Chicago Business Litigation Lawyer Blog
Peter Lubin Named to Super Lawyers;
Only 5% of Illinois Lawyers Receive This Distinction
Tax Whistleblower is Awarded $38 million by IRS
In late October 2012, attorneys representing a tax whistleblower announced that their client had been awarded more than $38 million by the IRS for exposing a corporate tax avoidance scheme. This award comes less than two months after the IRS awarded $104 million to Bradley Birkenfeld for blowing the whistle on his former employer, UBS, and constitutes the second major award since the IRS whistleblower program was revised in 2006.
Of note is the fact that the whistleblower’s identify has not been revealed, consistent with IRS policy. It is reported that the target corporation did not even know that the IRS investigation was triggered by a tip from a whistleblower.
The identity of the target corporation was also not disclosed, though it is said to be a Fortune 500 company. Based on current IRS guidelines which provide that a whistleblower must be awarded between 15 and 30 percent of monies collected by the IRS, the target corporation presumably paid to the government between $126 million and $250 million in taxes and penalties.
This award should demonstrate to other corporate insiders that they can safely report their employer’s improper tax practices without their identity being disclosed. To maintain anonymity, a tax whistleblower’s information can be reported to the IRS through counsel.
Employment Retaliation Claims on the Rise
Employment retaliation claims are on the rise, according to the U.S. Equal Employment Opportunity Commission (EEOC). The EEOC reports that, in 2011, retaliation claims accounted for 37.4 percent of all charges filed with the EEOC, amounting to a total of 37,334 charges. This number represents an increase of more than 72 percent since 2000, when the total number of retaliation claims was 21,613.
What Is Employee Retaliation?
Employees are protected from discrimination in the workplace through various federal and state laws, such as Title VII of the Civil Rights Act of 1964 (as amended), the Equal Pay Act of 1963, the Age Discrimination Act of 1967, Title I of the Americans with Disabilities Act of 1990 and the Genetic Information Nondiscrimination Act of 2008. These laws, not only prohibit acts of discrimination based on race, gender, religion, disabilities, and age, but they also prohibit employers from firing, demoting, harassing or otherwise retaliating against an employee or applicant who files a charge of discrimination or participates in a discrimination lawsuit or investigation.
Court Rules that Parent Company, After Acquiring a Subsidiary, May Not Sue to Enforce the Subsidiary’s Employment Agreement – CDW, LLC, et al v. NETech Corporation
An Indiana federal district court ruled, in CDW, LLC, et al v. NETech Corporation, that neither a parent company nor one of its subsidiaries may sue to enforce the employment contracts of another of its subsidiaries, when one subsidiary is clearly the party to the agreement. The dispute involved covenants of noncompetition in a company’s employment contract and a claim for tortious interference with a business contract.
Berbee Information Networks Corporation employed several individuals as sales executives. These three individuals signed employment contracts that included a paragraph stating that they agreed, upon termination of their employment with Berbee, not to accept employment in direct competition with Berbee for up to twelve months. “Competition” included solicitation of Berbee employees or clients and use of Berbee’s proprietary business information. In September 2006, Berbee became a subsidiary of CDW, LLC when CDW purchased it and merged it with another subsidiary. Berbee, all parties to the eventual lawsuit agreed, was the surviving corporation of the merger.
CDW operated several subsidiaries that, like Berbee, engaged in the business of technology sales. Each subsidiary served a different market, such as commercial businesses, nonprofits, or government agencies. CDW transferred the three Berbee employees at the center of the dispute to another subsidiary, CDW Direct, between 2008 and 2009. These employees all left CDW Direct at different times to work for NETech Corporation. They each received letters after commencing work at NETech from an attorney for CDW alleging that they were in violation of their noncompetition agreement, demanding that they cease work for NETech and return all confidential materials obtained from Berbee or CDW.
California Federal Court Dismisses Class Action Lawsuit Claiming Unpaid Commissions – Park v. Morgan Stanley & Co., Inc.
The United States District Court for the Central District of California dismissed a class action claim brought by a financial advisor employed by a major financial services company. In Park v. Morgan Stanley & Co., Inc., the plaintiff claimed breach of contract and violation of California’s Unfair Competition Law (UCL), based on allegations that the defendant failed to pay commissions owed to plaintiff and other employees. The court ruled that the plaintiff failed to plead sufficient facts to support his claim for breach of contract, and that the UCL claim lacked support as a result.
The plaintiff was employed by the defendant as a financial advisor by Morgan Stanley & Co., Inc. Part of his job involved the sale of financial products to investors. He received commission payments from the defendant as compensation for sales, in amounts based on an “applicable commission grid.” This grid was allegedly contained in a “written agreement” between the plaintiff and the defendant that the court described in its order as “unspecified.” According to the plaintiff, the defendant said that it would base commissions on the full amount of revenue received for the financial products sold. The plaintiff alleged that the defendant took a portion of the revenue received before applying the commission grid, thus reducing the total amount of the commissions paid to the plaintiff and other employees.
The plaintiff filed a federal class action lawsuit on November 15, 2011, claiming breach of contract and violations of the UCL. The lawsuit alleged that the defendant’s policies knowingly denied earned compensation to certain employees, resulting in breach of contract and unjust enrichment to the defendant. The defendant filed a motion to dismiss the claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure, asserting that the plaintiff had not stated a cause of action on which the court could grant relief. The court cited precedents from the U.S. Supreme Court and the Ninth Circuit Court of Appeals to establish that, in order to defeat the defendant’s motion, the plaintiff needed to demonstrate enough allegations of fact to make his claims facially plausible. The court found that the plaintiff did not meet this standard, and it granted the defendant’s motion to dismiss.
Posner Decision Breathes New Life Into Class Actions in Sears Front Loading Washer Litigation
The Seventh Circuit Federal Court of appeals in a succinct and simply worded opinion by Judge Posner blew much needed fresh air into class action litigation by approving certification of class actions against Sears for front loading washing machines which are allegedly prone to mold or which had an allegedly defective controller. Judge Posner correctly concluded that machines with these type of uniform alleged defects are worth less than machines in correct working order and that consumers are therefore entitled to pursue refunds or other compensation for their alleged damages. Judge Posner correctly noted that class actions make sense to rectify consumer rights involving mass product defects which are essentially uniform but the damage recoveries to individual consumers would be too small to justify litigation. He made short shrift of the parade of claimed individual issues that defendants always claim exist to defeat class certification.
The class action suits which Posner considered involved alleged defects in Kenmore-brand Sears’ washing machines sold in periods beginning in 2001 and 2004. One asserted a defect that causes mold; the other asserted a defect that stops the machine inopportunely. The district court denied certification of the class complaining of mold and granted certification of the class complaining of sudden stoppage. The Seventh Circuit affirmed certification of the stoppage claims and reversed denial of certification for the mold claims. Rule 23(b)(3) conditions maintenance of a class action on a finding “that the questions of fact or law common to class members predominate over any questions affecting only individual members.” The basic question in the litigation is: were the machines defective in permitting mold to accumulate and generate noxious odors? The question is common to the entire mold class, although the answer may vary with the differences in design. The individual questions are the amount of damages owed particular class members. It is more efficient for the question whether the washing machines were defective to be resolved in a single proceeding than for it to be litigated separately in hundreds of different trials.
You can read the full opinion here.
This opinion should swing the pendulum towards the middle again and end trial courts from reflexively finding hypothetical individual issues to destroy the chances of cases that truly justify class action treatment from proceeding which has been occurring all too frequently in recent years. It should breathe new life into class actions which can help protect consumers from mass wrongdoing where the damages are too small to justify individual consumer lawsuits. Without the threat of class actions, business entities have far less incentive to correct mass product defects if a cost benefit analysis would make it easier for them to ignore resolving the issues in a fair manner. However, the Supreme Court’s recent decision to allow businesses, including disreputable ones, to force consumer to sign arbitration agreements eliminating consumer rights to bring class actions allows for an escape hatch from this decision which will continue to harm consumer rights unless Congress acts to prevent forced arbitration of consumer claims. Such congressional action is very unlikely.
Forced arbitration precludes class actions and also forces consumers to arbitrate their individual cases outside of court sometimes in front of rigged or biased arbitration outfits that retain unqualified arbitrators and favor their repeat business customers. While JAMS and American Arbitration Association (“AAA”) are extremely reputable arbitration organizations that provide forums, which in our opinion can be equal or superior to courts, our firm is now seeing sleazy businesses such as used car dealers forcing consumers to arbitrate claims in front of unfair business oriented arbitration organizations that provide kangaroo courts where consumers rights are trampled on and the business firms that pay these organizations are rewarded with unfair and favorable verdicts in cases where the evidence of misconduct is clear cut. Lawyers will avoid taking cases when these incompetent and pro-business arbitration organizations are selected in adhesion contracts created by used car dealers and other disreputable businesses. Without lawyers to represent them, consumers will not only have lost the protection of the court system but they will not be able to retain counsel to even bring their cases. Legislatures need to act to police these private court systems run by disreputable and biased organizations and to ensure that arbitration organizations that hear consumer claims are all legitimate outfits like the AAA and JAMS.
Since so many businesses are forcing consumers to opt out of class actions and to arbitrate claims on an individual basis, the full benefit of Judge Posner’s efficiency analysis for allowing class actions to proceed will unfortunately be lost. Our state and federal legislative bodies need to act to reopen the courthouse doors for vindicating consumer rights by ending mandatory arbitration in consumer contracts or at least to create government oversight bodies to drive out disreputable arbitration outfits that businesses are using to deny consumer rights. The government regulates lawyers and judges, but these disreputable and incompetent arbitration organizations lack the same regulation, which oftentimes means unjust results for consumers.
“Well-Pleaded Facts” Needed to Sustain Products Liability Suit – Osness v. Lasko Products, Inc.
A U.S. District judge in Pennsylvania dismissed a woman’s products liability claim due to a lack of sufficient facts in her pleadings to support her claims. In Osness v. Lasko Products, Inc., an Illinois woman brought a putative class action against a company for several consumer rights causes of action. The plaintiff alleged that the company knew about certain defects in a line of box fans it manufactured, but failed to warn consumers. The company’s motion to dismiss argued that the plaintiff failed to allege facts that supported any of her claims.
Lasko Products (“Lasko”), a Pennsylvania-based company, manufactures box fans for home use. In 2006, the Consumer Product Safety Commission (CPSC) announced a recall of about 5.6 million Lasko fans. The recalled fans would have been sold to the public from September 2000 until February 2004. The CPSC announced the recall after receiving reports of fires caused by electrical problems with the fan’s motor.
The plaintiff, Deborah Osness, alleged that Lasko continued to produce fans with the same defect. This led to a second recall of fans by the CPSC in March 2011, covering fans sold to consumers from July 2002 until December 2005. Both recalls occurred after the fans’ two-year warranties expired, according to the plaintiff, so Lasko did not offer a refund. Instead, it offered a “cord adapter” that eliminated the risk of fire but, according to the plaintiff, did not fix the underlying electrical problem. The electrical defect could cause the fan to blow a fuse, allegedly making it unusable.
NPR Reports: “E-Book Pricing Fixing Accusations May Bring Lawsuit”
NPR reports:
The Justice Department is threatening to sue Apple and five major publishers for allegedly colluding to raise the price of digital books. Apple persuaded publishers, including Harper Collins, Penguin and Simon and Schuster, to change how they price their e-books before the launch of the first iPad, according to The Wall Street Journal.
Lubin Austermuehle’s Oak Brook and Chicago Attorneys Peter Lubin Named 2013 Illinois Super Lawyer as Class-Action, Business Litigation and Consumer Rights Attorneys
Super Lawyers named Chicago and Oak Brook business trial attorneys Peter Lubin Super Lawyers in the Categories of Class Action, Business Litigation and Consumer Rights Litigation. Lubin Austermuehle’s Oak Brook and Chicago business trial lawyers have over a quarter of century of experience in litigating complex class action, consumer rights and business and commercial litigation disputes. We handle emergency business law suits involving injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud.
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