It has been 10 years since Arthur Andersen LLP, former "Big Five" accounting firm, was indicted for its actions related to the audit of Enron. The firm gave up its CPA licenses and shed nearly 85,000 employees after being found guilty of numerous crimes by a district court and was never able to recover as a firm despite a ruling by the U.S. Supreme Court in Arthur Andersen LLP v. United States which overturned the conviction.

Jim Copland, director of the Center for Legal Policy at the Manhattan Institute, brings to light new tactics employed by the Department of Justice to enforce criminal laws against corporations. In an op-ed published by Bloomberg.com, Copland explains this new approach and why even in the DOJ's efforts to avoid collateral consequences that flow from large-scale prosecutions of corporations such an approach can be problematic:

...in the place of actual prosecutions, the Justice Department has aggressively pursued what are blandly called "deferred prosecution" or "non-prosecution" agreements -- DPAs and NPAs, for short -- through which prosecutors and companies negotiate terms to avoid a criminal trial. This approach may be avoiding the sort of corporate death sentence visited upon Andersen for what proved to be non-crimes, but nonetheless does something just as worrisome: It insinuates Justice Department career bureaucrats into the day-to-day management of major American businesses...

In each of the past three years, fines and penalties levied under federal deferred-prosecution and non-prosecution agreements have exceeded $3 billion. While such fines are not insignificant, of far greater concern are the sometimes sweeping powers that prosecutors have asserted over business practices. In recent DPAs and NPAs, federal prosecutors have variously pressured companies to change long-standing sales and compensation practices; to restrict or modify contracting and merger decisions; to carry out onerous compliance and reporting programs; to appoint corporate monitors with broad discretion over management decisions; and even to oust executives or directors.

Businesses accept the agreements with such aggressive terms because they can ill afford to fight a criminal investigation.

Copland's piece is only an overview of his deeper analysis of DPAs and NPAs undertaken in a Manhattan Institute Civil Justice Report titled The Shadow Regulatory State: The Rise of Deferred Prosecution Agreements. In this report, Copland zeros in on companies currently operating under these agreements and explores the agreed-to terms. He uncovers that "seven Fortune 100 companies are currently operating under the supervision of federal prosecutors: CVS Caremark (CVS) Corp., Google (GOOG) Inc., Johnson & Johnson, JPMorgan Chase & Co., Merck & Co., MetLife Inc. and Tyson Foods Inc."

Manhattan Institute's Center for Legal Policy also brought Copland together with Senator Rand Paul (R-KY) for a web conference to discuss the broader issue of overcriminalization, the rapid expansion over the last forty years of a host of criminal laws, many of which are vague, many of which overlap and those which decrease or eliminate the intent requirements that traditionally were the foundational principle of criminal law.

It will be important to track the developments of DPAs and NPAs especially as more corporations are subject to these agreements. As Copland explains, "others, such as Wal-Mart Stores Inc., currently facing scrutiny for alleged Mexican bribes prohibited under the Foreign Corrupt Practices Act, are sure to follow."

Today's Wall Street Journal featured a piece which discussed the failure of tactics employed by organized labor and activist groups in an effort to "kill business speech" through the proxy proposal process. These particular proposals at issue seek to limit, burden or in some cases disrupt legitimate corporate political activity.

The Journal, citing Manhattan Institute's Proxy Monitor project, reported:

Support for political proxy proposals has fallen significantly at other big companies as well. Overall, according to the Manhattan Institute's Proxy Monitor, in 2012 political spending or lobbying proposals have received an average shareholder vote of 18.3%, compared with 22.6% last year. Could shareholders be getting wise to the political charade?

The disclosure gambit is key to the left's strategy of intimidating businesses from spending on politics to compete with unions and liberal billionaires like Peter Lewis of Progressive insurance. The political bludgeoning will continue, but at least this year the effort to vilify corporations that have exercised their First Amendment rights isn't getting the kind of traction the activists had in mind.

Our own Jim Copland, director of the Proxy Monitor project and Manhattan Institute's Center for Legal Policy, predicted an increase in political spending and lobbying related proposals and is closely tracking the trend in his regular findings.

In his recent finding, Jim discovered that:

Looking at the composition of shareholder proposals with more specificity, a plurality of all proposals introduced to date in 2012 involve corporate disclosure of political spending or lobbying activities, followed by those related to executive compensation and those seeking to separate the positions of board chairman and chief executive officer...

The increase in the share of proposals related to political spending or lobbying is notable and in keeping with a trend witnessed since the Supreme Court's controversial 2010 Citizens United decision, which held that corporate political speech was protected by the First Amendment. In 2012, fully 26 percent of Fortune 200 companies to have filed proxy materials have faced a proposal related to political spending or lobbying, an all-time high.

As the Journal recognized, despite the increase in volume, it doesn't seem that these political spending and lobbying proposals are having the desired effect. At least not yet.

Paul Larkin, senior legal research fellow at The Heritage Foundation's Center for Legal and Judicial Studies, in his most recent memorandum, offers a strong response to a paper entitled "Logging and the Law" published by the Union of Concerned Scientists (UCS) criticizing the proposed Freedom from Over-Criminalization and Unjust Seizures Act of 2012 (FOCUS Act). This is the second consecutive rebuttal offered by Larkin who also responded to an article by Jon Adler at the Police: The Law Enforcement Magazine Website, written on behalf of the Federal Law Enforcement Officers Association (FLEOA) which argued that the FOCUS Act "would put federal officers and agents at risk by taking away their right to carry firearms in the course of their criminal law enforcement duties."

In short the FOCUS Act as introduced by Senator Rand Paul (R-KY) and Representative Paul C. Broun (R-GA) respectively would substitute civil for criminal penalties in the federal Lacey Act and eliminate that law's reliance on foreign law. Groups like UCS urge that criminal enforcement of the Lacey Act is necessary and will benefit the global environment and the domestic economy. Larkin disagrees and articulates a two-part argument:

(1) criminal enforcement of the Lacey Act leads to miscarriages of justice, and

(2) criminal enforcement of the Lacey Act is unnecessary.

Larkin explains these points at length in his paper and makes a strong case for the proposed legislative reforms needed to curb overcriminalization.

Point of Law will now open its forum and featured discussions to enable user commentary. With great daily content from our regular bloggers and participants in our monthly featured discussion debates, the editors have decided to promote user engagement and contribution. The objective is to spur the exchange of ideas and to connect daily readers of the blog with the bloggers.

To submit a comment you can click on the post title or comments link in the byline of the post. Your name and email address are required for commenting. Email addresses are not published on the blog, nor shared.

Once submitted, the comment will first be reviewed by our editors and is not guaranteed to be published. Point of Law editors reserve the right to edit, delete, move, or mark as spam any and all comments. They also have the right to block access to any one or group from commenting or from the entire blog. A comment which does not add to the conversation, runs off on an inappropriate tangent, or kills the conversation may be edited, moved, or deleted.

That said, it is also important to note that the views and opinions of those providing comments are those of the author of the comment alone, and even if allowed onto the site do not reflect the opinions of Point of Law bloggers or the Manhattan Institute for Policy Research or any employee thereof. Comments submitted to Point of Law are the sole responsibility of their authors, and the author will take full responsibility for the comment, including any asserted liability for defamation or any other cause of action, and neither the Manhattan Institute nor its insurance carriers will assume responsibility for the comment merely because the Institute has provided the forum for its posting.

We look forward to reading your comments!

Last week, the Supreme Court heard oral arguments in Arizona v. United States on the issue of "whether federal immigration laws preclude Arizona's efforts at cooperative law enforcement and impliedly preempt four provisions of S.B. 1070 on their face." Ilya Shapiro, senior fellow in constitutional studies at the Cato Institute and editor-in-chief of the Cato Supreme Court Review, recently discussed the case in our regular podcast series.

Today, we feature, fellow and senior legal analyst with the American Civil Rights Union and legal contributor to Breitbart News, Ken Klukowski's hypothesis on how the Court will rule:

I think two of the provisions of the statute, the alerting of federal authorities or inquiring with federal authorities regarding immigration status and also the warrantless arrest authority: those provisions fall I think pretty well within what we refer to as police power which is an inherent authority that all states possess to make laws for public health, public safety, social welfare, personal responsibility and morality. Those are the two, I believe, that the one judge in the Ninth Circuit voted to say was okay. I think there's a good chance, a real solid chance, you might be able to get five votes to uphold those. And I think that would be correct.

The other two provisions, making it a state crime not to have the federally required registration documents on you and also the provision making it a crime for an illegal alien to solicit work. Those I think face an uphill battle and I think that those are a much closer call regarding current federal law. Again, not saying that that federal law to the contrary, [if it is to the contrary] not saying it's a good idea, just saying that's a judgment that Congress has made. And so the way to change that would be Congress amending the law. Courts do not have the discretion to decide whether or not Congress's law is a good one. They, just so long as it's constitutional, need to uphold it against any contrary state law.

Klukowski also comprehensively discusses the central legal issues and analyzes the arguments as articulated before the Court in the full podcast.

TK Kerstetter, president of Corporate Board Member, hosts our very own James Copland on This Week in the Boardroom to discuss shareholder proposals in the current proxy season. Jim offers insight on what to expect and provides an overview of this very important corporate governance issue.

Yesterday morning, the Supreme Court heard oral arguments in Arizona v. United States on the issue of "whether federal immigration laws preclude Arizona's efforts at cooperative law enforcement and impliedly preempt four provisions of S.B. 1070 on their face." To get further insight on how the argument played out before the Court and how the justices may rule, we invited Ilya Shapiro, senior fellow in constitutional studies at the Cato Institute and editor-in-chief of the Cato Supreme Court Review, to discuss the case for our regular podcast series.

Shapiro opened the discussion by outlining the federal government's challenge to Arizona's immigration law:

The law is more than one basic provision and there has been a lot of misunderstanding in the media about what this involves. First of all, the case has nothing to do with racial profiling or discrimination, non-ethnicity or anything like that. It's actually, when you get down to it, a pretty boring and technical legal matter involving whether particular provisions of the state law conflict with the federal law. And most of the state law, the so-called S.B. 1070, has been in effect for almost two years now. There are other states who have passed copycat laws; some that go further than Arizona's, but Arizona kind of set the mark.

The only four provisions of it that were ever enjoined by the lower courts and that are now at issue before the Supreme Court are the following:

First, Section 2(B), which requires police to check the immigration status of anyone they have lawfully detained when they have reasonable suspicion to believe that person has been in the country illegally.

Second, Section 3, which makes it a state crime to violate federal alien registration laws.

[Third], Section 5(C), [which] makes it a state crime for illegal aliens to apply for work or work as independent contractors.

Finally, Section 6, which allows the warrantless arrests when the police have probable cause to believe that a person has committed a crime that makes them subject to deportation.

These are the only four provisions that the Supreme Court took up this morning.

After thorough analysis of the oral arguments, Ilya was asked how he thought the Court would rule, to which he replied:

I'm on the record, I've written before that I think probably three of the four will be upheld. Even the registration one looks to me like enough of a parallel without creating a new type of state law. But the one that is really in trouble is the creation of the new sanctions on employees. So I think if I had to put down what I think they should do, it's probably to uphold three of the four.

The final oral argument of the term capped what was a highly publicized year for the U.S. Supreme Court. Now for the eagerly awaited rulings which we at Point of Law plan to cover comprehensively during the next couple of months. Additionally, please check back for an upcoming podcast which further explores the critical and controversial Arizona v. U.S. case.

Paul Taylor, Chief Counsel to the Subcommittee on the Constitution for the House Judiciary Committee, lays out a comprehensive argument for federal tort reform in The Federalist Papers, the Commerce Clause, and Federal Tort Reform published in the Suffolk University Law Review.

In the modern era, Congress has enacted many federal "tort reform" statutes that supersede contrary state laws. However, some question the appropriate constitutional role of Congress in enacting federal tort reform. The Federalist Papers, the authoritative exposition on the Constitution written by James Madison and Alexander Hamilton, describe the need for a new federal Constitution that gave Congress the power to regulate "Commerce ... among the Several States." This Article explores in detail the extent to which the arguments presented in the Federalist Papers, many of them too often overlooked, support Congressional efforts to enact federal tort reform. Indeed, the authors of the Federalist Papers advocated for a Commerce Clause that Congress could use to remove state barriers to trade that weakened the national economy. The examples Madison and Hamilton gave illustrating the need for the Commerce Clause encompass by their logic many federal tort reforms regarding both state products and personal liability law, insofar as such reforms are required to counteract significant negative impacts on America's free enterprise system and thereby facilitate the free flow of voluntary commerce between willing buyers and willing sellers nationwide.

Hans Bader, senior attorney and counsel for special projects with the Competitive Enterprise Institute, comments on a recent New York Times story that sheds light on a phenomenon Walter Olson of the Cato Institute tags as the creation of "ADA filing mills."

Bader writes:

Thanks to generous attorney-fee provisions contained in federal civil-rights law, trial lawyers are feasting on Americans with Disabilities Act claims at the expense of small businesses, consumers, and indirectly the public. As I noted earlier, a trial lawyer can collect thousands of dollars in attorney fees for "winning" a discrimination or ADA lawsuit, even if his client collects only $1.

...When it comes to ADA compliance, small businesses are subjected to legal harassment no matter what they do. Many small businesses don't have the freedom to unilaterally modify their entrances or facilities to make them handicapped-accessible, due to municipal code compliance regulations. Instead, they have to submit costly, detailed applications to code enforcers first, and sometimes have to wait months or years for approval, during which time they are sitting ducks for greedy trial lawyers bringing ADA claims. If they make their facilities ADA compliant without receiving the required municipal permits, they get fined by municipal officials.

As the owner of the Cha Cha Chicken restaurant on Pico Boulevard in Santa Monica noted, "We wanted to renovate our bathroom areas to make it more handicap-accessible and it took us almost three years to get all the permits. . .We kept giving all the paperwork they need, but it took forever. We needed the Pico Improvement Organization to plead our case."

As alarming as this practice by trial lawyers sounds, the New York Times article did recognize a valid question generating a great deal of debate; whether the lawsuits are a laudable effort, because they force businesses to make physical improvements to comply with the disabilities act, or simply a form of ambulance-chasing, with no one actually having been injured?

James R. Copland
Director of Manhattan Institute's Center for Legal Policy

We're proud to have Ted Frank as a Manhattan Institute adjunct fellow and editor of Point of Law, but most of our readers also know that Ted's primary job these days is running the Center for Class Action Fairness, a non-profit entity Ted founded that challenges class action settlements that, in Ted's view, unfairly compensate plaintiffs' counsel at the expense of the class. Scholars at the Manhattan Institute's Center for Legal Policy (CLP) have long worried about abuses of the modern American class action, which have become ubiquitous since Rule 23 of the Federal Rules of Civil Procedure was changed in 1966 to treat all potential class members as class litigants unless they affirmatively opted out of litigation.

In 2002, CLP visiting scholar Richard Epstein, now of NYU law school, articulated the merits and pitfalls of class action practice in a Civil Justice Report and concluded that "we cannot make a uniform assessment of the overall effects of class action practices," since they are "benevolent in some cases and harmful in others." In his 2010 book Lawyer Barons, CLP visiting scholar Lester Brickman, of Cardozo Law School, discussed in depth the degree to which class counsel, operating without a true client, can collude with defendant companies to expropriate unjust fees in class action settlements, in many cases negotiating away plaintiffs' legitimate legal rights.

Like Professor Epstein, Ted is not opposed to all class actions, but he's particularly concerned about the fee abuses Professor Brickman highlights. Other legal scholars, however, have defended current class action practice, including fee awards, as essential to deterring corporate misconduct. Foremost among these academics is Brian Fitzpatrick of Vanderbilt Law School, who has argued that class counsel should receive as much as 100% of awards as fees in small stakes cases. Ted and Brian have been sparring about this issue recently in many live forums, and we are happy to welcome Professor Fitzpatrick to Point of Law to debate the issue here, with our editor.