Hobby Lobby Must Return 5,000 Ancient Artifacts that it Smuggled from Iraq

Hobby Lobby must give back more than 5,000 ancient artifacts that is smuggled from Iraq and pay a $3 million settlement after the U.S. Justice Department sued the company for importing looted antiquities.

The company smuggled thousands of cuneiform tablets to the U.S. through the United Arab Emirates and Israel with packaging labels falsely described as tile “samples,” according to press release from the Justice Department. Disregarding warnings, Hobby Lobby knowingly purchased the looted artifacts for $1.6 million in a 2010 acquisition.

The Justice Department filed a civil complaint against Hobby Lobby on July 5 to forfeit all the cuneiform tablets and clay bullae. Smuggling these ancient clay artifacts violated federal law. Packages containing the artifacts were shipped to Hobby Lobby Stores, Inc., a religion-based company notorious for denying women insurance coverage for contraceptives.

The shipping labels on these packages falsely described cuneiform tablets as tile “samples.”

$3 Million Settlement

Hobby Lobby will forfeit 144 cylinder seals and pay a $3 million settlement. It must now hire qualified legitimate customs counsel and brokers, and submit quarterly reports to the government on any cultural property acquisitions for the next 18 months.

The complaint and settlement were announced by Bridget M. Rohde, Acting United States Attorney for the Eastern District of New York, and Angel M. Melendez, Special Agent-in-Charge, U.S. Immigration and Customs Enforcement (ICE), Homeland Security Investigations (HSI), New York.

“The protection of cultural heritage is a mission that HSI and its partner U.S. Customs and Border Protection take very seriously as we recognize that while some may put a price on these artifacts, the people of Iraq consider them priceless,” stated Special Agent-in-Charge Melendez.

Hobby Lobby began to assemble a collection of historically significant manuscripts, antiquities, and other cultural materials. Its president and a consultant traveled to the UAE in July 2010 to inspect a large number of cuneiform tablets and other antiquities being offered for sale. Cuneiform is an ancient system of writing on clay tablets that was used in ancient Mesopotamia thousands of years ago.

Ignoring Warnings

In October 2010, an expert on cultural property law retained by Hobby Lobby:

  • Warned the company that the acquisition of cultural property likely from Iraq, including cuneiform tablets and cylinder seals, carries a risk that such objects may have been looted from archaeological sites in Iraq.
  • Advised Hobby Lobby to review its collection of antiquities for any objects of Iraqi origin and to verify that their country of origin was properly declared at the time of importation into the United States.
  • Warned Hobby Lobby that an improper declaration of country of origin for cultural property could lead to seizure and forfeiture of the artifacts by U.S. Customs.

Ignoring these warnings, Hobby Lobby purchased more than 5,500 artifacts in December 2010, including cuneiform tablets and bricks, clay bullae and cylinder seals, for $1.6 million.

The sleazy acquisition of the Artifacts was fraught with red flags. For example:

  • Hobby Lobby received conflicting information where the Artifacts had been stored prior to the inspection in the UAE.
  • When the Artifacts were presented for inspection to Hobby Lobby’s president and consultant in July 2010, they were displayed informally.
  • Hobby Lobby representatives had not met or communicated with the dealer who purportedly owned the Artifacts, nor did they pay him for the Artifacts.
  • Following instructions from another dealer, Hobby Lobby wired payment for the Artifacts to seven personal bank accounts held in the names of other individuals.

Hobby Lobby Smuggling

With Hobby Lobby’s consent, a UAE-based dealer shipped packages containing the Artifacts to three different corporate addresses in Oklahoma City, Oklahoma. Between one and three shipments arrived at a time, without the required customs entry documentation being filed with U.S. Customs, and bore shipping labels that falsely and misleadingly described their contents as “ceramic tiles” or “clay tiles (sample).”

After approximately 10 packages shipped in this manner were received by Hobby Lobby and its affiliates, U.S. Customs intercepted five shipments. All of the intercepted packages bore shipping labels that falsely declared that the Artifacts’ country of origin was Turkey. No further shipments were received until September 2011, when a package containing approximately 1,000 clay bullae from the same purchase was received by Hobby Lobby. It was shipped by an Israeli dealer and accompanied by a false declaration stating that the bullae’s country of origin was Israel.

In executing the stipulation of settlement, Hobby Lobby has accepted responsibility for its past conduct and agreed to take steps to remedy the deficiencies that resulted in its unlawful importation of the Artifacts.

$60 Million Verdict for Consumers Misidentified as Terrorists

WASHINGTON, D.C. – A jury awarded $60 million jury on Tuesday to consumers whose credit reports misidentified them as terrorists and criminals.

It could have been blocked by forced arbitration or a class-action ban, showing the importance of a rule expected to be finalized this summer by the U.S. Consumer Financial Protection Bureau (CFPB), according to the Fair Arbitration Now coalition.

The verdict could have been blocked by forced arbitration or a class-action ban, showing the importance of a rule expected to be finalized this summer by the U.S. Consumer Financial Protection Bureau (CFPB), according to the Fair Arbitration Now coalition.

The jury award came in a nationwide class action for more than 8,000 consumers, finding that the credit reporting agency TransUnion violated the Fair Credit Reporting Act when it carelessly misidentified the consumers as terrorists and criminals when people sought auto loans or bank accounts, confusing the consumers with similarly named people on a government watch list.

“People who were falsely labeled as terrorists or drug dealers would have been blocked from their day in court if TransUnion had slipped in a forced arbitration clause as it has tried to do in the past,” said Remington A. Gregg, Counsel for Civil Justice and Consumer Rights for Public Citizen’s Congress Watch division.

The CFPB has proposed a rule that would prohibit forced arbitration clauses with class-action bans in consumer financial contracts. A final rule is expected this summer, but Congress may attempt to block it.

Forced arbitration clauses are fine-print clauses in contracts that prohibit consumers from suing in court and force them to bring disputes before a private arbitrator, often chosen by the company. Forced arbitration clauses are often combined with class-action bans, which prohibit people from banding together to address widespread wrongdoing.

“Class actions are critical to stop widespread wrongdoing. TransUnion was sued years ago for confusing a consumer with a terrorist, but the company kept up its reckless practices, making this class action essential to helping the 8,000 people who were harmed,” said Lauren Saunders, associate director of the National Consumer Law Center.

TransUnion has tried to bind people to forced arbitration when they use its website or sign up for its credit monitoring services. But in this case, lead plaintiff Sergio Ramirez did not have to contend with a forced arbitration clause or a class-action ban because there was no agreement between him and TransUnion.

“In most cases, people can’t avoid fine-print forced arbitration clauses in bank accounts, credit cards and other loans, taking away their day in court when the company violates the law,” said Saunders.

The case is Sergio L. Ramirez v. TransUnion LLC in the U.S. District Court for the Northern District of California.

Fair Arbitration Now is a coalition of more than 75 organizations and people who support ending the predatory practice of forced arbitration in consumer and non-bargaining employment contracts.

Are Municipal Bonds Right for You?

Andrew Taylor, CFP® is a wealth advisor at OJM Group

Andrew Taylor, CFP® is a wealth advisor at OJM Group

Do they make sense today and are they appropriate if tax rates are positioned to decline?

By Andrew Taylor, CFP

Sentiment on the Street suggests taxes are headed lower now that Republicans control the Presidency, House and Senate.  President Trump has indicated simplifying the tax code is one of his legislative priorities.  If tax rates do drop, what does this mean for tax exempt bonds and why? Will lower rates make tax exempt bond less attractive?  Most importantly:  How can you decide if municipal bonds are appropriate for you?   Answers to these questions and more are provided in this brief article.

What is a municipal bond?

A municipal bond (also frequently called a muni) is debt issued by a state or municipality.   Investors are attracted to municipal bonds because they are generally exempt from Federal taxes, and potentially exempt from state and local taxes for residents located in the same state as the issuer.  Simply put:  investors have the ability to reduce their tax burden by allocating from taxable bonds to municipal bonds.

Why does the Federal Government permit tax-free bonds when they are looking for ways to increase revenue?

Municipal debt serves as a low-cost way for cities and states to fund infrastructure and finance capital improvements.  The interest rate, or more specifically the interest payments on the bond represent the trust cost to the state or municipality.  Investors will demand a lower rate on tax-exempt debt.   Financially stable states with full employment and growing economies are positives for the Federal Government.  Sound infrastructure typically attracts corporations, paying healthy salaries to employees, who happen to be paying federal taxes.

Should I sell my current municipal bond holdings?

If individual tax rates decline substantially, expecting the price of existing municipal bonds to lose value is certainly reasonable.  Why?  If tax rates decline, the value of the tax-exempt interest payment is reduced (note the sample calculation below to help articulate the point).   Owners of individual bonds should not lose sight of the fact their initial investment will be returned once the bond matures.   If you purchased a $50,000 ten-year municipal bond when top federal tax rates were 43.4 percent, you will receive $50,000 at the end of ten years even if the top rate is 30% at maturity.

Individual investors should typically avoid trading bonds for a variety of reasons beyond the scope of this article.  An argument could certainly be made, the action an investor should typically follow is thrown out the window if a municipal bond market crash is inevitable.  We are of the opinion the price decline would be marginal.  Fortunately, we do have a historical point of reference to support our position.

Former President Ronald Regan dropped the top marginal tax rate from 50 percent to 28 percent in the 1980s and the municipal bond market survived.  A decline in the top rate over the next few years is highly likely to be less severe.  President Trump has proposed reducing the top rate to 33 percent.  Congress must find a way to complete tax reform without forcing the deficit to soar.  Reaching an agreement could take an extended period.   Ronald Reagan pledged to simplify the tax code at his inauguration in January of 1984, his tax reform act did not become law until October of 1986.  We would advise against reacting based on legislation which may take years to pass.

President Trump has proposed reducing the top rate to 33 percent.  Congress must find a way to complete tax reform without forcing the deficit to soar.  Reaching an agreement could take an extended period.   Ronald Reagan pledged to simplify the tax code at his inauguration in January of 1984, his tax reform act did not become law until October of 1986.  We would advise against reacting based on legislation which may take years to pass.

Should I Buy New Municipal Bonds?  Understand Your Tax Equivalent Yield

Determining whether you should invest in municipal bonds is actually quite simple, however it is an exercise very few take the time to understand.   Corporate bonds (and most other bonds) are taxed as ordinary income.   Most municipal bonds are exempt from federal taxation, for the purpose of this calculation we will ignore the benefit of a state tax deduction.

If you happen to find yourself in the highest marginal tax bracket, today’s top federal rate is 43.4%.   Calculate your tax equivalent yield by subtracting your tax rate (in decimal form) from one.  Ex:  (1-0.434=0.566).   The next step is to divide the yield of your municipal bond by the reciprocal of your tax rate (0.566).   An equation for the problem reads {Municipal bond yield}/(1-your marginal tax rate).

Example 1:

Allow us to run through an example for this investor in the highest tax bracket.  An investor is considering allocating $100,000 to a corporate bond or a municipal bond:

  • A fully taxable corporate bond yielding 5 percent
  • A municipal bond is yielding 3 percent. The investor’s tax equivalent yield is
    • 3.0%/(1-0.434)=5.30%

The taxable bond would pay $5,000 in interest annually, however the investor would owe $2,170 in taxes for a net return of $2,830.   An investment in the municipal bond would generate $3,000 annually tax free.  In this instance 3 percent is more than 5 percent!

Example 2:

The highest tax bracket drops to 33 percent; consequently, the spread between municipal bonds and taxable bonds have narrowed.   An investor is deciding between:

  • A fully taxable corporate bond yielding 4 percent
  • A municipal bond yielding 3 percent. The investor’s tax equivalent yield is
  • 3.0%/(1-.33)=4.48%

Once again the municipal bond is more attractive to this particular investor.  In fact, the municipal bond yield could drop to 2.75% and continue to offer a more attractive tax equivalent yield.

A variety of additional factors beyond the scope of this article should be considered before allocating funds to municipal bonds or any other investment.   You should consult with a professional to decide if municipal bonds are an appropriate part of your larger investment strategy.   The author welcomes your questions.

Andrew Taylor, CFP® is a wealth advisor at OJM Group (www.ojmgroup.com) and author of many articles on wealth management and other financial topics.  He can be reached at 877-656-4362 or ataylor@ojmgroup.com

This article contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized legal or tax advice.   There is no guarantee that the views and opinions expressed in this article will be appropriate for your particular circumstances.  Tax law changes frequently, accordingly information presented herein is subject to change without notice.  You should seek professional tax and legal advice before implementing any strategy discussed herein.




Year-End Tools and Techniques to Reduce Your 2016 Tax Bill

cut-taxesBy Carole C. Foos, CPA and David B. Mandell, JD, MBA

As we approach the 4th quarter of the year, most attorneys now have a fairly good idea of what their taxable income will be for 2016. You may be wondering “is there anything I can do now to save taxes on April 15th?” The answer is very likely “yes.” In fact, the 4th quarter of the year ending and the 1st quarter of the new year are the best times for focusing on tax reduction.

This short article will lay out a few ideas that could save you tens of thousands of dollars on your 2016 income tax bill, depending on your facts and circumstances, as well as explaining some capital gains and planning concepts.

Techniques to Reduce 2016 Income Taxes

1. Maximize the Tax Benefits of Your Qualified Retirement Plan (QRP)

Nearly 95 percent of attorneys have some type of QRP in place. These include 401(k)s, profit-sharing plans, money purchase plans, defined benefit plans, or even SEP or SIMPLE IRAs, for these purposes.

However, most of these plans are not maximized for deductions for the business/practice owners. The Pension Protection Act improved the QRP options for practice owners. In other words, many owners may be using an “outdated” plan and forgoing further contributions and deductions permitted under the most recent rule changes. By maximizing your QRP under the new rules, you could increase your deductions significantly for 2016 and reduce your taxes on April 15, 2017.

2. Implement a Non-Qualified Plan

Unfortunately, the vast majority of attorneys begin and end their retirement planning with QRPs. Most have not analyzed, let alone implemented, any other type of benefit plan. Have you explored non-qualified plans in the last two years? The unfortunate truth for many is that they are unaware of plans that enjoy favorable short-term and long-term tax treatment. If you have not yet analyzed all options, we highly encourage you to do so. A number of these plans can help you reduce your taxable income for years as part of a tax diversification plan.

3. Consider a Captive Insurance Company (CIC)

CICs are used by many of the Fortune 1000 for a host of strategic reasons. For a law practice, a CIC can be equally beneficial, especially for the practice owners. Here, you actually create your own properly licensed insurance company to insure all types of risks of the practice – often those that have little coverage today. These can be economic risks (that revenues drop), business risks (that electronic records are destroyed), litigation risks (coverage for defense of harassment claims or wrongful termination), and even real estate. If created and maintained properly, the CIC can enjoy tremendous income tax benefits that can translate into hundreds of thousands of dollars of tax savings annually.

4. Pre-Pay 2017 Expenses in 2016

As the year winds down, we typically counsel cash basis clients to prepay for some of the following year’s expenses in the present year. As long as the economic benefit from the prepayment lasts 12 months or less, this can be done. Since 2017 highest marginal tax rates will likely be the same as those in 2016, this makes sense because of the benefit of the early deduction.

Techniques to Reduce Taxes on Investments

Planning for the 3.8 Percent Medicare Surtax

Beginning in 2013, the tax law imposed 3.8 percent surtax on certain passive investment income of individuals, trusts and estates. For individuals, the amount subject to the tax is the lesser of (1) net investment income (NII) or (2) the excess of a taxpayer’s modified adjusted gross income (MAGI) over an applicable threshold amount.

Net investment income includes dividends, rents, interest, passive activity income, capital gains, annuities and royalties. Specifically excluded from the definition of net investment income are self-employment income, income from an active trade or business, gain on the sale of an active interest in a partnership or S corporation, IRA or qualified plan distributions and income from charitable remainder trusts. MAGI is generally the amount you report on the last line of page 1, Form 1040 adjusted by the above non-includible items.

The applicable threshold amounts are shown below.

  • Married taxpayers filing jointly $250,000
  • Married taxpayers filing separately $125,000
  • All other individual taxpayers $200,000

A simple example will illustrate how the tax is calculated:

Al and Barb, married taxpayers filing jointly, have $300,000 of salary income and $100,000 of NII. The amount subject to the surtax is the lesser of (1) NII ($100,000) or (2) the excess of their MAGI ($400,000) over the threshold amount ($400,000 -$250,000 = $150,000). Because NII is the smaller amount, it is the base on which the tax is calculated. Thus, the amount subject to the tax is $100,000 and the surtax payable is $3,800 (.038 x $100,000).

Fortunately, there are a number of effective strategies that can be used to reduce MAGI and or NII and reduce the base on which the surtax is paid. These include (1) Roth IRA conversions, (2) tax exempt bonds, (3) tax-deferred annuities, (4) life insurance, (5) oil and gas investments, (6) timing estate and trust distributions, (7) charitable remainder trusts, (8) installment sales and maximizing above-the-line deductions. We would be happy to explain how these strategies might save you large amounts of surtax.

2. Use Charitable Giving for Capital Gains Tax Planning

There are many ways you can make tax beneficial charitable gifts while benefiting your family as well. Charitable Remainder Trusts (CRTs), Charitable Lead Trusts (CLTs), Private Foundations – these can all be used, within the IRS rules, to benefit charitable causes, reduce taxes and retain some benefits for families. If you have considered any of these tools in the past, implementing them in a year of high income might be a good idea.

This article gives you a few ideas for potential tax savings for 2016 income and beyond. The key is to take the time to evaluate which of these concepts, or others not mentioned in this short article, may work for you. In 2016, all attorneys need to be as financially efficient as possible.

SPECIAL OFFERS:  To receive a free hardcopy of Fortune Building for Business Owners and Entrepreneurs, please call 877-656-4362. Visit www.ojmbookstore.com and enter promotional code NTL01 for a free ebook download of Fortune Building for your Kindle or iPad.

David B. Mandell, JD, MBA, is an attorney, consultant, and author of ten books for attorneys, physicians and business owners including Fortune Building for Business Owners and Entrepreneurs. He is a principal of the financial consulting firm OJM Group www.ojmgroup.com, where Carole C. Foos, CPA is a principal and lead tax consultant. They can be reached at 877-656-4362 or mandell@ojmgroup.com Disclosure:

OJM Group, LLC. (“OJM”) is an SEC registered investment adviser with its principal place of business in the State of Ohio.

Right on! Feds Can’t Prosecute Medical Marijuana Users

marijuanaThe 9th US Circuit Court of Appeals has ruled that the US Justice Department can’t prosecute people who are strictly complying with state medical marijuana laws.

In ten consolidated interlocutory appeals and petitions for writs of mandamus arising from three district courts in two states, the court vacated the district court’s orders denying relief to the appellants, who were indicted for violating the Controlled Substances Act.

Rider prohibits MJ prosecution

The appellants sought dismissal of their indictments or to enjoin their prosecutions on the basis of a congressional appropriations rider, Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, § 542, 129 Stat. 2242, 2332-33 (2015), that prohibits the Department of Justice from spending funds to prevent states’ implementation of their medical marijuana laws.

The appeals panel held that the appellants have standing to invoke separation-of-powers provisions of the Constitution to challenge their criminal prosecutions.

It ruled that § 542 prohibits the DOJ from spending funds to prosecute people who engaged in conduct permitted by state medical marijuana laws and who fully complied with such laws. However, people who do not strictly comply with all state-law conditions regarding the use, distribution, possession, and cultivation of medical marijuana may be prosecuted.

The panel instructed that if DOJ wishes to continue these prosecutions, the appellants are entitled to evidentiary hearings to decide whether their conduct was completely authorized by state law. The panel wrote that in determining the proper remedy for any violation of § 542, the district courts should consider the temporal nature of the lack of funds along with the appellants’ rights to a speedy trial.

The case is US v. Steve McIntosh, Defendant-Appellant. No. 15-10117 D.C. No. 3:14-cr-00016-MMC-3.

Three sets of cases

These ten cases are consolidated interlocutory appeals and petitions for writs of mandamus arising out of orders entered by three district courts in two states within the  circuit.

All appellants were indicted for various infractions of the Controlled Substances Act (CSA). They moved to dismiss their indictments or to enjoin their prosecutions on the grounds that the Department of Justice (DOJ) is prohibited from spending funds to prosecute them.

In McIntosh, five co-defendants allegedly ran four marijuana stores in the Los Angeles area known as Hollywood Compassionate Care (HCC) and HappyDays, and nine indoor marijuana grow sites in the San Francisco and Los Angeles areas. These co-defendants were indicted for conspiracy to manufacture, to possess with intent to distribute, and to distribute more than 1000 marijuana plants in violation of 21 U.S.C. §§ 846, 841(a)(1), 841(b)(l)(A). The government sought forfeiture derived from such violations under 21 U.S.C. § 853.

In Lovan, the U.S. Drug Enforcement Agency and Fresno County Sheriff’s Office executed a federal search warrant on 60 acres of land in Sanger, California. Officials allegedly located more than 30,000 marijuana plants on this property. Four co-defendants were indicted for manufacturing 1000 or more marijuana plants and for conspiracy to manufacture 1000 or more marijuana plants in violation of 21 U.S.C. §§ 841(a)(1), 846.

In Kynaston, five co-defendants face charges that arose out of the execution of a Washington State search warrant related to an investigation into violations of Washington’s Controlled Substances Act. Allegedly, a total of 562 “growing marijuana plants,” along with another 677 pots, some of which appeared to have the root structures of suspected harvested marijuana plants, were found. The co-defendants were indicted for conspiring to manufacture 1000 or more marijuana plants, manufacturing 1000 or more marijuana plants, possessing with intent to distribute 100 or more marijuana plants, possessing a firearm in furtherance of a Title 21 offense, maintaining a drug-involved premise, and being felons in possession of a firearm in violation of 18 U.S.C. §§ 922(g)(1), 924(c)(1)(A)(i) and 21 U.S.C. §§ 841, 856(a)(1).

The court vacated the orders of the district courts and remanded them with instructions to conduct an evidentiary hearing to determine whether Appellants have complied with state law.

Facebook Facial Recognition Tag Suggestions May Violate Privacy Law

facebook privacyFacebook must face a lawsuit against it that claims its photo-tagging system using facial recognition software to identifying users violates Illinois’s Biometric Information Privacy Act.

Chicago residents brought the lawsuit, which was transferred to a Northern California District Court at Facebook’s request, claiming Facebook collected biometric identifiers, such as faceprints, without consent and in violation of the Illinois law.

Facebook attempts to dismiss lawsuit

Facebook filed a motion for summary judgement and a motion to dismiss the case, arguing that its terms and conditions included a choice-of-law provision stipulating that claims against Facebook must be litigated in California under its law, and that the plaintiffs failed to state a claim under the Biometric Information Privacy Act (BIPA).

The court agreed with Facebook, finding that the plaintiffs assented to the user agreements when they signed up for Facebook, and were provided notice of the updated user agreement containing the California choice-of-law provision.

However, in determining whether the California choice-of-law clause was enforceable, the court applied an enforceability test looking to whether California law on the issue is contrary to a fundamental policy and if Illinois had a “materially greater interest in the determination of the matter.

Illinois privacy law applies

The court, answering both questions in the affirmative, wrote that the BIPA “manifests Illinois’ substantial policy of protecting its citizens’ right to privacy in their personal biometric data.”

The court wrote that the BIPA is premised on concerns about the use of biologically unique identifiers that once compromised, “the individual has no recourse” and is at a heightened risk for identity theft.

The BIPA protects the privacy of individuals by requiring written policies on biometric data retention and informed consent before obtaining or disclosing personal biometric information.  The act also provides a private right of action for anyone whose privacy has been compromised.

The court wrote that Facebook attempted to “downplay the conflict as merely the loss of a claim,” but rejected the argument, writing that if its motion were granted, it would write the Illinois policy of protecting its citizen’s privacy interest “out of existence.”

Finding that Illinois would suffer a “complete negation of its biometric privacy protections for its citizens if California law were applied,” the court declined to enforce the California choice-of-law provision, denying Facebook’s motion for summary judgement.

User photos are biometric information

The court also denied Facebook’s motion to dismiss, which argued that the BIPA excludes photographs and any information derived from the photographs in its definitions of “biometric identifiers” and “biometric information.”

The court found the argument “unpersuasive” and refused to read the statute to exclude images and photographs from its scope.  The court wrote that such an exclusion would “substantially undercut” the BIPA because the analysis of biometric identifiers is usually based on an image or photograph.

The court allowed the Facebook users to proceed finding that they had a plausible claim that Facebook used its facial recognition technology without their consent, but no ruling was made on whether the technology violated BIPA.


The case is In re Facebook Biometric Information Privacy Litigation, Case number 3:15-cv-03747-JD, in the United States District Court Northern District of California.


Uber Sued by Sexual Assault Victims

Uber assaultA California Court has allowed two women sexually assaulted by Uber drivers to proceed in a lawsuit against Uber, despite the company’s motion to dismiss arguing it could not be held liable for crimes committed by the drivers who they consider independent contractors.

Driver raped passenger

Jane Doe 1 of Connecticut and Jane Doe 2 of Florida brought a single lawsuit against Uber.  Boston Uber driver Abderrahim Dakiri assaulted Doe 1 during a ride home on in February 2015.  Police later arrested and charged Dakiri with assaulting Doe 1 on February 7, 2015.

The driver was a recent immigrant who had been in the country for three years, and a background check would not have turned up other relevant information.  While driving Jane Doe 1, Dakiri drove “more than 15 minutes off route” and parked in a remote area “in order to increase his opportunity to sexually assault her,” according to the opinion.

Jane Doe 2 asserts that driver Patrick Aiello, also a middle school teacher, in Charleston, S.C., raped her.  Aiello was arrested on August 9, 2015 on charges of kidnapping and first-degree criminal sexual conduct.

Uber’s seven-year background check did not pick up Aiello’s 12-year-old assault conviction stemming from a domestic violence arrest in 2003.

While driving Jane Doe 2 home, Aiello locked the car doors and drove the car to a remote parking lot near a highway where he “proceeded to viciously rape her and threaten her with harm multiple times.”

Afterwards Doe 2 was able to run to the highway where she was hit by a car while waiving it down for help.  Police took her to a hospital where she became suicidal and remained in a psychiatric unit for three days.

Uber liable as employer

Doe 1 and Doe 2 asserted claims for negligent hiring, supervision, and retention, fraud, battery, assault, false imprisonment, and intentional infliction of emotional distress under a theory of respondeat superior.

Uber requested the court dismiss the lawsuit, claiming no employment relationship exists between Uber and drivers because they are independent contractors.  Uber recently settled two class action lawsuits for $100 million brought by drivers who sought to be classified as employees.

The settlement allowed Uber to continue classifying drivers as independent contractors, although various concessions were given to drivers.

The court agreed with Doe 1 and Doe 2’s argument that Uber is an employer, who retains control over customer contact and fair price, uses a pool of non-professional drivers with no specialized skills, and may terminate drives at will.

In determining that an employment relationship existed, the court wrote, “it matters not whether Uber’s licensing agreements label drivers as independent contractors, if their conduct suggests otherwise.”

Concerns about safety of female passengers

In the alternative, Uber argued the sexual assaults that occurred were outside the scope of the driver’s employment, rendering Uber not liable for their crimes.  The court wrote that a “sexual assault by a…taxi-like driver…is not so unusual or startling” and assaults such as these are “exactly why customers would expect” background checks of Uber drivers.

Amidst concerns about the safety of female passengers and a Buzzfeed article publishing screen shots of Uber’s customer support system showing thousands of entries containing the words “rape” and “sexual assault,” Uber revealed that it received only five claims of rape and 170 claims of sexual assault between December 2012 and August 2015.

Assaults occurred within scope of employment

The court ruled that despite Uber’s effective argument, the court could not determine as a matter of law that sexual assault by an Uber driver is always outside the scope of employment.  For the purpose of Uber’s motion to dismiss, the court found that the drivers were acting in the scope of employment as drivers.

“Holding Uber liable could also forward the underlying policy goals of respondeat superior, including prevention of future injuries and assurance of compensation to victims,” wrote the court.

The court, in its ruling, dismissed the claims against Uber for the negligent hiring, supervision, and retention of Dakiri, the driver who assaulted Doe 1, because nothing was claimed to have existed in his background that Uber knew or should have known that should have prevented his approval as a driver.

The same claims against Uber for driver Aiello remain however, because Uber should have known about his criminal history.

The court denied all other of Uber’s motions to dismiss, allowing Doe 1 and Doe 2 to proceed on its claims against Uber as the employer of the drivers.


The case is Jane Doe 1, et al., v. Uber Technologies, INC., Case No. 15-cv-04670-SI, in the United States District Court Northern District of California.

Supreme Court Declines Review of $25M Tobacco Case Likened to Criminal Manslaughter

Philip morris oregonThe United States Supreme Court upheld a $25 million punitive damages award against tobacco giant Philip Morris USA Inc. for the family of a Oregon woman who died from lung cancer that had metastasized to a brain tumor.

The high court declined to hear Philip Morris’ appeal of an Oregon Appeals Court ruling that upheld the $25M punitive damages award reduced from a $150M jury verdict after the Oregon Supreme Court ordered a new trial solely on the issue of punitive damages.

Low-tar cigarettes marketed as safe alternative

Michelle Schwarz survivors brought the lawsuit against Philip Morris after her death in 1999.  Schwarz smoked since the age of 18 and switched to Philip Morris’s Merit Brand cigarettes which were fraudulently marketed as low tar cigarettes as a safe alternative.

The jury found Philip Morris liable for negligence, product liability, and fraud and apportioned Schwarz 49 percent of the fault, awarding $168,000 in compensatory damages and $150 million in punitive damages.

Philip Morris appealed the verdict to the Oregon Supreme Court asserting that the trial court had not properly instructed the jury regarding punitive damages.  The court ordered a new trial and limited the question on what the correct amount of punitive damages should be.

Using the binding verdicts from the first jury trial, the jury determined a punitive damages amount considering the courts emphasis that the evidence demonstrated that the tobacco giant acted with “reckless and outrageous indifference to a highly unreasonable risk of harm and …with a conscious indifference to the health, safety, and welfare of others.”

Considering what the court noted as concerns about the “degree of reprehensibility of Philip Morris’s conduct,” and the evidence regarding the tobacco company’s worth of $50 billion, the retrial jury awarded punitive damages of $25 million.

‘Extraordinarily reprehensible’ conduct compared to manslaughter

Philip Morris appealed the verdict again, arguing the award was grossly excessive in violation of the Due Process Clause.  The state’s Supreme Court rejected the argument, concluding that Philip Morris’s conduct, which it described as a “concerted decades-long effort to deceive smokers and the public about the dangers of smoking” its low-tar cigarettes, was “extraordinarily reprehensible.”

In affirming the verdict, the court referenced the state appeals court ruling that compared Philip Morris’s conduct to criminal homicide, writing that the fraudulent conduct the company engaged in resulting in Schwarz’s death could constitute first-degree manslaughter.

Supreme Court declines review

In its petition to review to the United States Supreme Court, Philip Morris asserted that Oregon’s partial-retrial of only the punitive damage issue conflicted with the high court’s rulings that partial-retrials are only allowed in unusual circumstances because they may cause “serious due process concerns.”

Philip Morris asserted that the Oregon courts were required to order a new trial on all issues, not just that of punitive damages.

The tobacco company also argued that the Supreme Court could use the case to settle state and federal court conflicts on the permissibility of partial retrials in punitive damage cases.

The company further urged the courts review of the case, claiming its implications “transcend punitive damages” and “will provide valuable guidance to…courts across the country” in complex litigation and “mass tort litigation that has proliferated in recent decades.”

Schwarz response brief pointed out that the cases cited by Philip Morris did not apply to decisions to remand for full or partial retrial.  The response further argued that issues for retrial are recognized as a matter for the court’s discretion and does not conflict with the due process clause.

The Supreme Court apparently did not find the case to be of transcending importance and declined to review, upholding the $25 million punitive damage award.


The case is Philip Morris USA Inc. v. Paul Scott Schwarz, case no. 15-1013, in the United States Supreme Court.

Chipotle’s Social Media Policy is Illegal, Unlawfully Asked Employee to Delete Tweet


Things haven’t been good lately for the widely-popular burrito chain Chipotle. From ongoing e-coli outbreaks to a sexual discrimination suit earlier this year, the Mexican grill is now facing violations of Section 8(a)(1) of the National Labor Relations Association (NLRA).

An administrative law judge deemed Chipotle’s social media policy illegal and is requiring the chain rehire a Philadelphia-area employee who was terminated after criticizing the company on Twitter last year.

Illegal Policies

Plaintiff James Kennedy was reprimanded for posting on Twitter against a “free burrito” promotion and was dismissed two weeks later, when he was found collecting signatures petitioning for the mandated breaks owed during employees’ shifts. Kennedy’s tweet, sent in response to a free burrito giveaway, read: “@ChipotleTweets, nothing is free, only cheap #labor. Crew members make only $8.50hr. How much is that steak bowl really?”

The company was ordered to cease prohibiting employees from posting on social media regarding employees’ wages or other terms or conditions of employment.

Chipotle’s social media strategist emailed the regional manager for the Haverford, Pennsylvania location, forwarding the tweet. The next day, the restaurant’s general manager approached the Kennedy in the kitchen and said she wanted to talk to him in the dining room. They went out and sat with the regional manager, who asked the employee if he was familiar with the company’s social media policy. Under pressure, Kennedy ultimately agreed to delete the tweet, which he did later that day.

The Chipotle social media policy at issue states, “If you aren’t careful and don’t use your head, your online activity can also damage Chipotle or spread incomplete, confidential, or inaccurate information. You may not make disparaging, false, misleading, harassing or discriminatory statements about or relating to Chipotle, our employees, suppliers, customers, competition, or investors.”

Concerted Activity

Judge Susan Flynn not only struck down Chipotle’s social media policy as violating labor laws, she also ordered the burrito chain to post signs acknowledging that some of its employee policies – especially the social media rules – were illegal. Kennedy’s manager testified at the hearing that she fired Kennedy, a war veteran, because she was concerned he would become violent with her after arguing about his right to collect signatures on the meal break petition.

Employers may not prohibit social media postings of false, misleading, incomplete, disparaging or inaccurate information, according to the ruling in Lafayette Park Hotel. In order to lose the NLRA’s protection, employers must demonstrate that the employee had a malicious motive in posting the material. If employers choose to retain policies regarding “confidential” company information, the word “confidential” must be defined within the employer’s policy. Otherwise, this prohibition will be deemed a violation of Section 7.

The bottom line: Kennedy’s tweet was protected concerted activity because they had the purpose of “educating the public and creating sympathy and support” for hourly workers in general and Chipotle’s workers in specific. The tweet did not pertain to wholly personal issues relevant only to the employee but were truly group complaints and were therefore protected.

Kennedy, whom Chipotle has been ordered to reinstate and pay back wages, said he’d happily accept his back wages in the form of free Chipotle food vouchers. “You cannot deny that their food is delicious, but their labor policies were atrocious,” Kennedy said.

The case is Chipotle Services LLC dba Chipotle Mexican Grill (March 14, 2016).

7th Circuit affirms $10M Unilever Hair Loss Settlement Against Class Member Appeal

burnt hair 2The Seventh Circuit Court of Appeals has affirmed a $10 million class-action settlement against Unilever United States, Inc. (Unilever USA) for its Suave Keratin Infusion 30 Day Smoothing Kit (Smoothing Kit) that melted consumers’ hair causing it to fall out and burn the scalp.

A class member objected to the settlement on many grounds, which the court dismissed, affirming the district court’s proper approval of the settlement agreement.

Three class action lawsuits were filed and consolidated into one in the Northern District of Illinois against Unilever USA in August 2012.  The class members purchased the Smoothing Kit, which was a hair product marketed to smooth hair and coat it with keratin.  An active ingredient in the product, thioglycolic acid, is extremely corrosive and when left in the hair, it can melt the hair and burn the scalp.

Settlement reached

After a year and a half of mediation, the parties reached a settlement agreement in February 2014 and an order granting approval was entered in July 2014.  The settlement provided for a reimbursement fund of $250,000 and an Injury fund of $10 million.

The reimbursement fund provided compensation to any class member with a one-time payment of $10 for the cost of purchasing the smoothing kit.

The injury fund was designed to compensate members under three benefits;

  • Benefit A provided a maximum of $40 for class members who incurred expenses for hair treatment but lack receipts;
  • Benefit B provides $800 for claimants who have receipts for hairdressers or medical bills; and
  • Benefit C provides up to $25,000 for claimants who suffered significant bodily injury.  Class counsel fees remained entirely separate from the $10,250,000 for class compensation

Class member appeals agreement

Class member Tina Martin objected to the settlement agreement and appealed the final order.  The Court of Appeals dismissed all 11 of Martin’s objections, writing many of the issues she asserted overlapped and conflicted with one another.

Martin claimed that the district court relied on inaccurate data, arguing that the settlement amount may be inadequate because the class size is probably larger than the parties assumed.  She also claimed the court did not know enough information about the number of claimants who suffered serious injuries because only 500 injury clams had been filed.

The court wrote that Martin did “not seem to be sure about what point she is making” as she asserted conflicting arguments.  Nevertheless, the court determined that district court had sufficient information to order the settlement agreement and that the amount was in a reasonable range.

In dismissing Martin’s claim that the certification of the class under Illinois law was unfair, the court found that certification in this class under one state’s law was appropriate.

The court further pointed to the terms of the settlement agreement for justification; the settlement agreement contained a choice-of-law clause, specifying the use of the law of Illinois.

Court affirms settlement agreement

Against Martin’s claim that the settlement failed to provide injunctive relief preventing Unilever from marketing or selling the Smoothing Kits, the court wrote that the agreement already carved out retailers still selling the product, negating the need for such an injunction.

Martin further objected to the procedures the court followed in approving the class counsel’s fees, claiming that her due process and procedural rights were violated because she was prevented from commenting on the counsel fee petition.

The court found no error by the district court deferring its consideration of the counsel fee motion until it had approved the settlement agreement.  Further, the attorney’s fee petition was not submitted until two weeks before the deadline for objections, which the court wrote was “plenty of time for input.”

The court also noted, “Martin herself filed an objection” to the petition.  In support of the district court decision, the court wrote that this type of provision that keeps the attorney’s fees separate from funds for compensation and defers the final award until the agreement is approved, is “to be encouraged.”

The court further dismissed Martin’s other claims for lack of standing and failing to provide evidence to support her claim.  Concerning her additional arguments against the agreement, the court “[saw] no need to address them separately” and affirmed the settlement agreement reached in the case.


The case is Sidney Reid et al. v. Unilever United States Inc. et al., case number 14‐3009 in the U.S. Court of Appeals for the Seventh Circuit.