Quote of the Day - Liberty means responsibility. That is why most men dread it.
Hold The Fries??In light of the California Attorney General filing suit this week to require fast-food restaurants and potato chip makers to warn (scroll to bottom to see sample warning) consumers that their fried potato products may cause cancer, I wonder if we haven’t as a society (or at least California) crossed a line abandoning common sense and self-responsibility.
I understand warnings on pesticides and cleansers and guess I even understand warning labels on cigarettes (although I doubt their effectiveness), but I don’t feel like I need the fine print on my morning coffee to tell me it may be hot (it better be, that’s the point of morning coffee).
Does anyone out there actually assume that fries or chips are “health” food? If we start with the cancer warning why not plaster the whole package with warnings about sodium, fat, and calories as well? In these modern times with modern science, it’s difficult to find any product that doesn’t contain some substance that has been shown to cause some type of harm in some laboratory study. The real law should not be to require warnings on fries, but rather to require people to use common sense and take responsibility for their choices.
Court Rules Farm Subsidies Are Not Property Interests Compensable In Eminent Domain
You've probably heard a number of complaints about entitlements to welfare. You know the rant: "Welfare is a privilege, not an entitlement. Go get a job!" Keep that in mind when you read this case about peanut farmers who lost farm subsidies for their peanut crops when Congress changed the Farm Bill for the umpteenth time since the 1930s. Don't get me wrong here - I used to live on a farm and be married to a farmer who received them - I think farm subsidies are necessary, as are tariffs on hard goods. My point is that sometimes we forget the plank. (It is Sunday, you know.)
Here's the deal: in the course of several amendments to a farm bill passed in the early '30s in response to the Depression, Congress established peanut quotas that applied to farmers who had been tilling the soil, growing peanuts for profit. Those quotas allowed farmers to get low-interest, non-recourse loans secured only by their crops. The loan rates from those loans could be assigned or leased to other farmers. It essentially encouraged sharecropping, where one farmer farms and the other who used to farm now just collects money. From the government. The net effect of the program was that it kept peanut prices artificially high. Then, in 2002, Congress changed the law and limited the quotas only to those farmers who were still tilling the soil. The quota benefits and loan rates were no longer assignable or could be leased, and those "farmers" who had not been farming lost out.
Peanut farmers were upset at the loss of their money, which they deemed a property interest, protected by the Fifth Amendment. It's those last two words: "just compensation," though, that really frosted them. They wanted the government to pay them for the loss of the money that Congress took away from them. Read that last sentence again, and you'll understand why the court decided the way it did.
The Court of Federal Claims (side note here: doesn't that yellow border look suspiciously like this yellow border? - are you listening NatGeo?) ruled that the peanut farmers did have a property interest in the quotas, but that interest was not compensable under the Fifth Amendment. The court said the farmers couldn't recover "because the property interest represented by the peanut quota is entirely the product of a government program unilaterally extending benefits to the quota holders, and nothing in the terms of the statute indicated that the benefits could not be altered or extinguished at the government's election."
In other words, it's not an entitlement.
Why Not Give Junior Lawyer Status To Two-year Law Students?
There's an old saw about law school: the first year they scare you to death, the second year they work you to death, and the third year they bore you to death. With low attendance and high debt, there's been some discussion and lots of comments about the wisdom of a three-year program in law school. (In that last link, scroll down to the 8/24/05, 10:15 a.m. comment - it's a classic.) The good professor highlights the root article that started the discussion, and perhaps wisely begs off offering his thoughts. Evan Schaffer cites to a law professor who emphatically says it's not a waste of time.
Sure, you can coast through law school if you want and buy Gilbert's Law Summaries for each class, avoid the reading, case briefing and heck, presumably even classes if you can memorize it and regurgitate it onto the exam (for those non-lawyers reading this, there's only one test per class in law school). In doing so, you'll miss out on learning legal reasoning through the Socratic method, how to read cases and brief them and how to argue cases and legal points. There can be plenty of "beer and softball" in your third year if you plan it right. That statement, however, reminds me of a question we used to ask in law school: "Would you hire so-and-so to be your lawyer?" Not all earned a yes to that answer, and I suspect someone who played softball and drank beer for most of their third year wouldn't earn an affirmative answer.
I don't know how they do it elsewhere, but in my law school, our third year was spent drafting on model legislation, assisting professors with legal research, trying cases in front of superior court judges, arguing appeals in the court of appeal and the supreme court, and generally learning how to practice law. I suspect that there are a number of law students out there who want to skip their "boring" third year and avoid incurring the additional debt.
Here's a proposal for those students: Go right ahead and skip it - just don't expect to earn a law degree. But you want something for the two years you did put in? No problem, we'll send you a junior lawyer certificate.
There Oughta Be A Law
There's an annual contest entitled: "There Oughta Be A Law" here in California, and you can submit your idea (application available in Spanish, too). It generally starts in late September, so go down to the barbershop, beauty parlor (do they still have those?) or wherever you go to solve the world's problems or life's little annoyances and start thinking.
Or, you can just comment here, and I'll pass them along to Senator Joe.
Here's one to get you started: How about a law that requires each portable piece of electronic equipment to use the same charger - or limit the range of chargers to just four or five models that will always be available at your friendly neighborhood electronics store?
You can submit your ideas below, big or small, and solve global warming or figure out how to get that tiny red string on the Band-aid to work.
You Can Run, But You Can't Hide An Insurance Company
If you've been looking for the shortest sentence in a court opinion, you may have found it. No shorter than the famous biblical verse, but with a vastly different meaning. In a two-word sentence, the Ninth Circuit signals the culprit in the story: "Enter Reliance." (See page 5 of the .pdf version, last paragraph, first sentence).
Even so, Reliance Insurance Company gets upstaged by a somewhat more prominent celebrity: O.J. Simpson. In the facts recited by the court, Hawthorne Savings loaned a man $2.6 million to purchase O. J. Simpson's former New York residence in a foreclosure sale (scroll down to "Business"), but then the President of Hawthorne Savings proceeded to outbid the man at the sale. The prospective purchaser had planned to turn the home for over $3.7M, a rather hefty profit. After Hawthorne outbid the man, he sued and settled with the bank for $700K.
All told in the process of defending itself and settling the case, Hawthorne was out well over $1M. Reliance reimbursed Hawthorne only about $10,000. Insurance companies. (You can provide your own emphasis to the last sentence).
Hawthorne then sued its insurer in state court for reimbursement for its attorneys fees and the cost of settling the underlying breach of contract claims. Reliance removed to federal court, but then Reliance entered liquidation proceedings and claimed that federal jurisdiction was precluded by the exclusive jurisdiction of the liquidation proceedings in Pennsylvania. It's commonly known as the "na-na-na-na-na you can't get me" defense, and while it may work for children, it didn't work here.
The Ninth Circuit upheld the district court's decision that rejected Reliance's abstention and full faith and credit claims. Reliance had to post a $1.1 million litigation bond because it was in a weak financial position (as ultimately borne out by the Pennsylvania Insurance Commissioner's liquidation of Reliance.)
Reliance tried some pretty tricky procedural techniques, but in the end, it was substance over form.
'Material Weakness' In Sarbanes-Oxley May Result In Changes
The words Sarbanes-Oxley can strike fear in the hearts of most CEOs, especially small- to medium-sized businesses who end up paying a small fortune for compliance, forcing many to go dark and delist themselves from various stock exchanges. If your company is considering such a change, you may want to wait and see what happens in the near future with possible upcoming changes to the law.
Congressman Michael Oxley was in town at the Fairmont Hotel (we remember it better as the Sutton Place) and spoke to Orange County business leaders about SOX. According to the article, the law's co-author called it a "flawed jewel." You think? No kidding.
Oxley himself pointed out the statute's flawed requirements using an example in his own district, Ball Metal. The auditors there listed the janitor's theft of a few toilet paper rolls from the company bathrooms as a "material weakness" that had to be listed on the company's reports to the SEC and investors.
I don't know about you, but I'm selling my stock in Ball because those rolls of TP will likely break the company. Riiiight. They likely spent more money on the reporting aspects of that issue than the cost of the missing rolls. While Oxley didn't commit to amendments to the law, he did pin his hopes on Orange County's Chris Cox, now at the helm of the SEC. Oxley stated in the Register's article that he expects Cox to loosen the "too stiff" burden of SOX compliance on small and midsize businesses.
That would be a welcome relief to many businesses considering delisting. The question at hand is whether we wait and see or delist and save money now.
Come to think of it, should the auditors include the cost of SOX compliance as a "material weakness?" Compared to toilet paper rolls, probably so.
Environmental Audits: Burying Your Head In The Sand Or Discovering What's Out There
You're thinking about starting an environmental audit, but you're not sure that you want to know what's there. If you start and find something you didn't want to find, do you have to tell? More important, do you have to pay fines and penalties? What about the possibility of criminal indictments arising from unauthorized releases or spills you discover?
As you would expect, there's more to it than that. Sure, there are endless possibilities of things that can happen if you stick your head in the sand. But what you're trying to do is avoid all of those consequences, and you want to find out what's out there on your property, in the water, air, sewer, storm water and waste streams. Before those people who control the consequences find out.
It's better to start looking, and start now. How do you look and avoid those consequences at the same time? Use your favorite attorney and your favorite environmental consultant, and invoke "the privileges." That way, you can get things corrected beforehand, avoiding the consequences altogether, while remaining a good corporate citizen. The privileges vary in form, so check locally.
Approximately 26 states have audit privileges. Some of those statutes are based on the "Environmental Audit Privilege" bill, originally written by Coors corporation and circulated by the American Legislative Exchange Council (ALEC) to the state legislatures. California has a policy, which became final in July 1996 and was later amended in 1998, essentially requiring self-disclosure. The self-disclosure agreements with California and the USEPA dramatically reduce fines and penalties if you undertake self-disclosure, including the wavier of gravity-based penalties (see Section D of the USEPA policy for the requirements).
There are a number of bandwagons you can jump on, including the ISO 14000 one. Keeping it simple, however, there's the attorney work-product privilege, which in conjunction with several other privileges, allows an outside attorney to retain an outside environmental consultant to perform an environmental audit, as long as certain conditions are met. The consequences are what's important: the information discovered is protected from disclosure, unless you are required by an environmental statute to report a release.
The conditions? Conduct the audit "in anticipation of litigation," if appropriate. Perform the audit at the written request of your company’s outside attorney. Use an outside consultant engaged through and under the supervision of an attorney. Involve the attorney in all audit-related meetings between the consultant and company. Label each draft as “Draft” on every page, and destroy the draft as soon as the final report is finished. Label each page of reports with “Attorney-client Privileged,” “Attorney-work Product,” "Self-evaluation Privilege" [Bredice v. Doctors Hospital, 50 F.R.D. 249 (D. D.C. 1970), Webb v. Westinghouse Electric Corp., 81 F.R.D. 431 (E.D. Pa. 1978) and Reichhold Chemicals, Inc. v. Textron, Inc., 157 F.R.D. 522 (N.D. Fla. 1994)] and, if appropriate, “Prepared in Anticipation of Litigation.” Check your local state listings for language that may be appropriate in your state. This language should work in California.
Otherwise, keep the report as general as possible. Segregate factual data from recommendations. Generate any analysis in a separate document. Limit access to the report to the audit team. Give managers responsible for compliance a separate list of items that may need their attention without any factual data or analysis. Provide only limited disclosure to the Board of Directors, and keep that description as basic and general as possible. Secure the final report and do not leave copies available within the company, preferably keeping the information on a database available only through the company's consultant.
The self-disclosure benefits are worth a look, and your consultant and attorney can advise you on the merits of those programs. In the meantime, keep your head out of the sand and your eyes on the ball.
Sue Your Boss? No You Can. Yes You Can't. What's A Body To Do?
It was fun while it lasted, but it won't last long. The California Supreme Court ruled that directors and officers of companies cannot be held financially liable under California labor law for their company's failure to pay its employees overtime compensation. Without a dissent, the Court decided that former employee Steven Reynolds had not stated a cause of action against any of the eight people who were officers or directors of Earl Schieb.
The Court ruled that plain language of the California Industrial Welfare Commission's definition of employer does not expressly impose liability under section 1194 of the California Labor Code on individual corporate agents. The Justices thought that the code section did not define the term "employer." Good news for owners of companies out there. At least for now.
Don't rely on it, though. There is a new law, not in effect when Mr. Reynolds first filed suit, that permits employees to sue officers and directors for unpaid overtime. It's known as the "Sue Your Boss" law, and has yet to be tested in court.
It's a jungle out there.