News

Airbnb and eBay Join Google, Facebook by Ending Mandatory Arbitration of Sexual Harassment Claims

Google and Facebook both ended their mandatory arbitration policy for sexual harassment claims earlier this month. Airbnb and eBay have followed suit making an announcement to also end the contentious legal practice, CNBC reports. Days before Google’s policy change announcement, 20,000 employees staged a walkout protesting how the company handled sexual misconduct allegations. Other large companies have already made policy changes eliminating forced arbitration for employees with sexual harassment claims including Microsoft, Uber, Lyft and several large law firms. The article points out that employers typically set the parameters in arbitration, such as adding criteria and setting a timeline, as well as selecting the arbitrator. According to the article, “Researchers reviewed cases settles by the American Arbitration Association over an 11-year period and found that employers who rely on the same arbitrator win more often and have lower damages awarded against them, likely because companies stick with arbitrators who’ve ruled in their favor in the past.”

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Severance Fund Created for Former Toys R Us Workers

The private equity firms KKR and Bain Capital, which owned Toys R Us before the company declared bankruptcy, have each pledged $10 million to establish the TRU Financial Assistance Fund, CNBC reports. The firms said the fund is being established to try to provide some financial relief for former employees. The article notes that this is an unusual move by the firms since this is not a requirement under bankruptcy law. Former employees must meet certain requirements in order to be eligible for payments, including being employed by Toys R Us for at least a year, having an annual income between $5,000 and $110,000 and meeting the termination and employment guidelines in the Toys R Us plan. Interested parties will be able to comment on the terms and conditions of the plan during a two-week period. Following the evaluation of comments, the final terms and conditions will be outlined. The claims process is expected to begin on Dec. 15 with the goal of completing payments by April 30, 2019.

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CNN: Why Women Have to Work Harder to be Promoted

Women have up to one-and-a-half year’s extra education, and a full year’s extra workforce experience than what is required for their job, an Australian researcher reports on CNN. RMIT University research fellow Leonora Risse labels this as an “overinvestment” in skills and capabilities. The article notes that men over-invest by up to 4 percent; however, women over-invest by up to 11 percent.  The research indicates that women’s overinvestment in themselves is not due to lower confidence nor directly connected to motherhood and childcare responsibilities. Instead, it points toward “implicit biases woven throughout workplace dynamics that create higher hurdles for women to clear along the career ladder.” Examples of these high hurdles include differences in salary between men and women with university degrees, which also includes high-earning disciplines like law, economics and medicine. Additionally, survey data reveals that women are not receiving the same outcomes as men when they ask for a promotion.  Risse concludes that women may be internalizing the need to over-invest and make certain they meet all job criteria prior to applying for jobs and seeking promotions, a behavior less commonly seen among men. 

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Nissan Chairman Dismissed Following Tokyo Arrest

Nissan Motor Co. Chairman Carlos Ghosn has been dismissed from the company after an internal investigation found he under-reported his income by millions and engaged in other “significant misconduct,” The Associated Press reports. He voluntarily submitted to questioning last week by Tokyo prosecutors. Nissan calls Nashville home in North America, and its Smyrna-based plant is one of the largest employers in the greater Nashville area.
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Incentives For Amazon from Local and State Governments

The Tennessean takes at look at the incentives package provided to Amazon for their announced expansion to Nashville. Amazon is in store for $102 million in combined government incentives from the state of Tennessee and Nashville in exchange for the 5,000 high-paying jobs the company's new operations site in Nashville. The package is lucrative, but is considerably less than was awarded to Volkwagen, Nissan and Hemlock Semiconductor for other past economic development announcements in Tennessee.

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Suit: Pain Clinics Duped Government, Military out of Millions

Federal prosecutors have accused a chain of pain clinics in Tennessee, North Carolina and Virginia of duping the government and the military out of millions of dollars by forcing patients to receive unnecessary injections into their back, then intentionally mislabeling the injections during billing, the Tennessean reports. A lawsuit filed against Franklin-based Pain MD clinics and parent company MedManagement, or MMi, alleges that the MMi company culture pressured medical staff to inject patients as often as possible in an effort to inflate profits.

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Mark Your Calendars!

ABA Throws Support Behind Fair Housing Improvement Bill

American Bar Association President Bob Carlson is applauding a bill that would expand the protections of the Fair Housing Act to prevent discrimination based on a person’s lawful source of income, The ABA Journal reports. Carlson praised the bill in a letter to its sponsors, Republican Sen. Orrin Hatch of Utah and Democratic Sen. Tim Kaine of Virginia. The bill, called the Fair Housing Improvement Act of 2018, would bar housing discrimination based on income source or veteran status. Last year, the ABA House of Delegates adopted a policy urging the implementation of such legislation and opposing prejudice against people who rely on government support to make ends meet.
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A Note from the TBA

Here’s the latest newsletter from TBA’s Business Law Section. I want to thank this issue's contributor, Matt Lyon. He is the Chair of the TBA Business Law Section, and he is the Associate Dean for Academic Affairs and a Professor of Law at the Lincoln Memorial University Duncan School of Law in Knoxville. He teaches Contracts, Business Associations, Civil Procedure, and Payment Systems. Prior to joining the LMU Law faculty, Lyon served as Senior Judicial Clerk to Justice Gary R. Wade of the Tennessee Supreme Court and was a commercial litigation associate at Sidley Austin LLP in Chicago.

If you have an article or an idea for an article, the Executive Council invites you to email me, Chelsea Bennett, TBA Sections and CLE Coordinator. 

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SEC Settles Charges with Operator of Unregistered Cryptocurrency Exchange

In the first case of its kind, the SEC has settled charges with Zachary Coburn, the operator of the cryptocurrency exchange EtherDelta, both the New York Times and CoinDesk report. In the settlement order, the SEC takes note of the fact that most of the trades on EtherDelta occurred after the SEC issued The DAO Report in July 2017. That report clarified that many of the crypto-tokens being offered in initial coin offerings (ICOs) met the test for a “security” under SEC v. W.J. Howey Co. and that issuers and or exchanges trading in such tokens needed to either follow the registration requirements of the federal securities laws or qualify for an exemption. While noting Coburn’s cooperation in “facilitating the staff’s investigation involving an emerging technology,” the settlement order still required him to pay disgorgement and interest of $313,000 and a civil fine of $75,000 for operating an unregistered securities exchange.

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Court of Appeals Considers Scope of Implied Duty of Good Faith and Fair Dealing

The Tennessee Court of Appeals (Gibson, J.) recently considered a breach of contract case brought by an aspiring country music artist. In the case, Gregg v. Estate of Cupit, a Washington state insurance salesman pursuing his dream in Nashville signed a record contract with Cupit Records. He paid nearly $350,000 for Cupit Records to record, release and promote multiple singles on his behalf, but ultimately his music career was unsuccessful. After the owner of Cupit Records passed away, the artist sued the owner’s estate for breach of contract, claiming the company had failed to adequately promote his records. The trial court agreed and awarded the artist nearly $225,000.

The Court of Appeals, however, reversed, focusing on the provisions in the contract stating that the artist was paying a “flat fee of one hundred thousand per single” for promotion of three singles and that “[b]oth parties understand the music business is a speculative business and there are no guarantees.” There was no evidence that Cupit Records had breached its implied duty of good faith and fair dealing by underpromoting the artist’s records or failing to keep a detailed accounting of the funds that it spent on the artist. The Court of Appeals was not inclined to use the implied duty of good faith to rescue the artist from the bad bargain he had made.

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Delaware Supreme Court Sheds Light on Standard for Application of Business Judgment Rule to Controlling Shareholder Mergers

The Delaware Supreme Court has clarified the standard it set forth in Kahn v. M&F Worldwide Co. (Del. 2014) (“MFW”) regarding when the business judgment rule applies to mergers proposed by a controlling shareholder that have been “cleansed” by a vote of a special committee of disinterested directors and the informed vote of the majority of minority shareholders. In MFW, the Delaware Supreme Court “held that business judgment review applied to a merger proposed by a controlling stockholder conditioned before the start of negotiations on” both sets of votes.

In the recent opinion, Flood v. Synutra International, Inc., Chief Justice Strine wrote for a divided court that in order for the business judgment rule to apply, the conditions of a majority vote of independent directors and minority shareholders must be in place ab initio, or at the beginning of negotiations. This requirement is to ensure “that controllers could not use the conditions as bargaining chips during economic negotiations.” The ab initio requirement should not be taken literally, however, to mean that the conditions of the “cleansing” votes must be in the controlling shareholder’s first offer. Rather, they need only be established before any “substantive economic negotiations” take place.

The opinion also clarified that if the business judgment rule applies, “a plaintiff can plead a duty of care violation only by showing that the Special Committee acted with gross negligence, not by questioning the sufficiency of the price.” A dissenting justice argued that the court should have maintained a bright-line rule and held that the ab initio requirement is only satisfied “when the Dual Protections are contained in the controller’s initial formal written proposal.” Otherwise, the controlling shareholder transaction should be subject to the less-forgiving “entire fairness” standard.

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Court of Appeals Addresses Dissolution Provisions of Tennessee LLC Act

In FDA Properties v. Miller, the Court of Appeals (Gibson, J.) looked at the effect of a member’s bankruptcy on the dissolution of an LLC. The LLC in question was organized in 2005 under the Tennessee LLC Act (the Revised LLC Act was enacted in 2005, but is only effective for LLCs organized after Jan. 1, 2006, and those older LLCs choosing to be governed by the Revised Act). After one of the four members of the LLC declared bankruptcy, the other members expelled him through a written document, though no formal vote was taken. The Court of Appeals determined that Tenn. Code Ann. § 48-245-101(a)(5), which lists ten different events upon which dissolution occurs, applied to the LLC. One such event in the statutory list is the bankruptcy of any member, and the LLC did not include an exception to that rule in its operating agreement. However, because the trial court did not rule on whether the dissolution provisions in the LLC’s operating agreement modified the statutory bases for dissolution, the Court of Appeals remanded for further proceedings.

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Tennessee Legislator Proposes Legalized Sports Betting

Knoxville Democratic House Rep. Rick Staples has kicked off the upcoming legislative session by filing House Bill 1 last week, which would open to door to legalized sports betting in Tennessee, The Nashville Post reports. The measure would allow local option elections for sports gambling. Staples' proposal includes a 10-percent tax on gaming revenue, with the funds split between the state’s general fund, local governments and the state’s colleges of applied technologies and community colleges.
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More Pilot Executives Convicted in Fraud Scheme Face Sentencing

Weeks after former company president Mark Hazelwood was sentenced to more than 12 years in prison for his role in a fraud scheme, more convicted Pilot Flying J executives were sentenced yesterday, Knoxnews reports. Appearing in U.S. District Judge Curtis Collier’s courtroom, John “Stick” Freeman and Vicki Borden were sentenced to two-and-a-half years behind bars and Brian Mosher was sentenced to two years. Freeman and Mosher were ordered to pay a $100,000 fine and Borden a $75,000 fine.
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European Real Estate Giant Invests in U.S. Commercial Lending

One of Europe’s largest real estate investment firms is jumping into the U.S. debt market, The Wall Street Journal reports. AXA Investment Managers — a unit of the French insurer AXA — is set to purchase the $9.4 billion debt portfolio of Atlanta-based Quadrant Real Estate Advisors for an undisclosed amount. Quadrant specializes in loans bankrolled on office buildings, shopping centers, apartment buildings and other commercial property.

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Vandy Law Creates Online Program for Non-lawyers to Gain Legal Fluency

Vanderbilt Law School has created a new online program for non-lawyers, called V-Legal. The program is a series of three online courses designed to help executives and managers gain fluency in the legal principles, language and processes business leaders need to understand. Professionals who earn the V-Legal certificate will learn to "think like a lawyer" when making decisions for their businesses or organizations, gaining skills that may have an immediate impact on their job performance and career advancement. V-Legal was created in partnership with iLaw, which partners with law schools to develop online law programs designed for lawyers and non-lawyers.
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Tackle All Your CLE for the Year at Fall Fast Track on Friday

Emerging technology is revolutionizing the way we practice law — from document automation to using artificial intelligence research tools to assist with briefs, memos and complaints. We want to ensure that you stay on the cutting edge of today’s legal landscape. At the Fall FastTrack in Nashville, you will have the opportunity to tackle all of your CLE requirements for the year while learning from seasoned professionals on how to leverage technology, allowing solos and small firm practitioners to compete with the big boys.
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CFPB Fines Tennessee Payday Lender for 'Abusive' Practices

Payday lender Cash Express LLC was fined last week by the Consumer Financial Protection Bureau after the agency found several of the firm's debt-collection practices to be in violation of the Consumer Financial Protection Act, The Wall Street Journal reports. The bureau said the Cookeville-based company would deceive customers by threatening legal action over debts that were past the statute of limitations.  Additionally, the bureau said the company told customers it was sending negative information about them to credit-reporting firms, even though it did not send this type of report. The bureau labeled one practice as “abusive,” claiming the company would withhold money from a check-cashing transaction to pay down an outstanding debt, without telling the customer. The company was ordered to pay a $200,000 civil penalty and to return $32,000 to affected customers.

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Gibson Announces New Leaders and Exit from Bankruptcy

Nashville-based guitar company Gibson Brands last week announced a change in leadership as the company emerges from bankruptcy protection, NPR reports. James “JC” Curleigh has been named president and CEO; he will be leaving his role as president of Levi Strauss & Co to take the position with Gibson. Earlier this month, the company’s reorganization plan was approved by the Bankruptcy Court for the District of Delaware, which allowed it to exit bankruptcy and remain in business. Under the approved plan, Gibson will continue to manufacture Gibson and Epiphone guitars and maintain its professional audio business; however, it will discontinue its efforts to expand into home entertainment and headphone categories. The new leadership team will start work on Thursday.

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Tennessee Court of Appeals Rules on Functional Equivalent Test for Attorney-Client Privilege

Before last September, no Tennessee state court precedent existed regarding whether the attorney-client privilege is waived by disclosure to a third party who is integrally involved in the matter at issue.  However, the Tennessee Court of Appeals recently addressed this issue in Waste Administrative Services, Inc. v. the Krystal Company (“WASI”), No. E2017-01094-COA-R9-CV, 2018 WL 4673616 (Tenn. Ct. App. Sept. 27, 2018). The WASI Court held that a third-party consultant’s communications with a company’s counsel was protected by the attorney-client privilege because the consultant was acting as the “functional equivalent” of a company employee. Id. at *4-5. The WASI Court cited favorably the following discussion of this functional equivalent test:

To determine whether a consultant should be considered the functional equivalent of an employee, courts look to whether the consultant had primary responsibility for a key corporate job, whether there was a continuous and close working relationship between the consultant and the company’s principals on matters critical to the company’s position in litigation, and whether the consultant is likely to possess information possessed by no one else at the company.

Export-Import Bank of the United States v. Asia Pulp & Paper Co., 232 F.R.D. 103, 113 (S.D.N.Y. 2005) (internal citations omitted).

In applying the functional equivalent test, the WASI Court considered “how the parties actually conducted themselves,” and held that the consultant’s communications with counsel were protected because he was given a “circumscribed role” at the company, “took a leading role” and was “a central player” with respect to the subject matter at issue, and engaged in activities which “could scarcely be distinguishable from those of a [company] employee.” Id. at *5-6.


Ward Nelson is an attorney at Miller & Martin in Chattanooga. He concentrates in the areas of corporate, healthcare, and transportation law, primarily for merger and acquisition transactions and contract negotiations. 

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Volunteers Needed for Free Legal Clinic for Artists in Nashville

The Arts & Business Council is hosting a free legal clinic for artists at the Shelby Community Center in Nashville, 401 S. 20th Street on Nov. 8 from 5:30 to 7:30 p.m. Those who wish to volunteer for this Pro Bono Entertainment Law Clinic should email vlpa@vlpanashville.org or call 615-460-8274.

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Court Rules Georgia Annotated Code Cannot Be Copyrighted

The U.S. Court of Appeals for the 11th Circuit ruled on Oct. 19 that the Georgia official annotated state code is not copyrightable and belongs in the public domain, The ABA Journal reports. In its ruling, the three-judge 11th Circuit panel said that the annotations belong to the people of Georgia and cannot be copyrighted. The case dates to 2013, when open records advocate Carl Malamud purchased the entire code, scanned each page, and put the contents on his website. The state sued for copyright infringement in 2015.
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Federal Court Issues Injunction Against Tennessee Drugmaker

On Tuesday, a U.S. District Court judge issued a consent decree of permanent injunction against Tennessee over-the-counter drugmaker Keystone Laboratories barring the company from manufacturing or distributing drugs until it complies with the requirements in the decree, Regulatory Focus reports. The injunction comes after the Department of Justice, on behalf of the U.S. Food and Drug Administration, filed a complaint against the company and its owner and operator in September. According to the complaint, Keystone violated the Food, Drug and Cosmetic Act by distributing over-the-counter drug products that were not manufactured in accordance with current good manufacturing practices and in some cases did not have adequate labeling. The company has agreed to be bound by the consent decree.
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UTK Law Named Best Value School for 2018

The University of Tennessee School of Law has been ranked by Prelaw Magazine as a “Best Value Law School” for 2018. UTK Law came in at number 13. The magazine’s methodology relies on information provided by the American Bar Association. Rankings are calculated using a formula of ultimate bar pass ratings and two-year pass rates; employment rate; tuition; cost of living; and average indebtedness upon graduation.
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