Even After Winning Lawsuits Company Must File for Bankruptcy
Nasir Pasha & Matt Staub

Even After Winning Lawsuits Company Must File for Bankruptcy [e123]

The guys talk about Aereo’s recent Chapter 11 bankruptcy filing, even after it had won multiple lawsuits. They also answer the special Thanksgiving question, “Can I provide a free Thanksgiving meal to my employees?”


NASIR: All right. Welcome to Legally Sound Smart Business. Uh, I messed up.

MATT: You didn’t mess up. That’s the name of the podcast.

NASIR: All right, welcome to our business podcast where we cover business in the news and answer some of your business legal questions that you, the listener, can send in to ask@legallysoundsmartbusiness.com.

Happy Thanksgiving!

MATT: It’s a day early but…

I assume people are traveling the day this comes out so they’ll probably listen to it during their Thanksgiving meal.

NASIR: I figure.

MATT: I know I plan on taking my phone out and just pressing play and letting everyone listen to it.

NASIR: Oh, I’m getting one of those stereo components that I just plug it into at the dinner table, and I’ll turn it up really loud so no one can talk.

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MATT: People are going to treat this like the Serial podcast which I don’t know if you’ve followed at all. Have you followed that?

NASIR: Cereal as in cereal that you eat or serial as in a series?

MATT: The latter. Have you not heard about that?


MATT: It’s the most popular podcast right now by far.

NASIR: I’ve never listened to a podcast in my life.

MATT: I haven’t listened to it, but I’ve just heard about it. I think it’s fourteen episodes and there’s a new episode each week and it’s an on-going story, like a crime-related story.

NASIR: And it’s very popular with only fourteen episodes?

MATT: I don’t think they’ve even had fourteen episodes yet. It’s a series and it’s once a week and it’s insanely popular. But I won’t expect you to know because you don’t keep abreast of the stories in the news.

NASIR: A turkey breast?

MATT: Yeah, like what I did there?

NASIR: Yeah.

MATT: That was intentional.

NASIR: I wasn’t sure if you that intentional or not so I just wanted to connect the dots for everyone.

MATT: Well, let’s talk about a good story for Thanksgiving – or right before Thanksgiving – about this bankruptcy.

NASIR: Yeah, it’s always a big topic around this time of year.

MATT: Especially when they had big rounds of layoffs a couple of weeks ago, right before Thanksgiving, which is what everyone wants. I think the worst time to lay someone off is between Thanksgiving and Christmas, probably.


NASIR: Oh, okay. So, then we’ll get rid of you after then.

MATT: Is it Aereo? I’m assuming I’m pronouncing that right.


NASIR: I don’t know. I know we’ve covered this in the past but I think it’s derived from the “aer” as in a-e-o – never mind.

MATT: We’ll just go with Aereo.


NASIR: I was trying to break it down to its Latin root but then I realized I don’t know Latin.

MATT: No problem. Well, we’ll go with Aereo.


NASIR: It’s an over-the-air streaming service so that’s why I was thinking, like, kind of like aeroplane.


MATT: Oh, okay. Yeah, I could see that. Well, it’s described as near-live TV so I think that’s also called “delayed” but that’s fine. So, they filed a Chapter 11 bankruptcy which a reorganization in bankruptcy court and, let’s see, New York this week? Sometime very recently. Yeah, so I guess that this came after a big round of layoffs which is no surprise there. This is pretty interesting. I mean, Chapter 11, that’s going to be different than a straight up discharge where you’re basically shutting down shop. They’re making an effort to kind of reorganize, pay some of their debt off while still continuing to survive. I think they’ve kind of just missed it on the technology front and not evolved how they should have so I don’t know if they’re going to make it anyways. But, you know, at least they’re making an effort to, I suppose.


NASIR: Yeah, I mean, the reason they had to go through this bankruptcy is because of all these lawsuits. So, basically, what they do is they have some kind of antennae that is very, very small – like the size of the tip of your finger – that can get these over-the-air network channels in HD like Fox, CBS, NBC, et cetera, and then it’s recorded on the cloud, and then you can view it. The issue in New York was a copyright violation. Okay. Well, what’s the difference then of a cable box that records it on your device? The differentiation is now that it’s storing on the cloud and so forth.


Long story short, they had about $25 million in funding, and most of this was basically a war chest to fight this litigation because their operating costs were very low. But then, what happened was that they started winning these lawsuits in New York and other states, but then they had to go to the Supreme Court, otherwise this unlimited litigation is not going to work for us. And, of course, that’s what they do, but then they lose. And so, with it being the Supreme Court, that shuts them down pretty much and so they had to take a step back and they’re pretty much lost their funding as far as what they’ve already used for legal. Now, this is where we’re at. They’re not shutting down their business but reorganization is similar to a Chapter 13 for an individual in the sense that there is a reorganization of their debts so debts are put into a plan and so forth and paid off accordingly. And even the company’s allowed to sell some of its assets.


So, it’s not really very common for most small businesses because it’s usually expensive. But, you know, if you’ve been established for a while, it’s always an option.

MATT: This is an example of lawsuits just ruining a company, and this is a company too that has, you know, multiple wins in cases. It’s not like they’re just getting sued and losing. They’ve won some big cases and they’re still in this predicament because they have all these different lawsuits that are coming in, in different cities, different states. It’s just going to catch up to you at some point.


NASIR: You’re right. That’s what’s interesting is that they went to the Supreme Court because they didn’t want to try this anywhere else. They wanted one final decision to end it all, but it ended up backfiring against them and the US Supreme Court ended up saying that the essence of this Aereo ruling is that they are equivalent to a cable company, basically. They’re not merely an equipment provider like, what was it, TiVo? That was something kind of similar, but they were providing equipment. But the act of actually I think saving it on the cloud was the issue here.

MATT: That’s too bad.


NASIR: Very sad.



MATT: All right, question of the day.


“Can I provide a free Thanksgiving meal to my employees?”


No such thing as a free lunch, as they say, right?


NASIR: Well, we talked about this – I don’t know – a month or two ago, and that was more of an IRS issue. This is more of a wage and hour issue. And, yes, I’ll just get into it whether this free lunch or this lunch Thanksgiving meal that you’re providing for your employees, you’re trying to do something nice. Well, the employees can go after the employer for overtime saying, “I should get paid for this lunch that I’m having even though it’s free and you’ve something very nice for me.”

MATT: Yeah. I don’t want to say the employees are arguing this because the reality is that no employee came up with this argument. It’s that there’s this class of employees that are represented by an attorney that tries to argue that, “Okay, if you give your employees free food, especially on a regular basis, and they work overtime, then the overtime rate should be based upon the rate that includes this value that they’re receiving in these regular meals.”


And so, since overtime is based upon the 40-hour work week and time and a half, by including this, let’s say a sandwich that’s $4.00 or $5.00 that you give to your employees, times that by five or however 7many meals and add that to the 40-hour work week schedule, and that’s how you derive your overtime. That’s their argument. I know it seems silly, but that’s what’s going on right now in some litigation.


NASIR: Yeah, and there’s actually been quite a few of these cases and it’s not even recent either. There was a case in the 70s – as far as in the late 70s – that a similar issue was discussed and, when it gets into some pretty big specifics in terms of like the calculation of how much an item of food costs and what they’re charged for versus what the value is and then their calculation for regular rate, the pay is going to be different because of the value of this meal, the specifics of the meal they’re getting.


I guess I’ll say, first of all, if someone wants to do this, you know, your employees probably aren’t going to complain but, from a legal aspect, you can kind of build this into their employment agreement. There’s clauses you can put in there to kind of safeguard against this if you’re really concerned. And, from a legal perspective, I’ll say, yeah, just put it in there so you’re protected.

MATT: You’re right. Even though it’s like, “Okay, this is a non-issue but, hey, we’re having an agreement anyway, I might as well throw it in.” And so, you know, if you have this program where you are providing lunch to your employees then, in your employment menu, you might just want to quickly address it with a one line sentence here or there.


NASIR: Just here we are, here’s the law. Federal and state law both hold that meals furnished to employees as a convenience to the employer are excluded from the regular rate of pay. This is in California so, if you’re in another state, I don’t know what to tell you.

MATT: I’m sure it’s going to be similar but you never know.

Reminds me of when some place I worked for, I went back for Thanksgiving one year in Indiana and I went to see one of my old places I worked out and they were trying to make a Thanksgiving meal and my supervisor had this huge turkey and he’s like, “Yeah, we’re going to deep-fry it,” and he drops it into this thing and oil just goes all over the place. He just got oil over and he was like, “Well, this is ruined.” It’s like, you know, canola oil or something.

NASIR: Yeah.


MATT: Whatever you use to deep-fry. I just thought that was funny. That has nothing to really do with this.

NASIR: He just dropped it in there? I think you’re supposed to slide it in, right?


MATT: He’s like, “Here we go!” It went everywhere. I just thought that was pretty funny. It didn’t get on me.


NASIR: Well, hopefully everyone’s safe with their frying turkeys tomorrow. There’s always accidents every year for that.

MATT: Yeah, there’s always some – I was going to say “fatalities” but I don’t think it’s that bad. “Every hour, someone dies from a turkey frying explosion.” There’s always accidents. It’s the worst.


NASIR: Okay. So, I think what we’ll do is we’ll end it here and we turn back next week. We’re going to skip this Friday’s episode. So, enjoy your time off. I know every Monday, Wednesday, and Friday, you’re waiting for episodes to publish so just, you know, take some time off and spend it on something personal.

MATT: We should explain that we can’t do Friday because you’re an avid Black Friday shopper so you’re going to be out the whole day.


NASIR: Yeah. Well, Black Friday is starting now, right? It’s basically Black Friday now and might as well go to the store and line up.

MATT: Oh, yeah. I guess, by the time this episode comes out, yeah. Some places are open. A lot of places have started to open up on Thursday nights.


NASIR: I think it was last year we covered all these employers that are making their employees work on Thanksgiving so it’s definitely been a year but I remember talking about that.

MATT: That means we must have been recording for a year now.


NASIR: It’s a good guess. All right, everyone. Thanks for joining us.


MATT: Yeah, keep it sound, keep it smart.



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