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Speaker 1: This is Bloombird Law with June Brusso from Bloombird Radio.

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Speaker 1: A stunning one D thirty seven million dollar verdict unprecedented

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Speaker 1: in a racial discrimination in employment case. But that's what

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Speaker 1: a jury has ordered Tesla to pay to a former

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Speaker 1: black elevator operator. O and d As claimed that the

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Speaker 1: electric carmaker turned a blind eye to racial talents and

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Speaker 1: offensive graffiti at its factory in Fremont, California. This is

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Speaker 1: about a verdict data a jury made to to let

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Speaker 1: Tesla know that they're being put on notice to clean

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Speaker 1: up their factories. Joining me as employment law expert Anthony

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Speaker 1: on CD, a partner at Proscauer Rose Tony. The jury

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Speaker 1: deliberated for only about four hours, came back with a

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Speaker 1: verdict of six point nine million in compensatory damages and

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Speaker 1: one thirty million in punitive damages. Well, obviously it's a whopper.

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Speaker 1: There have been very few verdicts in the employment area

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Speaker 1: in California that have come anywhere close to that. The

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Speaker 1: amount of about a D eighty five million dollars against

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Speaker 1: Auto Zone a few years ago on behalf of a

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Speaker 1: female employee who sued, and there was another one against

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Speaker 1: a hospital that was around the same amount. But it's

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Speaker 1: even in California a rarity to see verdicts of a

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Speaker 1: magnitude like this. It does happen on occasion, but it's

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Speaker 1: more frequent that you see, at least in Los Angeles

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Speaker 1: and in San Francisco, verdicts that are still very large

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Speaker 1: in the million dollar range, and those happened with a

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Speaker 1: great deal frequency these days. And the reason is that

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Speaker 1: in California, basically, juries are unlimited in terms of the

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Speaker 1: amounts of money they are allowed to award in cases

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Speaker 1: like this. There are limits in some jurisdictions, there is

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Speaker 1: not such a thing in California. One of the jurors

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Speaker 1: said that the intent was to send a strong message

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Speaker 1: to the company that it has to take racial harassment seriously.

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Speaker 1: So they intended that tunitive damage award to be so high. Yeah. Absolutely.

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Speaker 1: And the other thing that I've detected, and some of

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Speaker 1: the interviews with jurors that I have read and some

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Speaker 1: of the other stories, is that the jury particularly did

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Speaker 1: not like the fact that Diaz was a contractor as

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Speaker 1: opposed to a direct employee of Tesla. I think probably

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Speaker 1: what happened was that the Planetts lawyers probably tried to

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Speaker 1: make as much of that as they possibly could by

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Speaker 1: suggesting that Tesla was trying to, you know, pull a

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Speaker 1: fast one by retaining these workers as contract employees as

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Speaker 1: opposed to direct employees. And I can see how if

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Speaker 1: presented in the right way, that could be quite damaging

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Speaker 1: to Tesla. So I detected that was going on in

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Speaker 1: addition to, of course, the allegations that existed with respect

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Speaker 1: of the use of the N word, and the drawings

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Speaker 1: and other visual depictions that have been widely reported that

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Speaker 1: allegedly occurred in this workplace. The employment cases against Tesla

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Speaker 1: usually go through arbitration, but because he was a contract worker,

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Speaker 1: Diaz didn't sign a mandatory arbitration agreement. So this is

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Speaker 1: the first time that Tesla has had to face these

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Speaker 1: kind of charges at a trial. Ironically, because he wasn't

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Speaker 1: an employee and he was a contractor, he apparently was

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Speaker 1: not subject to an arbitration obligation, which had he been

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Speaker 1: a direct employee, probably would have been. Tesla said, while

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Speaker 1: we strongly believe that these facts don't justify the verdict,

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Speaker 1: we do recognize that in ten we were not perfect.

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Speaker 1: We're still not perfect, but we've come a long way

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Speaker 1: from five years ago. Do you think that means they're

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Speaker 1: going to accept the verdict and not appeal. Oh, I'm

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Speaker 1: sure they are going to appeal. And in fact, even

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Speaker 1: before they appeal, what is almost certain to happen is

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Speaker 1: the company will file a number of post trial motion

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Speaker 1: with the judge in the case, meaning that they will

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Speaker 1: ask the judge on the case to reduce the verdict.

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Speaker 1: And judges have that power to do that. They don't

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Speaker 1: have to do it, obviously, but they can be convinced

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Speaker 1: by way of emotion and the citation obviously to case

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Speaker 1: law that would suggest that this verdict obviously cannot stand.

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Speaker 1: And I would tell you for sure it obviously cannot stand.

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Speaker 1: It is way outside what would be acceptable by any

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Speaker 1: appellate court. So, in other words, the trial court judge

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Speaker 1: can try to fix this even before it would get

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Speaker 1: to an appeal. Typically, what that looks like is the

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Speaker 1: trial judge will conditionally reduce the verdict, and if the

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Speaker 1: planetiff refuses to accept the reduction, the judge may order

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Speaker 1: a new trial, either overall or on the damages says,

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Speaker 1: or some combination of the two. So is that because

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Speaker 1: the punitive damages are almost twenty times as large as

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Speaker 1: the actual damages explain a relation between punitive and compensatory.

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Speaker 1: In an employment case, a verdict has a number of

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Speaker 1: component parts. Number one usually is lost wages, both past

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Speaker 1: and future lost wages. I have not seen any report

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Speaker 1: at all in this case about lost wages for DIA's

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Speaker 1: He was a relatively short term employee there on my understanding,

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Speaker 1: as he was an elevator operator who worked there for

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Speaker 1: about a year before he quit his employment. He claimed

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Speaker 1: he was constructively terminated because of the harassment that was

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Speaker 1: going on. So what I gathered from that is that

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Speaker 1: he probably found another job relatively quickly after he quit

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Speaker 1: this job, So that is not a major part of

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Speaker 1: this verdict. The second component, in addition to lost wages,

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Speaker 1: and this is where the money really starts to mount

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Speaker 1: in a verdict like this, is emotional distress damages, and

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Speaker 1: in this case, he was awarded obviously substantial amount of

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Speaker 1: emotional distress damages close to seven million dollars. So that

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Speaker 1: will be the first point of attack both at the

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Speaker 1: trial court level and on an appeal from Tesla in

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Speaker 1: the event that the case doesn't get settled, and of

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Speaker 1: course that could also happen, there could be a settlement amount.

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Speaker 1: What do I mean by the first point of attack.

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Speaker 1: What Tesla's lawyers, I think will argue is that even

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Speaker 1: though the facts are as they are in this case,

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Speaker 1: even assuming everything that Diaz alleged and everything the jury

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Speaker 1: believed happened here did happen, six point nine million dollars

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Speaker 1: is still a very very large amount of money for

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Speaker 1: emotional distress damages. And there's a relatively recent case in

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Speaker 1: California where there was a three point five million dollar

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Speaker 1: emotional distress damages award. This was against the City of

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Speaker 1: West Cobina. It was it was a employment case, and

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Speaker 1: the appellate court in that case, at three point five

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Speaker 1: million dollars in emotional distress was quote shockingly disproportionate given

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Speaker 1: what the harm was that was proved at the time

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Speaker 1: of the trial. That was a whistleblower case, and so

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Speaker 1: as a result of that, the appellate court reduced that

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Speaker 1: three point five million dollar emotional distress damages down to

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Speaker 1: one point one million. So I think there's a lot

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Speaker 1: of reduction that Tesla will seek just on the emotional

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Speaker 1: distress component. And then the third component is punitive damages.

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Speaker 1: As you mentioned, and there's another recent case from California.

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Speaker 1: These are appellate court cases, so they are binding on

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Speaker 1: at least state courts in these situations where the court

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Speaker 1: said that a two to one ratio of punitive compensatory

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Speaker 1: damages was appropriate, so in that case, the court reduced

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Speaker 1: a larger two point one million dollars punitive to compensatories.

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Speaker 1: So if that were the case, even if the seven

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Speaker 1: million dollars were to stay in terms of emotional distress,

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Speaker 1: there couldn't be more than say, fourteen million dollars in

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Speaker 1: punitive damages on top of the seven million. Is there

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Speaker 1: a possibility of a settlement even after the jury trial. Yes, absolutely.

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Speaker 1: Of course, the plaintiff's lawyer has all aces in terms

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Speaker 1: of these negotiations. It's difficult to upset a jury verdict typically,

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Speaker 1: But as I just said, I think the greatest set

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Speaker 1: of weapons that will be used by TESLA and trying

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Speaker 1: to reverse this or change this will be to attack

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Speaker 1: the amounts because they really are outside the scope of

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Speaker 1: what appellate courts would permit in a case such as this,

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Speaker 1: And therefore I think the judge in this matter may

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Speaker 1: be governed by that. There may have also been things

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Speaker 1: that occurred at trial that that I'm just not aware

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Speaker 1: of that Tesla will say prejudice them or harm them,

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Speaker 1: or that we're an abuse of discretion by the judge

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Speaker 1: something like that. Those are all things that I'm sure

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Speaker 1: that they're thinking about it at this point at Tesla.

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Speaker 1: So let's say you're defending Tesla. You have this verdict.

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Speaker 1: This is the second time in recent months that Tesla

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Speaker 1: has been found liable in a case involving claims of

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Speaker 1: race based discriminating Asian. What do you do in the

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Speaker 1: other cases that Tesla is facing. What kind of defense

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Speaker 1: can you put up? Well, every case is different, of course,

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Speaker 1: and every employee who is coming at them is going

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Speaker 1: to be somewhat different. Although there also is a class action,

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Speaker 1: as I understand it, penning against them. So that actually

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Speaker 1: would be a situation where the lawyers are claiming that

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Speaker 1: there was actually commonality in terms of what happened to

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Speaker 1: their various clients, but just taking them one by one,

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Speaker 1: you know, every employee has a different set of circumstances

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Speaker 1: and I think each will have to be evaluated. It

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Speaker 1: is not too much of a leap of faith though

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Speaker 1: to assume that it's going to be more difficult for

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Speaker 1: Tesla going forward because now there's blood in the water,

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Speaker 1: and I suspect that no plaintiffs lawyer is going to

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Speaker 1: want to settle cases if they think they've got any

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Speaker 1: facts that are even close to those that existed in

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Speaker 1: this case. There's an investor proposal up for consideration at

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Speaker 1: the annual shareholder meeting that calls for the board to

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Speaker 1: oversee preparation of a report about how the company's use

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Speaker 1: of mandatory arbitration affects employees and corporate culture. From the

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Speaker 1: verdict in this case compared to the one million dollar

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Speaker 1: verdict in the arbitration case, can we see the difference

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Speaker 1: when a jury is involved. Absolutely, this is a laboratory uh.

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Speaker 1: The laboratory example of the difference between arbitration and jury trials,

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Speaker 1: I was struck by um the comparison. You may remember

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Speaker 1: from the whole Cold War years between East Berlin and

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Speaker 1: West Berlin. You had similar circumstances that existed in East

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Speaker 1: Berlin and West Berlin. One was a communist dictatorship and

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Speaker 1: one was a democracy. UH. And it wasn't difficult to

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Speaker 1: to to look at the difference between those two systems

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Speaker 1: What has just happened to Tesla is almost identical to

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Speaker 1: that kind of experiment. We have a black employee who's

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Speaker 1: claiming that he was subjected to racial harassment and discrimination

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Speaker 1: in the workplace, and he has signed an arbitration agreement.

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Speaker 1: That employee got a million dollars, which is still a

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Speaker 1: very sizeable award. Obviously, that was back in August UM.

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Speaker 1: A couple of months later, another employee, an other black employee,

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Speaker 1: claims he was subjected to almost the same kind of

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Speaker 1: if not exactly the same kind of harassment discrimination and

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Speaker 1: he gets a hundred and thirty seven million dollars from

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Speaker 1: a jury. Uh. It doesn't take a rocket scientists to

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Speaker 1: say that one system is more employer friendly and one

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Speaker 1: system is more employee friendly. And that is all you

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Speaker 1: really need to know about why plaintiffs, like jury trials

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Speaker 1: and employers tend to prefer arbitration. In terms of that

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Speaker 1: board meeting, which is tomorrow, I think you know, obviously

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Speaker 1: it's never a good time I suspect for a company

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Speaker 1: to suffer an adverse verdict like this, but the timing

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Speaker 1: could not be better for Tesla in terms of the

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Speaker 1: board which I believe is against the proposal that is

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Speaker 1: going to be considered tomorrow on the issue of reporting

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Speaker 1: and investigating whether arbitration is better than jury trials. TESLA

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Speaker 1: presumably is in the business of making money, and I

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Speaker 1: can't imagine any investor who would come to the conclusion

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Speaker 1: that they are better off suffering a hundred thirty seven

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Speaker 1: million dollar verdict versus potentially a million dollar award from

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Speaker 1: our arbitrator. I think those results speak for themselves. Thanks Tony.

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Speaker 1: That's Anthony on CD a partner Proscower Rose. Hello, I'm

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Speaker 1: Bob Ross. If this is your first time with us,

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Speaker 1: then let me extend a personal invitation for you to

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Speaker 1: get out your brushes and paint along and spend a

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Speaker 1: relaxing half power enjoying some of nature's masterpieces. That's why

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Speaker 1: I paint. It's because I can create the kind of

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Speaker 1: world that I want, and I can make this world

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Speaker 1: as happy as I wanted. The Netflix documentary about painter

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Speaker 1: Bob Ross Happy Accidents, Betrayal and Greed, is about an

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Speaker 1: unhappy accident in the intellectual property fight over the rights

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Speaker 1: to Ross's name and image. After his death, his son

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Speaker 1: Steve lost the long court battle over Ross's intellectual property

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Speaker 1: because of the corporate structure of Bob Ross, Inc. His

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Speaker 1: father's company, Steve Ross was left with nothing despite what

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Speaker 1: his father's will dictated, joining me his intellectual property litigator

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Speaker 1: Terence Ross, a partner at Captain Nuchen Rosenman so Terry.

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Speaker 1: For those who haven't seen the PBS show or all

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Speaker 1: the products and merchandise out there, tell us a little

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Speaker 1: about Bob Ross. Well, Bob Ross, like many young men

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Speaker 1: of his generation, had to do time with the military,

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Speaker 1: and he enlisted with the Air Force and had some

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Speaker 1: time on his hands while he was stationed in Alaska

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Speaker 1: and took a class from the USO on basic oil

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Speaker 1: painting technique, fell in love with it, and when his

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Speaker 1: career in the Air Force concluded and he did a

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Speaker 1: twenty year or full twenty year career, he wanted to

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Speaker 1: bring all that he had learned about painting two common

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Speaker 1: people like him, and so he started a show called

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Speaker 1: The Joy of Painting, which eventually caught on from a

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Speaker 1: single station in Indiana to nationwide, and he became a

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Speaker 1: very popular teacher of what's now called do it yourself

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Speaker 1: painting for a better part of twelve years across the

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Speaker 1: entire PBS network of stations. His approach was very similar

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Speaker 1: to Mr Rogers and Fred Rogers. Mr Rogers neighborhood is

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Speaker 1: very positive and upbeating, uplifting and looking for the beauty

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Speaker 1: and join things. And this was seen in the paintings

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Speaker 1: that he thought folks to paint, just very happy paintings.

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Speaker 1: He often we've heard of clouds as these happy little

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Speaker 1: clouds floating across the sky. It was all very delightful.

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Speaker 1: And then he sort of fell out of favor, and

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Speaker 1: in the last few years he has suddenly back in

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Speaker 1: favor again. PBS is once again running his shows. You're

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Speaker 1: seeing his image on virtually everything having to do with painting,

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Speaker 1: paint brushes, paint types, paint starter kits. His image was

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Speaker 1: even on a lunchbox recently. It's coffee cups, t shirts, costumes, pajamas, blankets,

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Speaker 1: jigsaw puzzles, on and on and June. It's this commercialization

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Speaker 1: that you're referring to there that is the cause of

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Speaker 1: the legal problems here because at its court, the intellectual

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Speaker 1: property issues at stake here involve what's known as right

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Speaker 1: of publicity, which a lot of people are unaware of.

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Speaker 1: Can you will your publicity rights to someone else. It

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Speaker 1: depends on which state you live in. Rights of publicity

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Speaker 1: are not federally recognized intellectual property rights to the extent

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Speaker 1: that they exist at all. They exist as a creature

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Speaker 1: of state law. And according to one study, I've seen

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Speaker 1: approximately two thirds of the states in the United States

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Speaker 1: how these rights the publicity laws, and they can if

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Speaker 1: the state legislature deems it's appropriate, provide for the inheritability

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Speaker 1: of these publicity rights. And so it really, at the

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Speaker 1: end of the day, depends in which state the owner

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Speaker 1: of the publicity rights is considered a resident of. At

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Speaker 1: the time of his or her death, Ross intended to

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Speaker 1: give the rights to his son and his half brother.

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Speaker 1: He even altered his will with a clause that specified

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Speaker 1: that his name, likeness, voice, and visual, written or otherwise

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Speaker 1: recorded work would go to his son and his half brother.

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Speaker 1: So why didn't that happen? Here we have an example

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Speaker 1: of not merely the rights of publicity passing by way

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Speaker 1: of state law, you know, in the normal course to

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Speaker 1: the next of ken. But you have Bob Ross prior

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Speaker 1: to that, making an affirmative representation that he wanted these

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Speaker 1: rights of publicity the pass on to his son and

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Speaker 1: brother and yet that did not happen, and why did

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Speaker 1: it not happen? By happenstance, the way that Bob Ross

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Speaker 1: set up his company is called bob Ross Inc. Defeated

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Speaker 1: the intent of his will or the estate laws of

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Speaker 1: his home state. The way bob Ross Inc. Was set

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Speaker 1: up It involved a licensing of all intellectual property rights

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Speaker 1: from Bob Ross to this company, bob Ross Inc. And

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Speaker 1: that might have been fined in the normal course. If

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Speaker 1: he was the only owner of bob Ross Inc. Then

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Speaker 1: those rights would have passed through his estate. But he

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Speaker 1: was not the only owner of bob Ross Inc. The

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Speaker 1: owners for himself, his wife, and to their friends, the Kulaskis,

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Speaker 1: who had assisted in setting up and launching his painting business.

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Speaker 1: And Moreover, the way bob Ross Inc. Was set up

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Speaker 1: was that stock, if you will, those ownership rights passed

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Speaker 1: by contract upon the death of any of the other owners.

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Speaker 1: So when Bob Ross's wife predeceased him, her ownership and

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Speaker 1: bob Rossing passed to the other three owners. And then

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Speaker 1: when Bob Ross passed away next his rights passed to

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Speaker 1: the Kawawskis. And so simply by that happenstance, the order

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Speaker 1: of death, the Kawski's ended up with all of the

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Speaker 1: ownership of bob Rossinc. And bob Ross Inc. Owned to

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Speaker 1: all the intellectual property rights of Bob Ross, which included

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Speaker 1: the right of publicity according to the court. Do you

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Speaker 1: think that bob Ross was confused when he made that

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Speaker 1: partnership agreement because later he's trying to give away his

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Speaker 1: publicity rights to his son and half brother, Well June.

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Speaker 1: Those facts certainly suggest that he did not understand what

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Speaker 1: he was doing, or else he would not at a

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Speaker 1: later date have attempted to bequeath those rights of publicity

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Speaker 1: to his son and his brother. It is unclear to

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Speaker 1: me whether he had legal representation at the time that

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Speaker 1: he established bob Ross Inc. And set up this formula

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Speaker 1: by which, in effect there is a lottery as to

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Speaker 1: who survived the longest amongst the owners of bob Ross

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Speaker 1: Think and therefore ended up with the intellectual property right.

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Speaker 1: But it is certainly a cautionary tale for all creators

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Speaker 1: who have intellectual property rights that they have to obtain

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Speaker 1: competent Intellectual Property Council with respect to any aspect of

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Speaker 1: those intellectual property rights, whether it's setting up a corporation

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Speaker 1: whether it's doing licensing agreements, whether it's even doing your will.

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Speaker 1: There's some debate about whether publicity rights should be transferable.

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Speaker 1: What's your opinion. So it's a very good question and

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Speaker 1: one that you correctly point out is being debated at

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Speaker 1: the academic level. My personal view is that this sort

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Speaker 1: of intellectual property right has to be transferable to prevent

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Speaker 1: such a transfer would take away from the original owner

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Speaker 1: of those rights. In this case, Bob Ross, the ability

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Speaker 1: to monitor is write a publicity by transferring, selling, licensing

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Speaker 1: it to some other company that may be able to

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Speaker 1: make good use of it. And if you prevent him

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Speaker 1: from doing that, you prevent him from monetizing Foy his

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Speaker 1: name and likeness, which in this case we're very valuable.

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Speaker 1: Thanks Terry. That's Terence Ross of Katon Uten Rosenman. And

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Speaker 1: that's it for this edition of the Bloomberg Law Show.

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Speaker 1: I'm June Grosso and you're listening to Bloomberg