Story first appeared on The New York Times -
With a major civil trial scheduled to start Monday in New Orleans against BP over damages related to the explosion of an offshore drilling rig in 2010, federal officials and those from the five affected Gulf Coast states are trying to pull together to strike an 11th-hour settlement in the case.
A lawyer briefed on those talks said that the Justice Department and the five states — Alabama, Florida, Louisiana, Mississippi and Texas — had reportedly prepared an offer to resolve the two biggest issues central to a series of trials against BP, the first of which starts Monday.
One of those issues is the fines that the company would pay for violations of the Clean Water Act related to the four million barrels of oil spilled after the explosion of the Deepwater Horizon rig, which BP had leased from Transocean. The other point of dispute is how much the company will have to pay in penalties under a different environmental statute for damage caused by the oil to the area: beaches, marshes, wildlife and fisheries.
The Wall Street Journal reported late Friday that federal and state officials were preparing a $16 billion settlement offer that would cover both the Clean Water Act fines and environmental penalties related to the spill. “The ball is on BP’s side of the table,” said the lawyer, who spoke on the condition of anonymity because he was not authorized to speak publicly on the matter.
Justice Department officials and state officials could not be reached Saturday to comment on any possible offer. A spokesman for BP, Geoff Morrell, said, “BP doesn’t talk about possible offers or negotiations, but I can tell you we are ready for trial and looking forward to the opportunity to present our case starting Monday.”
The lawyer briefed on the talks said that one problem with the current proposal was that it did not cover economic damages claimed by the states related to the spill. Such claims could still leave BP on the hook for billions more, in addition to the environmental damages.
The late negotiations among federal and state officials to find common ground represents progress, even if limited, in the search for a settlement. The five states have had sharp disagreements over how much BP should pay and how billions of dollars in potential settlement funds should be divided.
For example, only Louisiana and Alabama, are participating in the trial starting on Monday, though Florida, Mississippi and Texas could be part of any settlement. Officials in Louisiana believe their state deserves the bulk of any settlement since its coastal waters, fisheries and businesses suffered the most. Florida and other states that escaped serious coastal damage instead want money for economic losses that they sustained.
“There are a lot of moving parts,” said Luther Strange, the attorney general of Alabama. “Personalities aside, the issues are so complex.” Another lawyer briefed on the talks said he believed any proposal involving Louisiana would be significant because its participation would be critical to any settlement.
Also, billions of dollars could be assessed against BP in several ways, either through fines, or through penalties to redress environmental damage and payments to cover economic losses. And each of those methods represents a different set of stakes and consequences for each of the states and for BP.
For instance, BP would prefer to limit the fines and make more payments through environmental damage penalties, because those penalties can be written off as tax deductions while fines cannot. But the states have more flexibility in spending money derived from fines.
To date, BP has agreed to pay an estimated $30 billion in fines, settlement payments and cleanup costs related to the Deepwater Horizon explosion, which killed 11 workers aboard the rig. And so far, company officials have said they have no intention of acceding to demands from the states for huge economic damages.
Still, the stakes for BP in the trial are high. If the company is found in this first phase of the trial to have acted with gross negligence, it could face up to $17.5 billion in penalties, much of that in fines that would hit the bottom line hardest because they do not qualify as tax deductions.
The lack of a unified strategy to date among the states has also posed another problem for BP; companies are less likely to settle a major lawsuit if they know yet another one is waiting.
“There is no question that a settlement has been made more challenging because the states have competing interests,” said David M. Uhlmann, a law professor at the University of Michigan and former head of the Justice Department’s environmental crimes division.
Efforts to resolve the case through settlement were also inadvertently complicated by Congress when it passed a law in 2011 known as the Restore Act.
Essentially, the law was an effort by Congressional lawmakers from the Gulf Coast states to make sure the bulk of fines and penalties paid by BP for violations of federal pollution laws ended up with the states instead of the federal government.
Senator Mary Landrieu, Democrat of Louisiana, said that she and other lawmakers from the region were involved in intense negotiations giving each state a part of the funds to recover from both environmental or economic damages.
The law “was an attempt to distribute the money fairly,” Ms. Landrieu said in an interview.
But the statute worsened what were already growing tensions among the states over how they could use any funds from BP, between environmental damage and economic losses. “Up until last year, all the states were rowing together,” said one lawyer who also spoke on the condition of anonymity.
The split among the Gulf Coast states surfaced again in November when the Justice Department announced the $4.5 billion settlement of criminal charges against BP. At the time, federal and state officials were also seeking to resolve the civil damage claims.
But those talks failed largely because of disagreements between Louisiana and other states on issues like the size of the settlement that BP was offering, said people briefed on the talks.
Mississippi officials are apparently seeking to bring a separate action against BP in state court, a forum that can be favorable to plaintiffs. Jan Schaefer, a spokeswoman for Attorney General Jim Hood of Mississippi, said he declined to comment.
Mr. Uhlmann of the University of Michigan said the BP case could be resolved, but at this moment it might be more up to the states than the company.
“A settlement is still possible, but not if the states demand more in a settlement than BP is likely to pay even if it loses on every single issue at trial,” he said.
Tuesday, February 26, 2013
BP Excluding Billions In Possible Claims, Arguing U.S. Benefited
Story first appeared on Bloomberg News -
Bill Floyd, owner of an upscale seafood restaurant near downtown Houston, is a poster-child for the type of damage claim BP Plc left out of its $8.5 billion settlement for the biggest offshore oil spill in U.S. history.
When the energy company’s blown-out Macondo well dumped more than 4 million barrels of crude oil into the Gulf of Mexico in 2010, Floyd saw his costs for fresh shrimp, crab and oysters almost double overnight while his sales flat-lined.
“Ninety percent of our menu comes out of the Gulf,” said Floyd, whose eatery, Reef, was named the best seafood restaurant in the U.S. in 2008 by Bon Appetit magazine. “Our shrimp prices went through the roof while our increase in sales, which had been averaging about 20 percent each year, went almost dead.”
Floyd’s is one of thousands of businesses, banks and municipalities excluded from the settlement last March. Many of those left out stretch tens or hundreds of miles inland from the once-blackened coastlines. Next week, fault for the spill will be determined in a sprawling trial in New Orleans federal court, the first step for claimants like Floyd seeking what may total billions of dollars from the companies behind the accident.
But their path may be difficult, as BP has pledged to “vigorously” fight their claims. Lawyers for claimants said BP didn’t settle with them because it sees a chance of victory.
And in some cases, the U.K.-based company said in court filings, it may even argue U.S. businesses and governments benefited from the spill, claiming spending and taxes paid by cleanup crews exceeded the losses caused by the catastrophe that brought them there in the first place.
Prove Damages
All victims whose claims were excluded from the settlement must prove the spill directly caused their physical or economic injury, as required under the Oil Pollution Act, which governs spill-damage compensation, legal experts said.
“Causation is the main hurdle, because the bulk of claims for economic loss are by people without physical damage,” said David Robertson, a University of Texas law professor who has advised lawyers leading the spill suits. “There’s a whole huge block of the economy that was heavily affected by the spill, and some of these are very large claims.”
U.S. District Judge Carl Barbier will preside over the Feb. 25 trial without a jury, under maritime law, which governs this phase of the litigation.
As the sole finder of fact, he will apportion fault for the explosion and spill among BP and subcontractors Transocean Ltd. (RIG), which owned and operated the Deepwater Horizon rig, and Halliburton Co. (HAL), which was responsible for cementing services. The subcontractors would only be responsible for punitive damages, based on Barbier's ruling that the project contract required BP to indemnify them for compensatory damages.
Fault Findings
The judge’s findings of fault will be applied to subsequent trials where specific dollar-amounts for spill damages will be determined, including those on claims excluded from the initial settlement. Plaintiffs’ lawyers said those damages trials, unlike the phase beginning next week, will be heard by juries.
BP’s settlement addressed damages to waterfront property owners, coastal tourism and seafood-industry interests, as well as some medical injuries suffered by residents who worked in the spill or live within a mile of the beach.
Medical-injury claims from people living further inland, and economic-loss claims from industries such as offshore drillers hurt by a federal moratorium and Houston seafood restaurants like Reef, weren’t addressed by the accord. State and local governmental claims for lost tax revenues were also excluded from the deal.
“Oil and gas industry losses were directly and immediately caused by the spill, and that’s an excluded category,” Robertson said. “Yet BP has also settled with some bait-and- tackle shops that were pretty far inland.”
Loss Claims
BP’s settlement assigned some value to economic-loss claims throughout Louisiana and Mississippi, with claim values decreasing the further away they were from the coast. In Texas and Florida, economic-loss claims were allowed only if they originated within a narrow coastal zone.
Reef is a 45-minute drive from the beach and outside that loss demarcation. So are owners of certain Mississippi coastal wetlands that were covered in oil during the spill, although similarly damaged properties in Louisiana were covered by the settlement, according to court papers.
“It looks like BP tried to resolve as many claims as it could for as little as it could as quickly as it could,” New Orleans lawyer Mike Stag, who represents about 3,000 spill victims, said of how the exclusions were determined.
“BP wants these claims sunk to the bottom of the ocean, like their oil,” Stag said.
Scott Dean, a spokesman for BP, said the company will fight the claims excluded from the earlier settlement, “including those based on the U.S. government’s decision to institute a drilling moratorium in the Gulf.”
Claims Administrator
Patrick Juneau, the court-appointed administrator for BP’s Deepwater Horizon Claims Center, said it paid a total of $1.5 billion in damage claims to 22,178 economic victims as of Feb. 19. The center, which administers the $8.5 billion settlement fund, is awaiting answers on another $500 million in compensation offered to victims, Juneau said. Reviews of all but about 30,000 of the 131,055 claims the center has received have been started, he said. New claims will be accepted until April 2014. Juneau said he can’t attach dollar amounts to the excluded claims because, by court order, he can only process claims that are included in the settlement.
Claims Received
To date, he said, he’s received more than 3,500 claims from victims excluded from the spill settlement, including 103 from the oil and gas industry, 249 from gaming firms, 61 from financial institutions, 43 from insurance companies and 170 from state and local governments.
“One of the biggest categories of excluded claims is losses tied to the deep-water drilling moratorium” imposed by the Obama administration after the spill, Stag said. They were specifically allowed by Barbier, the judge overseeing all BP spill-loss cases.
“Those claims will have substantial value, with all the rigs that were shut down and the onshore support-services demand that fell off as a result,” he said. “We’re talking billions of dollars in lost revenue and lost business.”
One offshore drilling company represented by Houston attorney Richard Mithoff suffered damage of as much as $250 million because of the spill, he said. The company, which he declined to name, lost favorable financing terms for a rig it was building at the time of the disaster, Mithoff said.
“These big offshore rigs can cost more than $1 billion, and my client had to go replace its financing when the credit market shut down” for offshore drilling companies when the spill began, Mithoff said.
‘No Choice’
“My client had no choice but to complete the financing at significantly higher rates,” he said. “We’re talking a difference of $200 million to $250 million.” His client hasn’t yet sued, he said.
Stag, who represents several banks alleging spill-related losses, said financial institutions are another large category of excluded claims. He also declined to name his clients.
“When the offshore business slows down and no lines of credit are being taken out for capital investment for ongoing drilling and everyone scales back, that’s going to have a substantial effect on banks’ revenues,” he said.
Stag said he represents a regional radio-communications company, which he declined to identify, that was selling its business when the deep-water drilling ban went into effect and killed the deal.
$8 Billion-Plus
“That’s a $10 million to $20 million loss right there,” Stag said. “I wouldn’t be surprised if there’s another $4 billion to $8 billion in total spill-related losses out there. If we include all the moratorium-related losses, it might be even more than that.”
Also excluded from BP’s settlement are Gulf Coast residents with certain medical injuries who live more than half a mile off the beach or a mile inland from a wetland.
Michael Robichaux, a Raceland, Louisiana doctor, said he has treated scores of spill patients for “the exact same injuries” he treated in U.S. veterans of the Persian Gulf War. The injuries range from skin and eye irritations to chronic headaches, he said.
All of these patients were exposed to oil or toxic chemical dispersants used to break up the spill, including ones who live outside the settlement boundaries, Robichaux said.
‘Screwed’ Patients
“I’m treating patients with chronic illnesses that will affect them for the rest of their lives, and they’re not even included in what was negotiated with BP,” Robichaux said. “These patients and their injuries are screwed, and that’s the nicest thing I can say about it.”
Stag said he opted-out about 600 medical victims from BP’s settlement because the compensation offered was too low.
“A lot of health effects have yet to be seen,” he said. “The result is some of these people are going to die. It’s just a matter of how many.”
Following next week’s trial, claimants may pursue their claims individually, with the court’s determination of fault in hand. However, they will have to then prove they were injured, and that it was caused by the spill defendants.
Thomas McGarity, another University of Texas law professor, said the more directly a victim can prove his loss was caused by the spill, the better his chances of making BP pay.
“With businesses that can say they lost this particular deal with this direct economic harm, they may have a chance” at a trial, McGarity said.
BP can be expected to dispute claims from the excluded categories, Mithoff said, adding: “They’re putting that fight off for another day.”
Cleanup Helped
The company said in court papers that it may try to prove that tax-revenue losses by some governmental entities and revenue-loss claims by some tourism businesses, such as casinos, were offset by increases in economic activity generated by BP’s cleanup crews.
Thousands of BP workers swarmed the coastline in 2010 and 2011 to clean up the spill, and BP said in court filings that spending by these workers largely replaced lost tourist dollars.
“I don’t think that argument will resonate well with a jury,” Stag said.
The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).
Bill Floyd, owner of an upscale seafood restaurant near downtown Houston, is a poster-child for the type of damage claim BP Plc left out of its $8.5 billion settlement for the biggest offshore oil spill in U.S. history.
When the energy company’s blown-out Macondo well dumped more than 4 million barrels of crude oil into the Gulf of Mexico in 2010, Floyd saw his costs for fresh shrimp, crab and oysters almost double overnight while his sales flat-lined.
“Ninety percent of our menu comes out of the Gulf,” said Floyd, whose eatery, Reef, was named the best seafood restaurant in the U.S. in 2008 by Bon Appetit magazine. “Our shrimp prices went through the roof while our increase in sales, which had been averaging about 20 percent each year, went almost dead.”
Floyd’s is one of thousands of businesses, banks and municipalities excluded from the settlement last March. Many of those left out stretch tens or hundreds of miles inland from the once-blackened coastlines. Next week, fault for the spill will be determined in a sprawling trial in New Orleans federal court, the first step for claimants like Floyd seeking what may total billions of dollars from the companies behind the accident.
But their path may be difficult, as BP has pledged to “vigorously” fight their claims. Lawyers for claimants said BP didn’t settle with them because it sees a chance of victory.
And in some cases, the U.K.-based company said in court filings, it may even argue U.S. businesses and governments benefited from the spill, claiming spending and taxes paid by cleanup crews exceeded the losses caused by the catastrophe that brought them there in the first place.
Prove Damages
All victims whose claims were excluded from the settlement must prove the spill directly caused their physical or economic injury, as required under the Oil Pollution Act, which governs spill-damage compensation, legal experts said.
“Causation is the main hurdle, because the bulk of claims for economic loss are by people without physical damage,” said David Robertson, a University of Texas law professor who has advised lawyers leading the spill suits. “There’s a whole huge block of the economy that was heavily affected by the spill, and some of these are very large claims.”
U.S. District Judge Carl Barbier will preside over the Feb. 25 trial without a jury, under maritime law, which governs this phase of the litigation.
As the sole finder of fact, he will apportion fault for the explosion and spill among BP and subcontractors Transocean Ltd. (RIG), which owned and operated the Deepwater Horizon rig, and Halliburton Co. (HAL), which was responsible for cementing services. The subcontractors would only be responsible for punitive damages, based on Barbier's ruling that the project contract required BP to indemnify them for compensatory damages.
Fault Findings
The judge’s findings of fault will be applied to subsequent trials where specific dollar-amounts for spill damages will be determined, including those on claims excluded from the initial settlement. Plaintiffs’ lawyers said those damages trials, unlike the phase beginning next week, will be heard by juries.
BP’s settlement addressed damages to waterfront property owners, coastal tourism and seafood-industry interests, as well as some medical injuries suffered by residents who worked in the spill or live within a mile of the beach.
Medical-injury claims from people living further inland, and economic-loss claims from industries such as offshore drillers hurt by a federal moratorium and Houston seafood restaurants like Reef, weren’t addressed by the accord. State and local governmental claims for lost tax revenues were also excluded from the deal.
“Oil and gas industry losses were directly and immediately caused by the spill, and that’s an excluded category,” Robertson said. “Yet BP has also settled with some bait-and- tackle shops that were pretty far inland.”
Loss Claims
BP’s settlement assigned some value to economic-loss claims throughout Louisiana and Mississippi, with claim values decreasing the further away they were from the coast. In Texas and Florida, economic-loss claims were allowed only if they originated within a narrow coastal zone.
Reef is a 45-minute drive from the beach and outside that loss demarcation. So are owners of certain Mississippi coastal wetlands that were covered in oil during the spill, although similarly damaged properties in Louisiana were covered by the settlement, according to court papers.
“It looks like BP tried to resolve as many claims as it could for as little as it could as quickly as it could,” New Orleans lawyer Mike Stag, who represents about 3,000 spill victims, said of how the exclusions were determined.
“BP wants these claims sunk to the bottom of the ocean, like their oil,” Stag said.
Scott Dean, a spokesman for BP, said the company will fight the claims excluded from the earlier settlement, “including those based on the U.S. government’s decision to institute a drilling moratorium in the Gulf.”
Claims Administrator
Patrick Juneau, the court-appointed administrator for BP’s Deepwater Horizon Claims Center, said it paid a total of $1.5 billion in damage claims to 22,178 economic victims as of Feb. 19. The center, which administers the $8.5 billion settlement fund, is awaiting answers on another $500 million in compensation offered to victims, Juneau said. Reviews of all but about 30,000 of the 131,055 claims the center has received have been started, he said. New claims will be accepted until April 2014. Juneau said he can’t attach dollar amounts to the excluded claims because, by court order, he can only process claims that are included in the settlement.
Claims Received
To date, he said, he’s received more than 3,500 claims from victims excluded from the spill settlement, including 103 from the oil and gas industry, 249 from gaming firms, 61 from financial institutions, 43 from insurance companies and 170 from state and local governments.
“One of the biggest categories of excluded claims is losses tied to the deep-water drilling moratorium” imposed by the Obama administration after the spill, Stag said. They were specifically allowed by Barbier, the judge overseeing all BP spill-loss cases.
“Those claims will have substantial value, with all the rigs that were shut down and the onshore support-services demand that fell off as a result,” he said. “We’re talking billions of dollars in lost revenue and lost business.”
One offshore drilling company represented by Houston attorney Richard Mithoff suffered damage of as much as $250 million because of the spill, he said. The company, which he declined to name, lost favorable financing terms for a rig it was building at the time of the disaster, Mithoff said.
“These big offshore rigs can cost more than $1 billion, and my client had to go replace its financing when the credit market shut down” for offshore drilling companies when the spill began, Mithoff said.
‘No Choice’
“My client had no choice but to complete the financing at significantly higher rates,” he said. “We’re talking a difference of $200 million to $250 million.” His client hasn’t yet sued, he said.
Stag, who represents several banks alleging spill-related losses, said financial institutions are another large category of excluded claims. He also declined to name his clients.
“When the offshore business slows down and no lines of credit are being taken out for capital investment for ongoing drilling and everyone scales back, that’s going to have a substantial effect on banks’ revenues,” he said.
Stag said he represents a regional radio-communications company, which he declined to identify, that was selling its business when the deep-water drilling ban went into effect and killed the deal.
$8 Billion-Plus
“That’s a $10 million to $20 million loss right there,” Stag said. “I wouldn’t be surprised if there’s another $4 billion to $8 billion in total spill-related losses out there. If we include all the moratorium-related losses, it might be even more than that.”
Also excluded from BP’s settlement are Gulf Coast residents with certain medical injuries who live more than half a mile off the beach or a mile inland from a wetland.
Michael Robichaux, a Raceland, Louisiana doctor, said he has treated scores of spill patients for “the exact same injuries” he treated in U.S. veterans of the Persian Gulf War. The injuries range from skin and eye irritations to chronic headaches, he said.
All of these patients were exposed to oil or toxic chemical dispersants used to break up the spill, including ones who live outside the settlement boundaries, Robichaux said.
‘Screwed’ Patients
“I’m treating patients with chronic illnesses that will affect them for the rest of their lives, and they’re not even included in what was negotiated with BP,” Robichaux said. “These patients and their injuries are screwed, and that’s the nicest thing I can say about it.”
Stag said he opted-out about 600 medical victims from BP’s settlement because the compensation offered was too low.
“A lot of health effects have yet to be seen,” he said. “The result is some of these people are going to die. It’s just a matter of how many.”
Following next week’s trial, claimants may pursue their claims individually, with the court’s determination of fault in hand. However, they will have to then prove they were injured, and that it was caused by the spill defendants.
Thomas McGarity, another University of Texas law professor, said the more directly a victim can prove his loss was caused by the spill, the better his chances of making BP pay.
“With businesses that can say they lost this particular deal with this direct economic harm, they may have a chance” at a trial, McGarity said.
BP can be expected to dispute claims from the excluded categories, Mithoff said, adding: “They’re putting that fight off for another day.”
Cleanup Helped
The company said in court papers that it may try to prove that tax-revenue losses by some governmental entities and revenue-loss claims by some tourism businesses, such as casinos, were offset by increases in economic activity generated by BP’s cleanup crews.
Thousands of BP workers swarmed the coastline in 2010 and 2011 to clean up the spill, and BP said in court filings that spending by these workers largely replaced lost tourist dollars.
“I don’t think that argument will resonate well with a jury,” Stag said.
The case is In re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).
Wednesday, February 20, 2013
Reader's Digest Parent Co. Files Second Bankruptcy
Story first appeared on The Deal Pipeline -
The publisher of Reader's Digest magazine and other titles has turned the page to its second bankruptcy filing as too much leverage, leftover overhead costs and a more profound fall in revenue and profitability than forecast has led the company to seek out a $105 million debtor-in-possession loan and a prenegotiated reorganization plan centered on swapping debt for equity.
Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York in White Plains will consider the interim use of $11 million of the DIP financing, along with its cash collateral, at an afternoon hearing on Tuesday.
Reader's Digest Association Inc. filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York in White Plains, under the main case of its parent company, RDA Holding Co., on Sunday. Its international affiliates, including Canada, weren't included in the bankruptcy filing.
The company filed with 30 affiliates and has sought to jointly administer the cases. Drain will also consider the joint administration of the cases during Tuesday's hearing.
RDA Holding has secured a $105 million DIP loan from prepetition lenders Wells Fargo Principal Lending LLC, GoldenTree Asset Management LP, Empyrean Capital Partners LP and Apollo Management LP's Apollo Senior Floating Rate Fund to fund its reorganization.
The DIP has $45 million in new money and refinances its roughly $60 million prepetition secured credit facility. The DIP matures the earliest of Oct. 31 and the effective date of its reorganization plan.
Through the DIP, the refinanced loan is priced at either Libor plus 500 basis points, with a 3% floor on Libor or a base rate plus 400 basis points. The base rate has a 3% floor. The new-money portion of the DIP is priced at either Libor plus 950 basis points, with a 1.5% floor on Libor or a base rate plus 850 basis points, with a 1.5% floor on the base rate. If the company defaults on the DIP, the pricing increases by 200 basis points.
The DIP carries a 4.75% ticking fee, which would be paid on the undrawn amount of the new money portion of the loan starting 30 days from the petition date until the loan is fully funded. The DIP also has a 2% early termination fee, a 2% commitment fee on the new money portion of the loan and $30,000 per year administrative agency fee.
According to a declaration filed by RDA Holding president and chief executive Robert E. Guth, the company plans to cut its debt by 80% during its second trip through Chapter 11.
As Reader's Digest Association, then-owned by private equity firm Ripplewood Holdings LLC, the company first filed for Chapter 11 on Aug. 24, 2009, in White Plains, N.Y. During its case, it pruned its debt by 75%, left its operations intact and wiped out its prepetition equity holders. The company emerged from bankruptcy protection on Feb. 22, 2010, with RDA Holding as the parent.
The New York-based media and direct marketing company blamed its second bankruptcy filing on a business plan and financial forecasts that failed to "adequately account for the steep declines that the media industry has suffered over the last few years," the declaration said.
The company has also struggled due to its highly leveraged capital structure and its legacy overhead expenses. In addition, its international businesses have experienced a decline in profitability and subscription revenue.
RDA Holding began negotiations with its secured lenders, Wells Fargo Bank NA and Wells Fargo Principal Lending, as well as an ad hoc committee of its senior secured noteholders last year as it faced a potential covenant default on its secured credit facility.
The ad hoc group consists of GoldenTree Asset Management, Empyrean Capital and Apollo Management. The group holds roughly 70% of the senior secured notes, court documents said.
Under the terms of the prenegotiated plan, which has not yet been filed with the court, the holders of $464 million in senior secured notes will swap their debt for 100% of RDA's reorganized common stock.
RDA has $534 million in outstanding prepetition debt, including the senior secured notes, a more than $59.26 million secured credit facility with Wells Fargo and a $10 million unsecured term loan from Luxor Capital Group and Point Lobos Capital. Wells Fargo is the trustee and Wilmington Trust FSB is the collateral agent on the senior secured notes.
Under the reorganization plan, the DIP loan will convert into exit financing or be repaid in full in cash, through its reorganization plan.
The refinanced portion of the loan will convert to a "first out" exit term loan, while the new money portion of the DIP will convert to a "second out, first priority" exit term loan. The exit loans will mature on Sept. 30, 2015.
The first out exit term loan with Wells Fargo will be priced at Libor plus 600 basis points or a base rate plus 500 basis points. Libor has a 3% floor, while the base rate has a 4% floor. The second out exit loan will be priced at Libor plus 11% per annum or a base rate plus 10% per annum. There is a 1.5% floor on Libor and a 2.5% floor on the base rate. It also carries a 2% up-front fee and an up to 2% early termination fee. If the company defaults on the exit loans, the interest rate would increase by 200 basis points.
RDA must file its plan and disclosure statement within 25 days of its petition date. It plans to win confirmation of the plan by July 15 and exit from Chapter 11 by July 31, under the terms of its restructuring support agreement.
Through the reorganization plan, unsecured creditors will get a pro rata share of an undetermined amount. Its prepetition equity holders will be wiped out.
"After considering a wide range of alternatives, we believe this course of action will most effectively enable us to maintain our momentum in transforming the business and allow us to capitalize on the growing strength and presence of our outstanding brands and products," Guth said Sunday in a company statement.
"The complex transformation that we began 18 months ago under the leadership of a new senior management team has resulted in a more streamlined, more focused, and more profitable business, but we have unfortunately been unable to align our debt levels correspondingly. The Chapter 11 process, which will facilitate a significant debt reduction, will enable us to continue to redefine our business by focusing our resources on our strong North America publishing brands, which have shown a new vitality as a result of our transformation efforts, particularly in the digital arena," Guth said in the statement.
Reader's Digest Association, which publishes the second-largest paid subscription magazine in the U.S. in Reader's Digest, has been selling its underperforming and noncore businesses since 2011 in an effort to pay down its debt.
Last year, the debtor sold its Weekly Reader and Allrecipes.com businesses for $3.6 million and $175 million, respectively, and hired FTI Capital Advisors LLC as its financial adviser for the sale of its international entities, the declaration said.
The company, which has been in business for more than 90 years, produces and sells print and digital magazines, books, music and videos to consumers around the world.
According to court documents, Alden Global Capital holds a 17.77% stake in the company, while Point Lobos Capital holds a 13.55% stake. Its other large equity holders include Jefferies High Yield Holdings LLC (9.43%), GoldenTree Asset Management (9.22%), GE Capital Corp. (8.96%), JPMorgan Chase Bank NA (6.79%), and Goldman Sachs Asset Management LP (5.69%).
The debtor listed its assets at $1.12 billion and its liabilities at $1.18 billion in its petition.
RDA Holding's largest unsecured creditors include the Federal Trade Commission of Washington ($8.75 million), Williams Lea of New York ($5.97 million), HCL Technologies Ltd. of Vienna, Va. ($4.36 million), Quad/Graphics Inc. of Sussex, Wis. ($3.58 million) and RR Donnelley Receivables Inc. of Trumbull, Conn. ($1.61 million).
Debtor counsel is Michael Aiello, Marcia Goldstein and Joseph Smolinsky at Weil, Gotshal & Manges LLP. Evercore Group LLC is the company's investment banker.
Abhilash M. Raval, Blair M. Tyson and Michael E. Comerford at Milbank, Tweed, Hadley & McCloy LLP are counsel to Wells Fargo.
Nicole L. Greenblatt at Kirkland & Ellis LLP and Moelis & Co. are advisers to the ad hoc committee of noteholders.
The publisher of Reader's Digest magazine and other titles has turned the page to its second bankruptcy filing as too much leverage, leftover overhead costs and a more profound fall in revenue and profitability than forecast has led the company to seek out a $105 million debtor-in-possession loan and a prenegotiated reorganization plan centered on swapping debt for equity.
Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York in White Plains will consider the interim use of $11 million of the DIP financing, along with its cash collateral, at an afternoon hearing on Tuesday.
Reader's Digest Association Inc. filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of New York in White Plains, under the main case of its parent company, RDA Holding Co., on Sunday. Its international affiliates, including Canada, weren't included in the bankruptcy filing.
The company filed with 30 affiliates and has sought to jointly administer the cases. Drain will also consider the joint administration of the cases during Tuesday's hearing.
RDA Holding has secured a $105 million DIP loan from prepetition lenders Wells Fargo Principal Lending LLC, GoldenTree Asset Management LP, Empyrean Capital Partners LP and Apollo Management LP's Apollo Senior Floating Rate Fund to fund its reorganization.
The DIP has $45 million in new money and refinances its roughly $60 million prepetition secured credit facility. The DIP matures the earliest of Oct. 31 and the effective date of its reorganization plan.
Through the DIP, the refinanced loan is priced at either Libor plus 500 basis points, with a 3% floor on Libor or a base rate plus 400 basis points. The base rate has a 3% floor. The new-money portion of the DIP is priced at either Libor plus 950 basis points, with a 1.5% floor on Libor or a base rate plus 850 basis points, with a 1.5% floor on the base rate. If the company defaults on the DIP, the pricing increases by 200 basis points.
The DIP carries a 4.75% ticking fee, which would be paid on the undrawn amount of the new money portion of the loan starting 30 days from the petition date until the loan is fully funded. The DIP also has a 2% early termination fee, a 2% commitment fee on the new money portion of the loan and $30,000 per year administrative agency fee.
According to a declaration filed by RDA Holding president and chief executive Robert E. Guth, the company plans to cut its debt by 80% during its second trip through Chapter 11.
As Reader's Digest Association, then-owned by private equity firm Ripplewood Holdings LLC, the company first filed for Chapter 11 on Aug. 24, 2009, in White Plains, N.Y. During its case, it pruned its debt by 75%, left its operations intact and wiped out its prepetition equity holders. The company emerged from bankruptcy protection on Feb. 22, 2010, with RDA Holding as the parent.
The New York-based media and direct marketing company blamed its second bankruptcy filing on a business plan and financial forecasts that failed to "adequately account for the steep declines that the media industry has suffered over the last few years," the declaration said.
The company has also struggled due to its highly leveraged capital structure and its legacy overhead expenses. In addition, its international businesses have experienced a decline in profitability and subscription revenue.
RDA Holding began negotiations with its secured lenders, Wells Fargo Bank NA and Wells Fargo Principal Lending, as well as an ad hoc committee of its senior secured noteholders last year as it faced a potential covenant default on its secured credit facility.
The ad hoc group consists of GoldenTree Asset Management, Empyrean Capital and Apollo Management. The group holds roughly 70% of the senior secured notes, court documents said.
Under the terms of the prenegotiated plan, which has not yet been filed with the court, the holders of $464 million in senior secured notes will swap their debt for 100% of RDA's reorganized common stock.
RDA has $534 million in outstanding prepetition debt, including the senior secured notes, a more than $59.26 million secured credit facility with Wells Fargo and a $10 million unsecured term loan from Luxor Capital Group and Point Lobos Capital. Wells Fargo is the trustee and Wilmington Trust FSB is the collateral agent on the senior secured notes.
Under the reorganization plan, the DIP loan will convert into exit financing or be repaid in full in cash, through its reorganization plan.
The refinanced portion of the loan will convert to a "first out" exit term loan, while the new money portion of the DIP will convert to a "second out, first priority" exit term loan. The exit loans will mature on Sept. 30, 2015.
The first out exit term loan with Wells Fargo will be priced at Libor plus 600 basis points or a base rate plus 500 basis points. Libor has a 3% floor, while the base rate has a 4% floor. The second out exit loan will be priced at Libor plus 11% per annum or a base rate plus 10% per annum. There is a 1.5% floor on Libor and a 2.5% floor on the base rate. It also carries a 2% up-front fee and an up to 2% early termination fee. If the company defaults on the exit loans, the interest rate would increase by 200 basis points.
RDA must file its plan and disclosure statement within 25 days of its petition date. It plans to win confirmation of the plan by July 15 and exit from Chapter 11 by July 31, under the terms of its restructuring support agreement.
Through the reorganization plan, unsecured creditors will get a pro rata share of an undetermined amount. Its prepetition equity holders will be wiped out.
"After considering a wide range of alternatives, we believe this course of action will most effectively enable us to maintain our momentum in transforming the business and allow us to capitalize on the growing strength and presence of our outstanding brands and products," Guth said Sunday in a company statement.
"The complex transformation that we began 18 months ago under the leadership of a new senior management team has resulted in a more streamlined, more focused, and more profitable business, but we have unfortunately been unable to align our debt levels correspondingly. The Chapter 11 process, which will facilitate a significant debt reduction, will enable us to continue to redefine our business by focusing our resources on our strong North America publishing brands, which have shown a new vitality as a result of our transformation efforts, particularly in the digital arena," Guth said in the statement.
Reader's Digest Association, which publishes the second-largest paid subscription magazine in the U.S. in Reader's Digest, has been selling its underperforming and noncore businesses since 2011 in an effort to pay down its debt.
Last year, the debtor sold its Weekly Reader and Allrecipes.com businesses for $3.6 million and $175 million, respectively, and hired FTI Capital Advisors LLC as its financial adviser for the sale of its international entities, the declaration said.
The company, which has been in business for more than 90 years, produces and sells print and digital magazines, books, music and videos to consumers around the world.
According to court documents, Alden Global Capital holds a 17.77% stake in the company, while Point Lobos Capital holds a 13.55% stake. Its other large equity holders include Jefferies High Yield Holdings LLC (9.43%), GoldenTree Asset Management (9.22%), GE Capital Corp. (8.96%), JPMorgan Chase Bank NA (6.79%), and Goldman Sachs Asset Management LP (5.69%).
The debtor listed its assets at $1.12 billion and its liabilities at $1.18 billion in its petition.
RDA Holding's largest unsecured creditors include the Federal Trade Commission of Washington ($8.75 million), Williams Lea of New York ($5.97 million), HCL Technologies Ltd. of Vienna, Va. ($4.36 million), Quad/Graphics Inc. of Sussex, Wis. ($3.58 million) and RR Donnelley Receivables Inc. of Trumbull, Conn. ($1.61 million).
Debtor counsel is Michael Aiello, Marcia Goldstein and Joseph Smolinsky at Weil, Gotshal & Manges LLP. Evercore Group LLC is the company's investment banker.
Abhilash M. Raval, Blair M. Tyson and Michael E. Comerford at Milbank, Tweed, Hadley & McCloy LLP are counsel to Wells Fargo.
Nicole L. Greenblatt at Kirkland & Ellis LLP and Moelis & Co. are advisers to the ad hoc committee of noteholders.
Tuesday, February 19, 2013
Nurse Sues Hospital for Supporting Discrimination
Story first appeared on Detroit Free Press -
An African-American nurse who is suing a Flint hospital because she said it agreed to a man's request that no African-American nurses care for his newborn recalled Monday that she was stunned by her employer's actions.
"I didn't even know how to react," said Tonya Battle, 49, a veteran of the neonatal intensive care unit and a nearly 25-year employee of the Hurley Medical Center.
Battle's lawsuit states a note was posted on the assignment clipboard reading "No African American nurse to take care of baby," according to the eight-page complaint against the medical center.
Hurley, which according to its website was founded in 1908 and is a 443-bed teaching hospital, released a brief statement Monday, saying that it "does not comment on past or current litigation."
Battle said she was working as a registered nurse in Hurley's neonatal intensive care unit Oct. 31, when a man walked into the NICU, where Battle was at an infant's bedside. He reached toward the child, according to the lawsuit filed in Genesee County Circuit Court last month.
"I introduced myself to him. 'Hi, I'm Tonya and I'm taking care of your baby. Can I see your (identification) band?' " Battle said, referring to the hospital-issued identification used to identify infants' parents. "And he said in return, 'And I need to see your supervisor.' "
Perplexed by his curtness, she asked for the charge nurse, who spoke separately to the man.
When the charge nurse returned, she told Battle that the father didn't want African Americans to care for his child. Further, the charge nurse told Battle that he had rolled up his sleeve to expose what appeared to be a swastika.
"I felt like I froze," Battle said. "I just was really dumbfounded. I couldn't believe that's why he was so angry (and) that's why he was requesting my charge nurse. I think my mouth hit the floor. It was really disbelief."
The charge nurse passed the request to her supervisor, and Battle was reassigned, according to the complaint.
Even after hospital officials removed the sign that had been placed for a short time on the assignment chart, Battle and other black nurses were not assigned to care for the baby for about a month "because of their race," according the lawsuit. Battle is seeking punitive damages for emotional stress, mental anguish, humiliation and damage to her reputation.
Battle said colleagues have told her they were surprised at the hospital's stand and they have been supportive. But she said she felt the issue was important enough to pursue the matter legally because she expected Hurley to have turned down such a request.
"What flashed in my mind is, 'What's next? A note on the water fountain that says 'No blacks? Or a note on the bathroom that says 'No blacks'?" she said.
Larry Dubin, a law professor at University of Detroit Mercy's School of Law, called the hospital's actions, if true, "morally repugnant."
"The patient's father has the right to select the hospital to treat the child. The father does not have the right to exercise control over the hospital in discrimination of its employees," he said.
The case "puts into tension two different facets of the law," said Lance Gable, an associate professor specializing in health law at the Wayne State University Law School.
Patients choose their doctors, he said. Some women prefer to see female gynecologists, for example.
"But there are also laws prohibiting discrimination," he added, citing the 1964 Civil Rights Act, among others.
"The bottom line is that the law is not clear about this, although I suspect the nurse will have a pretty strong case," Gable said.
One in 3 doctors in a 2007 survey said they felt patients believed they got better care if they matched their doctor's race. Patients' requests were more likely to be honored if the request came from someone who was female, non-white or Muslim, according to a report on the survey written in part by a University of Michigan researcher.
But just how often hospitals receive requests based on race is unclear.
Vickie Winn, spokeswoman for Children's Hospital of Michigan, said the hospital may try to accommodate a patient's request for providers with a certain religion or gender, but a request for a doctor based on race is different, she said.
"It has come up in the past, but generally speaking, we don't accommodate that. ... We have a very diverse population, and we just don't feed into those kinds of beliefs," Winn said.
Beaumont Health System, likewise, does not accommodate requests based on race, said spokesman Bob Ortlieb.
Julie Gafkay, an employment discrimination and civil rights lawyer in Frankenmuth who is representing Battle, said medical personnel might receive such requests from time to time, but employers must guard against racial discrimination.
"I don't doubt that people have made requests like this in the past. You're not going to control the prejudices and biases of people. That's not my client's issue. The problem she has ... is that her employer of 25 years granted" the request.
She added: "We made a decision in this country that, that kind of discrimination is wrong."
An African-American nurse who is suing a Flint hospital because she said it agreed to a man's request that no African-American nurses care for his newborn recalled Monday that she was stunned by her employer's actions.
"I didn't even know how to react," said Tonya Battle, 49, a veteran of the neonatal intensive care unit and a nearly 25-year employee of the Hurley Medical Center.
Battle's lawsuit states a note was posted on the assignment clipboard reading "No African American nurse to take care of baby," according to the eight-page complaint against the medical center.
Hurley, which according to its website was founded in 1908 and is a 443-bed teaching hospital, released a brief statement Monday, saying that it "does not comment on past or current litigation."
Battle said she was working as a registered nurse in Hurley's neonatal intensive care unit Oct. 31, when a man walked into the NICU, where Battle was at an infant's bedside. He reached toward the child, according to the lawsuit filed in Genesee County Circuit Court last month.
"I introduced myself to him. 'Hi, I'm Tonya and I'm taking care of your baby. Can I see your (identification) band?' " Battle said, referring to the hospital-issued identification used to identify infants' parents. "And he said in return, 'And I need to see your supervisor.' "
Perplexed by his curtness, she asked for the charge nurse, who spoke separately to the man.
When the charge nurse returned, she told Battle that the father didn't want African Americans to care for his child. Further, the charge nurse told Battle that he had rolled up his sleeve to expose what appeared to be a swastika.
"I felt like I froze," Battle said. "I just was really dumbfounded. I couldn't believe that's why he was so angry (and) that's why he was requesting my charge nurse. I think my mouth hit the floor. It was really disbelief."
The charge nurse passed the request to her supervisor, and Battle was reassigned, according to the complaint.
Even after hospital officials removed the sign that had been placed for a short time on the assignment chart, Battle and other black nurses were not assigned to care for the baby for about a month "because of their race," according the lawsuit. Battle is seeking punitive damages for emotional stress, mental anguish, humiliation and damage to her reputation.
Battle said colleagues have told her they were surprised at the hospital's stand and they have been supportive. But she said she felt the issue was important enough to pursue the matter legally because she expected Hurley to have turned down such a request.
"What flashed in my mind is, 'What's next? A note on the water fountain that says 'No blacks? Or a note on the bathroom that says 'No blacks'?" she said.
Larry Dubin, a law professor at University of Detroit Mercy's School of Law, called the hospital's actions, if true, "morally repugnant."
"The patient's father has the right to select the hospital to treat the child. The father does not have the right to exercise control over the hospital in discrimination of its employees," he said.
The case "puts into tension two different facets of the law," said Lance Gable, an associate professor specializing in health law at the Wayne State University Law School.
Patients choose their doctors, he said. Some women prefer to see female gynecologists, for example.
"But there are also laws prohibiting discrimination," he added, citing the 1964 Civil Rights Act, among others.
"The bottom line is that the law is not clear about this, although I suspect the nurse will have a pretty strong case," Gable said.
One in 3 doctors in a 2007 survey said they felt patients believed they got better care if they matched their doctor's race. Patients' requests were more likely to be honored if the request came from someone who was female, non-white or Muslim, according to a report on the survey written in part by a University of Michigan researcher.
But just how often hospitals receive requests based on race is unclear.
Vickie Winn, spokeswoman for Children's Hospital of Michigan, said the hospital may try to accommodate a patient's request for providers with a certain religion or gender, but a request for a doctor based on race is different, she said.
"It has come up in the past, but generally speaking, we don't accommodate that. ... We have a very diverse population, and we just don't feed into those kinds of beliefs," Winn said.
Beaumont Health System, likewise, does not accommodate requests based on race, said spokesman Bob Ortlieb.
Julie Gafkay, an employment discrimination and civil rights lawyer in Frankenmuth who is representing Battle, said medical personnel might receive such requests from time to time, but employers must guard against racial discrimination.
"I don't doubt that people have made requests like this in the past. You're not going to control the prejudices and biases of people. That's not my client's issue. The problem she has ... is that her employer of 25 years granted" the request.
She added: "We made a decision in this country that, that kind of discrimination is wrong."
Monday, February 18, 2013
Immigration Bill paves way for illegals and families to obtain legal residency
Story first appeared on Detroit Free Press -
A draft of a White House immigration proposal obtained by USA TODAY would allow illegal immigrants to become legal permanent residents within eight years.
The plan also would provide for more security funding and require business owners to check the immigration status of new hires within four years. In addition, the nation's 11 million illegal immigrants could apply for a newly created "Lawful Prospective Immigrant" visa, under the draft bill being written by the White House.
If approved, they could then apply for the same provisional legal status for their spouse or children living outside the country, according to the draft.
The bill is being developed as members in both chambers of Congress are drafting their own immigration bills. In the House, a bipartisan group of representatives has been negotiating an immigration proposal for years and are writing their own bill. Last month, four Republican senators joined with four Democratic senators to announce their agreement on the general outlines of an immigration plan.
One of those senators, Sen. Marco Rubio, R-Fla., said Obama's bill repeats the failures of past legislation and would be "dead on arrival" in Congress.
"It fails to follow through on previously broken promises to secure our borders, (and) creates a special pathway that puts those who broke our immigration laws at an advantage over those who chose to do things the right way and come here legally," Rubio said. "It would actually make our immigration problems worse."
The draft was obtained from an Obama administration official who said it was being distributed to various agencies. The official requested anonymity because he was not authorized to release the proposal publicly.
The bill mirrors many provisions of the bipartisan 2007 bill that was spearheaded by the late Sen. Ted Kennedy, D-Mass., and Sen. John McCain, R-Ariz., and ultimately failed.
In his first term, Obama often deferred to Congress on drafting and advancing major legislation, including the Affordable Care Act. He has openly supported the efforts in Congress to take the lead on immigration legislation, and just this week met with Democratic senators to discuss their proposals.
But two weeks ago in Las Vegas, while outlining his immigration plans, Obama made clear that he would not wait too long for Congress to get moving.
"If Congress is unable to move forward in a timely fashion, I will send up a bill based on my proposal and insist that they vote on it right away," he said.
White House spokesman Clark Stevens said Saturday that the administration continues to support the bipartisan efforts ongoing in Congress.
"The president has made clear the principles upon which he believes any common-sense immigration reform effort should be based," Stevens said. "We continue to work in support of a bipartisan effort, and while the president has made clear he will move forward if Congress fails to act, progress continues to be made and the administration has not prepared a final bill to submit."
According to the White House draft, people would need to pass a criminal background check, submit biometric information and pay fees to qualify for the new visa. If approved, they would be allowed to legally reside in the U.S. for four years, work and leave the country for short periods of time. After the four years, they could then reapply for an extension.
Illegal immigrants would be disqualified from the program if they were convicted of a crime that led to a prison term of at least one year, three or more different crimes that resulted in a total of 90 days in jail, or if they committed any offense abroad that "if committed in the United States would render the alien inadmissible or removable from the United States."
People currently in federal custody or facing deportation proceedings also could be allowed to apply for the Lawful Prospective Immigrant visa. Application forms and instructions would be provided in "the most common languages spoken by persons in the United States," but the application and all supporting evidence submitted to the federal government would have to be in English.
They would also be given a new identification card to show as proof of their legal status in the country.
The immigrants could then apply for legal permanent residence, commonly known as a green card, within eight years if they learn English and "the history and government of the United States" and pay back taxes. That would then clear the path for them to apply for U.S. citizenship.
To combat fraud, the draft proposes a new Social Security card be developed that is "fraud-resistant, tamper-resistant and wear-resistant." The Social Security Administration would be required to issue the new cards within two years.
A major requirement for many Republicans is enhanced border security. The bill calls for an unspecified increase in the Border Patrol, allows the Department of Homeland Security to expand technological improvements along the border and adds 140 new immigration judges to process the heavy flow of people who violate immigration laws.
It also orders U.S. Customs and Border Protection (CBP) to study whether a land-border crossing fee should be implemented to help offset border security costs. The draft also proposes raising many inspection fees that border-crossers already pay.
The draft bill proposes a new plan to allow Homeland Security to "accept donations" from citizens, businesses and local and state governments to improve ports of entry and security features along the border. And it would require CBP to begin collecting statistics on deaths along the border and report them quarterly.
The draft also expands the E-Verify program that checks the immigration status of people seeking new jobs. Businesses with more than 1,000 employees must begin using the system within two years, businesses with more than 250 employees within three years and all businesses within four years.
Homeland Security, working with the U.S. departments of Labor and Agriculture, the attorney general and other agencies, would engage in a $40 million-a-year program to educate business owners and workers about the program.
Homeland Security also would be required to submit a report within 18 months showing how the worker verification system is working, and specifically explain how it is affecting the nation's agriculture industry, which relies heavily on illegal immigrant workers.
The draft obtained by USA TODAY does not include sections that would alter the nation's legal immigration system to adjust the future flow of legal immigrants, which is expected to be a critical component of any immigration overhaul.
A draft of a White House immigration proposal obtained by USA TODAY would allow illegal immigrants to become legal permanent residents within eight years.
The plan also would provide for more security funding and require business owners to check the immigration status of new hires within four years. In addition, the nation's 11 million illegal immigrants could apply for a newly created "Lawful Prospective Immigrant" visa, under the draft bill being written by the White House.
If approved, they could then apply for the same provisional legal status for their spouse or children living outside the country, according to the draft.
The bill is being developed as members in both chambers of Congress are drafting their own immigration bills. In the House, a bipartisan group of representatives has been negotiating an immigration proposal for years and are writing their own bill. Last month, four Republican senators joined with four Democratic senators to announce their agreement on the general outlines of an immigration plan.
One of those senators, Sen. Marco Rubio, R-Fla., said Obama's bill repeats the failures of past legislation and would be "dead on arrival" in Congress.
"It fails to follow through on previously broken promises to secure our borders, (and) creates a special pathway that puts those who broke our immigration laws at an advantage over those who chose to do things the right way and come here legally," Rubio said. "It would actually make our immigration problems worse."
The draft was obtained from an Obama administration official who said it was being distributed to various agencies. The official requested anonymity because he was not authorized to release the proposal publicly.
The bill mirrors many provisions of the bipartisan 2007 bill that was spearheaded by the late Sen. Ted Kennedy, D-Mass., and Sen. John McCain, R-Ariz., and ultimately failed.
In his first term, Obama often deferred to Congress on drafting and advancing major legislation, including the Affordable Care Act. He has openly supported the efforts in Congress to take the lead on immigration legislation, and just this week met with Democratic senators to discuss their proposals.
But two weeks ago in Las Vegas, while outlining his immigration plans, Obama made clear that he would not wait too long for Congress to get moving.
"If Congress is unable to move forward in a timely fashion, I will send up a bill based on my proposal and insist that they vote on it right away," he said.
White House spokesman Clark Stevens said Saturday that the administration continues to support the bipartisan efforts ongoing in Congress.
"The president has made clear the principles upon which he believes any common-sense immigration reform effort should be based," Stevens said. "We continue to work in support of a bipartisan effort, and while the president has made clear he will move forward if Congress fails to act, progress continues to be made and the administration has not prepared a final bill to submit."
According to the White House draft, people would need to pass a criminal background check, submit biometric information and pay fees to qualify for the new visa. If approved, they would be allowed to legally reside in the U.S. for four years, work and leave the country for short periods of time. After the four years, they could then reapply for an extension.
Illegal immigrants would be disqualified from the program if they were convicted of a crime that led to a prison term of at least one year, three or more different crimes that resulted in a total of 90 days in jail, or if they committed any offense abroad that "if committed in the United States would render the alien inadmissible or removable from the United States."
People currently in federal custody or facing deportation proceedings also could be allowed to apply for the Lawful Prospective Immigrant visa. Application forms and instructions would be provided in "the most common languages spoken by persons in the United States," but the application and all supporting evidence submitted to the federal government would have to be in English.
They would also be given a new identification card to show as proof of their legal status in the country.
The immigrants could then apply for legal permanent residence, commonly known as a green card, within eight years if they learn English and "the history and government of the United States" and pay back taxes. That would then clear the path for them to apply for U.S. citizenship.
To combat fraud, the draft proposes a new Social Security card be developed that is "fraud-resistant, tamper-resistant and wear-resistant." The Social Security Administration would be required to issue the new cards within two years.
A major requirement for many Republicans is enhanced border security. The bill calls for an unspecified increase in the Border Patrol, allows the Department of Homeland Security to expand technological improvements along the border and adds 140 new immigration judges to process the heavy flow of people who violate immigration laws.
It also orders U.S. Customs and Border Protection (CBP) to study whether a land-border crossing fee should be implemented to help offset border security costs. The draft also proposes raising many inspection fees that border-crossers already pay.
The draft bill proposes a new plan to allow Homeland Security to "accept donations" from citizens, businesses and local and state governments to improve ports of entry and security features along the border. And it would require CBP to begin collecting statistics on deaths along the border and report them quarterly.
The draft also expands the E-Verify program that checks the immigration status of people seeking new jobs. Businesses with more than 1,000 employees must begin using the system within two years, businesses with more than 250 employees within three years and all businesses within four years.
Homeland Security, working with the U.S. departments of Labor and Agriculture, the attorney general and other agencies, would engage in a $40 million-a-year program to educate business owners and workers about the program.
Homeland Security also would be required to submit a report within 18 months showing how the worker verification system is working, and specifically explain how it is affecting the nation's agriculture industry, which relies heavily on illegal immigrant workers.
The draft obtained by USA TODAY does not include sections that would alter the nation's legal immigration system to adjust the future flow of legal immigrants, which is expected to be a critical component of any immigration overhaul.
Thursday, February 14, 2013
Grad Student Sues over C Grade
Story first appeared on USA Today -
Talk about grade inflation.
Graduate student Megan Thode wasn't happy about the C-plus she received for one class, saying the mediocre grade kept her from getting her desired degree and becoming a licensed therapist — and, as a result, cost her $1.3 million in lost earnings.
Now Thode is suing her professor and Lehigh University in Bethlehem, claiming monetary damages and seeking a grade change.
A judge is hearing testimony in the case this week in Northampton County Court. Lehigh and the professor contend her lawsuit is without merit. Northampton County Judge Emil Giordano declined to dismiss the suit Wednesday, ruling that there was enough evidence for the suit to proceed, according to The (Easton) Express-Times.
Thode took the class in the fall of 2009. Her instructor, Amanda Eckhardt, testified this week that she stood by the grade, saying Thode failed to behave professionally and thus earned zero out of 25 points in class participation, bumping her down a full letter grade.
"I ... believed she received the grade she earned," Eckhardt said.
The C-plus prevented Thode, an otherwise A student, from going on to the next class and advancing in her professional therapist studies, the newspaper reported. She wound up getting a master's degree in human development instead.
Her attorney, Richard Orloski, argued that Eckhardt targeted Thode because she is an outspoken advocate for gay marriage.
Eckhardt testified that while she believes marriage is between a man and a woman, she would never allow her personal views to influence her treatment of students. She said Thode had outbursts in class, did not participate appropriately, was emotionally unstable and failed to heed a warning letter.
Stephen Thode, the plaintiff's father and a longtime finance professor at Lehigh, testified on his daughter's behalf and said her participation score was highly irregular.
"I have never heard of a case, not just at Lehigh, where a student achieved a zero in class participation where they attended and participated in every class," he said.
Giordano is presiding over the non-jury trial and is expected to rule on Thode's lawsuit after testimony concludes.
Talk about grade inflation.
Graduate student Megan Thode wasn't happy about the C-plus she received for one class, saying the mediocre grade kept her from getting her desired degree and becoming a licensed therapist — and, as a result, cost her $1.3 million in lost earnings.
Now Thode is suing her professor and Lehigh University in Bethlehem, claiming monetary damages and seeking a grade change.
A judge is hearing testimony in the case this week in Northampton County Court. Lehigh and the professor contend her lawsuit is without merit. Northampton County Judge Emil Giordano declined to dismiss the suit Wednesday, ruling that there was enough evidence for the suit to proceed, according to The (Easton) Express-Times.
Thode took the class in the fall of 2009. Her instructor, Amanda Eckhardt, testified this week that she stood by the grade, saying Thode failed to behave professionally and thus earned zero out of 25 points in class participation, bumping her down a full letter grade.
"I ... believed she received the grade she earned," Eckhardt said.
The C-plus prevented Thode, an otherwise A student, from going on to the next class and advancing in her professional therapist studies, the newspaper reported. She wound up getting a master's degree in human development instead.
Her attorney, Richard Orloski, argued that Eckhardt targeted Thode because she is an outspoken advocate for gay marriage.
Eckhardt testified that while she believes marriage is between a man and a woman, she would never allow her personal views to influence her treatment of students. She said Thode had outbursts in class, did not participate appropriately, was emotionally unstable and failed to heed a warning letter.
Stephen Thode, the plaintiff's father and a longtime finance professor at Lehigh, testified on his daughter's behalf and said her participation score was highly irregular.
"I have never heard of a case, not just at Lehigh, where a student achieved a zero in class participation where they attended and participated in every class," he said.
Giordano is presiding over the non-jury trial and is expected to rule on Thode's lawsuit after testimony concludes.
Wednesday, February 13, 2013
Bloom Energy paid workers in pesos
Story first appeared on Mercury News -
They traveled 1,300 miles and toiled long hours, earning the equivalent of $2.66 an hour in Mexican pesos while working in the Bay Area for acclaimed Silicon Valley tech startup Bloom Energy.
"It wasn't right what they were doing. It's not the way to treat people," said a former Bloom Energy contractor who claims he blew the whistle to authorities about the company's mistreatment of the workers, who were brought to this country on visitor visas from the Bloom Energy plant in Chihuahua.
"The first complaint I heard was from someone who said, 'I don't know why I came up here. I could be down there making the same money and be with my family,' " said the contractor, who spoke to this newspaper but did not want to be named for fear of jeopardizing future job prospects.
Bloom Energy, which has won national attention for its innovative fuel-cell technology, boasts a board of directors that includes former U.S. Secretary of State Colin Powell and prominent venture capitalist John Doerr. Officials announced this week that the firm was ordered to pay $70,000 in back wages, damages and fines in a case that Labor Department official Ruben Rosalez called "appalling."
The company and its attorney did not respond to several requests for comment Wednesday.
U.S. officials said the Mexican workers, who did welding and other manufacturing jobs, came here on a type of visa that generally doesn't allow the holders to work while they are here. Investigators also determined that Bloom Energy paid other temp workers, who were from the United States, at wages that met the legal requirements.
"It was clear the employer had knowledge of labor laws," said Labor Department spokeswoman Deanne Amaden.
Authorities said Bloom Energy paid the Mexican workers in pesos by wiring funds back to bank accounts in Chihuahua. Bloom also paid for the men to stay in a Sunnyvale motel and provided each with a meal stipend of $50 a day.
But their pay amounted to less than a third of the minimum wage required under federal law, Amaden said. Labor investigators also found the men worked an average of 51 hours a week but were not paid the legally required overtime rate when they worked beyond 40 hours a week.
The men were given a few days of training and then put to work alongside U.S. workers for about three weeks, before being sent back to Mexico in a cycle that was repeated several times, the whistle-blower said. Labor officials said the men moved back and forth between Chihuahua and Sunnyvale as they were needed, over the past two years.
Bloom Energy has a 74,000-square-foot manufacturing facility in Chihuahua, according to the Facebook page of a Mexican company called Intermex Industrial Parks, which says it built the facility for Bloom in 2011.
Intermex apparently played some role in recruiting the workers, added Labor Department spokesman Jose Carnevali. But he said U.S. officials determined Bloom Energy was liable for the Mexican workers based on several factors, including the fact that Bloom directed their work in Sunnyvale, and because Bloom paid for their motel rooms and issued them work clothing with Bloom's logo.
Efforts to reach an Intermex representative were unsuccessful Wednesday.
While the case produced relatively minor penalties, the workers will receive back wages and damages ranging from about $1,200 to $12,000 each. Amaden said the action shows her agency believes it's important to protect workers from being exploited and "to make sure we're providing a level playing field" for competing companies that follow state and federal wage laws.
"We have not seen this elsewhere in the tech industry, and to our knowledge this is not a common practice," she added.
Bloom has reportedly raised $550 million in venture funding since it started in 2002. It opened a new facility in Delaware last year and said then that its workforce had grown to about 1,000.
Immigration officials said they have no record of any public enforcement action against either Bloom Energy or Intermex, although they said they could not comment if any investigation was pending.
"While there are circumstances under which welders could enter the U.S. on valid non-immigrant visas to work, that would be uncommon," said Sharon Rummery of the U.S. Citizenship and Immigration Services agency. She added, "We won't speculate on actions of any specific company in securing foreign workers."
They traveled 1,300 miles and toiled long hours, earning the equivalent of $2.66 an hour in Mexican pesos while working in the Bay Area for acclaimed Silicon Valley tech startup Bloom Energy.
"It wasn't right what they were doing. It's not the way to treat people," said a former Bloom Energy contractor who claims he blew the whistle to authorities about the company's mistreatment of the workers, who were brought to this country on visitor visas from the Bloom Energy plant in Chihuahua.
"The first complaint I heard was from someone who said, 'I don't know why I came up here. I could be down there making the same money and be with my family,' " said the contractor, who spoke to this newspaper but did not want to be named for fear of jeopardizing future job prospects.
Bloom Energy, which has won national attention for its innovative fuel-cell technology, boasts a board of directors that includes former U.S. Secretary of State Colin Powell and prominent venture capitalist John Doerr. Officials announced this week that the firm was ordered to pay $70,000 in back wages, damages and fines in a case that Labor Department official Ruben Rosalez called "appalling."
The company and its attorney did not respond to several requests for comment Wednesday.
U.S. officials said the Mexican workers, who did welding and other manufacturing jobs, came here on a type of visa that generally doesn't allow the holders to work while they are here. Investigators also determined that Bloom Energy paid other temp workers, who were from the United States, at wages that met the legal requirements.
"It was clear the employer had knowledge of labor laws," said Labor Department spokeswoman Deanne Amaden.
Authorities said Bloom Energy paid the Mexican workers in pesos by wiring funds back to bank accounts in Chihuahua. Bloom also paid for the men to stay in a Sunnyvale motel and provided each with a meal stipend of $50 a day.
But their pay amounted to less than a third of the minimum wage required under federal law, Amaden said. Labor investigators also found the men worked an average of 51 hours a week but were not paid the legally required overtime rate when they worked beyond 40 hours a week.
The men were given a few days of training and then put to work alongside U.S. workers for about three weeks, before being sent back to Mexico in a cycle that was repeated several times, the whistle-blower said. Labor officials said the men moved back and forth between Chihuahua and Sunnyvale as they were needed, over the past two years.
Bloom Energy has a 74,000-square-foot manufacturing facility in Chihuahua, according to the Facebook page of a Mexican company called Intermex Industrial Parks, which says it built the facility for Bloom in 2011.
Intermex apparently played some role in recruiting the workers, added Labor Department spokesman Jose Carnevali. But he said U.S. officials determined Bloom Energy was liable for the Mexican workers based on several factors, including the fact that Bloom directed their work in Sunnyvale, and because Bloom paid for their motel rooms and issued them work clothing with Bloom's logo.
Efforts to reach an Intermex representative were unsuccessful Wednesday.
While the case produced relatively minor penalties, the workers will receive back wages and damages ranging from about $1,200 to $12,000 each. Amaden said the action shows her agency believes it's important to protect workers from being exploited and "to make sure we're providing a level playing field" for competing companies that follow state and federal wage laws.
"We have not seen this elsewhere in the tech industry, and to our knowledge this is not a common practice," she added.
Bloom has reportedly raised $550 million in venture funding since it started in 2002. It opened a new facility in Delaware last year and said then that its workforce had grown to about 1,000.
Immigration officials said they have no record of any public enforcement action against either Bloom Energy or Intermex, although they said they could not comment if any investigation was pending.
"While there are circumstances under which welders could enter the U.S. on valid non-immigrant visas to work, that would be uncommon," said Sharon Rummery of the U.S. Citizenship and Immigration Services agency. She added, "We won't speculate on actions of any specific company in securing foreign workers."
Former Arkansas Coach Smith Accused of Fraud
Story first appeared on USA Today -
Former Arkansas football coach John L. Smith has been accused of using his employment contracts with the Razorbacks to defraud several of his creditors, according to two complaints filed this week in U.S. Bankruptcy Court.
Smith filed for Chapter 7 bankruptcy last year, claiming more than $40 million in liabilities stemming from failed real estate deals around Louisville. By doing so, Smith hoped to have those debts discharged so he can move on with his life. But the creditors are trying to prevent that by filing complaints that are tantamount to civil lawsuits.
The bankruptcy arm of the U.S. Department of Justice also has investigated Smith for potential fraud and abuse of the bankruptcy system but has not filed a complaint, according to court filings.
Smith made a series of transactions "with the intent to hinder, delay, or defraud creditors," said one of the complaints filed Monday.
The creditors cite his unusual contract with the Razorbacks last year, in which 71% of his $850,000 salary was deferred until right after the 2012 season. In general, the bankruptcy estate controls assets acquired by a debtor before the date of the bankruptcy filing, which was Sept. 6 in Smith's case. Debtors generally can keep what they earn after the filing date.
A week before his bankruptcy filing, Smith signed a contract that stated $600,000 of his pay would be deferred in two lump sums of $300,000. One payment was to be made on Dec. 31, 2012, the other on Feb. 23, 2013. By having his pay deferred in this way, he was able to claim on his bankruptcy petition that his net monthly income was just $107.66, after expenses.
The arrangement marked a change from previous Arkansas contracts. After his hiring in April, Smith signed an agreement that stated that he would receive half of his salary ($425,000) from the university in monthly payments, with the remaining $425,000 to come from the Razorback Foundation, the fundraising arm of the athletic department. Smith's predecessor, Bobby Petrino, was paid monthly by the university and foundation.
Arkansas Athletic Director Jeff Long told reporters last year the deferral was made for Smith's retirement. However, Smith, 64, did not retire. He recently was hired to coach at Fort Lewis College in Colorado after not being retained by Arkansas.
"The debtor was aware he was planning to file a petition for relief under Chapter 7, and his effort to renegotiate the terms of his original compensation package was intended to place such funds beyond the reach of the creditors," one of the complaints states.
The same complaint also says Smith transferred several valuable assets in recent years to his daughter and a trust in his wife's name. By doing so, the creditors allege he was concealing money owed them.
Smith "has unjustifiably concealed, destroyed, mutilated, falsified, and/or failed to keep or preserve recorded information, including books, documents, records and papers from which the debtor's financial conditions or business transactions might be ascertained," the suit states.
Several creditors joined together to sue Smith on one complaint. Another creditor, RL BB Acquisition, filed a separate complaint Monday making similar arguments.
Scott Ehrlich, a professor and bankruptcy expert at the California Western School of Law, said he believes the creditors have a "very strong case for a denial of discharge."
"If the creditors win, then the bankruptcy has no impact on their ability to pursue Mr. Smith and his post-petition earnings," Ehrlich said.
An attorney for Smith did not return a message seeking comment. A spokesman for the Razorbacks also did not immediately return a message seeking comment.
Smith previously coached at Louisville and Michigan State.
Monday, February 11, 2013
Obama's New Term Agenda - Work Around Congress, Not With
Story first appeared on Bloomberg News -
When President Barack Obama delivers his State of the Union address on Tuesday night, the biggest question he’ll face will be how to get an ambitious second-term agenda through a divided Congress.
The answer: Go around it.
On climate change, gun control, gay rights, and even immigration, the White House has signaled a willingness to circumvent lawmakers through the use of presidential power. Already, plans are being laid to unleash new executive orders, regulations, signing statements and memorandums designed to push Obama’s programs forward and cement his legacy, according to administration aides and allies.
“The big things that we need to get done, we can’t wait on,” said White House senior adviser Dan Pfeiffer. “If we can take action, we will take action.”
The tactic carries political risk, beyond the backlash it will spark from congressional Republicans. Advisers say the president -- who already faces charges from Republicans that he is concentrating too much power in the White House -- remains cautious about getting too far ahead of public opinion. And executive orders can be overturned by a future president a lot easier than can legislation.
What’s more, Obama will still need to work through Congress to deal with some of the nation’s biggest concerns, including tax and spending issues as well as any comprehensive changes in the immigration system.
Obama’s Evolution
Still, the use of executive power isn’t new: Historically, second-term presidents, freed from fears of a political payback at the polls, have been more willing to flex their authority.
The shift to a more assertive use of such power marks an evolution for Obama, who as a U.S. senator from Illinois accused President George W. Bush of flouting Congress. After spending his first two years in office deep in negotiations with a Democratic-controlled Congress, and the last two years battling with much of the Republican-controlled House, he enters his second term prepared to move forward alone.
“He made a true sea change on thinking about the executive orders,” said Douglas Brinkley, a presidential scholar at Rice University in Houston who is part of a group of historians who periodically meet with the president. “Now, it seems to me that he’s going to be viewed as an executive power president.”
Obama’s increasing use of executive action began in the fall of 2011, when the president, frustrated with Republican opposition, urged his team to seek actions the White House could take unilaterally, according to Pfeiffer.
Can’t Wait
Branding their independent efforts “We Can’t Wait,” the White House rolled out dozens of policies that included raising fuel-economy standards, granting legal status to young immigrants, reducing student loan payments, preventing prescription drug shortages and getting jobs for veterans.
In his second term, aides say Obama will escalate his use of executive power. He’s expected to focus on job creation and economic growth, calling for new federal spending on infrastructure, clean energy and education in his State of the Union speech at 9 p.m., Washington time, tomorrow, according to a senior official briefed on the speech.
He’ll also push lawmakers for action on immigration, gun control and climate change.
Last month, he initiated 23 executive actions on gun control, as part of a legislative package proposed after the Dec. 14 killings at a Newtown, Connecticut, elementary school. They include several designed to maximize prosecution of gun crimes and improve access to government data for background checks.
Using EPA
After efforts to pass climate legislation to curb greenhouse gases failed in the first term, administration officials have indicated that they aim to use the Environmental Protection Agency to limit emissions from new power plants and tackle existing plants in the second, according to an environmental activist and a congressional aide.
“The opportunity is in what the president can do under the laws Congress has already passed,” said David Doniger, policy director of the climate program at the Natural Resources Defense Council, a New York-based environmental group. “It’s the tools the president already has laying around at home he can use now.”
The Pentagon is poised to extend some military benefits to the same-sex partners of service members, according to a U.S. official, including access to day-care facilities and visiting privileges at military hospitals. Topping the wish lists of gay- rights advocates in the second term is an executive order that would bar workplace discrimination by federal contractors based on sexual orientation.
Broken System
And even as the president pushes for legislation revising immigration laws, his aides and advocates have a menu of actions that can be taken unilaterally by the White House, the Department of Homeland Security, and the Pentagon to benefit undocumented immigrants and their families, according to congressional staff members and immigration activists.
“If things really do truly stall and we can’t get the bipartisan agreement to fix a really broken system, these may be the kinds of tools to look for,” said Bob Deasy, a director of the American Immigration Lawyers Association.
Rules also need to be written to carry out much of the president’s signature first-term domestic policy initiatives -- the expansion of health-care coverage to tens of millions of Americans, and the Dodd-Frank law, the most sweeping new regulations of the financial industry since the Great Depression.
Even in areas where the president is trying to work with lawmakers, he has emphasized his efforts to get tough with Congress. When he announced details of his immigration plan in Las Vegas last month, he said: “If Congress is unable to move forward in a timely fashion, I will send up a bill based on my proposal and insist that they vote on it right away.”
The White House assertiveness has sparked complaints from Republicans. Obama’s gun proposals, released on Jan. 16, drew a sharp response from one lawmaker mentioned as a possible 2016 presidential contender.
“President Obama is again abusing his power by imposing his policies via executive fiat instead of allowing them to be debated in Congress,” said Florida Senator Marco Rubio, in a statement released after Obama’s announcement. “President Obama’s frustration with our republic and the way it works doesn’t give him license to ignore the Constitution.”
It’s not just Republicans who have objected to Obama’s efforts to wield executive power. The U.S. Court of Appeals in Washington ruled on Jan. 25 that the president violated the Constitution when he bypassed the Senate last year to appoint three members to the National Labor Relations Board.
Firmer Ground
To be sure, Obama says he still prefers legislation when possible, recognizing that it gives his agenda deeper legal roots.
“Whenever we can codify something through legislation, it is on firmer ground,” he told the New Republic magazine in an interview last month. “It is something that will be long lasting and sturdier and more stable.”
Yet he’s in good company in using presidential authority: Scholars consider Abraham Lincoln, Theodore Roosevelt and Franklin Roosevelt to be among the presidents who relied most heavily on executive power, contrasting their records with that of Lyndon Johnson, a former Senate majority leader known for his ability to push legislation through Congress.
“The president recognized that he might not be able to be the Lyndon Johnson president with legislative achievements, that he might have to become an executive-power president,” said Brinkley.
Outpacing Bush
Pending regulations in the White House pipeline position Obama to outpace Bush with second-term rulemaking. In his second term, when Democrats won control of Congress after two years, Bush’s new regulations cost the U.S. economy at least $30 billion, according to Office of Management and Budget data. Estimates for rules headed for completion in a second Obama administration already approach that figure, according to a review of regulatory filings by Bloomberg Government.
Obama delayed until after the election decisions on regulating ozone levels and requiring rearview cameras for cars, which could cost between $22 billion and $93 billion in 2020, according to the White House.
Rules approved during the first 32 months of his presidency will cost an estimated $19.9 billion and yield net benefits of more than $91 billion in monetary savings and deaths and injuries avoided, according to OMB figures.
No King
That record aside, the president has been frank about the limitations of his new strategy.
On budget issues, a series of fiscal deadlines will force him to work with lawmakers. Only Congress can pass legislation halting automatic reductions in domestic and defense spending, known as the sequester, scheduled to go into effect next month. A continuing resolution funding the government expires in late March, meaning the government will shut down if Congress doesn’t act. There is another deadline to raise the U.S. debt ceiling two months later.
“I’m not a king,” Obama said in a Jan. 30 interview with Telemundo, a broadcasting network, when asked why he couldn’t unilaterally legalize undocumented immigrants. “We can’t simply ignore the law.”
When President Barack Obama delivers his State of the Union address on Tuesday night, the biggest question he’ll face will be how to get an ambitious second-term agenda through a divided Congress.
The answer: Go around it.
On climate change, gun control, gay rights, and even immigration, the White House has signaled a willingness to circumvent lawmakers through the use of presidential power. Already, plans are being laid to unleash new executive orders, regulations, signing statements and memorandums designed to push Obama’s programs forward and cement his legacy, according to administration aides and allies.
“The big things that we need to get done, we can’t wait on,” said White House senior adviser Dan Pfeiffer. “If we can take action, we will take action.”
The tactic carries political risk, beyond the backlash it will spark from congressional Republicans. Advisers say the president -- who already faces charges from Republicans that he is concentrating too much power in the White House -- remains cautious about getting too far ahead of public opinion. And executive orders can be overturned by a future president a lot easier than can legislation.
What’s more, Obama will still need to work through Congress to deal with some of the nation’s biggest concerns, including tax and spending issues as well as any comprehensive changes in the immigration system.
Obama’s Evolution
Still, the use of executive power isn’t new: Historically, second-term presidents, freed from fears of a political payback at the polls, have been more willing to flex their authority.
The shift to a more assertive use of such power marks an evolution for Obama, who as a U.S. senator from Illinois accused President George W. Bush of flouting Congress. After spending his first two years in office deep in negotiations with a Democratic-controlled Congress, and the last two years battling with much of the Republican-controlled House, he enters his second term prepared to move forward alone.
“He made a true sea change on thinking about the executive orders,” said Douglas Brinkley, a presidential scholar at Rice University in Houston who is part of a group of historians who periodically meet with the president. “Now, it seems to me that he’s going to be viewed as an executive power president.”
Obama’s increasing use of executive action began in the fall of 2011, when the president, frustrated with Republican opposition, urged his team to seek actions the White House could take unilaterally, according to Pfeiffer.
Can’t Wait
Branding their independent efforts “We Can’t Wait,” the White House rolled out dozens of policies that included raising fuel-economy standards, granting legal status to young immigrants, reducing student loan payments, preventing prescription drug shortages and getting jobs for veterans.
In his second term, aides say Obama will escalate his use of executive power. He’s expected to focus on job creation and economic growth, calling for new federal spending on infrastructure, clean energy and education in his State of the Union speech at 9 p.m., Washington time, tomorrow, according to a senior official briefed on the speech.
He’ll also push lawmakers for action on immigration, gun control and climate change.
Last month, he initiated 23 executive actions on gun control, as part of a legislative package proposed after the Dec. 14 killings at a Newtown, Connecticut, elementary school. They include several designed to maximize prosecution of gun crimes and improve access to government data for background checks.
Using EPA
After efforts to pass climate legislation to curb greenhouse gases failed in the first term, administration officials have indicated that they aim to use the Environmental Protection Agency to limit emissions from new power plants and tackle existing plants in the second, according to an environmental activist and a congressional aide.
“The opportunity is in what the president can do under the laws Congress has already passed,” said David Doniger, policy director of the climate program at the Natural Resources Defense Council, a New York-based environmental group. “It’s the tools the president already has laying around at home he can use now.”
The Pentagon is poised to extend some military benefits to the same-sex partners of service members, according to a U.S. official, including access to day-care facilities and visiting privileges at military hospitals. Topping the wish lists of gay- rights advocates in the second term is an executive order that would bar workplace discrimination by federal contractors based on sexual orientation.
Broken System
And even as the president pushes for legislation revising immigration laws, his aides and advocates have a menu of actions that can be taken unilaterally by the White House, the Department of Homeland Security, and the Pentagon to benefit undocumented immigrants and their families, according to congressional staff members and immigration activists.
“If things really do truly stall and we can’t get the bipartisan agreement to fix a really broken system, these may be the kinds of tools to look for,” said Bob Deasy, a director of the American Immigration Lawyers Association.
Rules also need to be written to carry out much of the president’s signature first-term domestic policy initiatives -- the expansion of health-care coverage to tens of millions of Americans, and the Dodd-Frank law, the most sweeping new regulations of the financial industry since the Great Depression.
Even in areas where the president is trying to work with lawmakers, he has emphasized his efforts to get tough with Congress. When he announced details of his immigration plan in Las Vegas last month, he said: “If Congress is unable to move forward in a timely fashion, I will send up a bill based on my proposal and insist that they vote on it right away.”
The White House assertiveness has sparked complaints from Republicans. Obama’s gun proposals, released on Jan. 16, drew a sharp response from one lawmaker mentioned as a possible 2016 presidential contender.
“President Obama is again abusing his power by imposing his policies via executive fiat instead of allowing them to be debated in Congress,” said Florida Senator Marco Rubio, in a statement released after Obama’s announcement. “President Obama’s frustration with our republic and the way it works doesn’t give him license to ignore the Constitution.”
It’s not just Republicans who have objected to Obama’s efforts to wield executive power. The U.S. Court of Appeals in Washington ruled on Jan. 25 that the president violated the Constitution when he bypassed the Senate last year to appoint three members to the National Labor Relations Board.
Firmer Ground
To be sure, Obama says he still prefers legislation when possible, recognizing that it gives his agenda deeper legal roots.
“Whenever we can codify something through legislation, it is on firmer ground,” he told the New Republic magazine in an interview last month. “It is something that will be long lasting and sturdier and more stable.”
Yet he’s in good company in using presidential authority: Scholars consider Abraham Lincoln, Theodore Roosevelt and Franklin Roosevelt to be among the presidents who relied most heavily on executive power, contrasting their records with that of Lyndon Johnson, a former Senate majority leader known for his ability to push legislation through Congress.
“The president recognized that he might not be able to be the Lyndon Johnson president with legislative achievements, that he might have to become an executive-power president,” said Brinkley.
Outpacing Bush
Pending regulations in the White House pipeline position Obama to outpace Bush with second-term rulemaking. In his second term, when Democrats won control of Congress after two years, Bush’s new regulations cost the U.S. economy at least $30 billion, according to Office of Management and Budget data. Estimates for rules headed for completion in a second Obama administration already approach that figure, according to a review of regulatory filings by Bloomberg Government.
Obama delayed until after the election decisions on regulating ozone levels and requiring rearview cameras for cars, which could cost between $22 billion and $93 billion in 2020, according to the White House.
Rules approved during the first 32 months of his presidency will cost an estimated $19.9 billion and yield net benefits of more than $91 billion in monetary savings and deaths and injuries avoided, according to OMB figures.
No King
That record aside, the president has been frank about the limitations of his new strategy.
On budget issues, a series of fiscal deadlines will force him to work with lawmakers. Only Congress can pass legislation halting automatic reductions in domestic and defense spending, known as the sequester, scheduled to go into effect next month. A continuing resolution funding the government expires in late March, meaning the government will shut down if Congress doesn’t act. There is another deadline to raise the U.S. debt ceiling two months later.
“I’m not a king,” Obama said in a Jan. 30 interview with Telemundo, a broadcasting network, when asked why he couldn’t unilaterally legalize undocumented immigrants. “We can’t simply ignore the law.”
Friday, February 8, 2013
Alabama Municipal Bankruptcy - Trustee Can't Pay Creditors
Story first appeared on Fox Business News -
A lawyer for the creditors' trustee in America's biggest municipal bankruptcy on Friday said the trustee will not make a February 1 payment to owners of $3.14 billion of sewer debt issued by Alabama's Jefferson County.
Gerald Mace, an attorney for creditors' trustee Bank of New York Mellon, told a bankruptcy court hearing that the distribution could not be made because of a "lack of funds".
In a document filed on the Electronic Municipal Market Access (EMMA) on Friday, BNY Mellon lists as outstanding approximately $3.1 billion in principal of sewer revenue warrants affected.
The notice explains that "certain holders of bank warrants are not willing, at this time, to consent the trustee making distributions of principal with respect to Sewer Warrants coming due at maturity or resulting of mandatory sinking fund redemption in February and early March 2013...."
The county continues to make payments from sewer-system revenues to Bank of New York, which distributes the money to debt owners that include Wall Street banks, insurance companies and hedge funds, Jefferson County Manager Tony Petelos told reporters.
Lawyers for creditors and Jefferson County, which filed for Chapter 9 bankruptcy in 2011 mainly because of overwhelming debt on its sewer system, are battling in court over sewer fee hikes that would go in part to service the sewer warrants.
Creditors say a 5.9 percent increase in fees authorized in November by county officials was too low and are asking the judge overseeing the case for clearance to press a state court lawsuit for bigger hikes they say are needed to pay off the debt.
JPMorgan Chase, Bank of New York and other creditors are proposing hikes of 22 percent or more. County officials have said the November hike would raise system revenue by $8.5 million a year and could be followed by other increases as part of a settlement with creditors.
109 Arrests - IRS Cracking Down on Identity Theft
Story first appeared on USA Today -
The IRS says a coast-to-coast campaign against tax-related identity theft led to more than 700 enforcement actions last month, including arrests and indictments.
Federal authorities took action against 389 people suspected of involvement in identity theft to commit tax fraud, the IRS said Thursday.
Announced as the annual federal tax-filing season begins, the nationwide actions include 109 arrests and 189 indictments, plus court complaints and information, said acting IRS Commissioner Steven Miller.
The bulk of the enforcement actions took place on the East Coast and in the Midwest, a map released Thursday by the IRS shows.
Additionally, IRS auditors and criminal investigators in late January started visiting 197 money service businesses, including check-cashing stores, to ensure the locations don't aid identity theft or refund fraud. The visits focus on 17 high-risk areas identified by the IRS in or near New York; Philadelphia; Atlanta; Tampa; Miami; Chicago; Houston; Phoenix; Los Angeles; San Diego; El Paso; Tucson; Birmingham; Detroit; San Francisco; Oakland and San Jose.
Part of a year-long IRS crackdown, the effort targets thieves who gain access to other people's Social Security numbers and other identifying information, and then use that information to concoct and file fraudulent federal tax returns — and collect unwarranted refunds.
"As tax season begins this year, we want to be clear that there is a heavy price to pay for perpetrators of refund fraud and identity theft," said Miller. "We have aggressively stepped up our efforts to pursue and prevent refund fraud and identity theft, and we will continue to intensely focus on this area.
The tax agency has added additional computer screening filters in an effort to stop the crime, said Miller. Although he acknowledged the filters could slow IRS processing of some legitimate tax returns and refunds, Miller said the tax agency would work to keep any delays to a minimum.
Additionally, the IRS as of late 2012 had assigned more than 3,000 employees to work on identity theft-related work, said Miller. That's more than double the number devoted to the area in 2011, he said.
In all, the IRS says its efforts in 2012 "protected" against $20 billion in fraudulent refunds, most of which are directly related to identity theft. That compares with $14 billion in 2011.
Miller said the IRS is making progress in fighting identity theft refund fraud, but still has room to improve. The agency is working to speed the time it takes to get refunds to honest taxpayers victimized by the crimes, he said.
The IRS says a coast-to-coast campaign against tax-related identity theft led to more than 700 enforcement actions last month, including arrests and indictments.
Federal authorities took action against 389 people suspected of involvement in identity theft to commit tax fraud, the IRS said Thursday.
Announced as the annual federal tax-filing season begins, the nationwide actions include 109 arrests and 189 indictments, plus court complaints and information, said acting IRS Commissioner Steven Miller.
The bulk of the enforcement actions took place on the East Coast and in the Midwest, a map released Thursday by the IRS shows.
Additionally, IRS auditors and criminal investigators in late January started visiting 197 money service businesses, including check-cashing stores, to ensure the locations don't aid identity theft or refund fraud. The visits focus on 17 high-risk areas identified by the IRS in or near New York; Philadelphia; Atlanta; Tampa; Miami; Chicago; Houston; Phoenix; Los Angeles; San Diego; El Paso; Tucson; Birmingham; Detroit; San Francisco; Oakland and San Jose.
Part of a year-long IRS crackdown, the effort targets thieves who gain access to other people's Social Security numbers and other identifying information, and then use that information to concoct and file fraudulent federal tax returns — and collect unwarranted refunds.
"As tax season begins this year, we want to be clear that there is a heavy price to pay for perpetrators of refund fraud and identity theft," said Miller. "We have aggressively stepped up our efforts to pursue and prevent refund fraud and identity theft, and we will continue to intensely focus on this area.
The tax agency has added additional computer screening filters in an effort to stop the crime, said Miller. Although he acknowledged the filters could slow IRS processing of some legitimate tax returns and refunds, Miller said the tax agency would work to keep any delays to a minimum.
Additionally, the IRS as of late 2012 had assigned more than 3,000 employees to work on identity theft-related work, said Miller. That's more than double the number devoted to the area in 2011, he said.
In all, the IRS says its efforts in 2012 "protected" against $20 billion in fraudulent refunds, most of which are directly related to identity theft. That compares with $14 billion in 2011.
Miller said the IRS is making progress in fighting identity theft refund fraud, but still has room to improve. The agency is working to speed the time it takes to get refunds to honest taxpayers victimized by the crimes, he said.
Thursday, February 7, 2013
Investors Intentionally Misled by S&P Lawsuit Claims
Story first appeared on USA Today -
The legal government's complaint cited a string of e-mails alleging that S&P defrauded investors of billions by issuing falsely glowing appraisals that produced record profits for the firm.
Standard & Poor's planned to issue a more accurate model for rating mortgage-backed securities in 2004, amid early signs of growth in the more risky loans that eventually would lead to the national financial crisis.
But then an S&P analyst warned executives the ratings giant was losing business because it was more conservative than industry rivals. The bonds' issuers paid for the ratings and many institutional investors who bought them would only buy securities rated AAA, which meant they were the least risky.
"We just lost a huge Mizuho (mortgage-backed) deal to Moody's due to a huge difference in the required credit support level," the analyst wrote in a May 25, 2004, e-mail cited in a new civil fraud lawsuit filed by the Department of Justice. "This is so significant that it could have an impact on future deals."
S&P updated its existing rating model in a way that wouldn't have a major impact on bond issuers, according to the complaint filed late Monday against the world's largest rating firm.
The more accurate S&P model "was never released," government lawyers charged in the lawsuit, the first major federal action filed against the ratings industry.
The lawsuit widens Washington efforts to hold financial firms accountable for the financial crisis. The legal complaint cited a string of similar e-mails and other examples in alleging that S&P defrauded investors of billions of dollars by issuing falsely glowing appraisals that produced record profits for the firm.
S&P has long proclaimed that its ratings were independent. But government lawyers charged the appraisals were instead tainted by conflicts of interest and weak or deliberately inadequate research — all part of the firm's drive to reap higher profits by pleasing bond issuers at the expense of investors.
Investigators found evidence of more than $5 billion in losses suffered by federally insured financial institutions from mortgage-backed bonds S&P rated between March and October 2007, just before the crisis exploded.
"During this period, nearly every single mortgage-backed collateralized debt obligation that was rated by S&P not only underperformed, but failed," Attorney General Eric Holder said at a Washington news briefing. "Put simply, this conduct is egregious, and it goes to the very heart of the recent financial crisis."
S&P denied any wrongdoing and said the lawsuit was unwarranted.
Defense attorney Floyd Abrams spent months talking with government lawyers in an unsuccessful bid to avoid a lawsuit. He argued that the Federal Reserve, Treasury Department and Securities and Exchange Commission — as well as rival credit-rating firms — similarly misjudged the financial risk mortgage-backed securities posed before the crisis.
"When all those entities, whose probity is not at issue and is not being questioned by the Department of Justice, had the same views, the idea that Standard & Poor's didn't believe what it was saying seems preposterous," Abrams said.
However, e-mails and other internal communications cited in the 118-page complaint filed late Monday in Los Angeles federal court paint an embarrassing if incomplete picture of S&P, a unit of McGraw-Hill Companies.
• When the firm circulated details of plans to require "market insight" from investment bankers and investors about changes in ratings criteria in 2004, one senior analyst complained. "Are you implying that we might actually reject or stifle 'superior analytics' for market considerations? Inquiring minds need to know," the analyst wrote.
The plan was implemented without any response to the analyst.
• In a February 2005 e-mail, an S&P executive stressed the need to poll some issuers of investments linked to potentially risky mortgages to gauge their tolerance for proposed revisions to analysis procedures that could make it tougher to win top ratings.
"This looks too much to me as though we are publicly backing into a set of levels driven by our clients," one company analyst warned.
• In March 2007, an S&P analyst sent an e-mail to co-workers that included a parody of the Talking Heads song Burning Down the House: "Watch out. Housing market went softer. Cooling down. Strong market is now much weaker. Subprime is boi-ling o-ver. Bringing down the house."
Minutes later, the analyst e-mailed a follow-up: "For obvious, professional reasons please do not forward this song. If you are interested, I can sing it in your cube ;-)."
Government lawyers "cherry-picked" a non-representative smattering of embarrassing e-mails and messages, Abrams said. "We will be presenting the norm, a fair picture of the day-to-day effort of hundreds and hundreds of people at Standard & Poor's just trying to get it (securities ratings) right," he said.
The federal lawsuit echoes allegations and suspicions of legal officials in many states. A January 2012 case filed against S&P by the Illinois Attorney General's office cited an April 2007 instant message in which one company employee stated an investment "could be structured by cows and we would rate it." The new case includes the same message.
Legal representatives from Illinois, California, Connecticut, Delaware, Mississippi, Iowa and the District of Columbia joined Holder's news briefing and signaled they may join the case. New York is investigating S&P independently.
The comparatively swifter charges filed against S&P by Illinois Attorney General Lisa Madigan and similar allegations raised in congressional hearings into the causes of the financial crisis prompted questions about the timing of the Department of Justice action. Stuart Delery, chief of the Justice Department's Civil Division, said the inquiry required the review of "millions of pages of documents'' and interviews with more than 150 witnesses, including former S&P executives.
Associate Attorney General Tony West declined to address questions about possible culpability of other credit-rating firms, saying the lawsuit was specific to Standard & Poor's.
But the case appeared to have an immediate financial impact on the ratings industry. After getting hammered in Monday trading, shares of S&P's parent, McGraw-Hill, closed down an additional 10.7% Tuesday. Moody's shares closed down nearly 9%.
The Department of Justice filed the lawsuit using a federal statute that could require S&P to pay millions of dollars in penalties if the government prevails in court. By bringing the case as a civil action, the government must meet a lower standard of proof than in a criminal lawsuit.
That decision was supported by the alleged evidence, said West, who did not elaborate.
The legal government's complaint cited a string of e-mails alleging that S&P defrauded investors of billions by issuing falsely glowing appraisals that produced record profits for the firm.
Standard & Poor's planned to issue a more accurate model for rating mortgage-backed securities in 2004, amid early signs of growth in the more risky loans that eventually would lead to the national financial crisis.
But then an S&P analyst warned executives the ratings giant was losing business because it was more conservative than industry rivals. The bonds' issuers paid for the ratings and many institutional investors who bought them would only buy securities rated AAA, which meant they were the least risky.
"We just lost a huge Mizuho (mortgage-backed) deal to Moody's due to a huge difference in the required credit support level," the analyst wrote in a May 25, 2004, e-mail cited in a new civil fraud lawsuit filed by the Department of Justice. "This is so significant that it could have an impact on future deals."
S&P updated its existing rating model in a way that wouldn't have a major impact on bond issuers, according to the complaint filed late Monday against the world's largest rating firm.
The more accurate S&P model "was never released," government lawyers charged in the lawsuit, the first major federal action filed against the ratings industry.
The lawsuit widens Washington efforts to hold financial firms accountable for the financial crisis. The legal complaint cited a string of similar e-mails and other examples in alleging that S&P defrauded investors of billions of dollars by issuing falsely glowing appraisals that produced record profits for the firm.
S&P has long proclaimed that its ratings were independent. But government lawyers charged the appraisals were instead tainted by conflicts of interest and weak or deliberately inadequate research — all part of the firm's drive to reap higher profits by pleasing bond issuers at the expense of investors.
Investigators found evidence of more than $5 billion in losses suffered by federally insured financial institutions from mortgage-backed bonds S&P rated between March and October 2007, just before the crisis exploded.
"During this period, nearly every single mortgage-backed collateralized debt obligation that was rated by S&P not only underperformed, but failed," Attorney General Eric Holder said at a Washington news briefing. "Put simply, this conduct is egregious, and it goes to the very heart of the recent financial crisis."
S&P denied any wrongdoing and said the lawsuit was unwarranted.
Defense attorney Floyd Abrams spent months talking with government lawyers in an unsuccessful bid to avoid a lawsuit. He argued that the Federal Reserve, Treasury Department and Securities and Exchange Commission — as well as rival credit-rating firms — similarly misjudged the financial risk mortgage-backed securities posed before the crisis.
"When all those entities, whose probity is not at issue and is not being questioned by the Department of Justice, had the same views, the idea that Standard & Poor's didn't believe what it was saying seems preposterous," Abrams said.
However, e-mails and other internal communications cited in the 118-page complaint filed late Monday in Los Angeles federal court paint an embarrassing if incomplete picture of S&P, a unit of McGraw-Hill Companies.
• When the firm circulated details of plans to require "market insight" from investment bankers and investors about changes in ratings criteria in 2004, one senior analyst complained. "Are you implying that we might actually reject or stifle 'superior analytics' for market considerations? Inquiring minds need to know," the analyst wrote.
The plan was implemented without any response to the analyst.
• In a February 2005 e-mail, an S&P executive stressed the need to poll some issuers of investments linked to potentially risky mortgages to gauge their tolerance for proposed revisions to analysis procedures that could make it tougher to win top ratings.
"This looks too much to me as though we are publicly backing into a set of levels driven by our clients," one company analyst warned.
• In March 2007, an S&P analyst sent an e-mail to co-workers that included a parody of the Talking Heads song Burning Down the House: "Watch out. Housing market went softer. Cooling down. Strong market is now much weaker. Subprime is boi-ling o-ver. Bringing down the house."
Minutes later, the analyst e-mailed a follow-up: "For obvious, professional reasons please do not forward this song. If you are interested, I can sing it in your cube ;-)."
Government lawyers "cherry-picked" a non-representative smattering of embarrassing e-mails and messages, Abrams said. "We will be presenting the norm, a fair picture of the day-to-day effort of hundreds and hundreds of people at Standard & Poor's just trying to get it (securities ratings) right," he said.
The federal lawsuit echoes allegations and suspicions of legal officials in many states. A January 2012 case filed against S&P by the Illinois Attorney General's office cited an April 2007 instant message in which one company employee stated an investment "could be structured by cows and we would rate it." The new case includes the same message.
Legal representatives from Illinois, California, Connecticut, Delaware, Mississippi, Iowa and the District of Columbia joined Holder's news briefing and signaled they may join the case. New York is investigating S&P independently.
The comparatively swifter charges filed against S&P by Illinois Attorney General Lisa Madigan and similar allegations raised in congressional hearings into the causes of the financial crisis prompted questions about the timing of the Department of Justice action. Stuart Delery, chief of the Justice Department's Civil Division, said the inquiry required the review of "millions of pages of documents'' and interviews with more than 150 witnesses, including former S&P executives.
Associate Attorney General Tony West declined to address questions about possible culpability of other credit-rating firms, saying the lawsuit was specific to Standard & Poor's.
But the case appeared to have an immediate financial impact on the ratings industry. After getting hammered in Monday trading, shares of S&P's parent, McGraw-Hill, closed down an additional 10.7% Tuesday. Moody's shares closed down nearly 9%.
The Department of Justice filed the lawsuit using a federal statute that could require S&P to pay millions of dollars in penalties if the government prevails in court. By bringing the case as a civil action, the government must meet a lower standard of proof than in a criminal lawsuit.
That decision was supported by the alleged evidence, said West, who did not elaborate.
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