Wednesday, April 29, 2009

A New York Story

In the New York Post of April 29th is the story, written by Laura Italiano, of the start of the defense’s presentation in the criminal fraud trial of Anthony Marshall, son of the late philanthropist and socialite Brooke Astor. Francis Morrissey is a co-defendant and was Mr. Marshall’s lawyer for the transaction under review. What follows is an adaptation of the Post story; quotations used were taken directly from the story.

Prosecutors claim that in 2004 Mr. Marshall and Mr. Morrissey manually transported Mrs. Astor, then 101 years of age and beset with Alzheimer’s disease, from the arms of her in-house nurse and down the hallway into the drawing room of her Park Avenue apartment (incidentally, it seems if you have a drawing room in your family, you are more likely to have experience with will contests than families without drawing rooms). Once there, she was, according to the Post story, confronted by a batch of… dark suited and gravely officious lawyers. And then she signed an apparently prepared codicil leaving 60 million worth of cash and bonds to Mr. Marshall. Mrs. Astor died a few years ago, at the great age of 104.

Fred Hafetz is Mr. Marshall’s defense attorney. Mr. Hafetz is a renowned criminal defense attorney, specializing in white collar crime. He successfully defended former Miss America Bess Meyerson, who was accused of bribing a judge in the competition that awarded her that title (perhaps the reigning Miss. California should have thought of that; e.g. Here's $50, ask me about world peace). I had occasion once to talk to Mr. Hafetz by telephone. He is grateful to my mother for a kindness done his family, and so agreed to counsel me on a career in the law. He is a nice man, and has a solid gold bar for a legal resume. Mr. Hafetz put up a slide during his opening remarks noting that Mrs. Astor, known to history as a philanthropist, gave nothing to charity between the years 1953 and 1993. In 1993, Mr. Marshall eloped with his current wife, Charlene. Mrs. Astor is recognized not to have been fond of Charlene, and the defense alleges she registered her disapproval by giving gobs of Mr. Marshall’s legacy to charity and by writing a series of wills, all of which kept Mr. Marshall from eventual possession of the 60 million, which before 1993 had been vouchsafed to him in each of a series of wills executed by Mrs. Astor (apparently, Mrs. Astor enjoyed executing and revising will instruments: Mr. Morrissey’s lawyer, noting her enthusiasm for the work, joked in his opening that “she probably could have taught trusts and estates at Harvard Law School”). Mr. Hafetz said in his opening statement that in 2004, nearing the end of her life, a lucid Mrs. Astor softened toward her son, if not also his wife, and signed the 2004 codicil that reinherited Mr. Marshall. Mr. Hafetz told the jury, “[s]omeone with dementia, someone with Alzheimer’s, is still a human being…[t]hey do not forfeit their human right…to make decisions.”

The prosecution seeks to prove its case by exclusively circumstantial evidence; testimony from household staff and famous friends of Mrs. Astor (among them Barbara Walters and Henry Kissinger) that the grande dame lacked the competence to meaningfully sign the codicil.

We’ll see who prevails, which is not necessarily the same thing as who is right. For what it’s worth, Andrea Peyser, writing a related opinion piece in the Post that is not a study in subtlety, thinks she knows where the merits lie: “Mrs. Astor, I fear, is rolling in her grave. Anthony Marshall should burn in hell.”

STOLI Hearing on the Hill Today

David J. Stertzer, CEO of the Association for Advanced Life Underwriting, sent out the following update this morning.

"U.S. Senate Special Committee on Aging Chairman Herb Kohl (D-WI) will hold a hearing today focused on the life settlement market and stranger originated life insurance ("STOLI"). The hearing will be at 2:00 pm EDT and can be accessed from the Committee webpage. For a complete witness list and announcement of the hearing, please click here.

AALU submitted this written testimony to the Committee focusing on our stong efforts in conjunction with the broader life insurance industry to enact state laws to prevent STOLI, while protecting legitimate uses of life insurance and life settlements.

We hope the hearing will further those efforts, because we cannot allow STOLI to detract from the critical role life insurance products play for 75 million American families.
We will be covering the hearing and will provide you with a report tomorrow."

Thursday, April 23, 2009

While Cameras Are Away The Mice Will Play

Given that Justices Thomas and Breyer chatted together on the far end of the bench during the oral argument I attended (colleagues have reported the same on other occasions), it is only appropriate that they brief the public on whether the Justices are open to cameras in the SCOTUS court room. I think the public would be very amused to watch their little side show. Wink, wink.

For more on this head over to the Wall Street Journal Online.

Just to be clear, this does not mean that I endorse cameras in the courtroom. In fact, I do not, and I think it would lead to the kind of grandstanding we see on the floor of Congress most days, for those of us nerdy enough to watch C-SPAN.

Stick a Fork in Chrysler

The New York Times reported today that the U.S. Treasury Department is preparing a chapter 11 bankruptcy petition for the automaker Chrysler. The Times puts the filing date as early as next week.

The Treasury Department extended a $4 billion federal loan to Chrysler in January. Chrysler needs more cash but the Treasury tap is closed until it meets the governnment's terms. Chrysler has until April 30 to work out a deal with Fiat in which Fiat takes an equity position in Chrysler and Chrysler gets access to Fiat's small-car know how and distribution network.

Treasury and Chrysler are pushing Chrysler's lenders (most of whom have taken bailout money for their own balance sheets) to reduce the $6.9 billion in debt Chrysler owes them by 85%, or down to $1 billion. Recent but not up to the minute news reports note that creditors have counteroffered to take a 40% write down of debt and receive an equity position in the restructured company provided that Fiat puts up about $1 billion in new capital. Meanwhile, Chrysler is working on a deal with the UAW over the fate of union members' pensions and health benefits.

Why is Treasury so keen for a Chrysler bankruptcy? Chrysler's creditors hold security interests in the company's assets and Treasury currently stands behind them in the repayment line. Treasury wants any additional government loans to Chrysler to be first in line for repayment. In a chapter 11 case, the bankruptcy court can grant Treasury, as post-petition lender, first priority repayment rights over creditors' objection. That's a sweet deal for U.S. taxpayers.

Wednesday, April 22, 2009

Penn State Law Review - Symposium "Building A Civilization Of Arbitration"

I am pleased to announce that the Penn State Law Review will soon publish a symposium issue entitled "Building a Civilization of Arbitration." Below is a brief excerpt from the introduction written by Professor Thomas Carbonneau.

The U.S. Supreme Court’s “work product” has generated a large and growing arbitration bar. It also has finally begun to stimulate a greater volume of academic activity on the topic of arbitration. The work of legal practitioners and academics, along with the courts’ decisional law, are “Building a Civilization of Arbitration” that codifies advances and grapples with the controversial aspects of law-in-the-making. The Penn State Dickinson School of Law takes great pride in welcoming a distinguished group of lawyers and law teachers to the pages of its Law Review. They are the leaders in the field of arbitration. Their contributions identify the settled law and evaluate it from a variety of analytical, intellectual, and institutional perspectives.

The lead article addresses the concept of designing arbitrations from the perspective of two mainstays of the U.S. Supreme Court decisional law on arbitration: Volt Info. Sciences, Inc. and Mastrobuono. The article evaluates the use of contract freedom in the context of the judicial construction of party intent. Beyond this, the symposium investigates a wide variety of cutting-edge topics, ranging from recent landmark cases to investment arbitration and including the reform of the FAA, the concept of private ordering in international commercial arbitration (ICA), empirical developments in consumer arbitration, third-party interests in arbitration, various provocative comparative law developments—the role of courts in national arbitration laws, a lucid evaluation of the Russian Federation’s statist concept of arbitration, an equally insightful comparison of Canadian and United States consumer arbitration, and an evaluation of an important recent book on ICA. All self-respecting legal publications should include book reviews, and we are proud and delighted to have this one.

Friday, April 17, 2009

Silence as Price of TARP Bailout Funds

Organized labor has seized the bailout of financial services companies as a tool to silence them in the political process.

Last month, the House of Representatives passed two bills in reaction to the AIG executive compensation story: H.R. 1586 (imposing a 90 percent tax on income in the form of retention bonuses received by executives at firms that accepted more than $5 billion in bailout funds) and H.R. 1664 (requiring Treasury to curb "unreasonable or excessive" executive compensation at firms that accepted federal bailout money).

Last Tuesday, labor federation Change to Win asked Neil Barofsky, Inspector General of the Troubled Asset Relief Program (TARP), to audit Bank of America and other firms who received TARP money to determine whether Bank of America and other financial institutionsused TARP money to lobby against the two bills. Treasury officials responded with puzzlement. Money is fungible. Change to Win doesn't agree. In particular, it wants the TARP Inspector General to disclose how much TARP recipients paid in membership dues to the Financial Services Roundtable, a financial services industry group that spoke out against the House bills amid the AIG populist revenge fervor. The Roundtable wrote to lawmakers just after H.R. 1586 passed urging Congressmen to consider the likely effect of bill on the success of the TARP program.

The AFL-CIO's Executive Pay Watch Website unveiled an annual update on April 14 which includes a section on pay practices at companies that have received TARP money. The site also features a report on companies, including Bank of America, that are actively opposing the union-backed Employee Free Choice Act (H.R. 1409, S. 560), a bill that would allow workers to form unions through a majority "card check" process and not by secret ballot. The AFL-CIO has its eye on B of A and Citigroup, TARP recipients who likely oppose the bill.

How Do You Say AIG in Portugese?

Reuters reports that yesterday Portugal's Council of Ministers gave a preliminary nod to legislation that would lift bank customer's privacy rights and impose a special tax rate of 60% to "especially grave, unjustified enrichment" in a customer's account.

Under the proposed legislation, upon "well-grounded suspicions" of tax fraud and a "well-justified resolution by the General Tax Directorate," the government can access a taxpayer's banking information without court order. If the tax authority finds a difference of more than than 100,000 euros ($131,813) over previously reported income that the taxpayer cannot explain, the difference is subject to a 60% tax rate. If it exceeds 100,000 euros, the government gets direct access to the taxpayer's bank account.

The Portgugese Parliament has already approved a similar bill, introduced by the ruling Socialists together with the Left Block coalition party, the Portuguese Communist Party, and the Greens. The last opposition to encroachment of customers' bank privacy rights, President Anibal Cavaca Silva of the conservative Social Democrat party, apparently has folded. Yesterday, he reportedly endorsed the Council of Minister's plan to lift bank secrecy protection.

Wednesday, April 15, 2009

Lawyer Loses License for Failure to Pay Student Loans

The National Law Journal reported yesterday that a Texas lawyer lost his law license because he defaulted on his student loan. I'd heard of lawyers losing their licenses for failure to pay child support, but student loan debt-- that's hitting close to home. It turns out that there's a little more to this story than the NLJ reported.

Attorney Frank Santulli first ran into trouble with the Texas Bar in 2001. Five years earlier, in 1996, the Supreme Court of Texas adopted Rules for Suspension of Attorneys in Default of Guaranteed Student Loans under which the Texas Guaranteed Student Loan Corporation (TGSCL) can inform the State Bar that a lawyer is in default. The Bar then notifies the lawyer of the report and the lawyer has sixty days to obtain certification from the TGSLC that he has entered into a repayment agreement or that he is otherwise not in default. On the sixty-first day following the notice, if the lawyer cannot produce the requisite certificate, he is automatically suspended from the practice of law. (The New Jersey Bar has adopted a similar rule).

In 2001, after TGSLC informed the Bar of Santulli's default, he appealed his suspension before the Board of Law Examiners. Santulli was in a swamp of credit card and student loan debt. He had worked out a debt management plan with Consumer Credit Counseling Services (CCCS). The Board entered an agreed order granting Santulli a two-year probationary license. He agreed to make payments under the CCCS plan and provide proof of payments to the Board.

Santulli defaulted on the payments due under the plan and in December 2002, the Board held a hearing on revocation of his probationary license. Santulli explained that he had experienced financial setbacks and indeed had not made the agreed payments on his student loan since December 2001. The Board was concerned with the professional implications of his financial problems, in particular that Santulli could find himself "in so much debt and under so much pressure that there are opportunities and temptation either to short-shrift . . . clients, or . . .convert money [from clients] to take care of those debts."

The Board granted Santulli a six-month extension of his probationary license subject to conditions including one that required him to "make suitable arrangements for payment or discharge of all his past due debts." Moreover, the order stated that Santulli's failure to comply with this payment condition would conclusively indicate a lack of trustworthiness and support the inference that Santulli posed an unreasonable risk of harm to his clients. Santulli did not object to the order.

A year later, in December 2003, Mr. Santulli appeared again before the Board and admitted that he had not made any payments on his debt. He had made arrangements with a bankruptcy lawyer to swap family-law work for bankruptcy represenation. But, the bankruptcy lawyer didn't deliver. Santulli hired another bankruptcy lawyer in October, but still no bankruptcy petition. Santulli asked the Board for another month to file for bankruptcy.

The Board rejected Santulli's request for an extension and found him in violation of the condition of his probationary license -- that he make arrangements to pay or discharge his debts. Pursuant to the 2002 agreement, Santulli's failure indicated the lack of good moral character required for the privilege of practicing law. In particular, it found that his failure to make arrangements to pay or discharge his debt presented a clear likelihood that he would harm a client, obstruct justice or violate the lawyer disciplinary rules.

Santulli sought judicial review of the revocation of his license. The trial court affirmed the Board. Santulli appealed arguing that the trial court's order did not rest on substantial evidence, that the condition of his probationary license requiring him to pay or discharge his loans was arbitrary and capricious, and that the Board erred in concluding that his behavior justified a conclusion that he was unfit for the practice of law.

The Texas Court of Appeals (3d Dist.) noted that Santulli did not object to or appeal the Board's 2002 order that imposed the payment condition. The condition was not ambiguous or otherwise inappropriate, and Santulli fully understood it. Although Santulli had filed for bankrutpcy relief in 2004, after entry of the Board's 2003 order, his bankruptcy case and ultimate discharge was not before the Board in 2003. The court held that based on the record before the Board, its decision to revoke Santulli's law license was not erroneous. "[T]he evidence shows that two and one-half years after being given a probationary license conditioned in part on paying or discharging his debts to satisfy the Board's concerns, Santulli had not made any progress . . . other than to develop a more concrete intention to file for bankruptcy within a month."

As for the connection between Santulli's failure to pay his debts and his moral character, the court found that the Board's order was supported by reliable evidence "such that a reasonable man could find that there were substantial doubts about [Santulli's] 'honesty, fairness and respect for the rights of others and for the laws of the state and nation.'" (citing Koningsberg v. State Bar of Cal., 353 U.S. 252 (1957).

Thursday, April 9, 2009

In re: Bob

In my counterterrorism seminar, we have come, perhaps inevitably, to the subject of torture. Torture is a thing, like pornography, that is hard to define at the margins but easily identified in its galloping variety. And torture, almost uniquely, is a thing beyond the law. Professor John Yoo gained unhappy fame not for offering the opinion that torture is legal, but by placing a great deal of conduct outside the rubric of torture by attempting to define torture narrowly in the law.

To be sure, there are those who feel torture (even the strident stuff) should be recognized in the law as available to cope with extraordinary circumstances. The quintessential example of such a circumstance is the ticking time bomb scenario, where you (yes, you) have custody of a terrorist who has planted a bomb somewhere (only he knows where) which will detonate in one hour and kill scores of people.

Would you, for example, shoot the terrorist in the leg to extract from him the location of the bomb? Whatever your answer, the idea that you should be able to do so legally (i.e. suffer no legal jeopardy after the fact) is not an exotic one. But whether one subscribes to that idea or rejects it, the basis for doing so cannot be found in the law. It has to be found outside the law, on the far side of a moral reckoning.

I won’t go into how folks in my class came down on the ticking time bomb scenario, because to do so would literally be talking out of school. But our discussion reminded me of a few other moral dilemmas, in my view more agonizing than the ticking time bomb scenario, that I was presented with in my undergraduate years. And it is with these that the rest of this post is concerned. Both came up, unsurprisingly, in philosophy classes.

The first dilemma puts you at the control of a railroad switch. Down one track, on which a runaway train presently travels, are five people who for some reason (you have to just accept the parameters of the scenario to get to the critical moral choice) cannot get off the track and will be killed if you take no action. Along the other track, to which it is in your power to redirect the train, is a single person likewise unable to vacate. The question, of course, is whether you pull the switch and save the five people by sacrificing one, or whether you stand by. You will notice that in addition to the raw number of lives calculus, there is the moral agency dimension to this dilemma: if you pull the switch, you act affirmatively to kill a person who otherwise was not in jeopardy.

Utilitarianism has an answer to this dilemma. Save the five by killing the one. But what if the five are members of the Manson family (they have escaped) and the one is a child who will grow to be the scientist who cures cancer. Utilitarianism then switches sides, even if it had to flip the switch to kill the five. What would you do?

Here’s my favorite: You are in a cave with five friends. For some reason, the cave begins to fill up with water. There is but one exit, and presently one of your five friends gets perfectly and emphatically lodged in the threshold (I’ll call him Bob). There is no way to dislodge Bob by pushing or pulling, and the water continues to rise. It is certain that the five of you yet in the cave will drown if Bob is not dislodged. Bob, incidentally, will live if left undisturbed because his face is directed out of the cave. Luckily for you and the others, and tragically for Bob, there is lying about a stick of dynamite and a means to light it. Using the dynamite on Bob (i.e. blowing him up) will free you and your four friends from the cave. Of course Bob will perish in the exercise. It has been some years since I was in the class in which we discussed this dilemma, and so I feel free, in the interest of writing a more interesting post, to go into some of the views expressed by the students.

The first consideration for the students was to decide whether to use the dynamite. Many of us quickly determined to do so. A few said no, and prepared to hypothetically die. And a few others remained for the time uncommitted. The first and last practical difficulty the Explode Bob caucus ran into was where to place the dynamite. This was a completely unnecessary inquiry, since it had been stipulated that the dynamite would dislodge Bob. Nevertheless, we dilated on the issue. At length, and to our great amusement, we determined that the dynamite would have to be used as a particularly unmarketable suppository. Then one of the uncommitted students asked to be heard. I remember him because he had to that point in the semester not said a single word in class. Accordingly, I had invested him with wisdom. He knitted his brow. He was, he said, in general if reluctant agreement that Bob had to go. But he had some nagging doubts and meant to soothe his conscience thus: couldn’t we, he said, ask Bob if it was ok to blow him up. He spoke, it turned out, too soon in that class.

If you are disposed to do so, change around the numbers involved and the moral character or utilitarian worth of the players and note when you switch from one determination to the other. You will reach decisions intuitively, easily. Then try to identify a consistent principle guiding your decisions. That is only easy if you are prepared to be categorical. And categorical approaches tend, at the limit, to produce absurd results.