Teacher Gift Program
In our Fall 1998 issue of La Voce, we printed our long-standing position on the practice of teacher commissions in the string instrument trade:
We recognize the lengths to which many teachers go, helping their students find the appropriate instrument or bow. Their often unpaid services, such as helping students by coming to the shop to try our inventory, by calling on the phone to discuss options or giving unpaid lesson time to consider choices may be a considerable commitment for them. We try to give our best service to teachers and their students. If it is apparent that a teacher has gone out of his or her way, outside of the normal lesson time, in assisting in the purchase process, we will often send the teacher a gift card for goods or services at Givens Violins, as a way of thanking them. These gift cards range from a minimum of $25 to a maximum of $250, and are transferable. Claire Givens Violins does not give undisclosed commissions to teachers, even though historically many of the major dealers in the U.S. have perceived commissions to teachers as a necessary part of doing business. We are grateful for the support of teachers, but feel that undisclosed commissions can be against the best interest of the purchaser and can undermine our relationship with our customers. For more on this subject, including articles by others in the trade, see:
The following is an excerpt from a speech given by Charles Beare of J. & A. Beare, London, GB at the Violin Society of America Convention and Competition, Minneapolis, Minnesota, November 1988.
… The other old custom is the payment of commissions to members of the teaching profession. This has been going on since time immemorial. My father tells me that in the depression we paid up to 20 percent on lesser instruments and still had a turnover of under £300 a month at times. Our firm gave up paying commissions over fifteen years ago and I cannot say that business has declined, although there were a few teachers whom we never saw again. Many times I have urged dealers to work against the practice, but I have come to the conclusion that it will eventually be the associations of the teachers themselves who will outlaw it, although perhaps not just yet. Many teachers, of course, genuinely have the best interests of their pupils at heart, and are unswayed by considerations of commerce in watching over the search for the right instruments, but it is certainly true that others make a nice little sideline out of it. I have never met a dealer who thought that the practice as such had anything in its favor, but I have spoken with many who have told me that business is steered very firmly away unless the customary percentage is offered. This is why I feel that any initiative aimed at eliminating the custom should come from bodies representing the teaching profession, and I would urge them to think about it.
The following quote is from the article “Mysteries of the Market” by Mary VanClay from the November “1996 Resource Guide” of Strings magazine.
… Given the complexity of buying a stringed instrument, it’s no wonder many players are desperate for advice from a source they can trust. For many, this source is their teacher. But adding teachers to the market mix brings us to another passionate argument, one that raised hackles in our survey responses and in conversations with people throughout the trade; teacher commissions.
Nearly everyone has heard about them, even if they haven’t personally paid or received one. If a teacher helps a student pick out an instrument and the seller then pays the teacher; that teacher has received a commission. It usually comes in the form of a check, the amount being some percentage of the sale price of the instrument. Few people would argue that teachers who help students make such an important purchase deserve some repayment for their time and expertise. Indeed, some teachers charge their students up front, requesting compensation by the hour, for example, just as they would for music lesson time.
The problem arises when payment comes from the seller rather than the student. Sometimes teachers badger shops for payment after a sale, and sometimes shops extend the offer. Unscrupulous teachers can give advice to students based on the money they can make off a sale, rather than on the quality of the instrument or the student’s needs. The student effectively pays a hidden fee, the seller’s commission cost having been built into the final price of the instrument. The danger to the consumer becomes especially acute if the student has no idea that the teacher is being rewarded for bringing in a sale, which is often the case.
Cellist Susan Moyer, who plays in the Florida Philharmonic in Fort Lauderdale, learned about the practice at an early age, because her mother was a private violin teacher. One year, one of her students bought an instrument from a large East Coast dealership. “And a check arrived in the mail,” Moyer remembers, “with a little thank-you note from the shop. (My mother) was incensed. She signed (the check) over to the parents of the student.”
“A lot of teachers decide not to take commissions, and I respect that,” says Lee. “But I know teachers who have spent, literally, days looking for instruments for people, driving around to see things. That all takes time, and there should be a way to compensate them for that. I would say most of the time [students know it’s happening]. I don’t really make an issue about it. If I thought there was a teacher doing it behind [students’] backs and not doing it objectively – if they were just in it for the commission – I wouldn’t deal with them.”
But such assurances do little to comfort the wary parent or student. “There are a lot of teachers who benefit from this who don’t want to say that they do,” notes Galen Wixson, the executive director of the American String Teachers Association. “Who loses? The students do, because they’re paying too much for the instruments.”
However, he adds, ASTA does not take a stand on the controversy. “We debated taking a position on that within the last year,” he says. “We’ve chosen to stay out of that right now. We want to do some more thinking about it, because it’s a delicate issue.”
Delicate indeed. The trust built over years is shattered if a student realizes a teacher has been dishonest about advice given and benefits received. Suspicions players already harbor about dealers are intensified. And businesses that don’t pay commissions bitterly resent those that do, believing they would have more customers if teachers weren’t steering students elsewhere in order to make a profit.
The situation is a notoriously difficult one to discuss openly, let alone solve. Few teachers or businesses want to admit to the practice. But there is no question that it occurs. We asked all of the businesses participating in our anonymous survey whether they paid commissions to teachers, and 23 percent answered “yes” (another 15 percent did not respond at all). Of that group ???? percent answered “no” when asked whether students were aware of the practice.
Like ASTA, the American Federation of Violin and Bow Makers (AFVBM) has taken no official stand on the practice. Maker and dealer Michael Becker is the organization’s president. When asked whether the group could call for a ban, or even for a publicized and regulated teacher-commission rate, Becker replies, “We are not in a position where we want to mandate how everyone should run his or her own business. And even if we did take a position, how could we ever enforce it? There’s no way to regulate who’s paying what. Some firms pay larger [commissions] than others. Some firms write checks, some pay teachers in other ways, maybe exchanging merchandise. There’s no level playing field. I don’t see any solution for it.”
Chapter 16, “The Hazards of Secret Commissions and the Duty to Disclose”1 by Carla J. Shapreau, from Violin Fraud: Deception, Forgery, Theft and Lawsuit in England, 2nd Edition, Brian W. Harvey and Carla J. Shapreau, Oxford University Press, 1997, by permission of Oxford University Press.
It is common practice in the USA for teachers to receive secret commissions from violin dealers in whose direction the student has been steered. This practice also occurs in England, as mentioned by Brian Harvey in Chapter 5 and in Appendix I. The harm of secret commissions is felt not just by the student, who may unknowingly be paying for his or her teacher’s commission through an inflated sales price. In addition, violin makers and dealers who refuse to engage in this industry custom may suffer competitive injury when teachers choose to send their students to those who pay such commissions.
Generally, students place special confidence and trust in their violin teachers, and teachers have great power to influence decisions made by their students. Students typically rely on their teacher’s expertise, superior knowledge, and training. In certain circumstances, there may be a special relationship of trust and confidence between teacher and student that may arguably give rise to an elevated duty of care by the teacher, or even a fiduciary duty. ‘A fiduciary relationship may exist or come into being whenever trust and confidence are reposed by one person in the integrity and fidelity of another… or when there is a reposing of faith, confidence and trust, and the placing of reliance by one person on the judgement and advice of another.’ 2 Whether or not a fiduciary relationship exists is a question of fact. The special relationship that exists between a student and his or her violin teacher, whether fiduciary or not, may expose the teacher to liability for accepting secret commissions when a conflict of interest exists between the teacher’s self-interest in obtaining commissions and his or her duty to the student.
Although no reported case in the USA has addressed the legality of secret commissions in this context, the practice of paying and receiving secret commissions may run afoul of state statutes. For example, California’s Unfair Practices Act arguably prohibits secret commissions under the appropriate factual scenario. Section 17045 of that Act provides that:
The secret payment or allowance of rebates, refunds, commissions, or unearned discounts, whether in the form of money or otherwise, or secretly extending to certain purchasers special services or privileges not extended to all purchasers purchasing upon like terms and conditions, to the injury of competitor and where such payment or affordance tends to destroy competition, is unlawful.3
In addition, concealing a commission may constitute fraudulent concealment under the common law if the teacher’s special or fiduciary relationship with the student gives rise to a duty to disclose. For example, in California ‘nondisclosure or concealment may constitute actionable fraud: when the defendant is in a fiduciary relationship with the plaintiff; when the defendant had exclusive knowledge of material facts not known to the plaintiff; when the defendant actively conceals a material fact from the plaintiff; or when the defendant makes partial representations but also suppresses some material facts’.4 Even in the absence of a fiduciary relationship, a teacher may commit fraudulent concealment when he or she makes some representations relating to the sales transaction but suppresses the arguably material fact that he or she is receiving a commission from the seller.5
The payment of secret commissions by a violin dealer or maker to a teacher also may be an antitrust violation under section 7 13(c) of the Robinson-Patman Act, which provides that:
It shall be unlawful for any person engaged in commerce, in the course of such commerce, to pay or grant, or to receive or accept, anything of value as a commission, brokerage, or other compensation, or any allowance or discount in lieu thereof, except for services rendered in connection with the sale or purchase of goods, wares, or merchandise, either to the other party to such transaction or to an agent, representative, or other intermediary therein where such intermediary is acting in fact for or in behalf, or is subject to the direct or indirect control, of any party to such transaction other than the person by whom such compensation is so granted or paid.6
In Stephen Jay Photography Ltd. v. Olan Mills Inc.,7 a photographer paid commissions to schools in exchange for the schools’ endorsement as the ‘official photographer’. Both the photographer and the schools disclosed to the students that an unspecified portion of the photograph price would be given by the photographer to each school to support various school activities.
When a competitor challenged this practice, the district court found that section 13(c) had not been violated. ‘Because secrecy is an essential element of Section 13(c) commercial bribery, the contractual arrangement at issue here is not illegal’8. The Fourth Circuit affirmed the district court’s ruling without addressing the secrecy issue. Instead, the Fourth Circuit concluded that the schools did not act as agents, representatives, or intermediaries on behalf of the students, as those terms are used in section 13(c).9
Similarly, in Harris v. Duty Free Shoppers,10the court found no antitrust violation when the operator of a duty-free store made secret payments to tour companies and tour guides to promote its shop. The court concluded that the tour operators and guides were not in an agency or fiduciary relationship with their passengers and did not serve as intermediaries subject to the passengers’ direct or indirect control as to the purchase of the store’s goods.11
The Ninth Circuit distinguished the facts in Harris from the agency relationship in McCollum v. Friendly Hills Travel Center.12In McCollum, the court held that a fiduciary relationship existed between a tourist and his travel agent because the travel agent ‘had arranged his trip and had vouched for the excellent condition of certain sporting equipment’, the defects of which later caused the plaintiff’s injuries.13
In contrast to the facts in Harris and Stephen Jay Photography, a violin teacher, much like the agent in McCollum, may act as a special agent for the student or as an intermediary for purposes of the purchase transaction. The teacher may arrange for the specific transaction and vouch for the condition and attributes of the violin, thereby arguably creating a relationship between the student and the teacher worthy of protection by the antitrust laws.
Although section 13(c) does make an exception for services rendered in connection with the sale or purchase of goods, the exception may not apply when the teacher receives a commission for services rendered to the seller but against the best interest of the buyer.14
One way to avoid potential liability for violation of state unfair trade practices statutes, for fraud, or for violation of the Robinson-Patman Act in connection with commissions is for teachers to be compensated openly for the valuable expert service that they can provide to their students in the instrument-selection process by candidly accepting payment for such expert services. In the absence of such a disclosure, violin teachers, dealers, and makers expose themselves to possible liability if the requisite degree of trust and confidence is reposed in the teacher by the student with respect to circumstances surrounding the student’s purchase of a violin.
|1||Portions of Chapter 16 are reprinted, in part, from an article written by the author in the Michigan Law Review. Carla J. Shapreau, “Strings Attached – Violin Fraud and Other Deceptions”, Vol. 92, No. 6, pp.1743-53, May, 1994.|
|2||See 36A C.J.S. Fiduciary 385, 387 (1961).|
|3||Cal. Bus. & Prof. Code § 17045 (emphasis added); see also United States v. Girolamo, 808 F. Supp. 1445,1450 – 2 (N.D. Cal. 1992) (finding that kickbacks paid to obtain a competitive edge violated California’s Unfair Practices Act).|
|4||See e.g. Heliontis v. Schuman, 226 Cal. Rptr. 509, 512 (1986) citing Bernard E. Witkin, 4 Summary of California Law 8th edn. (1974) §§ 459-64.|
|5||See e.g. Zinn v. Ex-Cello-O Corp., 306 P.2d 1017, 1025 (Cal. Dist. Ct. App. 1957) (‘[W]here the defendant, who has no duty to speak, nevertheless does so … he is bound to speak truthfully and to speak the whole truth’); see also Rogers v. Warden, 125 P.2d 7, 9 (Cal. 1942); Restatement (Second) of Torts (1977) § 551 cmt. g.|
|6||15 U.S.C. § 13 (c) (1988). See e.g. Rangen, Inc. v. Sterling Nelson & Sons, 351 F.2d 851 (9th Cir. 1965) (holding that a corporate defendant’s commercial bribes to a state employee to obtain competitive advantage violated § 13(c)), cert. denied, 383 U.S. 936 (1966).|
|7||713 F. Supp. 937 (E.D. Va. 1989), aff’d, 903 F.2d 988 (4th Cir. 1990).|
|8||713 F. Supp. at 941.|
|9||Stephen Jay Phootgraphy, Ltd. v. Olan Mills, Inc., 903 F.2d 988, 993 (4th Cir. 1990).|
|10||940 F.2d 1272 (9th Cir. 1991).|
|11||940 F.2d at 1275.|
|12||217 Cal. Rptr. 919 (Ct. App. 1985).|
|13||Harris, 940 F.2d 1274-5 (citing McCollum, 217 Cal. Rptr. at 923).|
|14||See e.g. Rangen, Inc. v. Sterling Nelson & Sons, 351 F.2d 851, 859 (9th Cir. 1965) ( refusing to construe the ‘services rendered’ exeption to include service performed by a buyer’s agent for the seller but against the interest of the buyer, because such an interpretation would undermine the fiduciary relationship between buyers and their agents), cert. denied, 383 U.S. 936 (1966); Modern Mktg. Serv., Inc. v. Federal Trade Commn., 149 F.2d at 970 (7th Cir. 1945) (finding that brokerage commissions could not be paid by sellers to the buyers’ agent for services that were incidental to the agent’s main activities on behalf of the buyers, even though the services were genuine and of benefit to the sellers). In Modern Marketing, the Seventh Cicuit noted that’ [t]he agent cannot serve two masters simultaneously rendering services in an arm’s length transaction to both’, 149 F.2d 978 (quoting Great Atl. & Pac. Tea Co. v. Federal Trade Commn., 106 F.2d 667 (3d Cir.), cert. denied, 308 U.S. 625 (1939)).|
|Even when a seller renders a service for the benefit of the student-buyer, when the actual services rendered are de minimis, the exception to § 13(c) will probably provide no refuge. Cf. Hennegan v. Pacifico Creative Serv., Inc., 674 F. Supp. 303, 306 (D. Guam 1987) (holding that § 13(c) does not prohibit payments by store owners to tour bus drivers for services rendered in bringing tourists to their store because such services are not de minimis).|
Chapter 16, “The Hazards of Secret Commissions and the Duty to Disclose”, by Carla J. Shapreau, from Violin Fraud: Deception, Forgery, Theft and Lawsuit in England, 2nd Edition, Brian W. Harvey and Carla J. Shapreau, Oxford University Press, 1997, by permission of Oxford University Press.
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The following is reprinted by permission from the Winter 2001/2002 Issue of String Notes.
In researching the article on Instrument Trials, the topic of Undisclosed Teacher Commissions came up. An Undisclosed Teacher Commission is a payment, often a percentage of the purchase price, that a shop makes to a teacher when the teacher’s student buys an instrument. “Undisclosed” means that the student doesn’t know during their instrument search that their teacher is going to get a cut.)
The MNSOTA board has passed a resolution opposing undisclosed teacher commissions because we believe they are against the best interests of students.
When a shop routinely gives a percentage commission to the teacher, that cost of doing business is built into the price the student pays. When commissions inflate the purchase price, students will find it difficult to recover their purchase price when they sell their instrument or trade up. We prefer that shops no offer commissions but instead offer the best possible prices.
In making an instrument purchase, parents expect each shop to be proud of their work and have a “we’re the best” attitude. Students usually need a knowledgeable, trusted guide who is not party to their transaction to help them choose. That guide is usually the teacher. If a teacher accepts a secret commission, they have a conflict of interest between their own self-interest in obtaining commissions and their duty to the student in giving advice.
The trust guilt up between the teacher and student is powerful and should not be abused. If a student finds out about a secret commission after a purchase, their trust in teacher will be broken; the student and parent may wonder how honest the advice really was. Where the teacher is legitimately representing the shop, it should not be a secret. If the student knows that a commission is involved, they can decide if they want to find someone else outside the transaction to advise them.
To be sure, teachers should be paid for the time and effort they put into advising students. We need to take lesson time to train students to audition an instrument or bow. We need to teacher students how to discriminate the differences in sound and feel, projection, tone color, playability. We need to help students develop their own preferences. When students are comparing instruments, many teacher schedule and charge for extra lessons devoted to that comparison. Some structure their lesson fees so that extra time for advising is already built in. In all these cases it is appropriate that the student receiving the advice is paying for the teacher’s time.
While the MNSOTA board strongly opposes undisclosed teacher commissions, board members had more wide ranging opinions on gifts from shops to teacher. (Some shops occasionally give gift certificates or thank you baskets or other token gifts to teachers.) As shops and teachers work together for the good of the students, it is always nice to have effort recognized and appreciated. Good will and good relations make all our jobs easier. It’s always nice to say “thank you.” If a shop wants to give an occasional nominal gift that does not affect the price of the instrument and does not create a conflict of interest for the teacher, the gift is not necessary, but most teachers appreciate it. If the gift appears to have the expectation of special favor or appears to be an attempt to influence a teacher’s objectivity – that’s not OK. Teachers who are uncomfortable receiving gifts if they happen to be offered can always give them away, possible to the student.
MNSOTA is proud that traditionally shops in Minnesota have not offered teacher commissions. We appreciate the good working relationships that we have with the many fine shops in our state and we look forward to continuing to work together in the best interest of our students.
– MNSOTA Board