Two stories in today’s news provide court-side glimpses of two forms of market abuse that led us skipping down the garden path to the cratered economy. In this one from the Oregonian you can learn all about the alleged scams by various Oregon flimflam men who saw that the trough was unguarded. They apparently goosed up the value of properties, got inflated appraisals, and borrowed way out of proportion to the collateral, pocketing the overage.

They could act with impunity because the banks were turning their paper to Wall Street and didn’t have any reason to scrutinize loan applications.

And of course the liar loans promoted by banks were being bought by Bear Stearns. Here’s an update on criminal proceedings against former Bear Stearns managers facing indictments. Apparently, they knew that the loans they were buying were bunk.  Going to be fun to hear them explain why they kept hyping their hedge funds while secretly selling their own shares before it all crashed down.

All of this highlights the dark underbelly of deregulation.  Want a chuckle? Remember the movie, Wall Street? “Greed is good,” we were told by pop culture, by politicians and by professors.

So this is what they meant by “Good.”

David Sugerman

ps to regular readers-I’m out of here for a couple of weeks for vacation. While David Paul may pick up the slack, the blog may well go dark while I’m away. I’ll be back to it after the 4th of July weekend.

Here’s a half-decent summary of how mandatory arbitration clauses strip away patients and families’ ability to hold bad nursing homes accountable for abusive care. It’s only half right, though, as the writer misses the most significant problem with mandatory arbitration clauses.

Too often, they come with rules that make pursuit of any claim impossible. As well, they often play into a rigged system by forcing arbitration with an organization that is notorious for finding against consumers.

When our parents and grandparents are subjected to abusive care in a nursing home, there needs to be a fair and open system that allows the family to hold the bad nursing home accountable. But when a mandatory arbitration clause prohibits going to court, when it bars claims under laws that provide for damages and attorney fees, and when it requires secrecy, families lose.

It’s even worse in the nursing home context because too often the family member who is placed in the care facility didn’t even have the ability to make an informed choice. What’s more, the family is often presented a thick stack of forms to sign that are take-it-or-leave-it deals. In other words, it’s a farce to say that grandpa chose arbitration.

Congress is starting to look at this. Let’s hope they take real action.

David Sugerman

Special guest today. I received a lengthy email from one of the jurors in the Craig Berkman/Arthur Andersen case, and I’ve republished most of it below. The juror is Karmen, a woman, who identifies herself as a juror who sat on the recent Berkman trial. Here is her account, which I’ve edited just a bit for brevity and clarity.  I’m fascinated by her account and hope you will be, too.

***

Hi David,

Thank you. Yes, it was a lot of work. There were over 500,000 pieces of paper in this case, fortunately we didn’t see them all though, we saw the same (approx 200 over & over & over :) This was my first time serving on a jury, so that was an experience in itself. I had no idea how it worked exactly or what to expect, and certainly didn’t think it would last for so long.

Its nothing like what you see on TV. The attorney’s crack jokes, and even Judge Hodson laughed and surprisingly, he didn’t have to use his gavel, not even once. Closing arguments take 20mins on TV, but ours took all day.

I know it was very hard going into that jury room during breaks and not being able to talk about the case, it was the elephant in the room we couldn’t acknowledge. So we scrutinized and talked about everything else attorney’s tie’s, the “theatrics” in the courtroom, wondering who the people sitting in there everyday were, and we played a lot of scrabble.

I didn’t always keep a straight face, or keep from rolling my eyes in the courtroom. It’s annoying & frustrating when the evidence is right there, yet someone is trying to tell you it’s not what it obviously is, or to listen to a witness who says nothing but “I don’t recall” for 2 hours. More than once I honestly thought “They must think we’re stupid”.  Well, none of us were.

I was very impressed with the Bullivant attorney’s & Mr. Fortino, and I think they did a wonderful job of representing the plaintiffs, and obviously proved their case to us without a doubt.  Mr. George even impressed me; he did a good job with what he had to work with, as far as the evidence, etc. But it was a weak case.

It was a little difficult seeing Mr. Berkman in there everyday, because he’d make eye contact with us and smile, and I hated that. I didn’t like it when the witnesses did that either, but you really have no choice but to keep looking at them when they do it. I understand why they do it, but it was difficult.

Our first witness was Jordan Schnitzer, and I really liked that guy on the stand. He wasn’t intimidated at all. He took no crap and got his licks in as fast as he was getting them.

The most difficult part was deliberating. I felt bad for Mr. Berkman, as a person. But I wasn’t there to see him as a person, I was there to weigh the evidence, and determine what (if any) damages resulted from that evidence.

When it came to damages however, I still had to occasionally remind myself that WE were not ruining him, WE were not tarnishing his name, WE were not the thieves, WE didn’t try to hide anything, and that whatever we decided was not OUR fault, but his…. He did this to himself, it was just our job to determine what was due to the plaintiffs and not to worry about how old, pathetic, broke or ruined he was as a result of his actions. But that wasn’t always easy, it was emotionally draining at times.. the whole thing was.

You realize the responsibility you have.  It’s a lot of pressure, and its stressful. What’s even worse, is not being able to talk to anybody about the stress you’re under.

In the end, I stand behind our decision 100% for Craig Berkman & Arthur Anderson.

This whole thing has been a learning experience I will never forget, or regret doing, and I’m glad I was a part of it. I feel justice was served.

I had so many people telling me I should try to get out of jury duty, and what to do & say to accomplish that.

The funny thing is, I’m 37 and always hoped to be called for jury duty, I just never was until now. So I was actually hoping to be picked.. and I’m glad I was. I think everyone should do it if they can, at least once. For the experience.

I was fortunate enough that my job paid me my regular wages while I served, but not everyone who served with me got paid from their job. They did it on the $10 a day the court paid.. for 5 weeks!! I give them so much credit for not asking to be excused on those grounds.

We had a really great group of people, there were some tense moments, but for the most part we all got along & after spending so much time together, we really got to know each other.. 7 of us went for much needed drinks yesterday and I hope we’ll keep in touch.

So there you have it, some of this jurors thoughts…

Thank you for your kind words,

Karmen

***

Karmen-Fabulous. Thanks to you and your peers for making our jury system work. It’s really one of the true strengths of our country, isn’t it?

David Sugerman

Edited and corrected: 27 July 2008

Note: The original post–since corrected–mistakenly implied that the jury awarded $36 million against Mr. Berkman. That is incorrect. The award against Mr. Berkman and his companies was approximately $14 million, with the balance being awarded against Arthur Andersen. As well, there were references to “fraud” in the original post. While the jury found against Mr. Berkman on breach of fiduciary duty and negligent misrepresentation, it did not consider a fraud claim against him. I regret the inaccuracies and appreciate the information supplied by Mr. Berkman’s lawyers that provide a basis for clarification.

-DFS

The outcome of the Berkman investor trial–a $36 million verdict divided between Craig Berkman, his company, and Arthur Andersen–isn’t all that surprising to casual observers.

The article is interesting for more, as it gives a behind-the-scenes look at the costs and economics of litigation when well-heeled investors sue over deals gone bad. According to the news report–and I have to wonder whether this is accurate–the lawyers for the investors spent in excess of $1 million to put on the case. I assume that this million dollar figure is only in expenses (”costs”) spent out of pocket and does not include a dime for the thousands of hours that the investors’ lawyers, the Bullivant law firm, spent on the case.

The Bullivant firm had the luxury of representing wealthy investors and pension funds in chasing down the money, so I assume that the investors themselves footed the bill for the expenses. No word on whether the Bullivant firm received payment on an hourly pay-as-you-go fee arrangement or on a contingent fee, which is generally a percentage of the amount recovered by the attorneys.

Regardless, it sounds like my colleagues at the Bullivant firm did a hell of a job putting this thing together. Their success is well-deserved. To his credit, Mr. Berkman noted that the jury had made his judgment, and he would respect that. No doubt the jury worked hard, as this was a long trial with ample amounts of financial evidence.

David Sugerman

Here’s a nice summary of an important trial result in Portland.  Lois Whitmore, a healthy and active 78-year old Wal-Mart shopper suffered life-changing injuries when a Wal-Mart fixture fell and broke her foot.  Before the injuries, Ms. Whitmore walked several miles a day, and after each step caused her pain.

Kudos to my friend and colleague, Greg Kafoury, for leading the way. Apparently the unanimous jury assessed her harms and losses to the dime requested by her attorneys, as they reportedly granted her every dollar that she sought.

Kafoury has a special way with cases against retailers. He’s had some marvelous results against Fred Meyer stores in the past.

The rule that Wal-Mart violated is a simple one. Retail businesses go to great lengths to get shoppers in the door. The rules require that retailers provide for the safety of shoppers. It’s a simple and sensible rule. If they’re going to invite you in to spend your money, they have to be responsible for the condition of the store.

Wal-Mart apparently violated the simple rule of retail. But according to the news report, they went one step further. Wal-Mart employees apparently testified under oath that Ms. Whitmore was sitting on an electric scooter shortly after they learned she was injured. They claimed that she had bumped over the display and caused her own injury.

But here’s the problem. Not a word of that appeared in their incident report, and instead that report–which would have been written at or near the time of the injury–reportedly said that she was sitting on a bench near the display, not on a scooter.

Seems like this is one of those trials that could have been avoided had Wal-Mart simply taken responsibility for their customer’s harms and losses. Guess they needed to hear it from the jury.

David Sugerman

By the narrowest of margins, the U.S. Supreme Court reportedly recognized that the right of habeas corpus applies to detainees at Guantanmo Bay. The opinion is not yet up on the Supreme Court’s website, so I haven’t been able to look at it first hand.

Maybe this seems distant and esoteric. While many of us question the conditions and circumstances of detentions of so-called enemy combatants, it seems like this may have little to do with our day-to-day lives. I beg to differ. When the Bush administration and Congress suspended the rights of habeas corpus, they chose expedience over a long-run vision of how our country should function.

The right of habeas corpus simply means that someone jailed has a right to have an independent  judge determine whether he or she was illegally imprisoned. This is especially important in situations–like Gitmo–where some of the prisoners reportedly have been jailed for six years without a trial.  For those of us who believe in the rule of law and the constitution, this is intolerable. Because when constitutional rights are suspended, there is no line that limits that suspension. Today it’s “enemy combatants” a new category that didn’t exist before the “war on terror.”

And for those who are critical of this ruling, I can only ask a simple question: Where does the “enemy combatants” line end? Does it include those of us who are critics of the current administration? The whole “war on terror” and “enemy combatants” things are right up there on my personal bill of particulars–along with “We don’t torture” (wrong!) and “Mission accomplished” (oops!)–as to why the current occupant of the White House really pisses me off.  But enough about me.

In the film, Life is Beautiful, Roberto Benigni plays an Italian Jewish guy who goes from carefree clown to Holocaust statistic. The story is told from the point of view of his young son who survives the camp, because of his father’s wily antics. The movie is so damned poignant and beautiful.

Toward the end, the camp is liberated by the allies–Americans, as I recall–and the survivors slowly begin walking up a sunny road into freedom. The end is filled with hope and tears and laughter. While there is no comparing our current situation to that of post-World War II Europe, I sometimes think about the last scene of that movie and hope that we walk out of these dark times in a similar moment soon.

I have been extremely critical of the Supreme Court in the past. I imagine that won’t end, as they often do the wrong thing. The reported vote here–the narrowest 5-4–doesn’t give much comfort. Still, it’s a good day and a good thing because our constitution means something, even in the hard times.

I’m looking forward to reading this opinion, as it sounds like those who would suspend constitutional rights got slapped down. And that is good news.

David Sugerman

The U.S. Supreme Court granted cert in Williams v. Philip Morris again, but it’s a little quick for Philip Morris to start celebrating, as it’s a long way to a reversal.

Here’s the kind of analysis, from Portland’s Ater Wynne, that drives me to drink: “The U.S. Supreme Court today agreed to review only whether the state court was prohibited from, in effect, ignoring its directive to apply the federal constitutional standard.”

But this is the exact question, from Philip Morris’ petition, which the U.S. Supreme Court agreed to review:

“1. Whether, after this Court has adjudicated the
merits of a party’s federal claim and remanded the
case to state court with instructions to “apply” the
correct constitutional standard, the state court may
interpose~for the first time in the litigation–a
state-law procedural bar that is neither firmly established
nor regularly followed”

And the problem, of course, is that any Oregon trial lawyer will confirm that the rule requiring a party to submit accurate jury instructions is both “firmly established” and “regularly followed.” If the U.S. Supreme Court decides the question on the merits with reference to Oregon law, the outcome will be straightforward. Of course, there is no guarantee that this Court will decide the case on the rule of law. See generally, Bush v. Gore.

David Sugerman

The recent FDA announcement of the tomato salmonella outbreak leads me to wonder about how we got here. Announcements like this give the media great material to play with the fear process. I call it the “don’t eat that,” or scare-of-the-moment journalism. The danger is real, of course, as salmonella can pose a serious health hazard for children, elderly, and people with compromised immune systems.

The real problem is a lax food safety system. This is not something that’s simply limited to tomatoes.  The reality is that deregulation–the heralded salvation and light of the American economy–has a very nasty underside.

Food safety is one of those classic government functions. If we want a safe food system, we have to pay for it and know that sometimes regulations are a pain in the neck. Oh, and it costs money, as in higher taxes.  Of course, that pain in the neck is part of how we protect our toddlers and aging parents who can be felled by a manufacturer’s failure to maintain food safety standards.

The alternatives give us two things. One is this scare-of-the-moment journalism. Annoying. But here’s the bigger one. The other consequence of deregulation is that people like me–trial lawyers–have more and more work.  My job starts when injured people call about calamities that have befallen them.  I am like “All the Kings’ horses and all the Kings men” as I go about trying to re-assemble lives and families broken by unsafe practices.

Our food supply system needs to be regulated properly, and we need to dedicate the resources to it so that regular inspections and enforcement processes prevent these outbreaks.

David Sugerman

Word today is that the U.S. Supreme Court has agreed to hear for the third time the appeal of Philip Morris in Williams v. Philip Morris. By way of full disclosure, I have represented on a pro bono basis (lawyer talk meaning, without pay; for the good of the public)  various public interest groups who have urged the Court to affirm to the $79 million judgment against Philip Morris.  Interestingly, this result pales against the recent Adidas verdict, that included a punitive damage award of $137 million, without a single consumer death.  Oh, but I’m digressing.

They can’t seem to let this one go. Is it because an Oregon jury concluded that Philip Morris should answer for its misconduct? Or is that the Oregon Supreme Court, which finds in favor of Philip Morris sometimes and against sometimes, failed to reach the U.S. Supreme Court’s desired result?

My thoughts are with the Williams family and my brave friends who have carried the burden of representing them. They’ve been through a long fight for justice.  I suppose they’re wise and philosophical, knowing that they will see this through to the end.

David Sugerman

Interesting piece from the saints at New American Foundation’s Ed Watch blog on recent statements by Career Education Corp.’s CEO, Gary McCullough. Backstory: Mr. McCullough’s Career Education Corp (CEC) owns a number of for-profit trade schools, including Western Culinary Institute here in Portland. By way of full disclosure, I am one of the lawyers representing students pursuing a series of claims against Western Culinary and CEC over the school’s sales and enrollment practices.

Mr. McCullough provided insight into the company’s operations and financial statements in an investor briefing. It’s a let-a-smile-be-your-umbrella kind of thing. According to Mr. McCullough, CEC will emerge from its current problems in fine shape. Here’s the audio of the webcast with the CEO’s rosy predictions of better times ahead.

It gets interesting, as he explains that culinary school enrollments are down this year. But fear not: CEC is limiting admissions to “credit worthy” students, so things should turnaround.

“Credit worthy students” is a great turn of phrase. I guess what that means is that they are now agreeing that the high tuition costs of culinary schools like Western Culinary Institute are not a good lending risk. How could they be? Who would lend money–say $30,000–to students who will earn $10-12 per hour once they get out? What they fail to report is that they routinely sold students on their bright and lucrative futures, getting them to borrow tremendous sums for the “opportunity” to work in a kitchen for the kind of pay that can’t justify this level of debt.

All of this raises as many questions as it answers.  For example, I wonder how recently Mr. McCullough learned that there was a problem with credit worthiness? The smart folks at New America Foundation hypothesize that CEC has seen the light because it will now be supplying a chunk of the student loan cash to finance its students.

The other question is how a school like WCI can function in this environment. They charge eye-popping tuition that  does not provide significant net benefit to students.  How could there ever be a credit worthy student who will be upside down in the deal from the get-go?

Fun stuff, this.

David Sugerman