Congress’s friendly skies, and battle of the dumb lawyers
1. Air Congress:
As a snowstorm threatened Washington, D.C., last Wednesday night, there were TV news reports showing members of the House hustling down the Capitol steps so they could get to the airport to catch flights home. This reminded me of something I’ve been curious about for a while.
Several years ago, when I was doing reporting for a book on the aftermath of 9/11 about how the airlines lobbied Congress to block airport security initiatives that they thought would be too onerous, I was told that each airline has a travel agency-like staff in Washington that is an adjunct of its lobbying office. Its sole purpose, one airline lobbyist told me, is to assist members of the House and Senate with their weekly trips home and back. These staffers get the call if a legislator has to change flights because of a last-minute vote.
That sounds innocent enough, but does it mean that someone else gets bumped off a full flight? What kind of other special arrangements, if any, do these airline facilitators make for our legislators that help them avoid the hassles of modern air travel faced by their constituents? How “white glove” is this service?
Do they provide priority upgrades into first class? Do they hold planes for their friends in Congress if they are running late? What about cutting through the security lines? (I bet the more recognizable pols would be afraid to do this at their home airports, but who knows? That’s why I’d assign the story.)
Which airline floods the zone the most with this kind of assistance?
I’m not sure how much we should begrudge these super-frequent-flier public servants some accommodation, but it would be fun to find out just how much of a break they actually get.
2. Who’s dumber, Martha’s lawyers or JCPenney’s?
There was only one item missing from this terrific column by James Stewart in last Saturday’s New York Times business section, taking us inside the litigation involving Martha Stewart’s alleged breach of her exclusivity contract with Macy’s by agreeing to sell her merchandise in JCPenney stores. Stewart artfully pointed out the laughable transparency of Martha’s scheme to claim that Penney was going to set up “Martha Stewart stores” within it JC Penney department stores. Because her Macy’s deal allowed her to sell her merchandise if she set up her own stores, this arrangement was not a breach, according to the Stewart-Penney side.
Columnist Stewart, who seemed to be restraining himself from outright ridiculing Martha’s and Penney’s argument on the pages of the Times, matter-of-factly cited testimony that Penney, not Martha Stewart’s company, would “set prices of the merchandise, decide when it would be promoted, employ the people who sold the goods, own the goods, source the goods, book the sales, bear the risk and own the shop. No space would be leased to Martha Stewart’s company.”
But the Times’s Stewart and everyone else whose reports on this I’ve read have so far left one thing out: Who indemnified whom for what everyone had to know would be an inevitable lawsuit from Macy’s?
Typically a buyer (in this case, Penney) will seek to be indemnified in licensing and resale deals by the seller (Martha Stewart) for any litigation arising out of the relationship, or at the least for any litigation arising out of the seller’s representation in the contract that the seller is not bound by any other contract from agreeing to the new contract.
But Martha’s lawyers had to know that at best they were skating on thin ice with their interpretation of the Macy’s contract and the loophole they were going to use to do the Penney deal. (I think I’m being generous here.)
So, I’m certain they would have negotiated hard not to indemnify Penney. Perhaps they even balked at providing the absolutely routine seller’s warranties and representations that no other contracts or obligations prevented them from entering into the Penney contract. In fact, maybe they even tried to have Penney indemnify them. That, of course, should have been a giveaway to the Penney side that this deal could be big trouble, just as it should be the best evidence at the trial that Martha and her team knew they were doing something wrong. On the other hand, if Penney and its lawyers yielded on these issues, it would mean they were colossally clueless or so desperate to strike a deal that they ignored the inevitable consequences.
In short, for me, the negotiation over the indemnity clause and the warranties and representations could be the most interesting part of this story – a tale of who’s dumb and who’s dumber.
Ron Johnson, the former head of Apple’s retail operation whom JC Penney hired as CEO at the end of 2011, has already become a Wall Street piñata for having made a slew of strategic pricing and marketing decisions that have nearly tanked his company. In addition to all that, it’s now clear that he made a deal with Martha Stewart that so obviously flouted a contract that it was destined to end up in court. What were he and his lawyers thinking? The indemnities and warranties and representations clauses and the negotiation over them will tell that story.
3. Union boss, Mexican-style:
This story on Quartz.com, the smart new digital-only daily business report, deserves follow-up by broader news outlets. It’s about Elba Esther Gordillo, who has just been jailed in Mexico for alleged embezzlement.
According to Quartz, Gordillo is:
the head of the Mexican teachers’ union, which, with 1.5 million members, is the largest union in Latin America. She used union contributions of Mexican teachers to become a millionaire who flew in private jets, owned two mansions in San Diego, California, and spent $3 million shopping in Neiman Marcus alone. She and her allies had other sources of income, though. She turned the union’s control over all teaching positions in the country into a private ownership system—ownership meaning that union bosses could inherit, bequeath, sell or rent these positions to other people.
Other news outlets, including the Guardian and Huffington Post, have run stories about her, but there are lots of good angles still to be explored. For example, what does Dennis Van Roekel, the hard-line president of the National Education Association, America’s largest teachers’ union, have to say about Gordillo and her arrest? What dealings have the two leaders and their unions had, if any?
What about Randi Weingarten the less-hard-line head of the smaller American Federation of Teachers? Both unions in the past have preached international solidarity. Did Gordillo and her alleged wrongdoing make them back off when it came to Mexico?
This story also makes me curious about the general political standing and challenges faced by unions and their leaders in developing countries and in countries, such as those in Europe, where traditional union perquisites are now under such heavy challenge.
Beyond that, if I were still writing about education reform in the United States and spending time with Weingarten, I’d love to ask her why she never tried to put me on to Gordillo and Mexico to make herself look good and her tough stance on union rights look moderate by comparison. As in, “If you think I’m bad, take a look south of the border.”
PHOTO: A man walks past the U.S. Capitol during a second major snow storm to affect the Atlantic coast in five days, in Washington February 10, 2010. REUTERS/Jason Reed