ACC 543 week 6 31 1 Workers

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ACC 543 week 6

31.1 Workers’ Compensation Ronald Wayne Smith was employed by Modesto High School as a temporary math instructor. In addition, he coached the girls’ baseball and basketball teams. The contract under which he was employed stated that he “may be required to devote a reasonable amount of time to other duties” in addition to instructional duties. The teachers in the school system were evaluated once a year regarding both instructional duties and non-instructional duties, including “sponsorship or the supervision of out-of-classroom student activities.”

The high school’s math club holds an annual end-of-year outing. A picnic was scheduled to be held at the Modesto Reservoir. The students invited their math teachers, including Smith, to attend. The food was paid for by math club members’ dues. Smith attended the picnic with his wife and three children. One of the students brought along a windsurfer. Smith watched the students as they used it before and after the picnic. When Smith tried it himself, he fell and was seriously injured. He died shortly thereafter. Mrs. Smith filed a claim for workers’ compensation benefits, to which the employer objected. Are Smith’s activities at the time of the accident employment related? Smith v. Workers’ Compensation Appeals Board, 191 Cal.App.3d 127, 236 Cal.Rptr. 248, Web 1987 Cal.App. Lexis 1587 (Court of Appeal of California)

31.3 Occupational Safety Getty Oil Company (Getty) operates a separation facility where it gathers gas and oil from wells and transmits them to an outgoing pipeline under high pressure. Getty engineers designed and produced a pressure vessel, called a fluid booster, which was to be installed to increase pressure in the system. Robinson, a Getty engineer, was instructed to install the vessel. Robinson picked up the vessel from the welding shop without having it tested. After he completed the installation, the pressure valve was put into operation. When the pressure increased from 300 to 930 pounds per square inch, an explosion occurred. Robinson died from the explosion, and another Getty employee was seriously injured. The secretary of labor issued a citation against Getty for violating the general duty provision for worker safety contained in the Occupational Safety and Health Act. Getty challenged the citation. Who wins? Getty Oil Company v. Occupational Safety and Health Review Commission, 530 F.2d 1143, Web 1976 U.S. App. Lexis 11640 (United States Court of Appeals for the Fifth Circuit)

31.6 Unemployment Benefits Devon Overstreet, who worked as a bus driver for the Chicago Transit Authority (CTA) for more than six years, took sick leave for six weeks. Because she had been on sick leave for more than seven days, CTA required her to take a medical examination. The blood and urine analysis indicated the presence of cocaine. A second test confirmed this finding. The CTA suspended Overstreet and placed her in the employee assistance program for substance abuse for not less than thirty days, with a chance of reassignment to a nonoperating job if she successfully completed the program. The program is an alternative to discharge and is available at the election of the employee. Overstreet filed for unemployment compensation benefits. CTA contested her claim. Who wins? Overstreet v. Illinois Department of Employment Security, 168 Ill.App.3d 24, 522 N.E.2d 185, Web 1988 Ill. App. Lexis 269 (Appellate Court of Illinois)

33.3 Sex Discrimination The Los Angeles Department of Water and Power maintains a pension plan for its employees that is funded by both employer and employee contributions. The plan pays men and women retirees’ pensions with the same monthly benefits. However, because statistically women live, on average, several years longer than men, female employees are required to make monthly contributions to the pension fund that are 14.84 percent higher than the contributions required of male employees. Because employee contributions are withheld from paychecks, a female employee takes home less pay than a male employee earning the same salary. Does this practice violate Title VII? City of Los Angeles Department of Water and Power v. Manhart, 435 U.S. 702, 98 S.Ct. 1370, 55 L.Ed.2d 657, Web 1978 U.S. Lexis 23 (Supreme Court of the United States)

33.5 National Origin Discrimination The Federal Bureau of Investigation (FBI) engaged in a pattern and practice of discrimination against Hispanic FBI agents. Job assignments and promotions were areas that were especially affected. Bernardo M. Perez, a Hispanic, brought a Title VII action against the FBI. In this case, is the FBI in violation of Title VII? Who wins? Perez v. Federal Bureau of Investigation, 714 F.Supp. 1414, Web 1989 U.S. Dist. Lexis 8426 (United States District Court for the Western District of Texas)

33.6 Religious Discrimination Trans World Airlines (TWA), an airline, operated a large maintenance and overhaul base for its airplanes in Kansas City, Missouri. Because of its essential role, the stores department at the base operated 24 hours per day, 365 days per year. The employees at the base were represented by the International Association of Machinists and Aerospace Workers (Union). TWA and Union entered into a collective bargaining agreement that included a seniority system for the assignment of jobs and shifts.

TWA hired Larry Hardison to work as a clerk in the stores department. Soon after beginning work, Hardison joined the Worldwide Church of God, which does not allow its members to work from sunset on Friday until sunset on Saturday and on certain religious holidays. Hardison, who had the second-lowest seniority within the stores department, did not have enough seniority to observe his Sabbath regularly. When Hardison asked for special consideration, TWA offered to allow him to take his Sabbath off if he could switch shifts with another employee-union member. None of the other employees would do so. TWA refused Hardison’s request for a four-day workweek because it would have had to hire and train a part-time worker to work on Saturdays or incur the cost of paying overtime to an existing fulltime worker on Saturdays. Hardison sued TWA for religious discrimination, in violation of Title VII. Do TWA’s actions violate Title VII? Who wins? Trans World Airlines v. Hardison, 432 U.S. 63, 97 S.Ct. 2264, 53 L.Ed.2d 113, Web 1977 U.S. Lexis 115 (Supreme Court of the United States)

29.1 Creation of an Agency Renaldo, Inc., doing business as Baker Street, owned and operated a nightclub in Georgia. On the evening in question, plaintiff Ginn became “silly drunk” at the nightclub and was asked by several patrons and the manager to leave the premises. The police were called, and Ginn left the premises. When Ginn realized that his jacket was still in the nightclub, he attempted to reenter the premises. He was met at the door by the manager, who refused him admittance. When Ginn persisted, an unidentified patron, without the approval of the manager, pushed Ginn, who lost his balance and fell backward. To break his fall, Ginn put his hand against the door jamb. The unidentified patron slammed the door on Ginn’s hand and held it shut for several minutes. Ginn, who suffered severe injuries to his right hand, sued the nightclub for damages. Is the unidentified patron an agent of the nightclub? Ginn v. Renaldo, Inc., 183 Ga.App. 618, 359 S.E.2d 390, Web 1987 Ga.App. Lexis 2023 (Court of Appeals of Georgia)

29.2 Independent Contractor Mercedes Connolly and her husband purchased airline tickets and a tour package for a tour to South Africa from Judy Samuelson, a travel agent doing business as International Tours of Manhattan. Samuelson sold tickets for a variety of airline companies and tour operators, including African Adventurers, which was the tour operator for the Connollys’ tour. Mercedes fell while trying to cross a six-inch-deep stream while the tour group was on a walking tour to see hippopotami in a river at a game reserve. In the process, she injured her left ankle and foot. She sued Samuelson for damages. Is Samuelson liable? Connolly v. Samuelson, 671 F.Supp. 1312, Web 1987 U.S. Dist. Lexis 8308 (United States District Court for the District of Kansas)

29.4 Apparent Agency Robert Bolus was engaged in various businesses in which he sold and repaired trucks. He decided to build a truck repair facility in Bartonsville, Pennsylvania. Bolus contacted United Penn Bank (Bank) to obtain financing for the project and was referred to Emmanuel Ziobro, an assistant vice president. Ziobro orally agreed that Bank would provide funding for the project. He did not tell Bolus that he only had express authority to make loans of up to $10,000. After extending $210,000 in loans to Bolus, Bank refused to provide further financing. When Bolus defaulted on the loans, Bank pressed judgment against Bolus. Bank sought to recover Bolus’s assets in payment for the loan. Bolus sued Bank for damages for breach of contract. Who wins? Bolus v. United Penn Bank, 363 Pa. Super. 247, 525 A.2d 1215, Web 1987 Pa. Super. Lexis 7258 (Superior Court of Pennsylvania)

30.4 Independent Contractor Yvonne Sanchez borrowed money from MBank to purchase an automobile. She gave MBank a security interest in the vehicle as collateral to secure the loan. When Sanchez defaulted on the loan, MBank hired El Paso Recovery Service, an independent contractor, to repossess the automobile. The two men from El Paso who were dispatched to Sanchez’s house found the car parked in the driveway and hooked it to a tow truck. Sanchez approached them and demanded that they cease their efforts and leave the premises, but the men nonetheless continued with the repossession. Before the men could tow the automobile into the street, Sanchez jumped into the car, locked the doors, and refused to leave. The men towed the car at a high rate of speed to the repossession yard. They parked the car in the fenced repossession yard, with Sanchez inside, and padlocked the gate. Sanchez was left in the repossession lot with a Doberman Pinscher guard dog loose in the yard. Later, she was rescued by the police. Sanchez filed suit against MBank, alleging that it was liable for the tortious conduct of El Paso. MBank challenged it was not liable because El Paso was an independent contractor. Who wins? MBank El Paso, N.A. v. Sanchez, 836 S.W.2d 151, Web 1992 Tex. Lexis 97 (Supreme Court of Texas)

51.1 Audit Opinion Stephens Industries, Inc. (Stephens), agreed to purchase the stock of Colorado Rent-A-Car, Inc. (Rent-A-Car), subject to an audit of the car rental company by Haskins and Sells (Haskins & Sells), a national accounting and CPA firm. When Haskins & Sells conducted the audit, it found that the accounts receivable records were so poorly maintained that the figures could not be reconciled. Haskins & Sells issued a qualified opinion that clearly stated that the accounts receivable had not been audited. The purchase agreement between Stephens and Rent-A-Car stated that the accounts receivable had not been adjusted to reflect the fact that they could not be collected. Stephens later sued Haskins & Sells regarding the audit of accounts receivable. Does the qualified opinion protect the accountants from liability? Stephens Industries, Inc. v. Haskins and Sells, 438 F.2d 357, Web 1971 U.S. App. Lexis 11628 (United States Court of Appeals for the Tenth Circuit)

51.2 Auditor’s Liability to Third Party Michael H. Clott was chairman and chief executive officer of First American Mortgage Company, Inc. (FAMCO), which originated loans and sold the loans to investors, including E. F. Hutton Mortgage Corp. (Hutton). FAMCO employed Ernst & Whinney, a national CPA firm, to conduct audits of its financial statements. Hutton received a copy of the financial statements with an unqualified certification by Ernst & Whinney. Hutton bought more than $100 million of loans from FAMCO. As a result of massive fraudulent activity by Clott, which was undetected by Ernst & Whinney during its audit, many of the loans purchased by Hutton proved to be worthless. Ernst & Whinney had no knowledge of Clott’s activities. Hutton’s own negligence contributed to most of the losses it suffered. Hutton sued Ernst & Whinney for fraud and negligence. Is Ernst & Whinney liable? E. F. Hutton Mortgage Corporation v. Pappas, 690 F.Supp. 1465, Web 1988 U.S. Dist. Lexis 6444 (United States District Court for the District of Maryland)

51.3 Auditor’s Liability Guarente-Harrington Associates was a limited partnership formed for the purpose of investing in securities. There were two general partners and 40 limited partners. The partnership agreement provided that no partner could withdraw any part of his or her interest in the partnership except at the end of the fiscal year and with not less than 30 days’ prior notice. Arthur Andersen & Co. (Arthur Andersen), a national CPA firm, was hired to audit the books of the limited partnership. In certifying the financial statements of the partnership and preparing its tax returns, Arthur Andersen failed to report that the general partners had withdrawn $2 million of their $2.6 million capital investment at times other than at the end of the fiscal year and without proper notice. The partnership suffered losses because of this lack of capital. Shelby White, a limited partner, sued Arthur Andersen for accounting malpractice. Is Arthur Andersen liable under the Ultramares doctrine? White v. Guarente, 43 N.Y.2d 356, 372 N.E.2d 315, 401 N.Y.S.2d 474, Web 1977 N.Y. Lexis 2470 (Court of Appeals of New York)

51.4 Accountant’s Liability to Third Party Giant Stores Corporation (Giant) hired Touche Ross & Co. (Touche), a national CPA firm, to conduct audits of the company’s financial statements for two years. Touche gave an unqualified opinion for both years. Touche was unaware of any specific use of the audited statements by Giant. After receiving copies of these audited financial statements from Giant, Harry and Barry Rosenblum (Rosenblums) sold their retail catalog showroom business to Giant in exchange for 80,000 shares of Giant stock.

One year later, a major fraud was uncovered at Giant that caused its bankruptcy. Because of the bankruptcy, the stock that the Rosenblums received became worthless. In conducting Giant’s audits, Touche had failed to uncover that Giant did not own certain assets that appeared on its financial statements and that Giant had omitted substantial amounts of accounts payable from its records. The Rosenblums sued Touche for accounting malpractice. Is Touche liable for accounting malpractice under any of the three negligence theories discussed in this chapter? H. Rosenblum, Inc. v. Adler, 93 N.J. 324, 461 A.2d 138, Web 1983 N.J. Lexis 2717 (Supreme Court of New Jersey)

51.5 Ultramares Doctrine Texscan Corporation (Texscan) was a corporation located in Phoenix, Arizona. The company was audited by Coopers & Lybrand (Coopers), a national CPA firm that prepared audited financial statements for the company. The Lindner Fund, Inc., and the Lindner Dividend Fund, Inc. (Lindner Funds), were mutual funds that invested in securities of companies. After receiving and reviewing the audited financial statements of Texscan, Lindner Funds purchased securities in the company. Thereafter, Texscan suffered financial difficulties, and Lindner Funds suffered substantial losses on its investment. Lindner Funds sued Coopers, alleging that Coopers was negligent in conducting the audit and preparing Texscan’s financial statements. Can Coopers be held liable to Lindner Funds for accounting malpractice under the Ultramares doctrine, Section 552 of the Restatement (Second) of Torts, or the foreseeability standard? Lindner Fund v. Abney, 770 S.W.2d 437, Web 1989 Mo.App. Lexis 490 (Court of Appeals of Missouri)

51.6 Section 10(b) The Firestone Group, Ltd. (Firestone), a company engaged in real estate development, entered into a contract to sell nursing homes it owned to a buyer. The buyer paid a $30,000 deposit to Firestone and promised to pay the remainder of the $28 million purchase price in the future. The profit on the sale, if consummated, would have been $2 million.

To raise capital, Firestone planned on issuing $7.5 million of securities to investors. Firestone hired Laventhol, Krekstein, Horwath & Horwath (Laventhol), a national CPA firm, to audit the company for the fiscal year. When Laventhol proposed to record the profit from the sale of the nursing homes as unrealized gross profit, Firestone threatened to withdraw its account from Laventhol. Thereafter, Laventhol decided to recognize $235,000 as profit and to record the balance of $1,795,000 as “deferred gross profit.” This was done even though, during the course of the audit, Laventhol learned that there was no corporate resolution approving the sale, the sale transaction was not recorded in the minutes of the corporation, and the buyer had a net worth of only $10,000. Laventhol also failed to verify the enforceability of the contracts.

Gerald M. Herzfeld and other investors received copies of the audited financial statements and invested in the securities issued by Firestone. Later, when the buyer did not purchase the nursing homes, Firestone declared bankruptcy. Herzfeld and the other investors lost most of their investment. Herzfeld sued Laventhol for securities fraud, in violation of Section 10(b) of the Securities Exchange Act of 1934. Is Laventhol liable? Herzfeld v. Laventhol, Krekstein, Horwath & Horwath, 540 F.2d 27, Web 1976 U.S. App. Lexis 8008 (United States Court of Appeals for the Second Circuit)