Results matching “sarb”

Around the web, October 14 - PointOfLaw Forum

  • Here comes a big wave of investor class actions over the mortgage implosion [NLJ]
  • Followup to our discussion of pending class action reforms in the U.K., with numerous useful links [Paul Karlsgodt, Class Action Blawg]
  • Detroit News endorses re-election of Michigan Chief Justice Clifford Taylor [its editorial via Pero]
  • Johnson & Johnson has spent at least $68 million to settle claims over its Ortho Evra birth control patch, which Planned Parenthood considers safe and effective [Bloomberg; earlier here, here, here, and here]
  • Survey finds most demanding employment issues for company legal departments are discrimination/harassment, FMLA, wage/hour, HIPAA and Sarbanes-Oxley [annual ACC/Jackson Lewis survey, Workplace Prof]
  • California court of appeal rules that parties can use state's Section 998 offer-of-judgment rule, an analogue of FRCP 68, right away at start of lawsuit rather than only after waiting period [Cal Biz Lit]

"More lawyers in the boardroom" - PointOfLaw Forum

There's the company's lawyer, of course, and then a separate lawyer to represent the directors, whose stance may be adverse to that of the company's; is a third lawyer going to have to be called in to help break ties? Sarbanes-Oxley is doing a lot to spread the trend, notes's Atlanta affiliate (& welcome Larry Ribstein readers).

D.C. Appeals Court upholds Sarbanes Oxley - PointOfLaw Forum

Two-to-one opinion by a panel of the U.S. Court of Appeals for the District of Columbia Circuit, upholding the creation of a nonprofit board to set auditing requirements and oversee accounting firms that audit public companies. The authority of the Public Company Accounting Oversight Board had been challenged by Beckstead and Watts, a Nevada accounting firm, and the Free Enterprise Fund, as violating the constitutional separation of powers.

The ruling is here. From Washington Post, "Appeals Court Upholds Sarbanes-Oxley Act":

In dissent, Judge Brett M. Kavanaugh wrote that Sarbanes-Oxley renders the accounting oversight board "unaccountable and divorced from Presidential control to a degree not previously countenanced in our constitutional structure." He said "such unaccountable power is inconsistent with individual liberty.

Kavanaugh also termed the case "the most important separation-of-powers case regarding the President's appointment and removal powers to reach the courts in the last 20 years."

"If you want a balanced assessment of SOX..." - PointOfLaw Forum

"... the NYT is not the place to look," writes Larry Ribstein, after dissecting a predictably tendentious column on the Sarbanes-Oxley law by the Times' Floyd Norris.

The conference report for H.R. 4040, Consumer Product Safety Modernization Act, is already scheduled on today's House suspension calendar, so an overwhelming vote for passage is expected. It could go to the Senate for a Friday vote and observers expect the President to sign it into law.

The full, 183-page conference report has been posted as a .pdf at the NAM's blog,, here.

The conference report reflects quite a bit of business input to bring balance to the legislation, in particular ameliorating Senate language (S.2045S.2663) or adding provisions to protect from the wildest of litigation. But the self-styled consumer activist groups, symbiotes of the trial bar, are still extremely pleased at the victory over "special interests." (Joint news release here and Consumer article.) Meanwhile, the Hill reports that the U.S. Chamber opposes the bill because it increases litigation and rejects sound science, such as in provisions banning phthalates. (UPDATE: Chamber lettter here.) An ugly precedent, that's for sure, as Congress moves toward a European "precautionary principle."

Key provisions from a litigation standpoint:

The Trial Bar Behind Bars - PointOfLaw Columns

By Steven Malanga

(This article originally appeared on, 06-11-08)

Last week, the dean of securities litigation in the United States, the venerable Melvyn Weiss, was sentenced to 30 months in prison for his role in what a judge described as a decades-old "nationwide conspiracy" in which lawyers used illegal kickbacks to recruit plaintiffs for lawsuits against corporations. Given the magnitude of the cases in which Weiss' firm has been involved, including Enron, his sentencing, which marked the end of his career, might have seemed like a slam dunk front-page item for most newspapers, but the news was largely downplayed or ignored, much like his indictment eight months earlier, which gained only slightly more attention. Just a few dozen newspapers carried mostly brief stories of Weiss' sentencing, and the paper of record, the New York Times, dumped their version on page 3 of its business section, even thought the paper once called Weiss' firm the King of Torts.

This has been a pretty bad half-year for plaintiffs' attorneys, but you wouldn't know it from press coverage or our political campaigns. As presidential candidates like Barack Obama have railed against a "corporate culture rife with inside dealing, questionable accounting practices and short-term greed," the biggest misdeeds seem to be piling up in front of the trial bar, although they barely elicit outrage or calls for reform. Weiss' former partner, William Lerach, is in jail for obstruction of justice, and Richard "Dickie" Scruggs, the Mississippi plaintiffs' attorney who wrestled with the tobacco industry in the 1990s and was portrayed heroically in the movie The Insider, pled guilty in March to trying to bribe a local judge.

Meanwhile, a few tenacious judges and prosecutors continue to work hard to unravel the offenses of the trial bar in the decades-long asbestos litigation frenzy, in which lawyers have ginned up phony diagnoses using compliant doctors, and paid kickbacks to union officials to recruit workers as plaintiffs. A few law firms have been fined for their misdeeds and one prominent lawyer has gone to jail. But that's only after defendants have already paid out a staggering $70 billion in claims that wrecked dozens of businesses, cost thousands of workers their jobs, and enriched plaintiffs (many with no demonstrable health problems and no medical bills) and their lawyers--who've claimed more than half the awards in fees and expenses. As federal judge Denis Jacobs noted without a hint of irony, many of the claims in asbestos litigation are based on "fraud, corrupt experts, perjury, and other things that would be deplored and persecuted by the legal profession if done within other commercial fields."

Critics of the trial bar, like Cardozo School of Law School Professor Lester Brickman, have been warning for years that the methods employed in asbestos litigation are too typical of a cadre of lawyers that has relentlessly pursued and dealt devastating financial blows to a series of industries, from construction firms to vaccine makers, to manufacturers of scientifically-proven safe products like silicon breast implants, to publicly held firms whose only offense was a sharp drop in share price. Still, you have to look pretty hard to find editorial outrage about the trial bar's often dubious methods, or find calls for reform of our civil justice system from Washington that result in quick action.

Contrast that with the massive coverage and indignation over corporate misdeeds. When federal prosecutors indicted Enron CEO Kenneth Lay in 2004, newspapers responded with more than 1,000 stories in just a few days. When then-New York Attorney General Eliot Spitzer sued the New York Stock Exchange's Richard Grasso over his rich pay and severance package, the New York Times alone reacted with 10 stories in less than a week—including a profile of Grasso's attorney, an approving editorial encouraging Spitzer, an analysis of Spitzer's legal strategy, and an op-ed column. Judging by the coverage, we Americans must particularly love a story of rich corporate guys getting hammered.

But the Grasso pay-package dispute, which is ongoing, mostly affected owners of the New York Stock Exchange, and even the collapse of Enron, which vaporized shareholder equity and cost thousands of employees their jobs, seems like small potatoes compared with the cost and consequences of illicit asbestos claims, which have helped to sink nearly 80 companies, including many which never used asbestos products.

But whereas Enron quickly produced the Sarbanes-Oxley Act, all the trial bar's shenanigans seem to have shaped in Washington is more friendly legislation on their behalf. In the hopper now is the Energy and Tax Extenders Act of 2008, which includes a provision to allow plaintiffs' attorneys to deduct upfront from their tax bill the expenses of pursuing a case on a contingency-fee basis. The effect will be to help free up more up-front money for trial lawyers to pursue contingency fee cases in what is already one of the world's most litigious society.

It would be tempting to explain all of this simply by noting that trial lawyers use the deep pockets they've acquired through our litigation system to spread around massive amounts of campaign contributions, buying friends and influence across the political spectrum, especially among Democrats (it was former San Francisco Mayor Willie Brown who once referred to the plaintiffs' bar as one of the 'anchor tenants' of the Democratic Party).

But the causes go deeper. The direct victims of the trial bar are mostly deep-pocketed institutions like companies, governments and big nonprofits (hospitals, for instance) that hardly elicit much sympathy from the press, even when they collapse from the weight of litigation. The trial bar has also been skillful in building alliances with (and often funding) consumer advocacy groups that often lead the publicity charge about some new and dubious woe that the lawyers will eventually target for lawsuits, like "toxic" mold in buildings.

And trial lawyers have been skillful at cultivating the press, often providing them with scoops in advance of their lawsuits. It was a trial firm, for instance, that originally provided the New York Times with transcripts of a tape of a meeting of Texaco managers which purported to show them using racial epithets. Publication of the story eventually prompted a firestorm of publicity and led to lawsuits against the company. Only later did audio experts, analyzing the garbled tapes, determine that the transcripts provided by the trial firm were inaccurate and the managers had uttered no such racial slurs. By then, a worried Texaco had already settled out of court and most of the press had forgotten the case.

Facing an industry this skillful at public relations, the real reform of our civil justice system is happening slowly, on a case-by-case basis, prompted by a few judges and prosecutors outraged at the practices of the trial bar. Since judges started looking more carefully at the claims in asbestos mass tort cases, in which thousands of plaintiffs are linked together and their medical records merged into one vast presentation, the waves of claims have magically begun disappearing, plunging by 95 percent. Now, the cases going forward are largely those of people who have actually suffered harm. We once though this was the way our civil justice system was supposed to work, before we let the trial bar turn it into their personal piggy bank.

Steven Malanga is an editor for RealClearMarkets and a senior fellow at the Manhattan Institute.

Yesterday, the DC Circuit heard arguments appealing the dismissal of a challenge to the constitutionality of the Public Company Accounting Oversight Board (Feb. 2006), an institution whose members are appointed by the SEC, which would seem to violate the Appointments Clause. (The lawsuit also alleges nondelegation doctrine problems.) A panel of Judges Brett Kavanaugh, Judith Rogers, and Janice Rogers Brown expressed substantial skepticism to the PCAOB's position, as Michael Carvin argued that the board was a permanent government-like agency with extraordinarily broad and unchecked prosecutorial powers, but outside the power of the president to appoint or remove officials. (Judith Burns, "Accounting Oversight Board Case Heard By Appellate Court", Dow Jones Newswires, Apr. 15; Jurist summary; CEI press release). Because of a nonseverability provision in Sarbanes-Oxley, a finding that PCAOB is unconstitutional would strike down the law entirely, but the argument was not reported on by any newspaper—not even the Wall Street Journal.

Profs. Lerner and Yahya on Sarbanes-Oxley - PointOfLaw Forum

New from Washington Legal Foundation: former AG Dick Thornburgh interviews lawprofs Craig Lerner (George Mason) and Moin Yahya (University of Alberta) on the costs, benefits and lingering malincentives of the 2002 Sarbanes-Oxley law (PDF), just in case you needed a reminder that the fundamental problems with Sarbox are in no way a thing of the past.

Bear Stearns thoughts - PointOfLaw Forum

  • With the share price of Bear Stearns dropping in Enronesque fashion from $170 to $2, less than the value of its skyscraper headquarters, John Carney and others ask: how could the net value of Bear Stearns's business be negative? One of the reasons shareholders are getting so little is because of the billions of dollars of litigation reserves JP Morgan has built into the valuation. (Josh Gerstein, "Amid Bear Stearns Rubble, Lawyers Swoop In", NY Sun, May 18) Ironically, the shareholder litigation, which will generate hundreds of millions of dollars of litigation expense even aside from any settlements in a suit that may well allege billions of dollars in damages, almost certainly has hurt the shareholder recovery. JP Morgan is paying $2 now, and will pay shareholders more later, but the lawyers will take a large commission for the transaction.
  • Larry Ribstein sensibly asks: "Is there potential [Sarbanes-Oxley] internal controls liability for Bear executives? If not, and melt-downs like this can happen after SOX (worth $80+/share one day, $2 the next), then what was it, exactly, that SOX did for us? Could it be that SOX didn't eliminate risk after all? ... So two possible lessons from Bear: We didn't need SOX, and it didn't do any good." More on Sarbanes-Oxley from Ribstein (and AEI).

Sarbox whistleblower law _sans frontieres_ - PointOfLaw Forum

Second Life Banks Court First Virtual Class Action - PointOfLaw Forum

Today was the deadline for banking institutions operating in Second Life, an online alternative universe, to shut their doors and refund deposits. The LA Times reports that Linden Lab, creator of Second Life, mandated the shutdown folowing the failure of Ginko Financial, a shady virtual bank that formerly offered double digit interest rates to virtual depositors. All commerce in Second Life takes place in Lidens: a unit of virtual currency that generally trades against the US doller at a rate of about 270:1.

The Ginko failure alone eliminated about $75,000 of deposits. There is no word yet on what additional funds may have been lost in the unwinding process scheduled to end today. Cornell professor Robert Bloomfield believes that "no individual seems to have lost enough money to make filing a lawsuit worthwhile," but I think he may lack imagination. Does anyone want to bet that a class action suit will be filed in California, home of Linden Lab? Oh, wait, gambling has already been banned on Second Life due to legal concerns.

The article also mentions that Second Life's virtual securities took a tumble as a result of the current financial crisis. Sarbanes-Oxley, anyone? After all, Second Life already has its own bar association.

Around the web, December 14 - PointOfLaw Forum

Around the web, December 10 - PointOfLaw Forum

  • Our kind of talk: "Frankly, I think plaintiffs' attorneys would support a true loser pays system." [Personal Injury Law Roundup # 39 at Austin, Tex.'s Perlmutter & Schuelke LLP; the weekly series, formerly hosted by Eric Turkewitz, is now hosted there, see predecessors #38 and #37]
  • Not just here: lawyers in Ontario pressing for elimination of no-fault threshold [Toronto Star]
  • You'll have to tell your auditors more under Sarbox, and then guess who can scoop up the information later? [NYTimes]
  • Judge-shopping aided attorney Tillery in juicy $17 million payout in Sears appliance tipover class action [US Chamber/MC Record]
  • Shut down Indian Point nuclear plant? Not so fast, Attorney General Cuomo [Applebome, NYT]
  • Bottom-line pressures in legal practice undercutting civility, collegiality and professionalism, says Judge Baer as he sanctions Dorsey & Whitney [NYLJ]

By Stephen M. Bainbridge

This piece was originally published in the Washington Examiner, 7-31-2007. Reprinted with permission.

Washington, D.C. — Let's assume, for the sake of argument, that the climate change phenomenon commonly called "global warming" exists and is being caused, at least in part, by human activity. Who is responsible? The only sensible answer is, everybody. We all contribute to the release of greenhouse gases, as did our ancestors going back at least to the beginning of the Industrial Revolution.

One would therefore think litigation is no more an appropriate response to global warming than litigation would be to any so-called "act of god." One would be wrong.

Earlier this year, Texas trial lawyer Stephen Susman told the Dallas Morning News that "You're going to see some really serious exposure on the part of companies that are emitting CO2." He added, for good measure, that "I can't say for sure it's going to be as big as the tobacco settlements, but then again it may even be bigger."

Indeed, trial lawyers are gearing up to turn global warming into their next pot of gold. A coalition of environmental groups and cities are suing the Overseas Private Investment Corporation and the Export-Import Bank of the United States for making loans to finance oil pipelines, oil drilling, and similar projects that supposedly result in a net emission of billions of tons of carbon dioxide. After Hurricane Katrina, New Orleans trial lawyers Gerald Mapes and Timothy Porter sued dozens of energy companies, claiming they had contributed to global warming.

Last year, Business Week reported that there were 16 pending global warming cases of these sorts pending around the country. More are surely in the pipeline, so to speak.

Indeed, the prospect of a boom in global warming litigation is prompting law firms to begin setting up units specializing in climate change issues. According to the Dallas Morning News, for example, Dallas law firms Vinson & Elkins and Thompson & Knight have set up global warming units with 41 and 26 lawyers, respectively.

If it weren't for the precedents set by tobacco, alcohol, and obesity lawsuits, one might be tempted to dismiss climate change litigation out of hand. After all, the law typically requires a showing of causation. Before you can hold me liable, you must show that but for my conduct you would not have been injured. Typically, you also must show that my conduct was the proximate cause of your injury.

How can one firm—or even one industry—be blamed for a global phenomenon that took decades to arise? Making causality findings and apportioning responsibility in this context is ludicrous. Yet, what might a New Orleans jury still smarting over Katrina do if they got the chance to decide Mapes and Porter's suit?

This is a classic example of why tort reform is a pressing need. The Institute for Legal Reform offers some chilling statistics: "America's civil justice system is the world's most expensive, with a direct cost in 2005 of $261 billion, or 2.09 percent of GDP.

"Tort costs were $880 per U.S. citizen in 2005, meaning the average American family of four paid a 'litigation tax' of more than $3,500 due to increased costs from lawsuits and other liability expenses that force businesses to raise the price of products and services. That cost is equivalent to nearly an 8 percent tax on wages."

These costs are having a dramatic impact on the US economy. A nonpartisan report prepared for New York Senator Charles Schumer and New York City Mayor Michael Bloomberg, found that the "propensity toward litigation" in the United States is "driving growing international concerns about participating in US financial markets."

Along with regulatory excesses like the Sarbanes-Oxley Act, the litigation industry in this country is making our capital markets and our economy as a whole less competitive.

It's time for Congress and the president to step up with legislation that take the question of global warming out of the arena of ad hoc judicial decision making and put it into the hands of our elected officials. Both fairness and efficiency demand it.

UCLA Law Professor Stephen Bainbridge is a member of The Examiner's Blog Board of Contributors and blogs at

SarbOx and Spitzenfreude - PointOfLaw Forum

This, from co-blogger Mindles H. Dreck at Megan McArdle's, is worth quoting in its entirety:

Radley Balko makes a good point:

Spitzer denies any knowledge of what his closest aide was doing, which seems improbable.

But hang on. Even he didn't know, isn't this the same guy who wants corporate executives held criminally liable for the mistakes of their underlings, even if they had no knowledge of those mistakes? Isn't this the guy who wanted to make not knowing about those mistakes a crime in and of itself?

Hmm, perhaps we should make elected officials sign a certification or disclosure form under threat of large financial penalties, and stating that they know what all their underlings are up to.

Nah, too draconian.

"It's time to repeal Sarbanes Oxley" - PointOfLaw Forum

Legendary tech columnist John C. Dvorak argues for SOX's repeal, bemoaning both its squelching of innovation and the corporate CEOs too scared to speak out against it. Of course, if one is a big-money CEO, one might not be entirely upset about a law that reduces the ability of a startup to obtain the capital it needs to unseat established players, despite the additional costs it imposes on one's company. The real victims are the consumers who miss out on that competition, and small investors who miss out on the opportunity to participate in deals that are now handled by private equity and foreign stock markets, but those sorts of unseen regulatory costs get undervalued in the policy debates by those who purport to speak on behalf of investors and consumers. See also.

The Conrad Black Saga Part III - PointOfLaw Forum

Whether it is a conference on the subject of regulatory crimes, or blog I read on the subject, the message is the same: regulatory prosecutions are out of hand. Many times the dialogue starts like this �I used to prosecute these types of cases; in fact, I was on the taskforce that prosecuted the defendants in [Enron/WorldCom/Adelphia/insert your favorite corporation here], but I feel that it has gotten out of hand!� If the speaker is a legislator regardless of party the message is the same �American businesses need room to breathe and the climate is not conducive for this!� The question I feel like asking these speakers is �then why did you prosecute them?�, �why did you ask for that awful sentence?�, or �why don�t you change the law?�.

It is almost as if we have become trapped in this bizarre system that everyone seems to accept is flawed, unjust, and in need of change; and yet, the system seems to get worse. Who would have envisaged just a few years ago the Thompson/McNulty memo would be in force? It is almost as if each successive administration feels the need to outdo its predecessor. Like the human sacrifices of earlier so called civilizations that were meant to appease the gods and ensure continued prosperity that kept getting more and more gruesome over time, we as a society (more on we are in a bit) almost revel in how much we can extract out of the leaders of our industry. Unfortunately, if true, the parallels are ominous: the ancient civilizations came to a screeching halt. And why not ours?

The Conrad Black Saga Part II - PointOfLaw Forum

One of the charges that the prosecution added against Black was obstruction of justice. This charge was added at the last minute and was not in the initial indictment. The charge related to the fact that Black removed boxes of documents from the offices of Hollinger Inc. (which was the parent company of Hollinger International the American company based in Chicago). The order not to remove the boxes had been issued by a Canadian judge in Toronto. (As an aside, wouldn�t a simple contempt of court charge have sufficed?)

What jurisdiction did the United States have over Black for an event that took place on foreign soil? Putting aside the question of whether the prosecution already had these documents, so it is not clear that his removal obstructed any investigation; the more important and troubling aspect of this case is the creeping federalization of American law not just inside the United States but abroad. There have been many cases where the American courts and prosecutors have begun asserting jurisdiction over events that happen abroad. Traditionally they found a nexus to some event in the United States. The Blackberry injunction by NTP against RIM affected a relay station located in Canada. The arrest of a British executive for running an offshore online gambling site was used by Americans in the United States. But now, the courts and prosecutors are asserting jurisdiction over events abroad unconnected to any local victims whatsoever.

An American faces charges in the United States for sex tourism abroad. The Ninth Circuit affirmed another conviction under the Protect Act against another individual who engaged in sex tourism, holding that it was within Congress�s authority to regulate foreign commerce to have jurisdiction over such activities. (United States v. Clark, 435 F.3d 1100 (9th Cir. 2006).)

The Conrad Black Saga Part I - PointOfLaw Forum

The Conrad Black convictions have provided ample fodder for the press up here in Canada. After all, Lord Black is our native son who gave up his citizenship to take a seat in the British House of Lords. But apart from the human interest dimension to this story, there are some troubling legal implications for corporate governance. (Ribstein and Kirkendall offer their thoughts on the subject.)

I offer three:

I. Tort/Crime/Market � What Purpose?
The real problem with Conrad Black�s conviction and other such cases is that ordinary breaches of fiduciary duties have been converted into criminal conduct. In the realm of civil law, however, many safeguards that have developed over the years in the civil domain are hauntingly absent in the criminal arena. The �business judgment rule� for example insulates directors from civil liability when they take procedural precautions such as consult experts and document the rationale behind their decisions (I am simplifying, of course, so see Bainbridge or Ribstein for more on this). Recall that when Jamie Olis tried to use this argument (WSJ$)in his criminal case, namely that he relied on legal and accounting advice at Dynegy assuring him that the booking of loans as revenues was a valid accounting technique, he was found guilty and (initially) sentenced to 24 years! The sentence was based on a miscalculated notion of damages, again, something that would never have happened were this case in the civil litigation system. Olis� inability to raise adequate legal fees while the Feds had unlimited resources to pursue this and other cases is another imbalance in the criminal system (that some judges are trying to rectify as in the KPMG saga).

SOx reading list - PointOfLaw Forum

Prof. Bainbridge prescribes some summer reading for those who would like to keep up with the Sarbanes-Oxley controversy.

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