December 17th, 2008

The Bubbe Maisse Report (aka "Judicial Hellholes")

A bubbe maisse is a Yiddish expression for a grandmother’s tale. In the electronic era we call them urban legends. And the American Tort “Reform” Association, a business group dedicated to making sure consumers can’t seek fair damages for harm that was caused to them, has issued its annual “Judicial Hellholes” report to help create some more such legends.

The report claims to identify the “worst” jurisdictions for lawsuits, which is to say, the worst for them and not for the consumer. In actuality, it is a small catalogue of rants, quotes and stories, many of which they put out each year in order to garner attention for their cause.

But this is the important part: There is nothing in the “report” that approaches empircal evidence. They simply canvass big business for the places they would least likely to get sued, or cherry-pick some decisions that they don’t like.

There is some whining about “trial lawyer money” influencing judges, but no indication as to how much money was spent by the Fortune 500.

I briefly noted last year’s report, quoting the Center for Justice and Democracy when they called the report “dishonest.” Adam Liptak, writing about it last year in the New York Times (The Worst Courts for Businesses? It’s a Matter of Opinion), noted that:

It is, for starters, a collection of anecdotes based largely on newspaper accounts. It has no apparent methodology. There is no way to tell why South Florida is the top hellhole while West Virginia is hellhole No. 4.

So I went breezing past the anecdotes in this year’s report to see if they responded to the criticism that it was completely subjective. Try as I might, I could not find any discussion of methodology. I know, you’re not surprised.

Also missing from the reports, since they like anecdotes so much, are the stories of tort “reformers” who found found themselves screwed or humiliated by their own prior advocacy, when they were injured.

And so, without further ado, since ATRA loves anecdotes so much, I’ll share a few of my own:

Another Tort “Reformer” Sees The Light:

Dr. Dave Stewart is a California anesthesiologist. He supported tort “reform.” Then his 72 year old mother died after knee surgery from an undiagnosed bowel obstruction. When the family tried to hire a lawyer, they were turned down by two dozen different medical malpractice attorneys.

Tort “Reform”, Trent Lott, and Changing Fortunes: Aside from Trent Lott, it deals with Frank Cornelius —

In 1975, I helped persuade the Indiana Legislature to pass what was acclaimed as a pioneering reform of the medical malpractice laws: a $500,000 cap on damage awards, and elimination of all damages for pain and suffering. I argued successfully that such limits would reduce health care costs and encourage physicians to stay in Indiana — the same sort of arguments that now underpin the medical industry’s call for national malpractice reform.

Today, from my wheelchair, I rue that that accomplishment. Here is my story.

Tort “Reform” Gone Bad. And the Personal Injury Round-Up: With this story from a “reformer” and medical oncologist:

It appeared that the case would be resolved quickly, considering that the defendant freely admitted his error. However, this turned out to be far from true.
…
As I’d expected, the jury found the original pathologist negligent. But, to my surprise, Mary wasn’t awarded any damages… The jurors reasoned that the pathologist had not acted maliciously, and that if he were found liable for a monetary award, he might leave the state. They were likely influenced by political ads that ran during the state’s tort reform ballot campaign, describing physicians who were leaving Nevada because of its malpractice crisis.

Tort “Reformer” Michael Savage Brings Lawsuit:

Right wing radio talk-show host and tort “reformer” Michael Savage has brought a lawsuit. The infraction? He was quoted by an Islamic group on its website in which he called the Quran a “book of hate” and said Muslims “need deportation.”

Robert Bork Brings Trip/Fall Suit for Over $1M, Plus Punitive Damages And Legal Fees —

Former Supreme Court nominee Robert Bork has sued the Yale Club for an amount “in excess of $1,000,000,” plus punitive damages, as a result of a trip and fall accident on June 6, 2006. The Complaint is here via the WSJ. The accident happened while he was climbing to the dais for a speech, and there were no steps or handrail for the 79-year old Bork to hold on to.

Aren’t anecdotes fun? You can use them to “prove” anything. And with these anecdotes, I “prove” that a tort “reformer” is just someone that was never injured by the negligence of another.

Madoff Fallout–Liablity of Third Party Money Managers

While investors who lost tons of money by directly investing in the Madoff Ponzi Scandal may be unable to recover any money from his firm, those whose funds were invested indirectly through money managers may be able to proceed under a negligence theory.

While money management isn’t the focus of this blog, negligence is. And in today’s New York Times there is a story (European Banks Tally Losses Linked to Fraud) of how “a team from Societe Generale’s investment bank here was sent to New York to perform some routine due diligence” and easily discovered that the numbers didn’t add up. That was in 2003.

And here is the money quote from the article, and the reason other money managers who blindly dumped tons of money on Madoff, may be facing significant lawsuits:

The red flags at Mr. Madoff‘s firm were so obvious, said one banker with direct knowledge of the case, that Societe Generale” didn‘t hesitate [to blacklist the firm]. It was very strange.”

If they were obvious to this bank, why weren’t they obvious to others? This would help to drive a stake through the heart of a defense that Madoff was so crafty that no reasonable investigator would have found the fraud.

A phrase comes to mine: due diligence. Or lack thereof.

Linkworthy (Disorder in the Court Edition)

In the news is not just one courthouse brawl, but two.

First, in New York: A defendant goes bonkers, and a New York Times reporter happens to be in the jury pool:

“Obviously, things didn‘t go as I planned this afternoon,” the judge began, with dry understatement.

Next up, from New Orleans, two lawyers go at in the courtroom in a civil case. They are rivals in a class action suit (h/t Ron Miller);

Dennis Quaid settles against Cedars-Sinai Hospital for $750,000 for the Heparin overdose of his twins. (The Quaids had previously sued Baxter for crappy labelling, but not the hospital.) Doesn’t that exceed the arbitrary 250K California pain and suffering cap?

TortsProf has the 12/12/08 edition of the Personal Injury Law Round-Up, in case you missed it.

And Eliot Spitzer has his coming out at a party hosted by Slate. Where? At the Happy Ending Lounge, site of a former massage parlor. I kid you not. (ft.com/gapperblog)

December 16th, 2008

Chief Judge Judith Kaye — For U.S. Senate

Blaring across the front page of today’s New York Times after a couple weeks of speculation is the story of Caroline Kennedy vying for Hillary’s Senate seat. One of the most disturbing parts of the article comes from an anonymous source who says that Gov. Paterson likes the idea of a Kennedy-Paterson ticket in 2010 when they both must run. This is the money quote:

“The upside of her candidacy is that the 2010 ballot will read Kennedy — Paterson,” said one of those advisers, who was granted anonymity to speak candidly about the governor’s thinking. “David craves national attention and money. If you connect the dots, it leads to her.”

Kennedy’s qualifications, apparently, are that she chose her parents well. She has done some fund raising for education, but is not known to have had a full time job in many years (though she does have a law degree).

Sorry, but that’s not good enough. In fact, I find it downright offensive. We’ve seen what happens when the child of a famous politician vaults into public service based on that fame, and not on actual achievements. After eight years of George Bush, I don’t care to see anyone, of any party, get an important position based on their name.

So here is a suggestion to consider for the vacant Senate seat: Chief Judge Judith Kaye, who has served as New York’s chief judge longer than anyone else, and done so with distinction. (There is a video tribute to Kaye at the New York Law Journal website. h/t Ed.) She is retiring now because she hit the mandatory retirement age of 70 (see: Chief Judge Kaye Says Goodbye).

Now I don’t know if Kaye actually wants the job. We’ve never met and she doesn’t know me from a hole in the wall.

But it seems to me that she has served with distinction, is widely trusted and respected, and thus should at least be considered for the position along with other qualified individuals.

Given that Paterson was known to be peeved that a woman was not part of the panel of potential replacements for Kaye for the chief judge slot, and that he would like a woman to replace Hillary, it seems that, as one of the most accomplished women in the state, her name should be in the mix for consideration.

One final item, given the scandal with Gov. Nutjob out in Illinois trying to sell Obama’s seat to the highest bidder — I hear he may consider eBay for this — it makes it even more important for Paterson to make sure that the person he picks is well-qualified.

December 14th, 2008

Will Dreier Partners Be Liable for Stolen Money?

Much has been written about Marc Dreier’s substantial theft of his firm’s assets and the raiding of the attorney escrow fund where client funds were held.; as much as $380 million may have been purloined. Everyone has discussed that he is the sole equity partner holder.

But what of the non-equity partners? As of today their web site lists 49 such individuals. Can they be held responsible for the firm’s losses? Given that the firm shockingly has no malpractice insurance (though the insurance carrier may well have tried to disclaim coverage anyway), this surely must be a cause of sleepless nights for the non-equity partners.

The short answer is, yes, they might be liable under New York law. I happened to have litigated the issue back in the 90’s on behalf of my father after he separated from Fuchsberg & Fuchsberg, where he was an income partner. Fuchsberg tried to claim that, despite 20 years of representing to the world that my father was a partner, he was in reality a glorified employee. The arbitrator disagreed with Fuchsberg’s employee argument, and the final verdict landed on the front page of the New York Law Journal.

So — aside from the details of a written partnership agreement that I obviously don’t have access to — below are the types of issues that will have to be sorted out to determine whether the Dreier non-equity partners are really partners for the purpose of sharing in the losses. Some of the issues listed below come from D’Esposito v. Gusrae, Kaplan and Bruno

Was the individual listed as such in Martindale-Hubble, on the firm’s letterhead, website and/or tax return;
Did the partner receive distributions of net profits from the firm, and if so, was this a fixed amount (indicating more employee-like) or did it fluctuate (more partner-like);
Was the partner responsible for the firm’s rent or losses;
Was the partner a signatory of the partnership and/or operating agreement;
Did the partner make any kind of capital investment;
Did the partner exercise any control over partnership affairs.

Bad times are ahead for those that made partner and might now be on the hook for losses that could throw them into bankruptcy, even though they didn’t own any of the firm’s equity. Rest assured that the partnership agreement is being read today by a gazillion lawyers with a fine-toothed comb.

Addendum: One critical place the lawyers will need to look to sort out the liability issue is the income tax return filed for partners (form K-1). That form lists the percentage of profits that they are entitled to as well as the percent of losses (regardless of whether there were actual losses prior to this). Any non-equity partner that is responsible for losses on that K-1 may be in for particular trouble.

See also:
Dreier Troubles Show Danger of Single Equity Partner Structure (Weiss @ ABA Journal)

Links to this post:

madoff, dreier and blagojevich
madoff, dreier and blagojevich. marc dreier, the big spender and power hungry lawyer, has losses alleged to be $380 million plus a bunch of staff and partners wondering where their next paycheck is coming from (jail? …

posted by Norma @ December 19, 2008 3:20 PM

the accomplishments of marc dreier
even after being jailed in toronto, the litigator managed to grift <0 million from an escrow into his personal account. and he let the malpractice insurance on his law practice lapse, as his horrified colleagues are now finding out. …

posted by Walter Olson @ December 13, 2008 7:38 PM