The Whole Foods Saga

With all the talk about Whole Foods CEO John Mackey's, er, unprofessional behavior, it's easy to gloss over the legal issues. Whole Foods is seeking to buy Wild Oats Markets, Inc., another nationwide organic grocery retailer. Or more specifically, the only other nationwide organic grocery retailer. The FTC is arguing that the two retailers operate in a distinct market, thus creating an anti-trust issue with the possibility of blocking competition and raising prices.

Mr. Mackey has not helped his company's case. (And no, I'm not talking about his negative remarks about Wild Oats on investing boards.) Mackey has said that, "Safeway and other conventional retailers will keep doing their thing -- trying to be all things to all people. They can't really effectively focus on Whole Foods' [clientele]." Of course, Mr. Mackey has also said that his company faces competition from other supermarkets who are now offering more organic foods. So which of these conflicting statements, no doubt CEO puffery, is true?

This case will ultimately come down to how the judge defines the organic food market. The case will be heard tomorrow, and we should have a ruling in a few weeks. This is an interesting marketing problem. In order to convince the judge that there is no limited market, Whole Foods will need to argue that they are, essentially, just another supermarket.

On the other hand, the FTC has said, "Whole Foods and Wild Oats are the only two nationwide operators of premium natural and organic supermarkets in the United States." But when one considers that most organic markets are locally-owned, Whole Foods and Wild Oats are indeed the only players in that limited market as defined by the FTC. Thus the question of how narrowly the FTC may define a market for anti-trust purposes - the age-old quandry. I'm not a big fan of Mr. Mackey, but I do hope that the judge dismisses the anti-trust suit.

Watch for September's Hennepin Lawyer

My article, "Will this lead to another Enron?", is scheduled to be published in September's Hennepin Lawyer. It was also accepted for publication by Michigan State's Journal of Business and Securities Law.

Good News for Boards

An article at law.com (http://www.law.com/jsp/ihc/PubArticleIHC.jsp?id=1184749593213) is reporting that more and more lawyers are sitting on corporate boards again. Many declined to be involved with boards after Sarbanes-Oxley in 2002. The Sarbanes-Oxley Act expanded liability for board members with conflicting interests. Thus, many attorneys were worried about liability exposure if sitting on the board of their firm's client. (This would be particularly troublesome for attorneys in some of the nation's largest firms which also have long client lists.)

So why is this a good thing? Lawyers on boards can add wisdom to corporate governance and internal investigation issues that non-lawyers may not have. Boards of directors can help lawyers gain better understanding of business acumen, thus making them more effective in helping their clients. (Indeed, for this reason, it makes sense for lawyers to sit on the boards of their clients.)

There are, of course, still risks for attorneys who want to sit on client's boards. Many attorneys are concerned about their ability to provide unbiased advice to these companies, or even just the appearance of unbiased advice. The article gives an example of a board member/attorney who supported a takeover of the company. Another board member accused him of having a conflict of interest because the firm would earn extra fees during the takeover. It is also likely that insurance premiums (either for directors' and officers' liability insurance or malpractice insurance) will rise.

While the advantage of having an attorney on a company's board is clear, attorneys still need to be cautious when deciding whether to serve on a client's board. I would definitely argue that the benefits outweigh the risks.

The Lost Art of English

An article on Law.com (http://www.law.com/jsp/llf/PubArticleLLF.jsp?id=1184663193394) reported on a 6th Circuit case, In Re Rodriguez, in which the court decided that a negative comment about an employee's accent could be evidence of discrimination. In the case, Jose Rodriguez was not promoted to a supervisory position at FedEx because of his accent and speech characteristics (as demonstrated by statements of managers). The lower court granted Summary Judgment to FedEx, believing that he did not satisfy two requirements of the McDonnell Douglas test. Under McDonnell Douglas (see McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802 (1973)), the employee must prove that he was a member of a protected class, he was qualified for the position for which he applied, he was denied the position, and that similarly situated employees who were not members of a protected class were treated more favorably. Once the employee establishes his prima facie case, the company can argue a legitimate non-discriminatory reason for its action. If the company does that, then the burden shifts back to the employee to show that the employer's reason was merely a pretext for actual discrimination. However, the scales can be strongly tipped in the employee's favor if the employee can show direct evidence of discrimination.

The lower court believed that Mr. Rodriguez failed to show that he was qualified for the position and that a non-member of a protected class was treated differently. The court also thought that the managers' comments were mere circumstantial evidence of discrimination.
The Sixth Circuit reversed, believing that the comments were in fact direct evidence of discrimination. The Equal Employment Opportunity Commission (EEOC) states that discrimination on the basis of accent is considered to be national origin discrimination. EEOC regulations state that the denial of employment based on accent can be evidence of discrimination. The EEOC also scrutinizes job selection procedures that screen for foreign accents and the inability to communicate in English.

Unfortunately, many industries and positions require employees who can communicate effectively with customers and colleagues. So what to do? Companies should carefully determine whether an accent is legitimately related to an employee's ability to perform their job. If it is, then job postings will need to indicate the importance of clear communication skills. By clearly specifying communication ability as a job requirement, a company may be able to argue that the employee with a strong accent or other speech problem did not meet the position's qualifications. This is not a complete shield from liability, but it can help communication flow smoothly throughout a company while limiting possible discrimination claims.

A Rise in Consumer Class Actions

A story from law.com (found at http://www.law.com/jsp/article.jsp?id=1184058395924) says that plaintiffs lawyers are filing more consumer class action lawsuits and less personal injury class actions. In many personal injury class action suits, the judges are refusing to certifying the class because the circumstances of each plaintiff's injury are too dissimilar to warrant treatment as a class. In most of these consumer cases, the members of the class are people who claim they would not have purchased the product if they knew of the potential harm. Thus, the suits are ultimately about economic, rather than personal, injury.

An attorney who represents GlaxoSmithKline (the maker of Paxil and a target of many consumer class action suits) said, "[p]laintiffs lawyers are crafty enough to realize that very few people are actually injured by any of these products . . . . Instead, what they look for are people who purchased the products." There are currently suits against the makers of pharmaceuticals, contact lens solution, soft drinks, Teflon cookware, and iPods.

There are a lot of things that trouble me about these suits. First, this is essentially an attempt by plaintiffs lawyers to get around the pesky "injury" requirement in a personal injury suit. Second, if there truly is an injury, then a class action is probably not the best means for an injured party to seek retribution. Lawyers prefer class action suits because the lawyers make a lot more money and do a lot less work than if they brought individual personal injury suits. And ultimately, the plaintiffs themselves recover a lot less. (Note that the ethics rules require lawyers to serve their clients' interests and not their own.)

Of course, if a consumer hasn't been injured by a product but regrets the purchase for a legitimate reason, then they should have no problem getting a refund. There's also the Better Business Bureau, or even conciliation court for a particularly stubborn company. But companies don't want the negative PR, so they will generally bend over backwards to satisfy the consumer (the airlines are a notable exception). If nothing seems to work, then enter the consumer protection laws.

But here's where it gets funny. Because of the allegations in the consumer class action suits, the attorneys can really only sue for a refund of the purchase price. (So, if there really was something wrong with your contact lens solution, then you'd only be getting a refund, minus the 33%-or-so for attorneys fees.) So what could be the possible advantage to consumers? All they have to do is hop on board and claim that they probably wouldn't have bought their iPod if they knew it could affect their hearing, and they get a portion of a refund, and they get to keep their iPod that will eventually damage their hearing.

So, basically, the plaintiffs lawyers are making a lawsuit out of the possibility of a physical risk, without any evidence that the risk will ever actually be realized. Isn't this the very definition of "frivolous lawsuits"?