ThePopTort

Raj Rajaratnam and the Jury System

You know those people who say that juries can’t understand complex evidence, that they base verdicts on emotion and are so arbitrary and irrational that they should be abolished and replaced by “experts”?

Do you know who might not agree with that? The prosecutors who just won their case before a jury of eight women and four men in a two-month-long securities fraud trial against Galleon hedge fund’s Raj Rajaratnam.  The jury convicted him of five conspiracies and nine substantive counts of securities fraud for trading on, and passing along, material non-public information about more than a dozen companies.  The jury, I am guessing, wouldn’t agree either

Galleon was, by the way, “among the 10 largest hedge funds in the world in the early years of the last decade. It managed $7 billion at its peak in 2008. Rajaratnam’s net worth of $1.3 billion made him the 559th richest person in the world, Forbes Magazine said in 2009.”

The Wall Street Journal has much more about the jury process here. Mind you, like every jury, this one was not composed of securities “experts” but rather by everyday Americans like a former graphic artist for Apple, who could only remark after the jury’s 12-day deliberations, “I’m really tired. I’m tired, man.”

It is well accepted – and judges confirm - that litigating a complex case forces lawyers to sharpen presentation of their cases, allowing not only the jurors, but also the judge to understand them better. Gregory Little, a partner at White & Case and a former trial attorney with the Securities and Exchange Commission, said of the Rajaratnam case, 

“It was an impressive performance by the U.S. Attorney's office in terms of taking a very complicated set of facts and breaking it down and making it understandable for the jury. It's also a credit to the jury that they seemed to work very hard to understand all that evidence.”

In fact, there really is no question that juries are more than competent to handle complex cases. Check out, for example, Neil Vidmar and Valerie P. Han’s 2007 book, American Juries: The Verdict.  See also here.

So when doctors and hospitals brazenly complain about the “competence” of civil juries who find incompetent physicians or unsafe hospitals negligent in court, arguing that juries are too dumb to figure out the facts in a medical malpractice case (“We recommend creating 'health courts' made up of expert jurors who can better rule on whether a physician is liable for an injury …"), think about the Raj Rajaratnam jury and then think about how truly dumb an argument this is.

Desperate Homeowners Waive Rights

This morning, ProPublica co-published (with Slate) an eye-opening article about mortgage servicers.  These banks and lenders, some of the same companies that led to the financial crisis, are at it again.

Guilty of all sorts of abuses and violations of law, including robo-signing, which we talked about here, mortgage servicers have been facing increased litigation from homeowners.  They want the lawsuits to stop and they've figured out how to stop them!

In return for granting homeowners a “break” on their mortgages, mortgage servicers are forcing homeowners to waive their right to bring a lawsuit for anything having to do with their loan forever. 

Many desperate homeowners may not even realize they’re signing a waiver, since it’s buried in the fine print of their contracts.  But even if they are aware of it, they’re in a terrible position.  If they don’t sign, they’ll lose their homes.  What choice do they have?

What makes this worse is that regulators have already banned this practice.  But as ProPublica noted, mortgage servicers who limit or take away a homeowner’s right to sue have a variety of excuses:  they argue about the language in their contracts and exactly what it prohibits; they site a loophole in the regulation that they claim makes their actions legal; or, as in the case of Bank of America, they say the waivers are in the contracts as a mistake.  A mistake that somehow keeps happening!

And, perhaps most importantly, while the law forbidding these waivers applies to loan modifications, it does not apply to short-term forbearance agreements! 

In other words, a mortgage servicer might think twice about sticking a waiver in an agreement granting long-term relief, but they’d have no second thoughts putting a waiver in an agreement which offers short-term relief – forbearance agreements last anywhere from three to six months.   Your typical desperate homeowner, unable afford an attorney, might not realize that his three-month reprieve comes at such a high cost.

Funny that these are the same mortgage companies whose illegal and abusive predatory lending practices helped cause the subprime mortgage crisis.  As the Center for Justice and Democracy noted in a 2010 study, the mortgage companies could always be sued for predatory lending, while "Wall Street firms that pressured lenders to make these risky loans are not and they knew it at the time.” 

It seems the banks and lenders have had enough.  If homeowners can’t sue Wall Street firms, they don’t want to be sued either.   It remains to be seen if these waivers will hold up in court, but it’s pretty obvious that this is yet another example of corporations taking advantage of unsuspecting, vulnerable citizens.

The Foreclosure Blues (with Some Purple Tint)

We were a bit taken aback by the news that Prince, now on tour and in the midst of 21-dates in LA, happens also to be “singing the same tune as millions of American homeowners: The Foreclosure Blues.”  Apparently, the 20 acres that he owns in Minnesota, where his home once stood, has been scheduled for auction to satisfy his mortage, althought the Star-Tribune reports “Prince contended Thursday afternoon that the ‘payment has been made’ for the full amount and was sent to the Bank of New York Mellon Trust Co. ‘about four or five days ago.’”  

So the big question is, will the bank even care?  Clearly for most Americans, they could care less.

For example, JPMorgan Chase just settled for $56 million a class action brought by 6,000 active-duty miliatary families, “who were overcharged on their mortgages.  [The bank also] cut interest rates on soldiers’ home loans and return homes that were wrongfully foreclosed upon.”

There is also an investigation by all 50 state Attorneys General of foreclosure scandals like “robo-signing,” where banks hired people to forge official names on documents so they could take away people’s homes without verifying any facts.  Iowa AG Tom Miller, who is in the midst of crafting a major settlement with the banks, has gotten into a bit of a campaign finance mess due to donations to him from “out-of-state lawyers who make a living representing big banks” but Miller objects strongly to the implication of a conflict.  At least he's trying to hold the banks accountable, so much so that “Oklahoma’s attorney general said he is prepared to break ranks” with the settlement that Miller and the Justice Department are crafting.  He doesn't like banks being forced “to pay at least $20 billion in fines and use the money to reduce the principal on mortgages of ‘underwater’ borrowers, who owe more on their loans than their homes are worth.  ‘I have asked my attorneys to prepare me for an option that does not require that,' he says."  Hope his constituents remember that.

And then there’s the heartwarming story of South Carolina’s Keith Gamble.  As the Richmond Post-Dispatch reports, what started as a hobby “is now a risky, exciting, full-time job: buying properties at the monthly foreclosure sale and flipping them."  He says, "Some people's bad fortune is other people's opportunity.  I know that sounds callous.” 

Honestly, when it comes to the foreclosure business, who isn’t?

Tort Lawsuits Dropping Like A Rock - Again!

Today’s post is about statistics.  Hey, wake up, these are important!

The National Center for State Courts has the best, most accurate state court statistics in America.  (That's where most lawsuits are brought.)  Gathering these are not so easy, since most states have very antiquated and inconsistent methods for tracking who sues and why.  But every year, NCSC does a phenomenal job tracking these and it recently released its most recent data, covering the year 2008.  Basically, tort case filings, including medical malpractice cases, are dropping like a rock.  But guess what are flooding the civil courts?  Debt collections.  Take a look:

"Contracts comprise an increasingly large share of civil caseloads" (p. 26)  (These cases are largely debt collections.)

• In 2008, monetary disputes (contract and small claims cases) accounted for 73 percent of civil cases in 7 states reporting (up 4 percent from 2007), while tort cases represented less than 5 percent of civil caseloads in those states. (p. 26)

"Contract caseloads continue to climb" (p. 27)

• Tort caseloads have continued to decrease, falling by 6 percent from 2007 to 2008 in 13 general jurisdiction courts reporting, whereas contract caseloads rose sharply, increasing by 27 percent in those courts over the same time period. (p. 27)

• From 1999 to 2008, tort caseloads in 13 general jurisdiction courts reporting decreased 25 percent, while contract caseloads grew 63 percent. (p. 27)

"Incoming contract cases are nine times that of torts" (p. 27)

• After examining incoming tort and contract rates in 11 states in 2008 the researchers found that "[w]hen tort and contract caseloads are examined side by side, contracts dominate in every jurisdiction.  With the overall and median proportion of contracts in these 11 states above 90 percent, and given their growing numbers, contract case processing is doubtless an increasing concern for all state courts." (p. 27)

Automobile cases comprise the majority of tort caseloads (p. 28)

• "Data from 17 unified and general jurisdiction courts indicate that automobile accident litigation generally comprises the majority of tort caseloads, with proportions ranging from 18 to 69 percent." (p. 28)

Some courts are struggling to clear their civil caseloads, apparently because of increasing numbers of contract cases (p. 29)

• "Increasing numbers of contract cases, already known to comprise the preponderance of civil caseloads, appear to be having a negative effect on some courts’ civil clearance rates.  Of the 28 unified and general jurisdiction courts shown below, only 7 have achieved rates at or above 100 percent."

"Contract clearance rates are consistently lower than those for tort caseloads" (p. 30)

• "Examination of two of the aforementioned components of civil caseloads—contract and tort cases—confirms that increasing contract caseloads may be hampering courts’ efforts to clear civil cases.  The median clearance rates for the larger contract caseloads in 13 unified and general jurisdiction courts are under 100 percent (99% and 96%, respectively) while both types of courts were more successful clearing the smaller (although sometimes more complex) tort caseloads, with medians above 100 percent." (p. 30)

"Like other torts, medical malpractice claims continue to decline" (p. 31)

• "Just as torts typically represent a single-digit proportion of civil caseloads, medical malpractice cases comprise a similar proportion of torts.  Despite their continued notoriety, rarely does a
  medical malpractice caseload exceed a few hundred cases in any one state in one year." (p. 31)

• "As was seen in Mississippi in 2003, the enactment of tort reform legislation can profoundly affect the filing patterns of medical malpractice caseloads.  However, medical malpractice caseloads are often so small that a change of as few as 50 or 100 filings can create a similar effect." (p. 31)

• Long-term data show a 15 percent decline in medical malpractice filings in general jurisdiction courts in seven states from 1999 to 2008. (p. 31)

So, where exactly is this lawsuit crisis?

State Attorneys General Come Out Swingin’

Super duper shout out today to the New York Times and their knockout front page business section story called (in the print edition, at least), The States vs. Wall St. 

It’s all about how state Attorneys General, like Ohio’s Richard Cordray, are squaring off against Wall Street.  They are using the civil justice system to help people when federal regulators, well, throw in the towel.  Noting his “willingness to sue early and often,” the article talks about the hundreds of millions, even billions of dollars, Cordray has recovered for “investors, pension funds, schools and cities” in cases “against global financial houses, rating agencies, subprime lenders and foreclosure scammers."

And he’s not alone.  Martha Coakley of Massachusetts, Lisa Madigan of Illinois, Andrew Cuomo of New York, Tom Miller of Iowa and Roy Cooper of North Carolina, are doing equally great work and are mentioned in the article.  We’ve covered some of this before (like here, here).

Said Coakley, “We were the first to go after predatory loans — we’re not waiting for federal agencies to act.”

Thank goodness.  It's The States vs. Wall St. – and the gloves are off!

Financial Reform Gives State Attorneys General New “Kick Butt” Powers –CJ&D Interns Discuss!

One of the financial reform stories not receiving all that much attention (except, we imagine, at U.S. Chamber of Commerce headquarters) is the grant of new authority to state Attorneys General to enforce parts of the new financial protection law.  (House Report 111-517, Section 1042 of the bill.) 

Of course, what Congress giveth, it also sometimes taketh away, adding, “Except as permitted under subparagraph(B), the attorney general (or equivalent thereof) of any State may not bring a civil action in the name of such State against a national bank or Federal savings association to enforce a provision of this title.”  And so on.)

But generally, the new enforcement powers are a great thing, and AGs think so too.   And we’re lucky to have anything, given that Sen. Tom Carper (D-DE) originally tried to wipe out these AG powers altogether.

Today, the Center for Justice & Democracy’s three summer interns talk about this whole deal – and more- with CJ&D’s Communications Director Alicia Young.  The interns are working on a groundbreaking new study examining federal consumer protection laws that grant state AGs enforcement power. They also discuss the importance of private counsel to aide the work of AG offices.  Check it out!

(Photo, L to R: Allie Curreri, Alicia Young, Warren Allen, Jacob Agron)

Secrets of Magic Revealed: Keep Your Eye on AIG’s Disappearing Act

Don’t look now, but AIG is in the middle of a great magic trick. As it tries (and mostly fails) to generate the billions needed to pay back its vast TARP loans, the enormous conglomerate corporation has been trying to teleport its more successful subsidiaries out from under its personal cloud of bad press (see CNN's 10 Most Hateable Companies Not Named BP). It's now working to stash them away under a nice new name that doesn’t scream bailouts, bonuses or bad, bad management.

In the process they hope to make everyone forget all about the blatant mismanagement that almost destroyed their company (and the economy as a whole), the four bailouts totaling a reported $182.3 billion in taxpayer-financed loans, and the approx. $265 million in bonuses that would be given out between 2009 and 2010, according to the New York Times.

In March 2009, after announcing a $61.7 billion(!) loss for their fourth quarter, AIG decided that it might have to change things up a bit. They were helped along when the government made AIG’s reorganization a prerequisite if the company wanted an additional $30 billion in taxpayer aid and a reworking of old loans. The company therefore took its property and casualty business, and severed it from the AIG name, placing it under the leadership of Mr. Kristian P. Moor.  Moor wasn’t exactly an outsider – he ran AIG’s property-casualty business as executive vice president.

The “new” company was temporarily called AIU Holdings. Id. But apparently those first two initials conjured up some bad memories because, last year, AIU transformed itself again, this time into Chartis (the Greek work for “map.”  Talk about a non-sequitur.) again run by Mr. Moor, who told Bloomberg at the time:

“It was an overwhelming response that we should change our name further,” Moor said. “It just keeps people focused purely on our organization.”

And it should keep people away from focusing on his $10 million compensation package in 2009 ($2,400,000 bonus, $915,385 salary, $6,691,640 in restricted stock awards, and $37,229 in other forms of compensation for 2009.)  Turns out the new executive pay restrictions, which the President ordered for all TARP recipients in early 2009, didn’t kick in for Mr. Moor until November of that year.  But he clearly won’t be struggling in 2010.  His cash salary stands at $700,000, his stock salary rings in at $5,000,000, and his incentives (although in the form of unvested TARP RSUs) amount to $1,900,000, all adding up to a paltry $7,600,000, not counting the inevitable bonus.

Unraveling the tangled and mismanaged mess that AIG became is already the subject of several books, and the corporate sleight of hand just keeps getting more and more complex. A review of this tangled mess of companies that almost toppled the economy even further into recession led Elizabeth Warren, Chairman of the Congressional Oversight Panel on TARP to comment recently:

“The company was a corporate Frankenstein, a conglomeration of banking and insurance and investment interests that defied regulatory oversight.”

Now this corporate Frankenstein is trying to shuffle up its parts anew in an effort to make itself presentable to consumers and stockholders alike.  Chartis is still 100% owned by AIG, though you certainly couldn’t discern any connection between the two by glancing at Chartis’ homepage. And figuring out what’s become of all the more than 200 AIG subsidiaries reported to be in existence as of 2008 is quite the task. Many appear to have been sold or given new names.  For example, a search for the original American Home Assurance Co. reveals that the company no longer has its own functioning website and doesn’t appear on AIG’s website. This is the same company where two executives pled guilty to illegal conduct in 2004 after profiting from a contingent commissions scheme, and which was also one of the subsidiaries named in a 9-state antitrust suit settled by AIG in April 2010. Only careful searching reveals that American Home Assurance was itself a subsidiary of another AIG subsidiary, AIG Commercial Insurance Group, which was included in the creation of AIU/Chartis.

The whole thing starts to seem like some great big corporate nesting doll, at the very bottom of which is AIG’s reputation. The problem, of course, is that this kind of corporate sleight-of-hand makes it increasingly difficult for government to regulate and for everyday people to hold big corporations accountable. So you’d better look real close at what happens over these next few months with AIG. Or else, you might miss the trick entirely.

Elena Kagan’s Tort Inbox

The Sunlight Foundation has published the emails of Elena Kagan while she was in the Clinton White House.  (“She was Associate White House Counsel from 1995 to 1996 and Deputy Assistant to the President for Domestic Policy and Deputy Director of the Domestic Policy Council (DPC) from 1997 to 1999.”)  We decided to take little look around, and found some interesting stuff.

One of the big tort issues with which the White House was dealing, was an anti-consumer, anti-patient federal products liability bill that President Clinton vetoed.  The White House met with consumer groups on this, but I’m not sure it had much impact because we know the veto clearly did not end the conversation.  That was thanks to continued pressure from the manufacturers and “tort reform” groups. 

Victor Schwartz, counsel for the American Tort Reform Association, wasn’t kidding when he told Business Insurance, “I worked with Elena from about 1995 until about 1998 on tort reform issues, when she was assistant White House counsel and that was part of her portfolio. [After Clinton vetoed the bill], Mr. Schwartz worked with Ms. Kagan and her boss to arrive at a product liability bill.  ‘I believe the president would have signed but some in the business community believe did not go far enough,’ he said." 

I'll say.  Here’s one email:

“I used to talk with Victor Schwartz regularly.  He will offer to work towards a compromise bill -- i.e., a bill going part way in the direction of our veto message -- but will want some definite idea of what we can live with.”

And another:

1. Victor Schwartz called to tell me he was sending us another memo on products reform -- this one dealing more with politics, and less with substance. During our conversation, he proposed that Jack convene a meeting that both he (Schwartz) and the new President of ATLA would attend -- presumably to see if there is any common ground.  I don't see any reason to do this right now, but it is something to keep in mind.

During our conversation, he proposed that Jack convene a meeting that both he (Schwartz) and the new President of ATLA would attend -- presumably to see if there is any common ground.  I don't see any reason to do this right now, but it is something to keep in mind.  2.  Per your note, Jack, I told Mark Gittenstein that you would be happy to meet - - after the transition - - with him and a bunch of high-tech types interested in securities reform.    

More on that “securities reform” issue later. 

Following Clinton's products veto there was more discussion, like this memo, which reiterates some of the huge problems with federal product liability legislation and offers some limited places for POTUS to compromise, or go to politically. 

The Administration did, in fact, find something they could live with: The Biomaterials Access Assurance Act of 1998, which limits the liability of the biomaterials industry - suppliers of “raw materials” and “components” used in the manufacture of medical implants.  Some of this bill’s evolution can be seen here.  There’s also discussion of the 1997 volunteer immunity bill

And at the end of this memo, there’s support for a bizarre bill (lest anyone get any "ideas" today) that would have been a federal takeover of auto insurance laws, forcing all motorists into one of two unfair auto insurance systems.  Under one system -- “pure” no-fault -- consumers seriously injured in accidents would completely forfeit their rights to recover non-economic damages (for injuries such as permanent disfigurement, serious impairment of a bodily function, loss of a limb, or pain and suffering), an option is so unfair that no state in the country has adopted it.  Under the other system -- a distorted version of the traditional tort system -- consumers would be forced to pay higher insurance rates and still only get limited access to the courts.  Good thing that didn’t go anywhere.

Meanwhile, we were looking for any evidence at all that Kagan was instrumental in President Clinton’s veto (later overridden) of the 1995 Private Security Litigation Reform Act (PSLRA), which the New York Times recently wrote about.  Notably, this disastrous law made it more difficult to hold accountable financial firms that engage in fraud, and we know how that turned out.  We couldn't find much.  The PSLRA was followed up by another problematic law, the Securities Litigation Uniform Standards Act of 1998 (SLUSA), which Clinton signed.  According to this email, it seems that law happened because then congressman Joe Kennedy wanted to be governor.   Oy.

Some fascinating stuff, for sure.

Huff Post Repost: America Wakes Up to the Importance of Liability and the Stupidity of “Caps”

Teachable moments can come almost anytime, from anywhere. The recent history of corporate and professional breakdowns and mess-ups should provide a number of them. Bob Herbert raised the issue in a stinging New York Times column recently when he asked, "Will we learn anything from this disaster ...?" BP was his focus but also on his mind was "how the giant financial firms almost destroyed the American economy" and the "devastating mine explosion in West Virginia -- at a mine run by a company with its own hideous safety record ..."

We'll add to that list the Toyota debacle, drug companies marketing contaminated childrens' medications, builders who pushed defective Chinese drywall into thousands of homes, Delaware doctors who covered-up a pedophile pediatrician who raped children, not to mention more and more dangerous hospitals everywhere. What a couple of months.

Keep reading.

Heroes and Losers in Congress Yesterday (Party? Irrelevant)

We will start with the bad news.  Delaware Senator Tom “I am a former governor of Delaware and I care a lot about states rights as a recovering governor” Carper (D-DE), apparently cares a lot more about the Big Banks in his state, because he is trying now to force an amendment into the financial reform bill to wipe out state Attorney General enforcement of financial fraud committed by Big Banks.  (I am sure his own AG, Beau Biden, must appreciate this as he recovers from a mild stroke in Philadelphia hospital.  Get well soon, AG Biden.) 

We had heard this might be coming, but really, tone deaf doesn’t begin to describe this proposal.  We’ve written many times about the importance of state AG’s work in financial fraud, consumer protection and many other areas. (Follow links here.) Here’s is the lead, front page article in the New York Times today, about a new investigation started by New York attorney general Andrew Cuomo againt Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch, which is owned by Bank of America, “to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities.”  Unlike the fed’s investigation, “this one expands the scope of scrutiny to the interplay between banks and the agencies that rate their securities.” 

And not to leave out that other party, Senator John Cornyn (R-TX) is going to try prevent understaffed and underfunded state AGs from hiring outside private counsel to help them enforce consumer protection laws.  These counsel, by the way, are hired at no cost to the taxpayer and their work often results in states recovering billions of dollars from corporate wrongdoers.  (See more in Center for Justice & Democracy's report, The People's Champion.)

Now for the heroes.  Watch Rep. Bruce Braley (D-IA) in action yesterday ripping apart the executive from Transocean whose company apparently coerced traumatized workers at the Deepwater Horizon rig explosion into signing legal statements that they never witnessed anything.  (See video below, questioning about a minute in.)

Why aren’t there more in Congress like Bruce Braley?  Just askin’.