Federal Judge Blocks Key Components of AZ Immigration Law

Arizona Republic

Arizona Gov. Jan Brewer's office said late Wednesday that the state will file an expedited appeal with the 9th Circuit Court of Appeals on Thursday, asking the panel to lift the preliminary injunction preventing several sections of Arizona's new immigration law from going into effect.

The appeal will ask the court to lift the injunctions put in place by U.S. District Court Judge Susan Bolton earlier Wednesday and allow those provisions to go into effect until a decision is made on the merits of the law, Brewer spokesman Paul Senseman said.

As part of its motion, the Governor's Office also will ask the 9th Circuit to expedite its briefing schedule and its ruling on the matter, Senseman said.

Senate Bill 1070 was passed by the Legislature and signed into law by Brewer in April. It made it a state crime to be in the country illegally and stated that an officer engaged in a lawful stop, detention or arrest shall, when practicable, ask about a person's legal status when reasonable suspicion exists that the person is in the U.S. illegally.

It also made it a state crime to stop a vehicle in the road to hire a day laborer if it impedes traffic as well as to transport, harbor, conceal or shield an illegal immigrant while committing a separate criminal offense.

Bolton's ruling stops four of the law's more than a dozen provisions from going into effect.

"The court also finds that the United States is likely to suffer irreparable harm if the court does not preliminarily enjoin enforcement of these sections," she states in the ruling. "The balance of equities tips in the United States' favor considering the public interest."

Key parts of SB 1070 that will not go into effect Thursday:

•  The portion of the law that requires an officer make a reasonable attempt to determine the immigration status of a person stopped, detained or arrested if there's reasonable suspicion they're in the country illegally.

•  The portion that creates a crime of failure to apply for or carry "alien-registration papers."

•  The portion that allows for a warrantless arrest of a person where there is probable cause to believe they have committed a public offense that makes them removable from the United States.

• The portion that makes it a crime for illegal immigrants to solicit, apply for or perform work. There are three parts to that part of the law. Two of them will go into effect, one of them will not.

Bolton prevented from going into effect the part that creates a crime for an illegal immigrant to solicit, apply or perform work. She allowed the part that makes it a crime to pick up a day laborer in a roadway if it impedes the flow of traffic as well as the part that makes it a crime to be picked up as a day laborer in a roadway if it impedes the flow of traffic.

The ruling also says that law enforcement still must enforce federal immigration laws to the fullest extent of the law when SB 1070 goes into effect at 12:01 a.m. Thursday. Individuals will still be able to sue an agency if they adopt a policy that restricts such enforcement.

Bolton did not halt the part of the law that creates misdemeanors crimes for harboring and transporting illegal immigrants.

After the ruling came down, attorneys rushed to read the 36 pages and begin explaining to law enforcement what could still be enforced.

Brewer, in a phone interview from Tucson, said she was still being briefed on the order, but said, "I look at it as a little bump in the road."

Brewer has not yet spoken with her attorneys in detail, but said she "would assume" that their next step would be appealing the injunction to the 9th Circuit Court of Appeals. "The fact of the matter is this is just an injunction," Brewer said. "We need to go through the court process so the merits of the bill can be debated. I am sure as we go through the process, we'll get a fair hearing."

Bolton's ruling followed hearings on three of seven federal lawsuits challenging SB 1070. Plaintiffs include the U.S. Department of Justice, the American Civil Liberties Union, Phoenix and Tucson police officers, municipalities, illegal immigrants and non-profit groups.

Today's ruling is in the Department of Justice case. Bolton has not yet issued rulings on motions in the case filed by Phoenix Police Officer David Salgado and the case filed by the ACLU and other civil-rights groups.

What the ruling means

Brewer had tasked the Arizona Police Officer Standards and Training board with creating a training video for law enforcement around the state to help them comply with the law.

Lyle Mann, the agency's director, said Bolton's decision raises more questions about what portions of the law, if any, police departments will be enforcing on Thursday.

"We will review in detail the injunction as issued to see what, if any, response we need to provide to agencies," Mann said.

Maricopa County Sheriff Joe Arpaio said he was not surprised by Bolton's ruling, but it will have little impact on his planned "crime-suppression" operation scheduled for Thursday.

"That's not going to affect our human-smuggling or employer-sanction investigations, that wasn't addressed in that law," he said.

Arpaio said the only thing Bolton's ruling changed is the ability for Arizona law enforcement to use a state charge - willful failure to carry documents - to book someone into jail. Now, Arpaio said, the agencies can continue to contact Immigration and Customs Enforcement officials to determine if federal agents will take custody of the suspect.

Everyone booked into Maricopa County Jail will continue to have their immigration status screened by federally trained sheriff's deputies through an agreement with ICE.

Phoenix police legal advisors were busy combing through Bolton's ruling to determine the impact. The challenge, said Sgt. Tommy Thompson, will be determining what, exactly, that ruling means before 12:01 a.m.

Brewer gave AzPOST a month to develop the statewide training for law enforcement, and police across the state had a month to implement the training, which included a two-hour video and additional materials police departments used to supplement.

Legal advisors now have 14 hours to determine what Bolton's ruling does to the last two months of preparation.

"We have to give our legal people time to review it," Thompson said, adding that it is not unrealistic to expect officers to have some directive by Thursday morning.

"We are bound to enforce the law and that means that we enforce it correctly," Thompson said. "It's certainly a challenge for us to meet that deadline, but it's something that we will do our best to be ready to follow the guidelines laid out by the judge at this point."

The Pinal County Sheriff's Office also is waiting for a review.

"We have no reaction because we're going to do business today, tomorrow the same as we did yesterday ... If we come into contact with a load of what is obviously someone being smuggled, we'll do what we do today: We'll call ICE or Border Patrol or a deputy who is ICE certified," said Chief Deputy Steve Henry said.

Henry said he is waiting on an overview from the Pinal County Attorney's Office as to what happened in court today and what it means with regard to SB 1070 implementation.

"In the meantime, we're not even holding our breath," Henry said. "We're just doing business. We're not in the business of racially profiling or arresting people on their skin color. This is essentially a non event."

However, Sheriff Paul Babeu was more vocal in his opposition to the ruling: "Incredibly, even though there is not one person who can legitimately claim to be harmed by a law that has not even taken effect, the result of an injunction is de facto amnesty through non-enforcement of laws against illegal immigration."

The governor deferred answering specific questions about the impact of the ruling to her attorneys. For example, Bolton let the part of SB 1070 that requires agencies to enforce federal immigration law to the fullest extent of the law to stand, but enjoined the part about allowing officers to question an individual's legal status.

When asked how it would be possible to do one without the other, Brewer said her office would need to "confer with our lawyers to see how that would be enforced."

"Those are legal questions that do have to be addressed," said Brewer, who plans to be back in Phoenix by 3 p.m., and hopes to meet with her attorneys at some point this afternoon.

The Arizona Supreme Court had prepared an administrative order as to how the courts would handle SB1070 cases that was supposed to be issued Wednesday morning. Bolton's ruling sent the high court scrambling to revise the order in light of the enjoined portions of the law.

Originally it called for a review hearing after 24 hours for those people who were being held in custody only because their immigration status had not yet been verified. That issue became moot when the federal court order tabled that section of the law.

Instead, the Supreme Court ruled that the federal Immigration and Customs Enforcement agency be notified when defendants are found to be unlawfully present in the United States. And it codified a part of the law in which law enforcement officers apply to a judge to remove a suspect from the state, and rewrote the documents that law enforcement fills out for a defendant's initial court appearance.

Stakeholders react

Brewer said Bolton's order was not entirely a surprise, given some of the questions that the judge asked during last week's court proceedings.

Sen. Russell Pearce, a Mesa Republican and author of Senate Bill 1070, downplayed the significance of the judge's order Wednesday, noting that it was just a temporary injunction and that she allowed the portion of the bill that requires agencies to enforce federal immigration law to the fullest extent to remain in place.

"As of Thursday, the handcuffs come off of law enforcement," Pearce said. "This says clearly that we can enforce federal law and we cannot be impeded."Pearce believes the case will ultimately make its way to the Supreme Court, and he predicted a win for Arizona.

"We will appeal this immediately and we will win on appeal," he said. "This will be to the Supreme Court eventually, and I expect a 5-4 decision in our favor, perhaps even 6-3."

Rep. John Kavanagh, one of the co-sponsors of the bill, had a less optimistic view of the ruling, calling Bolton's ruling "very disappointing," saying that she "went to the meat of the law." "The decision is very disappointing," Kavanagh said. "Those were major parts of the law that helped us battle illegal immigration. I assume that we will immediately appeal to the 9th Circuit (Court of Appeals)."

Kavanagh said that the state remained committed to defending the law and seeing it enacted. "This is only the start of the legal battle."

Brian Bergin, the attorney representing Cochise County Sheriff Larry Dever as a defendant in one of the lawsuits, said he appreciated the fact that Bolton didn't prevent SB 1070 in its entirety from becoming law.

"But the court did enter an injunction prohibiting the enforcement of what we consider to be some of the act's more important provisions," he said.

Bolton has not yet issued an order in Dever's case, but Bergin said he expects it to be similar to the one she has issued. He said he still has to talk to Dever but he expects they would appeal.

Meanwhile, Hannah August, a Justice Department spokeswoman, said the administration believes Bolton's decision to block key parts of SB 1070 was correct.

"While we understand the frustration of Arizonans with the broken immigration system, a patchwork of state and local policies would seriously disrupt federal immigration enforcement and would ultimately be counterproductive," August said.

Matt Chandler, deputy press secretary with the Department of Homeland Security said Bolton's decision "affirms the federal government's responsibilities in enforcing our nation's immigration laws."

"Over the past 18 months, this administration has dedicated unprecedented resources to secure the border, and we will continue to work to take decisive action to disrupt criminal organizations and the networks they exploit."

ACLU of Arizona Executive Director Alessandra Soler Meetze said she's pleased with the judge's decision.

"We think this is a major step that will protect the residents of Arizona against racial profiling and discrimination," she said. "But we still have some concerns about the remaining provisions, especially how the harboring provisions and the day laborer provisions may be misapplied by overzealous law enforcement."

Shortly after the ruling, Attorney General Terry Goddard, who is the presumptive Democratic nominee for governor and Brewer's anticipated general election opponent, accused her of using SB 1070 for political gain, tweeting "Brewer played politics with immigration - and she lost."

Stephen Montoya, the attorney representing Phoenix police Officer David Salgado in the lawsuit he filed challenging SB 1070, said he was gratified by Bolton's ruling.

"We think she struck the heart out of 1070," Montoya said. "We're gratified but we're not surprised."

He said he expects the state to immediately file an appeal, and they will fight that. Montoya said he hopes that Bolton's ruling will bring a halt to the inflammatory rhetoric on all sides.

"I think the people who lost shouldn't feel like they completely lost because they do have an avenue of redress and that is the United States Congress," he said. "This debate is for the federal Congress, not for the state Legislature."

Rafael Limón, head of the Sonora state government's migrant affairs office in Nogales, said "It will give us a little rest, but it's not time to celebrate yet."

Limón's office has been bracing for a wave of new deportees because of the law, he said. The Sonoran government runs a clinic for deportees, gives them free telephone calls and pays half the cost of a bus ticket for out-of-state migrants who want to return home.

Sonoran officials are worried that a wave of deportees caused by SB1070 could lead to more crime in the state, Límon said.

"That's one of the fears, that we could see more social problems," Limón said. "With no money, some of those deportees may turn to crime."

Planned protests

David Gonzales, U.S. Marshal in Arizona, whose agency is charged with security at the federal courthouse in downtown Phoenix, said the building was closed to the public except for those who have business there.

Gonzales said there was some concern about protesters in the wake of Bolton's ruling. "When you have situations like this, emotions are running high on both ends," Gonzales said. "So the potential for violence is high."

A spokeswoman for Puente, one of the groups that have been organizing against the law, said the group doesn't view the partial injunction as a victory and believes the entire law should have been stopped.

"There is still a lot to be dealt with," said Opal Tometi, a spokeswoman for the group. "This decision doesn't get at the root of the issue or get at the concerns of the people affected."

Tometi said the group is planning on going ahead with Thursday's scheduled protest.

Community activist Salvador Reza said at an afternoon news conference that the community would not rest because of the injunction. "We will continue our struggle, we will continue our vigilance and we will continue our civil disobedience."

Those words were echoed by Pablo Alvarado,of the National Day Laborer Organizing Network, said "SB 1070 is on life support, but it's still alive."

Sharrod Plans to Sue Blogger

Associated Press

 

 

Ousted Agriculture Department employee Shirley Sherrod said Thursday she will sue a conservative blogger who posted a video edited in a way that made her appear racist.

Sherrod was forced to resign last week as director of rural development in Georgia after Andrew Breitbart posted the edited video online. In the full video, Sherrod, who is black, spoke to a local NAACP group about racial reconciliation and overcoming her initial reluctance to help a white farmer.

Speaking Thursday at the National Association of Black Journalists convention, Sherrod said she would definitely sue over the video that took her remarks out of context. Agriculture Secretary Tom Vilsack has since offered Sherrod a new job in the department. She has not decided whether to accept.

Sherrod said she had not received an apology from Breitbart and no longer wanted one. "He had to know that he was targeting me," she said.

Breitbart did not immediately respond to a call or e-mails seeking comment. He has said he posted the portion of the speech where she expresses reservations about helping the white farmer to prove that racism exists in the NAACP, which had just demanded that the tea party movement renounce any bigoted elements. Some members of the NAACP audience appeared to approve when Sherrod described her reluctance to help the farmer.

The farmer came forward after Sherrod resigned, saying she ended up helping save his farm.

Vilsack and President Barack Obama later called Sherrod to apologize for her hasty ouster. Obama said Thursday that Sherrod "deserves better than what happened last week."

Addressing the National Urban League, he said the full story Sherrod was trying to tell "is exactly the kind of story we need to hear in America."

Obama has acknowledged that people in his administration overreacted without having full information, and says part of the blame lies with a media culture that seeks conflict but not all the facts.

At the journalists convention, Sherrod was asked what could be done to ensure accurate coverage as conservatives like Breitbart attack the NAACP and other liberal groups.

Sherrod, 62, responded that members of her generation who were in the civil rights movement "tried too much to shield that hurt and pain from younger people. We have to do a better job of helping those individuals who get these positions, in the media, in educational institutions, in the presidency, we have to make sure they understand the history so they can do a better job."

She said Obama is one of those who need a history lesson.

"That's why I invited him to southwest Georgia. I need to take him around and show him some of that history," Sherrod said.

Sherrod said the description of the new job she has been offered in the office of advocacy and outreach was a "draft," and she questioned whether any money had been budgeted for its programs.

"I have many, many questions before I can make a decision," she said.

Despite her experience, Sherrod said she believes the country can heal its racial divisions — if people are willing to confront the issue.

"Young African-Americans, young whites, too, we've done such a job of trying to be mainstream that we push things under the rug that we need to talk about. And then we get to situations like this," she said.

"I truly believe that we can come together in this country. But you don't (come together) by not talking to each other. You don't get there by pushing things under the rug."

Sherrod said her faulty firing should not be blamed on all media.

Before the full video was released, Fox News host Bill O'Reilly said Sherrod should be fired, and others called her speech racist. O'Reilly later apologized.

"They had a chance to get the facts out, and they weren't interested," Sherrod said.

She said she declined to give Fox an interview because she believed they were not interested in pursuing the truth. "They would have twisted it," she said.

A Fox News spokesperson did not immediately respond to a request for comment.

Madison Firm Creates 'Civics' Video Game

Associated Press

A Madison-based company has worked with retired U.S. Supreme Court Justice Sandra Day O'Connor to create video games that promote knowledge about government.

Filament Games says it has created several titles for the iCivics project, which aims to remedy civics ignorance among middle-school students.

The games include one that involves the operation of a fictional law firm, and another that casts players as attorneys arguing landmark court cases. Others teach about the three branches of government, the legislative process and democracy.

The games were unveiled at the Games for Change festival in New York recently, and O'Connor has promoted them widely.

Filament Games was founded in 2005 and has grown to a staff of 16.

City Attorney may face Criminal Investigation

Chattanooga Times-Free Press

City Attorney Mike McMahan might have to return hundreds of thousands of dollars of city money, risk losing his job for 10 years and face prosecution for fraud after a state comptroller's report said he violated state law, records show.

"I am of the opinion that a reasonable jury would find it implausible that the city's own attorney, who was siphoning off hundreds of thousands of dollars a year to his own private firm, did so ignorantly and without knowledge of and intent to benefit his own finances and the business interests of his private law firm," Chadwick W. Jackson, staff attorney for the state Comptroller's Office, wrote in a letter to City Auditor Stan Sewell.

Mr. McMahan said he has done nothing wrong.

"I am angry," Mr. McMahan said Friday about the report. "I really am angry. This calls my integrity into question. My integrity has never been questioned."

A longtime arrangement between the city and the city attorney's office was illegal and Mr. McMahan knowingly violated Tennessee law by billing more than $15,000 a month for secretarial services at his private law firm, according to the comptroller's report released on June 29.

Mr. Jackson said he forwarded his findings to Hamilton County District Attorney Bill Cox for review. Mr. Jackson said Mr. McMahan should face criminal prosecution for fraud.

Mr. Cox said his office is looking over the comptroller's recommendations for prosecution.

"I'm reviewing it at this point of time," he said.

Mr. McMahan, who as city attorney is paid $105,765 a year by the city, also billed the city nearly $200,000 a year for clerical and legal assistance from the staff of his law firm, McMahan & Associates. Mr. McMahan insists he never profited from the arrangement, which he said is allowed under professional services contracts. But auditors claim the payments to Mr. McMahan as a city department head violate the city's conflict-of-interest and purchasing rules.

CITY RESPONSE

Mayor Ron Littlefield lashed out at the state Comptroller's Office on Friday, saying no one from the office ever contacted him or anyone else within the city. He said the arrangements described as being illegal have been going on for 45 years and his office corrected them by making the city attorney's office an in-house department in November.

"We're essentially beating a dead horse," Mr. Littlefield said. "It's not like this was anything new or interesting."

The state comptroller reviewed the case after Mr. Sewell conducted an informal audit in September. That audit criticized the arrangement that allowed the city attorney to use his own law firm for city-paid services and to do outside legal work while on the city payroll. Mr. McMahan said last year he personally earned less than $10,000 from outside legal work.

The City Council voted May 25 to forward the city audit to the state Comptroller's Office for an independent opinion. The comptroller's opinion since has been forwarded to several council members, along with the mayor and Mr. McMahan.

Mr. McMahan said he was so frustrated after seeing the report that he tendered his resignation but the mayor would not accept it. He said Friday that the city is correcting the situation and he had only been following the practices of his predecessors, Randall Nelson and the late Gene Collins.

"If I thought it was illegal, I wouldn't be here," he said. "I wouldn't have taken the job."

The report points out that before bringing the city attorney's office and staff within city government last year, McMahan & Associates billed the city about $15,300 a month for secretarial services based upon fees set by Mr. McMahan. The city also paid 80 percent of the payments for the law firm's lease in the Pioneer Bank building and also paid for health insurance for the employees of McMahan and Associates even though most were not city employees.

Mr. McMahan said his predecessor used a private firm to bill the city for secretarial services. After being appointed city attorney in 2009, Mr. McMahan said he found that, if he did the billing himself, he could save the city money.

"It was well intentioned to save city money," Mr. McMahan said.

But in his audit review last year, Mr. Sewell said the arrangement allowed the city attorney to oversee money going into a company he owned and controlled.

It will be up to Mr. Cox's office to seek any kind of criminal charges.

The City Council also could try to push Mr. McMahan from office and sue him to get back any of the compensation received from the arrangements.

"Why has he not been removed from office and repaid all compensation his firm received?" Mr. Jackson asked in the report.

COUNCIL RESPONSE

Councilwoman Deborah Scott, who also received a copy of the report, said last week the findings are "concerning."

"The council and the district attorney have to make some decisions about that," she said. "We have to follow the law."

Councilman Peter Murphy, chairman of the Legal and Legislative Committee and an attorney himself, said he did not think the state attorney's finding is accurate. He said law offices have various ways of billing and the traditional way the city attorney's office billed the city fell within those parameters.

He also dismissed the idea of criminal wrongdoing, saying there is no evidence to suggest Mr. McMahan profited from conducting his billing while also operating as a private practice.

"There has to be intent for something to be criminal," Mr. Murphy said.

He also said that if the council went after Mr. McMahan's law firm to recoup money, the effects could be devastating. The staff attorneys in the office likely would quit if that were the case, he said, and the city could spend millions of dollars in a legal fight with its own attorneys.

"I think that would be very negative," Mr. Murphy said.

Mr. Littlefield reiterated Friday that the arrangement has been corrected. The city attorney and his staff have moved into the City Annex building and are now being paid fully as city employees, he said.

The report comes at the end of a practice that went on for nearly a half century and he stopped it, he said.

"No good deed goes unpunished," he said.

Advocates Say ‘Good Samaritan’ Laws Could Save Overdose Victims

Newsweek

But opponents say the legislation effectively grants immunity to drug dealers and users.

 

 

Chicago has the highest number of heroin-related emergency-room visits in major metropolitan areas, followed by New York City, Boston, and Detroit, according to a study out this week. The Roosevelt University researchers who conducted the research say medical care for heroin overdoses could be improved by “good Samaritan” laws, which currently exist in only two states.

As it now stands in most states, people who dial 911, drop a friend off at a hospital, or otherwise try to get care for someone in the midst of a drug overdose are subject to prosecution for use, possession, or distribution. No national figures exist for how often callers are arrested, but users are attuned to the stories that show up in the media with some regularity, says Meghan Ralston of the Drug Policy Alliance, pointing to a recent case in which an overdosing woman and a man who called an ambulance for her were both arrested. “That sends a chilling, disturbing message to all people who will one day witness an overdose,” Ralston says. “It says, ‘Don’t call 911 because you and the victim will be arrested.’ ”

Justin Pearlman knows that reality all too well. A long-time sufferer of heroin addiction who had overdosed three times in the past, he shot up when he was alone one night four years ago. Instead of getting a typical high, though, he realized he was in trouble when he became dizzy and nauseous, his heart raced, and breathing slowed. He managed to dial 911 before falling unconscious. Paramedics rescued him but police found Pearlman’s stash and later charged him with possession. While serving six months in prison, he received no drug counseling.

If he were to relapse again, “I don’t think I would ever call 911 on myself or another person,” said Pearlman, now 30 and clean for two years. “I wouldn’t want to be prosecuted … it’s so horrible to go to jail.”

He said other drug users fear arrest as well, so much so that they would forgo dialing 911 for friends in the midst of medical emergencies, a truth that has sadly been borne out in cases around the country. “People who use drugs tend to be highly aware that they can be arrested for drug possession at any time, under any circumstance,” Ralston agrees.

Two men in the Chicago suburbs didn’t want to call police for an overdosing friend and instead left him on a park bench, where he was found dead. Another man injected his pal with heroin and then left him in a bedroom after he started overdosing. After discovering the friend had died, the man helped dump his body in an alley. A woman in Washington stood by and did nothing for a 16-year-old pal even as the teen vomited, wet her pants, and suffered a seizure and eventually died after a night of partying. Two Utah residents dumped a friend’s body outdoors after refusing to call for help as she overdosed.

While there may be a variety of reasons why a person doesn’t call for medical attention while witnessing an overdose, research shows that people consistently list “fear of police involvement/fear of arrest” as the leading reason for failing to seek immediate help for someone thought to be overdosing, according to Ralston.

In an effort to encourage people to seek help instead of leaving friends to die, Washington state recently joined New Mexico in granting limited immunity from prosecution on possession charges to drug users summoning help for an overdose. California, New York, and Massachusetts are considering similar legislation. “These laws are designed to do no more than get that panicking person to the phone as quickly as possible and try to save a life,” says Ralston, whose organization is working to get more good-Samaritan laws passed.

Not everyone supports these laws. “Nobody wants to appear ‘soft on crime,’ ” Ralston says. For instance, Illinois considered a bill this year that would have prevented information obtained from a 911 call reporting an overdose from being used as a basis for drug charges, but it was defeated.

“You’re granting immunity to drug dealers,” said state Rep. Dennis Reboletti, a former narcotics and gang prosecutor who opposed the law as overly broad. “This won’t be protecting the people it’s meant to protect.”

But Pearlman’s mother, Lea Minalga, who went back to school and became a drug abuse counselor after her son became an addict, says the bill would have saved lives and she will push to have it revived next year. “If kids knew there was a safe haven, they would call for their friends,” she said.

The Roosevelt University researchers fear that states will be slow to act on such legislation. “When the 18- to 19-year-olds who live in wealthy areas start dying, you’re going to see a change in the public’s perception and legislators’ willingness to implement these laws,” said Kathleen Kane-Willis, one of the lead researchers. “Unfortunately, for this to happen, more people are going to have to die.”

For Some Law Students, Grades Go Up, Just Like Magic

NY Times

 

One day next month every student at Loyola Law School Los Angeles will awake to a higher grade point average.

But it’s not because they are all working harder.

The school is retroactively inflating its grades, tacking on 0.333 to every grade recorded in the last few years. The goal is to make its students look more attractive in a competitive job market.

In the last two years, at least 10 law schools have deliberately changed their grading systems to make them more lenient. These include law schools like New York University and Georgetown, as well as Golden Gate University and Tulane University, which just announced the change this month. Some recruiters at law firms keep track of these changes and consider them when interviewing, and some do not.

Law schools seem to view higher grades as one way to rescue their students from the tough economic climate — and perhaps more to the point, to protect their own reputations and rankings. Once able to practically guarantee gainful employment to thousands of students every year, the schools are now fielding complaints from more and more unemployed graduates, frequently drowning in student debt.

They have come up with a number of strategic responses. Besides the usual career counseling measures, many top schools have bumped up their on-campus interview weeks from the autumn to August, before the school year even starts, because they want their students to have a chance to nab a job slot before their counterparts at other schools do.

Others, like Duke and the University of Texas at Austin, offer stipends for students to take unpaid public interest internships. Southern Methodist University’s Dedman School of Law even recently began paying profit-making law firms to hire its students.

“For people like me who have good grades but are not in the super-elite, there are not as many options for getting a job in advance,” said Zachary Burd, 35, who just graduated from Southern Methodist University. A Dallas family law firm will receive $3,500 to “test drive” him this August.

“They’ll get me for a month or two, for free, to try me out,” he said. “It’s safer for them, and it’s a good foot in the door for me.”

But the tactic getting the most attention — and the most controversy — is the sudden, deliberate and dubiously effective grade inflation, which had begun even before the legal job market softened.

“If somebody’s paying $150,000 for a law school degree, you don’t want to call them a loser at the end,” says Stuart Rojstaczer, a former geophysics professor at Duke who now studies grade inflation. “So you artificially call every student a success.”

Unlike undergraduate grading, which has drifted northward over the years because most undergraduate campuses do not strictly regulate the schoolwide distribution of As and Bs, law schools have long employed clean, crisp, bell-shaped grading curves. Many law schools even use computers to mathematically determine cutoffs between a B+ and a B, based on exam points.

The process schools refer to as grade reform takes many forms. Some schools bump up everyone’s grades, some just allow for more As and others all but eliminate the once-gentlemanly C.

Harvard and Stanford, two of the top-ranked law schools, recently eliminated traditional grading altogether. Like Yale and the University of California, Berkeley, they now use a modified pass/fail system, reducing the pressure that law schools are notorious for. This new grading system also makes it harder for employers to distinguish the wheat from the chaff, which means more students can get a shot at a competitive interview.

Students and faculty say they are merely trying to stay competitive with their peer schools, which have more merciful grading curves. Loyola, for example, had a mean first-year grade of 2.667; the norm for other accredited California schools is generally a 3.0 or higher.

“That put our students at an unfair disadvantage, especially if you factor in the current economic environment,” says Samuel Liu, 26, president of the school’s Student Bar Association and the leader of the grading change efforts. He also says many Loyola students are ineligible for coveted clerkships that have strict G.P.A. cutoffs.

“We just wanted to match what other schools that are comparably ranked were already doing,” he said.

Nearby University of California, Los Angeles, made its grading curve more lenient in the fall of 2005, in part to keep up with “nationwide shifts in grading,” said Elizabeth Cheadle, the dean of students at U.C.L.A.’s law school.

The University of Southern California and the University of California Hastings College of the Law responded by increasing their own curves last school year.

What’s more, U.S.C.’s law school dean, Robert K. Rasmussen, said he was partly inspired by the school where he previously worked, Vanderbilt University Law School, which had also changed its curve a few years ago.

These moves can create a vicious cycle like that seen in chief executive pay: if every school in the bottom half of the distribution raises its marks to enter the top half of the distribution, or even just to become average, the average creeps up. This puts pressure on schools to keep raising their grades further.

Loyola Law School’s dean, Victor J. Gold, said he had already received a plea for advice from a student group at Chapman University School of Law, which will have the toughest grading curve in California after Loyola acts.

One notable school has managed to maintain the integrity of its grades through an idiosyncratic grading rubric. The University of Chicago Law School grades its students on a scale of 155-186, a system so bizarre that employers are unlikely to try to match it against the 4.0 scale or letter grades used almost everywhere else.

It is unclear whether grade inflation is particularly effective at helping students get jobs, especially because many large firms adjust their expectations accordingly.

Many hiring partners say they read Above the Law, a legal blog, that gleefully reports (and mocks) grade changing efforts — from leaked student memos — even when schools themselves don’t announce the changes.

Employers say they also press law schools for rankings, or some indication of G.P.A.’s for the top echelon of the class. And if the school will not release that information — many do not — other accolades like honors and law journal participation provide clues to a student’s relative rank.

“Every year we do our homework,” says Helen Long, the legal recruiting director at Ropes & Gray, a firm with more than 1,000 lawyers. “And besides, if a school had a remarkable jump in its G.P.A.’s from one year to the next, we receive a big enough group of résumés every year that we’d probably notice.”

Smaller firms, however, may not have the resources to research every school’s curve, and may see too few students from any given school to track changes from year to year.

James Wagner, the hiring partner at the 29-lawyer Boston firm Conn Kavanaugh Rosenthal Peisch & Ford, said he hadn’t noticed any grade inflation in the last couple of years. But he has noticed something else new from applicants.

“About a third to half of the résumés I’ve been getting now profess a love of the Red Sox,” he chuckles, wondering if the students had been coached by their schools.

“But I’ll bet that if you compared résumés for those same candidates,” he says, “when they apply to New York firms they love the Yankees, and for Chicago firms, it’s the Cubs.”

Roadbuilder Says Blago Urged him to Raise Cash

Associated Press

 

A politically connected roadbuilding executive said Tuesday that former Illinois Gov. Rod Blagojevich dangled the possibility that he might launch a $6 billion highway program urgently needed by the industry — but seemed to make it contingent on getting campaign money.

"It seemed like in my mind they were coupled," Gerald Krozel, a former official of the American Concrete Paving Association, testified at Blagojevich's federal corruption trial.

Krozel's statements about a his meeting with Blagojevich and his inner circle contrasted with testimony from an FBI agent, who said Blagojevich told agents in March 2005 that he tried to stay "a million miles away" from fundraising while he was governor and didn't even want to know who was giving him money and who was not.

Two former finance directors of Blagojevich's campaign fund also testified that Blagojevich was deeply involved in the search for political dollars.

Kelly Glynn, who was finance director of his 2002 campaign, and Danielle Stilz, who later held the same job, testified that Blagojevich attended fundraising meetings, asked detailed questions about who was reaching his fundraising goals, and sometimes cursed and yelled when he felt a fundraiser was falling short.

Stilz testified that Blagojevich "had an intimate knowledge of those numbers."

"He knew them better than I did," she said.

Blagojevich, 53, has pleaded not guilty to charges that he sought to get a high-paying job or massive campaign contribution in exchange for an appointment to the U.S. Senate seat that President Barack Obama left to move to the White House. He also has pleaded not guilty to scheming to launch a racketeering operation using the powers of the governor's office, and to lying when he denied that he tied campaign fundraising to state jobs and contracts.

Krozel's testimony and that of the two fundraisers was aimed at convincing jurors that Blagojevich was lying at the 2005 meeting with two FBI agents and a pair of federal prosecutors.

The former governor's brother, Robert Blagojevich, 54, has pleaded not guilty to taking part in the alleged scheme to sell or trade the Senate seat and to helping the governor illegally pressure a racetrack owner and a construction executive — Krozel — to contribute money.

Krozel testified that he was summoned by Blagojevich to the September 2008 meeting at his campaign office and found the governor there with his brother and his former chief of staff, Alonzo Monk, who by that time had left state government and become a lobbyist.

He said Blagojevich outlined what he described as a small, $1.5 billion roadbuilding program and the possibility of a larger version totaling $6 billion in construction money.

Krozel said the economy had hit his Illinois concrete contracting company hard and they needed that kind of boost. It was then that Blagojevich brought up the subject of campaign money, he said.

"He said he wanted me to do fundraising for him and to do it by the end of the year before the law changes," Krozel said. He said Blagojevich was referring to a state ethics law that starting in January would have barred state concrete contractors from contributing to the governor.

Krozel said he said he didn't know what he could do. But as he left the meeting, he said, somebody — he didn't recall who — asked him how much he thought he could raise. He said that and the fact that there was a January "deadline" to him "implied a connection" with the highway program.

"The money that I could raise for him would have a bearing on the project," he said was his understanding.

Earlier, prosecutors presented testimony aimed at supporting their claim that now-jailed real estate developer Tony Rezko funneled money to the governor through his wife.

Chicago real estate broker Marianne Piazzi testified that she sold a North Side townhouse in August 2003 for about $574,000. She said Blagojevich's wife, Patti, had nothing to do with the sale as far as she knew and she didn't know her then.

FBI agent Jane Ferguson testified that Patti Blagojevich received a $44,000 commission from Rezko for selling the same property. Patti Blagojevich has been charged with no wrongdoing in the case.

Rezko is awaiting sentencing for scheming to launch a $7 million kickback scheme using clout in the governor's office to pack two state boards with power over big money decisions with members who would take orders from him.

Law Sharpens 'Clawback' Rules for Improper Pay

The Wall Street Journal

 

 

A far-reaching provision in the new financial-overhaul law will force U.S. public companies to get tougher about making top executives repay improperly awarded incentive compensation, pay specialists say.

Under the legislation signed July 21, the Securities and Exchange Commission must order all companies to adopt so-called clawback policies. The provision requires businesses to recoup as many as three years of ill-gotten pay from current and former executive officers after a material financial restatement—even if the executive wasn't to blame.

Many public companies currently lack clawback policies. Those with them generally fall short of the law's requirements, particularly by letting boards decide whether to retrieve pay, seeking repayment only when the executive is at fault or not targeting former executives.

Only about 17% of 3,680 companies have disclosed clawback policies that at least cover senior management, up from a handful in 2005, according to proxy advisers ISS. The policies are more prevalent among bigger businesses. Nearly three-fourths of Fortune 100 companies had such rules in 2009, up from about 18% in 2006, reports Equilar, an executive-compensation advisory firm.

"Every company with a clawback policy will have to revamp it—and enforce it," says James D. C. Barrall, head of the compensation-and-benefits practice for Latham & Watkins LLP.

The SEC still has to formulate its clawback rules; the law doesn't set a timeline. SEC spokesman John Heine says the commission will propose rules after receiving staff recommendations.

Some businesses say they plan to sharpen their clawback policies before the SEC acts.

Arthur C. Martinez, a member of five public-company boards, says they're already mulling how to bolster clawbacks that "don't go far enough." He expects necessary changes will occur this year but declines to be more specific.

"Smart boards would be well advised to get ahead of the curve," adds Mr. Martinez, a former chief executive of Sears, Roebuck & Co. He runs board compensation committees at American International Group Inc., Liz Claiborne Inc. and PepsiCo Inc.

The clawback requirements could prove tricky to implement. Sysco Corp. adopted a clawback policy in 2009 that affects annual bonuses for about 175 top managers and doesn't exclude former officers, according to Mark Palmer, a spokesman for the food distributor. But directors don't try to recoup stock options after a restatement, as the new law requires.

John M. Cassaday, chairman of Sysco's pay panel, says the board thought it would be too difficult to determine how much of options' value stemmed from the misstated financial results. "How do you identify that portion of the award that was attributable to the false result?" Mr. Cassaday asks.

On Aug. 26, his committee is to discuss whether to tighten Sysco's clawback policy before the SEC rules appear.

More boards may decide to stretch out top officers' bonus payments, so that more of the money would remain after a restatement. "Within three years, 40% of public companies will have some form of deferral mechanism in their bonuses"—compared with about 5% today, predicts David Wise, an executive-compensation principal at consultants Hay Group.

The pay panel at Northrop Grumman Corp. previously rejected bonus deferrals, recollects Bruce Gordon, a member. But with the new clawback mandate, he says, "I am sure we will take another look."

Still, some companies without clawbacks aren't rushing to adopt them. Flowserve Corp. directors have taken "a wait-and-see attitude until we see what's required of us" by the SEC rules, explains Kevin E. Sheehan, a pay- panel member.

The valve and pump producer restated results for 2002, 2003 and the first quarter of 2004. Flowserve didn't give top officers long-term bonuses during those years, but did pay annual ones in 2002 and 2004, Mr. Sheehan says. But he adds that no clawbacks would have occurred if the new law existed then because "the earnings restatements were not material."

Parties to let Facebook Order Expire

The Wall Street Journal

A temporary restraining order against transfer of assets by Facebook Inc. will expire on Friday, parties in a lawsuit involving the company said, after a federal judge held a hearing on the matter.

Earlier this month, a New York state judge issued the order following a suit against the social-networking giant by Paul D. Ceglia, who claims Facebook Chief Executive Mark Zuckerberg breached a contract giving him an 84% stake in the company. The order, sought by Mr. Ceglia, barred Mr. Zuckerberg and Facebook from transactions selling or transferring money or any other company assets.

Facebook attorneys moved to have the case heard in federal court in Buffalo, N.Y., and to have the temporary restraining order lifted.

It's unclear what, if any, transactions might have been impacted by the order. Even though Facebook is a private company, shares in it change hands in an active secondary market.

Before U.S. District Judge Richard J. Arcara ruled during a hearing on Tuesday, the parties went into another room where they agreed with each other to let the order expire and set a timeline to move forward with the case.

"We all agreed that there are other more pressing issues to litigate than these provisional remedies," said Mr. Ceglia's lawyer Terrence M. Connors.

In a statement, a Facebook spokesman said, "We are pleased that the court's decision to stay the TRO remains in place and will continue to fight this frivolous claim."

During the hearing, Judge Arcara asked a lawyer for Facebook if the 2003 contract submitted by Mr. Ceglia had been signed by Zuckerberg. Facebook's corporate lawyer Lisa Simpson said she was "unsure."

The Facebook spokesman said the company's intention with that response was "to indicate that plaintiff has not produced the original of the alleged agreement for anyone, including the court," he said. "We have serious questions about the authenticity of the document and, assuming an original exists, we look forward to expressing our opinion about it once we see it."

Quicken's Overtime Lawsuit Rages On

The Detroit News

Sides see no end through mediation to 6-year court fight

Quicken Founder Dan Gilbert

 

 

A court-ordered mediation next week is unlikely to resolve a six-year legal battle between Quicken Loans Inc. and more than 1,400 former loan officers over whether they are owed overtime pay.

Detroit U.S. District Court Judge Stephen Murphy set up the hearing for Thursday to try to work out a settlement after the U.S. Department of Labor in March reversed a Bush-era ruling and decided the employees are eligible for the extra pay. The mediation doesn't cover all of the ex-loan officers, some of whom have been battling Quicken since 2004.

"We don't expect too much from" the mediation, said Donald Nichols of the Minneapolis--based Nichols Kaster law firm, a lead attorney for the loan officers.

"Quicken has said all along they will appeal any decision" that is unfavorable to the company, Nichols said.

Quicken reinforced that notion Friday when it said in a statement: "This lawsuit was initiated by an out-of-state law firm which specializes in filing meritless claims in an effort to coerce settlements from job-producing companies which employ highly compensated white-collar professionals. The company remains strongly committed to defending this meritless claim where we expect to defeat this self-serving plaintiff law firm's parasitic action."

The Labor Department reversal complicates Quicken's fight against the former loan officers, who charge in four lawsuits that the online mortgage company wrongly classified them as administrative employees exempt from hourly overtime pay.

Murphy said last month the new Labor Department interpretation of how the Fair Labor Standards Act applies to Quicken loan officers could lead to reopening three cases that were decided in Quicken's favor.

If courts reactivated the settled cases, the potential damages for Quicken could rise to more than $30 million, plaintiffs' attorney Nichols said.

But Quicken interprets the impact of the Labor Department's decision differently.

"The Department of Labor's recent reversal regarding whether loan officers are eligible for overtime contradicts its earlier pronouncements," according to Quicken's statement. "It should not have any effect on existing litigation, as it only applies to cases going forward."

The Livonia-based company, which is planning on moving 1,700 workers to new offices in downtown Detroit next month, also argued the case has no merit.

"It had no merit when it was filed (more than six years ago), and it has no merit today," according to the company's statement.

"Quicken Loans has and does follow all labor regulations and laws, paying overtime to every team member who is morally, ethically and legally entitled to receive it. Our mortgage bankers have always been rewarded fairly and generously," said the statement.

The company added that the Department of Labor's ruling has not "measurably" changed the work hours of current mortgage loan officers.

In the past, Quicken founder Dan Gilbert has said loan officers can earn far more money through commission and bonuses than overtime pay.

In 2006, an attorney for the Mortgage Bankers Association, who also was representing Quicken in an overtime lawsuit, asked the Department of Labor for a ruling about mortgage bank employees. This led to the original Bush Labor Department decision that the Quicken employees didn't qualify for overtime pay.

But attorneys for the former Quicken workers asked the Labor Department to review that decision. After Barack Obama took office, the agency decided in March to overturn the Bush-era interpretation.

The Labor Department's reinterpretation is not surprising because agency decisions often change when a different political party wins the White House, said Bruce Miller, a partner at Miller & Cohen PLC, a Detroit labor law firm.

"Republicans tend to narrow the interpretation of who is eligible, and Democrats tend to broaden the definition," Miller said.

Various business magazines have consistently named Quicken as a top U.S. company to work for. It has been ranked in the "Top 30" of Fortune's "100 Best Companies to Work for in America" for the past seven years and ranked as one of the top 15 of Computerworld magazine's "100 Best Places to Work in Technology" for six consecutive years.

Senate Extends Unemployment Benefits

USA Today

 

The Senate approved a $34 billion bill that would extend unemployment benefits to millions of out-of-work Americans -- clearing the way for President Obama's signature on Thursday.

The legislation, which will extend benefits for those who have already used up their standard 26 weeks of unemployment, was passed on a 59-39 vote. The measure must now be approved by the House of Representatives.

"Nevada families struggling to make ends meet have endured more than their share: after losing their jobs through no fault of their own, they were forced to wait weeks for an important safety net that was supposed to be there," Senate Majority Leader Harry Reid said in a statement.

Montana Sen. Max Baucus, a Democrat, said the measure will help the unemployed, "keep food on the table and a roof overhead as they look for work."

Passage comes a day after a new Democratic senator from West Virginia, Carte Goodwin, was sworn in to temporarily fill the seat left vacant by the June 28 death of Robert Byrd. Democrats needed Goodwin to find the 60 votes required to bypass GOP opposition.

Republicans have said they also support extending the benefits but have argued that the proposal should not add to the deficit.

Obama Signs Financial-Regulation Bill

The Wall Street Journal

 

President Barack Obama on Wednesday signed into law the most sweeping overhaul of U.S. financial-market regulations since the Great Depression, marking the conclusion of an effort to craft a legislative response to the 2008 financial crisis.

Mr. Obama pitched the measure as a major step toward correcting the problems that contributed to that crisis and the recession that followed.

"For years, our financial sector was governed by antiquated and poorly enforced rules that allowed some to game the system and take risks that endangered the entire economy," Mr. Obama said.

The new law, he said, would better protect consumers, empower investors and bring transparency to dark corners of the financial markets.

The wide-ranging law will touch every corner of the financial universe, curtailing certain risky activities of the nation's largest financial firms, affecting how average Americans obtain credit cards and mortgages, and transforming the way regulators work to assess and respond to potential flash points in the economy.

But like most of the Obama administration's legislative victories, the financial overhaul legislation succeeded with only narrow Republican support. Mr. Obama specifically thanked the three Senate Republicans—Scott Brown of Massachusetts and Olympia Snowe and Susan Collins of Maine—for their support.

Many in the financial industry, who lobbied against the bill on Capitol Hill, continued to criticize the legislation even as the president prepared to sign it.

"This is nothing more than a financial-regulatory boondoggle," said Thomas J. Donohue, president and chief executive of the U.S. Chamber of Commerce, which spent millions on a campaign to kill a new consumer watchdog.

The 400-person audience for the bill signing was dominated by Democratic lawmakers and consumer advocates. Only a few recognizable industry faces could be seen in the crowd, including Citigroup Inc. Chief Executive Vikram Pandit and Cam Fine, the chief executive of the Independent Community Bankers of America.

Harvard Law School Professor Elizabeth Warren, a candidate to head the new Consumer Financial Protection Bureau created by the bill, had a front-row seat for the ceremony. A number of lawmakers, including Senate Majority Whip Richard Durbin (D., Ill.) and Rep. Carolyn Maloney (D., N.Y.) had their pictures snapped with her using their cellphone cameras before Mr. Obama arrived.

Commodity Manipulation May Be Easier to Prove With U.S. Financial Overhaul‏

Bloomberg News

Traders will face new rules aimed at making it easier for regulators to prove manipulation in markets for commodities such as oil, wheat and natural gas under the financial overhaul awaiting President Barack Obama’s signature.

The regulations, written in part by Senator Maria Cantwell, a Democrat from Washington state, attempt to relieve the Commodity Futures Trading Commission of the burden of proving a trader intended to manipulate prices. Instead, the CFTC will have to show the trading was “reckless.”

“It will make it easier for the CFTC to bring cases and get people to settle, because people will be reluctant to go to court,” said Geoffrey Aronow, former director of enforcement at the commission and a partner at the Washington law firm Bingham McCutchen LLP.

Proving manipulation has challenged courts and lawmakers since the early attempts to regulate U.S. commodity markets in the 1920s. The financial overhaul of the $615 trillion derivatives market, approved by the U.S. Senate last week and the House on June 30, redraws rules that have been determined for decades by a patchwork of case law.

The legislation will allow the CFTC to better police manipulation, while also expanding its jurisdiction to the over- the-counter derivatives market, said Michael Greenberger, a former director of trading and markets and now a professor at the University of Maryland law school in Baltimore.

Lower Standard

“The standard of proof is lower,” Greenberger said. “If you can’t police for manipulation, you’ve effectively got one hand tied behind your back. The Cantwell amendment unties the hand of the CFTC.”

Derivatives are contracts whose value is derived from stocks, bonds, loans, currencies and commodities, or linked to specific events such as changes in interest rates or weather. Futures are traded on regulated exchanges, while over-the- counter contracts are privately negotiated.

The financial overhaul will push most of the off-exchange contracts to be processed, or cleared, through third-party clearinghouses and traded on exchanges or similar systems. All trades will have to be reported to trade repositories, which will allow regulators a view of the overall risk in the market.

“The problem I’ve got with it is you have no guidance for your traders,” said Jerry Markham, a professor at Florida International University law school in Miami and an expert witness. “Traders have to be aggressive. This is trading, not tiddlywinks.”

Under current law, manipulation cases hinge on a four-prong test that begins with proving that prices were “artificial,” or outside the bounds of normal supply and demand, Markham said. Then the government must prove that the accused had the ability to cause an artificial price, took actions to cause it and intended it. Proving intent typically requires evidence such as traders’ e-mails or taped telephone calls, he said.

‘Artificial’ Prices

Proving manipulation in court is tough because the statute provides little definition, including how to measure an “artificial” price and establish intent, said Craig Pirrong, director of the Global Energy Markets Institute at the University of Houston, who has written essays on the subject and served as an expert witness.

Confusion has existed since the early days of regulation, Pirrong said. He quoted a 1928 hearing where cotton trader William Clayton said manipulation seems to mean any market move “that does not suit the gentleman who is speaking at the moment.”

In 2008, the year after BP Plc paid a record $303 million to settle a CFTC claim that it cornered the propane market, the four BP traders who were individually charged in the case won a dismissal, in part because U.S. District Judge Gray Miller in Houston found that the law they were accused of violating was too vague to be enforceable.

‘Confusing’ Regime

“The court is sympathetic to the government’s desire to discourage the types of behavior alleged here, but its ability to do so is currently limited by a confusing and incomplete statutory common-law regime,” Miller wrote in his decision,

The U.S. Justice Department has appealed the case.

In addition to the anti-manipulation rules introduced by Cantwell, the law contains provisions that allow the CFTC to police trading practices with oddball names such as “spoofing” and “banging the close,” and contains a measure that Commission Chairman Gary Gensler has dubbed “The Eddie Murphy Rule.”

The rule is named for the 1983 movie Trading Places, which starred Murphy and Dan Akroyd. The plot centers on two brothers who plot to get an orange crop forecast and corner the market for orange juice. Murphy and Akroyd beat them to it, substitute a forgery, and make a fortune while the scheming brothers go bust. The provision bans trading using non-public information misappropriated from a government source, such as crop forecasts or fuel stockpile reports.

Canceling Trades

“Spoofing” is a practice where a trader enters a bid or offer with the intent of canceling it before the trade is carried out.

The legislation also targets any activity that shows a “reckless disregard” for “orderly” trading in the closing period, during which the day’s settlement prices are determined. The provision targets a practice known as “smashing” or “banging” the close, where traders attempt to bully the day’s settlement price by buying or selling large volumes just before the close.

“It’s going to be very much like the standard for pornography,” said Gary DeWaal, general counsel for Newedge USA LLC, the world’s largest futures broker. “The CFTC is going to say, we know orderly when we see it. And that’s going to be a bone of contention.”

Estate Tax to Return in 2011

USA Today

Tax could hurt ordinary folks

In life, George Steinbrenner beat the Red Sox. In death, he beat the IRS.

Steinbrenner's death on July 13 occurred six months after the federal estate tax expired. Forbes magazine estimates the Yankees owner's net worth was $1.15 billion, so the timing of Steinbrenner's death could save his heirs up to $500 million in federal estate taxes.

But future heirs may not be so lucky. The federal estate tax is scheduled to return with a vengeance on Jan. 1, 2011, imposing a levy of up to 55% on estates valued at more than $1 million. And the same congressional paralysis that allowed the tax to expire in 2010 could thwart efforts to pare it back, estate planning attorneys say.

A $1 million exemption would affect a lot of families that are well out of Steinbrenner's league. "You take a home, an IRA or 401(k) retirement account, some other savings and you get to $1 million pretty easily," says Richard Behrendt, senior estate planner for Robert W. Baird and a former IRS attorney.

Families who live in areas with high property values are particularly vulnerable, says Clint Stretch, tax principal for Deloitte Tax who lives outside Washington, D.C. "People in my neighborhood bought a house for $32,000 in the '60s, and now it's worth $1 million," he says. "If they've got anything else, they would be paying an estate tax."

And for truly wealthy families, estate taxes could influence life-or-death decisions. But more on that later.

Congressional inaction

The roots of the estate tax disarray date back to 2001, when Congress voted to gradually raise the estate tax exemption while cutting income tax rates. The phase-out ended in repeal of the tax in 2010. But like the Bush administration's income tax cuts, the reduction in the estate tax is scheduled to expire at the end of this year.

Right up until the end of 2009, most estate tax attorneys expected Congress to step in and reinstate the tax. That didn't happen — raising doubts about whether Congress can agree on a fix that will prevent a more punitive tax from rising from the grave in 2011.

"Nine years ago I would have told you there was no chance we would have a year of repeal and no chance we would go back to the $1 million exemption," says Beth Kaufman, a partner with Caplin & Drysdale in Washington, D.C., and former associate tax legislative counsel for Treasury's Office of Tax Policy. "Now that we've gotten to the year of repeal, it's hard to say that something is impossible any more."

Historically, wealthy individuals have used a variety of strategies to mitigate estate taxes, including giving away a large portion of their wealth while they're still alive. Individuals can give their children, relatives and others up to $1 million during their lifetimes without incurring federal gift taxes, Kaufman says. In addition, individuals can give away an annual amount without reducing their exemption for gift or estate taxes. In 2010, the annual gift tax exclusion is $13,000 per recipient and individuals can give away that amount to as many people as they want. Many wealthy families also reduce the size of their taxable estates by giving money and other assets to charity.

But those strategies aren't practical for families who have most of their wealth tied up in their primary residences and retirement savings, Kaufman says. "You're not going to give away your house, because you're living in it," she says. Taking withdrawals from retirement plans will trigger income taxes, plus a 10% penalty if the plan owner is under 59½.

Proposed fixes

The Obama administration has proposed returning the estate tax to its 2009 level, with a $3.5 million exemption and a 45% rate on assets that exceed that amount. The House approved the administration's proposal last year, but Republican opponents blocked action in the Senate.

Last week Sens. Jon Kyl, R-Ariz., and Blanche Lincoln, D-Ark., re-introduced legislation that would exempt up to $5 million from estate taxes and impose a 35% tax rate on assets that exceed that amount.

"In just six short months, American taxpayers will face the largest tax hike in history unless Congress acts," Lincoln said in a statement. "It is estimated that more than a half-million American families will pay the estate tax over the next decade, and the lack of congressional action creates a tremendous amount of uncertainty for these families, small-business owners and farmers."

But political partisanship has made compromise increasingly difficult, says Melissa Montgomery-Fitzsimmons, director of wealth planning for First Western Trust Bank in Denver. "Given the fact that we're in an election year, the most likely thing to happen is that the laws will not change, and we will go back to $1 million of exemption and a 55% rate," she says.

Plus, reinstating the estate tax with a lower exemption would provide lawmakers with a back-door way to raise revenue, says Jason Smolen, an estate tax attorney at SmolenPlevy of Vienna, Va. "If you could do nothing and get more money, it's better than voting to raise taxes to get more money," he says.

Stretch is more optimistic that Congress will resolve the issue before the end of the year. He believes an estate tax with a higher threshold than $1 million — possibly somewhere between the one in the House-passed bill and the one proposed by Kyl and Lincoln — will be included in legislation preventing the middle-class tax cuts from expiring.

That legislation has real urgency, because without it, millions of middle-class Americans will see their taxes go up on Jan. 1, Stretch says. The higher taxes "would come out of people's paychecks almost immediately," he says. "If there's any sanity left in our political system, it will take care of middle-class tax cuts before January and at that moment in time they'll take care of estate tax."

Stretch says there's a good chance the House will extend the middle-class tax cuts and address the estate tax before the midterm elections, possibly as early as this month. But the Senate probably won't take up the issue until after the elections, he says.

Retroactive tax unlikely

In the meantime, the list of wealthy estates that will escape federal estate taxes will no doubt continue to grow. In addition to Steinbrenner, families of real estate magnate Walter Shorenstein, Texas pipeline tycoon Dan Duncan and Taco Bell founder Glen Bell will not have to worry about federal estate taxes. J.D. Salinger's heirs will also get a tax break, although establishing the value of the reclusive author's estate could take years.

"If there's ever a good time to die, 2010 is certainly it for the wealthy individual," Kaufman says.

Shortly after the estate tax expired, there was widespread speculation that Congress would reinstate it and make the tax retroactive to the beginning of 2010. But even if Congress agrees on an estate tax fix, it's unlikely lawmakers will be able to make it retroactive, Behrendt says. Families of billionaires who have died this year have the money and wherewithal to fight the tax all the way to the Supreme Court, he says.

"At some point, it becomes impractical to bring it (estate tax) back," Behrendt says. "George Steinbrenner's death in mid-July really underscores that reality."

Life-or-death tax implications

As repeal of the estate tax loomed at the end of 2009, wealthy families had an incentive to keep ailing parents or grandparents alive until Jan. 1. This year, in what sounds like an episode of Law & Order, heirs stand to benefit if wealthy benefactors die before midnight on Dec. 31. While outright homicide seems unlikely, estate-planning attorneys say they can envision situations in which the prospect of onerous estate taxes influences family members' decision to discontinue a relative's life support.

It could also cause some wealthy people with terminal illnesses to hasten their own demise, Behrendt says. "The fact is that our tax laws are influencing people's decision to live or die."

New Roles for Lawyers

The Wall Street Journal

Laid-off Attorneys Search for Work Far Outside Traditional Law Firms

Alex Barnett, who works as a contract lawyer by day, is also a stand-up comedian. He organized an open-mic night at Cafe Addis in New York.

 

 

Alex Barnett spent 14 years as an attorney handling several high-profile class-action lawsuits involving consumer fraud and product defects. But after getting laid off by two firms in the spring of 2008, he began prepping for a different kind of spotlight: He launched a career in stand-up comedy.

Facing a tough job market, many lawyers struggling to find work like Mr. Barnett are re-examining their roles and testing the waters in other fields. Some are attempting to stay in the industry by taking temporary work as contract lawyers—low-profile, lower-paying positions that often involve more routine work, according to consultants and industry experts. Others are becoming accountants, consultants or teachers.

"Quite frankly a significant number of lawyers are simply moving out of the profession, just looking to do completely different things," says Jerry Kowalski, a law-firm consultant based in New York and Washington, D.C. "The overall picture is the huge oversupply of lawyers."

The portion of law-school graduates who held jobs that required a law degree and passing the bar exam shrunk to 71% for the class of 2009, from 75% for the class of 2008, according to a survey by the National Association for Law Placement. The survey also found that nearly 25% of employed graduates said their work was temporary. And almost 22% said they were still looking for work even though they were employed, up from 16% in 2008.

Many large law firms let go of lawyers in the recession and adjusted to working with slimmer staffs, says Deborah Epstein Henry, founder of Flex-Time Lawyers LLC, a consulting firm based in Philadelphia that advises law firms, corporations and law students on work-life balance and new models for legal practice. At the same time, more corporations learned to rely more on their internal lawyers and cut back on hiring external counsel, she says. And some firms are now outsourcing the work they used to give to junior associates, meaning newer lawyers are seeing fewer positions where they would traditionally receive training and launch their careers after they find top law firms, she says.

"The law firm model is really changing," she says, adding that many lawyers are changing their specialties or pursuing nonlegal jobs in legal venues, such as professional development roles at law firms or jobs with career services at law schools, while they wait out the job market.

Bar associations say more lawyers are asking for tips on ways to apply their skills in other fields.

When the New York State Bar Association originally created the Committee on Lawyers in Transition, it was meant to help attorneys re-join the profession after an absence. But when the economy declined in 2008, the committee changed its focus to help attorneys who were laid off and exploring other industries.

"All of a sudden people weren't coming into the profession all gung ho, people were being laid off and fired," says Lauren Wachtler, chairwoman of the committee.

The group began holding seminars in person and online to address issues faced by attorneys looking for creative approaches to finding work, offering tips for starting their own practice, addressing a layoff during a job search, speaking to headhunters and beefing up resumes. In September 2009, the association launched a pro bono clerkship program for lawyers who wanted to stay productive while they looked for jobs. Several participants said the clerkship led to full-time work, says Ms. Wachtler.

"If people are laid off it gives them an opportunity to reassess where they are or where they're going," she says.

Last summer, Mr. Barnett was one of several attorneys who spoke at a panel organized by the New York State Bar Association for lawyers seeking advice on ways to apply their skills in other industries.

Mr. Barnett hasn't exited law completely. He has a day job as a contract lawyer for the city of New York, a behind-the-scenes job that often involves reviewing documents and preparing deposition outlines. After clocking out of the office, he spends most of his evenings writing jokes and performing them wherever he can—at comedy clubs, open-mike nights, fundraising dinners or church events.

Not all of his comedy gigs are paid, but he says the paid opportunities are growing. Mr. Barnett makes about half of his previous salary as a plaintiffs' lawyer between his comedian work and his day job. He declines to specify what he previously earned as a lawyer.

Mr. Barnett says he tries to be on stage about six nights a week, where he cracks jokes about his personal life—the transition of moving in with his girlfriend, the gentrification he sees in the Upper West Side of Manhattan. He rarely talks about being a lawyer.

94 Charged in Medicare Scams Totalling $251M

Associated Press

Elderly Russian immigrants lined up to take kickbacks from the backroom of a Brooklyn clinic. Claims flooded in from Miami for HIV treatments that never occurred. One professional patient was named in nearly 4,000 false Medicare claims.

Authorities said busts carried out this week in Miami, New York City, Detroit, Houston and Baton Rouge, La., were the largest Medicare fraud takedown in history - part of a massive overhaul in the way federal officials are preventing and prosecuting the crimes.

In all, 94 people - including several doctors and nurses - were charged Friday in scams totaling $251 million. Federal authorities, while touting the operation, cautioned the cases represent only a fraction of the estimated $60 billion to $90 billion in Medicare fraud absorbed by taxpayers each year.

For the first time federal officials have the power to overhaul the system under Obama's Affordable Care Act, which gives them authority to stop paying a provider they suspect is fraudulent. Critics have complained the current process did nothing more than rubber-stamp payments to fraudulent providers.

"That world is coming to an end," Health and Human Services Secretary Kathleen Sebelius told The Associated Press after speaking at a health care fraud prevention summit in Miami. "We've got new ways to go after folks that we've never had before."

Officials said they chose Miami because it is ground zero for Medicare fraud, generating roughly $3 billion a year. Authorities indicted 33 suspects in the Miami area, accused of charging Medicare for about $140 million in various scams.

Suspects across the country were accused of billing Medicare for unnecessary equipment, physical therapy and other treatments that patients never received. In one $72 million scam at Bay Medical in Brooklyn, clinic owners submitted bogus physical therapy claims for elderly Russian immigrants.

Patients, including undercover agents, were paid $50 to $100 a visit in exchange for using their Medicare numbers and got bonuses for recruiting new patients. Wiretaps captured hundreds of kickback payments doled out in a backroom by a man who did nothing but pay patients all day, authorities said.

The so-called "kickback" room had a Soviet-era propaganda poster on the wall, showing a woman with a finger to her lips and two warnings in Russian: "Don't Gossip" and "Be on the lookout: In these days, the walls talk."

With the surveillance, the walls "had ears and they had eyes," U.S. Attorney Loretta Lynch said at a news conference in Brooklyn.

In a separate Brooklyn case, authorities charged six patients who shopped their Medicare numbers to various clinics. More than 3,744 claims were submitted on behalf of one woman alone, 82-year-old Valentina Mushinskaya, over the past six years.

At a brief appearance in federal court Friday, Mushinskaya was released on $30,000 bond and ordered not to return to the Solstice Wellness Center, scene of an alleged $2.8 million scam.

Authorities called Mushinskaya one of the clinic's "serial beneficiaries," with phony bills totaling $141,161 paid by Medicare.

Her nephew, Vladimir Olshansky, told reporters his Ukrainian-born aunt suffers from diabetes. "She doesn't know what this is about," he said. "She's in the dark."

In Miami, Daniel R. Levinson, inspector general of HHS, which oversees Medicare, said the arrests "illustrate how health care fraud schemes can replicate virally and migrate rapidly across communities."

Cleaning up Medicare fraud will be key to paying for President Barack Obama's proposed health care overhaul. Federal officials have allocated more money and manpower to fight fraud, setting up strike forces in seven cities with a plan to expand to a dozen more. So far, the operations are responsible for more than 720 indictments that collectively billed the Medicare program more than $1.6 billion.

Around the country, the schemes have morphed from the typical medical equipment scam in which clinic owners billed Medicare dozens of times for the same wheelchair. Now, officials say, Medicare fraud involves a sophisticated network of doctors, clinic owners, patients and patient recruiters.

Violent criminals and mobsters are also tapping into the scams, seeing Medicare fraud as more lucrative than dealing drugs and having less severe criminal penalties, officials said.

For decades, Michigan Medicare plans operated under a system that paid providers first and investigated later. That pay and chase method was a boon for crooks, giving them 90 days lag time to milk the system and flee with millions before authorities were aware a crime had been committed.

Sebelius toured vacant storefronts in Miami on Friday where Medicare fraudsters set up shop, including bogus clinics operated by Cuban immigrants Carlos, Luis and Jose Benitez. The brothers are the agency's most-wanted fugitives, charged with bilking $119 million for costly HIV drugs that patients never received - and buying hotels, helicopters, boats and even a water park with their spoils. They allegedly fled to Cuba, where authorities believe they remain.

A new joint effort by HHS and the Department of Justice enables law enforcement to view Medicare claims in real time and flag suspicious patterns. More stringent screening methods, including more comprehensive background checks, have also been put in place. The agency gets roughly 18,000 applications daily to become a Medicare provider. Now they can put a moratorium on new applications in certain areas, like physical therapy, if they notice a spike in fraudulent activities.

The changes are paying off.

Investigators visited 1,600 providers in Miami in the past few months, making sure legitimate businesses were operating at the addresses. In 2008, authorities required all medical equipment providers in Miami to apply for new certification, hoping the paper hurdle would deter scammers. The number of claims dropped by $1.6 billion.