No secret that I’ve been a big critic of large insurance companies. You don’t have to look too far into the archives to find a combination of snarkiness, outrage, and jaundice over some of their practices.  So this one is in the spirit of calling it fairly. While away on vacation, I missed this report on the outcome of high-flying plaintiffs’ lawyer Dickie Scruggs’ fall from grace.

Back story is that Scruggs is one of the guys who took on the tobacco industry made millions, took on the insurers on Katrina claims, and was poised to make millions more. In between he’s done all manner of injury cases. I have no basis to know the specifics, but I would be willing to bet that he’s earned sums that might shame some small countries’ numbers.  So he falls from grace when the state and maybe a few insurance carriers go after him for attempting to bribe a judge.

And let’s be clear. Allstate, State Farm, The Wall Street Journal and everyone else has a right to call this guy a crook and to be wary of conduct like this.

For that I am eternally thankful to Mr. Scruggs. Not.

It’s a black mark on those who represent injured people. It’s worse than the magic pants guy, as this was an attempt to completely undermine the fairness of the civil justice system.  The problem is that criminals and clowns like this provide major fuel for the efforts of those who would limit consumers’ ability to access the courts.

It was reported that Mr. Scruggs swooned when the judge sentenced him to the maximum.  Good. And I hope the jerk spends each hour of his five years reflecting on how his corruption undermined the civil justice system. I say big props and major thanks to the trial judge. By slamming him, the judge made it clear that the integrity of the civil justice system will not be undermined by criminals.

David Sugerman

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.

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

The outcome of the Berkman investment fraud trial–a $36 million verdict against Craig Berkman–isn’t all that surprising to casual observers. A few twists: the jury concluded that the defunct accounting firm, Arthur Andersen was on the hook for $23 million, with Berkman on for $13 million.

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

Today’s Sunday Oregonian, addresses this complaint about misrepresentations regarding gas prices. The problem is the hidden credit card or ATM charge. What happens when a gas station posts its prices but fails to tell you–until after you make the purchase–that the price is higher if you pay with a credit card? Or when a gas station adds a courtesy charge or ATM charge without disclosing it at the pump?

Oregon’s Unlawful Trade Practices Act provides a means of addressing this death by a thousand paper cuts rip off. Individuals who succeed in proving an Unlawful Trade Practices Act claim can recover their or $200–whichever is higher–plus attorney fees.  There is even the possibility of seeking additional punitive damages if the practice is really bad. If the practice is wide-spread, consumers can actually pursue the matter as a class action to recover the monies illegally collected.

I’ve actually handled one of these cases before. It arose when Oregon ARCO stations charged an ATM fee. But they didn’t tell you until after you pumped the gas and then went inside to pay. The case, which was a class action, eventually settled.

They’re not big cases, but they’re important because they add up.  For consumers, gas price increases are a a huge economic issue. Another dollar or two as a surcharge is maybe only a little bit, or the equivalent of a paper cut. But consumers are being squeezed from all sides. That single little surcharge is just one more example of the fee-based ripoffs that make consumers poorer.  The charges add up in another way. When illegal charges are collected from many consumers, they add up as additional profits for the company that is violating the law. Not good.

Back to the article. It notes: “What’s unclear is whether gas stations are required to note on their marquee signs that there are two prices — one for cash, one for plastic. That once was a more common practice, but many gas station operators say they haven’t done so for years.”

I disagree. The Unlawful Trade Practices Act specifically prohibits misrepresentations about prices of goods. And a misrepresentation includes a failure to disclose information. So if a seller posts a gas price as $3.99 per gallon, and that price is a “cash only” price, it must say “cash only” or something like that, or it is risks violating the act.
David Sugerman

Nice report in The Oregonian today about a nursing home verdict Looks to me like the jury felt strongly about dignity for our seniors.  I’m taken by the comments of the lawyer defending the nursing home that this was a surprise. Hard to fathom, as most of us have parents or grandparents who have been at the stage where late-life care is a major issue. And no one wants to see our loved ones treated so poorly.

David Sugerman

Interesting write up today in The Oregonian about the civil trial in a case brought by former investors against formerly high flying financier, party activist, Republican gubernatorial candidate, Craig Berkman. This is another one of those cases where I just want to grab a big tub of popcorn, plop down in an easy chair and enjoy the show.

At the front end, Mr. Berkman apparently admits that he secretly took $3.8 million in investors’ money. Apparently, his lawyer plans to claim that the investors losses of $20 million came from market conditions, not the secret taking of cash.

I’m taken with several parts to this.  Most notably is the repeat of the realization from the Adidas verdict that no one rants about businesses suing businesses for large sums of money.  Same is true about investors, I guess. And I don’t really have a beef with that, but I have to wonder why a double standard applies when a profoundly injured person dares to sue for damages.

The Big O article closes with a specific description of Jordan Schnitzer’s experience. All of Portland knows the Schnitzer family–they are successful, high profile civic leaders who have given large sums of money to many Portland institutions. I assume that Mr. Schnitzer’s net worth is such that his million dollar loss has relatively little impact on his overall wealth. I don’t mean to sound petty–it’s more that you need a sense of perspective about these things. But of course, it’s an interesting part of the story.  And regardless of his wealth and status, Mr. Schnitzer has every right to press his proper claims forward.

The other interesting piece is that Bullivant Houser’s Steve English leads the team representing the investors. He’s an accomplished trial lawyer from a law firm that focuses mostly on business and defense of claims.  It’s a large law firm by Portland standards.

While I suppose it’s easy to write it all off as a big-firm lawyer representing some pissed off rich people against a wrongdoing rich guy, the lesson underneath is that we all need a civil justice system. We all need access to the courts. We all need to be able to hold wrondoers accountable. That should be true whether the case involves multi-millionaires fighting over who owes what to whom or whether the case involves a working person who suffered profound injury caused by a dangerous product.

David Sugerman

The Oregoinian’s Brent Hunsberger reports on this eye-catching honking huge trade infringement verdict handed down in U.S. District Court in Portland yesterday. Looks like the grand total–some $305 million–is a lot of cash for a dispute over whether Payless stores ripped off Adidas by selling knock-off products.

I’ve got no cause to question all this, except that business vs. business disputes leave me yawning and struggling to stay awake. But here’s what’s interesting. We’ve heard for years about how we’re overlawyered, how class actions take too much money from businesses for ripped off consumers, and how people recover too much money in lawsuits. A lot of the drumbeat comes from the Chamber of Commerce. Here’s a window on one of its slick mouthpieces–I mean affiliates–that gives a great snapshot of the Chamber of Commerce’s view of litigation.

So here’s the question that I can’t avoid asking: What’s the Chamber going to say about a verdict where a business recovers $300 million for a claim of trade infringement? What are the going to say over at overlawyered? How about the institute for legal reform? How about the American Tort Reform Association? I’ll be watching. Because I’m sure that they will trumpet this case of a business getting too much money from a jury. I imagine we’ll see screeds about frivolous lawsuits. And there will surely be concerns raised about how lawsuits like these are ruining society. And that it’s too much money. Oh yeah, and the lawyers are behind it all.

Don’t get me wrong. While trade infringement lawsuits don’t get me juiced, I can see the logic and the need. As Mr. Hunsberger’s report makes clear, companies like Adidas’ intellectual property represents the true value of the enterprise.  So they’re aggrieved, and they use our civil justice system to defend themselves. I get that.

But here’s the deal:  I have the sneaking suspicion that all the outrage about big verdicts is really nothing more than class warfare on the middle class. So as you can imagine, I’m grabbing one of those big things of popcorn and settling in for the show.  I can’t wait to hear what the Chamber of Commerce and its friends say about this one.

David Sugerman

Happened sooner than I expected, but today Sallie Mae’s CEO predicted an impending train wreck. Sallie Mae lost $104 million in the first quarter, reportedly due to drying up funds. My guess is that this is going to wreak major havoc on the trade-school-for-profit industry. And while I’m no industry analyst or smart guy, I can’t help but wonder if there’s going to be a double whammy. Maybe Sallie Mae sold all the paper after it wrote a bunch of high interest student loans, but some entity is holding the bag. Students graduating $50,000-100,000 in high-interest debt are coming into a dismal economy. And worse, many have attended notorious culinary programs that qualify them for low-paying kitchen jobs. So what happens when student borrowers start to defer or even default on their loans? So the private trade-school-for-profit industry seems to have made out pretty well in this deal. They got their money. Maybe I’m missing something, but it seems like the students and lenders are left in a tough position. David Sugerman

The analysis came from my good friend, Oregon trial lawyer Robert Neuberger. As I was heading down toward a full-on rant over the Bear Stearns rescue, Robert pointed out that we’ve arrived in an era of Wall Street vs. Main Street.

Today’s news couldn’t make the point any better. For full ironic effect, you have to go old school and look at today’s (April 4, 2008) Oregonian (that would be a newspaper with newsprint) D-2. Two articles sit one above the other, and the headlines highlight the Neubergarian point that it’s Wall Street vs. Main Street.

Top article, entitled “Fed chief defends Bear Stearns rescue” is an account of Federal Reserve Chair Bernanke’s appearance in front of the Senate Banking Committee. Just below is “Homeowner aid provision dies,” an account of how the mortgage relief act provides $25 billion in tax relief to businesses but will not give homeowners the ability to restructure mortgages in bankruptcy.

Bear Stearns, we’re told, had to be rescued or we would face grave consequences. Fair enough. So we went with the old government supported bailout. Not necessarily a bad play, given the stakes. But consumers are left to their own devices and will lose their homes to foreclosure.

In the trenches, I hear all the time about choices that consumers made when they signed agreements, when they opted to borrow money, when they took on obligations. No one will rescue the consumer, and it looks like Congress and the current administration isn’t about to start.

My beef with all of this is very simple. If you are going to give corporate welfare to the rich, then consumers should get like-kind relief.

Using cold contract logic, Bear Stearns and its investors made choices and they should suffer the consequences. That’s a little absurd, in that it reduces very complex problems to black and white platitudes. But the same is true of consumers who signed up for horrible mortgages on a wing and a prayer. The deals were bad, but you cannot and should not shove cold contract logic down the throats of consumers if you are unwilling to do the same thing to Bear Stearns and Wall Street.

David Sugerman