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Home / Expert Answers / Other / Harris-Teeter, Inc. v. BurroughsAnnotate this Case 399 S.E.2d 801 (1991) HARRIS-TEETER, INC. v. Es

Harris-Teeter, Inc. v. BurroughsAnnotate this Case 399 S.E.2d 801 (1991) HARRIS-TEETER, INC. v. Es ...

Harris-Teeter, Inc. v. BurroughsAnnotate this Case 399 S.E.2d 801 (1991) HARRIS-TEETER, INC. v. Esther S. BURROUGHS. Record No. 900454. Supreme Court of Virginia. January 11, 1991. Frank O. Meade, Danville, (Frank K. Friedman; Woods, Rogers & Hazlegrove, Roanoke, on briefs), for appellant. Henry G. Crider (Shupik & Crider, on brief), Chatham, for appellee. Present: All the Justices. CARRICO, Chief Justice. On December 22, 1988, the plaintiff, Esther S. Burroughs, filed this negligence action against the defendant, Harris-Teeter, Inc., seeking damages for personal injuries allegedly sustained by the plaintiff when she swallowed a plastic ornament used by the defendant to decorate a birthday cake. A jury returned a verdict in favor of the plaintiff for $20,000. The trial court entered judgment on the verdict, and we awarded the defendant an appeal. The evidence shows that the defendant operates a grocery store in Danville. On December 27, 1986, the plaintiff's daughter-in-law, Vicki Burroughs, ordered a sheet cake from the store for her twins' sixth birthday party, to be held on that evening. She directed the store to place "nothing else" on the cake but "icing ... with the rainbow design" because she wanted to use her own plastic "care bear" decorations. Vicki picked up the cake at the defendant's store and took it to her home. Upon examination, she found on the cake two plastic birds, whitish in color, resting on the white "clouds" that formed a part of the cake's design. Vicki left the plastic birds on the cake and added candles and her own "care bear" ornaments. Before serving the cake at the birthday party, Vicki removed the candles and the "care bears" but not the plastic birds. The participants consumed approximately three-quarters of the cake, leaving the top portion, where the plastic birds were located. The remainder was returned to the box and placed on a counter in Vicki's kitchen. Vicki served a piece of the cake to her uncle when he visited her the next day. Two days after the party, the plaintiff visited Vicki's home, accompanied by her granddaughter, Annette Pruitt. At Vicki's invitation, Annette cut two pieces of the cake, placed them on paper towels, and handed one to the plaintiff. Neither Annette nor the plaintiff saw anything on the cake other than the icing. *802 The plaintiff put the piece of cake in her mouth and swallowed it whole, without chewing it.[*] She knew there was a "problem... [a]s soon as she swallowed it." She said "something [was] in that cake" and went to the kitchen to get a drink of water. Some three to four weeks later, she consulted a physician. She underwent surgery, and a white plastic bird one inch long and one and one-half inches wide was removed from her colon. As noted previously, negligence is the basis of the plaintiff's claim against the defendant. The plaintiff's theory of the case is that the defendant was negligent because it "created an unreasonably dangerous situation by [furnishing] small, firm plastic ornaments of the same color as [the cake's] icing to a consumer who had not requested them." As this quotation indicates, the plaintiff argues that Vicki Burroughs did not request the defendant to decorate the cake with white plastic birds. We cannot conceive, however, of any possible way the outcome of this case would be affected by the fact the defendant furnished the plastic birds of its own volition. Accordingly, we reject this argument as meritless. The plaintiff also argues that a plastic bird was embedded within the cake at the time it left the defendant's store. But when the plaintiff asked a store co-manager on cross-examination whether it was "conceivable that one of [his] people pushed a bird ... right through the icing" of the cake, the defendant objected on the ground "no ... evidence indicates that at all," and the trial court sustained the objection. The plaintiff has not assigned cross-error to the ruling. Hence, we will not consider the plaintiff's argument on this point. Rule 5:25. This leaves as the sole question in the case whether it was negligence for the defendant to place plastic birds, whitish in color, on "clouds" formed by icing of the same coloration. With respect to the burden of proof on such a question, we said in Brockett v. Harrell Bros., Inc., 206 Va. 457, 462, 143 S.E.2d 897, 901-02 (1965), that where a plaintiff allegedly suffers injury from a deleterious substance in food, the burden is on the plaintiff to show that the food product contained foreign matter at the time the retailer sold and delivered the product to the consumer. While Brockett is an implied warranty case, the burden of proof is the same although, as here, the claim is based upon negligence. Logan v. Montgomery Ward, 216 Va. 425, 428, 219 S.E.2d 685, 687 (1975) (plaintiff injured in explosion of gas stove; evidence insufficient to establish either negligence or breach of warranty). We said in Logan that the burden requires the plaintiff to show "(1) that the goods were unreasonably dangerous either for the use to which they would ordinarily be put or for some other reasonably foreseeable purpose, and (2) that the unreasonably dangerous condition existed when the goods left the defendant's hands." Id. We do not think the plaintiff proved either that the plastic birds constituted foreign matter within the meaning of Brockett or that the birds' placement on the white icing of the cake created an unreasonably dangerous condition within the meaning of Logan. It is clear from the record that the birds were in plain view at the time the cake was delivered to Vicki Burroughs. Hence, at that time, the placement of the birds did not pose a threat of danger to anyone and their presence did not constitute foreign matter any more than the plastic "care bears" Vicki Burroughs added to the cake's decorations. It was the duty of the defendant to see that the food product it sold and delivered to Vicki Burroughs was free from foreign matter and otherwise fit for human consumption. So far as this record discloses, the defendant's use of plastic birds in decorating *803 the cake represented nothing more than a normal, every-day practice, devoid of any suggestion of negligent conduct. Hence, under the circumstances of this case, it cannot be said that the defendant breached any duty it owed Vicki Burroughs or her guests. For the reasons assigned, we will reverse the judgment of the trial court, set aside the jury verdict, and enter final judgment here in favor of the defendant. Reversed and final judgment.NOTES [*] The defendant maintains that the piece of cake the plaintiff consumed was two and one-half inches square. However, when asked on cross-examination whether the piece of cake was that size, the plaintiff responded by saying she did not know. When asked whether she had said on deposition the piece of cake was two and one-half inches square, she said she did not "remember saying that." Money Laundering: Ring Around the White Collar How hide-and-seek becomes a game for auditors.BY JOSEPH T. WELLS June 1, 2003 RELATEDDecember 2, 2021 Quiz: Check your knowledge of fraud considerations in an audit December 1, 2021 Helping clients build a cyberattack recovery plan TOPICS Forensic Services  oney laundering is so widespread CPAs are likely to encounter it at some point in their work. It is an essential element of the “underground economy,” which, worldwide, amounts to trillions of dollars. An independent auditor’s responsibilities in the area of money laundering, because it is a criminal act, are governed by Statement on Auditing Standards no. 54, Illegal Acts by Clients, which requires CPAs to be familiar with the types of illegal behaviors that could have a direct and material impact on financial statements. The new fraud standard, SAS no. 99, Consideration of Fraud in Financial Statements, requires independent auditors to assess the risk that fraud could materially misstate the financials. Eddie Antar, the president and CEO of Crazy Eddie’s Electronics, a nationwide chain, and architect of a classic money-laundering scheme recounted here, shared a common problem with everyone else who has ever accumulated illegal loot: where to hide it. In this article CPAs will learn the basics of money laundering—what it is, how it is accomplished, ways to detect it and how thieves hide the money. In money laundering the fraudster disguises the existence, nature, source, ownership, location and disposition of property derived from criminal activity. Currency is a popular commodity in criminal activity; it is fungible—one dollar looks just like another—and further loses its identity when entering the economic stream. The downside is that currency is bulky and vulnerable to discovery, especially with today’s heightened security. Also, the launderer is hardly in a position to complain to the authorities if it is stolen. The trick for money launderers—from dishonest businessmen to the drug kingpins—is to deposit currency into financial institutions without drawing attention. If they succeed at this, they greatly reduce their chances of being discovered and can use the money for a variety of purposes. If, on the other hand, alert CPAs recognize the signs of criminal activity, their plans will be foiled. LEGITIMATE BUSINESS/ILLEGAL MONEY Fraudsters use two methods to launder funds in a legitimate business. Overstatement of reported revenues means that illegal money is mixed with legitimate money, thereby boosting total revenues. The downside of this method is the perpetrator must pay taxes on the money. To avoid this, many launderers make extra payments to themselves in the form of disguised consulting fees, salaries and the like. Balance sheet laundering occurs when the thief parks the money in the company bank account. The problem with this method is that it is easily detected; the company bank accounts would be overstated by the same amount when compared with the financial statements. However, balance-sheet laundering provides one major benefit to the miscreant: The illegal loot is safely locked away in a bank.ON THE ALERT There are common threads that CPAs should be aware of that have emerged from studying money-laundering schemes.  Small companies—which typically have fewer employees and less stringent internal controls—are most likely to be used as vehicles for money laundering. Attempting to deposit ill-gotten gains to a large entity, although not impossible, usually requires too many conspirators inside the company.  Certain types of businesses—especially those that deal in currency—have historically been favored for concealing dirty money. These include bars, restaurants and nightclubs.    The most obvious clue to the use of a legitimate business to launder money is in the company’s profit margin. Money launderers sometimes prefer to pay taxes on their ill-gotten gains, as it legitimizes the transaction. CPAs should be suspicious when profits are well beyond industry norms.  Similarly, the owners of a small business used as a money-laundering front are likely to be extremely well-compensated. Ostentatious displays of wealth by the owners or employees are a red flag that something crooked may be afoot.  Owners taking frequent trips out of the country. Currency Reporting Requirements The Bank Secrecy Act requires entities to maintain certain records, including currency transactions (deposits or withdrawals) of $10,000 or more. In those cases, the entity must file with the Treasury Department a currency transaction report (CTR), IRS form 4789, or other appropriate forms (31 USC sections 1829b, 1951-59 and 5311-30). Among other items, a CTR discloses the names of persons conducting the transaction, address and identifying information on the customer and the name of the financial institution. For reporting purposes the following are considered financial institutions.  Banks.  Securities brokerages.  Currency exchange houses.  Insurance and loan companies.  Travel agencies.  Issuers of cashier’s checks or money orders.  Auto, boat and airplane dealers.  Casinos.  Real estate companies. Source: Fraud Examiners Manual, Third Edition, Association of Certified Fraud Examiners, , 1999.   White-collar professionals sometimes are used to help launder money. Through investments, trust accounts, funds transfers and tax avoidance schemes, these professionals can manipulate the financial, commercial and legal systems to conceal the origin and ownership of assets. CPAs should be especially alert to offshore transactions that appear to have little economic substance. Additionally, since money launderers gravitate toward a small cadre of lawyers and brokers to accomplish their illegal goals, be wary of professionals with questionable reputations. Money laundering is a three-step process of placement, layering and integration that is clearly illustrated in Crazy Eddie’s scheme. A CASE STUDY Eddie Antar, one of the most shameless white-collar criminals in the last half of the 20th century, limped onto his latest of many flights from New York to Tel Aviv, Israel. Stiff and unable to bend, he could barely maneuver into his first-class seat for the 10-hour ride. Other passengers probably thought Antar was crippled. The flight attendants were particularly attentive to his needs.But no one on the plane realized why Antar really was having mobility problems: He had tens of thousands of dollars strapped to his body, cash that he and family members had skimmed from their thriving electronics chain. Even more cash was stuffed in his luggage. Eddie’s original plan was to cheat the tax man. But after skimming millions of dollars, he and family members thought of a better use for the hidden loot: It would be funneled back to Crazy Eddie’s disguised as revenue. This trick helped boost the stock price in their IPO, which eventually led to a financial statement fraud of more than $100 million. Placement. When Antar arrived in Tel Aviv, he immediately went to his luxury hotel. A bellman deposited his heavy bags in the room. Of course, Antar never took his eyes off the man carrying the treasure. Once alone, he locked the door and divided the neatly wrapped bills into stacks small enough to fit inside his briefcase. Then, one briefcase at a time, he hauled the loot to an Israeli bank for deposit. In less than a day, Eddie traded the batches of bulky currency for a dozen deposit slips. Noncooperating Countries and Territories Money can be laundered in any country, including the United States. Most of the well-known Caribbean “money-laundering havens” now cooperate with international authorities. The Financial Action Task Force on Money Laundering keeps a list of noncooperative countries and territories. As of March 2003, the list included Cook Islands Egypt Guatemala Indonesia Myanmar Nauru Nigeria Philippines St. Vincent and the Grenadines Ukraine Source: .   The process of depositing the laundered money in banks is called placement and can be accomplished in several ways. The simplest method is to add the currency to the revenues of a cash-intensive business. But another way is to move the currency offshore, as in Antar’s case. Although some nations and islands have reputations as havens, having money in nearly any foreign country greatly complicates tracing it. And that’s exactly what the money launderer wants. Other popular hiding methods include breaking the money into smaller quantities in order to evade U.S. banking requirements that require currency transactions over $10,000 be reported to the Treasury Department. The smaller sums then can be deposited in a variety of banks; this is known as smurfing . Currency can be used to purchase cashier’s checks and money orders that can be deposited into other institutions. A sophisticated laundering operation sometimes involves hundreds of banks. CPAs should be alert to businesses that have a questionable rationale for using multiple bank accounts. Layering. Once Antar’s Israeli bank balance was swollen with cash, he came up with a way to dodge the scrutiny of Israeli officials should they inquire on their own or on behalf of American investigators. The money was wire transferred to a bank in Panama, a country then known for its secrecy laws. From there Antar could transfer the money by wire or by check to any bank of his choosing in the world. The more transfers he made, the more layers he put between himself and the original source of the illicit funds—hence the term layering . A sophisticated laundering operation could have hundreds of layers. Integration. Eddie Antar eventually wired more than $8 million to Panama from his Israeli bank. He then gradually transferred the funds to the accounts of Crazy Eddie’s Inc., where they were mixed with legitimate sales. This is the process of integration , where ill-gotten gain is returned to the economy disguised as legitimate income. When Antar returned the money as sales to Crazy Eddie’s, the $8 million of skimmed money boosted the stock price and created more than $40 million in added equity for the Antar clan. Antar later cashed out his shares and left the United States with more than $30 million. Authorities finally caught up with the international fugitive and returned him to the United States, where he served eight years in prison. Money laundering is a serious and growing problem, despite government efforts to control it. Preventing and detecting crime therefore requires efforts of both the public and private sectors. CPAs can be a major deterrent to the serious and growing problem of money laundering by recognizing its earmarks. JOSEPH T. WELLS, CPA, CFE, is founder and chairman of the Association of Certified Fraud Examiners and professor of fraud examination at the University of Texas at Austin. Mr. Wells won the Lawler Award for the best JofA article in 2000 and 2002 and has been inducted into the Journal of Accountancy Hall of Fame. His e-mail address is .  Federal Laws Target Money-Laundering Crimes Evasion of reporting requirements. The U.S. code prohibits the structuring of transactions for the purpose of evading reporting requirements. It includes a fine of up to $500,000 and incarceration of up to 10 years (31 USC section 5324). Money laundering. These sections of the code prohibit a person from using the proceeds of unlawful activity in a financial transaction with the intent to disguise or conceal the nature, location, source, ownership or control of the proceeds. It also prohibits the transportation, transmission or transfer of funds into or out of the United States if the person knows the funds are the proceeds of illegal activity (18 USC sections 1956 and 1957). Racketeering. The code considers violations of the money-laundering statutes (described above) to be “predicate offenses” constituting racketeering activity under the Racketeer Influenced and Corrupt Organizations (RICO) Act. The statute provides for both civil and criminal actions against violators (18 USC sections 1961-68). Seizures and forfeitures. These code sections provide for civil seizure and forfeiture of property involved in certain crimes including money laundering. It also deals with criminal forfeitures. Source: Fraud Examiners Manual, Third Edition, Association of Certified Fraud Examiners, , 1999. this is the hot coffe video 

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