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Weinstein Scandal Triggers Questions of Corporate Liability and Even Complicity

WASHINGTON — As stories continue to emerge about Harvey Weinstein and other alleged perpetrators of sexual harassment inside and outside the entertainment industry, the legal fallout is shifting to questions of corporate liability and even complicity.

That is front and center when it comes to New York Attorney General Eric Schneiderman’s recently opened investigation of the Weinstein Company, as the attorney general’s civil rights division subpoenaed the company for records related to harassment allegations, and what actions were taken or not taken.

Meanwhile, another accuser, actress and model Dominique Huett, is suing the company for negligence over a 2010 incident, hoping to overcome the statute of limitations by arguing that reports of Weinstein’s confidential settlements only emerged this month.

What the corporate executives knew, and what they did or did not do about it, are key questions also facing other companies.

After the New York Times reported that Fox News star Bill O’Reilly settled with one of his accusers, Lis Wiehl, for $32 million, 21st Century Fox issued a statement acknowledging that it was aware of the settlement, although not the sum, at the time that it signed a new contract with him in February. Two months later, after the New York Times reported on O’Reilly’s settlements with five women dating back to 2002, O’Reilly was fired.

O’Reilly tweeted this week, “I’m not going to run and hide because I didn’t do anything wrong.” He also claimed that the allegations are politically motivated.

Amazon is also facing questions about Roy Price, the head of Amazon Studios who left the company after producer Isa Dick Hackett came forward earlier this month with accusations against him. Hackett has said she reported the incident to the company in 2015, around the time it happened, and the company has indicated that it investigated and addressed the issue back then. But Price resigned only after the allegations went public.

The focus on sexual harassment cases is “a huge wakeup call,” said Jay Holland, labor and employment litigator at Joseph, Greenwald & Laake in Maryland. “It is a kick in the butt. If companies don’t wake up and don’t take very aggressive action, they now see that they are putting the entire company at risk.”

The New York investigation of the Weinstein Co., a civil probe, could lead to such things as monetary penalties against the company, or equitable remedies like injunctive relief, he said. That could include requiring that the company take steps in the way it trains or hires employees, or even that a monitor be retained to ensure compliance.

Moreover, Holland said, “the attorney general’s investigation could be an impetus for others to come forward and file a claim.”

There is also the issue of whether board members are liable. There have been reports that the board of the Weinstein Co. was aware of at least some of the settlements in 2015. Francis G.X. Pileggi, attorney at Eckert, Seamans, Cherin & Mellott and an expert in corporate litigation, said that raises issues of whether the board knew about a pattern of sexual harassment by Weinstein, but failed to take action.

“If it is correct that the board knew about this propensity and the future likelihood of an occurrence, then the question would be whether the board was fulfilling its fiduciary duty,” Pileggi said. In such cases, at issue is whether the Weinstein Co. board, and the boards of other corporations where top CEOs have faced harassment allegations, were aware of the “red flags” and took effective actions to protect the company.

In other words, in addition to a lawsuit brought against a company by an accuser, there are situations where board members can face litigation themselves from an investor or shareholder claiming breach of fiduciary duty. A challenge for a plaintiff would be in showing that a harassment scandal was materially great enough to affect a company’s bottom line or share price.

Pileggi cited a Delaware Court of Chancery decision — known as the “Caremark” case — that placed liability on board members to act when aware of “red flags” that “would make a reasonable person — who has a duty to advance to best interests of the company — take action and avoid further harm to the company, especially in the contest of a likelihood that the company’s agent may violate the law and bring harm to the company.”

Weinstein has denied allegations of nonconsensual sex.

The sexual harassment allegations against Weinstein stretch back more than three decades. Questions also have been raised about whether any Disney executives or board members knew or didn’t know about settlements Weinstein made at the time that Disney owned Miramax. Weinstein and his brother, Bob, departed Miramax in 2005, and any legal liability from that period is well past the statute of limitations.

Michael Eisner, who was CEO of Disney at the time, suggested that he was unaware. He wrote on Twitter earlier this month that he “fired Weinsteins because they were irresponsible, and Harvey was an incorrigible bully. Had no idea he was capable of these horrible actions.” Eisner clashed with Weinstein on issues like spending. Disney said in a statement, “They operated and managed their business with virtual autonomy. We were unaware of any complaints, lawsuits, or settlements.”

Nell Minow, a longtime corporate governance expert, said the reports of the settlements, and what executives at Fox and Weinstein Co. knew about them, also raise questions of accounting. Earlier this year, there were reports that federal prosecutors were investigating how settlement payments involving claims against Fox News chieftain Roger Ailes were disclosed. Ailes departed last year, and died in May.

“I’d point out that both of these companies are in essence controlled by dynamic founders, which makes independent oversight much less likely,” Minow said.

In its statement over the weekend, Fox said the contract it forged with O’Reilly “added protections for the company specifically aimed at harassment, including that O’Reilly could be dismissed if the company was made aware of other allegations or if additional relevant information was obtained in a company investigation.”

At an event on Wednesday, James Murdoch, the CEO of 21st Century Fox, said the O’Reilly settlement figure was “news to me.” He said he hoped that the firing of O’Reilly and, last year, of Ailes, would send a “strong signal to employees and [the industry] that there are behaviors that are not tolerable.”

Neil Wertlieb, adjunct professor at the UCLA School of Law whose practice focuses on expert witness work as it relates to the fiduciary duties of companies, said “the potential exposure, depending on the circumstances, could be issues for supervisors all the way up the chain to boards of directors.”

He thinks that the focus on what corporate officers and boards “knew and should know” will linger.

“Today there is an enhanced scrutiny of the alleged abusive actions of officers of companies, whether it is abusing their power or abusing their discretion. The Weinstein situation has brought this out under a spotlight,” he said.

But beyond legal ramifications, there also are ethical considerations, particularly as companies promote their social awareness on a host of issues including immigration and the environment.

William Brendel, president at CEO of the Center for Ethical Organizations at the University of St. Thomas, which specializes in organizational behavior, suggested that it was a vexing problem for companies and other entities, even after devoting significant resources into sexual harassment training. He said one CEO recounted to him how they put sexual harassment procedures in place, yet “managers in their organization still made overtures. This led to a lawsuit that threatened to sink the firm.”

“The disorientation has to be shocking enough to the system that there will be change,” Brendel said, adding that “the behavior scientist in me says that there will not be a change, unless it is something giant and big.”

He said it is unclear whether the Weinstein scandal, and that of other media figures, is enough of a shock to the system to produce a change that will be powerful enough to overcome the tendency of individuals and groups in companies to make decisions in the name of self-preservation.

In addition to an external factor, like a scandal, “it could be an internal audit or an expert who looks at the culture and says, ‘You have a problem here and are on the precipice of a lawsuit,'” Brendel added.

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