Volume 12, Number 6 - July/August 2003

Snap Judgments
    By Heather Brewer
 

Still more bankruptcies?

More companies may be going belly-up, but there’s no shortage of predictions about what lies ahead for U.S. corporations after last year’s record 186 public companies filing for bankruptcy, Reuters reports. Despite the whopping $368 billion in debt faced by those companies, experts expect that number to grow this year. "I don’t think we’re going to see any dip in bankruptcy filings," says bankruptcy lawyer Alan Feld. "I think it’s going to get worse before it gets better." Next up in the bankruptcy crystal ball are power companies and retailers, who face stiff competition and mounting debt, according to Reuters. "One area of the economy really suffering is the franchise business, both the restaurant and retail gasoline side," says Feld. That suffering was seen in the bankruptcy filing in late 2002 by AmeriKing, which ran more than 350 Burger King franchises.

Privileged? Maybe not

From curfew-busting teen-agers to budget-busting companies, revoking privileges is a frequent penalty for wrongdoing. However, according to new guidelines issued by the Department of Justice, companies under investigation will face more than simply handing over the keys to dad’s car. In fact, as a result of a recent directive from Deputy Attorney General Larry Thompson, a business’ attorney-client privilege is under fire, according to the Washington Legal Foundation. A waiver of attorney-client and work-product privileges will now almost always be demanded by the Justice Department when investigating corporations. Further, reluctance to give up those privileges will work against the companies under scrutiny. "Unfortunately, waiver of the privilege undermines the frankness and quality of communications between employees and corporate counsel and forces counsel to become a deputy to federal prosecutors," says WLF Senior Counsel Paul Kamenar.

Getting huffy

When not hassling SUV owners, millionaire political commentator Arianna Huffington is taking jabs at politicos, faulting big government for being in league with big business. In her recent book, Pigs at the Trough, Huffington slams Republicans and Democrats alike for taking corporate donations and diluting corporate clean-up efforts to help their buddies in the private sector. "What makes the corporate crime wave not just a business scandal but a political one is precisely the fact that there is simply no consistent institutional opposition to the corporate takeover of our politics," Huffington writes. Further, Huffington expresses outrage that while CEOs and congressmen line their pockets, the "have nots" are getting left behind — and probably left off the guest lists to Huffington’s dinner parties as well. But who’s checking?

Treated like dirt?

Union, yes! A group of Arizona lawyers, tired of low earnings and poor treatment, recently unionized, with the Teamsters as their collective bargaining group, according to a recent article from the National Law Journal. "I think there are a lot of attorneys out there in a lot of places who are being treated like dirt," says Monte Rich, one of the 16 lawyers who voted to join forces with the truckers, bakery drivers and postal workers of Phoenix’s Teamsters Local 104. Rich, and the Teamsters’ other newest members, work for Parker Stanbury, an L.A.-based firm that contracts with Pre- Paid Legal Service in Phoenix to dispense inexpensive legal advice over the phone to poor and middle-class clients. According to the union, working conditions are not acceptable, with staff lawyers working with few research materials, under the pressure of hourly quotas and for low pay — $50,000 starting salaries. Teamster organizer Ed Bagwell says that his union has represented public sector lawyers in the past, but never those in a private practice. Jimmy Hoffa’s probably rolling over in his cement grave.

And the penalty is?

White-collar criminals may appear to be paying a price for their crimes when a judge slaps a prison term on them, but in many cases these criminals pay almost nothing at all, according to U.S. News & World Report. In fact, a recent General Accounting Office report found that the amount of outstanding criminal penalties owed to the federal government has more than doubled since 1995, now topping $13 billion dollars. The GAO attributed the unpaid debts to a broken collection system. They specifically cited lax procedures that give the criminals time to liquidate assets and inconsistent enforcement policies in which wealthy offenders may be paying $25 a month, while others with no resources are forced to fork over hundreds more. This problem may seem staggering to some, but to folks like Edwin "Fast Eddie" McBirney III, the system’s working great. McBirney, convicted of fraud and tax evasion in Sunbelt Savings’ spectacular $70 million collapse, has paid a mere $32,910 of the $7.46 million penalty against him. Meanwhile, McBirney continues to rake in money through real estate deals and has a Lincoln limousine registered to his address. No problem there.

Oversight? What oversight?

Recent crooked business deals have brought down several companies and execs, and left many more scrambling to clean up their act. But as business leaders are buckling down, little attention is being paid to the lawyers who helped broker those shady deals, according to U.S. News & World Report. In one Florida case, a firm helped a company rake in $50 million through a phony leasing operation, but quietly paid a paltry $2.5 million to settle a suit against them for their role. Another law firm that worked with now-defunct Enron is also facing a class-action suit for its role in helping the company doctor its deals. Despite these lawsuits, regulation of such lawyerly lapses is difficult. Many go unnoticed as state bar associations appear to be falling short of their responsibility to regulate. In fact, nationwide, barely more than 3 percent of investigations into law firms end in a public sanction and a mere 1 percent lead to disbarment.

Good for both sides

Small businesses’ needs may mean big business for lawyers as some firms opt to provide "fractional general counsel" services to mom-and-pop shops — for a fee, of course. According to the Dallas Morning News, the idea is new, but it’s catching on. Small businesses hire a lawyer and commit to use his or her services for a few hours each month. The business pays a flat fee for that time — whether it’s used or not — and pays a more traditional rate for every hour beyond that base. While some in the legal world question the financial sense of such an arrangement when, they say, in-house counsel is more affordable, University of Texas law professor Henry Hu sees the pluses. "It can be mutually beneficial by making the relationship less risky from both sides, and the two sharing the lower risk," Hu says. "From the point of view of the company, they get a lower rate. From the attorneys’ viewpoint, they can be assured they can pay the rent."

Easy with the punitives

A recent Supreme Court decision could damage civil-suit plaintiffs’ dreams of high-dollar decisions by reining in exorbitant awards, the New York Times reports. In its 6-3 ruling in favor of the State Farm insurance company, the court said that juries should not consider the defendant’s wealth when determining awards. "A defendant should be punished for the conduct that harmed the plaintiff," Justice Kennedy wrote in the majority opinion, "not for being an unsavory individual or business." The justices also inched closer in their decision to formalizing a ratio of punitive to compensatory damages, in order to keep the two in line. An earlier ruling suggested 4- 1, but now a smaller ratio seems to have support. "When compensatory damages are substantial, then a lesser ratio, perhaps only equal to the compensatory damages, can reach the outermost limit of the due process guarantee," Justice Kennedy said. In the State Farm case, the ratio of the initial reward was 145-1.