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Archives for December 2005

Runaway CEO Pay and the Myth of “Shareholder Democracy”

December 30, 2005 by staff

Even with better information, shareholders lack power to correct problems

By Lee Drutman 
Published December 30, 2005

CEO pay has become so unhinged from logic that even even Christopher Cox, President Bush’s Security and Exchange Commission Chairman, has vowed reform. Cox calls it “absolutely a top priority” to give shareholders “comparable executive-to-executive and company-to-company” numbers so they can “discipline” corporate boards who approve mammoth compensation. (Presently, myriad forms of compensation, —corporate jets, country club memberships and ridiculous severance packages often are obscured from shareholders.)

Cox is right to be concerned. At the 367 biggest companies last year, average CEO take-home pay was $11.8 million, while compensation far outpaced increases in profitability. Average worker pay, meanwhile, was $27,460.

No doubt, adequate disclosure of pay packages is sorely lacking at many companies, but a bigger question remains: even if they have that information, how exactly will shareholders go about disciplining corporate boards?

I ask, because at almost all U.S. companies, shareholders have about zero say into who sits on the board of directors and how executive pay is set. The directors are typically nominated by management, and shareholders are given one and only one slate of directors to choose from—a Soviet-style election that virtually guarantees managers will get their trusted friends on the board of directors. So it’s no surprise that executive pay packages continue to defy common sense. After all, what’s a few million among friends?

Unfortunately, Cox has demonstrated no interest in injecting even a modicum of accountability into the process by making it easier for minority shareholders to nominate candidates to the board of directors, something his predecessor, William Donaldson, unsuccessfully pushed for. The Chamber of Commerce and other lobbying groups for large corporations vehemently opposed any suggestion of this “proxy access reform,” effectively killing the proposal.

Without giving shareholders some means of holding directors directly accountable, it’s not clear how pay packages will ever be brought under control. Shame clearly hasn’t worked. To claim that directors would be more diligent if only they had better information doesn’t pass the straight face test.

Yet, there is some reason for hope. We may finally be reaching a critical mass of big institutional investors who are legitimately concerned about runaway CEO pay—perhaps enough to effect some change.

After all, bemoaning runaway executive pay is not just for cranky Grinches anymore. It’s also for Florida Governor Jeb Bush, who just last week announced that he was sick of “outrageous” executive compensation and “undemocratic” proxy voting and that Florida’s state pension fund was going to start using its $116 billion in assets to push for better corporate governance.

Recently, the largest U.S. manager of retirement funds, for university and college employees with $360 billion in assets, TIAA-CREF, also denounced high CEO pay. “There’s a burden on the board of directors to justify its compensation choices and explain them, so that shareholders can be confident that these are the right decisions,” said John Wilcox, the organization’s senior vice president.

Even a whopping majority—90 percent—of institutional investors think that corporate executives are overpaid, according to a recent Watson Wyatt survey. And the 85 percent who think that these excessive payments are hurting corporate America’s image (according to the same survey). And the 10 pension funds from the U.S., Canada and Europe (which represent a combined $1 trillion in assets) recently sent a confidential letter to the SEC, urging the agency to look more closely at how executive pay is being set at big companies.

But will that be enough?

After all, while CEOs continue to receive double-digit percentage raises year after year, workers barely keep pace with inflation. At 431-to-1, the U.S. ratio of CEO to worker pay is an anomaly among industrialized nations, where a more typical ratio is 25-to-1. Meanwhile, the percentage of company profits going to the top five executives more than doubled between 1993 and 2003, growing from 4.8 percent to 10.3 percent.

Yet, with each passing outrage, it seems that we are getting closer and closer to a critical mass of influential and respected investors who are completely fed up. When that moment comes, it is hard to say.

More disclosure can help bring us closer by highlighting more abuses. But when we are finally at that critical moment where enough major investors want to do something about excessive pay, they are still going to need the tools to do so—be it more say in selecting directors, the ability to vote directly on executive pay packages, or both.

If Cox is serious about disclosure, great. More information is always helpful. But without also giving the shareholders the tools to actually use this information, disclosure alone may not be such a generous gift for reform after all.

Lee Drutman is the co-author of The People’s Business: Controlling Corporations and Restoring Democracy. An earlier version of this article was written for TomPaine.com.

© 2005 ReclaimDemocracy.org

Filed Under: Corporate Accountability, Labor and Economics

Big Box Balderdash

December 18, 2005 by staff

Wal-Mart’s claim of “creating jobs” has no credibility

By Paul Krugman 
First published by the New York Times, December 12, 2005

© 2005 NY Times Company

I think I’ve just seen the worst economic argument of 2005. Given what the Bush administration tried to put over on us during its unsuccessful sales pitch for Social Security privatization, that’s saying a lot.

The argument came in the course of the latest exchange between Wal-Mart and its critics. A union-supported group, Wake Up Wal-Mart, has released a TV ad accusing Wal-Mart of violating religious values, backed by a letter from religious leaders attacking the retail giant for paying low wages and offering poor benefits. The letter declares that ”Jesus would not embrace Wal-Mart’s values of greed and profits at any cost.”

You may think that this particular campaign — which has, inevitably, been dubbed ”Where would Jesus shop?” — is a bit over the top. But it’s clear why those concerned about the state of American workers focus their criticism on Wal-Mart. The company isn’t just America’s largest private employer. It’s also a symbol of the state of our economy, which delivers rising G.D.P. but stagnant or falling living standards for working Americans. For Wal-Mart is a huge and hugely profitable company that pays badly and offers minimal benefits.

Attacks on Wal-Mart have hurt its image, and perhaps even its business. The company has set up a campaign-style war room to devise responses. So how did Wal-Mart respond to this latest critique?

Wal-Mart can claim, with considerable justice, that its business practices make America as a whole richer. The fact is that Wal-Mart sells many products more cheaply than traditional stores, and that its low prices aren’t solely or even mainly the result of the low wages it pays. Wal-Mart has been able to reduce prices largely because it has brought genuine technological and organizational innovation to the retail business.

It’s harder for Wal-Mart to defend its pay and benefits policies. Still, the company could try to argue that despite its awesome size and market dominance it cannot defy the iron laws of supply and demand, which force it to pay low wages. (I disagree, but that’s a subject for another column.)

But instead of resting its case on these honest or at least defensible answers to criticism, Wal-Mart has decided to insult our intelligence by claiming to be, of all things, an engine of job creation. Judging from its press release in response to the religious values campaign, the assertion that Wal-Mart ”creates 100,000 jobs a year” is now the core of the company’s public relations strategy.

It’s true, of course, that the company is getting bigger every year. But adding 100,000 people to Wal-Mart’s work force doesn’t mean adding 100,000 jobs to the economy. On the contrary, there’s every reason to believe that as Wal-Mart expands, it destroys at least as many jobs as it creates, and drives down workers’ wages in the process.

Think about what happens when Wal-Mart opens a store in a previously untouched city or county. The new store takes sales away from stores that are already in the area; these stores lay off workers or even go out of business. Because Wal-Mart’s big-box stores employ fewer workers per dollar of sales than the smaller stores they replace, overall retail employment surely goes down, not up, when Wal-Mart comes to town. And if the jobs lost come from employers who pay more generously than Wal-Mart does, overall wages will fall when Wal-Mart moves in.

This isn’t just speculation on my part. A recent study by David Neumark of the University of California at Irvine and two associates at the Public Policy Institute of California, ”The Effects of Wal-Mart on Local Labor Markets,” uses sophisticated statistical analysis to estimate the effects on jobs and wages as Wal-Mart spread out from its original center in Arkansas.

The authors find that retail employment did, indeed, fall when Wal-Mart arrived in a new county. It’s not clear in their data whether overall employment in a county rose or fell when a Wal-Mart store opened. But it’s clear that average wages fell: ”residents of local labor markets,” the study reports, ”earn less following the opening of Wal-Mart stores.”

So Wal-Mart has chosen to defend itself with a really poor argument. If that’s the best the company can come up with, it’s going to keep losing the public relations war with its critics. Maybe it should consider an alternative strategy, such as paying higher wages.

Editors’ note: Krugman somewhat disingenuously selects just one of many studies about net employment / disemployment by big box stores. Other studies suggest a slight net gain in local employment when a big box store opens. His general point is valid, however: a primary advantage of chains (we won’t tackle market-distorting subsidies here) is they employ fewer people per dollar of sales than smaller businesses. When people cite Wal-Mart’s efficiencies, this is the greatest one.

Independent community-based businesses typically employ many other businesses. They hire or use the services of designers, cabinet shops, sign makers, accountants, insurance reps, computer consultants, attorneys, advertising agencies and others. Local retailers and distributors also carry a higher percentage of locally-made goods than the chains, creating more jobs for local producers.

In contrast, a new chain store typically puts in place a clone of other units, eliminates the need for local planning, and uses a minimum of local goods and services, centralizing those jobs at corporate headquarters. Some jobs are likely to be eliminated (or future jobs not created) in the community hosting a big box store as a result.

In addition to our own library of studies, the New Rules Project and the American Independent Business Alliance each collect many studies on the economic impacts of big box stores.

  • See our huge collection of articles, studies, internal documents and more on Wal-Mart and big box stores.
  • Visit our Merchandise Page to see anti-Walmart stickers, buttons, and more.
  •  Please help support this work — make a tax-deductible donation to ReclaimDemocracy.org today!

Filed Under: Walmart

Letter to Wal-Mart from Religious Leaders

December 10, 2005 by staff

Published December 10, 2005

The following letter, addressed to the CEO of Wal-Mart Stores, Inc. was coordinated by Wakeupwalmart and several dozen religious leaders around the country (list of signatories follows the letter).

Dear Mr. Scott,

The holiday season is a time to honor and remember the virtues of hope, love, joy, sharing, sacrifice, and faith. For people of all faiths, the celebration of the holiday season is a time to remember and embrace the best of our values. It is a time to reflect upon our lives, the impact we have on others, and the responsibility we all have to improve the lives of those less fortunate than us.

The prophet Moses in Deuteronomy 25:13-15 teaches “Thou shalt not oppress an hired servant that is poor and needy … lest he cry against thee unto the LORD, and it be sin unto thee.” During this holy season, we must ask ourselves – at what moral price do we accept the sins of exploitation and greed? Sins, it is sad to say, which are exemplified by one of America’s largest and richest corporations, Wal-Mart.

Every day, Wal-Mart’s so-called low prices come at a high cost to the moral virtues and greatness of your workers, our families, and our nation. Everyday, America pays too high a cost for Wal-Mart’s immoral business practices.

As all faiths teach us, the current exploitation of those who work to provide us with goods and services, whether at Wal-Mart or its suppliers, can never be morally justified. Under all conditions, it is simply immoral and wrong. It goes against the teachings of our spiritual leaders and our commitment to justice, fairness, and community.

If there is one shared hope all faiths have in common, it is the central belief that we must work together to improve the lives of others. This central tenet, ‘do unto others as you would have them do unto you,’ is the bedrock of our values, our faith, our families and our communities.

Unfortunately, Wal-Mart needlessly ignores the Golden Rule putting our children and their workers needlessly at-risk.

Despite $10 billion in profit last year, more than 600,000 Wal-Mart workers and their families struggle with no company-provided health care. Even more troubling, nearly 1 out of every 2 children of Wal-Mart workers lives without health care or relies on a public program. Wal-Mart has repeatedly broken child labor laws. Wal-Mart is being sued by 1.5 million female employees for discrimination. And, Wal-Mart continues to pay poverty-level wages, forcing many of its workers to make the impossible choice between rent and health care.

It is hard to imagine why Wal-Mart would consciously choose to make 1.3 million workers suffer in the name of “low prices,” a suffering we can no longer let stand.

For those of us who are Christians, we celebrate the life, the birth and the teachings of Jesus, and we call on Wal-Mart to change. As we prepare to celebrate Christmas, we ask ourselves: Would Jesus support the exploitation of so many for the profit of so few? Would Jesus tolerate systematic discrimination against women? Would Jesus stand by idly while thousands of children go without health care? Would Jesus accept violations of child labor laws?

The answer is simple. Jesus would not embrace Wal-Mart’s values of greed and profits at any cost, particularly when children suffer as a result of those misguided values.

Those of us who are Jewish, Muslim or Buddhist also have scriptures that remind us that God is just and God’s servants must practice justice in all of our words and deeds. As we prepare to celebrate our own holiday traditions, we also ask ourselves, is it right to shop at Wal-Mart? Would our God want us to support Wal-Mart’s values and actions with our dollars?

We know Wal-Mart has the power to improve the lives of millions of workers, their families, and our communities. Wal-Mart can become, if you and the Walton Family so choose, a leading example of moral greatness in corporate America. You have the power to change and set an example that would truly honor and reflect the call of all faith traditions to righteousness and justice.

So beginning today, in the shared spirit of the holiday season, we call on Wal-Mart to change, to become better, and to embrace the best of American values. It is within your power to become a truly responsible, ethical, and righteous company.

In the end, there is no better present Wal-Mart could give to its workers, their families, and America than to change for the better this holiday season.

Sincerely,

Reverend Jesse Jackson, Rainbow PUSH Coalition
Reverend John H. Thomas, President, United Church of Christ
Reverend James Lawson, Holman United Methodist Church in Los Angeles, CA
Kim Bobo, Executive Director, Interfaith Worker Justice
Bishop Gabino Zavala, Regional Bishop in the San Gabriel Pastoral Region (Archdiocese of Los Angeles, CA)
Reverend Doctor William Jarvis Johnson, Calvary CME Church of Pasadena, CA
Reverend Alexia Salvatierra, Clergy and Laity United for Economic Justice (CLUE)
Father Michael Pfleger, Faith Community of St. Sabina Parish, Chicago, Illinois.
Reverend Bennie E. Whiten, Jr., United Church of Christ
Retired Bishop Jesse DeWitt of the United Methodist Church
Reverend Mark Wendorf, McCormick Theological Seminary and Board Member of Interfaith Worker Justice
Professor William P. Quigley, Loyola University New Orleans School of Law and Board member of Interfaith Worker Justice
Dr. Edie Rasell of the Justice and Witness Ministries, United Church of Christ.
Reverend Ron Stief, Director of Washington, D.C. office, United Church of Christ
Pastor Sylvia Tucker, Union Baptist Church of Hopewell, VA
Mr. Ralph Ramirez, President of Richmond, VA Southern Council Leadership Conference Chapter
Reverend Rebekah Jordan, Mid-South Interfaith Network for Economic Justice
Reverend Sinclair Oubre, J.C.L. of St. John the Evangelist Catholic Church of Port Arthur, TX
Reverend Doctor John J. O’Brien, C.P.
Reverend Bridgeforth, Shiloh Baptist Church, VA
Reverend King, Southern Council Leadership Conference of Danville, VA
Reverend Rufus Fuller II Pastor of New Hope Baptist Church, VA
Reverend William Avon Keen of Traynham Grove Church,VA
Reverend John Snider, Saint Stephen’s Lutheran Church, West St. Paul, MN
Reverend Bill Bulson, Holy Apostles, MN
Reverend Timothy M Johnson, Cherokee Park United Church of St. Paul, MN
Reverend Johnathan C. Tetherly, Chaplain of Hampden County House of Corrections, MA
Father Thomas Mueller, S.S. Cyril & Methodist Orthodox Church, WI
Father Jerry Schroeder, St. Benedict the Moor Parish of Milwaukee, WI
Reverend Viviane Thomas-Breitfeld, Good Sheperd Lutheran Church in Waukesha, WI
Reverend Kelly Fowler, First United Methodist Church of Waukesha, WI
Reverend Doctor Ronald Faust, Kansas City Interfaith Worker Justice, MO
Reverend Tom Blakley, Barry Christian Church, MO
Reverend Spencer Barrett, Co-chair, Kansas City Interfaith Worker Justice, MO
Pastor Robin Hood Senior Pastor, Redeemed Outreach Ministries, IL
Reverend Fr. Alfredo Gundrum , Pastor of St. Kevin, Chicago, IL
Reverend Jose Landaverde, Amor de Dios, United Methodist Church, IL
Reverend William F. Marx, Pax Christi of Western New York
Reverend Dan Schifeling, Church of Nativity, United Church of Christ
Sister Jean Sliwikski, Western New York Workers’ Rights Board
Reverend Suzelle Lynch, Unitarian Universalist Church, Brookfield WI
Reverend Doctor. Roland Womack, Board Member, African-American Ministers Leadership Council, and Pastor, Progressive Baptist Church, Milwaukee, WI
Pastor Susan Burchfield, Immanuel Lutheran Church of Seattle, WA
Reverend Richard Vogel, Executive Pastor, St. James United Methodist Church, Kansas City, MO
Reverend Emanuel Cleaver II, St. James United Methodist Church of Kansas City, MO
Reverend Norman D. Copeland, AME Church, Los Angeles, CA
Reverend Calvin S. Morris, Ph.D. Executive Director Community Renewal Society of Chicago, IL
Reverend Jennifer Kottler, Protestants for the Common Good of Chicago, IL
Reverend Jon M. Luopa, Univeralist Unitarian Church of Seattle WA
Sisters of St Joseph of Springfield, MA Justice and Peace Committee
Reverend William F. Brisotti, Our Lady of the Miraculous Medal Church, NY
Reverend Catherine Schulyer, Protestant Campus Ministry of Stony Brook, NY
Reverend Richard E. Edwards, Stony Brook Community Church, NY
Reverend Thomas W. Goodhue, Executive Director, The Long Island Council of Churches, NY
Reverend Paul Ratzlaff, The Unitarian Universalist of Fellowship of Huntington, NY
Sister Rosemary Everett, SNJM, Sisters of the Holy Names, CA
Father Bill Leininger, Human Concerns Commission, Diocese of San Jose, CA
Monsieur Gene Boyle, St. Thomas Aquinas of Palo Alto, CA
Reverend John Freesemann, Holy Redeemer Lutheran Church of San Jose, CA
Rabbi Melanie Aron, Congregation Shir Hadash of Los Gatos, CA
Reverend Carol Been, The Interfaith Council of San Jose, CA
Ms. Mary Quinn Kambic, Catholic Labor Committee of Baltimore, MD
Ms. Evely Laser Shlensky, Board member, Executive Committee, Interfaith Worker Justice
Mr. Monroe B. Sullivan, National Board Member, Interfaith Worker Justice
Ms. Karen Herrling, Attorney, Catholic Legal Immigration Network
Mr. Stephen Hand, Editor, Traditional Catholic Reflections

  • See our huge collection of articles, studies, internal documents and more on Wal-Mart and big box stores.
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Filed Under: Walmart

Kasky v. Nike: Just the Facts

December 1, 2005 by staff

The following is a summary of the facts of the case of MARC KASKY, Plaintiff and Appellant, v. NIKE, INC., et al., Defendants and Respondents as presented in the record of the Court of Appeal of the State of California. First Appellate District, Division One

Nike, Inc., a marketer of athletic shoes and sports apparel, has grown into a large multinational enterprise through a marketing strategy centering on a favorable brand image, which is associated with a distinctive logo and the advertising slogan, “Just do it.” To maintain this image, the company invests heavily in advertising and brand promotion, spending no less than $978,251,000 for the year ending May 31, 1997. The promotional activities include product sponsorship agreements with celebrity athletes, professional athletic teams, and numerous college athletic teams. Reviewing the company’ s successful marketing strategy, the 1997 annual report asserts, “[W]e are a company . . . that is based on a brand, one with a genuine and distinct personality, and tangible, emotional connections to consumers the world over …”

Like other major marketers of athletic shoes and sports apparel, Nike contracts for the manufacture of its products in countries with low labor costs. In Nike’ s case, the actual production facilities are owned by South Korean and Taiwanese companies that manufacture the products under contract with Nike. The bulk of Nike products are manufactured in China, Thailand, and Indonesia, though some components or products involving more complex technology are manufactured in South Korea or Taiwan. In 1995, a Korean company opened up a major new facility in Vietnam, giving that country also a significant share of Nike’ s production. The record indicates that between 300,000 and 500,000 workers are employed in Asian factories producing Nike products. The complaint alleges that the vast majority of these workers are women under the age of 24.

The company has sought to foster the appearance and reality of good working conditions in the Asian factories producing its products. All contractors are required to sign a Memorandum of Understanding that, in general, commits them to comply with local laws regarding minimum wage, overtime, child labor, holidays and vacations, insurance benefits, working conditions, and other similar matters and to maintain records documenting their compliance. To assure compliance, the company conducts spot audits of labor and environmental conditions by accounting firms. Early in 1997, Nike retained a consulting firm, co-chaired by Andrew Young, the former ambassador to the United Nations, to carry out an independent evaluation of the labor practices in Nike factories. After visits to 12 factories, Young issued a report that commented favorably on working conditions in the factories and found no evidence of widespread abuse or mistreatment of workers.

Nevertheless, Nike was beset in 1996 and 1997 with a series of reports on working conditions in its factories that contrasted sharply with the favorable view in the Young report. An accounting firm’ s spot audit of the large Vietnamese factory, which was leaked to the press by a disgruntled employee, reported widespread violations of local regulations and atmospheric pollution causing respiratory problems in 77 percent of the workers. An investigator for Vietnam Labor Watch found evidence of widespread abuses and a pervasive “sense of desperation” from 35 interviews with Vietnamese workers. An Australian organization published a highly critical case study on Nike’ s Indonesian factories. And the Hong Kong Christian Industrial Committee released an extensively documented study of several Chinese factories, including three used by Nike, which reported 11- to 12-hour work days, compulsory overtime, violation of minimum wage laws, exposure to dangerous levels of dust and toxic fumes, and employment of workers under the age of 16.

These reports put Nike under an unusual degree of public scrutiny as a company exemplifying a perceived social evil associated with economic globalization-the exploitation of young female workers in poor countries. An article in The Oregonian of Portland, Oregon, asserted: “The company’ s worldwide production system has turned the Beaverton giant into an international human rights incident.” The News & Record of Greensboro, North Carolina, asked, “But who wants to enjoy products made on the backs of human misery?” The New York Times carried a series of eight articles in 1996 and 1997, reporting “grim conditions” and widespread human rights abuses in Nike factories. And a CBS television report juxtaposed the complaints of a Vietnamese worker with disclaimers by company officials.

Nike countered with a public relations campaign that defended the benefits of its Asian factories to host countries and sought to portray the company as being in the vanguard of responsible corporations seeking to maintain adequate labor standards in overseas facilities. Press releases responded to sweatshop allegations, addressed women’ s issues, stressed the company’ s code of conduct, and broadly denied exploitation of underage workers. A more lengthy press release, entitled “Nike Production Primer” answered a series of allegations with detailed information and footnoted sources. Another release drew attention to the favorable Young report and invited readers to consult it on-line. A letter to the presidents and athletic directors of those colleges sponsoring Nike products defended the company’ s labor practices. And company officials sought to rebut specific charges in letters to the editor and to nonprofit organizations.

The complaint alleges that, in the course of this public relations campaign, Nike made a series of six misrepresentations regarding its labor practices: (1) “that workers who make NIKE products are . . . not subjected to corporal punishment and/or sexual abuse;” (2) “that NIKE products are made in accordance with applicable governmental laws and regulations governing wages and hours;” (3) “that NIKE products are made in accordance with applicable laws and regulations governing health and safety conditions;” (4) “that NIKE pays average line-workers double-the-minimum wage in Southeast Asia;” (5) “that workers who produce NIKE products receive free meals and health care;” and (6) “that NIKE guarantees a ‘ living wage’ for all workers who make NIKE products.” In addition, the complaint alleges that NIKE made the false claim that the Young report proves that it “is doing a good job and ‘ operating morally.’ ”

The first and second causes of action, based on negligent misrepresentation and intentional or reckless misrepresentation, alleged that Nike engaged in an unlawful business practice in violation of Business and Professions Code section 17200 by making the above misrepresentations “In order to maintain and/or increase its sales and profits . . . through its advertising, promotional campaigns, public statements and marketing . . . .” The third cause of action alleged unfair business practices within the meaning of section 17200, and the fourth cause of action alleged false advertising in violation of Business and Professions Code section 17500. The prayer sought an injunction ordering Nike “to disgorge all monies” that it acquired by the alleged unlawful and unfair practices, “to undertake a Court-approved public information campaign” to remedy the misinformation disseminated by its false advertising and unlawful and unfair practices, and to cease “[m]isrepresenting the working conditions under which NIKE products are made . .”

Nike and the individual defendants filed demurrers to the complaint challenging the application of Business and Professions Code sections 17200 and 17500 and contending that the complaint is barred by the First Amendment to the United States Constitution and article I, section 2(a), of the California Constitution. The trial court regarded the constitutional distinction between commercial and noncommercial speech to be dispositive. Following a hearing, the court sustained the demurrers without leave to amend and entered a judgment of dismissal from which the plaintiff appeals.

Return to Nike v. Kasky index page

Filed Under: Nike

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