Business Law Case Study
Debbie Gates is eventually laid off on account of her alleged heavy drinking, a fact she denies vehemently. She joins issues with the fact that her former employer, Prada, informs anyone who cares, the reasons (heavy drinking) for her dismissal, a fact she also learns from other employees and not directly from her former employer. Following her dismissal, Gates and her friend Zuckerberg team up to form a rival company to their former employer and name it, Prado ostensibly to deceive unsuspecting customers. Further, they poach the Chief Financial Officer of their former employer who helps them lure more customers and investors from Prada. It also turns out the CFO successfully convinced many investors and customers to join Prado while still under employment of Prada. When the profits plummet, the ladies take off for holiday in Switzerland with the company’s money leaving the investors smarting from the losses the two engineered.
Meanwhile, Prada offers incentive to employees for not joining associations, a move that sees its employees leave the organization in droves or avoid it like a plague altogether. It is also surprisingly notable that Zuckerberg retained custody of a laptop owned by Prada after leaving Prada’s employment, an act that is clearly against her former employer’s policy.
Legal Issues
The conduct of both Zuckerberg and her friend Debbie, Prada Inc., Prada’s Chief Financial Officer, Prado Inc. and Media stations that published confidential emails of Prada all raise various legal problems and issues. Firstly, the move by Debbie Gates to let her friend Zuckerberg shop at Prada using credits of fictitious people and her (Debbie’s) employee discount even after leaving employment of Prada and clearly against Prada’s policy, amounts to misrepresentation which, in law, is actionable.
Additionally another legal question raised by gate’s conduct in letting Zuckerberg shop at Prada Inc. using credits of fictitious people is whether such conduct amount to a criminality, and in particular, fraud and further whether Zuckerberg’s knowledge that she was benefitting from a supposedly fraudulent process amounts to collusion or aiding and abetting a crime or whether the same renders her an accomplice or an accessory after the fact.
Secondly, Zuckerberg and Gate’s secret access of Prada, their employer’s confidential emails amounts to utter breach of privacy. The subsequent publication of the particulars of those confidential emails by the mainstream media without the consent of or verification of their truthfulness from their employer Prada Inc. and with the effect that such publication lowered Prada in the estimation of right thinking members of the society as evidenced in the loss of business, amounts to a tort of defamation which is also actionable in law.
The conduct of Gates in allowing Zuckerberg to use her employee account to shop at Prada Inc. against the latter’s policy amounts to blatant breach of contract which is also actionable in law. Additionally, the action of Prada’s Chief Executive Officer to poach customers and investors from his employer went against his employer’s policy. The question that begs therefore is; did this amount to breach of employment contract?
Further, the action of the medial in publishing the confidential emails given to the by Zuckerberg and Gates without questioning the source or verifying their truthfulness amounts to prima facie tort of defamation which is actionable in law. The said publication occasioned a loss of customers and plummeting sales volume thus putting Prada at a position of economic disadvantage.
Moreover, the Prada’s Chief Financial Officer’s move to collude with Zuckerberg’s and Gate’s rival company, Prado, to poach customers and investors from Prada Inc. while still under Prada’s employment amounts to breach of confidentiality and is clearly against fair competition laws.
On the other hand, the move by Prada Inc. to discourage its employees from joining International Clothing Union by offering them incentives including a ten percent pay rise amounts to breach or infringement of the employees right to form unions, an act that is clearly unconstitutional. The move by Prado to manufacture clothes identical to those manufactured and owned by Prada Inc. and the use of a name confusingly close or similar to that of Prada and deriving economic benefit from the same raises the legal issue of whether such act or conduct amount to breach of intellectual property and unfair competition.
Another legal issue that arises is whether the move by Prado to make clothing identical to those manufactured by Prada coupled by the use of the name Prado which is confusingly similar with Prada with the intention of deceiving consumers, customers and investors into believing that they are buying or investing in genuine products manufactured by Prada amounts to misrepresentation.
The allegations that Prada openly told its employees that the reason for laying off Gates from its employment was because of the fact that she was “an alcoholic in need of rehab” raises two pertinent legal questions. First, did such communication amount to defamation? Secondly, can Gates support such a case against Prada Inc. considering she learnt of such communication from her former colleagues?
Applicable laws
It is notable that America, like other Common Law countries (Though Americans would vehemently deny this) rely heavily on case laws (particularly those of equity) based on common law position when it comes to proving tortuous act and liability that lie therefrom. These include tort of defamation and tort of deceit, both of which feature and are central in the above described scenario and thus need proof. Further, the foregoing problem hinges heavily on the law of contract and the potential remedies for breach upon proof and which law of contract has been developed and refined primarily by American and English case laws though American courts tend to rely much on Restatement (second) on Contracts.
Additionally, the problem story narrated above also brings into focus competition law with a critical and razor sharp focus of unfair competition practices and the remedies arising therefrom to the victim of such unfair or unbecoming market practices. The relevant American competition laws include: The Sherman Act Section 1, Sherman Act Section 2, and Clayton Act Section 7 with Section 1 of the Sherman Act clearly prohibiting agreements in restraint of trade and Section 2 frowning upon monopolization and attempts and conspiracies to monopolize and the Clayton Act Section 7 stipulating the competition-lessening effect of mergers and acquisitions. It is notable however, that despite the existence of these statutes in the United States (which statutes borrow heavily from common law), courts prefer to subscribe to common law provisions on the same.
The Constitution of the United States of America arrogates citizens’ rights to personal liberty including but not limited to the right to assemble peaceably or form union with others to champion a peaceable course.
Discussion
Tort of Defamation
Prada Inc. can bring an action in tort against Zuckerberg and Gates for defamation. However for Prada to successfully sue the two for defamation, it must prove in a court of law and on the balance of probabilities that the action of both Zuckerberg and Gates meet all the requirements of proof of defamation as was set out in Buckley v Fitzsimmons, 509 U.S. 259[1993]. In was held in the said case that a party alleging and seeking to establish a prima facie actionable case of defamation must prove that a false or untrue statement purporting to be a fact was made against it; that the said statement was published or communicated to another party (a third party) other than it (the Plaintiff); that the said statement lowered the Plaintiff in the estimation of right thinking members of the society; and finally that the said statement was made recklessly or negligently and caused harm to the Plaintiff. In the above case, Zuckerberg and Gates, upon illegally obtaining confidential information about their employer Prada allegedly benefitting from child labour and which information they fail to verify its truthfulness from their employer, communicate (publishes) the same to the general public vide the mainstream media with the result that the reputation of Prada suffers a beating with its estimation in the right thinking members of the society, including its customers, lowered. The resultant loss of revenue for Prada in manifestly a proof that it suffered economic setback thanks to the negative publicity created by the information released by Zuckerberg and Gates through the media. Further, the fact that Zuckerberg and Gates did not bother to question the veracity or establish the truthfulness of the contents of the confidential emails before handing them over to the local media houses amount to recklessness and negligence on their part thus their action clearly meeting all the elements of tort of defamation and in particular, libel. In view of the foregoing, it is evidentially justified to conclude that Prada has a strong case against Zuckerberg, Gates and the media houses that published the information.
However, Zuckerberg, Gates and the Media houses can mount successful defence for their prima facie tortious actions albeit with great difficulty. The Defences clearly available to them include justification and/or fair comment. In order to successfully mount the defence of Justification, they must show that the substance and fact of what they wrote is true and indeed factual. Further, a defence of fair comment requires those relying on that defence to show and prove that their writing was an expression of opinion based on facts, made without malice or disregard for the truth. It would however be tricky for the media houses to plead this defence successfully considering they published the information before and largely without verifying their truthfulness and thus it would not be a walk in the park for the trier of fact rule out malice.
Debbie Gates can also seek recourse in a court of law against Prada for defamation. The allegation that her former employer told her former colleagues that the reason for her dismissal was ‘heavy drinking’ and that Gates should go to a rehab has the effect of lowering her in the estimation of her colleagues and friends. As an employer, Prada had a duty of care not to communicate private and confidential information against an employee to other employees. Such conduct therefore amount to negligence and recklessness on the part of Prada. A countersuit for defamation by Gates against Prada therefore, has a higher chance of success.
It is notable that in both aforementioned scenarios, damages could be awarded to alleviate the loss incurred by the party defamed by the other. Zuckerberg, Gates and the Media can be ordered by the court to pay for the losses occasioned thanks to the trio’s tortious actions. Likewise, Gates can be awarded damages by the court to in compensation for the loss of reputation she may or might have suffered as a consequence of the tortious actions of Prada. The justification for compensation in damages in tort is that the same seeks to return the victim of the tortious actions of the tortfeasor to the position they were in before the said tort was committed.
Breach of contract
Tort of deceit
Prada can sue for damages from its former employee Zuckerberg for misrepresentation or tort of deceit. In order to successfully prove misrepresentation and thus tort of deceit, Prada need to establish that Zuckerberg misrepresented facts and benefited economically from the same while putting it at a position of economic disadvantage. Such person must satisfy the court that such action meet all the elements set out in Eco 3 Capital Ltd v Ludsin Overseas Ltd. These include that such a person: Makes a false representation, knows that the information they are giving is false or he or she is reckless as to whether the same is true or not, intends to make the other party to act in reliance to the misrepresentation and that the person to whom the facts are misrepresented relies on the misrepresentation and as a consequence suffers loss.
Back to the case in question, Zuckerberg knowingly uses the employee credit of her friend Gates and those of fictitious persons to buy clothes from Prada at rates lower than what regular customers would buy the same for thereby denying Prada the much needed revenue. Prada genuinely believes to be true and relies on the information misrepresented by Zuckerberg to makes sales to her at subsidized rates. From the foregoing, it is crystal clear that the Prada case against Zuckerberg is iron-clad. Further, Gates can be enjoined as a tortfeasor for facilitating such misrepresentation.
Additionally, Prada can also mount a relatively successful case premised on tort of deceit against Gates on account of fraudulently allowing and facilitating Zuckerberg purchase clothes using fictitious people’s account. Firstly, the use of credits of fictitious people amounts to misrepresentation. Secondly, Gates knows such information to be wrong and inaccurate as well as reckless but nonetheless intends that Prada would blindly rely on the same to effect sales to Zuckerberg, her friend. Prada relies on the misrepresented information and makes sales to Zuckerberg at lower rates incurring losses in process. Her (Gates) action meets all the requirements for proof of tort of deceit.
Prada can also convince customers of Prado Inc. to sue Prado for damages in tort on account of deceit. By reproducing products identical to those manufactured by Prada Inc. compounded by the use of a name confusingly similar to that of Prada while fully aware that such act is likely to deceive legitimate and loyal but naïve customers into buying products from Prado believing the same to be from Prada and thus benefitting economically at the expense Prada, Prado is prima facie liable in tort of deceit. Its gross misrepresentation of facts and the subsequent reliance of the consumers on those misrepresented facts coupled by the economic benefits accrued thanks to such misrepresentation meet all the elements an action need meet to prove a prima facie case of tort of deceit as set out in Eco 3 Capital Ltd v Ludsin Overseas Ltd.
Infringement on intellectual Property and fair practice
The move by Prado to use a name strikingly close and similar to that of Prada, a company already in existence, coupled by Prado’s manufacture of clothes identical in design to those originally crafted by Prada amount to breach of intellectual property rights of Prada as long as Prada had registered those designs by the time Prado started producing or manufacturing the same. If found liable, Prado can be given a cease and desist order by the court effectively stopping and preventing it from ever reproducing works of Prada. Further, the court has an option of awarding damages to Prada on account of the loss suffered thanks to such breach. It is also common sense and follows that allowing Prado to continue and make profits in business from the sale of products or clothes identical to those manufactured by Prada would amount to unfair competition and is actionable.
Infringement on civil liberties
The Constitution of the United States of America guarantees citizens the right to assemble peaceably and form unions. It would be therefore be unconstitutional for Prada to offer incentives, however lucrative or in any other manner thinkable, in an attempt to discourage its employees from forming or joining labour unions. Such actions are ab initio careless and unlawful and any such move amounts to infringement of civil liberties and human rights. On the balance of probabilities, it is quite crystal clear that whereas Zuckerberg and Gates have a case against Prada, Prada also has numerous counter cases against them. From the facts in issue and those coming out in the case study, both parties have recourse in law.
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