December 8, 2023

Business Briefing | Legal News: Chevron Appeals $18 Billion Judgment in Ecuador

Chevron has filed an appeal with Ecuador’s National Court of Justice to review an order that it must pay $18 billion in damages for polluting the Amazon jungle. Chevron inherited the case when it bought Texaco a decade ago. The appeal argues that the lower courts violated Ecuador’s Constitution by refusing to take corrective action in response to what Chevron calls “extensive fraud and corruption” committed by the plaintiffs’ lawyers and representatives. The plaintiffs have responded by citing Chevron’s own test data in documenting the pollution and arguing that Chevron could be sued for damages by third parties. In related litigation in New York, the plaintiffs also accused the company of mishandling soil and water samples during the trial by maintaining two different laboratories, based on testimony from a Chevron expert.

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Swatch Group to Trim Sales of Watch Parts to Rivals

Starting Jan. 1, though, the company will begin to cut back, and possibly eventually end, its sales of the inner workings to competitors to concentrate on producing watches with higher profit margins and to make sure it has enough supplies on hand for its own brands, including Longines, Omega, Tissot and Breguet.

Swatch’s move, which was approved by Switzerland’s competition authority, is being challenged in court by nine watch companies, many of them small and without the financial wherewithal to produce their own movements.

The plaintiffs predict that several companies will disappear because they have few other options for the parts, which must come from Switzerland to keep the lucrative “Swiss made” label. They also argue that if Swatch goes through with its withdrawal, the result could be as wrenching to the Swiss watch industry as the arrival of Japanese digital watches, which almost led to the industry’s collapse in the 1970s.

The dispute is fanning resentment of Swatch’s clout and size in an industry that is showing exceptional strength, as demand from Asians who want to communicate their wealth and taste overcomes the worldwide economic downturn and the strong franc.

“A lot of companies will cease to exist while Swatch, the monopoly operator, will simply get stronger,” said Peter Stas, the Dutch co-owner of Frédérique Constant, an independent watch company in Geneva that is one of the plaintiffs.

Mr. Stas acknowledged that it would have been nearly impossible for him to start out in watchmaking 23 years ago without access to Swatch’s production platform.

Swatch’s revenue last year of 6.44 billion Swiss francs, or about $6.95 billion, makes it by far the world’s largest watchmaker. The company insists that its goal is not to strangle competitors. And it argues that its withdrawal will require rivals to raise their spending on manufacturing, thereby strengthening the quality and competitiveness of the Swiss watch sector as a whole.

“In no other industry do you have one company supply all the critical parts to the people who then compete directly with it,” Nick Hayek, Swatch’s chief executive, said in an interview this year. Swatch said it had no further comment on the issue.

The Swiss watch industry is on course to easily surpass the record 17 billion francs’ worth of watches exported in 2008, according to Jean-Daniel Pasche, president of the Federation of the Swiss Watch Industry. The group includes about 500 companies, ranging from the behemoth Swatch to boutique companies that make about 100 timepieces a year but sell them for more than $300,000 each.

“We are thankfully in a situation where demand, particularly from Asia, is growing faster than supply,” Mr. Pasche said.

Swatch’s dominance of watch manufacturing dates to the early 1980s, when Nicolas G. Hayek, father of the current chief executive, was entrusted by banks to take over two indebted watch companies. He merged them and turned the combined business into a mass-volume production platform for what the company’s Web site describes as “a low-cost, high-tech, artistic and emotional ‘second watch’ — the Swatch,” as well as for other brands.

The merger received the blessing of the competition authorities and was seen as a last-ditch attempt to save a sector whose work force had shrunk almost two-thirds in 15 years, to 33,000 employees in 1984.

Employment has since climbed back to 49,000, and watch companies now face the problem of recruiting enough qualified staff to meet their orders.

In June, the Swiss competition authority ruled that Swatch would be allowed to lower its deliveries of mechanical movements to third parties next year to 85 percent of the 2010 levels, pending an antitrust investigation and a final ruling on whether Swatch could stop supplies altogether. That ruling is expected in the second half of next year.

Mr. Hayek’s arguments are even endorsed by some former executives turned competitors.

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Women File New Class-Action Bias Case Against Wal-Mart

On Thursday, the plaintiffs did just that, filing an amended lawsuit that narrows the class from all of the women who work or have worked at Wal-Mart and Sam’s Club stores, estimated at 1.5 million, to those in the retailer’s California regions, estimated to be at least 45,000 current employees and 45,000 former employees.

Attorneys for the plaintiffs said the lawsuit was the first of many that will be filed against the world’s largest retailer alleging discrimination against women in pay and advancement.

In its June ruling in Dukes v. Wal-Mart, the Supreme Court did not determine whether the women were discriminated against it. Rather, in its 5-4 decision, it concluded that the plaintiffs had not met requirements that the class have a question of law or fact in common.

Writing for the majority, Justice Antonin Scalia said the case involved “literally millions of employment decisions.” The plaintiffs, he added, were required to point to “some glue holding the alleged reasons for all those decisions together.”

The origins of the lawsuit date to 1999 when Stephanie Odle was fired after complaining that she was discriminated against because of her sex. She said he had discovered that a male employee with the same job and less experience was making $10,000 a year more than her.

Her boss explained that the man had a family to support.

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Bayer Settles With Farmers Over Modified Rice Seeds

The settlement, announced on Friday, ends scores of lawsuits filed against the Bayer CropScience unit of the company by farmers in Texas, Louisiana, Missouri, Arkansas and Mississippi.

The Agriculture Department said in August 2006 that trace amounts of the company’s experimental LibertyLink strain were found in long-grain rice. Within four days, declining rice futures cost growers about $150 million, according to a complaint filed by the farmers. News of the contamination caused futures prices to fall about 14 percent.

“From the outset of this litigation, we made it clear to Bayer that the company needed to step up and take responsibility for damaging American rice farmers with its unapproved rice seeds,” Adam Levitt, a lawyer for the plaintiffs, said in a statement Friday. “This excellent settlement goes a long way toward achieving that goal.”

Bayer confirmed the settlement.

“Although Bayer CropScience believes it acted responsibly in the handling of its biotech rice, the company considers it important to resolve the litigation so that it can move forward focused on its fundamental mission of providing innovative solutions to modern agriculture,” a spokesman for the company said.

The accord is contingent upon the participation of growers representing at least 85 percent of the United States long-grain rice acreage planted between 2006 and 2009, the company and plaintiffs’ lawyers said separately.

Bayer and Louisiana State University had tested the rice, bred to be resistant to Bayer’s Liberty-brand herbicide, at a school-run facility in Crowley, La.

The genetically modified variety cross-bred with and “contaminated” more than 30 percent of United States ricelands, Don Downing, a lawyer for the plaintiffs, said at the start of the first farmers’ trial in November 2009.

Exports fell as the European Union, Japan, Russia and other overseas buyers ceased or slowed their orders for testing of long-grain rice grown in the United States, the growers said.

The company denied that the testing program had been negligently managed and claimed that sale prices had rebounded after the initial drop. It said the trace amounts of the LibertyLink rice posed no threat to people.

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Your Money: Revealing Excessive 401(k) Fees

Sure, you may have looked at the expenses on the mutual funds you own. But there are other costs as well for record-keeping and assorted other administrative costs. And because they generally don’t show up on your quarterly statement, you probably don’t know they are there.

But they are there, and they are large enough to have attracted the attention of both the Labor Department and plaintiffs’ lawyers. The Labor Department, in fact, has approved new rules for fee disclosure for retirement plans that are supposed to go into effect starting sometime next year.

Meanwhile, experts in the field are keeping a close eye on a federal lawsuit in Kansas City, Mo. The suit, filed by employees of a company called ABB who assert that their 401(k) plan was mismanaged and too costly, has already gone to trial. And it began on an unsettling note, when one of the plaintiffs killed his supervisor and two colleagues at work one morning before turning a gun on himself. The trial went ahead as scheduled, but 16 months have now gone by without a decision.

The delay probably has something to do with how much is at stake. For many millions of Americans who do not work for themselves, the sum of what they save in 401(k) and similar plans could be their biggest asset, by far, come retirement time. So it’s crucial that employers have clear rules about proper disclosure of the fees in such plans and a definitive understanding of when those fees are excessive.

WHY FEES MATTER How much might an improvement be worth to someone who can persuade an employer to make one?

Here’s how the Labor Department puts it. Let’s say you have 35 years until retirement and a balance of $25,000. You put no more money in and earn a 7 percent return annually. If fees and plan expenses reduce those returns by 0.5 percent a year, your balance will grow to $227,000 in those 35 years. If those fees total 1.5 percent, however, you’ll end up with just $163,000, 28 percent less.

An annual total of 0.5 percent isn’t reality for most workers, alas. According to BrightScope, a company that gathers data about retirement plans and gives some of that data to individuals while selling more information to employers, the all-in fees, including those mutual fund investments you may already know about, average 1.08 percent for plans with balances of more than $100 million, 1.36 percent for those with $10 million to $100 million and a whopping 1.90 percent for plans with under $10 million.

So fees matter. And the younger you are, the more you have to gain over decades of compounding by working for an employer who understands just how much of a difference these costs can make.

DEFINING EXCESSIVE FEES So when are retirement plan fees unconscionable?

Employers are supposed to act as a fiduciary when running a retirement plan, which is a legal way of saying that they are supposed to put your interests first. But in the context of fees, they must only keep them “reasonable.”

And there aren’t many specific definitions of what is unreasonable, for a couple of reasons. Benchmarking against other plans has traditionally been difficult, given that employers themselves often don’t know exactly what their plan costs. “If you don’t know what everyone else is paying, there is no way to know what is reasonable,” says Mike Alfred, BrightScope’s co-founder and chief executive, whose team has gathered information on 47,000 plans so far and sorted it by peer group.

Then there are the judges, who are often reluctant to issue opinions that dictate a specific figure. Also, lawyers are hesitant to sue, given the enormous amount of time required to prepare excessive fee cases. Then there’s the uncertain legal terrain; the ABB case is the first of its kind to actually go to trial, according to Jerome Schlichter, of Schlichter Bogard Denton in St. Louis, the lead plaintiff’s lawyer. And there is still no verdict, well over a year after closing arguments.

“I know they are working on it and working on it very hard,” said Fran Smith, judicial assistant to Judge Nanette K. Laughrey, of Federal District Court, who presided over the trial. “It’s just a very difficult case.”

DISCLOSING FEES Thankfully, the basic question of what fees you’re paying in your 401(k) or 403(b) is about to become easier to answer. Starting in 2012, according to new Labor Department guidelines, investment and other companies like Fidelity, which is a party to the ABB lawsuit, will need to be more clear with employers about how they are charging them.

Employers, in turn, will have to itemize more information on plan fees and expenses on account statements. In addition, they will need to display the costs of each mutual fund or other investment in a way that makes it easier for employees to compare their choices.

While it’s not yet clear how all of this will work in practice, there is real potential here for employers, especially executives at smaller ones for whom managing the retirement plan is one of dozens of duties, to get a harsh wake-up call about the size of their annual bill. And even if they don’t, their employees may see a menu of high-cost funds staring them in the face and begin to ask for a better plan.

LOWER FEES Until your new and improved account statement arrives, you can check to see if BrightScope has graded your 401(k) or 403(b) plan. If its total plan cost is among the highest in its peer group, you ought to ask for an explanation. Ditto if you run one of BrightScope’s personal fee reports on the funds you’ve selected yourself in your retirement plan and find that you’re paying well over 1 percent in total costs.

If you are investing in actively managed mutual funds (perhaps because your employer hasn’t seen the light and given you a lineup of low-cost index or exchange-traded funds as an option), keep in mind that those fund companies may be handing some of their investment fees back to your plan’s record keeper to pay for administrative costs. Ask about this and inquire whether that’s the only reason your employer continues to do business with any high-fee, actively managed funds.

Try not to get too indignant about this, at least at first. At a small employer in uncertain economic times, having a retirement plan in the first place isn’t a given. Let your colleagues in human resources or finance know that they, too, will benefit personally if you can find a way to strip out some costs.

Injecting a little emotion into the proceedings may help, too, though threats will probably not be constructive, especially given what happened at ABB. (The gunman there left no note, though he had told friends of troubles at work.)

Again, just a quarter of a percentage point in annual savings now can mean tens of thousands of dollars more come retirement time. Try visualizing it this way, by imagining it as the difference between one vacation each year or two at age 75, or one plane ticket, or several, for the grandchildren to come see you annually. Make sure to remind everyone you talk to of that.

And if it’s confusing or even frightening to confront data like this initially, given its importance? Don’t throw up your hands or just cross your fingers, as many of your colleagues will do. Instead, find other like-minded people to help you decipher the numbers and start an improvement movement.

“I think 10 to 15 percent of people will always get value out of increased disclosure,” Mr. Alfred said. “Most of the time, they are the most influential people at the company, and they’re the most likely to tell other people about it.”

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Justices Take Up Crucial Issue in Wal-Mart Suit

Even some justices who seemed sympathetic to the plaintiffs expressed qualms about how to administer a lawsuit involving as many as 1.5 million women seeking back pay that could amount to billions of dollars. Others appeared worried about the consequences for other businesses of a ruling that would allow the case against Wal-Mart to go forward.

The mere certification of a class-action suit can prompt defendants to settle in light of the sums at stake, and the justices struggled to find a way to distinguish between gaps in pay that might have benign explanations and those caused by unlawful discrimination.

The court of Chief Justice John G. Roberts Jr. has recently issued a series of rulings in favor of plaintiffs suing for employment discrimination that cut against the court’s pro-business reputation. The Wal-Mart case dwarfs those rulings in importance. It is the largest employment discrimination class action in history, and the court’s decision, expected by June, will probably be its most important business ruling this term.

The issue before the justices at Tuesday’s arguments was not whether Wal-Mart, the country’s largest retailer and biggest private employer, discriminated against women who worked there. For now, the question in the case, Wal-Mart Stores v. Dukes, No. 10-277, is whether hundreds of thousands of female workers have enough in common to join together in a single lawsuit.

The plaintiffs’ theory is that a centralized companywide policy gave local managers too much discretion in pay and promotion decisions, leaving Wal-Mart vulnerable to gender stereotypes. The plaintiffs have presented sworn statements and statistics to support their claim.

Wal-Mart calls that evidence unrepresentative and unreliable. The company says its policies expressly bar discrimination and promote diversity. In any event, the company says, the plaintiffs — who worked in 3,400 stores in 170 job classifications — do not have enough in common to warrant class-action treatment.

Justice Anthony M. Kennedy said the theory about how the company discriminated — through a central policy conferring local discretion — was internally inconsistent. “Your complaint faces in two directions,” he told a lawyer for the plaintiffs.

But Justice Stephen G. Breyer said Wal-Mart could be held accountable if it failed to take action in the face of reports of discrimination from its stores. “Should central management under the law have withdrawn some of the subjective discretion in order to stop these results?” Justice Breyer asked.

Justice Ruth Bader Ginsburg agreed, saying that companies had a responsibility to make sure that women were treated fairly in local workplaces. And Justice Elena Kagan said that “excessive subjectivity” may be a policy that violates the civil rights laws.

But Justice Antonin Scalia was unconvinced.

“I’m getting whipsawed here,” he told the plaintiffs’ lawyer, Joseph M. Sellers. “On the one hand, you say the problem is that they were utterly subjective, and on the other hand you say there is strong corporate culture that guides all of this. Well, which is it?”

Mr. Sellers responded that “there is this broad discretion given the managers” but that “they do not make their decisions in a vacuum.” Managers, he went on, “are informed by the company about how to exercise that discretion.”

That did not satisfy Justice Scalia. “If somebody tells you how to exercise discretion,” he said, “you don’t have discretion.”

Theodore J. Boutrous Jr., a lawyer for Wal-Mart, said the handful of women named as plaintiffs who seek to represent the entire class did not have typical experiences at the company.

“Each of the plaintiffs have very different stories,” he said. “One of them was promoted into a managerial position. One was terminated for disciplinary violations. One was promoted and then had a disciplinary problem and then was demoted.”

He added that “this class includes at least 544 store managers who are alleged to be discriminators and victims.”

Several justices had practical concerns.

“What seems to me a very serious problem in this case is, how do you work out the back pay?” Justice Ginsburg asked.

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