Wednesday, January 29, 2014
All four members of Motley Crue signed an agreement Tuesday that will permanently dissolve the legendary rock group after a final tour.
Vince Neil, Mick Mars, Nikki Sixx and Tommy Lee appeared in a Hollywood hotel Tuesday for a signing ceremony for a "cessation of touring agreement," which their lawyer said would bring a peaceful end to the group.
"Other bands have split up over rancor or the inability of people to get along, but this is mutual among all four original members and a peaceful decision to move on to other endeavors and to confirm it with a binding agreement," attorney Doug Mark said.
Motley Crue has sold more than 80 million albums since hitting the road in 1981, but drummer Tommy Lee said, "Everything must come to an end."
"We always had a vision of going out with a big f**king bang and not playing county fairs and clubs with one or two original band members," said Lee, who is the youngest member at 51. "Our job here is done."
Guitarist Mick Mars, the oldest band member at 62, said the group's 33 years have had "more drama than 'General Hospital.'"
Vocalist Vince Neil, 52, said he'll miss the group, but it's not an end to his rock career. "I feel there are a lot of great opportunities and exciting projects after Motley."
The first leg of "The Final Tour" starts in Grand Rapids, Michigan, on July 2.
The termination agreement becomes effective at the end of 2015, after a global tour that will include Alice Cooper.
"Motley Crue and Alice Cooper -- A match made in Armageddon?" said Cooper.
I'd love to see a copy of the contract (...wherefore Motley Crue hereby f***g agrees fortwith to cease any and all rock band activities of any kind...). In the main, it sounds like a hard one to breach: I promise not to show up for band stuff anymore!
Tuesday, January 28, 2014
Last week, Myanna Dellinger posted about tipping and Uber. One piece of information she provided in that post that was new to me was that servers were tipped only about 10% on the West Coast until about ten years ago. It seemed odd to me that there should be a more stingy tipping culture in the West. After all, one does not imagine Hollywood players threatening one another with "You'll never tip 10% in this town again."
Yesterday's New York Times provides a timely explanation of this anomaly. It turns out, tips may be lower on the West Coast because wages are higher. While the federal minimum wage for waiters who earn tips is only $2.13, states are free to mandate higher miniumum wages, and states in the West are most likely to do so. In Washington State, a waiter's base pay is $9.32/hour.
Myanna has lived in Europe so she knows that the real solution to the problem is to pay servers a living wage. If restaurant patrons want to reward them for especially fine service, they are welcome to do so, but with many servers living below the poverty line, they should be protected against economic surges and depressions that are beyond their control.
The restaurant industry protests against any rise in the minimum wage and is fighting legislation supported by the Obama administration that would incrementally increase the minimum wage for tip-earners to $7.25/hour. But restaurants can learn from cabbies. Pass increased costs onto customers by increasing menu prices, but then recommend that patrons tip only 10%. Across the nation, people with math phobia will delight in the ease of calculation.
Monday, January 27, 2014
Severe Economic Disruptions from Climate Change
For many, climate change remains a far off notion that will affect their grandchildren and other “future generations.” Think again. Expect your food prices to increase now, if they have not already. Amidst the worst drought in California history, the United Nations is releasing a report that, according to a copy obtained by the New York Times, finds that the risk of severe economic disruptions is increasing because nations have so dragged their feet in combating climate change that the problem may be virtually impossible to solve with current technologies.
The report also says that nations around the world are still spending far more money to subsidize fossil fuels than to accelerate the urgently needed shift to cleaner energy. The United States is one of these. Even if the internationally agreed-upon goal of limiting temperature increases to 2° C, vast ecological and economic damage will still occur. One of the sectors most at risk: the food industry. In California, a leading agricultural state, the prices of certain food items are already rising caused by the current drought. In times of shrinking relative incomes for middle- and lower class households, this means a higher percentage of incomes going to basic necessities such as food, water and possible medical expenses caused by volatile weather and extreme heat waves. In turn, this may mean less disposable income that could otherwise spur the economy.
Disregarding climate change is technologically risky too: to meet the target of keeping concentrations of CO2 below the most recently agreed-upon threshold of 500 ppm, future generations would have to literally pull CO2 out of the air with machinery that does not yet exist and may never become technically or economically feasible or with other yet unknown methods.
Of course, it doesn’t help that a secretive network of conservative billionaires is pouring billions of dollars into a vast political effort attempting to deny climate change and that – perhaps as a consequence – the coverage of climate change by American media is down significantly from 2009, when media was happy to report a climate change “scandal” that eventually proved to be unfounded.
The good news is that for the first time ever, the United States now has an official Climate Change Action Plan. This will force some industries to adopt modern technologies to help combat the problem nationally. Internationally, a new climate change treaty is slated for 2015 to take effect from 2020. Let us hope for broad participation and that 2020 is not too late to avoid the catastrophic and unforeseen economic and environmental effects that experts are predicting.
Assistant Professor of Law
Western State College of Law
Today's New York Times has a long story about college coaches in non-money sports, like soccer and lacrosse, recruiting middle schoolers. Like most intersections between amatuer athletics and money, this phenomenon is bad for everyone. According to the Times, the new trend is an unintended consequence of Title IX. There is lots of scholarship money chasing relatively few talented athletes, especially female athletes, in the non-money sports. As a result, players of promise get snatched up very early, so now schools offer scholarship money to eighth graders in the hope that they will commit to play for them when they go to college.
The result is bad for everyone for obvious reasons. Coaches cannot really predict which 13-14 year olds will be All-American athletes. Even if athletic potential is there, injuries, loss of interest or other factors (e.g., life outside of sports) can intervene. The dynamic hurts young athletes because it forces them to focus on one sport very early, playing that sport year round and increasing the likelihood of injury. Then, many athletes recruited in middle school are not top players in college, so they spend their college years as frustrated bench warmers, has-beens at the age of 18. The coaches hate it as well. They've got better things to do with their time than endless telephone converstions with middle schoolers, and they hate the dynamic of having to commit to student athletes before they are confident of the students' potential.
But it's actually hard to have that much sympathy for the coaches, since this is a world they have created by exploiting loopholes in NCAA rules. They could voluntarily self-regulate or simply work at getting a reputation for being a school that only accepts students who arrive at a particular sports program as a result of more mature deliberation. Perhaps it won't work and then a school might have to suffer the ignominy of not having, for example, a top ten women's soccer team. The horrors. University administrators should focus more an graduation rates, employment rates and student well-being and less on rankings.
But the reason I am posting about this is of course the relevant contacts issues. The Times is silent on how the minors bind themselves to particular universities. Since these middle schoolers cannot bind themselves contractually, there must be parents involved. Still, I wonder what the remedy is if a student athlete decides not to attend the university to which she has pre-committed. Of course, the student will sacrifice her scholarship, but if a recruited soccer player decides that she wants to play at a different school, will it really be impossible for her to find a school that will offer her a scholarship when she is a senior? Given that the coaches know that they will make mistakes in recruiting 14-year-olds, they ought to hold a few scholarships in reserve so that they can make offers to late bloomers.
But students may be unwilling to renege on their commitments. As the closing line of the Times article suggests, students may be happy to simply be done with the process, even though they know that they are pretty poor predictors of what they will want for themselves in four years' time. The disservice we do to student athletes is obvious. But the process also disserves colleges and universities. There are lots of reasons to go to college, but the chief reason for almost all students ought to be educational. By forcing to middle schoolers to pick a school based on a sport which will almost certainly never be anything more than a hobby for them, we present a distorted picture of the purposes of higher education -- or perhaps we simply contribute to a realistic picture of higher education which is in fact a disfigurement of education.
Wednesday, January 22, 2014
Warren Buffett and Quicken Loans have teamed up to help make teaching about unilateral contracts and interpretation so much more interesting. The offer? One billion dollars to anyone who fills out a perfect 2014 NCAA tournament bracket.
Say what? Is this serious? Or is it like that Pepsi commercial - you know the one.
Although at first, this might sound like a joke, once you learn the odds are, by one estimate, one in 9.2 quintillion, you --a reasonable person -- would realize this offer was serious.
All you have to do is fill out a perfect bracket. (Now might be the time for me to mention that I once won my law firm's pool one year. Strange but true).
But wait - there's more. The Business Insider reports that Quicken, which is actually running the contest, will award $100,000 to 20 of the most accurate but not perfect brackets "submitted by qualified entrants in the contest to use toward buying, refinancing or remodeling a home." The company will also donate $1million to Detroit and Cleveland non-profit organizations.
Get ready for March Madness....
Monday, January 20, 2014
In the mid-1990s, the Walt Disney Company hired Michael Ovitz to be its #2 executive. After slightly over a year in the position, Disney's Board of Directors fired Ovitz, having determined that he was an ineffective executive for the company. He received over $100 million in severance pay. After years of litigation, the Delaware courts found that Disney's Board of Directors did not breach its duty of care in approving an excecutive compensation scheme that made Ovitz better off for having been terminated than he would have been had he stayed on the job. The Delaware Supreme Court noted that Disney's corporate governanace was far from optimal and should not pass muster in a post-Enron/WorldCom etc., world. I have written about the case here.
According to this article in The New York Times, Yahoo! was not paying attention. In 2012, Yahoo! hired Henrique de Castro to be its #2 executive. He lasted a little over a year and is now walking away with at least $88 million. The Times quotes Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, who says that such hiring decisions are usually made by the corporation's CEO and that the Board can't tell the CEO whom to hire. However, Professor Elson also notes that Boards have an obligation to "ask hard questions," especially when executive compensation seems "out of whack." Mr. de Castro was the eighth highest paid executive in the region, earning more than Yahoo!'s CEO.
I suppose it is usually true that a Board cannot tell a CEO whom to hire, but the Board and its Compensation Committee do set executive pay. And nobody at that level can be hired without Board approval. In order to lure an executive of de Castro's experience, a corporation must offer "downside protection." That is, a business person of de Castro's experience is not going to leave a secure, well-compensated position without a guarantee that he will be well-compensated at the new position, even if the relationship sours. However, as the Times points out, de Castro's record at Google was mixed. He had been demoted and then promoted again, which suggests his position was not that secure. In any case, his compensation seems to have been well in excess of what was necessary to protect his potential downside.
Board capture apparently is still a major problem in U.S. public companies, and the Times suggests that the problem is especially bad in Silicon Valley. The real problem is that executive pay remains absurdly, stratospherically high in this country. No pay package should be structured to guarantee millions in dollars of severance even in cases of abject failure.
Wednesday, January 15, 2014
Bridge: It hasn't been a good week for New Jersey governor Chris Christie who is embroiled in a scandal ("bridgegate") after one of his aides arranged to close lanes to the George Washington bridge, causing traffic in Fort Lee, a town where a democratic mayor did not support Christie's re-election.
Tunnel: Over in Washington, Seattle may see traffic delays of its own. The State Department of Transportation has declared that the Highway 99 tunnel team in “material breach of contract” because of different barriers than lane closings -- barriers to participation by small, minority-owned contracting firms. The Seattle Times reports:
The DOT threatens sanctions unless Seattle Tunnel Partners (STP) makes rapid improvement and the team leaders participate in meetings with DOT. Disadvantaged Business Enterprises (DBEs) led by minorities and women are supposed to receive 8 percent of the work, but as of last fall, by some measurements the rate was less than 2 percent, according to a scathing federal civil-rights review. The tunnel contractors are led by the U.S. arm of Spanish-based Dragados, and by California-based Tutor-Perini.
Lynn Peterson, the DOT secretary, released a letter Monday that recognizes efforts by STP to improve, but demands more.
What sanctions will mean is not yet clear. The DOT could exert leverage by reducing or delaying progress payments that STP periodically receives for tunnel work. Peterson mentions that as one option in her letter, which follows a state review by attorney Richard Mitchell.
STP has the leverage of already having a tunnel machine in the ground, and already collecting more than $700 million to date. The most extreme outcome, to switch prime contractors, could easily run up tens or hundreds of millions of dollars, and cause delays. Peterson writes that she would prefer collaboration to litigation. An excerpt:
Among other ideas, the state now recommends breaking contracts into smaller pieces so minority and women-led firms have a better chance to compete.
The federal investigation was prompted by a complaint by Elton Mason, owner of Washington State Trucking in Kirkland, who tried unsuccessfully to bid on a contract to transport excavated dirt. STP awarded the prime trucking contract to a larger company, Grady Excavating of Mukilteo, which DOT later disqualified from its DBE status. The KING 5 Investigators have aired several stories aboutfailures in the minority contracting programs for Highway 99 and other projects. Although Initiative 200 forbids quotas in minority hiring, the tunnel job is one-third federally funded, and therefore subject to hiring goals under federal affirmative-action rules.
Mason vented his exasperation Monday at what looks to him like another round of process. Mason said he’s had two meetings recently with state DOT and STP, but not a job offer. All it should take is for Peterson to make a phone call and demand that Mason and other minority contractors be hired immediately, he said.
Christie could only hope for a Seattle tunnel scandal to eclipse his coverage in the news cycle. Not likely.
As The New York Times reports, the Minnesota orchestra has ended "one of the most contentious labor battles in the classical music world." The musicians agreed to a new contract, with smaller pay cuts than management had previously proposed, ending a fourteen-month lock-out. Concerts are due to resume in Minneapolis's newly-renovated Orchestra Hall (pictured) in February.
The musicians accepted a fifteen percent pay cut, having successfully fought off a proposed 30% pay cut, and management has promised pay increases in the coming years so that by year three musicians will only be about ten percent below were they were in 2012. Musicians also must share a larger burden of their health insurance costs.
Some of these musicians might consider a change of careers. Stagehands seem to do pretty well.
Tuesday, January 14, 2014
$350,000. That’s the value an anonymous American big game hunter is willing to pay to shoot one of the world’s last 5,000 black rhinoceroses. 1,700 of these live in Namibia, which recently auctioned off a permit to kill an old bull through the Dallas Safari Club.
Contracts are meant to assign market values to various items and services in order to facilitate commercial exchanges of these. But does this make sense with critically endangered species?
Namibia and the Safari Club tout the sustainability of the sale claiming that the bull is an “old, geriatric male that is no longer contributing to the herd.” All $350,000 will allegedly go to conservation measures. That is, of course, unless some of the funds disappear to corruptness, not unheard of in the USA and perhaps not in Namibia either. Although the male may no longer be contributing to his herd, he does contribute to the enjoyment of, just as one example, people potentially able to see him and his likes on safari trips as well as to a much greater number of people around the world who simply enjoy the rich diversity of nature as it still is even if unable to personally see the animals.
Conservationists thus decry the sale, claiming that it is “perverse” to kill even one of a species that is so rapidly becoming extinct. The argument has been made that critically endangered species should not be valued more dead than alive. If humans cull the aging, natural predators will have to go one step “down the ladder” for the next one; a healthier one. Who are we to continually mess with nature in these ways? Counterarguments are made that poachers are the real problem, not a “single sale.” And so it goes.
At bottom, the irony in killing such an animal to “increase” the population is, indeed, great. This particular contract was not.
Monday, January 13, 2014
The New York Times reported last week on what it called The Consumer Financial Protection Bureau's (CFPB) next "crusades." That would not be my preferred term, but yes, the regulatory agenda is ambitious.
As the story recounts, The CFPB has already fined major companies, including American Express, GE Captial Retail Bank and Ocwen Financial for misleading business practices. Last Friday, it issued new regulations for the mortgage industry.
The CFPB's agenda in the coming year includes the following areas:
- Arbitration (see our earlier blog post on the CFPB's preliminary report);
- Bank overdraft fees;
- Student loans;
- Debt collection;
- Credit report disputes; and
- Prepaid cards
It is an ambitious agenda. Let's see if it will have much of an impact on consumer financial protection.
Tuesday, January 7, 2014
We have perviously posted examples of government contracting difficulties relating to technology contracts and websites. Saturday's New York Times featured this op-ed by Georgetown Law Professor David A. Super (pictured), which chronicles technology contracting problems that have disproportionately affected the poor.
Some recent technology contracts gone wrong that did not make the headlines:
- 66,000 Georgia food stamp recipients and about half that many Medicaid recipients had their benefits terminated for failing to respond to renewal notices that, through a contractor's error, had never been sent;
- A Massachusetts contractor deactivated food stamp cards because new ones had been sent without seeking any confirmation that the new ones had been received; and
- A contractor's errors made food stamps unavailable to people in 17 states.
Properly supervised contractors can use technology to improve the delivery of government services. But attention, oversight and willingness to act decisively to remedy fiascoes seem to depend on the wealth and clout of those who are affected. As Obamacare regains its footing, that lesson shouldn’t be forgotten.
Monday, January 6, 2014
As reported here in The New York Times, Boeing's machinists union has agreed to a new eight-year labor contract in which the union sacrificed some benefits in order to guarantee that Boeings 777X aircraft will be built at is Washington State plant. The union local's leaders opposed the new contract, but the national union urged them to hold a vote, and 51% of those participating voted to accept the contract.
According to the Times, Washington state was the logical choice for the construction of Chicago-based Boeing's 777X. However, the company sought tax breaks and a new union contract before agreeing to use its existing infrastructure on the new project. The state legislature quickly approved tax breaks that will be good through 2040 and save the company an estimated $9 billion, but when the machinists originally rejected the new contract offer, Boeing began shopping around for a new location for its plant.
Thursday, December 26, 2013
Seller of Rothko Painting Wins Case Against Buyer and Dealers for Breach of Confidentiality Agreement
In 2007, Marguerite Hoffman decided to sell a major painting by Mark Rothko, and the buyer and delers agreed to keep the sale confidential. Mrs. Hoffman's husband, soft-drinks bottling magnate Robert K. Hoffman, had died the year before, and she wanted to quietly raise money from a discreet buyer. After a trial earlier this month, a jury in Dallas federal court found that two New York art dealers and a billionaire collector breached the confidentiality agreement, but also awarded plaintiff damages in an amount much less than she had sought. According to the WSJ:
The 2007 sale, to Studio Capital, a Belize-registered company advised by Mexican-born financier David Martinez, was arranged by prominent New York art dealer Robert Mnuchin and his then-partner, Dominique Lévy. The transaction, in which Mrs. Hoffman received $17.6 million, involved a letter agreement that "all parties agree to make maximum effort to keep all aspects of this transaction confidential indefinitely."
But according to Mrs. Hoffman's lawsuit, the private transaction came to light three years later when Studio Capital turned around and sold the painting in a highly publicized auction at Sotheby's, where it fetched $31.4 million and indirectly revealed the Hoffmans' prior ownership in marketing materials.
Mrs. Hoffman sued Mr. Mnuchin's and Ms. Levy's art gallery, L&M Arts, and Mr. Martinez and Studio Capital, claiming breach of contract. She claimed she could have sold the painting at auction herself and received far more, had she not wanted secrecy. In closing arguments, her attorney, Roger Netzer of Willkie Farr & Gallagher, argued that damages should be between $12.4 million and $22.4 million, based on disputed expert testimony about the art market before the 2008 financial crash.
Jurors in U.S. District Court found all three defendants did breach the agreement, and the panel assessed two types of damages, one of $500,000 and another totaling $1.2 million. The judge ruled that Mrs. Hoffman will have to choose between the two sums, although it is conceivable her counsel may try to claim both types of damages, for a total of $1.7 million.
"I am elated," said Mrs. Hoffman after the verdict. "This case was always about something other than money. It was about justice and integrity and honesty and trust and friendship."
Jonathan Blackman, an attorney at Cleary Gottlieb Steen & Hamilton, who represented Mr. Martinez and Studio Capital, said the limited damages amount to a defense victory. "We feel very good," he said. "After three years and enormous legal expenses on the part of the plaintiff, the elephant labored and came forth with a mouse." He said his clients plan to challenge the damages and breach-of-contract findings.
Major transactions in the art world often involve secrecy, and confidentiality clauses of differing stripes have become common in recent years. Before the trial, some lawyers said a victory by Mrs. Hoffman could have broad implications for the art world by threatening to turn such confidentiality agreements into restrictions or even prohibitions of resales.
Bill Carmody, an attorney at Susman Godfrey who represented defendant L&M Arts in the case, said "it was obviously a huge win for us," because the "jury awarded her a mere fraction of the $20-plus million she wanted."
[Meredith R. Miller]
Wednesday, December 25, 2013
It seemed unthinkable that the Obama administration could have so badly botched the rollout of the website associated with Obama's signature legislation, the Affordable Care Act (aka Obamacare). However, as The New York Times reported here on Monday, and as we have already discussed here and here, the technological fumble may be a result of broader problems in the structures of government procurement systems which may finally get the attention they deserve because of the high-profile Obamacare rollout fiasco.
To reduce the Times' report to its essence, the process of winning a government contract is very complex and daunting. There are two problemmatic consequences of this structural element of government contracting. First, it is hard for small companies or companies without expertise in the government procurement process to jump through all the hoops associated with that process. Second, when the contracts are both long term and deal with technology, the government in some cases would be better served by working with smaller, more nimble contractors that can innovate and adapt as technology develops. With technology improving at the rate at which it improves, the government cannot afford to get locked into multi-year contracts with entities that are not in a position to adapt as quickly as technology advances. As the Times puts it:
Longstanding laws intended to prevent corruption and conflict of interest often saddle agencies with vendors selected by distant committees and contracts that stretch for years, even as technology changes rapidly. The rules frequently leave the government officials in charge of a project with little choice over their suppliers, little control over the project’s execution and almost no authority to terminate a contract that is failing.
“It may make sense if you are buying pencils or cleaning services,” said David Blumenthal, who during Mr. Obama’s first term led a federal office to promote the adoption of electronic health records. But it does not work “when you have these kinds of incredibly complex, data-driven, nationally important, performance-based procurements.”
Friday, December 20, 2013
Chicago Cubs shortstop Starlin Castro (pictured) has reportedly had $3.6 million seized from his bank accounts in connection with an alleged breach of contract as reported here in the Chicago Tribune. The seizure relates (although how is unclear) to an alleged contract that Castro's father entered into when Castro was 15 years old with a baseball training school in the Dominican Republic. The alleged contract provided that the school was entitled to three percent of Castro's earnings as a professional ball player.
According to the Tribune, the money has already been seized from several banks, but the Tribune also reports that Castro's former coach at the school is "planning" to sue Castro. It is not clear why the school is able to seize funds based on a planned suit, but perhaps the coach is contemplating a separate law suit from that already initiated by the school. Still, since the Tribune suggests that Castro will counterclaim and claims that the suit is baseless, it is hard to understand how the seizure could have taken place prior to adjudication on the merits. Castro stole only nine bases last year (and was caught stealing six times). He is not a flight risk.
It is also not clear where the $3.6 million figure comes from. The Tribune reports that Castro signed a $60 million deal with the Cubs in 2012. So, he is due a bit under $7 million/year, which he has been paid for one year. Even if the school is due to be paid for the full $60 million, three percent of $60 million is $1.8 million, but why would the school be entitled to be paid before Castro has been paid?
And just for those of you who have any interest in my occasional gripes about absurd sports salaries. Castro was ranked 22nd among shortstops last year. I'm not certain but I suspect that those rankings are based exclusively on offensive numbers, which is ridiculous when it comes to shortstops, who are key defensive players. Castro's fielding percentage was 26th last year out of 28 shortstops who played more than 100 games. While Castro's offensive numbers were way off last year, his defensive numbers were a bit better than prior years. No shortstops near Castro in the rankings made even half of what he made. But he is guaranteed nearly $7 million a year even if his defense never picks up, he hits a punchless .250 and is as big a threat to get picked off as he is to steal a base. Baseball salaries are no more rational than CEO salaries and both are in need of reform.
Wednesday, December 11, 2013
Congressional Study Finds that Violation of Federal Labor Laws Is No Bar to the Award of Federal Contracts
As reported here in The New York Times, a new congressional study found that the U.S. government continues to enter into contracts with firms that have been assessed heavy penalties for violating fundamental labor laws. According to the report (unfortunately the Times provides no link and I could not find one through a quick Google search), 18 companies that received federal contracts were among the recipients of the 100 largest fines issued by the Occupational Safety and Health Administration. Thirty-two federal contractors were among the leading companies in the amount of back pay owed to employees for wage violations.
The congressional committee that produced the report called for higher standards but did not go so far as to recommend that companies with major violations of labor law be considered ineligible for the award of government contracts.
Thanks to our anonymous tipster (see comments below), we have been able to find the full study. Below is the Executive Summary:
Each year, the United States pays out over $500 billion in taxpayer dollars to private companies for goods and services, much of which is used to pay the salaries of millions of workers. Taken together, companies that receive government contracts employ an estimated 22 percent of the American workforce, approximately 26 million workers.
Some of the nation’s largest federal contractors fail to pay their workers the wages they have earned or provide their employees with safe and healthy working conditions. The analysis found that almost 30 percent of the top violators of federal wage and safety laws are also current federal contractors.
- Eighteen federal contractors were recipients of one of the largest 100 penalties issued by the Occupational Safety and Health Administration (OSHA) of the Department of Labor between 2007 and 2012. Almost half of the total initial penalty dollars assessed for OSHA violations were against companies holding federal contracts in 2012.
- Forty-two American workers died during this period as a result of OSHA violations by companies holding federal contracts in 2012.
- Thirty-two federal contractors received back wage assessments among the largest 100 issued by the Wage and Hour Division of the Department of Labor between 2007 and 2012.
- Thirty-five of these companies violated both wage and safety laws.
- Overall, the 49 federal contractors responsible for large violations of federal labor laws were cited for 1,776 separate violations of these laws and paid $196 million in penalties and assessments. In fiscal year 2012, these same companies were awarded $81 billion in taxpayer dollars.
Federal law is intended to prevent taxpayer dollars from increasing the profits of companies with a record of violating federal law in two ways: by requiring contracting officers to assess a prospective contractor’s responsible compliance with federal law prior to awarding a contract, and by allowing agencies to suspend or debar contractors for certain behavior, including violations of federal law, in order to protect the integrity of taxpayer dollars.
In recent years, the federal government has increasingly used the contracting process to procure employee-based service work such as cleaning, security, and construction. However, a new analysis shows that taxpayer dollars are routinely being paid to companies that are putting the livelihoods and the lives of workers at risk. Many of the most flagrant violators of federal workplace safety and wage laws are also recipients of large federal contracts.
Almost half of the total initial penalty dollars assessed for OSHA violations were against companies holding current federal contracts.Unfortunately, this report demonstrates that the officials responsible for determining if a prospective contractor is a responsible entity prior to awarding a contract lack access to information on labor violations and lack the tools to evaluate the severity or repeated nature of these types of violations.
This is true even though the Clean Contracting Act of 2008 specifically required that a database be established to help agencies evaluate violations of federal law in making a responsibility determination. Some of the many incidents of misconduct that are not currently available to contracting officers in this database include:
- The death of a 46-year-old father of four, who was working as a washroom operator at a Cintas Corporation facility in Tulsa, Oklahoma. He was killed after being swept into an industrial dryer when he attempted to dislodge a clothes jam. The dryer continued to spin with him inside for 20 minutes at over 300 degrees. Cintas received $3.4 million in federal contracts in fiscal year 2012.
- The death of two employees of a Mississippi shipbuilding and ship repair company owned by ST Engineering Limited, who were killed when highly flammable materials being used to prepare a tugboat for painting ignited, leading to an explosion and fire. Findings of the investigation included failure to properly ventilate a confined space and lack of a rescue service available for a confined space. ST Engineering received $1.9 million in federal contracts in fiscal year 2012.
- The deaths of seven workers at an Anacortes, Washington refinery owned by Texas based Tesoro Corporation, who were killed when a heat exchanger ruptured and spewed vapor and liquid that exploded. The workers who died were standing near the area of the rupture specifically to attempt to stop leaks of the volatile, flammable gases in the facility which had not been inspected for 12 years prior to the rupture. Tesoro received $463 million in federal contracts in fiscal year 2012.
The federal government is not required to contract with the private sector. Indeed, many of the functions that private contractors carry out for the government could be done equally well or better by government employees. But, when the government does solicit work from the private sector, it should use taxpayer dollars in a way that promotes compliance with federal law and improves the quality of life for working Americans.
Ensuring that the government contracts with actors who do not engage in serious or repeated violations of federal labor law is one important step to further that goal. Recommendations that will better protect taxpayer dollars and promote compliance with laws that protect the lives and livelihoods of American workers by those who receive taxpayer money include:
- Improvements in the quality and transparency of Department of Labor information regarding violations of federal law.
- Publication of an annual list of federal contractors that were assessed penalties or other sanctions, and as well as additional information concerning contractor compliance with labor law by the Department of Labor.
- Improvement of contracting databases administered by the General Services Administration including increasing public transparency and expanding the amount of misconduct information included in those databases.
- Issuance of an Executive Order requiring contracting officers to consult with, and obtain recommendations from, a designated official at the Department of Labor about violations of federal labor law when making responsibility determinations.
- Issueance of an Executive Order to establish additional tools – beyond the existing responsibility determination and suspension and debarment process – that contracting officers, in consultation with the Department of Labor, can use to ensure that contractors comply with federal labor law.
Monday, December 9, 2013
Every once in a while, a student will send me a story about contracts, but when multiple students send me the same story, you know they must be desparate for a study break -- and that there is some rather comical contracts story in the news.
And so it is with this story about a woman who won a $50,000 judgment on her claim that her fiance had breached his promise to marry her. A Georgia appellate court upheld the judgment, which included an award of attorney's fees, on appeal. The court more or less treated the couple as married and upheld an award of roughly half the property acquired during the relationship, which was a house valued at $86,000. The couple had co-habited for ten years and had a child together. The woman had looked after the child, as well as one she had from a previous relationship.
The man had had sexual relationships with other women both before and after he led his live-in partner to believe that he would marry her and gave her a ring worth $10,000. For what it's worth, the woman also had other sexual relationships.
According to media reports, the defendant's argument on appeal was that his alleged promise arose in the context of a meretricious relationship and was therefore unenforceable. Moreover, he denied any intention to marry. He claims he never said "will you marry me" or words to that effect. He just gave her a ring.
The meretriciousness argument is rather confusing, as a defense to the claim that he broke a promise, since the promise was to cleanse the relationship of its meretriciousness. As the appellate court noted, according to FoxNews, “the object of the contract is not illegal or against public policy.” If we still live in a world in which courts think they can pass judgment on people's long-term relationships (and we seem to), then a court is likely to uphold an agreement that will "make an honest woman" of the plaintiff.
The award of damages is also confusing. the effect of the ruling seems to be to treat the couple as married even though they weren't. In effect, the court is recognizing a common law marriage where such marriages do not seem to be recognized. I suppose the court could do so as a mechanism of giving the woman her expectation for the broken promise. The California Supreme Court endorsed such an approach in Marvin v. Marvin, but other courts have rejected marriage by judicial decree where the legislature has expressed its disapproval of recognition of common law marriages.
Saturday, December 7, 2013
Tough Mudder hosts extreme 10-mile obstacle course challenges. If you are unfamiliar with the company, this video should give you a sense of the challenges Tough Mudder creates:
Before a participant may enroll in an event and run the course, he/she must agree to an assumption of risk, waiver of liability and indemnity agreement.
Outdoor magazine has a story this month about the tragic death of Avishek Sengupta at a Tough Mudder event in Maryland. He jumped into the deep, muddy pool at the "Walk the Plank" obstacle and did not emerge. His tragic death is recounted in harrowing detail in the Outdoor magazine article, which mentions that Avishek's family has sued Tough Mudder and Amphibious Medics, a subcontractor that was onsite to provide rescue services.
Central in the case will be the enforceability of the waiver of liability. The parties weren't too fortchoming with litigation strategy but the article does provide:
Tough Mudder won't discuss its strategy for the Senguptas' legal action—nor will anyone from Amphibious Medics—but if the suit goes forward, its lawyers will likely stress the fact that Avi signed what Tough Mudder calls a Death Waiver, exculpating the company of liability for certain acts of "ordinary negligence" and "inherent risks," such as "inadequate or negligent first aid and/or emergency measures" and "errors in judgment by personnel working the event."
But the Boston-area firm Gilbert and Renton, representing Avi's estate, will likely argue that such waivers do not relieve Tough Mudder of the legal "duty of care" that exists whenever a business knowingly creates predictable hazards for the public. In the case of Walk the Plank, the predictable hazard—drowning—is clear enough. Hence the presence of a rescue diver and lifeguards at the obstacle on the day Avi drowned.
This will be an important and interesting case for liability waivers. Worth following.
[Meredith R. Miller]
Monday, December 2, 2013
According to this report from the Courthouse News Service, California Controller John Chiang is suing SAP Public Services (SAP), a company with which the state of California had contracted for payroll services software (MyCalPAYS) that would assist California in managing payments to its 240,000 employees. After three years of development and eight months of trials, California alleges that SAP still has not managed to get the system to work.
The system was projected to cost California taxpayers just over $100 million, but by the time it was cancelled, it had cost $260 million and never worked right, according to the state. The state claims that MyCalPAYS was tried out on a test goup, and the results were disastrous: overpayments, underpayments, failures to report deposits in retirement accounts, childcare payments and medical contributions. Although the state complained before declaring SAP to be in default, SAP contended that the system was working as designed.
As Courthouse News Service reports, California encounered similar problems when it contracted with software developer Deloitte to manage its statewide judicial case management system.
California, Kathleen Sebelius feels your pain.
Tuesday, November 26, 2013