Arlen Specter Archives - Shopfloor

Trial Lawyer Bailout: Yes, There Would Political Fallout

By | Briefly Legal, Taxation | 2 Comments

Daniel Fisher of Forbes.com reacts to today’s news that the litigation lobby could win a $1.6 billion tax favor from the U.S. Treasury. From the On the Docket column, “Treasury May Give Trial Lawyers a Sweet Tax Break“:

It would be a victory for trial lawyers who have complained they must eat the costs of prosecuting contingency-fee cases as incurred and only get to write them off against any fee they obtain at the end. Writing off the costs each year would substantially boost their after-tax income and increase the attractiveness of contingency-fee cases as an investment, much as tax writeoffs on drilling expenses dramatically increase the odds of financial success in the oil and gas business. The change would be poorly timed from a political standpoint, though: At the same time as legislators are trying to take away the lucrative carried-interest tax break from hedge-fund operators, Treasury would be giving it to another group of well-heeled and politically powerful professionals.

Shopfloor.org posts today:

UPDATE (1:10 p.m.): Excellent statement from the American Tort Reform Association, “ATRA Condemns Reported Treasury Effort to Bail Out Litigation Industry,” with comments from ATRA President Sherman “Tiger” Joyce. Excerpt:

“It’s truly baffling,” said Joyce. “The Obama administration insists that it’s determined to create jobs and help the private sector economy expand. But by forcing taxpayers to subsidize still more litigation, it would do the just the opposite.

“Congress has thus far chosen not to advance this trial lawyer tax break with legislation. So, why would the administration even consider creating such a break by fiat?

“We can either create more jobs or more lawsuits,” Joyce continued. “We can’t realistically create both, and surely officials at Treasury and throughout the administration understand this basic reality.”

UPDATE (1:25 p.m.): Ted Frank at Point of Law analyzes the legal issues, including champerty:

The issue is the tax-deductability of loans trial lawyers give their clients when bringing litigation. Under current tax law, the loans are treated as loans, and cannot be deducted unless the client does not pay the loan back at the end of the litigation. The tax break would treat the loans as a cost of doing business, and permit deduction immediately—which is one would think would be problematic if state bar associations enforced their own ethical rules, which prohibit lawyers advancing money to clients as expenses except as a bona fide loan. But don’t count on any investigations by professional responsibility committees to see whether transactions classified as ethical loans are being called business expenses when reported to the IRS.

That said, if professional responsibility committees won’t act, defendants should. Defendants can conduct discovery into whether plaintiffs have received loans from their lawyers, and, if so, conduct reasonable investigations into whether the law firm deducted the “loan” on its taxes the next year. If so, there is a good-faith basis to bring a lawsuit for champerty in many states. (A simple inquiry letter asking the attorney to state under penalty of perjury that they did not deduct the loan on their taxes should be sufficient for Rule 11 purposes to create a reasonable inference to bring a complaint on grounds of information and belief.) Alas, the organized defense bar is probably too cowardly to take that step, and too many corporate general counsels do not insist upon muscular defense representation.

Sponsor This Bill, Lose Your Primary

By | Briefly Legal, Taxation | No Comments

Rep. Artur Davis (D-AL) lost his Democratic primary race for governor of Alabama Tuesday, falling to state Ag Commissioner Ron Sparks by 65-35 percent.

Davis is the sponsor of H.R. 2519, to allow the deduction of attorney-advanced expenses and court costs in contingency fee cases, with the effect of encouraging speculative lawsuits. Passage of the bill is a lobbying priority for the national trial lawyers lobby — some call it a “trial lawyer” earmark worth $1.6 billion.

Sponsor of the Senate version of the bill, S. 347? Sen. Arlen Specter (D-PA).

In other Alabama primary news, this time the Republican, Ted Frank of the Manhattan Institute reports at Point of Law:

Troy King, who farmed out state litigation on questionable theories of Medicare overcharges on contingency-fee bases to firms that then proceeded to farm it out to Beasley Allen, was defeated by Luther Strange 60-40 in a low-turnout primary yesterday.

Tough Night for the Card Check Crowd

By | Labor Unions | No Comments

Sen. Arlen Specter, as (R-PA) was an original cosponsor of the Employee Free Choice Act when Sen. Kennedy introduced the bill (S. 842) in 2005. He subsequently moved away from the bill, but then in this election cycle as Democrat re-associated himself with organized labor’s No. 1 priority. Who can forget the Senator’s comments at the AFL-CIO convention in Pittsburgh last September, when he proclaimed:

We have pounded out an Employees Choice bill which will meet labor’s objectives. I believe before the year is out, and I will join my colleague Senator Casey in predicting, that there will be passage of an Employees Free Choice Act which will be totally satisfactory to labor.

Speaking at the AFL-CIO gathering, President Obama opened his comments with a salute to Specter for being willing to “fight for the working men and women,” which, given the context, we took to mean union members.

Despite the support of organized labor, Democratic voters said no thanks on Tuesday, nominating Rep. Joe Sestak over Specter for the Senate seat. Big Labor’s two priorities in Pennsylvania in 2010: Arlen Specter’s re-election and the Employee Free Choice Act. Hasn’t worked out, has it?

In Arkansas, the left-wing challenger and labor’s annointed candidate against Sen. Blanche Lincoln failed to unseat her in the Democratic primary. The unions were incensed at Lincoln for her criticisms of the Employee Free Choice Act, and they promised money and support to Lt. Gov. Bill Halter to mount a primary challenge. As The Washington Post reports, “In Arkansas, dissatisfied labor unions worked hard against Lincoln.” Excerpt:

SEIU, which has only 1,000 members in the state, spent more than $1.5 million, including a $1 million television buy, Youngdahl said. The national AFL-CIO spent $3 million or more on Halter’s behalf, spokesman Eddie Vale said.

All that money, all those organizers working the precincts, all that fervor for the Employee Free Choice Act, and the best labor could do was force a run-off election in June. And that’s thanks to D.C. Morrison, a third candidate who, running as a conservative businessman who opposed the Employee Free Choice Act, gained 13 percent of the vote. With Lincoln’s 44 percent of the vote, that’s a 57-percent anti-EFCA vote in the Democratic primary.

The Employee Free Choice Act and labor’s political efforts figured prominently in both races (more in Arkansas), so voters were informed about the issue. The result: The Employee Free Choice Act, rejected by the voters.

Moving Toward A Vote on the Financial Regulation Bill

By | Economy, Regulations | No Comments

Senate Majority Leader Harry Reid (D-NV) filed two cloture motions on Monday to bring to a close debate on S. 3217, the financial regulation bill, and the Dodd substitute bill, which will embrace all the changes made to the bill. The move means cloture votes on Wednesday.

Why now? So Senators can see what happens in tonight’s Democratic primaries in Pennsylvania and Arkansas. Two Senators with pending amendments will learn their political fates: Sen. Arlen Specter (D-PA) is supporting an amendment to overturn the U.S. Supreme Court’s ruling in Stoneridge v. Scientific Atlanta, inviting more securities lawsuits; Sen. Blanche Lincoln (D-AR) has pushed language to regulate derivatives.

In other speculation: Democrats may filibuster? Suppose it’s possible, maybe, probably not. Ezra Klein summarizes the issue:

Senate Democrats are threatening to filibuster financial reform unless their demands are met, report Meredith Shiner and Carrie Budoff Brown: “Sen. Byron Dorgan (D-N.D.) has said he will filibuster the bill unless the Senate votes on his amendment banning a speculative financial instrument known as a ‘naked’ credit default swap. Sen. Maria Cantwell (D-Wash.) has done the same, saying she needs a vote on her amendment separating commercial and investment banking operations.” Majority Whip Dick Durbin says he’s confident all Democrats will get on board.

And you know, it’s not as if the fait is accompli. Michael Grunwald at Time comments, “Financial Reform Inevitable? Don’t Bank on It.”

P.S. Ezra Klein’s Wonkbook news roundup at voices.WashingtonPost.com is nicely done. A new daily read.


The Many Injurious Provisions of the Financial Regulation Bill

By | Briefly Legal, Economy, General, Regulations | No Comments

While the National Association of Manufacturers has made the investment-discouraging derivatives provisions of the financial regulation bill its focus of attention, S. 3217, other sections of the bill would also add uncertainty and increase the costs of doing business in the United States. The Washington Post, among others, caught up on those provisions over the weekend. For example, there’s the corporate governance language, which would allow special-interest groups like organized labor and environmentalists to force their political agendas upon stockholders.

CEOs from far and wide band against financial bill provision“:

A rush of chief executives from a wide swath of industries has been coming through Washington over the past three weeks, talking to lawmakers about a long-debated issue called “proxy access,” which would make it easier for shareholders at all publicly traded companies — not just banks — to nominate board directors. Opponents say the rule has nothing to do with overhauling Wall Street and doesn’t belong in the legislation.

“This is our highest priority,” said John Castellani, president of the Business Roundtable, which represents 170 chief executives. “Literally all of our members have called about this.”

The NAM and other business groups signed a joint letter to Congress last month sharply opposing the provisions.

The consumer protection provisions of the financial regulation bill also represent a major expansion of government control over the economy, directly through the federal government as well as indirectly — and potentially even more damaging — through state attorneys general and their political allies in the plaintiffs’ bar. The Post’s story, “Lawmakers, financial firms push to limit state power on consumer protection,” reports on the efforts by Sen. Tom Carper (D-DE) to rein in the most harmful elements in the bill.

Carper said he shares the White House’s goal of establishing a new consumer protection bureau to guard against fraud and deceptive practices.

“All my amendment says is that we should make that bureau do its job. This is the cop on the beat that we need,” Carper said. He warned that if state regulators are also allowed to pursue cases against national banks, this would cause confusion as consumer protection rules are interpreted differently by dozens of separate governments.

Carper’s amendment, which would limit the ability of state attorneys general to enforce federal law against national banks, has more than a dozen sponsors on both sides of the aisle. It could come up for debate early next week.

Sen. Carper’s amendment is S.Amt. 3949, and the text is available here.

The NAM has also opposed Sen. Specter’s amendment to expand liability in securities fraud litigation to parties not involved in the fraud, i.e., his attempt to overturn the U.S. Supreme Court’s ruling in Stoneridge v. Scientific Atlanta. On Thursday, Sen. Specter (D-PA) urged his colleagues cosponsoring the amendment to come to the Senate floor in support of it, but according to the Congressional Record, none did. The Senate is expected to vote on amendments this evening, but it seems safe to say the Specter amendment will not be considered until after the results of the Pennsylvania primary election on Tuesday. If Senate Majority Leader Reid files cloture on the entire 1,400-page bill today, as reported, then the Stoneridge amendment may be stone dead. That would be good.

They Should Change the Bill’s Title to ‘Financial Litigation Act’

By | Briefly Legal, Economy, General | No Comments

Sen. Arlen Specter today will take to the Senate floor to argue for his amendment to expand the liability for manufacturers for violations of securities law in which the companies played NO PART. The Senator claims the amendment — his previously introduced bill — would simply overturn the U.S. Supreme Court’s decision in Stoneridge Investment Partners v. Scientific-Atlanta, but in fact, it would simply throw open the courthouse doors for trial lawyers to go after businesses because they have deep pockets.

In 2007, the National Association of Manufacturers filed an amicus brief in Stoneridge Investment Partners v. Scientific-Atlanta, supporting the Eighth Circuit Court’s ruling that reaffirmed the long-held standards of liability in securities fraud litigation.

As Quentin Riegel, the NAM’s vice president for litigation, explained at the time:

The key issue in this case is primary liability. Without question, a company must give accurate information about its own stock. But the actions of third parties are not covered by this provision of the law. Plaintiffs’ attorneys are not empowered to sally forth beyond the law in an indiscriminate search for deep pockets.

Congress made clear its intent to keep Section 10(b) confined to market actors and market-directed activities, not to expand it to manufacturers or others who simply do business with a market actor. If the petitioner prevails in this case, it will open the floodgates for litigation and have a chilling effect throughout our economy.  It also will amount to a reversal of Central Bank, in which the High Court held that only the SEC could bring an action for aiding and abetting a primary securities violation.

Riegel’s description also fit Sen. Specter’s amendment. If it passes, it will open the floodgates for litigation and have a chilling effect throughout our economy. Who supports that?

Ah, Sen. Specter just came to the Senate floor describing his targets as “aiders and abettors” to fraud. No. Not by any normal understanding of the term.

Reversing Stoneridge, Expanding Litigation

By | Briefly Legal, Regulations | One Comment

From The Blog of the Legal Times:

[Sen. Arlen] Specter has proposed an amendment to the pending financial regulatory overhaul that would override the U.S. Supreme Court’s decision in Stoneridge Investment Partners v. Scientific-Atlanta. The amendment (PDF) would allow lawsuits, including class actions, against so-called “aiders and abettors” of securities fraud. Votes on amendments are possible this week.

Also, MattLewis.org:

Bloomberg recently reported that Sen. Arlen Specter (D-PA) “plans to revive a proposal to let investors sue law firms and accountants that help perpetrate fraud…”

This would essentially overturn Supreme Court decisions — Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc. and Central Bank of Denver v. First Interstate Bank of Denver — which suing third parties who had an indirect role in a fraud.

More importantly, though, it’s also a top priority of the trial lobby, who stand to gain large sums of money.

Lewis points out the campaign contributions that have flowed from trial lawyers to Specter.

The National Association of Manufacturers filed an amicus brief that argued for the position eventually reached by the Supreme Court in the Stoneridge case. As Quentin Riegel, the NAM’s vice president for litigation, said in August 2007:

The petitioner in Stoneridge is trying to persuade the High Court to overturn decades of established law and greatly expand potential liability. The law makes clear, and the Supreme Court has affirmed, that one cannot be held liable under Section 10(b) for engaging in deceptive conduct without having breached a duty to investors.

The key issue in this case is primary liability. Without question, a company must give accurate information about its own stock. But the actions of third parties are not covered by this provision of the law. Plaintiffs’ attorneys are not empowered to sally forth beyond the law in an indiscriminate search for deep pockets.

An amendment to reverse (and actually go further in countermanding) the Supreme Court’s ruling in Stoneridge would empower plaintiffs’ attorneys to sally forth in an indiscriminate search for deep pockets. It’s financial regulation by litigation and a bad idea for everyone — except some special-interest lawyers.


Card Check Legislation – An Agreement?

By | Labor Unions | No Comments

Roll Call has a story discussing the role of organized labor groups in the Pennsylvania Senate primary race between Rep. Joe Sestak (D-PA) and Sen. Arlen Specter (D-PA.) It discusses the role that the jobs-killing Employee Free Choice Act plays in the race. While Senator Specter came out strongly in opposition to this card check legislation, he has been keen to express his interest in putting forward an alternative version of the bill.

In reference to the bill, the head of the Pennsylvania AFL-CIO, Bill George, says that labor’s highest priority is “…like water over the damn,” [sic] George added:

That first bill’s gone and consequently, it’s time to move forward. And Arlen Specter was very instrumental with other Senators getting an agreement.

What agreement?

We’ve heard a lot of discussion about a possible alternative-EFCA bill, but any proposal based on the fundamentally flawed EFCA would be devastating to employers and employees alike. If an agreement has been reached, why is nothing is available on it? As we enter the campaign season, we hope that maneuvering over versions of a bill that would cost hundreds of thousands of American jobs doesn’t become part of a political strategy to woo one key interest. Any elected official should soundly reject the Employee Free Choice Act, in any form.

Legislation, Litigation or Appropriation?

By | Briefly Legal, Communications, Regulations, Technology | No Comments

The cover of the latest “Skeptical Inquirer” prompts us to go back and review the testimony of a Senate Appropriations subcommittee hearing held on Monday, September 14, on the health effects of cell phone use. Chairman Tom Harkin (D-IA) noted he had called the hearing at the request of Sen. Arlen Specter (D-PA) and commented:

[It] is not the intention of this subcommittee to create undue alarm. But one thing that we’ll want to discuss today is whether we need more NIH research in this area and how that research should be conducted. Our expert witnesses will also discuss if there are precautions we should be taking now to reduce our exposure to cell phone radiation in case these fears turn out to be well-founded.

I’m reminded of this nation’s experience with cigarettes. Decades passed between the first warnings about smoking tobacco and the final definitive conclusion that cigarettes cause lung cancer. If more people had heeded those early warnings or if we could have established the link between tobacco and cancer more quickly, many lives would have been saved. We don’t know yet whether cell phone radiation poses a similar danger. I hope today’s hearing will begin to address that question.

Sen. Specter (and we’ve added links to his statement):

The subject was brought to my attention by a distinguished doctor who has written extensively on cancer, Dr. David Servan-Schreiber, from the University of Pittsburgh Medical Center. And he wrote a book on cancer which I found to be very illuminating. [Anticancer] I’ve had a couple of bouts with Hodgkins and was fascinated to hear Dr. Servan-Schreiber’s views on sugar and white flour feeding into cancer. And if you’ve had chemotherapy a couple of times, you look into any conceivable source to minimize the risk.

This was an appropriations hearing, so the core issue was money for research, and the portions we watched were not alarmist. Still, when a hearing starts out with comparisons to tobacco, you have to look around the room (or the IP log) for representatives of the litigation industry.

And … here are some headlines prompted by the hearing:

Sen. Specter Wants to Expand Reach of Securities Fraud Lawsuits

By | Briefly Legal, Economy, General | No Comments

Sen. Arlen Specter (D-PA) chaired a Senate Judiciary Committee hearing last week on his bill, S. 1551, the Liability for Aiding and Abetting Securities Violation Act. Specter’s legislation would return securities fraud litigation to the world before the Supreme Court’s ruling in Stoneridge v. Scientific Atlanta, that is, allow suits against third-party vendors (for example, manufacturers and suppliers) not directly involved in fraud schemes.

The National Association of Manufacturers regarded the Stoneridge case as one of the most important decided by the U.S. Supreme Court in 2008. The NAM had filed a brief in 2007 arguing that expanded liability was not provided for in the statute, and that such expansion would have chilled legitimate commerce, harmed the economy, encouraged frivolous claims, increased the costs of litigation, and encouraged coercive settlements.  The arguments would obviously apply to Sen. Specter’s legislation, as well.

Hence we cite the prepared statement of Adam Pritchard, Frances and George Skestos Professor of Law at the University of Michigan Law School:

S. 1551 would tear down the safeguards that the Court adopted in Stoneridge and Central Bank, creating the potential for the securities laws to be injected into a wide range of ordinary commercial transactions. As Justice Kennedy recognized in Stoneridge, expanding liability to secondary actors would undermine the United State’s international competitiveness and raise the cost of capital because companies would be reluctant to do business with American issuers. Issuers might list their shares elsewhere to avoid these burdens, thereby further fueling the flight from America’s securities markets.

Commercial counterparties of the sort named as defendants in Stoneridge and Central Bank are just a sideshow to S. 1551’s real purpose. The goal of the bill is to rope in more “deep pocket” defendants to feed the plaintiffs’ bar’s lucrative class action machine. That class action machine generates enormous fees that support the “pay to play” political contributions that plaintiffs’ lawyers use to persuade state pension funds to bring the lawsuits that help keep the machine rolling.

By offering up additional targets to the class action bar, S. 1551 promises to worsen the fundamental problems that make America’s securities class action regime so dysfunctional and destructive of shareholder wealth. Securities class actions are already an enormous drain on America’s capital markets. S. 1551 would make a bad situation worse.

Consider the effects of a more litigious, expensive and capricious economic environment on manufacturers planning for expansion as the recession comes to a close and growth returns.