Overlawyered: Chronicling The High Cost Of Our Legal System

Archive for August, 2007

Great moments in accountants’ liability

“An en banc Superior Court panel has ordered a new trial in a case in which a western Pennsylvania trial judge awarded $102.7 million in 2003 to one of the owners of a property company identified as being at the center of a mid-1980s Ponzi scheme.” Two couples, Thomas and Barbara Reilly and Edward and Karen Krall, each jointly owned half the stock in Canterbury Village Inc., a property development that was oversold in what was later described as a Ponzi scheme that bilked thousands of investors. When Canterbury Village landed in bankruptcy proceedings, an Ernst & Young predecessor was called in to organize the books, which were in great disarray. According to a judge’s footnote, “the male halves of Canterbury Village’s two couple-owners pleaded guilty to criminal charges stemming from the Ponzi scheme.” Mr. Reilly served about four years on fraud and tax evasion charges. The eventual reorganization plan approved by the court barred the Reillys and Kralls from any stake in the emerging business entity.

The Reillys then proceeded to sue Ernst & Young, alleging that its report had contained inaccuracies which had injured their business interests. When the Reillys filed requests for admissions in support of their allegations, Ernst first missed a deadline to respond and then, granted a do-over, omitted to include a required verification from its lawyer. The judge in response deemed Ernst to have agreed to all the requested admissions — in effect, preventing the firm from contesting the key elements of the Reillys’ case. A verdict was then entered on behalf of Barbara Reilly that “included $34 million for her ownership interest in Canterbury Village — half of the $68 million appraised value — plus an additional $50,945,222 in interest, based on a rate of 6 percent per annum beginning in 1986, for a total compensatory damage award of $84,018,989. Yeager also awarded her $18.17 million in punitive damages for a total verdict of $102,718,989.” The appeals panel has now decided, however, that loss (in effect) of its right to mount a substantive defense is too harsh a sanction for Ernst’s procedural fumblings, so a retrial is on its way. (Asher Hawkins, “Retrial Ordered in Nine-Figure Fraud Case”, Legal Intelligencer, Jul. 27; Karen Kane, “Seven Fields developer faults Ernst & Young in lawsuit”, Pittsburgh Post-Gazette, Aug. 25, 2002).

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Criticizing Saudi financiers

Whether or not you reside in the U.K., the range of reading material available to you regarding the tangled banking relationships of the Middle East is being shaped and constrained by the London libel courts. (Gary Shapiro, “Libel Suit Leads to Destruction of Books”, New York Sun, Aug. 2; Mark Steyn, “The vanishing jihad exposés”, syndicated/Orange County Register, Aug. 5; earlier here and here).

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August 6 roundup

  • Patent suit by firm called Parallel Processing demands that all Sony PlayStation 3 consoles be impounded and destroyed [ArsTechnica, Slashdot]

  • It’s not all going to Edwards: a scorecard on presidential campaigns’ law-firm fundraising [National Law Journal]

  • Link roundup on Oregon criminal charges against fanny-swatting 13-year-olds [Right Side of the Rainbow; earlier]

  • New at Point of Law: Spitzenfreude is mirth derived from ethical pratfall of NY’s moralist governor; Florida’s insurance fiasco; more on those “medical” bankruptcies; Alabama judge appoints special prosecutor in Dickie Scruggs affair after feds take a pass; and much more;

  • One hurdle for court action by survivors of slain Middle East contractors against Blackwater: the four men had signed contracts agreeing not to sue their employer [Henley; W$J]

  • Saying swim diaper should suffice, Akron mom and “fair housing” advocates sue condo that barred pre-potty-trained kids from pool [AP/FoxNews.com]

  • Not only are those punitive new Virginia traffic laws unpopular, but a judge has just declared them unconstitutional as well [Washington Post; earlier here and here]

  • Pepsi settles class actions over minute quantities of benzene that might form when soft drink ingredients combine [Reuters, Food Navigator, Journal-News]

  • U.K. considers making it easier for unmarried cohabitators to go to court when their households break up [Times Online]

  • Did a securities fraudster use protracted depositions to browbeat his victims? [Salt Lake City Tribune]

  • “Victims’ Rights Amendment” to U.S. Constitution, promoted as giving crime victims a fairer shake, is bad idea for lots of reasons [eight years ago on Overlawyered]

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Assignment Desk: Edwards, Obama, and lobbyist money

At YearlyKos, John Edwards and Barack Obama sought to distinguish themselves from Hillary Clinton by saying they didn’t take money from registered lobbyists, and Clinton was booed for defending herself. (Also: Franke-Ruta.)

I found this curious: after all, Obama and Edwards showed up at the national convention of the lobbying group for the trial lawyers, the former Association of Trial Lawyers of America (who now call themselves the American Association of Justice). There, they gave speeches (as did Clinton, Biden, and Richardson). A look at the largest donors for Obama and especially Edwards shows a disproportionate number of active members of that lobbying group. Indeed, John Edwards’s finance chairman is Fred Baron, the former president of ATLA. If Obama and Edwards want voters to believe that Clinton is influenced by lobbyist money, what should we think about these two candidates’ debts to trial lawyers? Are we to believe that the critical difference is the lobbyist registration papers, at which point money becomes tainted and dirty? Are any reporters going to ask that hard question, or will they let the two candidates demagogue from the high ground as they take millions from the most pernicious special interest group in America?

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Nifong’s media and law-school enablers, cont’d

An article in the new American Journalism Review (Rachel Smolkin, “Justice Delayed”, Aug./Sept.) lays out at length the sins of the media in covering the allegations of prosecutor Mike Nifong in the Duke lacrosse case. Leading offenders such as the Durham Herald-Sun, New York Times and TV’s Nancy Grace all come in for their share of reproach, but of note also is this on Wendy Murphy, feminist lawprof and frequent broadcast commentator on the case:

One prominent guest on Grace’s show and others was Wendy Murphy, an adjunct professor at the New England School of Law and a former assistant district attorney in Middlesex County, Massachusetts. On April 10, 2006, after defense attorneys announced that DNA results found no links to the athletes, Murphy told Grace, “Look, I think the real key here is that these guys, like so many rapists–and I’m going to say it because, at this point, she’s entitled to the respect that she is a crime victim.”

Emerging questions about the investigation did not prompt Murphy to reassess. Appearing on “CNN Live Today” on May 3, 2006, she posited, “I’d even go so far as to say I bet one or more of the players was, you know, molested or something as a child.” On June 5, 2006, MSNBC’s Tucker Carlson asserted, relying on a Duke committee report, that the lacrosse team was generally well-behaved. Rejoined Murphy: “Hitler never beat his wife either. So what?” She later added: “I never, ever met a false rape claim, by the way. My own statistics speak to the truth.”

Asked to evaluate her commentary, Murphy said in an interview: “Lots of folks who voiced the prosecution position in the beginning gave up because they faced a lot of criticism, and that’s never my style.” She notes that she’s invited on cable shows to argue for a particular side. “You have to appreciate my role as a pundit is to draw inferences and make arguments on behalf of the side which I’m assigned,” she says. “So of course it’s going to sound like I’m arguing in favor of ‘guilty.’ That’s the opposite of what the defense pundit is doing, which is arguing that they’re innocent.”

The last passage prompts Mark Obbie at LawBeat (Jul. 18) to reflect: “Has there ever been a clearer argument for the utter show-biz meaninglessness of such ‘debate’ shows?”

On a different note, the much-anticipated book on the controversy by Stuart Taylor, Jr. and K.C. Johnson, “Until Proven Innocent: Political Correctness and the Shameful Injustices of the Duke Lacrosse Rape Case”, is due out a month from now and is already selling well on Amazon. More: John Steele Gordon, “Racial Role Reversal”, WSJ/OpinionJournal.com, Jun. 20.

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Biting the hand that feeds us: Center for a Just Society

We’ve earlier discussed Ramesh Ponnuru’s expose of The Center for a Just Society, a trial lawyers organization that masquerades as conservatives; the article quoted both me and Walter. The Center has purchased a banner ad on our site, arguing for wide-ranging liability in the Enron litigation. We’re happy to run the ad, because the debate is entirely one-sided. Readers will note how the idea of causation, or statutory requirements, or Supreme Court precedent, or long-term negative impact on investors from expanded liability, is entirely ignored in Conner’s article, and the allegation of wrongdoing is entirely conclusory. Those interested in a more complete discussion of the issues in the Enron case may wish to review the expanded version of my Wall Street Journal op-ed available on the AEI website, or the opposition to certiorari by the defendants in the Enron litigation:

Read On…

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Putnam County Hospital update

We earlier discussed the case of osteopath John King (who now calls himself Christopher Wallace Martin after surrendering his medical license in two states). We’ll state up front: King was apparently deservedly fired for incompetence, and that undoubtedly includes some legitimate cases of malpractice. (Indeed, our original note was how West Virginia’s Putnam County Hospital could have perhaps avoided hiring King had not liability concerns prevented his previous employers from communicating problems to the hospital.) Whether it’s asbestos, fen-phen, or an incompetent osteopath, however, the legal system creates incentives for attorneys and plaintiffs to fake cases and free-ride off of the legitimately injured. A YouTube video documents some curious inconsistencies (which, to be frank, are not entirely persuasive to me for all six plaintiffs in the video). The judge has responded to the video by barring both sides from further communications with the media. (Lawrence Messina, AP/Lexington Herald Leader, Aug. 1; Chris Dickerson, West Virginia Record, Aug. 1; Turkewitz blog). The West Virginia Record calls for a prosecutorial investigation.

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From the comments: fine print

Reader Jim Finkel writes:

Re your post from the New Orleans paper on the fine print in contracts. As I have turned off my cookies (the usual paranoia), to read your article, you have to answer questions and assent for each of the following two pages of the three page article. So even reading the article about click-through, you have to click through and read the fine print. There has to be a point here.

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