EXERCISE NO. 2

MGT 602 LEGAL AND ETHICAL ISSUES IN MANAGEMENT 

BUSINESS CRIMES 

Subject. 1

The Peanut Corporation of America was a supplier of processed peanuts to some of the largest food production companies in the United States. The company was founded by Hugh Parnell, Sr. when he was selling ice cream vending machines in the 1960s. When he was restocking a machine, he noticed that the peanuts on the Nutty Buddy ice cream cones came from plant in the North. He decided to begin a company that processed peanuts in the South, where they were grown. The company grew and had plants in Virginia, Georgia, and Texas.  Hugh's son Stewart Parnell entered the business in the 1970s after complaining to his father that graduates in his major, oceanography often ended up working on oil rigs. His father offered him a job, and Stewart left college to begin work in the Virginia facilities.

The major food producers were customers of Peanut Corp. Peanut Corp.'s peanut product base was used in peanut buffer, ice cream, cookies, and crackers. Peanut Corporation was known for its cost cutting. When a customer came back with bid from another peanut product base that was lower, Stewart Parnell, who became the CEO of Peanut Corp., would always cut the price by a few cents in order to win over the potential customer.

E-mails reflect Parnell's concerns about costs. When a salmonella test at the factory was positive, Peanut Corp. was required to hold off shipment for a retest. Parnell wrote in an e-mail, "We need to discuss this. Beside the cost, this time lapse is costing us $$ and causing us obviously a huge lapse from the time when we pick up the peanuts until the time we can invoice."  He also wrote, about products he was informed had tested positive for salmonella, "Turn them loose." When the FDA made the connection between Peanut Corp. and salmonella poisonings that sickened 644 people in 44 states, which resulted in eight deaths. Mr. Parnell wrote to his managers, "Obviously we are not shipping any peanut butter products affected by the recall but desperately at least need to turn the raw peanuts on the floor into money."

Congress held hearings into Peanut Corp.'s operations. Stewart Parnell took the Fifth Amendment when members of the Commerce Committee in the House of Representatives asked him questions about his company.The company declared Chapter 7 bankruptcy on February 13, 2009.

QUESTION 1

a.       Discuss whether Mr. Parnell could be held criminally liable.

b.       Are Mr. Parnell's e-mails admissible as evidence?

c.        Mr. Parnell's father said, "He's being railroaded. Why would anybody send something out that would ruin his own company? It's like an auto dealer sending a car out with no brakes." What defense is he raising for his son?

Subject   no. 2

Borland International, Inc., and Symantec Corporation are software manufacturers based in Silicon Valley in California.  A Borland executive, Eugene Wang, was planning to depart Borland to work for Symantec, considered Borland's archrival.  Other Borland executives and its board uncovered evidence, on the evening of Mr. Wang's departure, that Mr. Wang had communicated trade secrets to Gordon Eubanks, Symantec's chief executive. Those secrets included future product specifications, marketing plans through 1993, a confidential proposal for a business transaction, and a memo labeled "attorney/client confidential" summarizing questions asked by the Federal Trade Commission (FTC) in its probe of restraint of trade allegations by Microsoft Corporation.

Mr. Wang allegedly used his computer to communicate the information to Mr. Eubanks. The local police and Borland executives worked through the night, using Symantec's own software that reconstructs computer files after they have been destroyed.

When Mr. Wang reported for his exit interview, he was detained and questioned by investigators. Searches authorized by warrant of Mr. Eubanks's two homes and his office uncovered evidence that he had received Mr. Wang's information. Borland filed a civil suit against the two men.

Later during the day of the exit interview, Mr. Wang's secretary, who was transferring with him to Symantec, returned to copy from her computer what she called "personal files." A personnel official watched as she copied the files from her computer but became suspicious and notified plainclothes officers in the Borland parking lot. The secretary, Lynn Georganes, was stopped, and the two disks onto which she had copied materials were taken. The disks contained scores of confidential Borland documents, including marketing plans and business forecasts.

QUESTION 2

a.      Do the actions of Mr. Wang and Mr. Eubanks fit any computer crime statutes?

b.      Was theft involved in their actions?

c.       Were Ms. Georganes's actions ethical?

d.      Can't a competitor always hire an executive away, and wouldn't Mr. Wang have had most of the information in his head anyway?

e.      Can Mr. Eubanks be certain Mr. Wang will not do the same thing to him? 

Subject  no. 3

The owner of a construction firm, William Lattarulo, has been charged with a crime of manslaughter in the death of one of his workers. Lauro Ortega suffocated when the foundation of a building next to where he was digging at a Lattarulo site collapsed on him. Mr. Ortega's head was all that was uncovered when the foundation collapsed, but the pressure of the dirt and debris that rendered him immobile constricted his chest and made him unable to breathe. He suffocated to death as his coworkers tried to dig him out from the debris.

Mr. Ortega's coworkers as well as a safety consultant had warned Mr. Lattarulo that the trench was unsafe and needed to have some supports placed in it to prevent a collapse. When he was warned a second time by his workers Mr. Lattarulo said, "Don't worry about it."In addition, digging operations require that a contractor hire a consultant to oversee site safety. While Mr. Lattarulo listed a company as a consultant for the safety job, he did not actually have or pay a consultant, something that saved him S90,000 on the job. On the day of the collapse, a building inspector for the city visited the site following the fatality and said there were "shoddy work conditions." She also found eight violations of city construction codes at the site.

The Lattarulo site involved digging a foundation next to another building, but the Lattarulo building required a deeper dig. The result was that the foundation of the building next to the site was weakened and required support until the Lattarulo concrete was poured to provide a substitute for the former ground support. A consultant working nearby did warn Mr. Lattarulo about the foundation's risk of collapse once the digging went deeper.

When the criminal manslaughter charges were brought, contractors had questions about their criminal liability when there are accidents on job sites.

QUESTION 3

1.      Should the above incident be considered a criminal or civil case? Why?

2.      How would you advise these contractors?

3.      When is an owner criminally liable for actions and work conducted by employees?

Subject  no.  4

Bernard Saul was a salesperson for A. P. Walter Company, a wholesale auto parts business, assigned to the D&S Auto Parts account. Mr. Saul took inventory at D&S each week and phoned in an order to Walter to cover the needed inventory replacements. Between 1976 and 1982, Mr. Saul ordered parts from Walter and invoiced D&S, but he actually kept a portion of the parts for himself, sold them to other dealers, and pocketed the money. Through an audit, D&S discovered that it had paid $155,445.20 for parts that were not received.

QUESTION 4 

Can Mr. Saul be charged with any crimes? Can Walter be charged with any crimes?

Subject no. 5

The New York City Department of Health is responsible for the inspection of Manhattan restaurants to determine whether they comply with the city's health code. Forty-six of the department's inspectors wereinducing restaurateurs to pay money to them for permit approval or for a favorable inspection.

QUESTION 5

Is this activity a basis for a crime? What crime? What would a prosecutor be required to prove? Are the officers and the restaurateurs equally criminally liable?