posted 08-14-2002 01:03 PM               

What is it that we, as buyers not sent by teachers, can do?

1. Try to identify the dealers that don't engage in secret commissions. The Strings article specifically names 3 such dealers: David Kerr of Portland, Oregon, Fritz Reuter of the Chicago area, David Chrapkiewicz of Rakievian Fine Violins in the Washington DC area. It makes sense to shop at dealers who don't engage in secret commissions.

2. For other dealers, identify yourself as a buyer not sent by any teacher and point out that therefore the dealer will have no teacher commission obligations. You, as the buyer, would therefore anticipate a 10% reduction in the price quoted to you. I'm sure that will elicit a lively exchange, and you may well come out 10% ahead. I suspect that if there are enough customers seeking that reduction, the practice of secret commissions will disappear just to avoid the hassle with clients not sent by commissioned teachers.

[This message has been edited by skiingfiddler (edited 08-14-2002).]

[This message has been edited by skiingfiddler (edited 08-14-2002).]

posted 10-29-2002 10:10 PM               

I would be highly offended if someone suggested I give a discount because I must ordinarily be giving teachers a kickback. I'd probably fire that client. I don't need a client that suspicious.

Without Fritz Reuter's web site and intermittent reminders such as the Strings article, the concept of kickbacks wouldn't have occurred to me. I expect to get business because I deliver excellent work, I don't mark up products 100%, largely because I don't generally buy things just for resale, and because I'm always willing to help find the right thing for a customer.

Looking around this area (East TN), I don't have personal knowledge of an established kickback scheme going on.

posted 10-31-2002 08:20 AM               

Another avenue is the commercial code. All that comes to mind there is the general prohibition against "bad faith" dealings. If no $ damage occurs, then how does bad faith exist?

I can still cast kick backs as a cost of selling just like advertising.

If I'm missing a section of code or law that covers concealment of a charge, possibly through collusion of the teacher and dealer to violate the teacher's fiduciary duty to the student, then I need to know it.

I understand that the practice of kick backs to teachers seems unsavory. If this is illegal or actionable in civil court, I really want to know the elements of offenses and the specific statutes involved. A few citations to appellate cases on point would be most helpful.

Strings Magazine and Reuter are woefully fuzzy on exactly why this practice is legally wrong. I understand the ethical bent, but I want to know why folks think this is "illegal" and if they're right. If kick backs are per se violations of the criminal code, say a Class B misdemeanor, I'd like to be able to cite that to anyone asking. Or call the police if I don't like them!

I may have a chance to do some research today in American Jurisprudence (legal dictionary) and the annotations to the Tennessee Consumer Protection Act. If I come up with a case with a clear holding, I'll summarize it here.

Peace

posted 11-05-2002 12:58 PM               

You raise a number of good questions that I think are worth exploring:

Question 1. Are secret commissions really widespread?

My own answer is yes. In addition to the impressions from the Strings article, Fritz Reuter's web site, and the published responses to the Strings article, my "yes" is also based on my personal experience with a teacher and a store manager. I know, first-hand, of a teacher who, after a student of his bought a violin from a dealer, received a rather large check, 10% of the selling price, from the dealer. The check was a complete surprise, and the fact that the check came unsolicited suggests that this was a common practice by the dealer. I know, first-hand, from speaking to a violin store manager that this manager was convinced that students of certain local teachers never visited the shop because the teachers had kickback agreements with out-of-town shops. The teacher incident and the store manager encounter were 1600 miles from each other.

I will admit that my evidence is a bit anecdotal. I, like you, wish that Strings Magazine could have been more concrete about how widespread the practice is.

Question 2. Do these secret commissions really harm anybody?

Consider the following scenario:

A promising, advancing student of some violin teacher wishes to buy a better violin for, say, $5000. The teacher has a secret, 10% kick-back agreement with Shop X in town and no such agreement with Shop Y. When the student requests advice on where to shop for a violin, where will the teacher send the student? If the student buys from Shop X, the teacher gets $500; if, from Shop Y, the teacher gets zero.

Let's suppose this student is a bit independent minded and, in addition to going to Shop X and selecting a violin for trial, also stops in at Shop Y and picks out a violin there, too, for trial. The student then brings the two instruments to the teacher for evaluation. How objective can the teacher be when he stands to gain $500 if the student buys the Shop X violin?

I believe this scenario is a pretty typical one of what really happens, and it shows who gets hurt: the student, who may be getting very biased advice; Shop Y, the shop not willing to pay off teachers to send in students.

I believe that the general violin buying public is also hurt because these kickbacks get priced into not only violins going to students of kickback teachers but to all other violins also. When I was in Fritz Reuter's shop for the first time, just looking around, a couple of years ago, I found myself remarking to him that his prices seems very reasonable; they were less than what I had expected. His response was that he can offer lower prices because he doesn't pay kickbacks.

Question 3. Are such secret kickbacks illegal?

I don't know, but they are so disadvantageous to the student and to shop keepers who don't do them, that I don't care whether they are or not; they shouldn't be done. Not everything that's legal should be done by honorable people. It certainly is not a variant of advertizing. It would become "just advertizing" if, indeed, a shop would put a public notice, for all to see, in the newspaper or on television stating: "Violin teacher, send me your students, and if they buy my instruments, I'll send you 10% of the selling price." Such an ad seems ridiculous because it makes clear for all to see where the allegiances are of a teacher who would respond. Advertizing is inherently public; these kickback schemes are secret -- they have to be to keep from embarrassing the teachers and dealers involved.

posted 11-10-2002 09:49 AM               

Common law fraudulent concealment.

Private recovery under various consumer protection acts, unfair practices acts and so on.

Criminal charges for theft by deception.

Various state and federal anti-trust claims look good.

Most interesting is the possibility of criminal prosecution and civil recovery for racketeering under federal RICO. One has to find an element of the conspiracy that falls within the ambit, but I'm sure that could be satisfied with careful examination of the statute, supporting case law, and the facts in hand. Treble damages and attorney's fees.

Sounds like fun. I'd love to take on such a case. Would be a blast. Would also be fun to learn RICO!

I feel confident that I can refuse any requests for kickbacks on solid ground, rather than merely "ethics," which seem to be somewhat flexible in our trade.

I don't think much will change until the various publications that serve music teachers showcase a few trials or settlements springing from violations of the teacher's fiduciary duty. And the dealer's trade journals show similar summaries. Of course, a nice RICO case would hit both and be quite a wakeup call.

I have visions of a class action suit dancing before me. Wouldn't that be nifty?