Friday, May 7, 2010

Unauthorized Practice Enjoined

The South Dakota Supreme Court affirmed a trial court's permanent injunction prohibiting the unauthorized practice of law by a graduate of the University of South Dakota School of Law3 who has never been admitted to practice in South Dakota. The enjoined graduate had contacted represented criminal defendants, which resulted in complaints from the public defender. The accused also had attempted to participate in a child abuse case, calling herself an "independent investigator and advocate." She defended her conduct by stating that she had "merely assisted individuals whose attorneys had failed them. "There were also a number of other incidents that the trial court found amounted to the unauthorized practice of law.

The court also rejected a number of challenges to the trial court's order, including that a case involving a defendant named Fast Horse was referred to as the Fast Wolf case. The court found that this error created no valid appeal issue.

The court also found that a provision of the injunction that prohibited the accused from contacting represented defendants without permission of counsel did not violate her rights of association.

A news report from last year in the Rapid City Journal provides additional details about the subject of the injunction. (Mike Frisch)

May 7, 2010 in Bar Discipline & Process, Law & Business, Law & Society | Permalink | Comments (0)

Wednesday, May 5, 2010

That's Entertainment (And Thus Is Taxable)

The Wisconsin Supreme Court has affirmed a determination that the Milwaukee Symphony Orchestra must pay a 5% tax on the sale of concert tickets. The symphony had argued that the concerts were primarily intended to be for education, rather than entertainment, and were thus exempt from taxation. The court found that there was an evidentiary basis for the conclusions of the Tax Appeals Commission that the concerts were properly treated as entertainment.

There is a concurring/dissenting opinion that would hold that the primary purpose of certain youth concerts was educational, applying an analysis of the question:

...because the Youth Concerts will cause a child's knowledge to expand as the child is presented with a new musical genre or the exposure to orchestral instruments with which he is not familiar, thereby educating the child, and during the concerts the child's time will pass agreeably, thereby entertaining the child, I must determine how the Youth Concerts' taxable and nontaxable attributes are to be evaluated.  See Webster's Third New International Dictionary, 723, 757 (1961) (defining educate and entertainment).  In so determining, I examine the Youth Concerts' attributes first from the perspective of the Milwaukee Symphony, the entity that presented the concerts, and then from the perspective of the educators who took their classes to the concerts during the school day, based in part on the way in which the Youth Concerts were marketed.

The concurring/dissenting opinion examined the various performances to high school, middle school and other venues including Kinderkonzerts.  (Mike Frisch)

May 5, 2010 in Law & Business, Law & Society | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 4, 2010

Unattached

The New York Appellate Division for the First Judicial Department affirmed an order denying an attachment sought by a law firm suing for unpaid fees. The court's concluded:

Order, Supreme Court, New York County...entered October 5, 2009, which, in an action for unpaid attorneys' fees, denied petitioner law firm's application to attach in aid of arbitration respondent former client's interest in the action that petitioner had first been retained to represent respondent wherein respondent sought, inter alia, the return of a down payment on an airplane, but enjoined respondent from assigning his interest in that action, unanimously affirmed, with costs.

The denial of an attachment was a provident exercise of the court's discretion, as there was no showing that a potential arbitration award may be rendered ineffectual without an attachment. Petitioner's papers contain no details as to respondent's financial condition, nor is there any assertion that respondent "will secrete, dissipate or otherwise squander his assets" before the arbitration award is rendered. There is also no evidence or allegation contradicting respondent's sworn statement that he has never had any judgments rendered against him, and that he is financially solvent and stable. (citations omitted)

(Mike Frisch)

May 4, 2010 in Clients, Law & Business | Permalink | Comments (0) | TrackBack (0)

Damages For Sullied Reputation

A case decided on May 3 by the Massachusetts Supreme Judicial Court affirmed abuse of process and malicious prosecution claims brought by an attorney who had represented a divorce client. The attorney had been sued by the opposing husband, his business partner, and their corporation. the court summarized the facts: 

The defendants-in-counterclaim, Millennium Equity Holdings, LLC (Millennium), and two of its partners, David Rabinovitz and Joseph P. Zoppo (collectively defendants), appeal from the decision of a Superior Court judge holding them liable for abuse of process and the malicious prosecution of Attorney Edward M. Mahlowitz. The underlying dispute in this bitter litigation arose when Mahlowitz, representing Rabinovitz's wife in her divorce action against Rabinovitz, obtained an attachment on her behalf in the Probate and Family Court on Rabinovitz's interest in property owned by Millennium. The attachment was secured after the wife discovered by happenstance that Rabinovitz was concealing from her the imminent sale of the property.

The defendants made no attempt to dissolve or modify the attachment in the Probate and Family Court, despite ample opportunity and specific court rules permitting them to do so. Rather, eighteen months after the attachment had issued, and approximately one year after the attachment had been dissolved, Rabinovitz, Zoppo, and Millennium brought suit against Mahlowitz for abuse of process, malicious prosecution, and interference with contractual rights for obtaining the attachment. After failing to secure dismissal of the lawsuit, Mahlowitz counterclaimed against the defendants for abuse of process and malicious prosecution in connection with their suit against him.

After an eight-day, jury-waived trial in the Superior Court on the defendants' abuse of process claim, and on Mahlowitz's counterclaims, the judge ruled in favor of Mahlowitz both on the defendants' claims against him and on his counterclaims against them, awarding damages to Mahlowitz for the latter. She denied Mahlowitz's motion for sanctions pursuant to Mass. R. Civ. P. 11, 365 Mass. 753 (1974), against Robert S. Sinsheimer, the attorney representing Rabinovitz, and Isaac H. Peres, the attorney representing both Zoppo and Millennium at trial.

The Appeals Court reversed the judgment in favor of Mahlowitz on his counterclaims; it otherwise affirmed the trial judge in all respects. Millennium Equity Holdings, LLC v. Mahlowitz, 73 Mass.App.Ct. 29 (2008). None of the defendants sought further appellate review. We granted Mahlowitz's application for further appellate review on his counterclaims against the defendants, as well as the judge's order denying his request for sanctions.

Contrary to the defendants' assertion that the judge's findings were replete with error, we first conclude that the record supports Mahlowitz's claim of abuse of process against Rabinovitz. Specifically, the evidence, including the reasonable inferences therefrom, supports the judge's conclusion that the only motivation Rabinovitz had in bringing his lawsuit against Mahlowitz was to cause the removal of Mahlowitz as counsel for his wife in their divorce action. The judge also acted within proper bounds as a finder of fact in concluding that Zoppo and Millennium acted in concert with Rabinovitz to that same end. We thus affirm Mahlowitz's abuse of process claim against all of the defendants.

Mahlowitz's malicious prosecution claim is substantially similar to his abuse of process claim, and his damages under each are identical. Because we affirm the judgment on the abuse of process claim, we need not and do not reach Mahlowitz's malicious prosecution claim against the defendants.

As to damages, we conclude that the judge made errors in her evaluation of some aspects of the damages that require remand for recalculation of two discrete issues pertaining to damages alone. Last, we agree with the judge that Mahlowitz has not met his burden of proving that Peres and Sinsheimer acted in bad faith in representing the defendants in their claims against Mahlowitz, and that he is not entitled to sanctions against them.

Among other things, the court affirmed the award for damages to the attorney's reputation:

We are in full accord with the judge's observation that "an attorney is not much more than his reputation and that once sullied it is very difficult ... to undo the tarnish." The judge found that several pieces published about the lawsuit in Massachusetts Lawyers Weekly, "damaged Mr. Mahlowitz, both in the esteem with which he is held in the community of divorce lawyers and judges in the Probate Court." In particular, Mahlowitz testified that since the appearance of the Massachusetts Lawyers Weekly items, he had not received any appointments from Probate and Family Court judges in Middlesex County, who had often appointed him in the past. This evidence alone is compelling: we cannot imagine a more damaging result for an attorney than the loss of his credibility on the part of judges before whom he routinely must appear.

The judge additionally found, and we agree, that the publications in Massachusetts Lawyers Weekly were a foreseeable consequence of the lawsuit, and that the adverse publicity against Mahlowitz was "orchestrated," at least in part, by Rabinovitz. Among the four items published in that newspaper, one was a letter to the editor from Rabinovitz that sharply criticized Mahlowitz's conduct as dishonest, and suggested that he had lied to a judge in the Probate and Family Court. Although one article was arguably in favor of Mahlowitz-- remarking that it was "scary" that lawyers could be sued for abuse of process when placing ordinary liens in the course of divorce proceedings--the judge's finding that the widespread publicity about the case in the legal community damaged Mahlowitz's reputation is well supported.

The defendants nevertheless assert that Mahlowitz cannot recover for harm to reputation because he did not prove "real business loss" or other pecuniary harm resulting from damage to his reputation. We do not discern authority for such a requirement in this context, nor have the defendants directed us to any relevant source. In the context of defamation, we have explained that actual injury is "not limited to out-of-pocket loss" but instead includes "impairment of reputation and standing in the community, personal humiliation, and mental anguish and suffering."...Here, Mahlowitz can recover for intangible harm to his reputation separate from and in addition to any loss of business or other pecuniary harm he may have suffered. There was no error. (citations and footnotes omitted)

The case is Millenium Equity Holdings LLC and others v. Mahlowitz. (Mike Frisch)


May 4, 2010 in Current Affairs, Law & Business | Permalink | Comments (0) | TrackBack (0)

Monday, April 26, 2010

Another Disqualification Overturned

The Maine Supreme Court vacated a judgment disqualifying a Washington, D.C. law firm in a matter in which an employee claimed a hostile and discriminatory work environment while employed at the Maine Education Association.

The Association hired the law firm to conduct an investigation of the employee's allegations. The employee was interviewed by a firm attorney with her own counsel present. The attorney advised the employee that he did not represent the Association but was conducting an independent investigation. The employee claimed, but the interviewing attorney denied, that she was assured of confidentiality. The attorney later substantiated the employee's allegations of discrimination.

When the employee filed a complaint against the Association, two other law firm attorneys entered an appearance as pro hac vice counsel. The attorney who had interviewed the employee had departed. The trial court granted the employee's motion to disqualify the law firm in the litigation. 

Here, the court concluded that the moving party has the burden of establishing an affirmative ethical rule violation that would result in actual prejudice. General allegations will not suffice. The trial court must make express findings in that regard. The moving party had "failed to point to any particular prejudice she has suffered or will suffer and...the [trial] court made no such finding of actual prejudice."

A concurring justice would find the question closer than the majority and views it as "better practice not to have the same firm perform a discrimination investigation and represent the employer in any resulting litigation."

A dissenting justice would affirm the disqualification order, concluding that the interviewing attorney had misled the employee into believing he was an independent investigator and had disclosed information to the employer in violation of his commitment to her. The dissent also concluded that the attorney-investigator may be a necessary trial witness. (Mike Frisch)

April 26, 2010 in Interviewing, Law & Business, Law Firms | Permalink | Comments (0) | TrackBack (0)

Not Substantially Related

The New Jersey Supreme Court has reversed an order disqualifying a law firm from representing a municipality in defense of tax appeals during 2006-2007. The court concluded that the prosecution of individual taxpayer' 2009 tax appeals against the municipality was not "substantially related" to the matters handled on behalf of the municipality. The law firm had been disqualified by the Tax Court and the order was affirmed by the Appellate Division.

The court here found disqualification unwarranted because the law firm did not receive confidential information from the municipality that could be used against it in the taxpayer appeals: "In this record, the City has not met its burden of proving that, in fact, the current and former representations are 'substantially related. ' The superficial similarity of the subject matter of both representations-- the propriety of real estate tax assessments-- does not withstand closer scrutiny." The party seeking disqualification was unable to point to any confidential information that could be used against it. (Mike Frisch)

April 26, 2010 in Current Affairs, Law & Business, Law Firms | Permalink | Comments (0) | TrackBack (0)

Thursday, April 22, 2010

Montana Unauthorized Practice Commission Dissolved

The Supreme Court of Montana has responded to a petition by its Commission on the Unauthorized Practice of Law by entering an opinion and order dissolving the commission effective April 20, 2010. The original petition had proposed rule changes that were submitted for public comment. The court noted that an array of persons and organizations had filed "voluminous, thoughtful comments...Indeed, we cannot recall a matter on which there has been more comment by members of the public on a matter before [the court]."

The committee had responded to the comments by filing a motion to dissolve under an agreement that has complaints of unauthorized practice handled by the state Attorney General's Office of Consumer Protection. Lawyers who are licensed elsewhere will be referred to the Office of Disciplinary Counsel by the Attorney General.

The court concluded (contrary, I believe, to the holdings of many state high courts) that it lacks the authority to regulate or even define the unauthorized practice of law. Further, the parameters of unauthorized practice are not clearly defined ("...we are mindful of the movement towards nationalization and globalization of the practice of law, and with the actions taken  by federal authorities against state attempts to localize, monopolize, regulate, or restrict the interstate or international provision of legal services.").

The court commended the commission  for it's "excellent, and often frustrating, work..." along with the State Bar and Attorney General for establishing a "better way for handling complaints of unauthorized practice."

(Mike Frisch)

April 22, 2010 in Current Affairs, Law & Business, Law & Society | Permalink | Comments (3) | TrackBack (0)

Tuesday, April 20, 2010

Take Note

The web page of the Ohio Supreme Court reports:

The Supreme Court of Ohio’s Board of Commissioners on Grievances & Discipline has issued an advisory opinion about whether a lawyer’s notes must be turned over to a client when requested.

Opinion 2010-2 addresses the following question: “Are a lawyer’s notes of an interview with a current or former client considered client papers to which the current or former client is entitled upon request?”

The opinion finds that it depends upon whether “the notes are items reasonably necessary to the client’s representation” pursuant to Prof. Cond. Rule 1.16(d), which requires the lawyer to exercise his or her professional judgment.

For example, the opinion states that: “A lawyer’s notes to himself or herself regarding passing thoughts, ideas, impression, or questions will probably not be items reasonably necessary to a client’s representation. … But, a lawyer’s notes regarding facts about the case will most likely be an item reasonably necessary to a client’s representation.”

The opinion also states that a lawyer may ethically redact portions from the note not reasonably necessary or prepare a note for the client that contains only the necessary items needed for representation.

(Mike Frisch)

April 20, 2010 in Clients, Law & Business, The Practice | Permalink | Comments (0) | TrackBack (0)

Goldman: Sorkin Gets It Right on the Facts and the Issue

Posted by Jeff Lipshaw

Regardless of one's stance (normatively speaking) on the the Goldman Sachs civil suit, it's tough to find reporting or commentary that gets the nuanced facts right.  And because everything depends on the metaphor (see Erik Gerding's recent post - oh, and by the way, isn't cool to see how the way our minds categorize and analogize makes such a difference in the real world?), seeing that entire industry as a kind of casino makes a difference in things like duty and materiality.  So kudos today to Andrew Ross Sorkin in the New York Times for getting it right.  (Erik is also quoted extensively.)

Moreover, Sorkin frames what I think is the real issue:  is there a social value to this kind of derivative trading?  That's a question whose answer I don't know.  I know there is social value, for example, in currency derivatives.  It allows companies that want to be conservative lock in their profits against currency devaluation, while foregoing the possibility of speculative currency gains.  It does mean, however, that the conservative company either needs to have a counter-bettor that is either another company with a similar but reversed conservative position, or a pure speculator.  So that's the question:  what, if any, is the conservative strategy to lock in non-casino gains that products like synthetic CDOs serve? 

April 20, 2010 in Current Affairs, Hot Topics, Law & Business | Permalink | Comments (0) | TrackBack (0)

Monday, April 19, 2010

Goldman: Law Professors Have a Field Day!

Posted by Jeff Lipshaw

Well, gosh, I haven't had this much fun reading the Wall Street Journal and the New York Times on a Monday morning in a long time.   First of all, I want to note that while I use the first rate Choi & Pritchard, Securities Regulation 2d (great teacher's manual!), as the casebook for my class, I disagree with the idea of teaching Rule 10b-5 litigation before teaching the 1933 Act stuff on public offerings.  So I teach the book out of order.  The benefit is that we are moving into the elements of Rule 10b-5 in the next two weeks, and I'm thinking about scrapping my prepared materials in favor of this case.  (A more devious me would use it as a question on the final exam.)  I just want it to be noted that my syllabus is evidence I predicted this crisis, and now am in a position to benefit from it.

Second, I can't help being amused by some of the public commentary.  The Wall Street Journal carries a headline referring to a statement by Gordon Brown (the British Prime Minister) that Goldman was "morally bankrupt."  Oh, come on.  That puts Goldman in the class of all other occupations that make money on the churn, like real estate brokers, executive recruiters, Las Vegas casinos, every state that conducts a lottery or allows parimutuel betting on horses, car dealers, and advertising agencies.

Third, in the past I advocated a standard of conduct in which one ought not to engage in conduct that one would be embarrassed to see highlighted on the front page of the Journal or the Times.  I think I need to amend that to include that one ought not to be in a business in which one cannot explain the products being sold if they were to appear on the front page of the Journal or the Times.  Let me give a breaking news example.  My friend Erik Gerding has run a series of very helpful commentaries over at Conglomerate.  I am pretty sure I disagree with a number of his conclusions (perhaps because having done deals in the real world for a long time I am more jaundiced about the number of times anybody actually gets led down the primrose path, and particularly in the never-never land of financial products).  But that's what makes betting on horse races or synthetic CDOs.  I've commented on one of his more interesting insights, but I decided to bring it out of the hinterlands of the way comments work over there.  (I am grateful to Erik for having found the article and opened the debate on this aspect!)

Images-5 Erik highlights this morning a paper by Arora et al., entitled "Computational Complexity and Information Asymmetry in Financial Products" to the effect that it really was material to the synthetic CDO investors that Mr. Paulson selected the Reference Portfolio.  The gist of the paper is that it's very easy to create a computationally complex system from simple factors, but almost impossible to work the other way and select the factors that gave rise to the resulting system.  Hence, conclude the authors, if an arranger of CDOs wants to hide "lemon" assets among the good ones, it's an intractable computational problem to find the lemons.  See this blog post to which Erik links for another good explanation.) Thus, if Paulson had a hand in selecting the Reference Portfolio he really did have an advantage over those poor victims at IDK Deutsche Industriebank and ABN Amro. 

Granted that blogging often is to research what journalism is to literature; nevertheless we don't always believe what we read in the newspaper and we need to be careful in assessing real-time commentary.  The gist of my comment over at Conglomerate is that I think there's a flaw in Erik's move from applying the "Intractability Theory" in cash CDOs to a justification for a conclusion that who selected the Reference Portfolio in a synthetic CDO is material.  In a cash CDO, there is only a long position - that is, the arranger has no interest other than in having investors believe that the underlying assets and the collateral are all good.  The lemons in that case are the underlying mortgage assets.  (Indeed, much of the math in the Arora paper is beyond me, but I believe that the authors argue the computational complexity increases the farther you get from the actual lemons, say by creating CDOs out of the CDOs.)   Part of the problem may be terminology:  the cash CDOs themselves are "derivatives" because their value derives from the value of the underlying assets.  The point is that if the arranger-seller did slip in some lemons, the buyer would never be able to discover it.

How does that carry over to somebody who isn't actually compiling a portfolio of mortgages to package in a CDO to sell to investors, but instead is selecting the securities on which to bet in a synthetic CDO?  Let's assume Paulson did select the synthetic portfolio.   He doesn't want to slip a lemon asset in among the good assets.  He wants ALL the assets to be lemons, not because he's trying to hide a pig in a poke (as if he were the actual arranger of a CDO), but because he wants to bet against the whole portfolio. He doesn't accomplish his goal at all if he gets IKB and ABN Amro to bet on really good assets with a lemon hidden among them. He ought to be worried that there are GOOD assets baked in there that he can't find!  

Even assuming that Arona et al. have a point, I suspect Paulson doesn't qualify as the arranger who had the information advantage.  The Reference Portfolio consisted of fewer than 100 already assembled CDO securities, each with a notional value of $22,222,222, and each being made up of many, many underlying mortgages (indeed, the flip book refers to the CDO security as "midprime" if the average weighted FICO score was above 625, and as "subprime" if the equivalent number was below 625).  To put it more simply, if you are the bettor looking from the outside at a synthetic CDO portfolio, looking either to be long like IKB or ABN Amro or short like Paulson, and not the actual arranger of the cherries, peaches, plums, and lemons that went into the portfolio, you are no better off, informationally speaking, in trying to gauge whether you want to bet for it or against it.

April 19, 2010 in Current Affairs, Hot Topics, Law & Business | Permalink | Comments (4) | TrackBack (0)

Sunday, April 18, 2010

More on Goldman as Bookie: What About "Bespeaks Caution?"

Posted by Jeff Lipshaw

It's certainly not my goal to defend Goldman Sachs any more than it is to defend bookies.  And I acknowledge that as to materiality, it's entirely possible that you get to the trier of fact on the question whether the actual selector of the Reference Portfolio was something for which there is a substantial likelihood that a reasonable investor would find that the information significantly altered the total mix.  (That's the legal standard.)  But, as we teach our students, the mere materiality of undisclosed information doesn't create liability for its omission; as opposed to a misrepresentation, the culpability of an omission depends first on a duty to disclose. 

So here's a quote from the Goldman Sachs flip book under "Risk Factors."  And remember this thing wasn't going to Mom and Pop up in Lowell; it was going to IKB Deutsche IndustrieBank and ABN Amro:

  • Goldman Sachs may, by virtue of its status as an underwriter, advisor or otherwise, possess or have access to non-publicly available information relating to the Reference Obligations, the Reference Entities and/or other obligations of the Reference Entities and has not undertaken, and does not intend, to disclose, such status or non-public information in connection with the Transaction. Accordingly, this presentation may not contain all information that would be material to the evaluation of the merits and risks of purchasing the Notes.
  • Goldman Sachs does not make any representation, recommendation or warranty, express or implied, regarding the accuracy, adequacy, reasonableness or completeness of the information contained herein or in any further information, notice or other document which may at any time be supplied in connection with the Transaction and accepts no responsibility or liability therefore. Goldman Sachs is currently and may be from time to time in the future an active participant on both sides of the market and have long or short positions in, or buy and sell, securities, commodities, futures, options or other derivatives identical or related to those mentioned herein. Goldman Sachs may have potential conflicts of interest due to present or future relationships between Goldman Sachs and any Collateral, the issuer thereof, any Reference Entity or any obligation of any Reference Entity.

Isn't there a real question whether Goldman owed a legal duty that would make the omission actionable?  Didn't Goldman tell the Investors in the flip book that it might well have non-public information relating to the Reference Portfolio?  Didn't it say that it might have "short positions in . . . other derivatives identical or related to those mentioned here"?  This is the "bespeaks caution" doctrine:  optimistic forecasts or projections in a prospectus aren't actionable if they are accompanied by meaningful disclaimers or warnings of the risk involved.

I'd like to be a fly on the wall when the sophisticated investor representatives get deposed on this issue.

Q:  "Did you read the flip book?"

A:  "Well, parts of it."

Q:  "Which parts?"

A:  "The parts that talked about the Reference Portfolio."

Q:  "Did you read the disclaimer about 'non-public information' that Goldman might have?"

A:  "I don't recall at this time."

Q:  "You don't disagree that the disclaimer is there, do you?"

A:  "No."

Q:  "Did you ask Goldman to reveal to you the undisclosed information?"

A:  "I don't recall at this time."

Q:  "Did you read the risk factor that said Goldman might be shorting the identical reference portfolio?"

A:  "I don't recall at this time."

Q:  "Did you actually ask Goldman if it was shorting the identical reference portfolio?"

A:  "I don't recall at this time."

Q:  "Remind me again how long you've been in this business."

I find myself in a funny position, intellectually speaking.  The lawyer in me, applying a legal model to what I've seen so far, is saying this case is a real stretch.  The business ethicist in me is saying, "ugh, what a squirrelly business to be in.  You must have to take a scalding shower when you get home every night to play it that close to the vest."  The sociologist-psychologist-philosopher-Tina Turner in me is saying:  "Well, of course, Jeff, what's law got to do with it?"  The cognitive scientist in me is saying, "It all depends on the metaphor.  If you think of Goldman as the bookie, and ABN Amro as a high roller, you reach one result.  If you think of Goldman as your doctor or lawyer, you reach another one."

April 18, 2010 in Current Affairs, Hot Topics, Law & Business | Permalink | Comments (2) | TrackBack (0)

Saturday, April 17, 2010

Goldman as Bookie: Inspector Renault Assesses Synthetic CDOs

Posted by Jeff Lipshaw

I really think this should have been the epigram on the SEC's complaint against Goldman Sachs:  "I'm shocked, shocked to find gambling is going on in here!"  I've spent a little time in the last couple days digging past the allegations to the structure of the deal, and conclude that blaming Goldman Sachs for this is about as sensible as blaming the Race & Sports Book at Caesars Palace for taking bets on both sides of the game.

Seriously.  Bookies don't gamble.  They facilitate gambling.  They set odds to equalize the betting on both sides.  When the game or the race is over, they gather up what the losing side lost, pay what the winning side won, and skim a little bit for themselves.  You know when you place a bet with a bookie that it's the nature of the system that the bookie HAS to have a counter-bet to offset your own.  Now imagine that you'd like to bet against the Pakistani badminton team in its upcoming match against Indonesia because you think there are a lot of crazed Pakistani badminton fans who will bet the farm on their team.  There aren't any bookies who take badminton action.  So here is what you do.  You find a reputable bookie and ask him to set odds on the match for no other reason than you see those Pakistanis as suckers just waiting to be taken. You'll even pay the overhead to set up the line.  Caesars posts a line on the match; you bet Indonesia; the Pakistanis bet Pakistan; Indonesia creams Pakistan; Caesars collects the Pakistani bets, pays you off, and makes a little money in the process.

Then, horror of horrors!  The bettors on the Pakistani team sue Caesars because it didn't disclose that it set the badminton line and took the action because somebody wanted to bet on Indonesia!  Ludicrous, you'd say.

But as far as I can tell that's exactly what Goldman did here.  What made the deal work for Goldman was that it was the purchaser from ABACUS of credit default swap bets on the reference portfolio and the seller of matching credit swap bets to Paulson on the same portfolio.  I'm afraid that what's going on is that the deal is indeed so complex in its structure and terminology that even the sophisticated public is flummoxed.  SYNTHETIC CDOS WERE NOTHING BUT GAMBLES ON THE DIRECTION OF THE HOUSING AND SUBPRIME MARKET.  Like all derivatives, they might well have served as a conservative strategy if one had an underlying business that was exposed, and wanted to hedge away losses at the cost of additional speculative gains, either going long or short on the market.  If ABN Amro and IDK Deutsche Bank wanted to bet on the subprime market, they had to have a bookie with counter action to create an opportunity for the bet!

At first I thought this case was odd for its secondary actor liability issues.  Now I think it's just as interesting on issues of materiality, reliance, and causation.

April 17, 2010 in Current Affairs, Hot Topics, Law & Business | Permalink | Comments (1) | TrackBack (0)

Thursday, April 8, 2010

Hold The Phone

The New York Appellate Division for the First Judicial Department reversed an order directing that a deposition of a representative of Verizon be conducted in California:

Respondent, a publicly traded corporation, with over 600 employees, has failed to meet its burden of demonstrating that appearing in New York City for deposition would cause it substantial hardship...Respondent merely asserts, without more, that its chief executive officer, who respondent acknowledges travels throughout the world almost six months out of the year, will be unable to be deposed in New York. Nor has respondent proffered any reason why none of its other 600 plus employees are appropriate witnesses. (citations omitted)

(Mike Frisch) 

April 8, 2010 in Law & Business, Law & Society | Permalink | Comments (1) | TrackBack (0)

Sunday, March 28, 2010

The Difference Between Being a GC and a CEO

Posted by Jeff Lipshaw

Unfortunately, I can't provide a link because the online version of today's New York Times doesn't seem to include it, but the second page of Sunday Business is the "Corner Office" interview with Debra L. Lee, the Images-1 chairwoman and CEO of BET (and successor to Bob Johnson, who founded the network before it got sold to Viacom).  Buried in the interview are a couple observations I found interesting, given that Ms. Lee was BET's general counsel before being appointed as the chief operating officer. 

Q. Looking back, it sounds as if it was a big leap to go from general counsel to C.O.O.

A. As a general counsel, you're taught research, research, find out every case, find out every opinion, think about it.  It's almost like you are a judge.

So when I went from being general counsel to C.O.O., that's the way I first approached it.  Well, it doesn't work.  I had to learn to make decisions quicker and follow my gut.  You're not going to be able to run the numbers and come up with perfect answers.

I certainly agree with her observation about being a COO or a CEO, but I think that most COOs and CEOs would get very, very frustrated with a general counsel who couldn't either translate all of the legal stuff into something that could factor into an executive's gut-based decision, or couldn't make quick and gut-based business decisions herself that placed the legal concerns alongside the non-legal ones. 

The example I give in The Venn Diagram of Business Lawyering Judgments (forthcoming, 46 Seton Hall L. Rev., Issue 1 (2011)) is the decision whether to proceed with an acquisition in which there is significant competitive overlap.  The synergies arising from that overlap may well be part of the purely business decision whether the acquisition is attractive, and the analysis whether a Hart-Scott-Rodino pre-merger filing is necessary, and whether there are substantive Section 7 concerns is almost purely legal, but the decision whether the acquisition is attractive enough to merit the risk and cost of the antitrust review is one of mixed law and judgment that I believe only a "well-attuned to the business" GC is in a position to make.

March 28, 2010 in General Counsel, Law & Business | Permalink | Comments (0) | TrackBack (0)

Thursday, March 18, 2010

Fee Sharing Agreement Does Not Create Joint Venture

The Maryland Court of Appeals addressed the implications of a fee sharing agreement between two attorneys pursuing a medical malpractice case. Attorney One referred the matter to Attorney Two early in the prosecution of the case. They entered into an arrangement by which the division of fees was based on the "anticipated division of services to be rendered." Attorney Two had primary responsibility and Attorney One was to assist as requested by Attorney Two.

While the claim was in negotiations, Attorney Two advised the clients that they might have a legal malpractice case against Attorney One.  The underlying medical malpractice case then settled for $225,000. Attorney Two paid Attorney One one-half of the fee.

Attorney One then sued Attorney Two on a variety of contract and tort theories alleging breach of good faith, fair dealing and disclosure duties. The circuit court granted summary judgment to Attorney Two. The Court of Special Appeals affirmed. Here, the Court of Appeals agreed, concluding that Attorney Two fulfilled her covenant of good faith and fair dealing by delivering to Attorney One his proportionate share of the fee.

The court held that the fee sharing agreement did not establish a joint venture with the resulting fiduciary obligations that would apply to such ventures. The court agreed that the tort claims failed because, among other things, Attorney Two "could not tortiously interfere with an economic relationship to which she was a party." (Mike Frisch)

March 18, 2010 in Billable Hours, Law & Business | Permalink | Comments (0) | TrackBack (0)

Monday, March 15, 2010

Not Giants But Not Prohibited

The United States Court of Appeals for the Second Circuit has, in the main,affirmed the Disrtict Court's determination that certain aspects of the New York regime for regulating attorney advertising do not pass constitutional muster. The court rejected attempts to regulate "nicknames, mottos and trade names" and advertising gimmicks:

...the sort of gimmicks that this rule appears designed to reach--such as [a firm's] wisps of smoke, blue electrical currents, and special effects- do not actually seem to mislead. It is true that [the lawyer] and his partners are not giants towering above local buildings; they cannot run to a client's house so quickly that they appear as blurs; and they do not actually provide legal assistance to space aliens.

However, such attention-getting devices do not mislead the public.

The court also agreed with the District Court that the 30 day New York ban on solicitation of accident victims and their families was permissible under Florida Bar v. Went For It. The court discusses the concepts of the porcelain heart, Wemmick's Castle (it's from Dickens) and lawyers' reputations in reaching its conclusion in that regard. 

Hat tip to the ABA Journal. (Mike Frisch)

March 15, 2010 in Clients, Law & Business | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 9, 2010

Claims Against Referring Firm Reinstated

A law firm that had represented a client sued the client for unpaid fees. The plaintiff firm also sued the law firm that had referred the client, claiming that the defendant law firm had represented that their clients (the Nassers) guaranteed payment of their fees. Plaintiff appealed the dismissal of claims against the referring law firm.

The New York Appellate Division for the First Judicial Department held that the claims were viable:

The complaint alleges that defendants-respondents represented to plaintiff law firm that they had authority from the Nassers to promise payment of $75,000 of the legal fees incurred by plaintiff's client when, in fact, they lacked the authority to bind the Nassers. Thus, the complaint alleges a viable claim for breach of the implied warranty of authority. The complaint also alleges that defendants-respondents falsely represented to plaintiff law firm that they specifically discussed the subject matter of their authority and representations with the Nassers. Thus, the complaint alleges a viable clam for tortious misrepresentation of authority and assurances of payment.

To the extent the motion court relied on the principle of apparent authority, lack of consideration and the statute of frauds to dismiss these causes of action, such was error. The doctrine of apparent authority is irrelevant because the fourth and fifth causes of action are not seeking to hold the principals (the Nassers) liable on the ground that defendants-respondents had apparent authority from the Nassers to make promises of payment. Rather, these causes of action are seeking to hold the agents, defendants-respondents, liable for contracts or representations they purported to make on behalf of the principal (the Nassers) while acting without authority from the principal. Therefore, the fact that the Nassers never manifested to plaintiff law firm that defendants-respondents were authorized to act on the Nassers' behalf has no bearing on the viability of the fourth and fifth causes of action. Moreover, regardless of whether or not there was consideration running to the Nassers, defendants-respondents can still be held liable for their own tortious conduct in making deliberate misrepresentations of fact that they had authority to make the promises that the Nassers would pay $75,000 of the legal fees incurred by plaintiff's client (see Restatement (Third) of Agency §§ 6.10, 7.01 [2006]). In addition, the statute of frauds does not come into play since the fourth and fifth causes of action are not seeking to enforce the unwritten agreement by the Nassers to pay plaintiff's client's legal fees against the Nassers. These causes of action state a claim against the defendants-respondents regardless of whether there is an enforceable contract with the Nassers.

The sixth cause of action against defendants-respondents for tortious interference with defendant Jacques Nasser's contract with plaintiff law firm to pay $37,500 of the legal fees incurred by plaintiff's client was also improperly dismissed by the motion court. In order for there to be a viable claim there must be a valid contract between Jacques Nasser and plaintiff law firm. Pursuant to General Obligations Law § 5-701(a)(2), every agreement, promise or undertaking which is a special promise to answer for the debt of another is void unless it is in writing. Under a long-standing exception to the statute of frauds, however, the promise need not be in writing if it is supported by new consideration moving to the promisor and beneficial to him, and the promisor has become in the intention of the parties a principal debtor primarily [*3]liable (see Martin Roofing v Goldstein, 60 NY2d 262, 264 [1983], cert denied 466 US 905 [1984]; Carey & Assoc. v Ernst, 27 AD3d 261 [2006]). At the very least, the allegations in the complaint raise an issue of fact concerning whether Jacques Nasser agreed to act as a guarantor in the event plaintiff's client did not pay her legal fees, in which case there was no enforceable contract, or whether in seeking to secure the benefit of the cooperation of plaintiff's client in connection with the lawsuit against him by her employer, Jacques Nasser offered to lift the burden of the obligation to pay legal fees from plaintiff's client and pay the law firm directly, in which case the contract would not be barred by the statute of frauds (see Rowan v Brady, 98 AD2d 638, 639 [1983]). Therefore, the sixth cause of action for tortious interference with contract is reinstated.

Finally, the motion court erroneously dismissed the seventh cause of action against defendants-respondents which alleges tortious interference by defendants-respondents with the attorney-client relationship between plaintiff law firm and its client, defendant Srour. Insofar as the complaint alleges that defendants-respondents, knowing that Srour was represented by plaintiff law firm, met with Srour alone, without informing plaintiff law firm of the meeting, and approximately three days later, Srour discharged plaintiff law firm, it is sufficient at this stage of the proceedings, to state a viable claim, and therefore the seventh cause of action is reinstated.

(Mike Frisch)

March 9, 2010 in Billable Hours, Law & Business, Law Firms | Permalink | Comments (0) | TrackBack (0)

Thursday, March 4, 2010

Termination, Not Hints, Triggers Wrongful Discharge Claim

The District of Columbia Court of Appeals affirmed the dismissal of a former law firm associate's claim of failure to accommodate a disability on grounds that the claim was time-barred. However, the court reversed the dismissal of a related claim of wrongful discharge and remanded that claim for trial on the merits.

The associate was hired by the law firm in 2000. While attending a firm trial training program in April 2001, her dominant hand was burned. She suffered extreme pain and medical limits on her activities and took a month leave of absence for treatment. She requested a number of accommodations on her return and alleges that she was told by her supervisor "that if she was still injured, she was 'of no use to anyone.' " After a second leave of several months, she claimed that she was told not to seek substantive billable work until she could work without restrictions. There were further requests for accommodations and performance reviews. The associate attorney received notice of discharge from the firm in late October 2002.

The court here concludes that the statute of limitations for wrongful discharge began to run with the formal termination. Earlier threats or hints of poor performance do not trigger the statute. (Mike Frisch)

March 4, 2010 in Billable Hours, Law & Business, Law Firms | Permalink | Comments (0) | TrackBack (0)

Sunday, February 28, 2010

Stanford Lawyer (Class of 1979) Heads Up Hollywood Negotiations

Posted by Jeff Lipshaw

Cal039_294w I was flipping through the New York Times Sunday Business section this morning, and saw this article about the upcoming labor negotiations between the motion picture and television industry and the various unions and guilds (writers, directors, actors), complete with picture of my law school classmate, Carol Lombardini (left), the new president of the Alliance of Motion Picture and Television Producers.

Just another member of the moderately amazing Stanford Law School class of 1979, whose members have included, in addition to all the top flight lawyers, among other things, law professors, the dean of the University of Chicago law school (who hired Barack Obama), a deputy cabinet secretary, the publisher of a major newspaper, the State Department legal officer in Berlin responsible for liaison with Rudolf Hess in Spandau Prison, the CEO of one of the largest construction companies in the world, the winners of the 1979 Stanford Trivia Bowl, the Notre Dame athletic director, and the parents of two different University of Michigan undergrads named Matt.

February 28, 2010 in Current Affairs, Film, Law & Business | Permalink | Comments (0) | TrackBack (0)

Thursday, February 18, 2010

A Rose By Any Other Name...

From the web page of the Ohio Supreme Court:

The Supreme Court of Ohio’s Board of Commissioners on Grievances & Discipline has issued an advisory opinion concerning the inclusion of an area of practice or specialization in a law firm name.

Opinion 2010-1 addresses the following question: “Is it proper for a lawyer to name a law firm the lawyer’s surname followed by the words Intellectual Property or the initials IP as an abbreviation for intellectual property?”

The opinion finds that naming a law firm in this way is improper. Professional Conduct and Supreme Court rules “do not authorize the inclusion of an area of practice or specialization in a law firm name and Prof. Cond. Rule 7.5 specifically does not allow a trade name,” the opinion states.

The opinion also noted that Supreme Court rules require that the name of a law firm formed under a corporate structure must include the “proper descriptive designation required by law such as LLC or LLP.”

This link should take you to the opinion. The most pertinent U.S.Supreme Court precedent on the state bar's regulatory authority over letterhead designations is ARDC v. Peel, linked here. (Mike Frisch)

February 18, 2010 in Current Affairs, Ethics, Law & Business | Permalink | Comments (2) | TrackBack (0)