CASES AI{D MATERIALS

FOR USE II\

FIL 185
LEGAL, ETHICAL AND SOCIAL
E{VIRONMENT OF BUSINESS
PART EIGHT

- Supplementary Cases

Pages 104

- 123

DR; ERIC T. RUUD

fnsfiuctonal Assistant Professor

Cotlege of Business

Illinois State University

United States v. President Richard Nixon*

418 U.S.683 (1974)
Following indictment alleging violation of federal statutes by certain staff members of the White
House and political supporters of the President (the Watergate Scandal), the Special Prosecutor
filed a motion for a subpoena duces tecum for the production before trial of certain tapes and
documents relating to precisely identified conversations and meetings between the President and
others. The President, claiming executive privilege, frled a motion to quash (or stop) the
subpoena. The District Court concluded that the Special Prosecutor had made a suffrcient
showing to rebut that privilege and the court issued an order for an examination of the
subpoenaed material. The Dishict Court also rejected the President's contentions that the
judicial branch of government lacked authority to review the President's assertion of executive
privilege. The court stayed its order pending appellate review, which the President then sought in
the U.S. Court of Appeals. The Special Prosecutor then filed a petition for a writ of certiorari
before the U.S. Supreme Court. The Supreme Court granted the petition.
Chief Justice BURGER delivered the opinion of the Court, in which all Members joined except
Justice REHNQUIST, who took no part in the consideration or decision of the cases.
The District Court's order was appealable as a "final" order under 28 U.S.C.l29l, was therefore
properly "in" the Court of Appeals, 28 U.S.C. 1254,whenthe petition for certiorari before
judgment was frled in this Court, and is now properly before this Court for review. The dispute
between the Special Prosecutor and the President also presents a justiciable controversy. The
Attorney General by regulation has conferred upon the Special Prosecutor unique tenure and
authority to represent the United States and has given the Special Prosecutor explicit power to
contest the invocation of executive privilege in seeking evidence deemed relevant to the
performance of his specially delegated duties. V/hile the regulation remains in effect, the
Executive Branch is bound by it.
The action of the Special Prosecutor is within the scope of his express authority to seek specified
evidence which is determined to be relevant and admissible in the pending criminal case. From
this Court's examination of the material submitted by the Special Prosecutor in support of his
motion it is clear that the District Court's denial of the motion to quash comported with the law
and that the Special Prosecutor has made a sufficient showing to justify a subpoena for
production before trial.

Neither the doctrine of separation of powers nor the generalized need for confidentiality of highIevel communications, without more, can sustain an absolute, unqualified Presidential privilege
of immunity from judicial process under all circumstances. (See, for example, Marbury v.
Madison) Absent a claim of need to protect military, diplomatic, or sensitive national security
seuets, the confidentiality of Presidential communications is not significantly diminished by
producing material for a criminal trial under the protected conditions of in camera review
rivate inspection only by the Court), and any absolute executive privilege under Art. II of the
Constitution would plainly conflict with the function of the courts under the Constitution.

Ll

Although the courts will afford the utmost deference to Presidential acts, when a claim of
Presidential privilege as to materials subpoenaed for use in a criminal trial is based, as it is here,
not on the ground that military or diplomatic secrets are implicated, but merely on the ground of
a generized interest in confidentiality, the President's generalized assertion of privilege must
yield to the demonstrated, specific need for evidence in a pending criminal trial and the
fundamental demands of due process of law in the fair administration of criminal justice.
On the basis of this Court's examination of the record, it cannot be concluded that the District
Court erred in ordering in camera examination of the subpoenaed material, which shall now
forthwith be transmitted to the District Court. Since a President's communications encompss a
vastly wider range of sensitive material than would be true of an ordinary individual, the public
interest requires that Presidential confidentiality be afforded the greatest protection consistent
with the fair administration ofjustice, and the District Court has a heavy responsibility to ensure
that material involving Presidential conversations irrelevant to or inadmissible in the criminal
prosecution be accorded the high degree of respect due a President and that such material be
retumed under seal to its lawful custodian. Until released to the Special Prosecutor, no in camera
material is to be released to anyone.
Since this matter came before the Court during the pendency of a criminal prosecution, and on
representations that time is of the essence, the mandate shall issue forthwith.

The decision of the District Court is AFFIRMED.

*This case has been edited for teaching pu{poses.

/o

Michelle ROSENFELD, Plaintiff-Appellee v. Gerard BASQUIAT, as Admnistrator

of the Estate of Jean-Michel Basquiat, Defendant-Appellant*

United States Court of Appeals, Second Circuit.

78 F.3d 84 (1996)

CARDAMONE, Circuit Judge:

Artist Jean-Michel Basquiat's short-lived career left a lasting impression on the art world. A socalled neo-expressionisto he was remarkable in his precocious talent, his prolificacy, and his
eccentricity. His rapid rise to fame and premature death at age 27 left a number of mysteries.
One of them, which is the subject of this appeal, is whether Basquiat contracted to sell thee of
his paintings to Michelle Rosenfeld, an art dealer and plaintiff in the instnt action. These
artworks that Rosenfeld alleges she contracted to buy were entitled "Separation of the 'K"' (a
diptych), "Atlas," and "Untitled Head." Their whereabouts
if indeed they still actually exist
are unknown. On November 20,1989 Rosenfeld sued Gerard Basquiat, as administrator of the
estate of his son Jean-Michel, for damages or specific performance of the contract.
BACKGROUND
Rosenfeld testified she went to Basquiat's apartment on October 25,1982, and while she was
there he agreed to sell her three paintings for $4,000 each, and that she picked out the three
works identified in her complaint. She testified further that Basquiat asked for a cash deposit of
ten percent; she left his loft and later returned with $1,000 in cash, which she paid him. When

for a receipt, he insisted on drawing up a "contract," and got down on the floor and
wrote it out in crayon on a large piece of paper, remarking that "someday this contract will be
worth money." She identified a handwritten document listing the three paintings, bearing her
signature and that of Basquiat, which stated: "$12,000
OCT 25 82."
$1000 DEPOSIT
Rosenfeld also testified that she later retumed to Basquiat's loft to discuss delivery, but Basquiat
convinced her to wait for at least two years so that he could show the paintings at exhibitions.
When Jean-Michel Basquiat died the market price of the thee works was $395,000. Plaintiffs
evidence presented at this first trial included the testimony of Rosenfeld's driver, Ron Belfrom,
who conoborated plaintiffs story by stating he had been present and participated in the October
25,1982 meeting between Rosenfeld and Basquiat. To rebut plaintiffs evidence, defendant
relied primarily on cross-examination and attempted to show that the alleged contract was a
fraud. The case ended in a mistrial because the jury was deadlocked.
she asked

The

jury in the second trial

reached a verdict in favor of Rosenfeld. Following defendant's post-

trial motion forjudgment as a matter of law, the district court ruled that the contract did not
violate the Statute of Frauds and that there was sufficient proof of damages to support the
verdict. It subsequently entered a judgment in favor of Roscnfeld in the amount of $384,000,
representing the current market value of the artworks, discounted by the outstanding portion of

/06

the purchase price. In addition, interest in the amount of $217,301.92was awarded to plaintiffin
the judgrnent. On appeal, the estate argues it was error for the trial court to admit Rosenfeld's
testimony into evidence and that the alleged contract between plaintiff and Basquiat violated the
Statute of Frauds.

DISCUSSION
The estate avers it is entitled to judgment as a matter of law because the Statute of Frauds makes
the alleged agreement between plaintiffand the artist unenforceable. It states that a written
contract for the sale of goods must include the date of delivery if the parties have indeed agreed
on a specific date, although a reasonable delivery time will be infened in the absence of an
express provision. Beause the jury found that there was an oral agreement regarding a particular
delivery date, the argument continues, the document bearing the signatures of Rosenfeld and
Basquiat is legally insuffrcient. None of these contentions has merit.
Because this case involves an alleged contract for the sale of three paintings, any question

regarding the Statute of Frauds is governed by the Uniform Commercial Code (U.C.C.).
According to the U.C.C., contracts for $500 or more are unenforceable "unless there is some
writing suffrcient to indicate that a confiact for sale has been made between the parties and
signed by the party to be charged". All that is required is that the writing afford a basis for
believing that the offered oral evidence rests on a real transaction. The writing supplied by the
plaintiff indicated the price, the date, the specific paintings involved, and that Rosenfeld paid a

deposit. It also bore the signatures of the buyer and seller. Therefore, the writing satisfied the
requirements of the U.C.C.
The estate also claims that, under common law, a specific delivery date, if agreed upon, must be
in the writing. However, the common law has been replaced by the U.C.C. The U.C.C. does not
required that a specific delivery date be an essential part of the contract. Because the writing,
allegedly scrawled in crayon by Jean-Michel Basquiat on a large piece of papero easily satisfied
the requirements of the U.C.C., the estate is not entitled to judgment as a matter of law. It is of
no real significance that the jury found Rosenfeld and Basquiat settled on a particular time for
delivery and did not commit it to writing; nor is it of any moment that performance may not have
been possible within one year of when the agreement was made. The alleged contract is not
invalid on Statute of Frauds grounds.

[The case was remanded for a new trial for other reasons]

*This case has been edited for teaching purposes.

/07

NEI.

ORK TIMES CO. v. SULLIVAN*

376 U.S. 254 (t964)

Respondent, is one of three elected Commissioners of the City of Montgomery, Alabama. He

brought suit in state court alleging that he had been libeled by a full-page advertisement in
Petitioner's newspaper. The advertisement included statements, some of which were false**,
about police action allegedly directed against students who participated in a civil rights
demonstration and against Dr. Martin Luther King, Jr., a leader in the civil rights movement.
There was no reference to Respondent in the advertisement, either by name or official position.
However, Respondent claimed the statements referred to him because his duties included
supervision of the police department.
The trial judge instructed the jury that such statements were "libelous per se," legal injury being
implied without proof of actual damages, and that for the purpose of compensatory damages,
malice was presumed, so that such damages could be awarded against Petitioner if the statements
were found to have been published by them and to have related to Respondent.

As to punitive damages, the judge instructed that mere negligence was not evidence of actual
malice and would not justiff an award of punitive damages. He refused to instruct that actual
intent to harm or recklessness had to be found before punitive damages could be awarded, or that
a verdict for respondent should differentiate between compensatory and punitive damages. The
jury found for respondent and the State Supreme Court affirmed. Petitioner appeals to the U.S.
Supreme Court.
MR. JUSTICE BRENNAN delivered the opinion of the Court.
The general proposition that freedom of expression upon public questions is secured by the First
Amendment has long been settled by our decisions. Cases which impose liability for erroneous
reports of the political conduct of officials reflect the obsolete doctrine that the governed must
not criticize their govemors. The interest of the public here outweighs the interest of the
Respondent or any other individual. Furthermore, expression does not lose constitutional
protection to which it would otherwise be entitled because it appears in the form of a paid
advertisement.
Factual etror, content defamatory of official reputation, or both, are insufficient to warrant an
award of damages for false statements unless "actual malice" - knowledge that statements are
false or in reckless disregard of the truth - is alleged and proved. There was no evidence
whatsoever that the newspaper was aware of any eroneous satements in the advertisement or
that it was in any way reckless in that regard. The state court judgment entered upon a general
verdict which does not differentiate between punitive damages, as to which under state law
actual malice must be proved, and general damages, as to which it is "presumed," precludes any
determination as to the basis of the verdict and requires reversal, where presumption of malice is
inconsistent with federal constitutional requirements.

t0g

The evidence was constitutionally insufcient to support the judgment for respondent, since it
failed to support a finding that the statements were made with actual malice or that they even
related to respondent. Therefore, we rule that a State cannot under the First and Fourteenth
Amendments award damages to a public official for defamatory falsehood relating to his official
conduct unless he proves "actual malice" meaning that the statement was made with knowledge
of its falsity or with reckless disregard of whether it was true or false.

REVERSED AND REMANDED.

[** - - It is uncontroverted

that some of the statements contained in the paragraphs were not

accurate descriptions of events which occuned in Montgomery. For example, although African
American students staged a demonstration on the State Capitol steps, they sang the National

Anthem and not "My County, 'Tis of Thee." Also, while nine students were expelled by the
Alabama State Board of Education, it was not for leading a demonstration at the Capitol, but for
demanding service at a lunch counter in the Montgomery County Courthouse. Finally, Dr. King
had not been arrested seven times, but only four.l

*This case has been edited for teaching purposes.

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CAMPBELL, ET AL. Q LIVE CREW) v. ACUFF-ROSE MUSIC,INC.*

Supreme Court of United States.
s10 u.s. s69 (1994)

JUSTICE SOUTER delivered the opinion of the Court.

We are called upon to decide whether popular rap musical group 2Live Crew's 1989 commercial
parody of Roy Orbison's song, "Oh, Pretty'Woman", may be a fair use within the meaning of the

Copyright Act of 1976.In 1964, Roy Orbison and lVilliam Dees wrote a rock ballad called "Oh,
Pretty Woman" and assigned their rights in it to Respondent, Acuff-Rose Music,Inc. AcuffRose registered the song for copyright protection. 2Live Crew did not receive permission to
record the parody of the song. Almost a year later, after nearly a quarter of a million copies of
the recording had been sold, Acuff-Rose sued 2 Live Crew and its record company for copyright
infringement. Although the District Court granted summaryjudgment for2Live Crew, the
Court of Appeals reversed, holding that the defense of fair use is barred due to the song's
commercial character and excessive borrowing. Because we hold that a parody's commercial
character is only one element to be weighed in a fair use inquiry, and that insufficient
consideration was given to the nature of parody in weighing the degree of copying. Vy'e reverse.

It is uncontested here that2 Live Crew's song would be an infringement of Acuff-Rose's rights in
"Oh, Pretty W'oman," under the Copyright Act of 1976, but for a finding of fair use through
parody. From the infancy of copyright protection, some opportunity for fair use of copyrighted
materials has been thought necessary to fulfill copyright's very pu{pose, "[t]o promote the
Progress of Science and useful Arts. . . .u U. S. Const., Art. I, $ 8, cl. 8.[5] For as Justice Story
explained, "[i]n truth, in literature, in science and in art, there are, and can be, few, if any, things,
which in an abstract sense, are strictly new and original throughout. Every book in literature,
science and art, borrows, and must necessarily borrow, and use much which was well known and
used before." Emerson v. Davies, 8 F. Cas.615,619 (No.4,436) (CCD Mass. 1845).
The fair use of a copyrighted work for purposes such as criticism, comment, news reporting,
teaching (including multiple copies for classroom use)o scholarship, or research, is not an

infringement of copyright. In determining whether the use made of a work in any particular case
is a fair use, certain factors need to be considered: whether or not the purpose and character of
the use is a parody, whether or not such use was of a commercial nature, and, if the use was a
parody, whether or not there was an excessive use of the original work.
Modem dictionaries accordingly describe a parody as a literary or artistic work that imitates the
characteristic style of an author or a work for comic effect or ridicule. We agree with other court
decisions which find that parody, like other comment or criticism, may claim fair use.

//

(Examples include "When Sonny Snif Glue," aparody of "When Sunny Gets Blue," is fair
use); Elsmere Music, Inc. v. National Broadcasting Co.; "I Love Sodom," a "Saturday Night
Live" television parody of "I Love New York," is fair use) While we might not assign a high
rank to the parodic element here, we think it fair to say that 2Live Crew's song reasonably could
be perceived as commenting on the original or criticizing it, to some degree. 2Live Crew
juxtaposes the romantic musings of a man whose fantasy comes true, with degrading taunts, a
bawdy demand for sex, and a sigh of relief from paternal responsibility.

The Court of Appeals, however, immediately cut short the inquiry into2 Live Crew's fair use
claim by finding that the commercial nature of the use of the parody by 2Live Crew took away
their exception from copyright infringement. We disagree. If, indeed, commerciality carried
presumptive force against a fnding of fairness, the presumption would swallow nearly all of the
fair uses mentioned previously, including news reporting, comment, criticism, teaching,
scholarship, and research, since these activities are generally conducted for profit in this country.
This is not, of course, to say that anyone who calls himself a parodist can skim the cream and get
away scot free. In parody, as in news reporting, context is everything, and the question of
fairness asks what else the parodist did besides go to the heart of the original. It is significant
that2 Live Crew not only copied the first line of the original, but thereafter departed markedly
from the Orbison lyrics for its own ends. 2Live Crew not only copied the bass riffand repeated
it, but also produced otherwise distinctive sounds, interposing "scraper" noise, over-laying the
music with solos in different keys, and altering the drum beat. This is not a case where "a
substantial portion" of the parody itself is composed of a "verbatim" copying of the original. It is
not, that is, a case where the parody is so insubstantial, as compared to the copying, that the third
factor must be resolved as a matter of law against the parodists.
We conclude that it was error for the Court of Appeals to rule that the commercial nature of 2
Live Crew's parody of "Oh, Pretfy Woman" rendered it presumptively unfair. No such
evidentiary presumption is available to address the character and purpose of the use, in
determining whether a transformative use, such as parody, is a fair one. The court also erred in
holding that2 Live Crew had necessarily copied excessively from the Orbison original,
considering the parodic purpose of the use. We, therefore, reverse the judgment of the Court of
Appeals and remand the case for further proceedings consistent with this opinion.

*This case has been edited for teaching pulposes.

VICTOR'S LITTLE SECRET v. VICTORIA SECRET CATALOGUE,INC., et al.*

SUPREME COURT OF THE UNITED STATES
s37 U.S. 418 (2003)

Justice Stevens delivered the opinion of the Court.

Petitioners, Victor and Cathy Moseley, own and operate a retail store named "Victor's
Little Secret" in a strip mall in Elizabethtown, Kentucky. They have no employees.

VICTORIA'S SECRET trademark, and operate over 750 Victoria's Secret

stores, two of which are in t ouisville, Kentucky, a short drive from Elizabethtown. In 1998,
they spent over $55 million advertising the VICTORIA'S SECRET brand--one of moderately
Respondents owrr the

priced, high quality, attractively designed lingerie sold in a store setting designed to look like a
woman's bedroom." They distribute 400 million copies of the Victoria's Secret catalog each
year, including 39,000 in Elizabethtown. In 1998 their sales exceeded $1.5 billion.

In the February 12,1998 edition of a weekly publication distributed to residents of the

military installation at Fort Knox, Kentucky, Petitioners advertised the grand opening of their
store "VICTOR'S SECRET" in nearby Elizabethtown. The ad featured "intimate lingerie for
every woman" and "adult movies and novelties." An army colonel, who saw the ad and was
offended by what he perceived to be an attempt to use a reputable company's trademark to
promote the sale of o'unwholesome, tawdry merchandise,o'sent a copy to Respondents. The
Respondents requested the immediate discontinuance of the use of their name "and any
variations thereof." Petitioners refused and Respondents filed this complaint in Federal District
Court.
The complaint alleged (1) trademark infringement alleging that Petitioners' use of their
trade name was "likely to cause confusion and/or mistake"; (2) unfair competition alleging
misrepresentation; (3) "dilution" and (4) trademark infringement. The Respondents also argue
that Petitionerso conduct was "likely to blur and erode the distinctiveness" and "tarnish the
reputation" of the VICTOzuA'S SECRET trademark. Finding that the record contained no
evidence of actual confusion between the parties' marks, the District Court concluded that "no
likelihood of confusion exists as a matter of law" and entered summary judgment for Petitioners.
The Court of Appeals for the Sixth Circuit affirmed.

In 1995 Congress

amended the Trademark Act

of

1946, to provide a remedy for the

"dilution of famous trademarks." That amendment, known as the Federal Trademark Dilution
Act (FTDA), describes the factors that determine whether a mark is "distinctive and famous,"
and defines the term "dilution" as'othe lessening of the capacity of a famous mark to identiff and
distinguish goods or services." The issue we granted certiorari to decide is whether objective

//>

proof of actual injury to the economic value of a famous mark is required for relief, as opposed
to a mere presumption of harm arising from a subjective likelihood of dilution or infringement.
Traditional trademark infringement law is a part of the broader law of unfair competition.
It has its sources in English common law, and was largely codified in the Trademark Act of 1946
(Lanham Act). The United States took the [trademark and unfair competition] law of England as
its own. That law broadly prohibits uses of trademarks and trade names that are likely to cause
confusion about the source of a product or service. Infringement law protects consumers from
being misled by the use of infringing marks and also protects producers from unfair practices by
an "imitating competitor."
We decide the case on the assumption that the Moseleys' use of the name "Vctor's Little
Secret" neither confused any consumers or potential consumers, nor was likely to do so. The
mere fact that consumers might mentally associate the Petitioners' mark with Respondent's
famous mark is not sufficient to establish actionable dilution or infringement. As the facts of this
will not necessarily reduce the capacity of the famous
mark to identifu the goods of its owner, which is the statutory requirement for dilution under the
FTDA. [For example, in the case of Ringling Bros.-Bamum & Bailey Circus Shows,Inc. v.
Utah Div. of Travel, the State of Utah issued license plates which represented that their state had
case demonstrate, such mental association

the'ogreatest snow on earth." Even though Utah drivers may be reminded of the circus when
they see a license plate referring to the "greatest snow on earth," it by no means follows that they
will associate "the greatest show on earth" with skiing or snow sports, or associate it less

shongly or exclusively with the circus.l

The record in this case establishes that an army offrcer who saw the advertisement of the
o'Victor's Secret" did
opening of a store named
make the mental association with "Victoria's
Secret," but it also shows that he did not therefore form any different impression of the store that
his wife and daughter had patronized. There is a complete absence of evidence of any lessening
of the capacity of the Victoria's Secret mark to identi$ and distinguish goods or services sold in

Victoria's Secret stores or advertised in its catalogs. The officer was offended by the ad, but it
did not change his conception of Victoria's Secret. His offense was directed entirely at
Petitioners, not at Respondents. Moreover, the expert retained by Respondents had nothing to
say about the impact of Petitioners' name on the strength of Respondents' mark. The evidence
in the present record is not sufficient to support a judgment for the Respondents on their claim of
dilution or infringement.

It is so ordered.

*This case has been edited for teaching purposes.

t/ 3

BRYSTAL McCLOUD v.THOMAS KIMBRO, as an individual

IN THE COURT OF APPEALS, STATE OF ARIZONA*
March 23,2010

Kimbro,

of Public Safety (DPS) officer, was the driver of a state-owned vehicle

that struck McCloud"s vehicle on April 1,2005, in Siena Vista. Kimbro normally worked in
Phoenix, where he lived, but at the time of the accident he was temporarily assigned to other
ares, including Sierra Vista. While there, Kimbro stayed in a local motel.
a Department

On the day of the accident, Kimbro had begun his work day at 4:00 a.m., ended his scheduled
time at noon, and worked some overtime. Shortly before the accident, he stopped at the Sierra
Vista DPS station and got the name of a local restaurant. He and other members of his unit,

including his supervisor, were driving to the restaurant at the time of the accident. Kimbro was
looking for it as he drove, did not see traffic stopped in front of him, and struck McCloud"s
vehicle. McCloud suffered injuries, incurred medical expenses,lost earnings, and sustained
damage to her vehicle. [McCloud argued that the trial court's finding of summary judgment for
Kimbro was improper because she believed a question of fact existed as to whether Kimbro had
been acting within the scope of his public employment when the vehicle he was driving struck
her car. McCloud sues Kimbro personally, because she failed to sue the State of Arizona within
the2-year statute of limitations ] Finding no error, we affirm.
Under Aizona law, "[a]n employer is vicariously liable for the negligent or tortious acts of its
employee acting within the scope and course of employment." Baker ex rel. Hall Brake Supply,
Inc. v. Stewart Title & Trust of Phoenix, Inc., 197 An2.535, T 17 , 5 P.3d 249,254 (App. 2000).
An employee's conduct is within the scope and course of employment "only if (a) it is the kind
he is employed to perform; (b) it occurs substantially within the authorized time and space limits;
and (c)

it is actuated, at least in part, by a purpose to serve the [employer]."

The parties have not cited any Arizona decision articulating an employer's tort

liability for the

conduct of an off-duty employee assigned to out-otown work. Although we have found no

case directly on point, we find several instructive. In Anderson v. Gobea, 18 Ariz. App.277,
280, 501 P.2d 453, 456 (1972). this court relied on the "dual-purpose rule" enunciated in
workerso compensation cases in concluding that an employee who was involved in an accident
while towing the employer's equipment to work with his own truck, pursuant to his employer's

instruction, had been acting within the scope of his employment, even though his commute
between his home ovemight and his work site had also served his personal interests. In Int'l
Bus. Machines, Inc. v. Bozardt, 275 5.8.2d376,377-78 (Ga. Ct. App. 1980) (eating may be a
necessary incident to work of employee traveling on employer's business); in Michaleski v.
Westem Preferred Co.,472 So. 2d 18, 21 (La. 1985) (employee in the course and scope of

t1(

employment when trip is employment connected, and employer paid expenses and anticipated
necessity of traveling to meals by paying per diem for food and gasoline expenses).
[Based upon the facts asserted herein] we hold that an employee on out-of-town travel status is
within the course and scope of his employment and subjects his employer to vicarious liability

while traveling to and from a restaurant for a regular meal. The undisputed facts show Kimbro
was on out-of-town travel while on temporary assignment in Siena Vista and that he was driving
to a restaurant for a meal at the time of the accident. Thus, he was traveling on an assignment of
the kind he was employed to perform; was within the authorized time and space limits of his
temporary assignment in southern Arizona1' and was acting, at least in part, by a purpose to serve
his employer, because eating is necessarily incidental to a multiple-day assignment.
McCloud argues that if Kimbro's shift had ended for the day when the accident occurred, he was
not acting within the scope of his employment and should then be personally liable for the
injuries and property damage she suffered from the accident. That distinction, however, does not
apply to our analysis when the employee is going to a restaurant for a meal while on out-of-town
travel.
moving pa{, is entitled to judgment as a matter of law because there is no
genuine dispute as to any material fact and only one reasonable inference to be drawn from those
facts. Kimbro was within the course and scope of his employment at the time of the accident and
summary judgment was appropriate.

Kimbro,

as the

The judgment of the trial court is affirmed.

*This case has been edited for teaching purposes.

/t ,

Golden Nugget, fnc. v. Ham*

Supreme Court

if Nevada

589 P.2d 173 (Nev. 1979)

The appellant, Golden Nugget, Inc. (GNI), commenced this action against respondent, A.W.
Ham, Jr. (Ham), seeking damages for breach of an alleged fiduciary duty, and also a declaration
that GNI is the legal owner of an undivided one half interest in certain real property presently
held by respondent, Bank of Nevada (Bank), as Trustee under a Trust Agreement. Ham, joined
by the Bank, filed a motion for summary judgment predicated on the ground that GNI's claim
was barred by the statute of limitations. The court below agreed and granted the motion. Hence,
this appeal.

GNI's cause of action is predicated on its contention that defendant Ham, in 1969, while serving
as a director and legal counsel to GNI, obtained a leasehold with an option to purchase the
"Califomia Club", at a time when the property in equity and fairness should have been obtained
for GNI. The California Club, is located at 101 Fremont Street, Las Vegas, Nevada, and is
situated next to a series of properties on which GNI conducts its casino operations.
The transaction at issue is a lease with an option to purchase entered into on August 12,1969,
whereby Ham, while a director and legal counsel for GNI, leased the property from his former

wife, Doris Ham Shupe for

of 99 years, with an option to purchase for $1,000,000. This

transaction was consummated shortly after GNI, through a series of property acquisitions, had
extended its operations to every other lot on that segment of Fremont Street. GNI, in its
pleading, contends that Ham breached his fiduciary duty to GNI by failing to advise it of the
opportunity of leasing Shupe's interest in the property at a time when GNI had an interest in
acquiring the subject property, and that Ham entered the transaction in bad faith so that he could
subsequently lease that property to GNI for a substantial personal profit, which did occur.
a term

In its order granting summary judgment, the trial court ruled that the applicable statute governing
fraud by a corporate director was N.R.S. sec.l 1.190(3Xd), which requires a plaintiff to bring:
"Within 3 years: An action for relief on the ground of fraud or mistake; the cause of an action in
such case not to be deemed to have accrued until the discovery by the aggrieved party of the
facts constituting the fraud or mistake." The court also held that GNI's cause of action as a
matter of law accrued on August 20,1970, when notice of the lease in question was given by
defendant Ham to a private law firm retained as investment specialists for GNI. Using that date,
the court concluded that GNI's action, which was filed in September of 1974, was barred by the
statute of limittions.
The issue presented is whether, based on the pleading and proof offered, GNI is baned by the
three year statute of limitations from having its day in court. The complaint alleged that GNI did
not leam of Ham's breach of fiduciary duty until on or about August 1,1973. This allegation

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was supported by the deposition of William Boyd, director of GNI since 1969. According to the
deposition, neither Boyd nor any other director was aware, from August 1969, to at least June l,
1973,that Shupe's interest in the property would have been available to the corporation. GNI
contends that in these circumstances, a genuine issue of a material fact exists as to when the

corporation had suffrcient knowledge to commence the running of the statutory period. We
agree.

Respondent Ham was under a duty, as a director of GNI, to inform the corporation of the

full

circumstances of the transaction with his former wife. Mere disclosure of a transaction by a
director, without disclosure of the circumstances surrounding the transaction, is not suffrcient, as
a matter of law, to commence the running of the statute. Further, Ham was under an additional
duty to the corporation, as its attorney, not only to inform GNI fully of the factual circumstances

of the transaction, but also to inform GNI of its rights in regard thereto.
V/e have held that when aparty who is relied upon in a fiduciary capacity fails to fulfrll his
obligations thereunder, and does not tell the other party of his failure, his omssion constitutes
constructive fraud, tolling the statute of limitations until the facts constituting the fraud are
discovered, or should have been discovered, by the injured party.
We cannot agree that in the present posture of this case, the corporation must be found, as a
matter of law, to have been derelict in its duty when it failed to investigate the details of the
transaction between its director and attorney and his former wife, Shupe. The corporation was
told that the property had been the subject of a 1962 property settlement between Ham and
Shupe, and that thereafter, an undivided half interest was held by Ham as trustee for Shupe. To
have required GNI, under these circumstances, to investigate whether Ham had personally
usurped an opportunity available to GNI would have required an inquiry into a second fiduciary

relationship, quite independent of GNI's corporate business.

It has been observed that a fiduciary has a duty to make full and fair disclosure of all facts which
materially affect the rights and interests of the parties. Where a fiduciary relationship exists, facts
which would ordinarily require investigation may not excite suspicion. Based upon the facts in
this case, we are compelled to conclude that the trial court was wrong when it found that, as a
matter of law, the GNI corporation had actually discovered the facts constituting the fraud, or
facts which in the exercise of proper diligence would have enabled them to discover the fraud, in
August 1970. We must, therefore, reverse and remand this case for a full hearing on its merits.

*This case has been edited for teaching purposes.

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Tina Koperwas v. Publix Supermarkets, fnc., et. al.*

Appellate Court of the State of Florida
534 So.2d872 (1988)
Judge Gomez delivered the majority opinion.

Plaintiff appeals from an adverse final judgment granting a directed verdict in favor of the
Defendants in a personal injury claim. We afrm.
Plaintiff, Tina Koperwas, purchased a can of Doxsee clam chowder at a Publix grocery store.
While eating the clam chowder, she injured one of her teeth when she bit down on a piece of
clam shell. Plaintiff filed an action against Publix and Doxsee for breach of implied warranty.
In the complaint, she alleged that the chowder "was not fit for use as food, but was defective,
unwholesome and unfit for human consumption and was in such a condition to be dangerous to
life and health". At trial, the deposition of Doxsee's general manager was read into evidence, in
which he described the "state of the art" methods Doxsee uses in manufacturing its clam
chowder. At the close of Plaintiff s case, the Defendants moved for directed verdicts.
Plaintiffargued that a jury should decide whether Doxsee used unreasonable care in
manufacturing the chowder. The trial judge disagreed and granted directed verdicts in favor of
the defendants. Plaintiff now appeals.
In a leading case, Florida adopted the "reasonable expectation" test for determining liability.
(Zabner v. Howard Johnsons,2Ol So. 2d 824 (Fla. 1967)) The Zabner court held that "[t]he
question of whether food is fit for the purpose intended although it contains walnut shells or
other substances must be based on what the consumer might reasonably expect to find in the
food as served . . .and what is reasonably expected by a consumer is a jury question in most
cases." But where the evidence is such that all reasonable ersons] in the exercise of an honest
and impartial judgment must draw the conclusion that no breach of duty on the part of the
defendant[s] has been shown, it is not error to direct a verdict in defendant[s] favor." (Messner
v. llebb's City, Inc.,62 So. 2d 66,67 (Fla. 1952)).
The reasonable expectation test developed in Zabner supports the trial court's verdicts for
defendants. An occasional piece of clam shell in a bowl of clam chowder is so well known to a
consumer of such a product that we can say the consumer can reasonably anticipate and guard
against it. (See Morrison's Cafeteria of Montgomeryv. Haddox,43l So. 2d975 (Ala.. 1983)
(where customer found bones in her fish) and ll'ebster v. Blue Ship Tea Room,198 N.E. 2d309

(1964) (where customer found bones in her fish chowder).

Accordingly, the frnal judgment is AFFIRMED.

1/?

Nesbitt, Judge delivered the dissenting opinion.

I respectfully dissent. The majority opinion purportedly follows the "reasonable expectation"
test found in Zabner, but in reality, applies the Massachusetts-New York rule (whereby the test is
whether a substance found in a food rendered it unwholesome or unfit for consumption) as well
as the "foreign/natural test found in Ohio, Alabama and other jurisdictions (where the test is
whether the substance in the food which caused injury was foreign or natural to the food).
The majority, thus, has unwittingly ruled in conflict withZabner which rejected both tests. I
would follow Zabner and reverse the trial court's decision. Simply because clams in their
natural form come in shells does not necessarily lead one to the conclusion, as a matter of law,
that a consumer of clam chowder should reasonably anticipate and guard against the presence of
potentially injurious pieces of shell in the chowder he or she eats. Such is a question of fact to be
determined by ajury.

*This case has been edited for teaching purposes.

//7

Anderson v. Associated Grocerso Inc.

Before the Appellate Court
of the State of Washington
525 P. 2d 284 (1974)

Chief Justice Green delivered the opinion of the Court.

Plaintiffappeals from an order granting summary judgment of dismissal in favor of the

defendant, Associated Grocerso Inc. The propriety of this order presents the sole question on
appeal.

Shortly after 8:00 a.m. on July 23,1970, Associated Grocers delivered a pallet of produce
to the back room of the Thriftway Market in Pasco, Washington. On top of the stack of produce
was one cardboard box of Chiquita Brand bananas. The bananas were unwrapped and the box
contained breather holes. Later that morning, Tom Anderson, the produce manager, removed the
box ofbananas from the top ofthe stack. V/hen he reached for a box ofradishes that had been
under the bananas, a giant spider, identified as Heteropoda Venatoria, commonly known as a
banana spider, 6 inches in diameter, leaped from some wet burlap onto his left hand and bit him.
None months later, April 27,1971, Tom Anderson died of heart failure.
His wife, Johnnie Anderson, as the administrator of her husband's estate, brought this
lawsuit to recover damages for the alleged wrongful death of her husband. This cause of action
is founded upon three theories:

1.

Strict liability for a defect in a product

2. Breach of the implied warranty of merchantability and fitness

3.

Negligence

In granting summary judgment for Associated Grocers, the trial court rejected the first
two theories and found no evidence to support an issue of fact as to negligence.
On appeal, error is assigned to the granting of summary judgment in favor of the
defendant rather than the plaintiffon the first two theories. No error having been assigned to the
granting of summary judgrnent on the negligence theory, it is not before us.

/ Z

With respect to the other two theories, plaintiffcontends that the bananas delivered to the
Pasco Thriftway store and handled by her deceased husband were defective and thereby unfit for
the ordinary pulpose for which the bananas were to be used. The trial court rejected this
contention because there was no showing that the bananas were in any way defective or unfit for
the purpose intended. The court noted that the spider was neither in the bananas nor in the
container and ruled that although the container may have transported the spider, the product was
not defective or unfit. We affirm.

To support her position, plaintiffcites numerrs cases involving defects found in

products. However, none involve transient insects or spiders. In the instant case, the spider was
not in the bananas, but was instead on a piece of wet burlap on top of a box of radishes. There
was nothing wrong with the bananas; they were edible and saleable. In these circumstances,
neither the doctrine of strict liability nor the breach of implied warranty of fitness applies.

Affirmed.

*This case has been edited for teaching pu{poses.

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EDNA MILLER et. al. v.

CALIFORNIA DEPARTMENT OF CORRECTIONS*

IN THE SUPREME COURT OF CALIFORNIA
Decided 7/18105

GEORGE, Chief Judge delivered the opinion of the Court:

Plaintift

Edna

Miller, is a former employee at the Valley State Prison for Women.

She claims

that the warden of the prison at which she was employed accorded unwarranted favorable
treatment to numerous female employees with whom the warden was having sexual affairs, and
that such conduct constituted sexual harassment in violation of the California Fair Employment
and Housing

Act. (For example,

one of the female employee's having sexual relations

with the

Warden received promotions, despite Miller's higher rank, superior education, and greater
experience.)

Miller's failure to be promoted to the position of facility captain made her ineligible to compete
for higher-ranking positions. The trial court granted summary judgment for the Defendant,
concluding that the conduct in question did not support a claim of sexual harassment. The Court
of Appeals affirmed. This Court must determine whether the lower courts properly found that

plaintiff failed to present a case of sexual harassment. For the reasons explained below, we
conclude that when sexual favoritism in a worlace is sufficiently widespread, it may create an
actionable hostile work environment in which a demeaning message is conveyed to female

/2?-

employees that the way for women to get ahead in the worlace is by engaging in sexual
relations with supervisors.

We have agreed with the United States Supreme Court that, to prevail, an employee claiming
harassment based upon a hostile work environment must demonstrate that the conduct

complained of was severe enough or sufficiently pervasive to alter the conditions of employment
and create a work environment that qualifies as hostile or abusive to employees because of their

sex. Following the standards adopted in our prior cases, we believe that an employee may
establish an actionable claim of sexual harassment by demonstratingthat widespread sexual

favoritism was severe or pervasive enough to alter his or her working conditions and create a
hostile work environment.

Further, Plaintiffs may establish the existence of a hostile work environment even when they
themselves have not been sexually propositioned. Widespread favoritism based upon consensual
sexual affairs may imbue the worlace with an atmosphere that is demeaning to women because
o'sexual
playthings" and that the
the message being conveyed is that managers view women as

way for women to get ahead in the worlace is by engaging in sexual relations with supervisors.

For the foregoing reasons, the judgment of the Court of Appeals is reversed and remanded to the

for further proceedings consistent with this opinion.

*This case has been edited for teaching purposes.

lz3