Thursday, July 25, 2013

Mother of Golf Prodigy in Hazing Death Defied by FratPAC

Story Originally Appeared in Bloomberg News

Harrison Kowiak was 19 years old when he died after schoolmates pummeled him on a pitch-black field in Hickory, North Carolina. It was part of a fraternity hazing.

Determined to protect other students, Kowiak’s mother Lianne devoted herself to fighting hazing. She thought she had a powerful ally in U.S. Representative Frederica Wilson, who calls herself the “Haze Buster” and backed Florida’s tough anti-hazing law as a member of the state legislature in 2005.

Standing beside Wilson at a Capitol Hill news conference in September, Kowiak helped display a 10-foot-long banner headed “Hazing Kills,” and depicting a cemetery. As Wilson vowed to deny financial aid to students who engage in hazing, Kowiak applauded. What Kowiak didn’t know was that, behind the scenes, the fraternity industry’s political arm, known as “FratPAC,” had been pressing Wilson to back off. Today, 19 months after Wilson first promised an anti-hazing bill, she hasn’t filed one.

The industry’s lobbying is “disgusting,” Kowiak said in an interview. “What are the priorities here?” They “should be to stop hazing so none of our youth have to go through it.”

Even as deaths and injuries proliferate at their local chapters, traditional college fraternities resist a federal role in punishing hazing, contending that Wilson’s proposal would infringe on student rights and that existing state criminal laws are sufficient.

59 Deaths

“Their opposition is very influential,” said Diane Watson, a former Democratic member of Congress from California, who sponsored an unsuccessful 2003 bill that would have denied federal financial aid for one year to students sanctioned for hazing. Even though FratPAC hadn’t yet been established, individual fraternities, schools and education groups “were able to stop the progress of the bill,” she said.

Harrison Kowiak was one of 59 students who died in incidents involving fraternities since 2005, about half of them alcohol-related, according to data compiled by Bloomberg. Six others were paralyzed. Ten students died in 2012, the most fatalities in at least a decade.

At the same time, fraternity membership and revenue are surging. The 101 fraternities and sororities in the industry’s trade groups had 630,052 members in 2012, up 25 percent from 503,875 in 2007. National fraternities and their charitable foundations generated $170 million in revenue in 2010, mostly from student dues, up from about $150 million in 2005. Fraternity foundations collectively held $534 million in 2010.

Frat Fire

One of FratPAC’s top priorities is a tax break for fraternities. Representative Wilson became a co-sponsor of the industry’s tax bill in April 2012, around the same time FratPAC was lobbying against her hazing proposal.

The roots of the tax legislation, and of fraternities’ growing Washington influence, trace back to a 1996 fraternity-house fire at the University of North Carolina that killed five students. Afterwards, fraternity leaders decided that they needed a federal law that would let them use funds in their charitable foundations to outfit chapter houses with fire sprinklers. In 2001, the industry engaged Patton Boggs LLP, a Washington law and lobbying firm whose clients have included Goldman Sachs Group Inc. (GS)

“Before that, I don’t think we ever had a Washington presence,” said Carlton Bennett, a Virginia Beach, Virginia, lawyer then on the board of the North-American Interfraternity Conference, or NIC, an industry trade group.

FratPAC Origin

In 2005, Patton Boggs created a vehicle to advance fraternities’ agenda and contribute to sympathetic lawmakers: the Fraternity and Sorority Political Action Committee, nicknamed “FratPAC” on its Twitter page.

FratPAC raised $506,852 for the 2011-2012 election cycle. Among its donors were executives from companies that fraternities and sororities hire to raise money for them; brokers from insurers that sell liability policies to Greek institutions; and lawyers who defend the groups in negligence and wrongful-death lawsuits.

Insurance-industry donors in 2011-2012 included FratPAC president Cindy Stellhorn and her husband, who collectively gave $20,000. Stellhorn is an executive at Indianapolis-based MJ Insurance Inc. FratPAC also took in $20,000 from Ned Kirklin, who sells liability insurance to fraternities and sororities for a unit of Willis & Co., and his spouse. He declined to comment.

Kelley Bergstrom, president of Bergstrom Investment Management LLC, a Kenilworth, Illinois-based firm that invests family assets, gave $10,000 to FratPAC. Bergstrom is also chairman of the University of Florida’s fundraising arm.

Strong Policies

Since fraternities and universities have strong anti-hazing policies, federal legislation isn’t needed, Bergstrom said.

At his national fraternity, Pi Kappa Phi, hazing “is a basis for dismissing a chapter,” he said.

Kevin O’Neill, Patton Boggs’s deputy chairman of public policy, helped start FratPAC in 2005 and became its president. He was a Lambda Chi Alpha brother and the Orangeman mascot at Syracuse University. A Republican from Virginia, O’Neill ran unsuccessfully for Congress in 2007.

In 2011, in an effort to raise their Washington profile, FratPAC and two industry groups -- NIC and the National Panhellenic Conference, which represents sororities -- combined to form the Fraternal Government Relations Coalition. FratPAC today calls itself the largest political action committee focused solely on college students and higher education.

FratPAC’S activity isn’t limited to Congress. It has also lobbied against U.S. Education Department guidelines for investigating sexual assaults on campus.

Rights Threatened?

In 2011, when the Education Department told colleges to require less evidence before responding to allegations of sexual assault, fraternity leaders were among those who met with department officials to complain that the new policy threatened student rights, according to an industry memo reviewed by Bloomberg News. The guidelines remain in place, department spokesman Jim Bradshaw said.

FratPAC also fought the attempt at federal anti-hazing legislation backed by Lianne Kowiak and, as Kowiak thought, Wilson, a Florida Democrat.

Harrison Kowiak, a New Jersey native whose family moved to Florida in his teens, aspired to a career that would mix business with his favorite sport, golf. A college sophomore, he was attending Lenoir-Rhyne University in Hickory on a golf and academic scholarship. His trophies still line the shelves of his Tampa, Florida, home and an autographed photo of professional golfers Ben Crane and Lee Janzen sits on his dresser. His golf glove rests on a cherry-wood table by the front door.

‘Sacred’ Rock

In November 2008, members of the Theta Chi fraternity at Lenoir-Rhyne, a liberal arts college affiliated with the Evangelical Lutheran Church, took Harrison to a field at night and told him to traverse a gauntlet of brothers in pursuit of their “sacred” rock, said Lianne Kowiak, 53, a former account director for a Johnson & Johnson subsidiary.

As he ran, Harrison, weighing 165 pounds, was beaten by fraternity brothers, some 100 pounds heavier, who were lurking in the darkness, she said. He died of a brain hemorrhage.

At first, fraternity members told Kowiak that Harrison died from injuries in a football game. A Theta Chi official said it was from “a team-building enterprise,” said her husband, Brian Kowiak, 55. Only later, as part of a lawsuit filed in 2009 against Lenoir-Rhyne and Theta Chi, did they learn that the gauntlet-running ritual, known as “bulldogging,” had been an initiation tradition for years during Theta Chi’s “Hell Week.”

No one was arrested. Prosecutors found “no basis for criminal charges,” said Eric Farr, a spokesman for the Catawba County District Attorney.

‘Just Zombies’

Peter Kendall, a Lenoir-Rhyne vice president, said through a spokesman that the school has “zero tolerance” for hazing. Michael Mayer, executive director of Indianapolis-based Theta Chi, declined to comment. The Kowiaks reached confidential settlements with the school and fraternity, which denied wrongdoing.

After Harrison’s death, “for the first two or three years, we were just zombies,” said Lianne Kowiak. Then, she began advocating against hazing, and spoke to student audiences at Cornell University and elsewhere.

“I’m not going to let my son die in vain,” she said.

She and her husband wanted a federal law that would impose stern penalties for hazing and require disclosure of incidents.

“There are no public records,” Brian Kowiak, a material sciences engineer, said in an interview. “It’s unbelievable that not more is being done, and there’s so much resistance. You hear every month, someone lost their life, someone is taken to the hospital, someone is burned.”

Florida A&M

One fraternity leader agrees with the Kowiaks. A federal law would send a message that hazing will be punished, said Juan Guardia, former chair of the National Association of Latino Fraternal Organizations, which comprises 20 fraternities and sororities. “There’s been too many hazing cases.”

One of the most prominent hazing deaths was that of Robert Champion, 26, a drum major in the marching band of Florida A&M University, a historically black college in Tallahassee. According to his parents’ lawsuit, band members in November 2011 severely punched and kicked Champion on a chartered bus following a performance. Fourteen people were charged with crimes including manslaughter. Most of the cases are pending.

Last summer, Lianne Kowiak got in touch with Wilson, who had begun promising federal legislation after Champion’s death. A former elementary school principal who entered Congress in January 2011, Wilson received a modest $1,000 donation from FratPAC that September. Known for wearing flamboyant cowboy hats, the 70-year-old Wilson belongs to the Alpha Kappa Alpha sorority and used to be a regional director.

Haze Buster

The self-proclaimed haze buster stated in a 2012 press release that she “played a key role” in winning passage of Florida’s tough anti-hazing law in 2005. However, Adam Hasner, the sponsor of the law and former majority leader of Florida’s House of Representatives, said in an interview that Wilson “was not a participant” in pushing the bill to near-unanimous passage. Hasner, a Republican, said that Wilson’s advocacy of a federal law may have been intended to capitalize on publicity about Champion’s death in Florida. Wilson didn’t respond to a request for comment.

A month after Champion’s death, Wilson declared that she’d introduce federal legislation in January 2012. When she missed that deadline, she reiterated her pledge the following May and September.

Besides denying financial aid to students convicted in court or punished by their school for hazing, Wilson proposed creating a federal anti-hazing advisory committee. Hank Nuwer, author of books on hazing, counts 77 hazing deaths since 1990.

Fitting In

At the congresswoman’s invitation, Kowiak and her daughter, Emma, now 15, joined Wilson at the Capitol Hill news conference in September.

“When did it become a tradition to beat each other and torture each other for the purpose of fitting into an institution?” Wilson asked at the news conference. “The time for Congress to address it is now.”

Kowiak wasn’t aware that FratPAC had been working to dissuade the congresswoman against filing the bill. Eight months earlier, FratPAC executive director O’Neill dispatched a confidential memorandum to colleagues saying he would try to “make changes” to her plan.

O’Neill explained in his Jan. 19, 2012, memo that Wilson wanted a federal law because she thought there were too few state prosecutions for hazing, with its “culture of silence that makes it difficult for victims and witnesses to come forward.”

State Issue

O’Neill disagreed. Wilson’s proposal would unfairly target students on financial aid, who would “face a severe penalty for conduct well below the standard needed for criminal prosecution,” he wrote. University tribunals weighing hazing allegations might not provide students with a lawyer or other legal protections.

Hazing cases belong “at the state level,” he added.

Six states lack anti-hazing laws, and at least seven others have statutes that don’t make it a crime in the absence of injuries, said Cindy Tesch, a University of Maine researcher. There’s no uniform definition of hazing among states or national database of incidents.

The U.S. Education Department has no position on the need for a federal hazing law, spokeswoman Jane Glickman said.

Leaders from FratPAC and the other national groups expressed their concerns to Wilson and her staff in March 2012, Stellhorn, FratPAC’s president, said in telephone interviews. Most of the conversation focused on hazing, said Stellhorn, who attended the meeting.

Lobbying Intensifies

Afterward, O’Neill maintained “significant” contact with Wilson’s office, Stellhorn said. He put other critics, including college administrators, in contact with Wilson.

“We have been aggressively working with the congressional leader to develop a more favorable approach,” FratPAC and the other groups told their members in a mid-2012 memo. “For the moment, we believe that effort has been successful and federal hazing legislation is not likely to be introduced in 2012.”

As recently as May, fraternities reiterated their opposition to a federal hazing law in an internal document reviewed by Bloomberg News.

“This legislation would result in more problems than it solves,” FratPAC and its two companion groups wrote.

Stellhorn said in an interview that her industry has strong anti-hazing programs and that states should tackle hazing through stringent criminal laws.

“There are already good laws in place,” she said.

‘Good Laws’

Fraternity and sorority leaders disagreed with Wilson’s plan to deny financial aid to students who haze, even if there hasn’t been a judicial finding of wrongdoing, Stellhorn said.

“It’s a huge stretch to say we as an organization fought that legislation,” she said.

Wilson also heard from other opponents to her plan. Florida A&M said it would unfairly target minority students, who rely more heavily on financial aid, according to Tola Thompson, the school’s director of governmental relations. A task force of minority educators and clergy formed after the A&M hazing death, and led by Tallahassee Reverend R.B. Holmes, said community advocacy, and not a federal law, would stop hazing.

On April 25, 2012, the National Association for Equal Opportunity in Higher Education, which represents historically black colleges, told Wilson it was “concerned” that a preliminary draft of the bill “would single out” hazing for harsher penalties than other offenses.

Lawmaker’s Inaction

Supporters of anti-hazing legislation reached out to Wilson as well. Susan Lipkins, a New York psychologist and author of a book on hazing, wrote to Wilson after the congresswoman pledged to introduce a bill. Seven years earlier, Lipkins had teamed with a group called Mothers Against School Hazing in calling for a federal anti-hazing law that would include a database of incidents. Lipkins said she couldn’t get a meeting with lawmakers in 2005 and didn’t hear back from Wilson last year.

After the news conference, Kowiak grew increasingly puzzled by Wilson’s inaction. She called Wilson’s office repeatedly and was told the bill remained a priority for the congresswoman. As fall turned to winter, an aide told Kowiak that Wilson was weighing different approaches. Lately, when Kowiak has phoned Wilson’s office, she hasn’t heard back.

Wilson never introduced her anti-hazing bill.

Wilson “apparently reconsidered” filing the anti-hazing bill, Stellhorn said. “From our standpoint, we’ve been successful in having her take a look at some of the wording” of her proposal. “We’ve stood as a voice of reason.”

‘Some Hiccups’

Wilson’s website continues to feature a photograph of her and the Kowiaks holding the “Hazing Kills” banner. She said she remains committed to filing a bill. Fraternities “didn’t block it,” she said in a brief interview last month. She said she plans to offer a bill when the Robert Champion lawsuit concludes. That may take years, Champion lawyer Christopher Chestnut said.

“There are some hiccups in the bill in my mind as it relates to penalties,” Wilson said, without elaborating.

While she’s pulled back on the anti-hazing proposal, Wilson is a co-sponsor of the bill to give fraternities a tax break to renovate chapter houses. It benefits college students, she said, alluding to the industry’s claim that they can live more cheaply in chapter houses than in dorms.

“Anything to help with tuition,” Wilson said.

Four-and-a-half years after her only son’s death, Lianne Kowiak still finds comfort in talking to his photo in the dining room of her home, and she preserves his bedroom as it looked when he was alive.

“What’s it going to take?” Kowiak asked about Congressional action. “My God, my son’s life was taken away.”

Detroit Seeks to Shield Snyder From Suits Over Bankruptcy

Story Originally Appeared in Bloomberg News

Detroit’s first court hearing after filing the biggest U.S. municipal bankruptcy may determine whether Michigan Governor Rick Snyder can be insulated from lawsuits related to the case.

Chapter 9 of the U.S. Bankruptcy Code, which covers municipalities, typically prevents creditors from taking actions against the debtor that might interfere with reorganization. Kevyn Orr, the Detroit emergency manager, is scheduled to ask U.S. Bankruptcy Judge Steven Rhodes today to extend that immunity to Snyder.

Public workers and retirees claim the bankruptcy threatens their pension benefits with illegal cuts, and a union opposing immunity said in a court filing that protecting the Republican governor, who appointed Orr and authorized the July 18 bankruptcy, would be an “improper, unprecedented” move.

Immunity would allow Snyder “to engage in conduct which is unconstitutional under the Michigan Constitution, unauthorized or, at a minimum, outside the scope of Chapter 9,” the AFL-CIO, the union for thousands of current and former city workers, said in court papers.

The $18 billion bankruptcy filing came amid negotiations between Orr and creditors including bondholders, public workers and retirees. Orr said that six decades of economic decline had left Detroit unable to both pay creditors in full and provide residents necessary services.

Today’s hearing in Detroit is to confirm immunity for the city, as well as extend it to state entities, employees, and agents and representatives of the debtor, including the 54-year-old governor.

Retirement Plans

The General Retirement System and the Police and Fire Retirement System of the City of Detroit sued Snyder and Orr on July 17, contending that the state constitution bars any government in the state from reducing pension benefits. The suit was filed on behalf of the retirement plans and more than 32,000 active and retired Detroit employees.

Two similar cases were filed earlier in the month against Snyder and Michigan Treasurer Andy Dillon. Just minutes before a state-court hearing that may have halted the city’s plans, Detroit filed its bankruptcy petition.

Larry Dubin, a professor at the University of Detroit Mercy School of Law, said Snyder’s role is probably less important than it was before the Chapter 9 filing.

‘Very Important’

“Governor Snyder was very important in setting the groundwork necessary for this bankruptcy,” he said. Now Orr and his advisers will handle the day-to-day management of the case. Snyder “will not be the driving force,” Dubin said.

Extending the so-called automatic stay to the governor would prevent creditors, including the pension plans, from filing disruptive lawsuits, Orr said in court papers.

Creditors want to sue Snyder “for the sole and inappropriate purpose of attempting to improve their bargaining positions with respect to their claims and otherwise denying the city the protections of the Chapter 9 stay,” he said.

Before the bankruptcy, Orr proposed canceling about $2 billion in bond debt and reducing $3.5 billion in unfunded pension liabilities. Those debts would be replaced with about $2 billion in new notes, forcing bondholders and the pension systems to accept less than what they are owed.

Worker Concessions

City workers, other than police and firefighters, argue that their pensions and benefits are being unfairly targeted for cuts after they have already made concessions. Those employees saw pension benefit cuts of 40 percent last year, the AFL-CIO said in its court filing.

The average pension for employees other than police and firefighters was set at slightly less than $18,000 a year, according to a June 30, 2012, valuation report cited in the AFL-CIO filing. The average annual pay for such employees is $41,385, the union said.

The three lawsuits are pending in state court in Ingham County, Michigan. Circuit Judge Rosemarie Aquilina in Lansing ruled on the first two, finding Detroit’s Chapter 9 filing violated the state’s constitution, which says public pension benefits are a contractual obligation that can’t be diminished or impaired.

In asking Rhodes to delay hearings in the bankruptcy, pension officials cited a July 19 ruling by Aquilina criticizing Snyder for “overreaching” when he authorized Orr to rush the city into bankruptcy.

Request Denied

Rhodes on July 22 rejected the request to delay the bankruptcy case, and Aquilina’s ruling was put on hold yesterday pending consideration by Michigan’s court of appeals.

Attorney Dale Ginter, who represented retired city workers in the 2008 bankruptcy of Vallejo, California, said the immunity motion may stumble at first on technical grounds -- the city may need to re-file its request in the form of a lawsuit -- before finally being granted.

“They may well lose that motion, but ultimately I think the city will be able to protect the governor,” Ginter said.

The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

Wednesday, July 24, 2013

Cohen's attorneys refute SEC charges

Story Originally Appeared in USA TODAY

WASHINGTON (AP) — Attorneys for hedge-fund manager Steven A. Cohen are disputing federal civil charges that he failed to prevent insider trading at SAC Capital Advisors, saying he didn't read an email at the center of the allegations.

Cohen's lawyers call the Securities and Exchange Commission's charges "unfounded" in a paper sent Monday to employees of the firm.

The SEC said Friday that two of Cohen's portfolio managers gave him information in 2008 that suggested they had access to inside data. Cohen, 57, faces possible fines and could be barred from managing investor funds. He has until Aug. 8 to formally respond to the allegations.

His lawyers say he "had every reason to believe" that one of the managers used only public information and that he didn't read the email from the other manager.

SAC Capital, which until recently managed more than $15 billion in assets, is at the center of the biggest insider trading fraud cases in history.

The SEC says Cohen failed to prevent the two managers from illegally reaping profits and avoiding losses of more than $275 million. Rather than raise any red flags, Cohen praised one of the managers and rewarded the other with a $9 million bonus, the SEC said.

Part of the case hinges on an August 2008 email that included advance information on Dell's quarterly earnings. The SEC says it was sent to one of the two SAC portfolio managers and forwarded to Cohen. Minutes after it was forwarded, Cohen began selling his $11 million holdings of Dell stock, the SEC alleges.

Cohen's lawyers say in the paper that he didn't read the email and wasn't told about it. Cohen received hundreds of emails a day and he didn't read most of them, they say.

They say that Cohen decided to sell his Dell stock for "unquestionably legitimate reasons." That was because he became aware that a portfolio manager at an SAC affiliate, who had originally recommended that Cohen buy Dell stock, was selling a portion of his Dell stock.

The lawyers also note that the email is based on a second-hand interpretation of the information and doesn't identify the source. So even if Cohen had read it, he wouldn't have known it contained confidential information, the say.

"Steve Cohen did nothing wrong, and any fair review of the evidence will show that the SEC's charges are unfounded," his lawyers said.

Aaron Hernandez lawyers up in Florida civil lawsuit

Story Originally Appeared in USA TODAY

Aaron Hernandez has hired Shutts and Bowen, Florida's oldest law firm, to represent him in the civil lawsuit brought against him by Alexander Bradley, a Connecticut man who says Hernandez shot him in the eye during an argument in Miami in February.

Stephen Gillman, the attorney who is handling the case for Hernandez, according to documents filed on Thursday, was not immediately available for comment, but David Jaroslawicz, Bradley's New York-based attorney, said Tuesday that Hernandez has been given an extension until Sept. 3 to respond to the lawsuit.

While Hernandez once again has chosen a high-powered firm to represent him, Gillman seems a curious choice, given his biography on the firm's website, which says he specializes in "antitrust and fraud cases for the federal government," focusing on "antitrust, banking and securities litigation."

According to its website, Shutts & Bowen has offices in Miami, West Palm Beach, Orlando, Fort Lauderdale, Tampa and Tallahassee. The website also says that 63 of its attorneys were recognized in June as Super Lawyers.

In his lawsuit, which seeks damages of more than $100,000, Alexander says Hernandez shot him as they drove away from Tootise's, a Miami strip club.

According to Bradley's complaint, he lost his right eye and has had multiple surgeries to reconstruct the area of his face around the eye. The complaint also indicates Bradley will have to have future procedures on his face and arm, which he said were hit by the bullet as well.

"We don't know whether (the gun shot) was accidental or deliberate," Jaroslawicz told USA TODAY Sports. "If we get to take Mr. Hernandez's testimony, perhaps he will tell us he accidentally pulled the trigger or maybe he did it on purpose."

When asked Tuesday how his client is, Jaroslawicz said, "He's OK, feeling lucky to be alive."

Bradley was found alone and bleeding from the face and arm in a Riviera Beach, Fla., industrial park, about an hour north of the strip club, police said. But when questioned at a hospital while he was being treated, Bradley was uncooperative and told them he didn't know who shot him, investigators said.

Eventually, Bradley said it was two unknown men, black and Hispanic, then asked for the investigation to be dropped, police said.

Last week, by order of a Superior Court judge, Bradley testified before a Fall River, Mass., grand jury investigating Hernandez on the alleged murder of Odin Lloyd, a 27-year-old semipro football player and Hernandez's friend. Bradley spent more than seven hours in the courthouse before ducking out a back entrance and leaving without comment.

When reached by USA TODAY Sports on Tuesday, Robert Pickering, a Connecticut-based attorney who represented Bradley in that appearance, said, "What testimony? You know a grand jury is secret, so I have nothing to say."

The court appearance was the second in two days for Bradley, who was in a Quincy, Mass., court to plead not guilty to DUI. Police said Bradley was driving in excess of 100 mph in January when he was stopped. Hernandez, a passenger at the time, tried to name-drop to get Bradley off the hook, police said.

"Trooper, I'm Aaron Hernandez. It's OK," police said Hernandez told them.

It didn't work. Bradley is due back in court Sept. 20.

Monday, July 22, 2013

Legal battle brews over Detroit bankruptcy filing

Story Originally Appeared in USA TODAY

DETROIT -- While Detroit emergency manager Kevyn Orr on Friday was offering short-term reassurances to thousands of city pensioners whose benefits are in jeopardy, his lawyers were waging a whirlwind legal battle over the constitutionality of the bankruptcy filing that could land both sides before a federal judge early next week.

On Friday, Michigan Attorney General Bill Schuette said he will appeal an Ingham County judge's ruling that Detroit's bankruptcy filing must be withdrawn because it violates the Michigan Constitution and state law.

However, the order from Ingham County Circuit Judge Rosemarie Aquilina ultimately could have little effect because the bankruptcy case already was filed in federal court, and federal law generally trumps state law. The city filed a motion requesting to include the state as a party in the bankruptcy code's provisions that put on hold all lawsuits against the city, a clear attempt to fight the Ingham County ruling by preventing the state from being sued in similar fashion. The city is asking U.S. District Judge Steven Rhodes to hold a hearing on Tuesday, or earlier, to decide this and other matters.

Friday's legal wrangling marks the beginning of what is expected to be a lengthy bankruptcy process that will involve more than 100,000 creditors, which include the Police and Fire Retirement System and the General Retirement System and its 20,000 retirees.

Orr provided retirees some temporary relief Friday, telling the Detroit Free Press that pension and health care benefits are safe for at least the next six months.

"We have made a decision that for the balance of this year, the next six months, we're not touching pension or health care," Orr said in an interview with Free Press editors and reporters. "So all pensioners, all employees you should understand: It's status quo for the next six months."

The announcement was welcome news to Thomas Berry of Livonia, who retired from the Detroit Police Department six years ago after more than 34 years on the job.

"I think that's huge," Berry said. "You've given me five months to evaluate. We're going to sock away more and maybe spend a lot less."

Orr has not yet specified the cuts to pensions he will seek through the bankruptcy process. He has proposed freezing pensions and moving workers to a 401(k)-style plan to help alleviate the pension systems' unfunded liabilities of $3.5 billion. He also wants to move retirees to Medicare or health care exchanges being set up through the Affordable Care Act.

Orr, alongside Michigan Gov. Rick Snyder, spent Friday in a series of public appearances and meetings explaining why it was necessary for Detroit to file for bankruptcy protection and how the lengthy process is likely to affect the city's residents, workers and retirees. The duo stressed bankruptcy was long overdue, and is the best path to resolve the city's liabilities of about $18.5 billion. They said services to residents will improve.

Orr said the lawsuits from pension boards and others didn't spur the filing. He said he was simply running out of time.

"We're dealing with 60 years of deferred maintenance in 18 months," Orr said during a news conference at Wayne State University, referring to the length of time in which he'll oversee the city.

Still, Orr singled out retirees and pension fund lawsuits filed in recent days to try to stop the state-approved bankruptcy filing, based on the argument that the state's constitution prevents the city or state from cutting protected pension benefits for retirees. Orr deflected criticism from union leaders and pension officials that he wasn't bargaining in good faith in recent weeks, citing lawsuits opponents filed.

"That's the very thing I had pleaded for not to happen," said Orr, standing next to Snyder. "Anyone who thinks I wasn't negotiating in good faith, when they're suing me, look at that context."

In a spate of orders out of Ingham County Circuit Court arising from three separate lawsuits, Aquilina said Snyder and Orr must take no further actions that threaten to diminish the pension benefits of city of Detroit retirees.

"I have some very serious concerns because there was this rush to bankruptcy court that didn't have to occur and shouldn't have occurred," Aquilina said.

Lawyers representing pensioners and two city pension funds got an emergency hearing with Aquilina on Thursday at which she said she planned to issue an order to block the bankruptcy filing. But lawyers and the judge learned Orr filed the bankruptcy petition in Detroit five minutes before the hearing began.

Aquilina said the Michigan Constitution prohibits actions that will lessen the pension benefits of public employees, including those in the city of Detroit. Snyder and Orr violated the constitution by going ahead with the bankruptcy filing, because they know reductions in those benefits will result, Aquilina said.

"We can't speculate what the bankruptcy court might order," said Assistant Attorney General Brian Devlin, representing the governor and other state defendants.

"It's a certainty, sir," Aquilina replied. "That's why you filed for bankruptcy."

Devlin said Snyder has to follow both the Michigan Constitution and the U.S. Constitution.

Schuette's office issued a statement saying an appeal has been filed on behalf of the governor in all three cases before Aquilina.

Aquilina issued a declaratory judgment that says the bankruptcy filing violated the Michigan Constitution. She also ordered that a copy of her declaratory judgment be sent to President Barack Obama, saying he "bailed out Detroit" and may want to look into the pension issue.

In the Schuette appeal, state attorneys say Aquilina abused her discretion and the question of a Detroit bankruptcy filing is now moot.

"The governor has authorized the bankruptcy proceeding and the petition has been filed," the appeal said.
University of Michigan law professor John Pottow said the issue could travel up the court system, all the way to the Michigan Supreme Court. Or it could be answered decisively and quickly in bankruptcy court, he said.

"There's nothing that precludes a federal judge from adjudicating the constitutionality of the Michigan statute," Pottow said. "The bankruptcy judge can interpret Michigan law."

Snyder said the decision to file for bankruptcy was based on the unmistakable conclusion there was no other option for a city that had reached the end of the line. Detroit, he said, was done in by decades of residential and business flight to the suburbs, loss of its manufacturing base, chronic overspending and mismanagement and corrupt leadership, all reaching a climax as the economic meltdown and the national housing crisis hit.

"Let's get to the point of saying enough is enough," Snyder said. "This is 60 years of bad outcomes. Let's do something about it, finally."

Meanwhile, Aquilina is scheduled to hold a hearing at 9 a.m. Monday to decide whether Snyder has the authority to approve a bankruptcy filing that would affect accrued pension benefits.

Contributing: Nathan Bomey of the Free Press

Insufficient brake force blamed in Canada crash

Story Originally Appeared in The Detroit News

Lac-Megantic, Quebec — Insufficient brake force was applied before an oil train slammed into a town in Quebec on July 6 and killed 50 people, officials said Friday.

Donald Ross, chief investigator for the Transportation Safety Board of Canada, said the insufficient brake force could be due to mechanical problems with the handbrakes, or a problem with the way someone applied them.

“Not enough brakes were applied to the train that derailed. A sufficient number of brakes needed to be applied. And the quality of brakes needs to be examined,” said Ross.

The unmanned train belonging to the Montreal, Maine & Atlantic railway carrying 72 cars of crude oil slammed into the heart of Lac-Megantic, setting off massive explosions that devastated the small lakeside town of 6,000 people.

A spokesman for the agency said it’s had a closer look at 25 tanker cars since gaining access to the blast site two days ago — and has taken pictures and samples.

The agency says the investigation has already resulted in two safety advisories urging a revision of the Canadian Rail Operating rule governing the securing of parked trains.

It says the rule is not specific enough because it does not spell out how many handbrakes to apply for various weights and types of cargo. It also said that the standard, so-called “push-pull test” does not always accurately show whether the brakes have been adequately applied.

The board has also advised Transport Canada that dangerous goods should not be left unattended on a main track and, also, that rail equipment be properly secured.

The transportation watchdog’s advisory comes a week after Edward Burkhardt, president and CEO of the railway’s U.S.-based parent company, Rail World Inc., blamed the train’s engineer for the accident. Burkhardt questioned whether he had properly set enough hand brakes and said the engineer had been suspended without pay.

The board said that while the investigation is expected to take quite some time, it won’t wait to send safety warnings.

Emergency officials continue to comb through the wreckage, searching for bodies amid intense heat and hazardous conditions. Authorities have recovered the remains of 42 bodies, eight bodies remain missing.

Veteran Detroit bankruptcy judge gets historic case

Story Originally Appeared in The Detroit News

Detroit— The city’s historic bankruptcy case was assigned Friday to U.S. Bankruptcy Judge Steven Rhodes, a veteran Detroit jurist with experience in large complex filings and a reputation for efficiency and diplomacy on the bench.

The appointment came 24 hours after Detroit filed the largest municipal bankruptcy case in U.S. history. Area lawyers called the Reagan-era appointee a quick-moving judge skilled at bringing opposing sides together to reach agreements.

“He’s had some big stuff and he’s not afraid of big stuff. That’s important. He’s had a wealth of experience in Chapter 11” reorganizations, Southfield lawyer Wallace Handler said. “He makes decisions in an appropriate fashion, which means he doesn’t sit on things for weeks and months.”

Gov. Rick Snyder and Emergency Manager Kevyn Orr have said Detroit doesn’t have a lot of time to restructure. They are hoping Detroit can restructure quickly and emerge from bankruptcy court by next summer or early fall.

Rhodes, who was appointed in 1985, presided over the Chapter 11 bankruptcy of auto-parts maker Collins & Aikman Corp. in 2005.

Alice Batchelder, chief judge of the 6th U.S. Circuit Court of Appeals, made the assignment Friday afternoon.

“I make this designation having reviewed the levels of experience and the respective caseloads of the judges of the Bankruptcy Court for the Eastern District of Michigan, and the availability of Judge Rhodes, and having received from the Chief Judges of both the Bankruptcy Court and the District Court for the Eastern District of Michigan the recommendation of those courts that Steven W. Rhodes be assigned to this Chapter 9 case,” Batchelder wrote in a court filing.

Any judge in the four-state region that includes Michigan, Ohio, Kentucky and Tennessee could have been assigned to the case.

“I just think he probably is the one who has the best background to handle this,” said G. Harvey Boswell, a retired bankruptcy judge from Tennessee. “He has the knack to be able to get people together.”

That will be a useful skill, experts said, as Detroit faces a costly and perhaps long battle with its creditors in bankruptcy court.

Rhodes is a graduate of the University of Michigan Law School, where he also has taught as an adjunct professor.

The Purdue University undergrad served as a law clerk for the late U.S. District Judge John Feikens, and is a former assistant U.S. Attorney and federal magistrate.

He plays guitar and serenaded his future wife with “The Sound of Silence,” “Eve of Destruction” and “Sloop John B,” according to a profile on the website of his rock band The Indubitable Equivalents.

Rhodes also is an American College of Bankruptcy fellow and last year co-authored “The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes.”

The bankruptcy bench unanimously recommended that the case be assigned to Rhodes, according to letters filed in court Friday.

“I have worked extensively with Judge Rhodes when he was chief judge of the bankruptcy court, and he has outstanding administrative and management skills, which of course will be necessary in handling a case of this magnitude,” Chief U.S. District Judge Gerald Rosen for the Eastern District of Michigan wrote.

The appointment and decision to file the case locally are significant, local bankruptcy lawyers said.

“It’s got to be heard in Detroit,” Handler said. “The whole cause and effect occurred in Detroit.”

Local bankruptcy judges are appointed to 14-year terms by the 6th U.S. Court of Appeals.

There are five bankruptcy judges assigned to the Detroit office and one each in Bay City and Flint.

Before the appointment, Snyder said: “We have confidence we’re going to get a good judge.”

Chief U.S. Bankruptcy Judge Phillip Shefferly said Rhodes handled the only other Chapter 9 bankruptcy case ever filed in the Eastern District of Michigan, which involved the Addison Community Hospital Authority.

Rhodes is “very knowledgeable about the relationship of federal bankruptcy law to state constitutional and other state law, which will likely be an important issue in this case,” Shefferly wrote in a letter filed in the case Friday.

The assignment is a coup for a bankruptcy bench that lost out on hearing the bankruptcy cases of General Motors Corp. and Chrysler LLC four years ago. The historic filings were heard by bankruptcy judges in New York.

“I don’t know if this would soften the sting, but if this case were not to remain in Detroit, that would be a tremendous black eye for the bench,” said Southfield bankruptcy lawyer Stuart Gold.

“The practitioners before this bench all have all the confidence in the world that any of the judges here can handle a case of this magnitude.”

Thursday, July 18, 2013

Detroit pension funds sue to block potential bankruptcy

Originally Appeared in The Detroit News

Detroit — -- The city's two pension funds sued Gov. Rick Snyder on Wednesday to block him from authorizing what would be the biggest municipal bankruptcy in U.S. history.

The Ingham County Circuit Court lawsuit says authorizing a Detroit Chapter 9 bankruptcy would violate retirees' constitutional right to a pension.

The General Retirement System and Police & Fire pension fund lawsuit could be combined with a similar complaint filed by retirees earlier this month that also seeks to block a bankruptcy filing.

An attorney for three retirees and two city workers vested in the Detroit retirement system who are plaintiffs in the earlier case welcomed the pension funds' joining the legal battle.

"The more the merrier," said Bingham Farms attorney Bill Wertheimer, who is being paid by the United Auto Workers.

The new lawsuit is the latest step in an escalating fight between the pension funds and Emergency Manager Kevyn Orr, who wants to cut pensions and benefits while restructuring as much as $20 billion in city debt.

The pension funds aren't alone in eying the lawsuit as an option to block a Detroit bankruptcy filing. Several labor unions are interested in joining the lawsuit, said Wertheimer.

That lawsuit claims the emergency manager's power to alter or wipe out vested pensioners in a bankruptcy violates Michigan's constitutional protection of accrued pension benefits.

Under the new emergency manager law, if Orr concludes there's "no reasonable alternative to rectifying" Detroit's financial emergency, he must get Snyder's approval to seek Chapter 9 bankruptcy protection.

The law, which took effect in March, contains no timetables or waiting periods.

The pension funds were prepared to fight Orr as the city's finances continued to erode.

They set aside $5 million to fund a legal fight and any attempts by Orr to takeover a system with $5 billion worth of assets.

As part of Orr's restructuring plan, he is proposing to slash pensions and health benefits.

The Michigan Constitution protects benefits for the city's 30,000 current and former city workers, but it's unclear whether a bankruptcy judge would rule otherwise.

Under state law, Orr can replace pension board members if a review determines the funds are underfunded. There is wide disagreement about the funds' financial soundness.

Orr contends that the city's retirement system is underfunded by an estimated $3.5 billion. Pension officials dispute the figures.

An Orr-commissioned review of both funds will be completed soon, said Bill Nowling, the emergency manager's spokesman. If the pension systems are less than 80 percent funded, Orr can try to remove the boards and have state Treasurer Andy Dillon appoint a sole trustee.

Orr also recently launched an investigation of the pension funds amid concerns over mismanagement, investments and spending.

The general pension fund is likely less than 80 percent funded, said Michael VanOverbeke, the fund's interim general counsel. A preliminary report on the police and fire fund pegged its funding level at 96.1 percent, though Orr has said both funds are below 80 percent.

Wednesday, July 17, 2013

Pilot reaches settlement with 8 trucking firms

Originally Appeared in USA TODAY

NASHVILLE, Tenn. — In an effort to avoid millions of dollars in punitive damages,lawyers for truck stop operator Pilot Flying J cut a deal Tuesday with eight trucking firms that filed federal suits charging they were cheated out millions of dollars in diesel fuel rebates.

Pilot's 38-page class action settlement proposal, which U.S. District Judge Joseph Moody in Little Rock, Ark. gave initial approval to Tuesday, does not admit any wrongdoing but does agree to repay the companies for any rebate amounts they are owed.

The settlement proposal calls for the trucking firms to be repaid for the lost rebates plus 6% interest. The amount due to each firm is to be based on the results of Pilot's internal audit, and an outside independent auditor will review the results.

"Pilot's commercial customers will get every penny they are owed," said Elizabeth Alexander, a lawyer for one of the plaintiffs. "Because the settlement provides for independent accountant review and an additional interest payment, there will be no lingering questions as to the accuracy of the payment amounts."

The agreement also calls for the trucking companies' lawyers to receive a third of the total settlement or $14 million, whichever is less.

Pilot will pay the lawyers fees, which won't come out of the settlement, said Aubrey Harwell, lawyer for the nation's largest truck stop operator. He said he didn't expect legal fees to reach $14 million but conceded it was possible. That would put the maximum payout to the truckers at $42 million, but Harwell said that figure was not final.

Legal experts said the effort to quickly settle as many suits as possible was a good tactical move on Pilot's part.

"These things can drag on for years," said Nashville lawyer William Farmer, a former federal prosecutor.

"The lawyers weren't out to rob the bank. If a company didn't lose anything, they don't get anything," said Daniel Becnel, a Louisiana lawyer representing Townes Trucking, one of the firms agreeing to the settlement.

With the settlement, 13 other suits are pending in state and federal courts. Plaintiffs in those cases can join in the Arkansas class action or they can opt out and pursue separate cases. Yet another suit against Pilot was filed Tuesday in New Mexico.

On April 15, FBI and IRS agents raided the company's headquarters in Knoxville, Tenn., as part of an ongoing federal probe into the rebate scheme. Officials alleged that trucking firms meeting certain purchase levels were promised rebates, but sales staff then reduced those amounts for some customers. Since then, Chief Executive Jimmy Haslam announced several personnel changes as a result of the investigation and the company's own internal audit.

Pilot Flying J has more than 650 locations, 23,000 employees and 3,300 trucking clients. Last year it reported $29.2 billion in sales. Forbes magazine last year ranked it as the sixth largest privately held company in the United States.

Pilot was founded in 1958 by James Haslam, father of CEO Jimmy Haslam and Tennessee Gov. Bill Haslam. The Haslam family controls the private company and owns a majority of its shares. Gov. Bill Haslam has not been involved in company operations for more than a decade but remains a stockholder. Jimmy Haslam also owns the NFL's Cleveland Browns.

Jimmy Haslam acknowledged that the agreement was "somewhat unusual" but said it was one way to avoid "a long, expensive and drawn-out lawsuit."

In approving the proposed settlement, Moody set a Nov. 25 date for a "fairness hearing" during which trucking company lawyers will be able to raise any objections to the terms.

Last week, the CEO disclosed that six Pilot sales executives had either quit or been fired since the FBI investigation became public.

Tuesday, July 16, 2013

Scripps heir gets 9 years for swindling mom, uncle

Originally Appeared in USA TODAY

PHILADELPHIA (AP) — A media company heir raised in what his lawyer called a wealthy but dysfunctional family must serve nine years in prison for stealing $3.6 million from his mother and disabled uncle.

Federal prosecutors in Philadelphia said Michael Scripps spent the money on cars, jewelry and women, including strippers and porn stars.

A defense lawyer argued Monday that Scripps, 36, has since married and built a productive life and credited the turnaround to his estrangement from his family in 2006. However, U.S. District Judge Legrome Davis did not quite see it that way.

"He got caught stealing their money, so they didn't want to have anything else to do with him," Davis said.

Scripps lived in suburban Detroit, as did his mother and uncle. He has been in custody since an April trial conviction on wire fraud charges.

Melissa Scripps had agreed to let her son's college friend in suburban Philadelphia manage $9 million belonging to her and her brother, David. But Scripps and the Merill Lynch broker, Richard "Duke" Gleeson of Bryn Mawr, then colluded to misuse the funds, prosecutors said.

Melissa Scripps is an heir to the fortune of James E. Scripps, the founder of The Detroit News. She testified that she had inherited $11 million. But defense lawyer Michael Dezsi argued that her fortune was closer to $100 million. She was giving her adult son about $3,900 a month, along with a $250,000 trust fund and college tuition.

Dezsi said she had run a chaotic house when her son was growing up and was long addicted to drugs.

"My client was raised in a very chaotic, somewhat dysfunctional household," Dezsi said. "He was raised in a house where his mother asked him to buy drugs for her."

"The spending in the Scripps family was just unimaginable," the lawyer said.

Assistant U.S. Attorney Terri Marinari disputed any effort to paint Scripps as a victim.

"This is real money that he put in his pocket, knowing that these two other people had no other source of income," she argued.

And the judge challenged the notion that his mother's wealth or her drug use fueled Scripps' crimes.

"There's something deeper here than a desire for money, or family circumstances," Davis said.

Scripps has been in custody since his conviction. He did not testify at trial and declined to speak to the judge Monday.

However, Dezsi said his client had the authority to use the money, and plans to appeal the conviction and sentence.

Gleeson, 38 and a married father of four, was sentenced Monday to a year in prison. A self-described gambling addict, he netted about $300,000 and pleaded guilty before trial.

The two men were also ordered to joint restitution of $3.6 million.

Starbucks in Hot Water

Originally Appeared in USA TOADY

NEW YORK (AP) — Some Starbucks workers in the city were so rude to deaf customers they mocked them and called the police to try to get them kicked out, a lawsuit says.

The lawsuit seeks unspecified damages and an order from the court to stop discriminatory behavior for what's described as multiple occasions of abuse over the past year.

The suit, filed in federal court in Manhattan last week on behalf of 12 people, says one Starbucks employee laughed hysterically at a plaintiff's speech while others objected to a monthly meeting of a group of deaf people named Deaf Chat Coffee and called police.

Starbucks spokeswoman Jamie Riley said the Seattle-based company, which refers to its employees as partners, is investigating.

"Discrimination of any kind at Starbucks in unacceptable," she said. "We take these allegations very seriously and believe that they are neither in line with our values nor our track record of engaging the deaf community as partners and as customers."

The lawsuit said the police were summoned to a Starbucks store at Astor Place, in lower Manhattan, on March 7 after more than 10 people, some of whom bought coffee and pastries, gathered for the monthly meeting.

According to the lawsuit, those participating in the meeting were "shocked and frightened" when police responded to a report of a disturbance, a meeting being conducted without a permit and an allegation that most deaf people at the store weren't paying customers.

The police officers found no illegal conduct and apologized to the plaintiffs before reprimanding Starbucks employees for calling them, the lawsuit said. The plaintiffs had suffered humiliation, embarrassment and emotional pain and suffering as a result of the Starbucks employees' actions, it said.

MLB agrees to sex harassment policy

Originally Appeared on ESPN

ALBANY, N.Y. -- Major League Baseball says it will bolster its policies against harassment and discrimination based on sexual orientation, according to a new agreement provided to The Associated Press on Monday.

The league is scheduled to announce its new policy during its All-Star game festivities on Tuesday with the players' union and New York Attorney General Eric Schneiderman, who helped draft the agreement.

Under the new policy, the league will create a workplace code of conduct and distribute it to every major league and minor league player. It also will provide new training sessions and create a centralized complaint system to report any harassment and discrimination.

"Just making people aware," Chicago White Sox manager Robin Ventura said Monday night while the American League took batting practice. "I think that's part of the reason, if they're going to do that, that's why they would do it. Just put it out there and kind of be ahead of it instead of behind it."

"I think it's already out there. I think what's happened in basketball and all this stuff, it's better just to get out there and be ready for it," he said.

The announcement follows Schneiderman's agreement this year with the National Football League to strengthen its policies. Some NFL prospects complained about questions they said were posed to them during the evaluation and hiring system called the NFL combine. The case prompted a look at harassment and discrimination policies in other sports.

It also comes after basketball player Jason Collins said in April that he's gay. The veteran center is a free agent.

Few professional athletes are openly gay, and gay rights groups have blamed the policies and atmosphere in sports for forcing gay athletes to hide their sexual orientations.

Schneiderman, a Democrat, called the new policy actions a "clear stand against discrimination."

"Our national pastime is showing national leadership in the fight to promote equal justice for all," he said.

Major League Baseball already has an anti-discrimination policy, but the new one specifically will prohibit discrimination based on sexual orientation. Commissioner Bud Selig said baseball won't allow any discrimination.

"We welcome all individuals regardless of sexual orientation into our ballparks, along with those of different races, religions, genders and national origins," Selig said. "Both on the field and away from it, Major League Baseball has a zero-tolerance policy for harassment and discrimination based on sexual orientation."

Said Ventura: "I mean, I think he's right."

"I think it's just better to put it out there and clean it up and make everybody more conscious about it. I would expect that from our team, too," he said.

The Major League Baseball Players Association said it supports the policy so that players can pursue their careers regardless of their sexual orientations.

"MLBPA embraces diversity and supports a workplace environment that welcomes all regardless of race, religion and sexual orientation," said the union's executive director, Michael Weiner.

Union official Tony Clark, who played in the 2001 All-Star game, echoed those remarks.

"Any time you can put pen to paper, to formally acknowledge that certain things won't be tolerated and post it in every clubhouse, that's a good thing," Clark said as the AL players loosened up.

Tuesday, July 9, 2013

Originally Appeared in The Washington Post

Investors are placing more pressure on the government to release its hold on Fannie Mae and Freddie Mac as the mortgage finance giants return to profitability.

In the latest effort, hedge fund Perry Capital filed a lawsuit in federal court late Sunday to stop the government from seizing most of the profits at the finance firms.

The lawsuit, filed in U.S. District Court in Washington, alleges the Treasury Department and the Federal Housing Finance Agency (FHFA), which oversees the government-owned mortgage companies, violated a 2008 law that placed Fannie and Freddie into conservatorship to prevent bankruptcy.

Congress originally authorized Treasury to collect 10?percent dividend payments from Fannie and Freddie every quarter as a condition of the government’s $188?billion bailout of them. Treasury amended the terms of the agreement last year to make Fannie and Freddie give the government most of their profits, a move known as the “sweep amendment.”

The lawsuit alleges that the dividend sweep was tantamount to a purchase of new securities, which Treasury did not have the authority to make. It also says the FHFA has failed to conserve the assets of Fannie and Freddie by allowing Treasury to take most of their profits. Perry Capital is not seeking damages but is asking the court to strike down the Treasury amendment, a decision that would benefit its investors.

“This lawsuit seeks to uphold the rule of law,” Theodore Olson, a partner at Gibson, Dunn & Crutcher, which is representing Perry Capital, said in a statement. “If the government wanted to assume the powers of receivership, it could have chosen that course. Instead it chose conservatorship, and with the ‘sweep amendment,’ it overreached.”

Perry Capital alleges that the new arrangement has caused irreparable harm to all private investors, who are being shortchanged as Fannie and Freddie have returned to profitability. The hedge fund says the government “maneuvered to ensure that Treasury would be the sole beneficiary of the companies’ improved financial position,” according to the lawsuit.

Treasury and the FHFA declined to comment on the lawsuit.

Treasury has received $132?billion in dividend payments on the government’s nearly 80?percent stake in Fannie and Freddie. Shareholders say Treasury’s new terms prevent the companies from building capital that would help them redeem any of the shares the government has taken.

Perry Capital, which would not disclose its exact stake in Fannie and Freddie, began investing in the mortgage companies in 2010. It said it believed the beleaguered companies were positioned to return to profitability. In the aftermath of the financial crisis, Fannie, Freddie and other government-backed agencies have insured nearly 90?percent of new mortgages.

Investors, including Perry Capital and Paulson & Co., have urged Congress to quash plans to close Fannie and Freddie, which they say should be allowed to go private. But the overwhelming momentum in Washington is behind abolishing the troubled mortgage insurers.

A few weeks ago, Sens. Bob Corker (R-Tenn.) and Mark R. Warner (D-Va.) introduced legislation to replace the mortgage giants with a new government agency that would shift more of the risks of lending to the private sector. The lawmakers want to make the government the last line of defense in the event of another housing crash.

Spaniards Fight to Get Savings Back

Originally Appeared in The New York Times

MADRID — For Gonzalo López, 77, it has been a lifetime of scrimping on a factory worker’s salary, trying to save enough to make sure his brain-damaged son would be cared for even after he was gone.

 He and his wife put aside $87,000. But four years ago, as the economic crisis took hold here, a bank official called Mr. López at home to suggest he move his money into a new “product” that would give him a 7 percent return.

“I asked, ‘Is this safe?’ ” Mr. López said. “I trusted him. He knew the money was for my son.”

Today, Mr. López is one of about 300,000 Spaniards who, in the midst of a brutal recession, have seen their life savings virtually wiped out in what critics call a deceptive and possibly fraudulent sales campaign by banks that were threatened by the implosion of Spain’s property market. Many, like Mr. López, are older and lack formal education, and were easily misled when bank officials hit on the idea of raising capital and cleaning debts off their books by getting people with savings accounts to invest in their banks instead.

For many of these savers, the first hint of trouble — and understanding that they had bought into risky investments — was when some of these banks essentially failed about two years ago. Overnight, they were unable to withdraw their money.

Soon, they came to understand that they had purchased complex financial products, originally designed for sophisticated investors. They had become creditors, and not at the head of the line, either.

The plight of these small-time savers — who invested $40,000 on average but have lost a collective $10.3 billion — has captured headlines and left the country torn about what should be done for them. Some say no matter how unsophisticated they were, they should have known better, especially when they were offered such a relatively high interest rate. They signed pages of documents saying they understood.

But others accuse Spain’s savings banks of fraud, by taking advantage of their most vulnerable customers when they already knew they were in trouble and facing possible bankruptcy. Spain’s construction boom collapsed in 2008, and according to a recent government report, the peak sales of these hybrid financial instruments occurred the next year.

Miguel Duran, a lawyer who is representing about 1,800 investors, including Mr. López, said almost all his clients had been called at home and told to ignore the pages of forms they were signing because the contents were only formalities.

He said even the name of the preferred shares they had been sold, called “preferentes” in Spanish, was deceiving. He said most of the clients believed they were getting a good rate because they, as longtime clients of the banks, were preferred customers.

In the past two years, the Spanish banking sector has been restructured and bailed out by the European Union. Most of the savings banks have been merged or absorbed into the country’s sturdier banks.

But most of those rescued were big international banks and investors, not the small timers who were steered into these risky investments — and who, like Mr. López, have lost about 88 cents on the dollar.

“I have such a sense of impotence,” Mr. López said. “And anger. It is hard to believe that it is all gone.”

Among the unhappiest investors are those who had their money in the seven failed savings banks that were merged into Bankia, a new nationalized bank. Last month, the bank exchanged their hybrid products for shares in the new bank, discounting them by 38 percent as dictated by the terms of the bailout. But once these shares went on the open market, their value plunged to 18 percent of their original value.

Hundreds of these shareholders have taken to protesting every Thursday night in the Puerta del Sol here, in front of a Bankia building that still bears the signage of the now defunct Caja Madrid savings bank. They chant accusations of fraud, their anger and despair close to the surface. Some are unemployed, behind in their mortgage payments or scraping by on state pensions, badly in need of the cash they had painstakingly saved.

Carmen Babiano, 52, and Francisco Margues, 55, come every week, though paying the subway fare is hard for them. Mr. Margues is a bookkeeper, but he has lost almost all of his clients as their businesses collapsed. He has only one client left, who pays him about $1,400 a month. But by the time Mr. Margues has paid his income tax and health insurance, which is compulsory in Spain, and some basics like his electricity bill, only about $400 remains for the couple to live on.

 “We have been like this for a long time, and it is very hard,” Mr. Margues said. “I really need my money. I need it now.”

But some experts say the small investors may just be out of luck. Federico Steinberg, an economist with Elcano Royal Institute, a policy research organization, believes that the crisis has exposed a lack of sophistication about money among his countrymen, who put themselves in the hands of local bankers without understanding that the banks did not always have their customers’ best interests at heart.

He said he thought some of these bankers should probably go to jail. Some are under investigation, but not in connection with this disaster.

But Mr. Steinberg is wary of any push to repay the investors. “There is no money,” he said. “That is the story here. It is the taxpayer who would have to pay. I would have to pay.”

Spain’s prime minister, Mariano Rajoy, has said little on the subject, though he asserted recently that the government was “doing everything possible, within the limits permitted by European legislation, to resolve a problem that we did not create.”

In recent weeks, the government has set up an arbitration system for Bankia shareholders who believe they were defrauded. Arbitrators will decide whether such investors understood what they were purchasing, by determining, for instance, their degree of literacy. But some consumer advocates warn that the arbitration system may provide redress in only the most egregious cases.

Already, nearly 134,000 shareholders have asked for arbitration. But many others plan to turn to the courts. They say they will file individual claims because Spain does not have a class action system. In the dozen cases that have already made their way to the courts, judges have consistently ruled in favor of the investors.

The Camaño Brazales family hopes that it, too, will prevail in court. Tomás Camaño, 64, had spent 18 years as the doorman at a savings bank when he took the advice of a bank employee he knew well and poured all his savings into the preferentes. His daughter, 27, who went to work when she was 16 years old, invested the money she had saved — more than $60,000. She has since lost her job in the recession and lives at home with her parents, all of them relying on Mr. Camaño’s $1,600 monthly pension.

At one point, Mr. Camaño went back to the bank to confront the saleswoman who had steered him to the risky products. “I said, ‘Have you no shame? You said there was no risk.’ ”

“I was carrying an umbrella,” Mr. Camaño said. “I don’t know how I didn’t hit her in the head with it.”

Monday, July 1, 2013

Judge: Hobby Lobby won't have to pay fines

Originally Appeared on USA TODAY

OKLAHOMA CITY (AP) — Hobby Lobby and a sister company will not be subject to $1.3 million in daily fines beginning Monday for failing to provide access to certain forms of birth control through its employees' health care plans, a judge ruled Friday.

U.S. District Judge Joe Heaton set a hearing for July 19 to address claims by the owners of Hobby Lobby and the Mardel Christian bookstore chains that their religious beliefs are so deeply rooted that having to provide every form of birth control would violate their conscience.

The 10th U.S. Circuit Court of Appeals had said Thursday the companies were likely to prevail, comparing the companies to a kosher butcher unwilling to adopt non-kosher practices as part of a government order.

Until the hearing, the government cannot impose fines against Hobby Lobby or Mardel for failing to comply with all of the Affordable Care Act. The companies' owners oppose birth control methods that can prevent implantation of a fertilized egg in the uterus, such as an intrauterine device or the morning-after pill, but are willing to offer the 16 other forms of birth control mentioned in the federal health care law.

"The opinion makes it very clear what is a valid religious belief and what is not," said Emily Hardman, spokeswoman for The Becket Fund for Religious Liberty. The group is representing the companies and their owners, the Green family.

Heaton asked the government and companies to seek some sort of solution before the hearing, given that the 10th Circuit has already cleared the way for the companies to challenge the law on religious grounds. While not binding beyond the states in the 10th Circuit, Thursday's ruling could benefit others that oppose all forms of birth control, Hardman said, such as Catholic hospitals.

"We got a fantastic opinion from the 10th Circuit, which will impact all the cases," she said.

The companies had faced fines totaling $1.3 million daily beginning Monday. Had they dropped its health care plan altogether, they could have been fined $26 million. The only alternative would be to pay for birth control that violates its religious beliefs, the companies' owners said.

The appeals court on Thursday had suggested the companies shouldn't have to pay the fines, but there were unaddressed questions pending at the lower court. Heaton resolved those Friday in the companies' favor: Hobby Lobby had shown they would suffer financial or spiritual consequences, and that an injunction was in the public interest.

In fighting Hobby Lobby and other companies that oppose some or all forms of birth control, government lawyers had said companies cannot pick which portions of the Affordable Care Act with which they will comply.

Spokesmen for the Department of Health and Human Services have repeatedly declined to comment on pending lawsuits over birth control coverage.

Electronic court filings did not show any response from the government to Hobby Lobby's latest injunction request, but Heaton said in his order that lawyers from both sides had weighed in.

Hobby Lobby's lawyers have said the U.S. Department of Human Services has granted exemptions from portions of the health care law for plans that cover tens of millions of people and that allowing the companies an injunction would be no great burden to the government at the expense of the Greens' religious freedoms.

The companies' lawyers calculated potential losses at $475 million in a year — $100 per day for 13,000 workers — while harms to the government are "minimal and temporary."

With changes to its unemployment law, NC becomes 1st state to drop federal jobless funds

Originally Appeared in The Washington Post

RALEIGH, N.C. — With changes to its unemployment law taking effect this weekend, North Carolina not only is cutting benefits for those who file new claims, it will become the first state disqualified from a federal compensation program for the long-term jobless.

State officials adopted the package of benefit cuts and increased taxes for businesses in February, a plan designed to accelerate repayment of a $2.5 billion federal debt. Like many states, North Carolina had racked up the debt by borrowing from Washington after its unemployment fund was drained by jobless benefits during the Great Recession.

The changes go into effect Sunday for North Carolina, which has the country’s fifth-worst jobless rate. The cuts on those who make unemployment claims on or after that day will disqualify the state from receiving federally funded Emergency Unemployment Compensation. That money kicks in after the state’s period of unemployment compensation — now shortened from up to six months to no more than five — runs out. The EUC program is available to long-term jobless in all states. But keeping the money flowing includes a requirement that states can’t cut average weekly benefits.

Because North Carolina leaders cut average weekly benefits for new claims, about 170,000 workers whose state benefits expire this year will lose more than $700 million in EUC payments, the U.S. Labor Department said.

Lee Creighton, 45, of Cary, said he’s been unemployed since October, and this is the last week for which he’ll get nearly $500 in unemployment aid. He said he was laid off from a position managing statisticians and writers amid the recession’s worst days in 2009 and has landed and lost a series of government and teaching jobs since then — work that paid less half as much. His parents help him buy groceries to get by.

“I’m just not sure what I’m going to do,” said Creighton, who has a doctorate. “What are we to do? Is the state prepared to have this many people with no source of income?”

With the changes to North Carolina law, state benefits will last three to five months — at the longer end when unemployment rates are higher. Qualifying for benefits becomes more difficult. Weekly payments for those collecting the current maximum benefit of $535 drop to $350, falling from the highest in the Southeast to comparable with neighboring states.

Republican leaders who control the General Assembly sought an exception to the federal law two months before voting to change unemployment benefits. Congress last year allowed Pennsylvania, Indiana, Arkansas and Rhode Island to proceed with cuts to weekly benefits that their legislatures had approved for after the expected expiration of federal benefits, which later were extended.

North Carolina’s request was never acted on.

Other states this year cut unemployment benefits and restricted eligibility, but none included drops in weekly benefits, said George Wentworth of the National Employment Law Project, a worker-advocacy group.

All states are aware of the no-reduction provision, said Doug Holmes, who heads the National Foundation for Unemployment Compensation & Workers’ Compensation, which represents businesses on unemployment insurance issues.

Oakland County court to tackle business disputes

Originally Appeared in The Detroit News

One of the nation’s largest banks is trying to recoup $230,000 from a Michigan business group that the bank says failed to repay a loan.

A Novi property owner is suing a group of renters for breaking the terms of a lease.

And a Farmington company is after investors for allegedly breaking the terms of a buyout agreement.

These cases will be among the first to make their way through Oakland County’s new business court, slated to open Monday.

Business courts have been used in other states for decades, but they’re just taking off in Michigan, under a law enacted last year. That law requires circuit courts with three or more judges to establish business courts. Seventeen open for business next week.

Operated as part of the county judicial system, the court offers a new route for business cases involving more than $25,000 in damages.

The business courts are intended to ease the case load on civil and criminal courts, accelerate the litigation process, and make rulings more accessible for later reference. The biggest advantage, however, may be the individual attention given to sometimes complex cases, advocates say.

“I think there’s a need for it,” said Judge James Alexander, who, along with Judge Wendy Potts will preside over Oakland County’s business cases. “By having a specific docket, judges can become much more educated, parties can get more predictability and it gives us the time to really get into these cases early.”

Gwynne Starkey, a spokeswoman for the Oakland County Circuit Court, said Potts and Alexander will receive about five to seven civil suits each week; criminal suits will continue to go through the regular court system. Depending on the number of filings, more judges may be added to the new court division.

Michigan Supreme Court Chief Justice Robert P. Young, Jr., said the new courts “complement Michigan judicial branch’s three-part reform plan: court performance, technology, efficiency — with the best possible service to the public as the goal.”

A 'dream court'
Macomb and Kent counties have been operating business courts on a test run for about a year.

Brian Wassom, a partner at Bloomfield Hills-based law firm Honigman Miller, was part of an advisory committee that designed the pilot programs. “It gave us the chance to build something from the ground up and put together our kind of dream court,” Wassom said.

That “dream court” includes training to ensure the judges are well-versed on complicated, jargon-filled documents such as financial statements and shareholder agreements; a system that records judges’ decisions online to be consulted in future cases; and shorter periods between filing a lawsuit and seeing a judge.

Wassom last week filed a case in Washtenaw County’s business court and already knows to which judge it has been assigned.

“There is a more hands-on involvement from the court,” Wassom said. “Normally, in the state court level, there are so many cases judges can’t get involved very early on. It was helpful from a plaintiff’s perspective to know which judge we would get.”

Macomb County Judge John Foster thinks the shortened response time is key.

“I’m absolutely convinced there’s a need,” he said. “These are the kinds of cases that need somebody to be involved very early.”

It can take about six months before a judge actually sees the involved parties in regular civil cases, Foster said, since the litigation is given a one-size-fits-all court order. With the new business court, a judge holds a conference with the parties after 30-45 days.

“We have an opportunity to move the case forward with some degree of speed while not costing the clients a lot more money,” Foster said. “It’s an opportunity for early input.”

That early input, Foster said, can even lead to intervention that avoids court time.

“It’s a real control mechanism over the litigation for the judge,” he said.

Optimism for business court
States such as Delaware, California, New York and North Carolina have had special business dockets for years. While Michigan is just launching its business courts, it already has what the state Court Administrative Office calls “problem-solving” courts, such as drug courts.

Maryland-based Judge Sean Wallace, president elect of the American College of Business Court Judges, said Michigan will benefit from business courts.

“For the most part, they’re well-received by the people involved in them,” he said. “They do allow for that individual attention.”

The Lansing-based Michigan Chamber of Commerce is optimistic about the new service.

“It’s exactly what the business community desires,” said Jim Holcomb, senior vice president and general consul for the chamber. “We’re hopeful it will have a strong outcome and improve justice in Michigan.”
Michigan counties with business courts:

  • Wayne
  • Washtenaw
  • St. Clair
  • Oakland
  • Monroe
  • Macomb
  • Genesee
  • Jackson
  • Kalamazoo
  • Muskegon
  • Kent
  • Ottawa
  • Ingham
  • Calhoun
  • Berrien
  • Saginaw
  • Bay

Source: Michigan Supreme Court

How it works

Here’s how a business court will work in Oakland County:
Step one:File a lawsuit to the county’s business court.
Step two:Case is assigned to business court judge.
Step three:An answer to a complaint is filed.
Step four: Parties receive a notice to appear before the judge about 21 days after complaint is answered.
Step five:Attorneys must talk and prepare a joint plan that includes a description of their claims, what issues may arise, etc.
Step six:Meet with the assigned judge and talk about the case.
Step seven:Judge will issue an individualized scheduling order.
Step eight: The case begins, or, if applicable, could go to alternate dispute resolution.
* Procedures may differ by county
Source: Oakland County Business Court Judge Wendy Potts

Student loan deal may be close

Originally Appeared in USA TODAY

WASHINGTON—Congress is about to miss a July 1 deadline to head off an impending doubling of college loan rates. But key negotiators say a deal is within sight and likely to be reached after Congress returns from the July 4 break.

"We'll have something completed, finalized, finished before we leave tomorrow," said Sen. Joe Manchin, D-W.Va., a conservative Democrat who announced a bipartisan deal with four additional senators late Wednesday. "I think that it will be resolved after (the break) and be retroactive."

Without action, student loan rates will double from 3.4% to 6.8% on July 1, affecting about 7 million students taking out new college loans this fall.

Aides familiar with the legislation who were not authorized to discuss it publicly said Congress can retroactively fix the interest rate but should do so before students begin signing promissory notes for their new loans, which traditionally starts in late July. Congress also approved a retroactive loan fix last summer to extend the current 3.4% rate.

However, Senate Majority Leader Harry Reid, D-Nev., and a faction of top Democrats including Senate Health Education Labor and Pensions Committee Chairman Tom Harkin, D-Iowa, pushed back against reports of a deal. "There is no deal on student loans that can pass the Senate," Reid said.

Democrats want a protective rate cap to ensure students will not have to face interest rates on individual loans higher than 8.25%. The current deal does not include any such cap. Harkin has been adamant that he cannot support a bill without a cap. "Any proposal that lacks a cap is a nonstarter," said Allison Preiss, a Harkin spokeswoman.

Manchin, joined by GOP Sens. Richard Burr of North Carolina, Tom Coburn of Oklahoma, Lamar Alexander of Tennessee, as well as Sen. Angus King, I-Maine, released details of the "Bipartisan Student Loan Certainty Act" on Wednesday evening.

The bill would tie all newly issued loans to the U.S. Treasury 10-year borrowing rate and create a three tier system to charge an additional 1.85% for undergraduate Stafford loans, 3.4% for graduate Stafford loans, and 4.4% for PLUS loans, which parents can take for their children. The interest rate would be fixed over the life of the loan.

Senate Minority Leader Mitch McConnell, R-Ky., has signed off on the proposal, according to spokesman Don Stewart, a signal of broad GOP support.

Republicans have trumpeted the proposal as a rare bipartisan accord because it mirrors a policy supported by President Obama in his budget to tie loan rates to the market vs. allowing Congress to determine the rate.

Aaron Hernandez faces long legal road

Originally Appeared in USA TODAY

Aaron Hernandez's appearance in Attleboro District Court in Massachusetts on Wednesday was just the first step in what could be a long legal process for the former New England Patriots tight end, who faces six felony charges, including first-degree murder.

Hernandez was ordered to remain in jail without bail by Judge Daniel J. O'Shea. He is legally entitled to a bail review hearing in Massachusetts Superior Court, and that could occur within days. His attorneys have not responded to a request for comment on future hearings.

Hernandez's lawyers argued that because of the constant media presence outside of his home in North Attleborough, Mass., and because of the frequent communication between the defensive team and prosecutors in previous days, Hernandez is not a flight risk.

Hernandez's next scheduled appearance in O'Shea's court has been tentatively set for July 24 for a probable cause hearing, though prosecutors could convene a grand jury before that date to seek a formal indictment, said Chris Dearborn, a criminal law professor at Suffolk University in Boston.

Dearborn, a former public defender and defense attorney, said he would expect a grand jury hearing within the next two or three weeks, at which point the case would be transferred to a Superior Court that has jurisdiction over murder cases.

"The standard for the grand jury is probable cause, which really is not a high threshold," Dearborn said. "It wouldn't be a shock at all for an indictment to return, and it doesn't mean anything at all about whether they can prove the case."

Once formally indicted, it could be months, if not over a year, until Hernandez stands trial.

Hernandez was flanked Wednesday by his team of defensive attorneys from two high-profile Boston law firms. Michael Fee, primarily known as a corporate attorney, spoke on Hernandez's behalf and made the case for bail. Fee called the prosecution's case "circumstantial" and "not strong" and successfully argued for affidavits regarding the case to be sealed.

Hernandez is also represented by James Sultan and his partner Charles Rankin, who have a long track record of serving as defense attorneys in high-profile cases and for famous clients.

"Jamie Sultan is a very highly respected criminal defense lawyer in Boston," said David Siegel, a law professor at New England Law Boston.

Sultan represented the Amirault family in post-conviction litigation of the famous Fells Acre Day Care Center child abuse case, and successfully had convictions overturned on appeal. More recently, he won new trials for two clients convicted of murder, winning appeals for Linrose Woodbine in 2012, and Thomas Toolan in 2011.

"Both (Sultan) and Charlie are really, really smart lawyers that are good at identifying issues and solving problems. Both are very talented legal writers and have a reputation for being top-notch appellate lawyers," said Dearborn, who worked for Sultan and Rankin before moving to academia. "But they both have very good trial skills, and do a phenomenal job in the court room during the trial."

That legal mettle will be tested in front of a national audience should the defense team choose to appeal the decision by O'Shea to hold Hernandez without bail.

Former Baltimore Ravens linebacker Ray Lewis was not allowed to post bond when he was arrested in 2000 on murder charges. His Atlanta-based attorney Ed Garland told USA TODAY Sports on Wednesday that Hernandez's team should be "very aggressive to get bond."

Garland was successful in getting Lewis freed on $1 million bond. Lewis eventually plead guilty to obstruction of justice charges and went on to play 12 more years in the NFL before retiring after last season.

"The first thing I did was file a motion for bond, and then we supported it with all sorts of facts, claiming the weakness of the case, claiming they rushed to judgment, showing all of the positive things we could show, bringing the team owners, and on and on and on. We were able to make a substantial showing that it was a defensible case, and there was no risk of flight," Garland said.

It was notable to Garland that the Patriots did not show similar support for Hernandez. The team released Hernandez less than two hours after he was arrested, and several hours before the charges were announced publicly at the arraignment.

"That would be one of the things, if you were defending him, you would attempt to get them to hold off on that until you could make a presentation," Garland said. "That sends a bad sign."


Charges against Aaron Hernandez

Count 1: Murder

On 6/17/2013 did assault and beat Odin Lloyd, with intent to murder such person, and by such assault and beating did kill and murder such person.

Count 2: Firearm, carry without license

On 6/17/2013 did knowingly have in his possession, or under his control in a vehicle, a firearm … or a rifle or shotgun, not then being in his residence or place of business, and not having in effect a license to carry firearms or otherwise being authorized by law to do so.

Counts 3 and 4: Firearm, possess large capacity

On 6/22/2013 did knowingly have in his possession, or did knowingly have under his control in a vehicle, a large capacity weapon or large capacity feeding device therefor … the defendant not possessing a valid Class A or Class B license to carry firearms.

Counts 5 and 6: Firearm without FID card

On 6/22/2013 did own, possess or transfer a firearm, rifle, shotgun or ammunition without complying with the requirements relating to the firearm identification card.

Source: Attleborough (Mass.) District Court criminal complaint