Conflict of interest is like dirt in sensitive gauge

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Reference no: EM133329841

CASE STUDY:

A conflict of interest is like dirt in a sensitive gauge," one that can not only soil one person's career but also taint an entire profession. Thus, as professionals, engineers must be ever alert to signs of conflict of interest. The case of the American Society of Mechanical Engineers (ASME) v. Hydrolevel Corporation shows how easily individuals, companies, and professional societies can find themselves embroiled in expensive legal battles that tarnish the reputation of the engineering profession as a whole.

In 1971, Eugene Mitchell, vice president for sales at McDonnell and Miller, Inc., located in Chicago, was concerned about his company's continued dominance in the market for heating boiler low-water fuel cutoff valves that ensure that boilers cannot be fired without sufficient water in them because deficient water could cause an explosion.

Hydrolevel Corporation entered the low-water cutoff valve market with an electronic low-water fuel supply cutoff that included a time delay on some of its models. Hydrolevel's valve had won important approval for use from Brooklyn Gas Company, one of the largest installers of heating boilers. Some Hydrolevel units added the time-delay devices so the normal turbulence of the water level at the electronic probe would not cause inappropriate and repeated fuel supply turn-on and turn-off. Mitchell believed that McDonnell and Miller's sales could be protected if he could secure an interpretation stating that the Hydrolevel time delay on the cutoff violated the ASME B-PV code. He refereed to this section of the ASME code: "Each automatically fired steam or vapor system boiler shall have an automatic low-water fuel cutoff, so located as to automatically cut off the fuel supply when the surface of the water falls to the lowest invisible part of the water-gauge glass." Thus Mitchell asked for an ASME interpretation of the mechanism for operation of the Hydrolevel device as it pertained to the previously mentioned section of the code. He did not, however, specifically mention the Hydrolevel device in his request.

Mitchell discussed his idea several times with John James, McDonnell and Miller's vice president for research. In addition to his role at McDonnell and Miller, James was on the ASME subcommittee responsible for heating boilers and had played a leading role in writing the part of the boiler code that Mitchell was asking about.

James recommended that he and Mitchell approach the chairman of the ASME Heating Boiler Subcommittee, T. R. Hardin. Hardin was also vice president of the Hartford Steam Boiler Inspection and Insurance Company. When Hardin arrived in Chicago in early April on other business, the three men went to dinner at the Drake Hotel. During dinner, Hardin agreed with Mitchell and James that their interpretation of the code was correct.

Soon after the meeting with Hardin, James sent ASME a draft letter of inquiry and sent Hardin a copy. Hardin made some suggestions, and James incorporated Hardin's suggestions in a final draft letter. James's finalized draft letter of inquiry was then addressed to W. Bradford Hoyt, secretary of the B-PV Boiler and Pressure Vessel Committee.

Hoyt received thousands of similar inquiries every year. Since Hoyt could not answer James's inquiry with a routine, prefabricated response, he directed the letter to the appropriate subcommittee chairman, T. R. Hardin. Hardin drafted a response without consulting the whole subcommittee, a task he had authorization for if the response was treated as an "unofficial communication."

Hardin's response, dated April 29, 1971, stated that a low-water fuel cutoff must operate immediately. Although this response did not say that Hydrolevel's time-delayed cutoff was dangerous, McDonnell and Miller's salesmen used Hardin's conclusion to argue against using the Hydrolevel product. This was done at Mitchell's direction.

In early 1972, Hydrolevel learned of the ASME letter through one of its former customers who had a copy of the letter. Hydrolevel then requested an official copy of the letter from ASME. On March 23, 1972, Hydrolevel requested an ASME review and ruling correction.

ASME's Heating and Boiler Subcommittee had a full meeting to discuss Hydrolevel's request, and it confirmed part of the original Hardin interpretation. James, who had replaced Hardin as chairman of the subcommittee, refrained from participating in the discussion but subsequently helped draft a critical part of the subcommittee's response to Hydrolevel. The ASME response was dated June 9, 1972.

In 1975, Hydrolevel filed suit against McDonnell and Miller, Inc., ASME, and the Hartford Steam Boiler Inspection and Insurance Company, charging them with conspiracy to restrain trade under the Sherman Antitrust Act.

Hydrolevel reached an out-of-court settlement with McDonnell and Miller and Hartford for $750,000 and $75,000, respectively. ASME took the case to trial. ASME officials believed that, as a society, ASME had done nothing wrong and should not be liable for the misguided actions of individual volunteer members acting on their own behalf. After all, ASME gained nothing from such practices. ASME officials also believed that a pretrial settlement would set a dangerous precedent that would encourage other nuisance suits.

Despite ASME arguments, however, the jury decided against ASME, awarding Hydrolevel $3.3 million in damages. The trial judge deducted $800,000 in prior settlements and tripled the remainder in accordance with the Clayton Act. This resulted in a decision of $7,500,000 for Hydrolevel.

On May 17, 1982, ASME's liability was upheld by the second circuit. The Supreme Court, in a controversial 6-3 vote, found ASME guilty of antitrust violations. The majority opinion, delivered by Justice Blackmun, read as follow:

ASME wields great power in the nation's economy. Its codes and standards influence the policies of numerous states and cities, and has been said about "so-called voluntary standards" generally, its interpretation of guidelines "may result in economic prosperity or economic failure, for a number of businesses of all sizes throughout the country," as well as entire segments of an industry . . . ASME can be said to be "in reality an extra governmental agency, which prescribes rules for the regulation and restraint of interstate commerce." When it cloaks its subcommittee officials with the authority of its reputation, ASME permits those agents to affect the destinies of businesses and thus gives them power to frustrate competition in the marketplace.

The issue of damages was retried in a trial lasting approximately 1 month. In June, the jury returned a verdict of $1.1 million, which was tripled to $3.3 million. Parties involved were claiming attorney's fees in excess of $4 million, and a final settlement of $4,750,000 was decreed.

Questions:

1. How could McDonnell and Miller, Inc. have avoided the appearance of a conflict of interest, This applies to both Mitchell and James.

2. What was T.R. Hardin's responsibility as chair of the B-PV Code Heating Boiler Subcommittee and How could he have handled things differently to protect the interests of ASME.

3. What can engineering societies do to protect their interests once a conflict of interest is revealed.

4. Was the final judgement against ASME fair, Why or why not.

5. Have ASME's revised conflict-of-interest procedures addressed the problems fully, Why or why not?

Reference no: EM133329841

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