and raising regulators’ ire like never before, we interview Susan Côté-Freeman of Transparency International.

Ms. Côté-Freeman is an expert in anti-corruption control mechanisms with a strong grasp of the best practices currently being utilized by companies and countries. As the manager of Transparency International’s Business Principles for Countering Bribery Initiative, who works with business to help combat unethical practices, she shared her insights with Bulletproof™:

What roles do internal and external communications play in an effective anti-corruption program?

Susan Côté-Freeman: That’s a great question because many companies still struggle with how communications can best support an effective anti-corruption program. Internally, you want your employees, contractors, subsidiaries, and other business partners to understand that there are anti-corruption controls in place and precisely what they entail. Providing training is also a key aspect of the effort because it outlines and formalizes the bounds of acceptable behavior.

Externally, companies must make their commitment to honest and ethical business practices known for several reasons. Investors and other stakeholders want to know that the company is taking action to protect itself in an aggressive regulatory environment. Potential clients need to know they can trust the entities they do business with. And having a strong anti-corruption program in place provides a strong fallback position that both regulators and the general public will appreciate if a violation does occur.

Last year, we at Transparency International published a study of 500 major companies around the world – and many in high-risk industries, such as oil and gas – to gain some insight into what information they publicly report on their policies and management systems to counter corruption. We found that the majority of companies were not communicating systematically on bribery and corruption. So, we’ve partnered with the UN Global Compact to develop guidance that companies can use to enhance anti-bribery reporting and make it more meaningful for stakeholders.

What are the most common mistakes companies make when seeking to establish and implement anti-corruption compliance programs? How can those mistakes best be avoided?

Susan Côté-Freeman: We haven’t done specific research in this area, so my answer is by no means scientific. But that being said, a big challenge companies often face is a misalignment between the spirit of the anti-corruption program and a company’s primary business objectives. The company policy may be “zero-tolerance” toward bribery and corruption, but at the same time, the sales force is rewarded based on the hard numbers and is often put in the difficult position of having to choose between the company’s commitment to ethical business practices and winning new business.

In this regard, the importance of a corporate culture that truly values and rewards honesty and integrity cannot be understated. Employees need to know that they won’t be punished for refusing to engage in corrupt behavior and that they have internal channels by which to report possible malfeasance. Simply put, they need to know that they can turn away from a deal if they have even the slightest inkling that it may be tainted.

What’s next on the anti-corruption landscape? Are there issues emerging on the horizon that all companies need to be aware of?

Susan Côté-Freeman: There’s no question that the anti-corruption enforcement environment is changing rapidly. In recent years, we’ve seen unprecedented regulatory activity in the U.S., in particular, and in Germany as well – and I think that, hopefully, we’re going to see that mirrored in other nations around the world. We’ve reached a point where global companies, no matter where they operate, need to take the issue seriously or face the prospect of ever-increasing government and marketplace penalties.

Click here to receive the Bulletproof Interview in your inbox each week.

Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.

]]> http://www.bulletproofblog.com/2010/06/21/what%e2%80%99s-next-the-bulletproof-interview-%e2%80%93-susan-cote-freeman-on-the-role-of-communications-in-combating-corruption/feed/ 1 http://www.bulletproofblog.com/2010/06/16/whats-next-the-plaintiffs-perspective-johnson-johnson%e2%80%99s-product-recall-protocol-spawns-potentially-massive-class-action/ http://www.bulletproofblog.com/2010/06/16/whats-next-the-plaintiffs-perspective-johnson-johnson%e2%80%99s-product-recall-protocol-spawns-potentially-massive-class-action/#comments Wed, 16 Jun 2010 13:05:40 +0000 Larry Smith http://www.bulletproofblog.com/?p=3060 In this regular feature, Bulletproof interviews top plaintiffs’ counsel for their perspective on the crises likely to affect businesses in the near future. Today, we speak to Donald Haviland of Haviland Hughes, LLC in Philadelphia. Mr. Haviland has filed a lawsuit in a Philadelphia federal court on behalf of three claimants, and is seeking class status, to force Johnson & Johnson’s McNeil Consumer Healthcare unit to increase the scope of cash refunds for consumers who purchased approximately 130 million recalled bottles of children's Tylenol, Motrin, Benadryl and Zyrtec.

The recall, affecting purchases from December 2008 to the present, occurred on April 30. J&J’s handling of the recall, and the product issues leading to it, have resulted in an FDA investigation and Congressional hearings.

Importantly, plaintiffs say that McNeil should be making cash refunds only, and that coupons also offered in lieu of cash are totally inadequate. Plaintiffs likewise want current restrictions on refund eligibility significantly loosened so that people who discarded bottles before the recall qualify for refunds.   

How big could your action get if it is granted class status?

Donald Haviland: Since we’re talking about some 130 million bottles, it’s fairly difficult to get our hands around the potential size of the class. But taking into account the number of consumers who bought multiple bottles of the J&J McNeil products, we’re still talking about tens of millions of people who could qualify to join a class action.

What is the rationale for your demanding cash-only refunds?

Donald Haviland: People paid cash and they didn’t get what they paid for, so they ought to get their money back. In a sense, it’s just that simple – but let’s also talk about those coupons, which Johnson & Johnson characterizes as “highly valuable.” In fact, they are absolutely worthless.

First of all, McNeil has stopped manufacturing children's drugs, so the coupons are at best promissory notes redeemable – maybe – at some point in the future. [The plant where the products were manufactured was temporarily shuttered.] Second, even if there were new drugs being manufactured right now, why should consumers be asked to trust their quality? Having unwittingly administered defective medicine to children who were already sick, are they now supposed to jump at the opportunity to possibly do so again?

It’s not just a matter of fairness and common sense. It’s a matter of law and a powerful one at that. In 1995, the Third Circuit expressly rejected a settlement that would have provided consumers with $1000 coupons in settlement of cases involving GM pickup trucks that posed fire hazards. Again, why should I let you satisfy your legal and moral obligations by marketing the very products to me for which you are now liable?
Rule 23 (and explanatory comments) of the Federal Rules also require that coupons offered in such cases have transferability and/or cash value. The McNeil coupons have neither.

Clearly, Johnson & Johnson is doing everything it can to avoid real economic responsibility. If we assume 130 million products at $5 to $7 per bottle, we’re talking about a liability of $650 to $910 million. J&J should put that money into escrow right now, which is not only the right thing to do but, from a business standpoint, the smart thing to do. 

Remember, too, we’re not asking for damages. We just want our money back. But if J&J wants to go to court, we’ll certainly look for punitives at that point.

How can you determine the legitimacy of claims by people who had already disposed of the bottles at the time of the recall?

Donald Haviland: It’s simple. Some sort of qualifier will be in order, perhaps a receipt or a sworn affidavit. The chances are slim to none that consumers would perjure themselves for the small dollar amounts to which each of them would be entitled. What we are contesting is that, under the current recall protocol, consumers should be obliged to provide miniscule details that are only found on the original bottle, and which J&J McNeil now expects claimants to provide. It’s just another dodge to lower claim volume.

As a product recall model, how would you describe J&J’s approach? What are its presumed deficiencies?

Donald Haviland: Effective models provide for full recalls and full restitution. J&J’s recall template does neither. It is the opposite of the proven effective model. It’s all about shortcuts and short-changing. Not only has J&J McNeil failed in its recall protocol to offer full and credible restitution but, as of late May, the company had only issued about 600,000 consumer refunds, according to J&J’s own testimony before Congress.

Were it not for our lawsuit, that number would likely dwindle in the next months, which means the company gets off with only a slap on the wrist. That would send yet another awful message to corporate America about litigation, not as a fair way to assess responsibility, but merely as a cost of doing business.

As it stands, though, the J&J’s product recall model was actually so deficient as to provide plaintiffs’ lawyers with an open invitation to further seek justice and redress consumer grievances.

We’ve set up a website, www.childrenstylenollawsuit.com, to counter the disinformation that the defendant provides on its own site.

How do possible criminal charges by the FDA affect your case?

Donald Haviland: No doubt, such charges, or any serious discussion of such charges, can only support the merits of significant civil claims. 

Do you have any concerns about providing optimal counsel in light of the fact that your wife is one of the three plaintiffs?

Donald Haviland: My wife was the trigger for me to pursue this litigation. I remember it was Mother’s Day, not long after the recall, when she suddenly announced that there were seven bottles of recalled product in our own medicine cabinet. So she became one of the named plaintiffs in our suit. As this class action grows, we’ll probably take her off the case to avoid any appearance of possible conflict or impropriety, though there is none.

Johnson & Johnson owes my wife around 50 bucks for those seven bottles, but I’m not going to jeopardize this case in order to collect it. We intend to redress the wrong done to the millions of parents throughout the country.

How will this case affect future pharmaceutical litigation?

Donald Haviland: Hopefully it will send a message to all companies that, when you get caught doing something wrong, intentionally or not, you then need to do the right thing by reimbursing fully the consumers who’ve supported you for so many years.

Click here to receive the Plaintiff's Perspective in your inbox each week.

Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.

]]> http://www.bulletproofblog.com/2010/06/16/whats-next-the-plaintiffs-perspective-johnson-johnson%e2%80%99s-product-recall-protocol-spawns-potentially-massive-class-action/feed/ 0 http://www.bulletproofblog.com/2010/06/09/what%e2%80%99s-next-the-plaintiff%e2%80%99s-perspective-%e2%80%93-second-life-employment-reclassification-case-targets-labor-abuses-by-%e2%80%98franchisers%e2%80%99/ http://www.bulletproofblog.com/2010/06/09/what%e2%80%99s-next-the-plaintiff%e2%80%99s-perspective-%e2%80%93-second-life-employment-reclassification-case-targets-labor-abuses-by-%e2%80%98franchisers%e2%80%99/#comments Wed, 09 Jun 2010 21:29:36 +0000 Larry Smith http://www.bulletproofblog.com/?p=2988
In March, Massachusetts District Judge William Young ruled that the plaintiffs, classified by Coverall Health Based Cleaning System (a cleaning business) as franchisees, are in fact employees and not independent business entities. As such, they are entitled to overtime pay, minimum wage, and compensation protection benefits. Coverall has 250-plus franchisees in Massachusetts.

Franchisers and their trade association have declared that this ruling threatens the viability of franchise businesses in the state. Damages in the case have not yet been determined nor has the situation of workers who assist the franchisees yet been adjudicated.

Does this case represent a new trend in worker misclassification actions? How so?

Shannon Liss-Riordan: There has been an increased awareness in recent years of employers misusing the independent contractor label in order to save on labor costs. This case is a continuation of that trend but highlights an even more extreme example of this type of worker abuse. Here, a company charged janitorial workers for low-paying cleaning jobs and tried to justify it on the ground that the workers were in business for themselves. What the workers were actually buying was a poorly paid job and the right to hand over more of their money to the company.

Do you agree with David French, vice president of government relations for the International Franchise Association, that the judge's determination – that “franchisers are in the same business as their franchisees” – could affect any franchise company?"

Shannon Liss-Riordan: This case is different from most franchise relationships because here the franchisees really were just performing the services sold by the company, and thus they were in the same business as the company. In this case, Coverall entered into commercial cleaning contracts with building owners and managers and delegated the cleaning work to its “franchisees,” no differently from how an employer would enter into such contracts and delegate the work to its employees.

The company also retained overriding control over the relationship with customers. By contrast, McDonalds, for example, does not itself sell burgers to customers; it sets up a system allowing its franchisees to sell the burgers. And if a customer doesn’t like a burger, McDonalds doesn’t take that customer away from the franchisee.

Do the Obama Administration's efforts to have the Internal Revenue Service target companies that misclassify workers give plaintiffs extra leverage in these kinds of cases?

Shannon Liss-Riordan: There has been a lot of talk in the federal government, as well as among various state agencies, about cracking down on independent contractor misclassification. Our experience has been that government agencies have very limited resources, and they are only able to pursue a small percentage of companies violating the law.

But, while I wouldn’t say that these government initiatives have much direct effect on most of our cases, the government has at least raised awareness of the issue.

What for you would represent a clear enough differentiation between employees and franchisees? Would companies achieve such differentiation by clearly stating that they don't directly sell any of the products or services they license franchisees to sell? Would they achieve such differentiation by no longer prohibiting former franchisees from competing?

Shannon Liss-Riordan: We have seen companies try to escape their legal liability by stating that they do something different from what they actually do. But the courts look at actions, not words, and so just stating that the company does not sell the products or services that the franchisees provide is not enough to get them off the hook.

For instance, we had a strip club claim that it sold alcoholic beverages, not exotic dancing, but the court saw it for what it was – a strip club. We’ve had package delivery companies argue that they provide “marketing logistical support” to customers who want their packages transported, but the courts have recognized that they are in fact package delivery companies. Likewise, Coverall denied that it was in the business of selling commercial cleaning services, but that is exactly what it does.

In order to differentiate itself from its franchisees, a company needs to be structured such that it really is only providing a franchise opportunity to its franchisees. Eliminating non-compete provisions is also an important step to establishing that the franchisee is not wholly dependent on the franchiser for its business.

You’re well known for tips cases. Are there any recent or upcoming developments on that front that merit attention?

Shannon Liss-Riordan: There are a handful of states that have strong, explicit tips laws protecting gratuity income for service workers. We are seeing cases being brought in more of these states where businesses (particularly restaurants, hotels, and other hospitality establishments) have flouted these laws (largely due no doubt to under-enforcement). We are also pursuing common law claims against establishments that skim or divert tips from service employees in states that do not have explicit tips statutes.

In the wake of the federal court’s decision earlier this year in Overka v. American Airlines (which certified a national class of skycaps claiming tip diversion under state common law theories), we expect courts in more states to allow tips cases to go forward under claims such as tortious interference and unjust enrichment. We also expect to see more cases brought on behalf of tipped employees outside the food and beverage industry.

Click here to receive the Plaintiff's Perspective in your inbox each week.

Larry Smith is Senior Vice President of Levick Strategic Communications, the nation's top crisis communications firm, and a contributing author to Bulletproof Blog. Connect with Levick on Twitter: @Levick.]]> http://www.bulletproofblog.com/2010/06/09/what%e2%80%99s-next-the-plaintiff%e2%80%99s-perspective-%e2%80%93-second-life-employment-reclassification-case-targets-labor-abuses-by-%e2%80%98franchisers%e2%80%99/feed/ 0