California Prosecutor Sues G.M. 0ver Sprawling Recall

By AARON M. KESSLER July 1, 2014

A California prosecutor on Monday charged General Motors with unfair business practices and deceptive marketing for concealing ignition-related defects and others in order to boost its bottom line.

The lawsuit, filed by District Attorney Tony Rackauckas of Orange County, accuses G.M. of "half-truths and omissions." It says that had the company's ad campaigns "disclosed that millions of G.M.-branded vehicles contained serious safety defects and that G.M. did not value safety, consumers would not have purchased new G.M. vehicles" in recent years.

Mr. Rackauckas, as a county prosecutor, may be an unusual figure to bring a case against a giant corporation. But he brought similar civil charges against Toyota after its sudden-acceleration scandal. That case settled for $16 million last year.

In an interview late Monday, he said that his office began investigating G.M. shortly after the ignition-switch issue came to light, and that he remained skeptical of the company's recently released internal investigation, which focused primarily on the actions of midlevel engineers. Mr. Rackauckas said he hoped to uncover more details of who knew what and when.

"I suspect the people in charge knew about this and continued to cover it up so they wouldn't have to pay for the fix," he said. "Not surprisingly, nobody higher up the chain was implicated" by G.M.'s internal report, he added, and said, "So we're going to start from there and move upwards."

Under California law, county prosecutors can file such cases on behalf of all affected consumers in the state. With civil fines of up to $5,000 for each affected car sold in California, it could end up costing G.M. millions of dollars.

Mr. Rackauckas claims he is more interested in holding G.M. executives publicly accountable, and forcing the company to take steps to ensure it builds safer cars, than in a possible payoff.

"I'm not bringing a case to settle and grab some money," he said. "I'd like to see a trial. I'd like to see a public airing of these issues, so people can judge for themselves what happened here."

A spokesman for G.M. declined to comment on Monday.

The California lawsuit specifically refers to G.M.'s actions "on or after July 10, 2009" – the date the company emerged from bankruptcy, after which it was split in two: "Old G.M." took on the automaker's liabilities, and "New G.M.," the current company, was supposedly free from them. By focusing on actions taken after the bankruptcy, the lawsuit aims to avoid entangling itself with issues of bankruptcy protection.

Mr. Rackauckas said that G.M. had "taken some admirable steps," but that he intended to use the California courts to enforce his own brand of oversight.

"It appears G.M. is going a long way in that regard, but through the discovery process we can ensure that things are properly done," he said.

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DealBook: U.S. Pension 1nsurer 1ssues Dire Warning on Pooled Plans

Mary F. Calvert for The New York TimesJoshua Gotbaum, director of the Pension Benefit Guaranty Corporation. It seems unlikely the weakest plans will be bailed out.

More than a million people risk losing their federally insured pensions in just a few years despite recent stock market gains and a strengthening economy, a new government study said on Monday.

The people at risk have earned pensions in multiemployer plans, in which many companies band together with a union to provide benefits under collective bargaining. Such pensions were long considered exceptionally safe, but the Pension Benefit Guaranty Corporation reported in its study that some plans are now in their death throes and cannot recover.

Bailing out those plans seems highly unlikely. But if they are simply left to die, the collapse of the federal insurance program is all but inevitable, the report said, leaving retirees in failed plans with nothing. It added that the program "is more likely than not to run out of money within the next eight years" as plan after plan collapses.

The multiemployer pension sector, which covers 10 million Americans, represents a mixed bag of financial strength and weakness. The aging of the work force, the decline of unions, deregulation and two big stock crashes have all taken a grievous toll. Ten percent of the people covered are in severely underfunded plans, the study said.

The federal insurer is not making any recommendations about what to do at the moment, said Joshua Gotbaum, its director. "This is a legally required actuarial report whose purpose is solely to project the range of outcomes for plans and the P.B.G.C."

The agency does such a projection every year, but this year's version was unusually late and unusually dire.

Congress has already held several hearings on multiemployer plans, and for months the unions and companies that jointly sponsor them have been meeting with Congressional staff members to come up with responses. One working proposal calls for retirees in multiemployer plans to give up part of their core benefits to save money. That idea is extremely controversial because federal law has sheltered retirees from such cuts for decades. Proponents say it is the only way to keep some plans going.

Even if the new report spurs them, no legislative initiative is expected until after November's elections.

The report's dire prognosis was limited to the multiemployer pension insurance program. The federal insurer has a separate program for the pensions offered by single companies, and the report said it was not at risk. In fact, its finances have improved over the last year, the report said.

The multiemployer insurance program works differently from the single-employer one, and the report expressed concern that the people at greatest risk were unaware of how deeply their pensions could be cut if the situation deteriorated. The maximum insurance benefit is less than $13,000 a year, and that is only for people who have at least 30 years of service. In some plans, notably the Teamsters' troubled Central States plan, many workers and retirees have already earned pensions well above the insurance maximum.

Congress never gave the program a lot of resources, paradoxically, because in the past the plans were considered so healthy that they did not need as much insurance protection. Employers pay much smaller premiums and the insurance coverage is much more limited than for single-employer pensions. And the P.B.G.C. itself has no power to step in and rescue a dying plan, the way it can if a single-employer plan is at risk of failing. It can only sit on the sidelines and get its meager checkbook ready.

The strength of multiemployer pensions grew out of the fact that they pooled the resources of many companies. If one company in the pool went bankrupt, the others were required to pick up the cost of the resulting "orphaned" retirees. In the past, new unionized companies would join the pools over the years, keeping them strong.

Those factors began to change as the work force aged, unions dwindled and whole sectors of the economy were deregulated. And then came the dot-com crash of 2000, which pummeled many pension investment pools.

In 2006, Congress passed a law intended to strengthen company pensions, and the new study looked, for the first time, at how employers were responding to it. Adding this behavioral information required a major change in the pension organization's methodology, which Mr. Gotbaum said was among the main reasons the report came out months late.

The 2006 law required severely troubled multiemployer plans to set up rehabilitation programs and file the details with the government. In general, companies were supposed to put more money into their shared investment pools, workers were supposed to build their benefits more slowly, and retirees were supposed to give up the parts of their pensions that were not considered core benefits.

But when the researchers began started tracking employer behavior, they found that a significant number of multiemployer plans were so hard hit that their trustees decided not to use all the medicine prescribed in 2006. They did not think it would do any good and might even make things worse.

Mr. Gotbaum said the agency realized this over the last year or two, because more and more plan officials had been notifying the government that they were not in compliance with their own rehabilitation plans.

"They told us, 'It's not that we're not willing to do it,' " he said. Rather, the plan trustees told the government that they had run into limits in how far they could push their companies and workers without destroying their whole pension plans.

Much of the problem was demographic. The most troubled plans often had more retirees than active workers. Trustees of those plans realized that they were pushing the workers to tighten their own belts in order to let the retirees keep receiving bigger benefits than the workers thought they would ever get themselves. If they kept pushing, the workers or the sponsoring companies would drop out of the pool, setting up a slow but steady death spiral.

"There is a concern that if the severely distressed plans fail, that this might lead to efforts to abandon healthy plans, too," Mr. Gotbaum said.

Both federal insurance programs were designed to be self-supporting, and while the pension agency has operated for years at a deficit, it has not needed to turn to the taxpayers for assistance. Giving it the means to rescue failing multiemployer pension plans now would almost certainly require an act of Congress to put more money into the agency's coffers.

Given the political climate in Washington, Congress would not likely support such a bill without first seeing that workers, retirees and unionized companies had already made serious sacrifices.

A version of this article appears in print on 07/01/2014, on page B3 of the NewYork edition with the headline: Some Pooled Pensions Are Beyond Recovery .
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UnitedHealth, an 1nsurer Switching Roles, Helps Hospitals on Medicare Billing

By REED ABELSON June 30, 2014

To hospitals, billions of dollars depend on how they define a patient's stay.

Even though a patient may be in the hospital for a simple surgery, Medicare might classify the procedure as outpatient care and pay a lower fee to the hospital. Or someone may come into the emergency room complaining of chest pain but leave after just a day or two, once the tests have ruled out a heart attack. Does that qualify as an inpatient stay at a higher Medicare payment?

With government auditors and contractors cracking down on hospitals for what they contend are overbilling practices, hospitals are paying more and more attention to how they classify care when filing claims to Medicare, the federal health insurance program.

And one of the nation's largest health insurers appears to be covering all the angles. As an insurer and a company offering private Medicare Advantage plans, the UnitedHealth Group boasts of its ability to provide quality care at a lower cost. It often pays doctors and hospitals less than requested, highlighting the savings it achieves.

But UnitedHealth also owns a little-known consultant that is flourishing by helping hospitals exploit what they describe as a gray area in Medicare payments for hospital stays, fighting to get what can amount to thousands of dollars more per patient.

The consultant, Executive Health Resources, is often at the center of battles between hospitals and Medicare over how the facilities bill.

In June, the University of Cincinnati Medical Center was hit by a government audit that said it should return nearly $10 million to Medicare, largely the result of claims the auditors rejected as inpatient stays. Those include so-called short stays where a patient might be in the hospital for less than a day or two. Executive Health is under contract to review claims for the medical center and will be part of the appeal, according to the center.

The center is aggressively contesting the government's findings, arguing its methods are flawed. It also says the conclusions "relate to technical requirements for billing Medicare, not to the appropriateness or quality of the services."

Executive Health declined to comment on its contracts.

Despite being at the forefront of these high-stakes payment disputes, Executive Health says its goal is not to help hospitals reap higher payments. "We're not out to maximize Medicare reimbursement; we're out to get it right," said Bill Miller, the chief executive of OptumInsight, which oversees Executive Health for UnitedHealth.

Medicare's rules, which the hospitals claim are confusing and overly complicated, have been the subject of lawsuits and Congressional hearings, and some contractors have been required to stop reviewing claims. "It's really reaching a crescendo right now," said Jesse A. Witten, a partner at DrinkerBiddle who specializes in health care law.

Last year, Medicare issued a rule that attempted to draw a brighter line between the kinds of care by saying that the rate for inpatient care would be paid only if a patient stayed for two midnights, with some exceptions. Some hospitals and consultants say the new rule has led them to become more conservative about how they bill.

Executive Health is squarely in the middle of the controversy. The company, which was bought by UnitedHealth for a reported $1.5 billion in 2010, says it has advised more than half of the nation's hospitals, and its services are endorsed by the American Hospital Association, a powerful trade group. "They're the market leader," said Anthony J. Burke, a senior vice president for the association.

The company typically reviews claims the hospital cannot easily justify as inpatient stays. Executive Health uses its own data analysis and employs hundreds of physician advisers who are expert in Medicare regulations to determine whether a stay qualifies, although the hospital and its doctors make the final decision.

Executive Health "only adjudicates the case that lives in the grayest of gray zones," said Dr. Marlene Mullen-Clayton, a former executive with the company.

Executive Health is based within UnitedHealth's Optum unit, its technology and care management business. Optum is also one of the main contractors for HealthCare.gov, and a senior executive plans to join the federal agency as a top official.

Mr. Miller said there was nothing unusual about UnitedHealth's ownership of the unit, saying it supports Medicare's aim to save money. He saw no potential conflict of interest between the divisions, which he said "are independent of one another."

In making its pitch to hospitals, Executive Health emphasizes what it calls a "gray area" in Medicare rules, estimating in a 2012 presentation that it was worth nearly $80 billion. It also points to overwhelming success in appealing cases that were initially denied as inpatient care, like patients with chest pain who later had normal test results or those who had elective heart procedures like angioplasties. The company says it follows Medicare guidance.

How a visit is classified also affects patients, who may owe different amounts because the stays are paid under different parts of Medicare. The rules require patients to have three days of inpatient care before the program will pay for skilled nursing care.

In a presentation, Community Hospital of the Monterey Peninsula in California raved about Executive Health, describing the company as "our own gunslinger," protecting it against the onslaught from government contractors and auditors. Executive Health was able to certify about 80 percent of the roughly 1,700 cases it sent for review, and the hospital was able to bill nearly $7 million as inpatient care.

"It's a second set of eyes," said Dr. Anthony Chavis, a hospital official. He says Executive Health has no financial incentive to recommend a stay be considered inpatient, and only reviews cases the hospital already believes qualify but cannot justify using its own methods. "There's a whole lot of factors that go into that decision to admit that patient to the hospital," he said.

The consultants charge from $150 to $250 a review, and some hospitals pay Executive Health up to $1 million a year in total. The company would not comment on what it charges a hospital, but Mr. Miller says Executive Health appeals to hospitals because the services are a more efficient way to comply with complicated Medicare regulations.

Government auditors, however, sometimes disagree with how a hospital bills, even when relying on Executive Health. Singing River Hospital, a Mississippi facility, was told in 2012 that it had inappropriately billed for inpatient stays in about a third of the 100 claims reviewed by the Department of Health and Human Services. Singing River disagreed and pointed to Executive Health's analysis, but the auditors did not change their findings. Singing River declined to comment further.

Mr. Miller said that there were always cases where there was disagreement, but that Executive Health strove to accurately determine which setting was most appropriate for patients.

The two-midnight rule has met with mixed reaction, with some hospitals pushing back. Medicare has delayed enforcing the new rule and has told Congress it is open to alternatives.

"The real vehement opposition comes from the fact that this is going to shift money around," said Jonathan Blum, a former Medicare official. The change took away "some of the gray area" where consultants have thrived, he said.

But the new rules are causing fewer stays to qualify as inpatients, according to some consultants and hospitals. Accretive Health, an Executive Health competitor, says it is increasingly advising hospitals that certain visits are outpatient or observational stays, said Dr. Pamela Mulshine, an Accretive executive.

She says Medicare is clear that certain stays, like those for angioplasties, should generally be paid on an outpatient basis. "Just because you're old and take longer to recover, you don't get to be inpatient," she said.

Some hospitals say they do not need consultants as much. "At first the hospitals were completely overwhelmed," said Dr. Stephen J. Lahey of UConn Health, a hospital system that has a contract with Executive Health. While UConn Health still uses the consultant, it plans to do more reviews internally.

Mr. Miller says that he supports Medicare's efforts to improve the rules and that Executive Health is not worried about them, because there are always new rules to navigate. "Whatever happens," he said, "we're going to have a business that drives compliance."

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DealBook: BNP Paribas Pleads Guilty in Sanctions Case

Jacques Brinon/Associated PressThe headquarters of BNP Paribas in Paris. Related Links

After months of heated negotiating, state and federal authorities on Monday announced a criminal case against BNP Paribas, taking aim at France's biggest bank for transferring billions of dollars on behalf of Sudan and other countries blacklisted by the United States.

BNP agreed to plead guilty to criminal charges and pay an $8.9 billion penalty, a record sum for a bank accused of doing business with countries that face United States sanctions. State and federal authorities portrayed BNP, the seventh bank to settle a criminal sanctions violation case but the first to plead guilty, as the worst offender.

Like other banks, BNP hid the names of Sudanese and Iranian clients when sending transactions coursing through its New York operations and the broader American financial system. But the wrongdoing was more pervasive at BNP, the authorities suspected, stretching from at least 2002 into 2012, after the investigation was already in full swing.

"This conspiracy was known and condoned at the highest levels of BNP," Edward Starishevsky, an assistant district attorney in Manhattan, said in court on Monday when the bank pleaded guilty to one count of falsifying business records and one count of conspiracy.

The rebuke – from the Justice Department's criminal division in Washington, the United States attorney's office and the district attorney's office in Manhattan, as well as the Federal Reserve, Treasury Department and New York's financial regulator, Benjamin M. Lawsky – provides a template for prosecuting other financial misdeeds. In the months ahead, the focus will shift to a number of big banks suspected of manipulating foreign currencies.

In filing the BNP case, the authorities sought to send a message that no bank is immune from criminal charges, despite lingering concerns that financial institutions have grown so large and interconnected that they are too big to jail. The decision to require BNP's parent company to plead guilty, which prompted an outcry from French officials who rushed to the bank's defense, reflects a broader policy shift after decades of civil settlements and so-called deferred prosecution agreements. The deal comes six weeks after Credit Suisse pleaded guilty to helping American clients evade taxes.

"This outcome should send a strong message to any institution – any institution anywhere in the world – that does business in the United States: that illegal conduct will simply not be tolerated," Attorney General Eric Holder said at a press conference on Monday. "Whenever it is uncovered, it will be punished to the fullest extent of the law."

Preet Bharara, the United States attorney in Manhattan who accused BNP of "perpetrating what was truly a tour de fraud," has argued that no bank is too big to charge.

Still, criminal pleas could prompt regulators to revoke the license of either bank. To prevent that outcome, the Wall Street equivalent of the death penalty, prosecutors and regulators coordinated their actions months in advance.

Unlike Credit Suisse, which paid fines and suffered the reputational stain of being a felon but faced few practical implications from pleading guilty, BNP was required to temporarily forfeit a core business operation in New York as a result of the guilty plea.

Mr. Lawsky announced on Monday that he will suspend BNP's ability to process payments in dollar denominations, a function known as dollar clearing, which is essential to doing business with international clients. The deal with BNP would prevent certain units within the bank's headquarters in Paris, as well as in its offices in Geneva, Rome, Milan and Singapore, from clearing dollar transactions for one year beginning in January 2015. Mr. Lawsky also required the bank to part ways with 13 employees, including one of BNP's chief operating officers.

"It is important to remember that banks do not commit misconduct – bankers do," Mr. Lawsky said in a statement.

Still, not one BNP employee was criminally charged. And prosecutors have yet to demonstrate that their newfound enforcement muscle applies equally to American banks, raising questions about whether the crackdown is more fleeting than sweeping.

"Though we appreciate the magnitude of the BNP guilty plea, we believe this does not signify the end of 'too big to jail'," Public Citizen, a nonprofit watchdog group, said in a statement.

In its own statement, BNP emphasized that it has "designed new robust compliance" measures to prevent a repeat of the wrongdoing. The bank's chief executive, Jean-Laurent Bonnafé, said "we deeply regret the past misconduct that led to this settlement."

The bank, which is also expected to plead guilty on July 9 to violations of the federal International Emergency Economic Powers Act, initially hoped to fend off a guilty plea.

Seeking a compromise, BNP proposed that it create an entirely new subsidiary to plead guilty, according to people briefed on the matter. When prosecutors rebuffed that offer, the bank suggested that its Swiss affiliate, which initiated some of the improper transactions, enter the plea. That too failed to gain traction with prosecutors.

But that did not stop BNP from enlisting the help of the highest rungs of the French government. President François Hollande made unusually direct and personal appeals to President Obama, while several French financial officials visited prosecutors and regulators in Washington and New York.

The complaints partly centered on the dollar-clearing suspension, which emerged as the biggest threat to BNP after regulators promised not to revoke the bank's license. BNP and its allies in the French government warned that a suspension could prompt the bank's clients to flee and sow unrest in the broader European financial system.

Ultimately, Mr. Lawsky focused the suspension on the specific units that processed transactions at the heart of the case. The bank's oil and gas units in Paris and elsewhere, for example, are subject to the suspension.

Mr. Lawsky argued that the punishment, which will most likely generate a logistical headache for the bank and undercut its revenue as it has to outsource the business to another bank, reflected the widespread scope of the wrongdoing.

To distance itself from the transactions, the bank at one point rerouted wire transfers to at least one American bank that remained anonymous. One internal BNP email described the "no win situation between telling stories," or deceiving, the competitor or the bank's own colleagues in New York.

The bank's transactions with Sudan highlighted the great lengths BNP went to hide the wrongdoing. In the bank's Geneva office, "there was policy to strip, amend and omit
elements of U.S. dollar payment messages that could serve to identify" Sudanese clients. An internal memo ordered bank employees not to "list in any case the name of Sudanese entities on messages transmitted to American banks or to foreign banks installed in the U.S."

At the time, Sudan was operating a genocidal regime. And as Mr. Holder noted, citing the words of a BNP compliance manager, the country "hosted Osama bin Laden."

When certain employees sounded the alarms — one compliance officer complained that the bank's policy "effectively means that we are circumventing the U.S. embargo — senior BNP executives dismissed the concerns.

At a September 2005 meeting, one of the bank's chief operating officers "dismissed the concerns of the compliance officials," Mr. Lawsky said, and requested that no minutes of the meeting be taken.

The bank's compliance staff in New York also failed to thwart the wrongdoing, authorities said. When another bank settled a sanctions violations case, BNP's head of ethics and compliance for North America wrote in an email to a colleague, "the dirty little secret isn't so secret anymore, oui?"

William Alden contributed reporting.

 

 

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Supreme Court Ruling Allows Some Public Workers to 0pt 0ut of Union Fees

The Supreme Court ruled narrowly in the case, with the majority 5-4 opinion written by Justice Samuel A. Alito Jr. By STEVEN GREENHOUSE June 30, 2014

The Supreme Court dealt a limited blow to labor unions on Monday by ruling that some government employees did not have to pay any fees to the labor organizations representing them. But the court declined to strike down a decades-old precedent that required many public-sector workers to pay union fees.

Writing the majority 5-4 opinion, Justice Samuel A. Alito Jr. concluded that there was a category of government employee — a partial public employee — who can opt out of joining a union and not be required to contribute dues to that labor group.

Justice Alito wrote that home-care aides who typically work for an ill or disabled person, with Medicaid paying their wages, should be classified as partial public employees and should not be treated the same way as public-school teachers or police officers who work directly for the government.

The court's decision was a partial, but not total win, for labor's critics. And while labor did sustain a defeat in this ruling, it did not amount to a crippling loss that unions had feared.

Graphic | Harris v. Quinn

If the court had overturned the precedent requiring many government workers to pay union fees, it could have greatly reduced the membership and treasuries of public-employee unions when they are already on the defensive in Wisconsin and many other states.

Justice Alito wrote that unions play such a limited role for "partial public employees" like home-care aides that these aides should not be required to pay union fees — indeed he wrote that such a requirement would violate the aides' First Amendment rights. He noted that states often set the wage levels for these workers and that unions often do not bargain collectively for them..

The case, Harris v. Quinn, was brought by eight Illinois workers who provided home health care to Medicaid recipients. They asked the court to overrule a 1977 decision that declared that government employees can be required to pay fees to unions for representing them and administering their contracts even if they disagree with the union's positions. The majority declined to overrule that foundational decision, Abood v. Detroit Board of Education, although Justice Alito voiced strong discomfort with it.

Objecting to the so-called agency fees that the Abood ruling said teachers must pay, Justice Alito wrote in Monday's majority opinion, "Agency-fee provisions unquestionably impose a heavy burden on the First Amendment interests of objecting employees."

Illinois and more than 20 other states require government employees, whether or not they opt to join the union at their workplace, to pay "fair share" fees to finance the union's collective bargaining efforts to prevent freeloading and to ensure "labor peace." But the court in Abood and other cases held that workers could not be required to help pay for activities that were purely political, like a union's lobbying the legislature or campaigning for particular candidates.

The National Right to Work Legal Defense Foundation represented the Illinois workers and argued that Illinois was violating the First Amendment by requiring that government workers pay compulsory fees to unions even when they disagreed with the unions' positions. The foundation argued that most of what public-sector unions did was inherently political, partly because they rely on the government to pay their members' wages and benefits — and often lobby the government to increase their compensation.

But the Service Employees International Union, which represents the Illinois home-care aides, and the Obama administration urged the court to uphold the legality of "fair-share fees."

In Monday's decision, Harris v. Quinn, No. 11-681, Justice Alito noted that the service employees union received about $3.6 million in fees per year from home-care assistants in Illinois. The ruling reversed a decision by the United States Court of Appeals for the Seventh Circuit.

Justice Alito rebuffed the argument by the State of Illinois that the Abood decision should be controlling in this case, saying it should apply only in cases involving full-fledged public employees like teachers or firefighters.

The majority opinion showed uneasiness with decades of laws and judicial rulings that required government workers who choose not to join unions to nonetheless pay fees to the union on the ground that labor unions' efforts on collective bargaining and grievances benefit members and nonmembers alike.

"If we accepted Illinois' argument," Justice Alito wrote, "we would approve an unprecedented violation of the bedrock principle that, except perhaps in the rarest of circumstances, no person in this country may be compelled to subsized speech by a third party that he or she does not wish to support."

Justice Alito cited precedents saying that union fees that impinged on the First Amendment must serve a compelling state interest that cannot be achieved through less restrictive means. He argued that states might not need to compel nonunion members to pay fees to the unions that represent them if the unions were already doing a fine job representing workers thanks to the employees who opt to join the union and pay dues.

During oral arguments in January, Justice Elena Kagan, said the position taken by the National Right to Work Legal Defense Foundation "would radically restructure the way workplaces across this country are run." But the scope of Monday's ruling is limited because it applies only to "partial public employees" like home care aides and perhaps government-financed child-care workers who provide care at their homes.

Justice Kagan attacked the majority's embrace of the concept of partial public employees, writing that Illinois has sole authority over much of the home-care aides' terms and conditions of employment.

"Today's opinion takes the tack of throwing everything against the wall in the hope that something might stick," she wrote. "A vain hope, as it turns out."

Anticipating a future attack on Abood, Justice Kagan devoted much of her dissent to defending Abood and its decision to uphold government efforts to prevent free-riding. Asserting that the majority underestimated that problem, she wrote "union supporters (no less than union detractors) have an economic incentive to free ride."

Justice Alito noted that the union's lawyers had argued that the home-care aides should be required to pay union fees under a line of precedents in which the Supreme Court ruled that it was not a First Amendment violation to require lawyers to pay fees to their bar associations and public university students to pay mandatory student-activities fees. Justice Alito distinguished the home-care aides' situation and wrote that Monday's decision was "entirely consistent" with those rulings.

Correction: June 30, 2014

An earlier version of this article misstated the middle initial of a Supreme Court justice. He is Samuel A. Alito Jr., not Samuel J.

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DealBook: Secrecy of Dark Pools Can Blur Both Ways

Hiroko Masuike/The New York TimesThe New York attorney general, Eric T. Schneiderman.

It should not come as any great surprise that a brokerage firm, like the proverbial used-car salesman, would take a few liberties with the truth while trying to sell something. But the New York attorney general, Eric T. Schneiderman, has taken on Barclays by filing a civil lawsuit related to the marketing of its dark pool trading platform, which portrayed it as safe for investors when the bank let plenty of sharks swim in the deep end.

The sharks are the high-frequency trading firms that have been pilloried of late, particularly since the publication of Michael Lewis's book "Flash Boys," which portrays them as the villains behind what he calls a rigged market. Whether true or not, those claims have become a powerful marketing tool that Barclays sought to exploit to lure investors into its dark pool by contending they would be protected from harmful trading practices.

There are more than 40 "alternative trading systems," more commonly known as dark pools, that keep many of the details about the transactions executed there a secret. The systems give large investors, like mutual funds and pension plans, a place to trade large blocks of stock without revealing their strategies to others who could take advantage by front-running the trades. But the cost is a lack of transparency about prices, which makes it difficult to discern whether the trade was executed at the best price.

The premise underlying a dark pool is that investors trust whoever is operating it to provide a fair price and not misuse the information about their trading so that others can profit by trading ahead of them. Dark pools now account for about 35 percent of the transactions in equities listed in the United States and have become quite lucrative for their owners, like Goldman Sachs, UBS and Barclays.

Profitability is driven by volume, so the temptation is strong to invite the high-frequency traders into the pool along with other investors. That sets up an inevitable clash between expanding the trading platform and adhering to the needs of investors for a safe place to trade.

For Barclays, it appears that it tried to have it both ways: giving the high-frequency traders access to its dark pool while marketing it as safe for investors by saying it was limiting the access of those firms. Thus, the bank trumpeted its "Liquidity Profiling" system to protect against "predatory trading," which Mr. Schneiderman contends was false because Barclays failed to provide those protections to a significant portion of the trading through its dark pool.

It is unlikely that marketing materials that contain misleading claims about a dark pool could be the basis of a federal securities lawsuit. A stock exchange does not owe a fiduciary duty to investors, so there is always a measure of risk when conducting business with a dark pool because it does not need to disclose other traders or how their orders are handled.

There is no evidence at this point that Barclays violated any Securities and Exchange Commission rules about the proper execution of trades or the appropriate prices for the transactions, so investors received whatever protections to which they were entitled. A securities fraud charge also requires proof of fraudulent intent in connection with the purchase or sale of a security. Barclays was only enticing investors to use its dark pool, not misleading them about the value of the securities they were trading.

Mr. Schneiderman unsheathed a powerful tool not available to the S.E.C.: the Martin Act. Under that New York State law, a violation can be shown based on negligence, and a recent DealBook article pointed out that the "the only thing that prosecutors need to establish is a misrepresentation or omission of material fact" related to securities.

The reach of the Martin Act is broad, as shown in a 1948 case, People v. Goldsmith. The defendant was the author of a market newsletter that predicted the direction of stock prices by implying he had access to corporate insiders. This was long before the crackdown on insider trading. In fact, his predictions were based on interpretations of comic strips, which led the New York court to find that "when he failed to inform the subscribers of the alleged sources of information he was concealing a material fact." The Sunday funnies strategy is certainly novel, but telling investors one thing while doing another appears to be sufficient to violate the Martin Act.

The reaction from Barclays to Mr. Schneiderman's lawsuit has been telling. Rather than deny any violations, or contend that the attorney general twisted its words, a Barclays spokesman simply said that "we take these allegations very seriously." The bank's chief executive, Antony P. Jenkins, expressed his "deep disappointment" in a note to employees and said that "I will not tolerate any circumstances in which our clients are lied to or misled, and any instances I discover will be dealt with severely."

This is not the first time Barclays has run afoul of the government, having agreed to a deferred prosecution agreement in 2012 over manipulation of the London interbank offered rate, or Libor, that resulted in a penalty of about $450 million. So don't be surprised if the bank seeks a quick settlement of the lawsuit that will cost it millions of dollars in fines, perhaps even more than it had to pay two years ago.

The greatest benefit from the lawsuit may not be any penalty extracted from the bank but the reaction of investors. DealBook reported that several brokerage firms stopped sending orders to the Barclays dark pool because of investor concerns about how their orders were being executed. There is a chance that other dark pool operators will be scared straight by the response of investors, at least for a little while.

The broader question is whether this signals the beginning of the end of dark pools, or at least a significant readjustment of the rules governing them. In a speech on June 5, Mary Jo White, the S.E.C. chairwoman, said that "transparency has long been a hallmark of the U.S. securities markets, and I am concerned by the lack of it in these dark venues." The S.E.C. initiated a pilot program last week that includes a provision designed to drive some trading from dark pools to "lit" exchanges, like the New York Stock Exchange and Nasdaq.

The reason for creating dark pools was to protect large investors from predatory trading, but what seems to have escaped notice is that building a market based on a lack of transparency is almost sure to invite abuses. Like anything else, what appeared to be a good idea at the time can morph into something that causes unforeseen harm.

There will be no quick fix, however, as the S.E.C. has to study the issue before it proposes any new rules. And substantial restrictions on dark pools are sure to draw heavy lobbying from Wall Street, which profits handsomely from letting the sharks swim in their dark pools.

Peter J. Henning, a professor at Wayne State University Law School, is a co-author of "Securities Crimes (2d edition)." Twitter: @peterjhenning

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You’re the Boss Blog: When a 20-Year Employee Becomes a Problem

Laura Pedrick for The New York TimesPaul Downs: Being a boss entails difficult, unpalatable decisions that can't be avoided.

This is the last of a series of posts that started with an explanation of why I decided to reinstitute employee reviews.

A misbehaving employee is, in my experience, the most difficult challenge that I face as a boss. When I have one of these situations, it inhabits my head in a way that other problems do not. I know that I have to do something, although I always hope the problem will simply disappear. But it won't. I have to act.

I find myself thinking about it obsessively. A little courtroom appears in my conscience with a prosecutor, a defense lawyer and a judge. A case is made, a defense presented and options weighed. In the case of the Veteran, a situation brought to a head by our decision to conduct employee reviews, the arguments went like this:

Prosecutor: Look at the facts. You gave him a chance in the office. He couldn't do the job. He was a big distraction for Andy, who tried to train him. The errors kept coming. If you keep him there for more training and hope that he somehow magically becomes a good engineer, it will hold back a guy who has made a huge effort to improve himself. The CNC Whiz spends his day fixing the Veteran's mistakes. That makes no sense. And when you put the Veteran back on the shop floor, he's trouble. He's no longer following instructions. He has ruined work. You would fire anyone else who did that stuff. You need to fire him, right now.

Defense: Fire him? For a few mistakes? For a little crankiness? Is this how you treat an employee who has been showing up like clockwork for 20 years? Who has done an enormous amount of good work for you? Don't you have any loyalty?

Prosecutor: A little crankiness? He's been bad for a long time and it's getting worse. You put up with him because it was easier to ignore it. Now, he's spreading it around, and the other guys are noticing. Your foreman, Kyle, is not happy. He knows you have a soft spot for the guys who have been with you a long time, and he's wondering how much you will put up with. Remember your rule? "Bad employees make good employees feel bad." You need to excise the cancer.

Defense: You want to put him on the street? How is he going to find a job? What is that going to do to him? Getting fired is horrible. Maybe he can't help himself. Some people just aren't chatty, but he can still make furniture. Does he really deserve this?

Prosecutor: He deserves it. How he will find a job is his problem. There are a million shops that would love to have a guy with his skills. You got a call last week from a shop owner who needs a good pair of hands. He can be working tomorrow. O.K., he won't make the same money, but that's not your problem either.

Judge: I can't make this decision myself. Whatever choice I make will be difficult. I need help with this one.

As owner, I have sole power to hire and fire as I see fit. I knew that I could make this decision by myself, and I was leaning toward firing the Veteran. But I have learned in the past few years that my judgment can be flawed. My own bad decisions are the main reason my business has struggled for so many years.

I established my Friday Afternoon Committee to get candid feedback on difficult issues. It started with just Kyle and me. And in the first meeting, I told him that he, as a newly promoted manager, was now entering a different level of decision-making and that we would be discussing, with complete candor, all kinds of problems, especially personnel issues. Eventually, we decided to expand the meetings to include three other men, all of whom had been working in wood shops for at least a dozen years. Three of us have worked only in my company. Two have worked elsewhere. I especially valued the outside perspectives.

After the first week of employee reviews, I presented the problem of what to do with the Veteran to the Friday Committee. I had heard enough from the shop floor workers in their reviews to become alarmed. I laid out the prosecution and the defense, and we started to debate. Everyone had the same take and the same questions: He was no longer a good fit for the company, but was firing the only option? Was there a fix? Or had we already tried?

And what message would keeping him send to the other employees? That it's O.K. to be unpleasant as long as you show up on time? Are the other guys impressed that I stand by my old guard, even when it blocks the advancement of another worker who has made a huge effort? Do they value the loyalty? Or will they just conclude that they need to go elsewhere to advance? Will we lose the CNC Whiz to another shop if we don't give him the job he clearly has earned?

We couldn't come to a decision in one meeting. There would be another Friday meeting before the Veteran's review, and during the following week, I thought long and hard about all of these questions. By the next Friday, I was pretty much convinced that the Veteran had to go. We started the meeting by rehashing the points we had made the previous week. I got the sense that everyone thought he should go but no one wanted to come out and say it.

We don't have a lot of employee problems, and most of the committee members had never had to fire someone. The two people who had worked in other shops had seen a version of this before and were willing to let him go. But everyone was waiting to see what I would say. They were happy to leave the decision to me, just as I was wishing I could pass the responsibility on to them. Nobody wants to fire someone. I certainly didn't. But I came to the conclusion that The Veteran had to go. And then I steeled my mind to doing it.

I came in the next day. It was Saturday, and the shop and office were quiet. It took half a day to write up the Veteran's infractions, in accordance with my methods for firing people for cause. I chose to describe two particular incidents that had happened recently. I had asked Kyle to describe them in an email; I quoted his words exactly, and then quoted the relevant policy and the consequence of the actions: immediate termination. That done, I thought for a while and then started on a separation agreement.

Normally, when I fire for cause, I expect the employee to leave and that's it. But I couldn't bring myself to do that in this case. I decided to give the Veteran a month of continued pay, and three months of health insurance, if he would forgo his right to any future claims on the company. I hoped this would give him a chance to rest a bit, to get his head straight, before he found another job. I also wrote down contact information for the shop owner I knew was looking for help.

After completing all of this, I went home. That night, I got no sleep. I kept going over everything in my mind, endlessly repeating the arguments for and against termination and imagining all of the ways the Veteran might respond, from meek acceptance to serious anger. The following day, those images kept popping into my head. But, oddly, I slept like a stone that night. And I got up on Monday, steeled to do what I had decided to do. What WE had decided to do.

The other members of the committee had been worrying, too. As I greeted each of them that morning, I heard accounts of their sleepless nights and questions as to whether I wanted to go through with it. I could still back down if I wanted. But then the problem would be there the next day, and the next, and the next, until it had to be dealt with again. There's never a good day to fire someone.

So I confirmed that I was going to do it. When I told them that it was going to happen, nobody begged me to reconsider. But in my mind I went through it all once more. Was there any circumstance, any possible combination of events that could cause me to reconsider? I decided that if the Veteran's review sheet showed that he understood his own problems and if he asked for another chance, I would at least be willing to consider it.

At 9:30, I asked Kyle to tell the Veteran that we would see him in the office at 11, the scheduled hour. Kyle went out to to the shop and came back with an odd look on his face. The Veteran had asked him whether he should "bother" to fill out the review form. I was surprised. Why would he say that? Did he expect to be fired? Did he think the procedure was a joke? Did he want to be fired?

Eleven rolled round. As was his practice, the Veteran entered the boardroom and sat without saying a word. He placed the review sheet he had prepared on the table between us. I had all of the termination paperwork, the description of the offenses, and the separation agreement, stacked on the table to my right. I looked at him, wondering how to begin. I started by asking a question: "Do you still want to work here?"

He looked at me, startled, and replied: "Paul, the work is really boring."

"That's not what I asked you."

He paused. Then: "Yes."

Sigh. I pick up his review sheet and started looking through it. He had rated himself  "outstanding" in every category, in answer to every single question. Was he serious? We had rated him "needs improvement" on every question related to attitude and setting a good example for others. There was a huge mismatch here, and in that instant I decided that I was through trying to make it work. The company needed a different worker, and he needed a different job.

"I think we need to take a break from each other," I said.

I handed him the termination document. "In recent days, you have violated the following policies," I began, and I continued with the procedure. When I finished, he was staring at me.

"Are you firing me?" he asked.

There was no other way to put it. "Yes," I said.

He was stunned. Maybe. I could never tell what he was thinking. He didn't ask for another chance. He didn't apologize for his behavior. I handed him the separation agreement and described the offer: month's pay, three month's health insurance, all future claims abandoned, and here's someone who is looking for a skilled worker. He read it and said nothing.

"Are you accepting the offer?" I asked, "Because if you don't, then you are simply fired."

He signed the acknowledgment of the incidents that led to termination, and he signed the separation agreement. An hour later, he left the shop. We delivered his larger tools and some half-built personal projects to his house a week later. I haven't heard from him since.

Obviously, I feel bad about this. I think it was the right thing to do, and I observed the usual burst of cheer from the other workers when a bad apple is terminated. But there has been a cost.

We've had to scramble this quarter to make up for the Veteran's output. Kyle and the CNC Whiz had to work a huge amount of overtime to keep the machine running, but that's a temporary fix. The real solution, a CNC operator, is on the way. We interviewed many people, and our choice is about to start.

We won't be profitable this quarter. The absence of the Veteran wasn't the only factor working against us, but it didn't help. I'm looking at the lost revenue, and the effort to train the newer guys, as an investment. Now everyone working on the shop floor is a good fit, understands how we want to work and is happy to be here. The happiest guys are those who had to work directly with the Veteran.

I usually end my stories with a query: What would you have done in my situation? Not this time. I didn't write these posts before I made a decision but long afterward.

The point of my telling you all of this? That this is what being a boss really entails, now and then: Difficult, unpalatable decisions that can't be avoided. Judgments that have huge effects on the people involved and can't benefit everyone. Dealing with people as they are, not as we wish they would be. Making do with the resources you have, since you can't magically summon deeper pockets, a different history or any of the tools available to larger, better managed companies.

If you are just starting a business, or thinking about it, this kind of experience is coming at you. If you have been through it and wondered whether you were the only one who had agonized over a hard decision, then you have me at least for company.

"Get the right people on the bus," as the pundits say, is great advice. Sometimes, though, it's a challenge not to dwell on who is left standing at the curb.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

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Feeble 1nflation and Lending Persist in Euro Zone

By DAVID JOLLY June 30, 2014

PARIS — Dangerously low inflation in the euro zone persists while lending to the private sector continues to shrink, official data showed on Monday, problems that will confront European Central Bank officials as they meet this week to plot monetary policy.

Consumer prices in the 18-nation currency bloc rose 0.5 percent in June from a year earlier, in line with expectations and unchanged from May, Eurostat, the statistical agency of the European Union, reported from Luxembourg. That was far below the central bank's target of keeping inflation at a rate just below 2 percent, a level it has not reached since early 2013.

The "core" rate, which strips out food and energy prices, rose 0.8 percent. The data are preliminary and subject to revision over the next month.

With concerns mounting about the slow pace of economic growth and with prices hovering not far above outright deflation, the European Central Bank last month took the extraordinary step of setting its deposit rate to minus 0.1 percent, a move that, in effect, charges lenders for holding money at the bank instead of loaning it out.

The central bank also cut interest rates closer to zero and announced more low-cost loans to encourage banks to lend to the real economy.

The need for such measures was underscored by a separate report by the central bank on Monday that showed lending to the private sector contracted again in May, shrinking 2 percent from a year earlier. Loan growth has been shrinking since March 2012.

"What the E.C.B. has done is to provide some help in a situation that needs other elements to fall into place," said Derek Halpenny, senior currency economist at Bank of Tokyo-Mitsubishi UFJ in London. Notably, he added, "they've kept the euro from shooting higher."

The central bank would like to see the euro, which currently trades at around $1.3619 to the dollar, decline, because that would help to push up the prices of imported goods that are priced in other currencies.

Mr. Halpenny noted that with the central bank carrying out detailed analyses of bank's books and subjecting their portfolios to stress tests, a fully fledged recovery in lending would probably come about only if those tests helped to restore confidence in the financial sector.

An improvement in the American economy, which shrank at an unexpectedly large 2.9 percent pace in the first quarter, could also help the bank's cause, he said.

But even in the best case, a full recovery in lending was not likely before next year, Mr. Halpenny added.

Downward pressures on prices and lending are symptoms of the "deleveraging" of indebted businesses and households, as well as weakness in demand. Government spending has been curtailed by austerity policies, and a weak job market has left consumers in limbo. The euro zone's jobless rate has stood near the current 11.7 percent for months.

Deflation is poisonous for borrowers, because the cost of loan repayment rises in real terms. And European banks, which are trying to meet new capital standards, do not need any more soured loans on their balance sheets.

A report last week based on a survey of businesses by Markit Economics, a data analysis firm, showed that the euro zone economy continues to expand slowly. Economists expect second-quarter growth of around 1.2 percent on an annualized basis, accelerating from the 0.7 percent rate in the first quarter of the year.

While Mario Draghi, the president of the European Central Bank, said that more measures were coming, analysts expect the bank's governing council, which meets on Thursday, to give its new measures time to be felt before taking further action.

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Boom Meets Bust in Texas: Atop Sea of 0il, Poverty Digs 1n

Video | Getting By in Boom Times A cowboy turned roughneck reflects on the haves and have-nots in Texas' Eagle Ford oil boom. By MANNY FERNANDEZ and CLIFFORD KRAUSS June 29, 2014

GARDENDALE, Tex. — From the window of her tin-roofed trailer, Judy Vargas can glimpse a miraculous world. It is as close as the dust kicked up by the trucks barreling by but seems as distant as Mars.

As you walk out of her front yard — where the chewed-off leg of an animal, probably a feral hog caught by a prowling bobcat, rots outside — a towering natural gas flare peeks over the southerly view. Across the railroad tracks and Interstate 35, a newly reopened railroad interchange stores acres of pipe and receives shipments of sand from Wisconsin to be used in hydraulic fracturing, or fracking. Next to the terminal is an expanding natural gas processing plant that lies in the heart of the Eagle Ford, a giant shale oil field that here in La Salle County alone produces more than $15 million worth of oil a day, or about one out of every 55 barrels produced in the United States.

This rural patch of thick mesquite in the brush country south of San Antonio had been known for something else. Five miles from here in Cotulla, Lyndon B. Johnson at the age of 20 saw hardship so searing that it would help inspire his war on poverty.

Slide Show | Poverty Endures in a Texas Colonia Gardendale, Tex., located in an oil-rich county, is a startling and incongruous mix of cascading wealth and crushing hardship.

Now, it is the scene of one of the greatest oil booms the country has ever seen. But poverty endures in makeshift, barely governed communities called colonias, such as the one where Ms. Vargas shares her trailer with an ever-shifting assemblage of relatives.

Decades after Johnson took a teaching job here in 1928, the area, like the country, is a startling and incongruous mix of cascading wealth and crushing hardship. And though the boom has helped produce fortunes for some and comfortable lives for many, for others it exists within a rural landscape of unpaved streets without garbage pickup, where few dare to drink the tap water because it tastes and smells like chlorine.

Early one evening in May, Ms. Vargas, 28, cooked spaghetti for her three children and her grandmother. Ms. Vargas, a high school dropout, had just arrived home from her job as a restaurant cook. She and her grandmother, who works as a maid at a motel, make a total of roughly $1,500 a month, far below the federal poverty level of $2,325 for a family of five. Above their dining table, there was a portrait of the Last Supper and, tucked in a corner of the frame, a picture of Ms. Vargas's uncle, unsmiling in a white uniform and one of at least three incarcerated relatives. The family ate and swatted at flies as trucks roared by.

It is a different kind of poverty than it was in 1928, this time surrounded by a buzz of industrial activity, not empty stretches of scrub grass. But it feels as entrenched as ever, reinforced by bad luck, bad choices, a lack of education and the isolation that allows the poor to remain invisible and adrift in lonely, distant orbits.

"It feels the same to us," Ms. Vargas said of life amid the oil frenzy. "The money that they have, we didn't have it before. And we don't have it now."

Video | Judy Vargas Judy Vargas lives in the colonia of Gardendale, Tex., with her grandmother and three young children, whom she supports by cooking at a local restaurant.

Gaps in Improvements

Early one morning, after putting on makeup underneath a copper-colored strip of flypaper that dangled from the bathroom ceiling, Ms. Vargas slid her youngest child, Isaac, 5, into the back seat of her car. Her shift at the restaurant, a steakhouse in Cotulla where she made $9 an hour, would start soon, and she first had to drop Isaac off with a relative while her two older children were at school.

As Ms. Vargas approached the railroad tracks, on one of Gardendale's few paved roads, she slowed the car. A thick coating covered the street. "It's sand," she said as she drove over it, "but from where?"

Overnight, a truck carrying sand used for drilling wells had dumped some of its load.

The fracking sand — so powdery it seemed scooped from an exclusive beach — stretched for about 100 yards on roads outside homes and the Gardendale Qwik Stop, the colonia's lone store. In 2012, federal health officials issued an alert about the health hazards workers faced from exposure to fracking-sand dust. Breathing so-called silica dust can cause silicosis, a lung disease.

No one was sure if the sand had been left by accident or on purpose, but people suspected that the driver of an overweight truck had lightened his load. They are unlikely to find out. Gardendale has no mayor, no police department, and only a handful of tilting signs and streetlights. It is often used as an illegal dumping ground.

Video | Frac Sand Dumping Nora Flores and a local worker discuss a 100-yard trail of frac sand dumped in front of her Gardendale Qwik Stop convenient store the night before.

An estimated 500,000 people live in about 2,300 colonias in Texas, along its 1,200-mile border with Mexico. Many colonias have benefited from infrastructure improvements in recent years. Others remain institutionalized shantytowns without basic services like water and sewers.

At least in part because of the oil economy, Gardendale is one of the better-off colonias. The Federal Reserve Bank of Dallas found in a report to be released this year that 42 percent of the population of colonias in six Texas border counties — not including La Salle — lived below the poverty line, compared with 14.3 percent nationally. The median annual household income was $29,000. In La Salle County, other studies have shown that 39 percent of children live in poverty.

The boom has both given and taken away. School officials bought 1,300 iPads, one for every student in the district. And there are jobs — well paid in the oil fields for some, marginal in fast food joints and cheap motels for others.

But oil and gas have brought a new set of problems, including environmental concerns. During the peak ozone season in 2012, Eagle Ford operations in La Salle County daily emitted 12.8 tons of nitrogen oxides and 28 tons of volatile organic compounds — pollutants that produce smog and can cause health problems — according to a report prepared by the Alamo Area Council of Governments.

There have been 11 motor vehicle fatalities in La Salle County this year, up from two in 2007, which officials blame in part on a population boom and increased traffic from the oil and gas activity. Rents have skyrocketed. Newly hired teachers had such a hard time finding housing they could afford that the Cotulla school district opened its own trailer park for them.

Texas has reaped tremendous financial benefits from oil and gas. But the poor in the colonias seldom own the leasing rights for the natural resources that lie under the ground they live on. One-third of Texas' $48 billion in tax revenue last year came directly or indirectly from the oil and gas industry, said Bernard Weinstein of the Maguire Energy Institute at Southern Methodist University in Dallas. Portions of the revenues go into the state's general fund as well as its so-called Rainy Day Fund, but very little of it is spent on social services and programs to assist the poor, although some helps finance public schools and universities.

So, despite the boom, Texas has some of the highest rates of poverty in the nation and ranks first in the percentage of residents without health insurance. Republican leaders have supported tapping the Rainy Day Fund for one-time investments in water and transportation infrastructure, but they have blocked attempts to use the fund for education and other services, arguing that it was designed to cover emergencies and not recurring expenses.

"Despite the bounty of the Eagle Ford, which is considerable and on the whole clearly positive, it is not a rising tide that lifts all boats," said Ray Perryman, a leading Texas economist and author based in Waco. He noted that Texas had long had a philosophy of limited government and an aversion to spending on social services, an attitude intensified by the current political environment.

"Texas is not a good place to be poor, and there is little political appetite for change," he said.

Surrounded by Activity

One day in May, Colt Ringer, 28, limped along near Ms. Vargas's trailer wearing a dusty black cowboy hat and carrying a .22-caliber Magnum revolver and .45-caliber pistol in holsters at his hip. He was returning home empty-handed after hunting feral hogs, which he kills for sport and for food.

"All of us are poor, in our own way," he said. "I don't get nothing off these wells right out here, because I don't own the land. That just goes to show the golden rule: He who has the gold makes the rule."

The people of Gardendale, first settled in 1908, are an isolated, eclectic lot. Some are poor, but others are lower middle class. Goats are kept in the front yard of one house; a Cadillac is parked at another.

In 1996, Ms. Vargas's grandmother, Ernestina Salinas, 68, paid just $300 for the lot they live on. Using $1,000 she made picking fruits and vegetables in Minnesota, she bought a run-down trailer that lacked running water and electricity. In 1998, a flood destroyed the trailer, and the Federal Emergency Management Agency provided her with a more modern one that she has frequently renovated.

At one point recently, 10 relatives were living in the trailer. Ms. Vargas and her three children slept on one king-size bed. Ms. Salinas, who has heart problems and diabetes, slept with a cross over her bed in a room awash with the fragrance of incense.

Lately, the family has been living on about $250 a week. Ms. Salinas receives an additional $500 monthly in Social Security benefits, but over all those inside the trailer rely very little on public assistance. Medicare pays most of the cost of Ms. Salinas's drugs, but with co-payments she pays roughly $40 a month for medicine. Ms. Vargas said she had no health insurance, and pays for most of her medical bills out of pocket. They rarely follow the news, but in a state hostile to President Obama's health care law, they do not understand the law and get the impression it is a shambles. No one in the family has applied for health care subsidies.

There is disagreement among officials, oil company executives and economists over why poverty persists amid the boom in the Eagle Ford counties.

La Salle County's top elected official, County Judge Joel Rodriguez Jr., said the boost in property and sales tax revenue from Eagle Ford activities had been offset by increases in county spending on road repairs, law enforcement, fire safety and administrative functions. He was critical of the support the oil and gas industry had provided to the poor.

"The oil companies come by for Thanksgiving with turkeys, or they may have a function to have pictures taken to show the world they are socially responsible and then you'll never see them again," Mr. Rodriguez said.

But Mr. Rodriguez and others were skeptical of those who were unemployed in a region teeming with jobs and new businesses.

"The fact is we are handing out big checks to people, and we are still short on people who want to work," said Chris Faulkner, chief executive of Breitling Energy, an oil company that operates in La Salle County. "I would think that if I was living in one of these colonias, I would be running for the opportunity to say, 'This is my big chance, and I am going to jump on it,' but they are not doing that."

But at the trailer, there was much more focus on getting through the days than on getting ahead.

Late last year, Ms. Salinas returned from working the fields in Minnesota to find that squatters and scrap metal thieves had broken into the trailer. They stripped off the trailer's electrical wiring, stole the water heater and left behind food and dirty dishes. Ms. Vargas, who has lived in the trailer off and on since she was 10 or 11, returned to Gardendale from Dallas with her children and her common-law husband, worried about Ms. Salinas's safety.

Life, it seems, is lived one step ahead of disaster. One day, sheriff's deputies came to the trailer after a dispute that began when the girlfriend of Ms. Vargas's cousin left a 10-month-old baby by the side of the road in front of the trailer.

Video | Yolanda Aguilar Heavy oil service trucks pass Yolanda Aguilar's house in Gardendale both day and night. She hoses the unpaved road each morning to keep the dust down.

Some days, Ms. Vargas appreciates the colonia's quirky isolation. Other times, in a trailer held up on the dirt by concrete slabs, next to the pile of ashes where they burn garbage because no one picks it up, ordinary life seems extraordinarily hard. By June, the temperature was already above 100 as she drove through town. She rolled down all four windows — the air conditioner was busted — and dust from the 18-wheelers filled the car like cigarette smoke, coating the Bible she kept inside.

A Hard but Satisfying Life

In early June, Ms. Vargas was at the kitchen table opening a box of cake mix. Her husband, Erick Olivares, 28, lit the charcoals in the rusty barbecue grill outside. The children splashed in a plastic pool. They were having a cookout. Mr. Olivares had been released from jail several days earlier. The crosses he had made for her and the children in jail hung from strings around the trailer.

Ms. Vargas laughed more, smiled more than she had in weeks. "I am very happy," she said as she cracked the eggs for the strawberry cake. "Why wouldn't I be? My life is complete."

Mr. Olivares had spent six weeks in jail on charges of marijuana possession. He was optimistic about finding a job, but had not yet done so. He was reluctant about working in the oil fields. "It crossed my mind," he said. "It pays good, but I don't want to lose my arms or hands for that kind of money." Later, he gave another reason: "When you're a convicted felon, they ain't going to hire me."

Ms. Vargas quit her job at the steakhouse and returned to a place she had worked before — the motel where her grandmother is a maid. She cleaned rooms and pressed shirts for $9 an hour, and got a second job as a waitress at another restaurant in Cotulla, earning $5 an hour, plus tips. Some days she worked at both jobs.

But the family was falling behind financially. It cost more than $2,400 to bail Mr. Olivares out of jail. Ms. Vargas had paid $820 but still owed the rest. When Ms. Salinas had hired a neighbor to rip out the cracked particleboard floor in the trailer and put in faux-wood flooring, one of Ms. Vargas's children had thrown the man's car key into a smoldering fire they had made outside to burn some trash. Ms. Vargas owed the man $300 for a new key and the cost of a tow. Her cellphone service was cut off when she failed to pay the bill.

Ms. Vargas dreams her children will have a better life. "I wouldn't want my kid to be in no motel and no restaurant, getting paid minimum wage," she said.

One Wednesday evening, Ms. Vargas drove her children and her grandmother to the Living Faith Family Worship Church in Cotulla, which she had recently begun attending.

One of the ushers was a recovering drug addict. The pastor, Mark Linares, runs a barbecue stand outside his house. Ms. Vargas and her family walked in late, as Mr. Linares asked the audience to pray for a truck driver whose daughter-in-law was in a coma.

Everyone filed out of the red brick building, where there is a plaque by the front doors. Ms. Vargas and Ms. Salinas did not notice it. This was the old schoolhouse where President Johnson first saw extreme poverty in 1928. During the collection, the worshipers had passed around a basket. Ms. Vargas contributes when she can. This evening she had nothing to put in.

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Advertising: ‘Live in Levi’s’ Campaign Reunites Levi Strauss With 1ts 0ld Agency, FCB

Advertising The ads aim to show that "Levi's are for everybody," said Jennifer Sey, chief marketing officer. By STUART ELLIOTT June 29, 2014

WHEN the duo Peaches and Herb, known as "the sweethearts of soul," got back together, they sang, "Reunited and it feels so good." Now, an apparel brand reuniting after 16 years with an agency that was its soul mate for almost seven decades is declaring that its clothing feels good enough to live in.

The brand is the flagship Levi's line of jeans, tops, jackets and other products sold by Levi Strauss & Company of San Francisco. A worldwide campaign that is about to begin includes commercials, on television and in movie theaters; print, online and mobile ads; billboards and other ads for out-of-home media; ads in stores and store windows; and a presence in social media like Facebook and Twitter.

The campaign carries the theme "Live in Levi's," replacing "Go forth," which had run for the last five years. The "Live in Levi's" campaign is being produced through a collaboration among an internal team at Levi Strauss; the House Worldwide, an agency in London that was acquired this month by Crispin Porter & Bogusky, a division of MDC Partners; and FCB, whose San Francisco office, with predecessor agencies, created campaigns for Levi's from 1930 through early 1998.

Since then, the Levi's brand has changed agencies several times, moving from the former Foote, Cone & Belding to agencies that included TBWA/Chiat/Day, Bartle Bogle Hegarty and Wieden & Kennedy. FCB and the House Worldwide were named in February to handle global marketing for Levi's after the brand spent five years at Wieden & Kennedy, which created the "Go forth" ads.

The reunion with FCB, owned by the Interpublic Group of Companies, occurred a few months after a reunion at Levi Strauss when Jennifer Sey, who worked on the Levi's brand from 2003 to 2008, became its chief marketing officer after handling corporate tasks. "When I rejoined Levi's in the fall, I looked at what we felt good about and what we wanted to improve on," Ms. Sey said in an interview in Midtown Manhattan.

One conclusion was that "we wanted to get a greater product focus" in the advertising to "assert leadership" in the crowded, fragmented category of jeans and other denim apparel, she said.

The goal was to feature products in a nontraditional manner that would be inspired by "the personal stories we get from our passionate fan base about the things they do in their Levi's," she added, "the road trips they took, the pair they wore for 20 years" and other instances of "authentic self-expression."

Other conclusions were that ads should "reflect a very optimistic attitude" among consumers, Ms. Sey said, and convey that "Levi's are for everybody," rather than an elite.

"When we've been at our best," she added, citing as an example the "501 blues" campaign that Foote, Cone & Belding introduced in 1984, "the brand has been at the center of culture, not right on the edge."

"We had a great run with Wieden," said Ms. Sey, who was among the executives who decided to hire the agency. "We just mutually agreed it was sort of time to part ways; it was entirely amicable."

Eric Springer, chief creative officer of the FCB West unit of FCB, which is working on the Levi's campaign from its offices in San Francisco and Los Angeles, called the "Go forth" campaign successful in its ability to "capture the essence of the blue-collar worker mentality" at the roots of the brand.

"But it got a little too hipster, a little too artsy," Mr. Springer said, and "the voice needed to be tweaked" to "open the brand back up to everybody."

"If you want to be big and popular, you've got to go from playing the coffeehouse to playing Madison Square Garden," he added. "Don't be so exclusive; be inclusive."

That is particularly important for a brand like Levi's, Mr. Springer said, because "the first buyer" of its products is "the buyer at J. C. Penney, Macy's, Dillard's, who buys 50,000 pairs before the consumer buys one."

As a result, the ads for the "Live in Levi's" campaign feature actors and models who seem more mainstream, though not the wholesome types or professional athletes in ads for denim brands like Wrangler. The casts are high-spirited and sometimes quirky, such as a man in soaked Levi's pants who boards a bus, takes them off and hangs them out a window to dry. But the intent is not to be out there or off-putting; for instance, the man keeps on his underwear.

Some ads embrace inclusiveness by telling consumers they can do what they want with their Levi's garments: "wash them" or "don't wash them," "rock them" or "roll them," "unbutton them" or "button them." That is embodied by an ad for 501 jeans that declares: "The 501. Started by us. Finished by you."

The campaign will include ads for some of the "more contemporary" Levi's products, Ms. Sey said, like the 511 line of slim jeans for men. Those ads call the 511 "a classic since right now."

Levi Strauss plans "a modest increase in dollars" devoted to advertising the Levi's brand, she added, and hopes for "significant increases in reach" by optimizing the brand's media planning. OMD, part of the Omnicom Media Group, is the worldwide planning agency for Levi's.

According to Kantar Media, a unit of WPP, Levi Strauss spent $26.7 million last year on ads in major media in the United States, compared with $40 million in 2012, $42.6 million in 2011, $71.5 million in 2010 and $61.5 million in 2009.

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After Supreme Court Ruling, Aereo’s Rivals in TV Streaming Seize 0pening

By EMILY STEEL June 29, 2014

Mark Ely saw an opportunity, and he took it.

The day after the Supreme Court ruled against Aereo in a copyright case brought by the nation's major broadcasters, Mr. Ely was trying to scoop up Aereo customers by promoting his start-up, Simple.TV, on social media. "Former Aereo customer? Join the Simple.TV Family," the company wrote on Twitter on Thursday.

"We're telling Aereo customers: 'Your favorite service is going away. Here's an idea that isn't,' " Mr. Ely, who started his company in 2011, said in an interview.

The television establishment still has much to worry about after its Supreme Court victory on Wednesday over Aereo, the digital start-up that had threatened to upend the economics of the media business.

Mark Ely, the chief executive of Simple.TV, a streaming-television service.

"Television is a castle filled with money," said Rishad Tobaccowala, chief strategy and innovation officer at Vivaki, the Publicis Groupe's digital marketing unit. "People are trying to get into that castle and take some money."

But while the court's decision broadens the moat, traditional broadcasters still must find ways to defend themselves against an array of companies like Mr. Ely's that want to give viewers an alternative to the their model.

Eager for a piece of the $167 billion American television market, dozens of companies are offering options for the growing number of viewers known as cord cutters, who are canceling their traditional pay-television subscriptions. The providers range from Hulu, which the broadcasters own, to bigger services like Amazon, Google and Netflix, all of which offer cheaper streaming alternatives.

Other companies, including Roku, Sling Media, TiVo, Simple.TV and Mohu, sell hardware that allows viewers to stream television to digital devices or watch web video on television sets. And Aereo may yet stick around; the company said on Saturday that it would pause its service temporarily as it sorted out its options but that its journey was "far from done."

Chet Kanojia, the chief executive of Aereo, showing one of the dime-size antennas the company rents to customers.

"I don't think you are going to find a silver bullet to disrupt the broadcast industry," said Kenneth Lerer, a venture capitalist who has invested in a series of digital media start-ups. "I think you are going to find a lot of little bullets. Aereo was hoping it was a silver bullet."

Aereo and its two-year legal battle with broadcasters overshadowed the efforts of several other start-ups that offer ways to watch free over-the-air television on cellphones, tablets, laptops and Internet-connected televisions.

Those companies paid tribute to Aereo, saying it helped advance the notion that there are ways to watch TV without paying expensive cable bills. But they are now trying to grab the spotlight after the Supreme Court ruled that Aereo had violated copyright laws by capturing broadcast signals on tiny antennas stored in warehouses and transmitting them to paying subscribers.

Mr. Ely started Simple.TV, based in Tiburon, Calif., months before Aereo made its debut in 2012. A former president of Sonic Solutions, a computer software firm, Mr. Ely noticed how a growing number of people were watching television shows and movies over the Internet but did not have access to live television programming like news and sports. His idea was to sell consumers a "private TV server" that plugged into an antenna, a hard drive and a router.

Video | What the Aereo Decision Means for TV The Supreme Court ruled that Aereo violated copyright law, granting television networks a much-desired win that will preserve the status quo — at least for now.

With Aereo, subscribers paid $8 to $12 a month to rent a dime-size antennas stored in a warehouse. Users could then stream near-live television and record programs from major broadcasters.

With Simple.TV, people buy their own antenna and the $199 Simple.TV box. Users can record programs on a hard drive that they connect to the device. The company also sells a premium service that provides features like automatic recording and remote access from almost anywhere in the world.

Mohu, a start-up based in Raleigh, N.C., also hopes to grow after the Supreme Court's ruling. The company, which sells over-the-air antennas and offers a streaming service, began as a military contractor developing high-performance antennas for the Army and Navy. Since its founding in 2011, it has sold 1.5 million high-definition television antennas to consumers.

"Aereo made people aware that they can get high-definition broadcast television for free without paying for cable," said Mark Buff, Mohu's founder and chief executive.

The main difference between these companies — which have not drawn the ire of broadcasters — and Aereo is that their customers own the antennas and capture signals in their homes, as opposed to remotely. Mr. Ely and Mr. Buff say they believe that will satisfy the requirement under copyright law that the transmissions be private performances, a position that Aereo argued unsuccessfully before the Supreme Court. "Where you capture the signal makes all the difference," Mr. Ely said. "This fits squarely in fair use."

Simple.TV, which has 30 employees and counts tens of thousands of customers, has raised $5 million in financing and is working on a new round of funding.

Some venture capitalists said they would continue to invest in streaming-television start-ups despite Aereo's loss in court.

"If cable companies believe that their old ways of doing business are protected by the Aereo Supreme Court decision, they are clearly misguided," said Dan Nova, a partner at Highland Capital Partners, one of Aereo's backers. "Consumers are rejecting cable companies and traditional consumption models. The horse is out of the barn."

The number of households in the United States subscribing to pay-television services has slipped in recent years. About 101 million households in the United States subscribe to pay TV, down 7 percent from 2013, according to the research firm SNL Kagan.

At the same time, the total number of households in the United States that use the Internet or other streaming services instead of traditional TV to watch television shows or movies has climbed to 7.6 million, up about 30 percent from 5.8 million in 2013, according to SNL Kagan.

Recognizing the threat, cable and satellite companies are introducing options to lure new customers and keep those who might be tempted to cancel their subscriptions. Comcast, the largest cable provider in the United States by subscribers, is offering cloud-based television-streaming technologies; an Internet Plus bundle that includes broadband, basic cable and HBO; and special packages for college students.

Broadcasters, too, are trying to profit by offering to sell their programming to streaming companies that are willing to pay for it. During a phone interview after the Supreme Court ruling, Leslie Moonves, the chief executive of CBS, said his network did not oppose the new technology.

"We are not against people moving forward and offering our content online and all sorts of places, as long as it is appropriately licensed," he said. "Innovation is still alive and well and thriving."

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Bits Blog: After a Fast Start, a Fading Path Looks to Reinvent 1tself, Again

Michael Buckner/Getty Images for Fast CompanyDave Morin, right, at an event in Hollywood in 2012 with Jared Leto, left, the actor, and Christine Osekoski, the publisher of Fast Company.

In 2012, Dave Morin was a tech industry celebrity.

His start-up firm, Path, was nearing the top of the iTunes App Store charts. Britney Spears and other A-listers occasionally stopped by his company's San Francisco office in a black-glassed business tower in the city's South of Market neighborhood.

Outside the office, Mr. Morin, a slim 33-year-old who often wears a peacoat, even indoors, was spending his weekends skiing with his buddy and staunch Path evangelist, the actor and part-time tech investor Ashton Kutcher. And Mr. Morin, a former Facebook executive, was profiled in Fortune magazine.

The attention helped Path close a $30 million round of financing from some of Silicon Valley's biggest venture firms and a few business titans, like Richard Branson. To date, the company has raised an estimated $77 million.

But once Ms. Spears left the building, the hard work of building a company began. And that's where Mr. Morin still is — trying to build on that early promise. And it's a promise that has changed many times over.

Earlier this month, Path announced a new messaging app.

Path was originally supposed to be a site for sharing photos shot on a mobile device, a lot like Instagram. And then it was supposed to be an "all-in-one mobile journal." (I'm still trying to understand what that description means.) Now Path is trying for the latest buzz concept — so-called ephemeral messaging, mobile messages that quickly disappear, as they do on Snapchat or Facebook's new Slingshot service.

"We've tried a lot of things in this personal messaging realm; we've made a lot of mistakes," Mr. Morin said in an interview in his office last week. "But we've done stuff right, too." Path was a pioneer in early mobile app design, creating a beautiful user interface for smartphones long before Facebook and others.

In recent months, the company has been so low on the iTunes App charts that it isn't even listed in the United States listings on AppAnnie, an app ranking site. Mr. Kutcher and Ms. Spears haven't shared links from Path on Twitter in almost a year. And that start-up buzziness is gone from the SoMa offices.

It's easy to pick on Path because of all that earlier attention and because it hasn't turned into the next Twitter or Facebook, or for that matter, the next Instagram or Snapchat.

And it is easier still to mock Mr. Morin because he had a habit of playing the full-of-himself tech executive stereotype: He once told Vanity Fair that to ensure that he never found himself with an uncharged phone, he had two, "One for day and one for the night. When the day phone runs out, the night phone takes over."

Peter DaSilva for The New York TimesDave Morin inside Path's San Francisco offices in 2011.

But credit him with persistence and grit. If, perhaps, not originality.

In its latest pivot (one of those overused tech industry buzzwords), Path acquired a start-up called TalkTo, which lets people send a text message to a store or restaurant. TalkTo is beloved by its users, so this could lead — maybe — to another Path transition, focusing more on consumer-to-business relationships rather than human ones.

"That fusion of information and commerce is where we're most excited," Mr. Morin said about the company's next stage.

From the outside, it may seem that everyone who comes to San Francisco and Silicon Valley finds giant nuggets of gold. But the reality is most people aren't going to make it. No matter how hard they try. No matter how many people they know. No matter how great their idea is.

Shikhar Ghosh, a senior lecturer at Harvard Business School, reported in a 2012 study that of venture-backed start-ups from 2004 to 2010, roughly 75 percent failed. Of the 25 percent that did succeed, only a smidgen succeeded at an enormous scale. Other recent studies about venture money estimate that as many as 90 percent of tech start-ups fail.

"I think the rate of success is probably identical from 20 years ago as it is today," said Narendra Rocherolle, an entrepreneur who has built and sold several start-ups over the last 20 years. "It might seem like people hit it big more frequently, but that's simply not the case."

Mr. Rocherolle noted that every few years a company like Facebook, eBay or Twitter comes along and strikes gold. Then, he said, there are 20 or 30 smaller start-ups that get acquired by those companies. The rest, including the competitors, wither away.

Over the last few years, I have visited Path's offices a half-dozen times.

Three years ago, Mr. Morin took me to a conference room in the back of the office to show me the company's latest app. I remember looking at a large white wall in the room, seeing notes scribbled in marker that said things like "Growth" and "Sharing." Charts were visible that slashed upward and showed the path Mr. Morin would take to the top of the tech world.

Last week, in the same conference room, in the same office, tens of millions of dollars — and a few layoffs — later, Mr. Morin explained to me the latest reinvention of the company, which now has 45 employees.

When I glanced over to the white wall, there were no charts pointing upward. Instead, there was a single word written in blue marker with a sharp underline: "Ephemeral."

For most start-ups, that's exactly right.

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