September 27, 2008
The AIG Deal
Posted by Jeff Lipshaw
This is what it feels like when you are on the inside of a deal. Can it really be that the AIG bail-out is old news, since trumped by the bigger bail-out bill, the WaMu seizure and sale, the McCain debate cancellation, the screaming session at the White House, the actual debate, and rumblings about Wachovia?
As Steve Davidoff pointed out eons ago, there was a problem with the original structure of the deal between the Fed and AIG in that it appeared to involve giving warrants to stock not yet authorized by a shareholder vote. AIG then pulled back with a press release and 8-K suggesting that it and the Fed had gone back to the drawing board. Also kudos to Steve. He predicted the final form: "I am curious to see how the parties get around this — perhaps by issuing out preferred with equivalent voting and dividend rights?"
The deal as struck now involves the Fed getting 100,000 shares of non-redeemable and perpetual convertible preferred stock. Until the shareholders vote to authorize enough shares of AIG to permit conversion of the preferred stock into 79.9% of the common equity, the Fed holds preferred equity with a liquidation value of $500,000 (that's right, five hundred thousand dollars), but with rights to vote and receive dividends that are as if the Fed owned 79.9% of the common equity. I haven't gone back to look at the AIG certificate of incorporation, but I'm assuming it had "blank check preferred" powers, meaning that the shareholders had granted to the board the right to issue preferred shares on whatever terms the board deemed appropriate without an amendment of the certificate of incorporation.
So.... I take back what I said about the Fed not actually owning AIG. It does. And it will, because there is no provision for the redemption of the preferred shares if the loan is paid back. Moreover, the only risk to the Fed is that AIG goes into bankruptcy before the shareholder vote, because at that point it only has a $500,000 liquidation preference. On the other hand, it still has security interests in all the valuable AIG subsidiaries in the event of a default on the primary loan. What I haven't found yet is what consequence, if any, would follow from the shareholders not approving the amendment to the certificate authorizing the additional stock.
By the way, for all you populists out there, or others interested in class warfare demagoguery, I was curious just who the bailed-out fatcats were. In short, who are the shareholders we are rescuing with our money? There's a lovely little website out there called www.j3sg.com that gives the institutional shareholder make-up of public companies, as well as the companies that institutions own. It turns out that the fatcats being rescued (at least as of June 30) are anybody who has an interest in these and other elitist institutions: Fidelity, Vanguard, TIAA-CREF, New York State Common Retirement Fund, CALPERS, the New York State Teachers Retirement System, the Teachers Retirement System of Texas, the Public Employees Retirement System of Ohio. I could go on and on. None of them were bitching when AIG was climbing up the mountain!
September 26, 2008
Credit Addicts and Their Enablers
Posted by Jeff Lipshaw
There's an old joke (I guess it's a joke) about a person searching for a lost wallet at night under a street light. "But you lost it over there," says a bystander, pointing down the street. "Yes, but there's no light there," responds the searcher.
I'm not sure I can improve on Christine Hurt's analysis of the situation: this crisis is not about evil, or class warfare, or fraud. It's about bubbles. Bubbles are about systemic misapprehension of risk. Bubbles are about the perception that something in the market always goes up, or at least, everybody else thinks it's going up, and if we are going to compete with them, we better do what they're doing. When the bubble burst, and it's really hard to understand how it all happened, and worse, when we still don't understand the impact of the bursting, it is certainly a lot easier to resort to tried and true bromides and political stereotypes (the bright spot under the street lamp) than to accept the more likely truth: we are all either addicts or enablers and co-dependents to the addicts.
Imagine a family. Dad, Mom, and the kids. Dad and Mom own a house. They believe the value of the house is the one true immutable in the world - it will always go up. Dad and Mom go out and borrow against the equity in their house to supplement the family's life style. And what a binge it is! Vacations to Hawaii. Private schools. Each kid gets a car. But the family now has a lot more fixed debt, and it has to be paid back sometime. The kids don't think about it, and Mom and Dad aren't worried; they know the value of the house will support it, and they seem to be alright making the payments.
But now there's a small glitch. Dad loses his job. Or the interest rate cranks up a notch. Now Dad and Mom are having a hard time making the payments. The drastic way out would be to sell the house, tap the equity and pay off the lifestyle loan, but it turns out the value of the house has gone down. Uh oh. Somehow the piper has to be paid. Who's going to pay it? Dad, Mom and the kids. Dad and Mom say to the kids: sorry but we have to move to a small apartment, sell the cars, take you out of private school, and put you in public school, because we just aren't worth what we used to be. The kids say: "how can that happen? Life was good. Mom and Dad, you were greedy scum (if not fraudulent creeps)." Mom says to Dad: "I told you something wasn't right!" Dad says to Mom: "you never should have bought those clothes." Mom said to Dad: "what made you think we could afford a golf club membership?" And the kids blame both of them, even though their lives in the short-term were probably better as a result of the binge.
Now take my story and write it large. We can see the analog of the kids' position in my following paraphrase of a bitter post over at the Wall Street Journal's website on the bail-out term sheet. An angry taxpayer notes that you contributed to the binge if, in the last eight years, (1) you worked in a position that allowed you to influence or alter the way people purchase real estate; (2) you purchased a house without a down payment or an understanding of your debt obligation; (3) you purchased a home with an interest only, Alt-A, sub prime, piggyback or other type of nonstandard mortgage to shoehorn your way into a house you could never afford without the benefit of financial magic; (4) you participated in cash out refinancing to pay for your kids education, improve your house, take a vacation or anything else that will not bring you a probable return for your spending borrowed money; (5) you worked within the real estate industry or any other business being financed by unduly cheap money.
This rant (not unwarranted, by the way) gets at the addicts but I'm not sure it identifies the enablers. In my analogy, the kids got to share, albeit indirectly, of the pleasures of the binge. Put another way, the creation of wealth in the financial markets is no longer "us" and "them." I don't have at my fingertips the amount of the NYSE and NASDAQ capitalization that is owned by institutions, but it's huge. When I say institutions, I mean mutual funds (Fidelity, T. Rowe Price, Vanguard), insurance companies, union pension funds, state employee pension funds (like CalPERS), university endowments, private foundations, 401(k) plans, 403(b)(7) plans. These institutions work for us, rich people and not so rich people, by making investment choices, which in turn are a matter of assessing risk. If CalPERS took no risk with the pension funds held for all the California public employees, and bought nothing but T-bills, it would have a flock of exceedingly upset retirees. The question is how much did CalPERS and the institutions like it (a) benefit from the bubble, and (b) enable the bubble by buying up the leveraged debt securities or the equity securities of the companies investing in the leveraged debt? Empiricists, do me a favor. Please track how much of the stock of AIG, Fannie Mae, Freddie Mac, and Sallie Mae was held over the last seven years by pension funds, and in particular, union pension funds.** (Note to file: CalPERS was one of the big investors in Enron. And full disclosure: as I recall my investment advisor bought Enron for me at about $80, but, as I recall, had the good sense to sell at $22.) This isn't to blame them: it's to say maybe we have met the enemy and they are us.
My point here is that a lot of people who are professionals in the quantification and monetization of risk got it wrong. They managed to get it wrong all at the same time because there is a "herd" aspect to this: if you don't show the short term returns others are getting, capital (for who owns the capital, see above, because it's all of us) will flee to other managers. I suspect the bell curve of venality is about what it is for any other group in society - most of them were probably about as evil as Mom and Dad. (This is the subject for another time: are corporate boards any more venal than synagogue boards, or non-profit boards, or law faculties, or the Congress? Put another way, what if your battles happen not to be for money, but instead the currency is power, or influence, or fame, or position, or re-election? But I digress.)
So now we're having a big family council, trying to decide who bears the brunt of this seven-year long family binge. Like the above-quoted ranter, the kids say "we benefited from this, but we didn't cause it, why should we have to pay for the excess? Dad should have to quit the golf club, and Mom should have to get rid of her car." One of the kids wants to cap Dad's allowance. One of them has asked the FBI to look into whether there was fraud. Mom and Dad say: "look, kids, we're really sorry we messed up, but we are still the best thing you've got to get this right."
And here we are.
** UPDATE: I did a little quick investigation of my own. If you look at AIG's proxy statement, Fidelity's funds owned 5.7% of the company as of Feb. 14, 2008, making it the second largest shareholder after C.V. Starr, which is Hank Greenberg's firm. Meaning that all of us who had 401(k) or 403(b)(7) or other retirement or investment accounts with Fidelity got the benefit, not so indirectly, of AIG's market value, spurred on in part by its participation in the credit markets. Similarly, as of June 30, 2008, the California Public Employees Retirement System (one of the largest pension funds in the country, holding $54 billion in assets as of that date) held securities in the following companies valued at the time as shown: JPMorganChase, $395 million; Bank of America, $355 million, AIG, $229 million; Goldman Sachs, $228 million; Morgan Stanley, $133 million; KB Homes, $6.7 million.
You can say that "we the taxpayers" are bearing the brunt of the diminution in asset value, but to some extent (and I think to a large extent), we are merely shifting the burden from a left pocket to a right pocket. That tells us two things: (a) it's still very unclear whether a bail-out helps or hurts in the end, but the markets seem to think it helps, and (b) It's a fair request that money not stick too much to those involved (transaction costs and agency costs), but, at the end of the day, all of us want competent people at the helm of all of those companies whose returns fund our retirements.
Post-Discipline Contentions Rejected
The Supreme Court of Florida rejected a collateral attack on a previously imposed disciplinary sanction imposed against Montgomery Blair Sibley. He had contended`that the order of discipline was improperly entered because the judges had failed to take the prescribed loyalty oath, a contention that the court characterized as "inaccurate and legally insufficient." Rather, the oaths had been taken at a "well attended ceremony." (Mike Frisch)
The web page of the Ohio Supreme Court notes a decision issued yesterday:
Cincinnati attorney Donald M. Powers Jr. has been disbarred for his participation in a criminal real estate “flipping” scheme in which a title company that he partly owned defrauded various financial institutions, resulting in losses of approximately $3.5 million. Powers’ law license has been under an interim suspension since January 2006, after he entered guilty pleas to federal felony counts of making a material false statement in a loan application and filing a false income tax return.
The court adopted findings by the Board of Commissioners on Grievance & Discipline that Powers, his wife and several other persons purchased low-value homes in the greater Cincinnati area, obtained inflated appraisals of the value of those properties, recruited buyers for those properties who might not be able to afford them, created false documents including W-2 forms, pay stubs, bank statements and employment verifications inflating the stated income of the buyers, and submitted false loan “packages” to mortgage lenders in order to obtain a loan for much more than the actual value of the property.
In rejecting the disciplinary board’s recommendation that Powers be indefinitely suspended from practice rather than permanently disbarred, the Court noted that in his guilty pleas to criminal charges Powers admitted that he personally owned five of the houses that were “flipped” at enormous profit by means of the criminal scheme, and that he personally signed numerous federal housing agency forms falsely attesting that the buyers had provided a significant cash down-payment when he knew they had not done so.
The court's decision is linked here. Disbarment was required in light of the magnitude of the misconduct, involving theft-type behavior. The court rejected the assertion that the misconduct was due to the lawyer's "inattention" and that others`were more deeply involved in the criminal scheme. (Mike Frisch)
September 25, 2008
Suit Filed Against Louisiana Bar For Its New Attorney Ad Restrictions
Story here reported in the Baton Rouge media about a constitutional challenge in federal court, filed by local attorneys, to Louisiana's recent restrictions on lawyer ads. [Hat Tip to a student in my ethics class, Jason Kelley.] The new rules start Dec. 1. Says the Baton Rouge report:
Banned will be “background sounds” and any other feature of the ad that is “false, misleading or deceptive.” ... Also prohibited are ads that “compare one lawyer’s services to another lawyer’s services, unless the comparisons can be factually substantiated,” another rule states [, and ads] which include the portrayal of a judge or jury, the use of actors in place of real lawyers, and the “reenactment of any events or scenes or pictures that are not actual or authentic
See also this Times-Picayune story, suggested to me by another student, Keith Reynolds.
Less Than Disbarment And Less Than Justified
An attorney practicing primarily in Umpire, Arkansas accepted a three-year consent suspension that was approved by the Arkansas Supreme Court. The attorney was also a certified public accountant and financial planner. A client that had (through other counsel) secured a settlement near $2 million from Ford Motor Company as a result of a farm accident sought the attorney's investment advice. The client gave a total of almost $600,000 to the lawyer to invest. The client died without seeking or obtaining an accounting. When his wife then sought an accounting, she was advised that "all of her money was gone." She accepted the lawyer's offer to repay her and received two promissory notes but has not gotten a cent back. The consent acknowledges a number of ethics violations including improper business transactions, failure to account and dishonesty.
Associate Justice Glaze dissents in favor of an order of disbarment: "I strongly disagree with the majority court that approved this. It is dangerous precedent!" I agree with that view and the exclamation point! (Mike Frisch)
The Minnesota Supreme Court entered orders in two disciplinary matters today, imposing supervised probation in both cases. One attorney was charged with neglect of a single matter leading to a default and false statements to the bar's investigator. The bar stipulated that he "suffers from severe depression and complex post-traumatic stress disorder" and that he had "no specific intent to deceive the [bar] investigator." The court appointed a probation monitor to supervise his practice for a two-year period.
The second case involved an attorney who had neglected three separate matters. Discipline had been imposed against the attorney on five previous occasions for similar lapses. The court ordered a stayed 90 day suspension, public reprimand and two years of supervised probation. (Mike Frisch)
Less Than Disbarment
The New York Appellate Division for the Third Judicial Department declined to impose disbarment in a matter arising out of the attorney's conviction for a misdemeanor offense of filing a false instrument. The attorney had filed a false adotion petitionthat claimed that a certian man was the father of the child that she (the attorney) wished to adopt knowing that he was not the father. She was sentenced to a 60 day term of incarceration in the criminal case.
The court imposed a suspension of four years, finding mitigation notwithstanding its view that the misconduct "strikes at the core principles of the legal system." (Mike Frisch)
September 24, 2008
Michigan's New Admissions Policy
[posted by Bill Henderson, cross-posted at ELS Blog]
Over at Moneylaw, rankings guru Tom Bell (Chapman) breaks an important story: The University of Michigan Law School has introduced the new Wolverine Scholars program, which is a special admissions program for UM undergraduates. It has two threshold requirements: (1) your UGPA must be at least 3.80, and (2) you cannot have taken the LSAT.
Studying the labor market for lawyers--including law school rankings, which is a important mechanism for mediating supply and demand--has made me sensitive to potential ulterior motives beyond the standard cant of "admitting the best students." While I would love to see a world where the LSAT is assigned its rightful limited place in law school admissions, I cannot overcome the perception that Michigan is really just upping the U.S. News gamesmanship. The lofty rhetoric of the Wolverine Scholar program cannot be squared with the unnecessarily rigid admissions criteria. In my opinion, the only rational explanation is that Michigan seeks a rankings payoff. Here, an elite law school sets a new low in our obsession of form over substances--once again, we legal educators are setting a poor example for our students.
Readers can judge for themselves. Here is how Michigan pitches the Wolverine Scholars program:
The Law School’s in-depth familiarity with Michigan undergrad curricula and faculty, coupled with significant historic data for assessing the potential performance of Michigan undergrads at the Law School, will allow us to perform an intensive review of the undergraduate curriculum of applicants, even beyond the typical close scrutiny we devote ... . For this select group of qualified applicants, therefore, we will omit our usual requirement that applicants submit an LSAT score.
With the exception of the intensified review of the undergraduate academic record and the omission of the LSAT, our admissions review and philosophy is the same for the Wolverine Scholars Program as it is generally. Thus, our evaluation criteria are holistic, and comprise the wide range of relevant considerations that can’t be reduced to any mechanical formula. We look for highly intelligent people who welcome challenging experiences, who have demonstrated leadership and community service, who have shown determination and discipline, who are eager to outdo themselves, and who are creative and resilient in dealing with adversity. We pay attention to evidence of academic progress. So, too, we pay attention to considerations – working many hours, coming from an educationally deprived background, having primary care responsibilities for family members, and so on – that may provide a context for the formal record of academic achievement. ... We look for individuals with intriguingly different backgrounds, experiences, goals, and perspectives. Academic majors, work experience, extracurricular activities, distinctive moral and political outlooks, socioeconomic background, time living or working abroad, and more inform our admissions decisions.
Wonderful stuff. But it is impossible to take the above excerpt seriously when we focus on the unreal application cutoff:
"Application Eligibility. UM undergraduates who have at least completed their junior year ... with at least six full-time semesters of attendance on the UM-Ann Arbor campus and a UM cumulative grade point average of ≥ 3.80 are eligible to apply." [Emphasis in the original -- yes the original!]
So, a priori, the following student need not apply: a UM chemistry or engineering major with a 3.75 GPA who comes from a blue collar family in the rural Michigan who put himself through college by running a business and volunteers in an organization for the disabled. For this person, "holistic review" requires an LSAT score. He or she may not be one of the "highly intelligent people" UM is looking for. But the privileged frat boy who majored in political science and earned a 3.81 gets a free pass. It is hard to imagine a more misguided "mechanical formula." More after the jump. ...
If Michigan was being serious, they would set the benchmark at 3.4 or 3.5 and actually conduct a true holistic review. So why didn't they? One logical possibility: if the true motive is a rankings grab (i.e., a "mechanical formula") toward the 3.8 crowd, a FOIA request could lay it bare. Yet, if you set the program at 3.8 and admit 90%, few people can quibble with the merit criteria--they are all capable candidates.
The rankings motive is further corroborated by the disqualification if the potential Wolverine Scholar has taken the LSAT. If Michigan were just interested in the best people, it would just ignore the LSAT. After all, Michigan has a better predictor of success: the "significant historic data for assessing the potential performance of Michigan undergrads at the Law School." If holistic review is really taking place, excluding folks who have taken the LSAT has no rational basis beyond a hit in the rankings. Again, if these folks get into the applicant pool, a FOIA request would expose any selection patterns that looks like the "mechanical formula" the Law School has allegedly disavowed.
More seriously, there are terrible externalities from this alleged merit-based program. It is impossible to deny that the Wolverine Scholars program will encourage students to (a) take easier classes and majors to avoid the need to take the LSAT to get into an elite law school, (b) discourage extracurriculars that will threaten the 3.8, and (c) make a lot of Michigan undergraduate professors miserable with complaints from students that their B+ or A- grade is going to blow their Wolverine Scholar application.
From a rankings perspective, what happens when you get 20, 30, or 40 candidates with 3.8+ UPGA and no LSAT score? From day 1 of admissions season, Michigan has much greater latitude to lock in higher median LSAT and UPGA numbers--because zero Wolverine Scholars are dragging down the LSAT and all are helping the UPGA numbers. Further, because of the idiosyncrasies of the USNWR rankings formula, see Ted Seto's "Understanding the U.S. News Law School Rankings," at the upper ranges, small changes in UGPA have a much greater sway on rankings that a single LSAT point. For example, in the simulation model that Andy Morriss and I created, a move from 3.64 to 3.66 has a greater effect than a move from 169 to 170. If Michigan can get to a 3.80 UGPA, they could tie with NYU at #5.
A final point is the ABA accreditation requirement, which requires an admissions test:
Standard 503. ADMISSION TEST
A law school shall require each applicant for admission as a first year J.D. student to take a valid and reliable admission test to assist the school and the applicant in assessing the applicant’s capability of satisfactorily completing the school’s educational program. In making admissions decisions, a law school shall use the test results in a manner that is consistent with the current guidelines regarding proper use of the test results provided by the agency that developed the test.
A law school that uses an admission test other than the Law School Admission Test sponsored by the Law School Admission Council shall establish that such other test is a valid and reliable test to assist the school in assessing an applicant’s capability to satisfactorily complete the school’s educational program.
The Wolverine Scholar program requires a waiver to access a student's SAT and/or ACT scores. I assume that is how Michigan would proffer these test scores as a "valid and reliable test" for determining whether a student can complete the Michigan JD program. Why not? Northwestern's JD/MBA programs accepts the GMAT as substitute for the LSAT, and it passed muster during NW Law's recent re-accreditation. I doubt the ABA will try to draw a line here (and for the record, I don't think this is battle worth fighting--ignoring the LSAT for UM undergrads who have a 3.8 is not going to produce bad educational outcomes).
Watch Your Email SEND List: Another Cautionary Tale
Posted by Alan Childress
This blog and Legal Ethics Forum have posted several examples of lawyer disasters stemming from sending emails to the wrong person or leaving metadata embedded. Same can happen in politics. The Colorado Independent today reports that the Colorado McCain campaign mistakenly sent their internal talking points to reporters (regarding the suspension of campaigning). That story by itself is not that eventful, though a nice reminder. The really great part is the honest reaction of the campaign email's author when asked for a comment:
Told by a reporter that the e-mail had been sent to him and others in the media, Kise said, “F*ck, tell me I didn’t send it to the wrong list.”
Breaking News: Sen. McCain Asks Obama To Postpone Debate
Story here and elsewhere.
Just hoping networks do not fill time with reruns of Everyone Loves Raymond.
UPDATE: Easy solution to this dilemma and also solves my Raymond problem: Obama should agree to swap the VP debate with this one. He and McCain will debate Oct. 2. Biden and Palin can meet in Mississippi this Friday as scheduled, while the presidential candidates go to DC as McCain suggests.
Law Firm Insurance Coverage Issue Remanded
The New York Appellate Division for the First Judicial Department reversed a Supreme Court order holding that insurers of a law firm were not obligated to defend and indemnify the firm under excess professional liability insurance policies. The relevant facts are described in the court's opinion:
The law firm Pepper Hamilton and one of its members, W. Roderick GagnÉ, were deprived of millions of dollars in professional liability insurance coverage purchased by the firm, by the order of the motion court declaring that the three excess insurance carriers have no obligation to indemnify the firm. The court reasoned that because the law firm knew of misconduct on the part of its client, and of the likelihood that claims would be made against the firm itself based upon its representation of that client while the misconduct took place, it had an obligation to inform the insurers of its knowledge of the misconduct and its concern that it might be subject to suit as a result when applying for coverage or for renewal of coverage. As to two of the insurers, the court precluded coverage under the policies' "prior knowledge" exclusions, and as to the third, it held that the insurer was entitled to rescission of the policy effective the year the claims were made.
The underlying claims against counsel arise out of an alleged securities fraud scheme by the firm's former client, Student Finance Corporation (SFC) and its principal, Andrew Yao. SFC was in the business of financing loans to students in trade schools, primarily truck driving schools; it then pooled the loans into certificates or securities that it sold to investors, using private placement memoranda prepared by Pepper Hamilton. Another client of Pepper Hamilton, Royal Indemnity Company, provided credit risk insurance for the pooled loans.
It is asserted that in order to make its operations appear more successful, SFC falsely represented to investors that student loans in its securitized loan pool were not more than 90 days overdue and in default, when in fact, significant numbers of them were in default. In order to make it appear that student loans in the securitized loan pool were current, rather than more than 90 days overdue, SFC made forbearance payments from reserve accounts of its own. This practice resulted in SFC's understating its default rates, skewing its performance data for the student loans and making the certificates more attractive to investors, underwriters and credit risk insurers.
SFC's inaccurate representation of its default rates apparently began to come to light in or around March 2002, when a round of financing fell through after the lender uncovered SFC's use of forbearance payments through careful scrutiny of its financial documents. Without the new financing, SFC no longer had the liquidity to make up the monthly shortfalls in loan payments. According to GagnÉ, Yao first directly informed him in mid-March of SFC's practice of making forbearance payments for loans that would otherwise be declared in default. While Pepper Hamilton initially continued to represent SFC, after further consideration and interoffice consultation, it withdrew from its representation of SFC on April 24, 2002.
SFC was eventually forced into bankruptcy, and in April 2004, the bankruptcy trustee contacted Pepper Hamilton to request that it enter into a tolling agreement while he considered whether to bring any claims against the law firm. At this point, Pepper Hamilton notified its primary professional liability insurer, Westport Insurance Corporation, of the potential claim; the excess insurers — Executive Risk Indemnity Inc. (ERII), Continental Casualty Company and Twin City Fire Insurance Company — were notified as well.
In November 2004, the bankruptcy trustee commenced an action against the firm and GagnÉ; another action was commenced by Royal Indemnity in March 2005. These underlying professional liability claims against Pepper Hamilton and GagnÉ allege negligence in their failure to discover SFC's securities fraud, as well as actual complicity in SFC's fraudulent scheme.
The coverage issue could not be resolved by summary judgment. According to the court:
The evidence relied upon here, as discussed, simply shows that Pepper Hamilton knew of SFC's misconduct and believed (correctly) that it might itself be subjected to lawsuits brought by parties injured by SFC's actions. The questions of whether Pepper Hamilton gave false answers on Continental's renewal application and whether any such false answers were given in bad faith are questions of fact and cannot properly be determined as a matter of law in the context of a summary judgment motion. Even if we were to accept that the information omitted constituted information that was required by the policy renewal application, Continental fails to establish as a matter of law that if it had been informed of the client's misconduct and the firm's concern about being subject to suit as a result, it would have handled the renewal application differently. The affidavit of an underwriter asserting that, had the information been disclosed, the renewal application would have been handled differently, is not by itself sufficient to satisfy the insurer's burden.
An attorney convicted of, among other things, second degree murder was summarily disbarred by the New York Appellate Division for the First Judicial Department. The court declined to entertain the possibility of relief based on the attorney's claim that he had been wrongfully convicted. USAToday reports that the attorney was sentenced to a term of imprisonment from 25 years to life for arranging the murder of a client's spouse. (Mike Frisch)
The Pennsylvania Supreme Court imposed a stayed six-month suspension with conditions of an attorney who had been convicted of aggravated assualt by vehicle while driving under the influence, recklessly endangering another person, and driving while under the influence of a controlled substance. The attorney was driving in the wrong direction on the Pennsylvania Turnpike and caused a head-on collision that injured two people. He was diagnosed as a "functional alcoholic" and had left his brother-in-law's college graduation prior to the accident. He is now in a rehab program and apparently doing well.
A Board dissent favored an actual six-month suspension, concluding that the attorney had been untruthful in his bar admission application and in a later sworn deposition: "I find this deceitfulness difficult to swallow." The concerns relate in part to the attorney's statement in his bar application that he was a moderate drinker, which was inconsistent with his evidence in the bar proceeding. (Mike Frisch)
Expression Of Support
A presentment was filed with the New Jersey Supreme Court seeking a sanction against a municipal court judge. The Advisory Committee on Judicial Conduct charges that the judge engaged in improper political activity after criminal charges were filed against the Passaic City Mayor for allegedly taking a $5,000 bribe. A newspaper printed a photo of a number of people standing outside the mayor's home on the day of his arrest, including the judge. The judge explained that he went to console the mayor's wife, which the committee accepted as true. Nonetheless, the open and public support of an indicted public official involved actions that "were undertaken in a setting that could be seen to demonstrate political as well as personal support for the Mayor." The committee seeks a public admonishment.
It appears that the court entered an order yesterday, although I was unable to open the document. (Mike Frisch)
September 23, 2008
CNN AC360 Asked For A Caption, So...
CNN's Anderson Cooper has a feature asking readers to post a caption for a photo. Today's was this pic of Palin and Kissinger outside the UN. The reader's caption that they mentioned on-air was funny enough, and accessible to any generation. Sorry I forgot what it was. But if you are older than 50 (as I suspect that Mike, Jeff, and Patrick O'Donnell are), and whichever ticket you support, I bet the only caption that pops into your head is along the lines of this: "Henry, Henry, get down on your knees and pray with me." Anderson is just too young to have thought of that, I am sure. I can even hear Ackroyd's voice.
Burden Of Proof
A Louisiana hearing committee has recommended that all disciplinary charges be dismissed in a matter where the attorney had been charged with engaging in a prohibited business transaction with a client. The fighting issue was whether disciplinary counsel had proved by clear and convincing evidence that there was an attorney-client relationship with respect to the particular transaction (investments in billiard hall franchises). The committee rejected the charges, as there was no written retainer, no fee and the attorney "never represented that he [sic] providing legal services to [the putative client]."
The attorney and the joint venturer were childhood friends. The ate lunch together regularly and were "frequent golfing partners at Bayou Desiard Country Club." The friend had significant business experience and had founded Podnuh's, a 12 store barbeque restaurant business. The accused had been retained by the friend on an intermittent basis since 1987, often for no fee. The business investment opportunity was first presented when the friend executed the will that the accused had prepared gratis. The accused had drafted the agreement that memorialized the deal. The committee also concluded that the deal was fair and reasonable.
Given the drafting of the agreement by the accused, this one could have gone the other way. (Mike Frisch)
"Off The Books"
The Louisiana Attorney Disciplinary Board has recommended the permanent disbarment of an attorney convicted of "inciting a felony" (itself a felony). The conviction related to his practice of law. He was an associate of a law firm and was assigned a personal injury case. He learned that the client had had an earlier accident and undertook the representation "off the [firm's] books." He then altered and submitted to the insurance carrier medical records in support of the claim.
The lawyer was admitted to the Louisiana Bar on October 10, 2003 and placed on interim suspension by the Louisiana Supreme Court on April 21, 2005. If the recommended disposition is imposed, perhaps this case will establish a record as the shortest career arc from admission to permanent disbarment in Louisiana history. (Mike Frisch)
September 22, 2008
Aspen Announces New Edition of Wolfman et al. on Tax Ethics
Here is a link to the new 4th edition of Ethical Problems in Federal Tax
Practice, by Bernard Wolfman, Deborah Schenk, and Diane Ring. The latter, from Boston College, is a new addition. [Alan Childress]
Higdon on Nonverbal Persuasion in Oral Argument to Judges
Or, would Governor Palin please stop shaking her head "no" when she is emphasizing a rightly-positive point about her candidacy? Somewhat related to that query (but not an example he uses), today Michael Higdon at UNLV (a colleague of our own Nancy Rapoport, I note, and shown below right) has posted to SSRN his article, Oral Argument and Impression Management: Harnessing the Power of Nonverbal Persuasion for a Judicial Audience. It is forthcoming in the Kansas Law Review, and has this abstract:
In essence, my article utilizes social science research on the topic of nonverbal communication in order to advance our understanding of what makes for effective oral advocacy. Currently, there are no articles that 1) give a comprehensive summary of the relevant social science research within the area of nonverbal persuasion and 2) apply that research specifically to the area of oral argument. My article attempts to fill both of these needs.
As you will see in the article, nonverbal communication goes well beyond simple hand gestures, but also encompasses how a person speaks, how a person dresses, a person's facial expressivity, and even such things as a person's posture and head position. Furthermore, social science research reveals that both these and other nonverbal cues can greatly impact the perceived credibility and persuasiveness of a speaker. Not only that, but in many instances, listeners tend to place even more reliance on what a speaker is saying nonverbally than the actual substance of the speaker's presentation. Given that attorneys should seek to maximize their persuasive potential during oral argument, knowledge of this research and these various principles is essential. Section III of my article explores this research.
Of course, what makes nonverbal persuasion somewhat different for oral advocates comes from the fact that the attorney is directing his argument not to a jury, but to a judge. As my article details, one of the ways a speaker nonverbally increases his ability to persuade is by employing nonverbal cues that enhance the speaker's perceived dominance. When appearing before a judge, however, the attorney must keep in mind that 1) it is the judge who is most dominant and 2) the judge expects nonverbal cues from the attorney that the attorney understands this hierarchy. Again using social science research, Section IV of my article explores this balancing act between dominance and submission and offers concrete advice on how oral advocates can navigate that somewhat thorny issue.
September 22, 2008 in Abstracts Highlights - Academic Articles on the Legal Profession | Permalink | Comments (0) | TrackBack