Monday, May 31, 2010

When Online Gripes are met with Lawsuits

NY Times

Justin Kurtz with his car, which was towed from his apartment complex parking lot near Western Michigan University.

After a towing company hauled Justin Kurtz’s car from his apartment complex parking lot, despite his permit to park there, Mr. Kurtz, 21, a college student in Kalamazoo, Mich., went to the Internet for revenge.

Outraged at having to pay $118 to get his car back, Mr. Kurtz created a Facebook page called “Kalamazoo Residents against T&J Towing.” Within two days, 800 people had joined the group, some posting comments about their own maddening experiences with the towing company.

T&J filed a defamation suit against Mr. Kurtz, claiming the site was hurting business and seeking $750,000 in damages.

Web sites like Facebook, Twitter and Yelp have given individuals a global platform on which to air their grievances with companies. But legal experts say the soaring popularity of such sites has also given rise to more cases like Mr. Kurtz’s, in which a business sues an individual for posting critical comments online.

The towing company’s lawyer said it was justified in towing Mr. Kurtz’s car because the permit was not visible, and that the Facebook page is costing them business and had unfairly damaged the company’s reputation.

Some first amendment lawyers see the case differently. They consider the lawsuit an example of the latest incarnation of a decades-old legal maneuver known as a strategic lawsuit against public participation, or Slapp.

The label has traditionally referred to meritless defamation suits filed by businesses or government officials against citizens who speak out against them. The plaintiffs are not necessarily expecting to succeed — most do not — but rather to intimidate critics who are inclined to back down when confronted with the prospect of a long, expensive court battle.

“I didn’t do anything wrong,” said Mr. Kurtz, who recently finished his junior year at Western Michigan University. “The only thing I posted is what happened to me.”

Many states have anti-Slapp laws, and Congress is considering legislation to make it harder to file a Slapp. The bill, sponsored by Representatives Steve Cohen, Democrat of Tennessee, and Charles Gonzalez, Democrat of Texas, would create a federal anti-Slapp law, modeled largely on California’s statute.

Because state laws vary in scope, many suits are still filed every year, according to legal experts. Now, with people musing publicly online and businesses feeling defenseless against these critics, the debate over Slapps is shifting to the Web.

“We are beyond the low-tech era of people getting Slapped because of letters they wrote to politicians or testimony they gave at a city council meeting,” said George W. Pring, a University of Denver law professor who co-wrote the 1996 book, “Slapps: Getting Sued For Speaking Out.”

Marc Randazza, a first amendment lawyer who has defended clients against Slapps stemming from online comments, said he helped one client avoid a lawsuit last year after the client, Thomas Alascio, posted negative remarks about a Florida car dealership on his Twitter account.

“There is not a worse dealership on the planet,” read one tweet, which also named the dealership.

The dealership threatened to sue Mr. Alascio if he did not remove the tweets. Mr. Randazza responded in a letter that while Mr. Alascio admitted the dealership might not be the worst in the world, his comments constituted protected speech because they were his opinion.

While the dealership did not sue, that outcome is unusual, said Mr. Randazza, who conceded that sometimes the most pragmatic approach for a Slapp defendant is to take back the offending comments in lieu of a lawsuit.

In the past, Mr. Randazza said, if you criticized a business while standing around in a bar, it went “no further than the sound of your voice.”

Do that now, however, and “there’s a potentially permanent record of it as soon as you hit ‘publish’ on the computer,” he said. “It goes global within minutes.”

Laurence Wilson, general counsel for the user review site Yelp, said a handful of lawsuits in recent years had been filed against people who posted critical reviews on the site, including a San Francisco chiropractor who sued a former patient in 2008 over a negative review about a billing dispute. The suit was settled before going to court.

“Businesses, unfortunately, have a greater incentive to remove a negative review than the reviewer has in writing the review in the first place,” Mr. Wilson said.

Recognizing that lawsuits can bring more unwanted attention, one organization has taken a different tack. The group Medical Justice, which helps protect doctors from meritless malpractice suits, advises its members to have patients sign an agreement that gives the doctor copyright over a Web posting if the patient mentions the doctor or practice.

Dr. Jeffrey Segal, chief executive of Medical Justice, said about half of the group’s 2,500 members use the agreement.

“I, like everyone else, like to hear two sides of the story,” he said. “The problem is that physicians are foreclosed from ever responding because of state and federal privacy laws. In the rare circumstance that a posting is false, fictional or fraudulent, the doctor now has the tool to get that post taken down.”

The federal bill, in the House Subcommittee on Courts and Competition Policy, would enable a defendant who believes he is being sued for speaking out or petitioning on a public matter to seek to have the lawsuit dismissed.

“Just as petition and free speech rights are so important that they require specific constitutional protections, they are also important enough to justify uniform national protections against Slapps,” said Mark Goldowitz, director of the California Anti-Slapp Project, which helped draft the bill.

Under the proposed federal law, if a case is dismissed for being a Slapp, the plaintiff would have to pay the defendant’s legal fees. Mr. Randazza would not disclose specifics on the legal fees he has charged his clients, but he said the cost of defending a single Slapp suit “could easily wipe out the average person’s savings before the case is half done.”

Currently, 27 states have anti-Slapp laws, and in two — Colorado and West Virginia — the judiciary has adopted a system to protect against such suits. But the federal legislation would both create a law in states that do not have one and offer additional protections in those that already do, Mr. Goldowitz said.

In Michigan, which does not have an anti-Slapp measure, Mr. Kurtz’s legal battle has made him a local celebrity. His Facebook page has now grown to more than 12,000 members.

“This case raises interesting questions,” the towing company’s lawyer, Richard Burnham, said. “What are the rights to free speech? And even if what he said is false, which I am convinced, is his conduct the proximate cause of our loss?”

On April 30, Mr. Kurtz and his lawyers asked a judge in Kalamazoo to dismiss the suit by T&J, which has received a failing grade from the local better business bureau for complaints over towing legally parked cars. Mr. Kurtz is also countersuing, claiming that T&J is abusing the legal process.

“There’s no reason I should have to shut up because some guy doesn’t want his dirty laundry out,” Mr. Kurtz said. “It’s the power of the Internet, man.”

Friday, May 28, 2010

Australia to Mount Legal Case Against Japan Whaling

BBC News

Australia has said it will begin legal action against Japan over its whaling in the Antarctic.

It will argue that the annual whaling hunt in the Southern Ocean is in violation of an international ban on commercial whaling.

Japan, which kills hundreds of whales ever year, says the hunt is carried out for scientific research purposes.

Critics say this is a cover for commercial whaling and that whale meat not used in research is sold for food.

The Australian government says it will lodge formal proceedings at the International Court of Justice in The Hague next week.

The move comes ahead of a meeting of the International Whaling Commission (IWC) in Morocco next month, where agreement is being sought on a new approach to whaling, which would allow commercial hunting but with strict quotas.

Australian Environment Minister Peter Garrett and Attorney General Robert McClelland said in a joint statement that the move underlines their "commitment to bring to an end Japan's program of so-called scientific whaling".

'Disappointing'

There has been a ban on commercial whaling for 25 years, but a Japanese whaling fleet heads to the Southern Ocean each southern summer to harpoon hundreds of whales as part of what it calls lethal research, which is allowed.

Australia had tried to negotiate an end to these forays and had given Japan until November to stop this form of whaling. It then brought forward its plans to take the matter to court.

Conservationists have broadly welcomed the legal action, praising the government of Prime Minster Kevin Rudd for standing up to Japan.

But the BBC's Sydney correspondent Nick Bryant says that the Australian Greens have said it is essentially a political move from a prime minister, who has been slipping in the polls, to make good on a election promise made three years ago.

Japan is Australia's second biggest trading partner, and Canberra says it hopes the move will not damage their friendly relations.

The Japanese fisheries ministry has described the legal action as "very disappointing".

"We will continue to explain that the scientific whaling that we are conducting is lawful in accordance with article eight of the international convention for the regulation of whaling," said the ministry's deputy press secretary Hidenobu Sobashima.

Mr Sobashima said the issue "shouldn't jeopardise the overall good relations between Japan and Australia".

The Australian Foreign Minister Stephen Smith said the two countries have agreed to treat the matter as "an independent legal arbitration of a disagreement between friends".

Thursday, May 27, 2010

Michigan Woman Sues United Airlines after being Left Sleeping on Plane

The Detroit News
Prominent Southfield attorney Geoffrey Fieger said today it was "really a gross abuse of a passenger" for airlines to leave a sleeping Ferndale woman locked on a plane for several hours.

Fieger filed a lawsuit today against the airlines on behalf of Ferndale resident Ginger McGuire, who flew Monday on a trip for an accounting training session that began in Detroit and ended in Philadelphia. During her travels, she was shuttled to Dulles Airport in Washington, D.C., before heading to Philadelphia, where she was left stranded on the airplane after landing.

McGuire said she was exhausted from traveling and fell asleep as soon as she took her seat on the Philadelphia-bound Trans States airplane -- Trans States works in conjunction with United Airlines. She was not taking medication and did not have any alcohol to drink. She was simply tired, he said.

McGuire woke up at 3:50 a.m. and found herself alone on the 50-seat plane.

"I just woke up and looked at my phone. It was 3 a.m.," McGuire said. "I said, 'Oh, my God, there's no one on the plane.' "

McGuire said she walked up and down the aisle for 15 minutes. She said she panicked and didn't think of calling for help.

"Then the door to the airplane opened and two Philadelphia police officers were standing there with a TSA officer," McGuire said. "They wouldn't let me off the plane until I proved who I was. It was like, 'Show us your ID, show us your ID.'"

Officials let her go after about 10 minutes. McGuire then checked into a local hotel.

Her four-count lawsuit filed by Fieger in Wayne Circuit Court alleges negligence, false imprisonment, emotional distress and breech of contract against the two airlines leaving her locked on an airplane for four hours after it landed.

"She has been contacted by Trans State, who wanted to talk about it," Fieger said. "They didn't make an offer to her. They never do. If they had, it would only be for a bag of peanuts."

According to Fieger, McGuire originally didn't report the incident. Fieger said apparently either someone at the airline or Philadelphia police leaked it to the media.

"I received a phone call from someone asking about what happened, and I gave a phone interview and then I got other phone calls from CNN, USA Today and other media," McGruire said. "I wasn't prepared for anything like this."

Disney Secretary and Boyfriend Charged with Insider Trading

LA Times

 
A secretary — who works for Walt Disney Co.'s head of corporate communications — and her boyfriend are accused of sending anonymous letters to hedge funds offering advance notice of the company's earnings reports.

A secretary to a high-ranking Walt Disney Co. executive thought she and her boyfriend were about to pull off an alleged insider-trading scheme — and she wanted to celebrate with a Stella McCartney handbag from Neiman Marcus.

"Here is the bag that you are going to get for me," Bonnie Jean Hoxie, a secretary for Zenia Mucha, Disney's head of corporate communications, allegedly wrote in an e-mail to her boyfriend this month.

After the boyfriend, Yonni Sebbag, replied that they may reap a windfall from their plot, Hoxie added to her wish list, according to court documents. "In that case, I also love love [sic] these shoes," she wrote.

Their alleged caper never got off the ground as the hedge fund managers to whom the pair thought they were selling inside information on Disney's quarterly earnings were actually undercover FBI agents on a sting operation.Federal authorities arrested the couple early Wednesday morning and charged them with criminal wire fraud in what experts described as one of the more ham-handed attempts at insider trading in memory.

"Disney's top comedians could not have written a better insider-trading script," said Jacob Frenkel, a former prosecutor now at Shulman Rogers Gandal Pordy & Ecker in Rockville, Md.

Hoxie, 33, and Sebbag, 29, both of L.A., were each charged with one count of wire fraud and one count of conspiracy to commit securities fraud and wire fraud. They face up to 20 years in prison on the wire fraud charge and up to five years on the conspiracy charge.

Hoxie, who appeared composed during her arraignment in federal court in Los Angeles on Wednesday afternoon, was released on $50,000 bail and ordered to appear June 3 in federal court in Manhattan, N.Y.

Sebbag, speaking in heavily accented English, was deemed a flight risk and ordered detained by Judge Patrick Walsh.

The hearing was for bail purposes only, and pleas were not entered. Neither the defendants nor their lawyers commented on the charges.

Disney issued a statement saying it is cooperating with the investigation.

Insider-trading networks are typically close-knit groups that go to great lengths to shield their activities. Hoxie and Sebbag, by contrast, allegedly sent anonymous letters offering early peeks at earnings reports to nearly three dozen hedge funds, which promptly tipped off the authorities.

"This is the insider trading equivalent of the bank robber who drops off the demand note and comes back in an hour to pick up the money," said Robert A. Mintz, a former federal prosecutor who is a partner at McCarter & English in Newark, N.J. "It's mind-boggling that somebody would even try to get away with something like this."

The FBI set up a meeting May 14 in which agents posing as hedge fund traders gave Sebbag $15,000 as payment for a 107-page confidential document on Disney's quarterly earnings.

The arrest shocked Hoxie's father, who said her Disney job was the best one she'd had in a decade of living in Los Angeles.

"It can't be for financial reasons that I could understand. It's got to be, for lack of a better word, for love or a relationship with this guy," said Patrick Hoxie, contacted in Jackson, Mich. "She lives in a dinky apartment, drives an old car. She has a real basic lifestyle."

The alleged scheme is spelled out in a series of e-mail messages released by the Justice Department and Securities and Exchange Commission.

Sebbag told undercover agents that he was "looking to build a strong business relationship" and that "I don't think we will get caught if we stay discrete [sic] and careful."

In a meeting arranged by the agents, Sebbag allegedly said he wanted "to make a lot of money" and asked for their guidance in opening an offshore bank account to avoid detection. He told the agents he "didn't want to go to jail," the SEC said.

Other e-mails show the tensions that arose when Hoxie couldn't get Disney's earnings report as quickly as Sebbag wanted.

"What would you suggest I do," she wrote to him. "If I could wave my magic wand and give you what you want — I would. However, since that is not going to happen I suggest you call on you inner Buddhist — and CHILL … out."

To prove his legitimacy, Sebbag proffered the tip that Disney Chief Executive Bob Iger was "in serious and advanced negotiations with two private equity firms to sell the ABC network."

Disney issued a rare statement, saying any reference to conversations about the sale of ABC "were and are false."

The e-mail exchange came four days after Disney's annual shareholders' meeting March 11, where Iger was asked if he would ever contemplate selling ABC or its news division. The executive responded that "there are no guarantees in terms of what will remain part of our company," sparking speculation that the network might be on the block.

At the time, a network spokesman said the comments had been misinterpreted, and that the network was not for sale.

As insider-trading cases go, this was an easy one to crack, experts said.

"Most criminals make stupid mistakes," said Seth Taube, a former SEC enforcement lawyer now at Baker Botts in New York. "But some are stupider than others, and this one ranks pretty high on that scale."

Wednesday, May 26, 2010

ACLU Trying to Protect Twitter-Users' Identities

Associated Press


An American Civil Liberties Union lawyer said Thursday his organization is helping two anonymous Twitter users fight an effort by prosecutors to unmask them after they tweeted criticism of the Pennsylvania attorney general, who is running for governor.

ACLU attorney Vic Walczak said he will ask a judge to throw out a subpoena seeking the identities of the two Twitter users, "bfbarbie" and "CasablancaPA," if an agreement with Attorney General Tom Corbett's office can't be worked out.

Walczak said the subpoena by a statewide investigative grand jury is an unconstitutional retaliation that violates First Amendment free-speech protections.

"It's a prized American right to criticize government officials, and to do so anonymously," Walczak said.

A Corbett spokesman said the subpoena was partly related to a Friday sentencing hearing for former Democratic legislative aide Brett Cott. He is one of three people convicted in March of public corruption charges in the ongoing investigation into the alleged illegal use of legislative employees and government resources to run political campaigns.

The grand jury on May 6 subpoenaed the identities and other information about the two users from Twitter Inc. Corbett's office has been using the highly secretive grand jury process for the past several years to look into public corruption allegations involving the General Assembly.

Twitter attorney Timothy Yip issued a statement that the company only discloses user information under "limited circumstances."

If the company believes it is legal to do so, Twitter notifies users whenever it receives requests for their information that it believes it is obligated to share, Yip said.

"This policy is designed for maximum transparency and gives users an opportunity to object," he said.

A Twitter spokesman said the company had not turned over any information to Corbett's office as of Thursday afternoon.

Attorney general's office spokesman Kevin Harley said the subpoena "has nothing to do with criticisms of the attorney general."

"There are many bloggers and other Web sites that are critical of the attorney general," Harley said. "That's not what this is about."

In an interview with the AP last year, Corbett said he was aware of anonymous critics of his investigation, and mentioned Cott by name.

"We know people like Brett Cott are on the blogs all day, making stuff up," said Corbett, who won the Republican gubernatorial nomination on Tuesday.

Cott was an aide to former Rep. Mike Veon, D-Beaver, who also was convicted of multiple counts. Veon's sentencing is scheduled for next month.

Twitter user CasablancaPA links to an anonymous blog, "CasablancaPA: Exposing the hypocrisy of Tom Corbett," which also has criticized Corbett and how his office has handled the investigation of the Legislature known as Bonusgate.

In a tweet Thursday, bfbarbie called Corbett "an evil man," and CasablancaPA wrote that Corbett "should try reading the blog he wants to shut down a little more closely."

A sentencing memorandum filed by prosecutors on Wednesday accused Cott of having "extensively and anonymously utilized" the CasablancaPA blog "to deflect blame and deny responsibility for his criminal conduct and to attack and malign the investigative and prosecutorial process."

Cott and his lawyer both declined comment about CasablancaPA - the blog or the Twitter user - on Thursday.

Bryan Walk, Cott's defense attorney, said the grand jury was wrong to issue the subpoena, however.

"They are completely abusing the process trying to seek this information," Walk said.

Saturday, May 22, 2010

The Right to, and Need for, Counsel

NY Times Editorial

 
New York State’s highest court has affirmed the state’s constitutional duty to provide effective legal counsel to poor criminal defendants. It comes at a moment when public defender offices across the country are perilously short on financing and struggling with overwhelming caseloads.

The 4-to-3 ruling, written by the chief judge of the State Court of Appeals, Jonathan Lippman, pointed to glaring dysfunction in the state’s county-by-county indigent defense system, and it said that a broad class-action lawsuit challenging the adequacy of the system could proceed. It noted that in many New York counties indigent defendants are routinely arraigned without a lawyer. At these initial court appearances, bail is also set and many defendants are sent to jail.

In allowing the case to go forward, the court rightly rejected the state’s argument that consideration of the adequacy of legal representation should be confined to individual, postconviction appeals. That has now set the stage for a trial or a settlement with the state to improve defender services.

Earlier this month Judge Lippman delivered a Law Day speech in Albany arguing for an even broader vision of justice, one that includes guaranteeing a lawyer for poor people in civil disputes where basic needs are at stake, like evictions and foreclosures. He plans to hold hearings around the state before unveiling a detailed plan next year. We applaud Judge Lippman’s new initiative. Equal justice demands adequate legal representation for all. That is especially important in tough times.

Friday, May 21, 2010

In Legal Analysis, Attorney Says Google Settlement Would Cause "Diplomatic Stress"

Publishers Weekly

 
In a legal analysis done for the Open Book Alliance, intellectual property lawyer Cynthia Arato, a partner at the law firm of Macht, Shapiro, Arato and Isseries, reiterated her belief that that the Google Book Search settlement in its current form “violates the treaty obligations of the U.S.,” and, if approved, “would “give rise to legal action against the U.S. before an international tribunal and will certainly expose the U.S. to diplomatic stress.”

If approved, Arato writes, the settlement, despite removal of most foreign works in the amended agreement, still contravenes fundamental provisions of the Berne Convention for the Protection of Literary and Artistic Works, as well as the “principle of nondiscrimination” within the World Trade Organization’s Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPs). “Should the settlement be approved, there is good reason to believe that a number of our trading partners will want to initiate proceedings against the U.S.,” she writes. “Indeed, the governments of France and Germany already have taken the somewhat uncommon step of filing objections to the settlement and their submissions make clear that they are deeply committed to protecting their citizens’ fundamental copyright rights.”

While the memo raises no new points, its ramps up attention to the settlement as decision looms on the agreement, and it formalizes the objections Arato highlighted for the court in February. The settlement parties, in their brief to the court, have argued that the settlement agreement violates no treaty or international obligation, and say that foreign law does not apply in evaluating the settlement. “Google is scanning books in the United States and is providing copies to libraries in the United States. For that reason, and in recognition of the principle that copyright law is territorial, Plaintiffs only alleged violations of United States copyright law, and the ASA addresses and settles only those claims arising under United States law,” the brief states.

At the fairness hearing, Arato told Judge Denny Chin that “If approved, the agreement is virtually certain to become the most controversial class settlement ever to emanate from the United States.” 

Open Book Alliance director Peter Brantley, a staunch opponent of the settlement, blogged that Arato’s legal memo raises points that extend beyond treaties and laws. “Beyond financial penalties and trade disputes, we have to ask ourselves if we’re happy thumbing our nose at the rest of the world for the benefit of one company.  We suggest not.  There are alternatives to the GBS that will benefit a broader audience and welcome international partners’ contributions,” he wrote. “Open collaboration that rejects exclusive deals is the best way to create a true international library.”

Thursday, May 20, 2010

Holder Urges Congress to Modify Miranda-Warning Rules

Bloomberg / Business Week

 
Attorney General Eric Holder said the White House is working with Congress on giving federal officials more flexibility in questioning terror suspects, calling it a “new priority” for President Barack Obama.

“We want the public safety exception to be consistent with the public safety concerns that we now have,” Holder said on NBC’s “Meet the Press” program. The top U.S. law enforcement official earlier said on ABC’s “This Week” that Congress needs to give “serious consideration” to revising the guidelines.

The public safety exception lets law enforcement officers question suspects on potential threats before giving a “Miranda warning” advising them of their rights to remain silent and to have legal counsel.

Holder, on ABC’s “This Week” program, discussed the case against Faisal Shahzad, the suspect in the attempted May 1 bombing in New York City’s Times Square. Shahzad allegedly tried to “kill and maim” people by driving a Nissan Pathfinder with a bomb into the crowded Manhattan area, prosecutors said in a court complaint against him in New York. He was arrested May 3.

The Pakistan-born naturalized U.S. citizen faces five counts, including attempting to use a weapon of mass destruction and receiving bomb-making training in the Waziristan region of Pakistan. Holder also said today that Shahzad was working with the Pakistani Taliban in plotting the attempted attack.


Tuesday, May 18, 2010

L.A. Has $56 Million in Arizona-Related Investments

LA Times

City analyst urges several steps to reduce business ties to the state, which recently adopted a tough anti-illegal-immigration law.

Responding to calls
for an economic boycott of Arizona, the top policy analyst for Los Angeles on Tuesday identified a total of $56 million in Arizona-related investments and recommended that the City Council suspend travel to the state, refrain from entering new contracts and review current ones for possible termination.

L.A. officials joined with other cities across the country in calling for an economic boycott of Arizona after that state's lawmakers recently passed a tough immigration law that critics say will lead to racial profiling. The law, which will take effect July 23, makes it a state crime for unauthorized migrants to be in Arizona and requires police to check the immigration papers of those they suspect lack legal status.

The council is set to discuss the report, prepared by Chief Legislative Analyst Gerry F. Miller, on Wednesday. Miller recommended that the council adopt a revised resolution that expresses city opposition to the use of federal funds to implement the Arizona law, saying it encourages racial profiling, violates constitutional guarantees of due process and equal protection, and undermines federal authority over immigration.

The resolution notes that the city imposed economic sanctions in the past to protest such actions as South Africa's apartheid policies and Colorado's 1992 repeal of local ordinances that banned discrimination based on sexual orientation."This is not just about Los Angeles; it's a significant response to legislation that hurts a whole slice of the population," said Councilman Ed Reyes, one of seven council members calling for a boycott. "We hope to create an economic ripple effect not only in dollars but also in sending a message to others concerning the discriminatory effect of this legislation."

However, the Harbor Department and Los Angeles World Airports expressed concern about possible termination of their contracts with Arizona businesses. The Harbor Department has four contracts with Arizona firms totaling $25.6 million, mostly involving a clean truck incentive program.

Under the program, three Arizona firms have brought hundreds of newer short-haul trucks with significantly lower emissions into Southern California. The harbor's $56-million program is projected to reduce port-related truck pollution by 80% by 2012.

"The program has been phenomenally successful," said Arley Baker, Los Angeles port spokesman. "We don't recommend rescinding the contracts due to adverse effects on the environment and public health."

Los Angeles World Airport has three equipment and maintenance contracts worth $77,000 and receives $22 million in revenue from two Arizona-based airlines, USAirways and Mesa Air.

"We need to do additional research into our ability to limit Arizona-based airlines from using LAWA airports," said airport spokeswoman Nancy Suey Castles.

Reyes said he also supported a cautious approach to ensure that the city would not be hit by any lawsuits over any boycott. The analyst's report contained several caveats, such as refraining from entering new contracts with Arizona "to the extent practicable and in instances where there is no significant additional cost to the City nor conflict with the law."

"We still need to be careful how we approach it so we aren't vulnerable to legal actions that would have a whiplash effect on our general funds," Reyes said.

Monday, May 17, 2010

College Threatened with 'Crack House' Law

Newsweek
Everyone knows drug use happens on campuses, but can administrators be held legally responsible for it?




On the last day of classes at Reed College, the prestigious, small, liberal-arts school in Portland, Ore., placards go up on the borders of campus, announcing to outsiders that for the next two days, the general public is not welcome here. That's to allow "Reedies" (and their invited guests) to celebrate in private the end of their notoriously rigorous classes by blowing off steam at the college's annual "Renn Fayre" event, held this past weekend. It's a hedonistic display of shiny spandex costumes, glitter, painted breasts, lube wrestling, over-the-top public makeout sessions, neon, theses torched in a giant bonfire outside Hauser Library, fireworks, and screaming that can be heard from blocks away.Think of Renn Fayre as higher education's Burning Man; or Woodstock, without the legendary rock acts. It's a raucous, raging outdoor party, replete with current and former students hoisting one another upon their shoulders and tackling their giggling classmates to the champagne-soaked turf.

And it's no fun sober. To be a teetotaling bystander among the blotto masses at Renn Fayre is to feel like one of those kids lining the walls at the junior-high dance, desperate to exude that "I am having a fantastic time" expression that only looks authentic if you are actually having a fantastic time.

That's why some Reedies are less than stoked about U.S. Attorney Dwight Holton's best effort to clamp down on drug use at the affair, a case made so forcefully in a recent meeting with Reed president Colin Diver that it left Diver wondering whether he might wind up in jail, prosecuted under a federal statute that was enacted by Congress to stiffen penalties on the proprietors of crack houses.

Yes, crack houses. Holton did not actually threaten to lock Diver up. But he did end a meeting that he insists was more about "What can we do to help?" by referencing the statute, which carries a 20-year prison sentence and a $500,000 fine. And when pressed, Holton says he could actually imagine using it, if the college knowingly allowed the kind of open-air drug peddling and usage around which Renn Fayre is long rumored to revolve. "I don't lose any sleep whatsoever at the prospect that I'm going to end up in jail or with a $500,000 fine," Diver told NEWSWEEK. "But it would really, really be unpleasant if either I or the board of trustees were hauled into court on an investigation into whether we were running a crack house. This would not be fun."

Why the tough talk from the feds? Holton says there are three critical factors: two of the college's 1,300 students have died of heroin overdoses in the past two years; federal agents, battling a surge in black-tar heroin use and distribution in Oregon that is increasingly targeted at upper-middle-class white kids like those that dominate Reed's student body, have been hearing rumblings that drug pushers were stocking up in anticipation of this year's Fayre; and, according to some media reports and the word on the streets, the college's annual hoopla has historically been a great place to get lit on any number of different substances. (Willamette Week, the local alternative weekly, has breathlessly covered Renn Fayre in the past—a lengthy 2008 piece quoted Diver as saying Reed is a college known for two things, "brains," and "drugs" — to the dismay of some students and professors, who say there may be drug use on campus and at the event, but it's not anywhere near as blatant as described and certainly not condoned. A NEWSWEEK reporter smelled pot, but didn't see any drug use during several hours spent at the festival last weekend.)

Holton decided to reach out to Diver in the wake of the latest heroin overdose in March, which left senior physics major Sam Tepper dead in an off-campus apartment, at age 22. "Sam's death, plus the symbolic importance of Renn Fayre, created a moment for Diver to seize," Holton said. "We wanted him to seize it." Diver did respond, despite calling the U.S. Attorney's response an overreaction. The president quickly sent out a campuswide e-mail urging students not to use drugs, several varieties of which he specifically named. He's pledged to revisit the school's drug-enforcement policy, which has in the past taken a nuanced, two-tiered approach where "hard drugs" are vilified but others not as much, which Holton is concerned results in a mixed message to campus. (Alumni who attended Reed in the late 1990s say they can remember times when weed was smoked openly in the Student Union building.)

For the first time this year, undercover cops from the Portland Police Bureau mingled with the partygoers, on the hunt for illicit drug use—especially distribution—which is why the grounds at Renn Fayre were plastered with banners bearing slogans such as "Welcome Portland Police Bureau," and there was a booth where undercover cops were invited to check in (this was basically a heads-up to the Fayre's attendees that there were narcs on the premises). There were also flyers taped to buildings that read "Do not antagonize the police. Don't help, don't hinder. Do not answer any questions. Do not approach. Undercover police are not required to reveal themselves as such."

Will any of the changes at Renn Fayre or in the school's policy actually reduce drug use at Reed? There isn't even much evidence that many more Reed students do hard drugs than other college students, and drug-policy experts say enforcement doesn't do much to deter drug use—it's prevention and education that have helped to reduce the percentage of college-age Americans who say they've used marijuana in the past month from 38 percent in 1978 to the 18 percent it’s at today.

Both Holton and Diver say they agree on that point, but that enforcement remains the necessary "third leg of the stool" in combating a serious problem at Reed and elsewhere in Oregon.

But the crack-house statute? Never before has it been used on college campuses, where binge drinking tends to be a much bigger problem than drugs, said Robert MacCoun, a psychologist and professor of law and public policy at the University of California Berkeley. "College campuses are much more orderly places today than they were when I was a college student. There's more supervision, and students are much more worried about getting jobs," MacCoun said. "Whatever Reed or Berkeley looks like today is just a shadow of the kind of drug use that there was in the late 1970s."

Diver looked up the statute after Holton referred to it in their meeting, he said, assuming it specifically applied to crack houses and that it couldn't be used against him. "I have a pretty good sense of what a crack house is," he said, "not from any personal experience, mind you." What Diver was "shocked" to read is that the statute subjects any person who is the proprietor of a place where drug use is knowingly going on to criminal and civil penalties, and he also learned of efforts in Congress to extend the punishments to the hosts of raves (parties, typically at dance clubs or warehouses that feature techno music and drug use). Diver concluded: "These guys [at the U.S. Attorney's office] are obviously thinking the language could apply to us."

Harvard professor Philip Heymann said he thinks going after the college is a great idea, provided there actually is some knowing tolerance of drug use on campus. "In general, we ought to focus more on the people who are responsible rather than the people who are irresponsible," said Heymann, who served as deputy U.S. attorney general under President Bill Clinton. "I wouldn't want to see the president of Reed sent to jail, but if you could fine Reed and embarrass it with prosecution, I would probably do that. It sounds like a very hard case to make, though."

Apparently that won't be a necessary step: last weekend's festivities led to no drug-related arrests.

Wednesday, May 12, 2010

Massachusetts: Legislation Tackles Pay Equity

Worcester Business Journal

 
 
It sounds like a legal word problem. If women who work in a school’s cafeteria are on their feet all day, lifting 50-pound bags of potatoes and working with hot ovens, while men at the same school’s custodial department are on their feet all day, lifting 50-pound boxes of detergent and working with harsh chemicals, is it okay to pay the janitors significantly more?

According to the Massachusetts Supreme Judicial Court, under current law the answer is yes. But some state legislators are out to change that. They say that regardless of whether they’re traditionally held by men or women, jobs that require comparable skill, effort, responsibility, and working conditions ought to command the same pay.

To others, though, the proposed change would create an unfair burden on employers.
 
Family Wage

State Rep. Anne Gobi, D-Spencer, said she signed onto the bill because she’s worried about the fortunes of working women and their families.

“Of course there’s a lot of women who are the sole breadwinners of their families,” she said.

The notion of equal pay for comparable work is not a new one. A 1945 Massachusetts law requiring equal pay for women includes the concept. But supporters of the new bill say because “comparable work” was never defined, the language was unenforceable.

In 1996, the Supreme Judicial Court struck down a $1 million award to cafeteria workers in Everett, arguing that they weren’t treated illegally because the “substantive job content” of cafeteria work is different from what janitors do.

Since then, supporters of equal pay have worked to add a definition of comparable work to state law. This year, the Commission on the Status of Women made the bill a central issue for its legislative agenda. And according to Marisa DeFranco, a Peabody lawyer who serves on the commission, this March was the first time the bill has been voted out of the committee where it started. It’s now in the Senate Ways & Means Committee.

Joseph T. Bartulis Jr., head of labor and employment law practice area at Worcester’s Fletcher, Tilton & Whipple law firm, said it makes sense to let each employer decide what jobs are most valuable to it, as they can under current law.

“You could say that having a jovial, friendly, gregarious receptionist is more valuable than someone who brings the mail around,” he said, adding that a different company might make the opposite decision. “It’s a judgment call, because what is important to one employer may not be important to the other.”

To DeFranco, though, the legal change could be good for companies that might have trouble determining a fair way to set pay.

“It helps you to define what the job is, what are the responsibilities,” she said. “Then you have a very neutral way of defining wages and salaries.”

Tuesday, May 11, 2010

Tot Shots at Lindsay Lohan

NY Post

 
 
The E-Trade baby struck back at Lindsay Lohan -- and what a potty mouth on this kid!

Lawyers for the financial firm filed hundreds of pages detailing Lohan's drug abuse, brawls and DWI busts -- including reams of profanity-laced Internet comments from detractors -- all under the guise of proving she lives in Hollywood and not Long Island, where the case was filed.

Despite the catalog of bad behavior the papers chronicle, E-trade claims it's not making the argument that she has already defamed herself far more than their commercial -- which features a "milkaholic" baby named Lindsay -- ever did.

Lohan is "a pot-stirring, lazy, irresponsible, disrespectful little drama queen," the papers -- filed in Nassau County Supreme Court -- quote one on-line commenter as saying.

"Why does anyone want to know what this train wreck is doing?" another adds. "She is the classic child star. A little success (parents pushed her into the business) at a young age and then she thinks she's the poo."

"How can she pay her rent and pay for her coke?" yet another writes. "That sugarcane she's sniffin' doesn't come cheap . . . "

The huge file of clippings is being used to advance the argument that Lohan is a Californian.

E-Trade is not, however, requesting a change of location to LA -- they want the court fight to be switched to Manhattan, where E-Trade has its corporate headquarters.

Dina Lohan, the star's mother, said the court papers are only going to help Lindsay's $100 million lawsuit.

"This is the whole reason we are suing them -- for demeaning Lindsay," Dina Lohan said. "They are just proving how they operate -- they play dirty."

Lohan's lawyer, Stephanie Ovadia, vowed to fight the motions to dismiss and to change the venue.

E-Trade lawyer Howard J. Rubin declined to comment on the case, but his papers claim that public records show Dina Lohan, not her daughter, owns the Merrick address given as Lindsay's in the lawsuit.

Monday, May 10, 2010

Gas Royalty Conundrum: Will Attorney Generl Move to Help Landowners?

Tri Cities

 
At 9 a.m. on April 19, three men stepped into a conference room on the top floor of the downtown Richmond building that houses Virginia’s Office of the Attorney General: a private attorney with a keen interest in energy policy, an independent grocer from Texas, and one of the attorney general’s top deputies.

The trio had assembled to discuss the inner workings of Virginia’s legal machinery for developing its natural gas reserves. Specifically, the two visitors shared their observations and concerns regarding the Virginia Gas and Oil Board, the regulatory body that has enabled a dramatic expansion of gas production, while funneling tens of millions in gas royalties into escrow accounts that are not routinely monitored for compliance.

Joining the participants by phone was the man responsible for setting up the meeting: Tazewell lawyer T. Shea Cook, who earlier this year engaged Virginia’s attorney general in brief legal combat by challenging the constitutionality of the Virginia Gas and Oil Act. Cook dropped his lawsuit Jan. 14, exactly two weeks after filing it, to clear the way for state lawmakers to introduce reforms to the statute he attacked.

With the legislative session over, Cook requested an audience with his recent adversaries as part of a “collaborative” approach. The goal, he explained in a recent interview, was to “make our case informally to an important representative of the attorney general.”

That representative was Richard Neel, deputy attorney general for technology, real estate, environment and transportation. Making their cases in person were John Sheffield, a Texas grocer with mineral interests in about 3,000 acres in Buchanan County and the plaintiff in Cook’s lawsuit; and Peter Glubiak, a Richmond-area lawyer who has spent much of the past decade battling energy corporations and the Gas and Oil Board to dislodge royalties in escrow for his landowner clients.

The meeting with Neel signals that a range of controversies in Southwest Virginia’s gas fields have migrated out of the weeds to arrest the attention of Attorney General Ken Cuccinelli. Less certain is whether Cuccinelli’s sensitivity to the controversies will translate into timely relief for thousands of landowners who have not been paid for the gas sucked from beneath their land for as long as 20 years.

A key topic of discussion at the April 19 meeting was legislation signed into law by Gov. Bob McDonnell just six days earlier. The new law, modeled on a 2004 Supreme Court of Virginia ruling that Glubiak won, aims to resolve the ownership dispute over coalbed methane gas; that dispute has stranded millions in royalties in escrow.

The Gas and Oil Board historically has presumed that there is a conflict over coalbed methane whenever unrelated parties own the coal and the gas rights to the same tract of land, and the board has ordered gas companies to pay royalties from the disputed gas into escrow. The new law states that landowners who sold only coal retained the rights to coalbed methane – ostensibly resolving that conflict.

“My position is that if you’ve got the authority to determine there is a conflict, then you’ve got the authority to determine there isn’t a conflict – by logical extension,” Glubiak, reflecting on the meeting, said by phone.

Cook, agreeing, said he wants the board to revisit its orders directing companies to pay royalties into escrow, and release the money in cases where the new law resolves the conflict. “That’s a very concrete, tangible thing that can be done,” he said.

The meeting lasted about an hour and a half. Neel, through a spokesman, characterized it as “informative.” He took at least four pages of notes.

Just 24 hours later, at the Gas and Oil Board’s monthly hearing in Lebanon, Va., the state’s top energy official announced that in spite of the legislative reforms, the board has no authority to determine coalbed methane ownership. The escrow gates will not open without a court order, an agreement between parties presumed to be in conflict, or – effective July 1 – the decision of a court-appointed arbitrator.
 
Eyes on the attorney general

Cook filed a lawsuit in Tazewell County Circuit Court on Dec. 30, advancing a wide-ranging argument that the 1990 Virginia Gas and Oil Act deprives landowners of their property without due process and without guaranteeing them just compensation.

“The shortcomings [in the law] add up to one big due process violation,” Cook recently summarized.

He withdrew his lawsuit Jan. 14, the day he read a lawmaker’s comments in the Bristol Herald Courier, expressing a concern that his active litigation might stall the legislature from enacting related reforms.

Almost immediately, Cook shifted gears.

On Jan. 15, Cook’s law firm donated $1,195 to Cuccinelli’s inaugural committee, according to Virginia State Board of Elections data. In an interview, Cook said he could not immediately recall if he made the contribution while his lawsuit was pending or afterwards, but said it had nothing to do with lobbying.

“I’ve been a supporter and fan of Ken Cuccinelli for a long time,” Cook said, citing the Republican attorney general’s role as a state senator in overhauling Virginia’s eminent domain statute. “He seems to get the role of private property, the idea that people’s property rights and ability to protect those rights is a core function of government.”

Asked if he intends to re-file his lawsuit, Cook said, “I’m not committed to re-filing it.” Instead, he is taking his cues from the attorney general, and how he advises the Gas and Oil Board going forward.

On Tuesday, Cuccinelli came to the Bristol Chamber of Commerce to discuss his office’s initiatives. When asked for his view of the recent reforms to the Gas and Oil Act, Cuccinelli said, “My own choice would have been to take a more aggressive legislative approach.”

Asked to elaborate, the attorney general said, “I think it takes a little bit of optimism to think the voluntary approach will move us very far.” He added, “I’m not optimistic by nature.”

The “voluntary approach” refers to a reform sponsored by Delegate Terry Kilgore, R-Gate City, that allows for people in dispute over gas royalties to enter into binding arbitration when all parties agree. The system would require court-appointed arbitrators – attorneys with at least 10 years of experience in real estate law – to decide ownership within six months.

The arbitrator’s fee and court costs would be paid out of interest earned on royalties in escrow, while available. So far this year, the accounts have earned about $10,700 after deducting expenses; last year, the accounts collectively lost $25,000 in negative interest.

A pivotal question is whether landowners, cynical after years of dealing with companies that have mined their minerals without paying them, will agree to binding arbitration – even with legal precedent and a new state law in their corner.

“If I were a betting man, I’d bet we’ll be revisiting this in a year or two,” Cuccinelli said.

State Sen. Phillip Puckett also is skeptical that arbitration will unlock much of the royalties trapped in escrow.

“Most of our people are not going to do that,” the Lebanon Democrat said by phone. “They’re just going to sit there and do nothing.”

A question of conflict

Puckett had hoped that the reform he squired through the legislature with Delegate Bud Phillips, D-Castlewood, would resolve the dispute over coalbed methane and free such royalties from escrow. He envisioned his constituents bringing their mineral severance deeds before the board, and collecting their royalties without having to hire a lawyer, negotiate with a coal company or go through arbitration.

Stephen A. Walz, director of the Department of Mines, Minerals and Energy, has a different vision: Resolving ownership is best left to courts, not citizen boards.

“The law change didn’t tell the board, ‘You should start adjudicating property rights,’ ” Walz said in an April 20 interview. “It didn’t do that. And so it didn’t change the authority of the board.”

Butch Lambert, chairman of the Gas and Oil Board, announced in April that he had requested a formal, expedited opinion from Cuccinelli’s office on whether the board had the authority to determine ownership, guided by the new law clarifying the coalbed methane dispute.

Cuccinelli would not comment on the request for his formal opinion. But if the law resolves the dispute that originally sent royalties into escrow, Cuccinelli opined, then that money should now flow to the rightful owner.

“Money stays in escrow until the conflict is resolved,” he said. “By definition, if there isn’t a conflict over a particular piece of property, then the money associated with that property ought to be distributed.”

Just what counts as a conflict in the context of mineral ownership is an open question. It is not defined in the Gas and Oil Act.

Walz believes that a conflict can be as simple as any two parties claiming the same property, regardless of a claim’s merit. Cuccinelli was more circumspect in what constitutes a conflict.

“I do think there are plenty of cooked-up conflicts by people who are just hoping to get some of the money,” he said. “And how do you contend with that in sifting the wheat from the chaff? The law that was passed this session was a pretty gentle way to go about trying to do it, and if it was too gentle, which is my anticipated observation, then we’ll come back and look for something that pushes harder.”

The revelation that his approach might have been too gentle is deeply frustrating to Puckett.

“I think somebody should have along the lines said, ‘What you’re doing is not going to help,’ ” the lawmaker said.

“I’m very disappointed that the board is seemingly taking the position that they’re not going to do anything differently,” he said. “What we passed was just another tool for people to go court and prove their case and come back to the board?”

Philadelphia Hosts Nation's Finest Young Legal Eagles

Philadelphia Inquirer

 
 
After the witnesses had been grilled, the evidence entered, and the defendant himself had taken the stand in a dramatic, if theatrical, bid to win acquittal, it all came down to closing arguments.

Prosecutors contended a web of circumstantial evidence led inescapably to the conclusion the defendant had committed aggravated assault when a flash mob gathered on Independence Mall. The defense attorney countered that the charges against high school student Maddox Hale were more guesswork than police work.

"It is the prosecutor's task to prove a crime beyond a reasonable doubt - what you saw today was only doubt," said Matt Caponigro, of South Bend, Ind., who led the defense team.

In the end, though, the jurors kept the verdict to themselves - at least for a little while.

That's because the case was fictional, part of a national mock-trial competition playing out in Philadelphia on Friday and Saturday, with the Pennsylvania Bar Association as its host. The winners were to be named only at the end of the competition Saturday evening.

The mock trials were conducted in City Hall courtrooms and the Criminal Justice Center, which hummed with students, family members, and lawyers.

About 750 students from 41 states, the Northern Mariana Islands, Guam, and South Korea competed in 89 mock trials to see who thought fastest on their feet, made the most powerful arguments, and had the most unshakable command of the legal issues.

Each of the teams had finished first in state competitions. Lawyers from around the country volunteered to judge, write case materials, or to help out in other ways. Among the jurors in the final round was Judge Marjorie Rendell of the U.S. Court of Appeals for the Third Circuit.

Representing Pennsylvania was Scranton Preparatory School. Mendham High School in north Jersey represented New Jersey.

The pressures of the last few weeks have been intense.

"The teams are spending 20 hours a week preparing for this; it really is a journey for the teams that make it," said one of the organizers, Jane Meyer, a lawyer and clerk for Dauphin County Judge Jeannine Turgeon.

The case centered on the fictional high school senior, a rabble-rouser with a revolutionary bent who made it his mission to undermine the authoritarian principal of John Peter Zenger High School, a troubled inner-city school near Independence Hall.

The case draws much of its inspiration from the Revolutionary War era. For added measure, Meyer and others who wrote the case material, including Paul Kaufman, an assistant U.S. attorney in Philadelphia, crafted a tortuous fact pattern open to multiple interpretations.

The facts, as outlined in the case materials, were these:

School principal Carter Braxton took over in 2007 promising to restore order after a period of violence and gang activity. He banned gangs, greatly increased the number of security guards, installed security cameras, and sharply restricted movement of students in the building.

The students chafed under the new discipline, none more so than Maddox Hale, who, during debate club meetings, fulminated against the principal.

As part of his campaign of agitation, Hale organized a student rally across the street from the school on Feb. 27, 2009.

Days before the rally, an anonymous message was posted on a social-networking Web site called Jitter urging students to join the rally and begin pelting security guards with rock-filled snowballs when Hale, in a speech, uttered the legendary words of John Paul Jones, "I have not yet begun to fight."

Hale and another student were arrested when the event played out as advertised.

To some expert outside legal observers, the thin skein of facts tying Hale to the snowball throwing or urging others to act violently made the prosecution case a bit of a stretch.

"My first instinct would be that in Philadelphia, of all places, where the Constitution enshrined the right of free speech, this is a perfect example of someone exercising that right," said Robert C. Heim, chairman of the litigation department at Dechert L.L.P. "He can't be held responsible for the wayward acts of some unnamed person."

Hale, according to the case material, took his revolutionary role so seriously that he adopted Revolutionary-era speech.

In the first round, David Kern of the South Bend High School team, played the role of Maddox Hale with exaggerated theatricality, fulminating about his constitutional rights in a convincing, colonial-era accent, and explaining that he had wanted to peacefully pursue his dispute with the principal by running for student body president.

"I decided to follow in the footsteps of Washington, Jefferson, and Lincoln," he testified in a booming voice.

It was a passionate performance, for sure. But under the terms of the competition, he would have to wait until the awards dinner Saturday night to find out whether he had been acquitted.

Friday, May 7, 2010

Panel Investigating Johnson & Johnson Recalls

NY Times
 
Lawmakers requested information on Thursday from regulators about Johnson & Johnson’s recall of Children’s Tylenol and other over-the-counter pediatric medicines, saying the company’s repeated recalls “point to a major problem” with production.

The House Committee on Oversight and Government Reform has opened an investigation after Johnson & Johnson recalled 40 widely used children’s pain and allergy medications, saying some might have a higher concentration of their active ingredients, while others might be contaminated.

In an F.D.A. report issued Tuesday, inspectors said they had found thick dust, grime and contaminated ingredients at the plant that produces Children’s Tylenol and dozens of other products recalled last week.

Johnson & Johnson has had four recalls of over-the-counter medicines in the last year.

“Taken together, these recalls point to a major problem in the production of McNeil products,” the committee chairman, Edolphus Towns, Democrat of New York, and the panel’s ranking Republican, Darrell E. Issa of California, said in a statement, referring to the company’s consumer health care unit.

The McNeil unit of Johnson & Johnson declined to comment.

BP Spill Lawsuits Might Be Combined, Resolved in Three Months, Lawyer Says

Bloomberg

 
 
About 200 attorneys suing BP Plc over the Gulf of Mexico oil spill met in a New Orleans hotel to devise a strategy for resolving virtually all spill litigation within three months, a lawyer said.

Daniel Becnel, the lawyer who called the meeting, has asked a federal judicial panel in Washington to combine thousands of claims by commercial fishermen, shrimpers, property owners, seafood processors and tourism-related businesses into a single multidistrict case before one judge in New Orleans. That could keep the lawsuits from dragging on for years and would get badly needed cash into victims’ hands, Becnel said.

“We’re not going to have a long march to trial,” Becnel said yesterday in an interview before the meeting. “This could all be over in 90 days.”

Becnel represents hundreds of individuals and businesses claiming damages from the oil slick created by the April 20 explosion of the Deepwater Horizon drilling rig, which burned and sank about 40 miles off the Louisiana coast.

More than 70 lawsuits, almost all class action lawsuits potentially involving thousands of claims, have been filed against BP, which owned the offshore lease where the damaged well is now gushing at least 5,000 barrels of oil a day.

Defendant Companies


Also named as defendants in most of the suits are: Transocean Ltd., which owned the rig; Cameron International Corp., which supplied the blowout prevention equipment on the well; and Halliburton Energy Services Inc., which was providing cementing services to the well. None of the companies has accepted liability for the accident. BP Chief Executive Officer Tony Hayward has said the company will clean up the oil and pay “all legitimate claims.”

David Nicholas, a BP spokesman, said in an e-mail yesterday that the company doesn’t comment on litigation or potential litigation.

Becnel asked the judicial panel to expedite his request to combine the cases before one of three New Orleans judges, all of whom have experience with multidistrict litigation.

Brent Coon, a lawyer from Houston, described the meeting, held behind closed doors, as productive.

“Whenever lawyers get together to cooperate, the clients benefit,” he said in an interview after the meeting.

Becnel previously advocated combining lawsuits over Merck & Co.’s Vioxx painkiller as well suits by homeowners over toxic drywall made in China. Both of those combined cases are being handled by federal judges in Louisiana.

If the spill cases are combined, Becnel said he will immediately ask the judge for summary judgment in favor of damaged businesses and property owners.

“At that stage, what in the hell do I have to prove, because my clients were clearly damaged by the spill,” Becnel said.

The MDL request was made in Acy J. Cooper Jr. v. BP Plc, 2:10-cv-01229, U.S. District Court, Eastern District of Louisiana (New Orleans).

BP Oil Spill to Be Biggest Energy Insurance Loss in 20 Years, Catlin Says

Bloomberg

The sunken Deepwater Horizon oil rig in the Gulf of Mexico will lead to the biggest energy insurance losses in more than 20 years, Catlin Group Ltd. said.

The April 20 explosion that killed 11 workers and triggered a subsea well leak is likely to be the biggest energy market insurance loss since the Piper Alpha oil platform fire in 1988, the Hamilton, Bermuda-based insurer said today in a statement.

Losses from Piper Alpha, coupled with asbestos claims, triggered a spiral of reinsurance losses that cost Lloyd’s of London 8 billion pounds ($11.7 billion) between 1988 and 1992. Claims from Deepwater Horizon, which was under contract to BP Plc when the blast occurred, may reach $1.6 billion, according to JPMorgan Chase & Co. analyst Michael Huttner.

Catlin’s claims from the disaster will be about $40 million, while Lloyd’s of London insurer Chaucer Holdings Plc said today it expects net losses of $25 million. Lancashire Holdings Ltd. said May 5 it expects to incur a loss of $25 million from the disaster.

Transocean Ltd., the world’s largest offshore oil driller, said yesterday it has collected $481 million from a $560 million insurance policy.

The Piper Alpha explosion in the North Sea killed 167 men when gas from ruptured pipelines ignited.


Banks Hemorrhage Cash With Cards Wanting To Be American Express‏

Bloomberg
William “Wild Bill” Janklow’s law office in Sioux Falls, South Dakota, is crowded with mementos from his 16 years as a Republican governor. On a low, wooden bookcase, near bottles of hot sauce custom labeled for his annual Buffalo Roundup, he keeps a 4-foot length of red ribbon festooned with Citibank credit cards.

Janklow is the politician who, in 1981, brought Citibank to South Dakota. When he cut that ribbon to welcome the New York- based bank, he blew the lid off the U.S. credit card business, Bloomberg Markets reports in its June Issue.

The law inviting Citibank to South Dakota threw out limits on how much interest the state’s banks could charge borrowers -- rules known as usury caps.

“Citi wanted the invitation, and they knew what we were doing with rates,” Janklow says. In a secret meeting at the governor’s residence with Walter Wriston, chief executive officer of Citicorp, the bank’s parent, Janklow agreed to drive through the legislation in a swap for 400 jobs.

“That was the deal,” Janklow says. “You have no idea, in a state of 750,000, how many 400 jobs is, all in one place.”

The business Janklow and Wriston set in motion with a handshake that evening transformed U.S. consumer lending. Once interest rates were allowed to rise as high as banks could push them, credit cards became a ticket to enormous profit. In the decade ended on Dec. 31, 2007, credit card issuers together earned more than $50 billion, mostly on the difference between their own cost of money and consumer rates of as much as 30 percent. So-called subprime lenders pitched rates as high as 80 percent. At JPMorgan Chase & Co., cards accounted for 20 percent of both revenue and profits in 2007.

Profit Driver


“The credit card business has been a critical driver for these companies; it was the single most profitable product in the lending arena next to mortgages,” says Richard Bove, an analyst at Rochdale Securities in Lutz, Florida.

Then the harshest economic decline since the 1930s crushed the job market, and a record number of card holders stopped paying their bills. The three biggest card-issuing banks lost at least $7.3 billion on cards in 2009. Bank of America Corp., after earning $4.3 billion on cards in 2007 -- a third of its total profit -- swung to a $5.5 billion loss in 2009. JPMorgan Chase lost $2.2 billion last year on cards and, in mid-April, reported a $303 million loss for the first quarter.

“We have a business that is hemorrhaging money,” says Paul Galant, CEO of Citigroup Inc.’s card unit, where Citi-branded cards lost $75 million last year. The bank won’t disclose how much it lost on cards it issued under the names of retail stores.

$89 Billion

At the same time, the card issuers’ bottom line is being hurt by a new federal law forcing them to be more transparent about fees and interest charges. U.S. credit card issuers wrote off a record total of $89 billion in card debt in 2009 after losing $56 billion in 2008, according to R.K. Hammer Investment Bankers, a Thousand Oaks, California-based adviser to card issuers.

U.S. credit card delinquencies and write-offs tend to track the national jobless rate. When unemployment jumped to 10.1 percent in October, card industry loan write-offs hit 10.4 percent, according to estimates from Moody’s Investors Service.

American Express Co., Capital One Financial Corp. and Discover Financial Services, which only in recent years became banks, fared better than Bank of America, Chase and Citigroup. They made money in 2009 after more-cautious lending during the boom years, which limited the rise in defaults. The sea of red ink began to recede in the first quarter for Charlotte, North Carolina-based Bank of America. It reported $952 million in profit from cards in the quarter after releasing reserves set aside in 2009 to cover future defaults.

Goldman Suit

Turning around their card units may be more important than ever to the banks in the wake of the U.S. Securities and Exchange Commission’s lawsuit accusing Goldman Sachs Group Inc. of fraud, says Michael Holland, who oversees more than $4 billion as chairman of Holland & Co. in New York. The case is focusing Washington’s lens on regulating the derivatives market, which could weigh on the big banks’ trading operations, he says.

“I look at cards as able to do well when other parts of the business aren’t,” says Holland, who owns shares of JPMorgan. Still, he thinks the days of immense profits in cards may be over. “The future may not be as good as the past,” Holland says.

As the economy revives, defaults will ease. Washington’s assault on the industry may not. In February, the Credit Card Accountability, Responsibility and Disclosure (CARD) Act wiped out many of the banks’ most lucrative billing practices, including their ability to raise rates on existing debt at any time.

Washington Rules


Now, the banks have to give cardholders 45 days’ warning on any rate rise and can’t apply a new rate on existing debt. JPMorgan Chairman and CEO Jamie Dimon said during an earnings conference call in April that the changes will cost his bank up to $750 million in 2010. Banks overall may lose $50 billion in revenue during the next five years, including $11 billion in 2011, because of the legislation, says Robert Hammer, CEO of R.K. Hammer Investment Bankers.

Congress isn’t finished. A proposal for a U.S. consumer finance protection agency, which would police how banks deliver and service financial products, has passed in the House and was being discussed in the Senate as of mid-April.

Credit card customers, meanwhile, are still furious after years of rising rates, snowballing fees and less time in which to pay their bills. Citigroup’s Galant, who took over in April 2009, gets hundreds of e-mails a month.

‘Angry at Us’


“They are angry at us; they are angry at the system; they are angry at the government,” he says. “All they want to do is get back to a peaceful existence.”

The lenders are busy reinventing themselves and the risk models they used to justify passing out plastic to almost anyone who would take it. They had come to rely on computer-generated data to assess borrowers.

“We have shifted to more judgmental lending,” says Susan Faulkner, who took over Bank of America’s card operation in early March.

That means they’re putting human eyes on applications and judging borrowers on, for instance, the type of mortgage they hold. “Instead of starting with the product, we are starting with the customer,” Faulkner says.

The borrowers that card issuers want are richer and more- stable payers than the hordes they marketed to during the boom years. The least-creditworthy customers are being dumped.

Shrinking Credit Lines


The big six issuers have trimmed total credit available to their customers by about 25 percent partly by shrinking credit lines and not renewing expired cards, says Moshe Orenbuch, a bank analyst at Credit Suisse Group AG in New York.

The number of cards in circulation has declined to 576 million from 708 million in 2007, according to the Nilson Report, a Carpinteria, California-based industry newsletter. Customers bear some responsibility for the mess, Faulkner says.

“The business has to be right-sized,” she says. “There was too much credit extended; customers overextended themselves in the use of that credit.”

To hang on to their richest and most reliable payers -- and increase their fee revenue -- the banks are inventing new premium cards and adding to rewards programs. Those willing to pay $85 a year for a Chase Sapphire card, for instance, are guaranteed a live person will answer if they call. They also receive a yearly “dividend” of 7 percent of the reward points they have accumulated.

Airline Offer


In November, Chase also offered a co-branded card with British Airways Plc that gave 100,000 miles to any customer who signed up and spent $2,000 in the first three months of membership. That’s more than enough points for a round-trip plane ticket from the U.S. to Europe. Chase has since scaled back the reward to 30,000 points.

They’re all chasing American Express, which has long catered to a wealthier group. The firm made $2.1 billion in 2009, helped by expense cuts and a default rate that was among the lowest in the big six. The company’s stock was the top performer in the Dow Jones Industrial Average in 2009, returning 118 percent.

Total spending per American Express card averaged $8,665 in 2009, compared with an average of $3,073 for cards issued by banks that partner with San Francisco-based Visa Inc. and Purchase, New York-based MasterCard Inc., according to the Nilson Report.

“Everyone is trying to be American Express,” Orenbuch says. Down the line, he says, the competition may mean better pricing for the most-creditworthy customers.

Razzle Dazzle


The razzle-dazzle isn’t working yet. U.S. cardholders, still stung by recession, have spent less on plastic. Revolving debt fell by $9.4 billion in February, according to the U.S. Federal Reserve, compared with the same month a year earlier. Overall, consumer credit fell in February for the 12th time in 13 months.

“The banks are feeling the squeeze,” says Elizabeth Warren, who chairs the Congressional Oversight Panel of the government’s Troubled Asset Relief Program and has written four books about debt and the American middle class. Warren, who turns 61 in June, was first to map out the idea for the consumer agency, which President Barack Obama supports.

“Everyone has more credit cards than they want,” Warren says, sitting in the cafeteria of the Russell Senate Office Building on Capitol Hill before heading to a meeting at the White House. “There is no more growth.”

Baby Boomers

Shifting demographics, abetted by the financial crisis, will limit demand for consumer credit for years to come, says David Robertson, publisher of the Nilson Report. The business gathered steam as the post-World War II baby boom generation hit their peak spending years, he says. The next generation is smaller and, coming off the market crash, more cautious.

“There was a fantastic opportunity for the industry to grow with the baby boomers,” Robertson says. “Now you simply don’t have as many people entering their prime years.”

Gordon Smith, who joined JPMorgan’s Chase Bank as CEO of card services in 2007, has a different view. As the U.S. population grows, so will the card business, he says. Long-term behavioral changes, such as Internet shopping and the decline of checks and cash, are spurring the credit- and debit-card business.

“My guess is that the piece of plastic will be in place for a very long time,” Smith says.

JPMorgan Chase, the biggest U.S. card issuer with 145 million accounts and $163 billion in outstanding loans, more than doubled its direct mail offers in the last three months of 2009 from the previous quarter, according to Mintel Comperemedia, a Chicago-based firm that tracks such offers.

Competition

“We intend to go after all the best customers of all of our competitors,” Smith says.

The challenge is to sort out the good risks from the bad.

“There is a segment of people who will have a lot less credit available,” Smith says.

Chase has revved up models that compare customers’ total debt level with their income. The bank will likely end up offering credit to about 15 percent fewer customers, Smith says.

To Warren, who is also a Harvard Law School professor, pulling credit from the riskiest borrowers may be necessary. Many low-income card­holders, she says, were drawn in by “tricks and traps,” such as time-limited low rates.

“Millions of American families can’t pay off their credit card bills right now,” says Warren, who estimates that they’re spending $100 billion a year on fees and interest-rate payments. “Are their economic lives better off because they are spending the hundred billion? I don’t think so.”

Transparent Marketing


Warren says most people, regardless of income, should still have some access to consumer credit. She is pushing for lower rates and fees and simpler, more transparent marketing of terms.

“If the business model is to offer credit to every man, woman, child and dog in America in unlimited amounts, it just doesn’t work,” she says. “If it’s to offer a cheaper credit product to people who become more likely to pay, then that is sustainable.”

Bank of America’s Faulkner, who oversees $677 billion in deposits as well as a $150 billion card portfolio, says she has paid attention to surveys showing that customers want more clarity. In September, the bank slapped the decades-old brand name BankAmericard on a basic card, which has one rate (prime plus 14 percent) and one flat fee for late payments ($39). On its Web site, the bank cites its single-page disclosure form as a “key feature.”

“This was answering an unmet need,” Faulkner says.

20 Million Cards


Given the size of her franchise, Faulkner has a long climb ahead before she returns to a time when credit cards were Bank of America’s most reliable profit center. In 2006, CEO Ken Lewis paid $35 billion for MBNA Corp. and its 20 million card customers.

Until the first quarter, Bank of America’s card business had posted six straight quarterly losses, with many of its delinquent borrowers in parts of the country such as California, Florida and Nevada that were hardest hit by the collapse in housing prices.

At Citigroup, Galant is rethinking how revolving, unsecured lending relates to its customers’ other banking products. Among Citigroup’s ideas: the Forward card, which allows customers to earn a 0.25 percentage-point drop in their annual percentage rate, or APR, for three months of paying on time.

“Everybody now is saying, ‘We are going to pick the clients that we think are really safe bets,’” Galant says. “But what about the other 90 percent of people?”

Sioux Falls


Citibank passed out $80 billion in new credit to borrowers in 2009, including $21 billion in the fourth quarter, spokesman Samuel Wang says. The company is 27 percent owned by the U.S. government.

In Sioux Falls, Citigroup has grown to more than 3,000 employees in 28 departments from those 400 employees promised to Janklow in the 1980s. They occupy a 76-acre (31-hectare) campus near the airport, in three broad, low buildings, which include a day-care center and kindergarten. About 1,200 people work in the 24-hour customer service unit, where most sit in gray­fabric cubicles wearing headsets and taking calls from people who are having trouble with their credit cards.

Citi has enhanced efforts that let borrowers delay payments or reduce their interest rates, Wang says. The bank offers incentives and a consolidation program to help reduce card balances. About 490,000 people signed up for such help in the fourth quarter of 2009, compared with about 357,000 a year earlier, Wang says.

‘Hell of a Problem’


Three decades ago, Wriston had urgent business to conduct when he flew to South Dakota. Wriston, who ran Citicorp from 1970 to 1984, was struggling in the aftermath of the high inflation and interest rates of the time. In February 1980, the fed funds rate was 13.35 percent; New York law, meantime, had a statutory cap on consumer lending of 10.5 percent. Citi was losing money on every credit card loan it handed out -- even before factoring in accounting expenses and credit losses.

“Citibank had a hell of a problem,” Janklow says, reminiscing during a three-hour dinner on a March evening at Foleys Steakhouse in Sioux Falls.

Wriston had learned that South Dakota’s bankers were already pushing to jettison the state’s usury caps and that the legislature was in session and might be able to move fast, he says. When the law that some still call the “Citibank bill” passed, “I became a celebrity in credit card circles in America,” Janklow says, with a laugh.

Delaware Joins In

A year after South Dakota lifted its rate caps, Delaware also relaxed its usury rules. JPMorgan and Bank of America’s card businesses are both based in the Middle Atlantic state. Federal law allows banks to lend according to the rules of the state in which they are based.

Once South Dakota and Delaware knocked the lid off interest charges, the U.S. credit card business exploded. A big player in the 1990s was Capital One, which began as the credit card arm of Richmond, Virginia-based Signet Bank.

Capital One developed computer programs designed to assess customers’ shifting risk profiles. The statistical modeling allowed for a much broader range of rate offerings in which stable customers would get lower rates and riskier borrowers could be charged more.

With data suggesting that handing out more credit was a safe bet, card issuers bumped up limits, passed out second and third cards to existing customers and marketed to a broader group.

‘Smoking Gun’


As the years passed, banks were lulled into thinking they could manage any economic downturn, Nilson Report’s Robertson says. They didn’t bargain for a sudden, severe economic plunge.

“The industry believed that they had enough experience to manage unsecured credit to higher risk consumers,” Robertson says. “But no one anticipated the depth of the recession and the impact it would have on jobs. The unemployment rate is the smoking gun.”

Still, bank adviser Hammer says, the card business isn’t going anywhere.

“The customer got lost in the days of easy money,” he says. “Now they just have to be much smarter about how they do all of this.”

Janklow, the man who brought those jobs to Sioux Falls, was re-elected governor of South Dakota in 1982 with 72 percent of the vote. He served again from 1995 to 2003 and was elected to the U.S. House of Representatives. Then, his career was marred by tragedy.

Fatal Accident


In August 2003, while driving a Cadillac near his home, he struck and killed a motorcyclist. He was found to have been speeding and to have gone through a stop sign; he was sentenced to 100 days in jail. He left public life and is now practicing law.

Janklow is sympathetic to the woes of the industry that helped make his career, he says. Yet he understands the public anger at the high rates and fees. He still uses an AT&T-branded credit card he got in the 1980s because he was guaranteed no annual fee for life.

“There is an old saying in capitalism: ‘What you abuse, you lose,’” Janklow says.

The question now is whether the executives running the credit card industry have gotten the message.