Monthly Archives: May 2009

Advantage Cartwright

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richardjustice032009 Texas Monthly’s Gary Cartwright caught my eye recently with this op-ed in which he bemoans the decline of sports writing in Texas.

I mean really. Can anyone who regularly reads the sports pages of Texas newspapers make a good faith argument against the notion that the current slate of Texas newspaper sportswriters cannot hold a candle to Dan Jenkins and his contemporaries?

Enter the Chronicle’s lead sports columnist, Richard Justice.

Justice — whose shoddy reporting, vapid analysis and bizarre blog comment attacks have been a frequent topic here for years — essentially proves Cartwright’s point about the demise of Texas sportswriting with this snarling and petty reply to Cartwright’s op-ed.

An old saying in India is that "sarcasm is the last weapon of the defeated wit."

Justice is living proof of the truth of that adage.

An amazing sporting feat

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tenbroek-torrance Although it is flying under the radar screen outside of golfing circles, Lance Ten Broeck’s performance at last weekend’s Valero Texas Open in San Antonio is one of the most amazing sports stories of the year. In fact, it would be so in most any year.

Ten Broeck is a 53 year-old former University of Texas golfer who bounced around the PGA Tour and satellite tours for decades before settling in to become a well-regarded caddy on the PGA Tour. Ten Broeck has looped for several well-known PGA Tour players and currently caddies for Jesper Parvenik.

As a former PGA Tour player, Ten Broeck was one of the alternates for the tournament in the event that one of the qualifying players dropped out. However, not expecting anyone to drop out of the tournament, Ten Broeck didn’t even bring his golf clubs to San Antonio.

Then, last Thursday, as Ten Broeck was getting ready to caddy for Parvenik, tournament officials informed Ten Broeck that a player had dropped out because of injury and that a spot in the tournament had opened up for him.

In 90 degree heat, Ten Broeck proceeded to caddy for Parvenik during his morning round on the incredibly hilly La Cantera Golf Course. Then, in the afternoon — and after borrowing clubs and shoes and buying a pair of pants at a nearby Dillard’s — Ten Broech went out and walked the course again while shooting a one-over-par 71 in the afternoon!

Incredibly, on Friday, again in 90 degree heat and after borrowing another set of clubs, Ten Broeck caddied for Parvenik in the morning and then went out and shot an even par 70. His 141 total for two days missed the 36-hole cut by two strokes.

By the way, Ten Broeck’s boss Parvenik shot 70-74 = 144 to finish below his caddy in the tournament.

I’ve played La Cantera several times. The thought of walking that hilly course twice on one hot day is daunting enough. However, that a 53 year-old did so while carrying a PGA Tour member’s bag, and then while shooting near par golf under PGA Tour tournament conditions, is flat-out unbelievable.

Brian Wacker provides more info here.

SCOTUS takes up the honest services issue

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ConradBlack Well now, that certainly did not take long, now did it?

Just a week after former Enron CEO Jeff Skilling appealed his criminal conviction and monstrous 24-year prison sentence to the U.S. Supreme Court on an allegedly erroneous application of the honest services wire-fraud statute (18 U.S.C. § 1346), the Supreme Court agreed to hear the appeal of former Hollinger International chairman Conrad Black on similar grounds. The briefs in support and opposition to Black’s petition for certiorari to the Supreme Court can be reviewed here.

Black’s conviction revolves around allegations that he diverted about $6 million from Hollinger International, which owned the Sun-Times and a number of other newspapers. He and two other former executives whose appeals will also be heard by the Supreme Court — former Hollinger CFO John Boultbee and corporate counsel Mark Kipnis — were convicted of three counts of mail fraud based on the theory that they improperly arranged the transfer of $5.5 million from a Hollinger subsidiary under sham non-compete agreements.

The high court’s decision to hear Black’s appeal on the honest services wire fraud issue leaves the Skilling petition somewhat in limbo. Although Skilling’s appeal arguably frames the issue better than Black’s, the Court could simply carry Skilling’s petition along with Black’s appeal and then remand Skilling’s case to the Fifth Circuit once it has adjudicated Black’s appeal.

But regardless whether the Supreme Court grants cert in Skilling’s appeal, the Court’s decision to hear Black’s appeal is very good news for Skilling.

By the way, as if on cue, Lord Black from his prison cell provides this entertaining evisceration of the forces that prevented him from selling for the benefit of shareholders the now bankrupt and worthless Chicago Sun-Times. Here’s a taste of Lord Black’s analysis of the situation:

[Former Bush I administration SEC chairman Richard] Breeden, whose career highlights include whitewashing George W. Bush on his lucrative insider trade in Harken Energy shares before the Gulf War in 1991, while he was Bush Sr.’s SEC chairman, and his immensely well-paid stints as special monitor or counsel of KPMG, WorldCom, and Fannie Mae, produced his special committee report in August 2005. (He has since, with no background at all, set up an offshore hedge fund and has promptly lost more than half his investors’ money.)

The report had cost over $100 million, accused us of a $500 million kleptocracy, and promised a future of unheard-of profitability for the company. On this, Breeden has delivered, as no profit has been heard of since he usurped the management. He also promised $1 billion of recoveries for the shareholders, and has instead wiped them out; $2 billion from the pockets and retirement and college funds of scores of thousands of people.

His report did fulfill his objective of generating criminal charges that, if substantially successful, could vacate or at least mitigate my $1 billion libel suits against him, the largest defamation claims in Canadian history.

Lord Black is a genuine piece of work.

Bad regulation vs. deregulation

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timothy_geithner Clear Thinkers favorite Niall Ferguson provides this timely reminder to those who believe that the financial turmoil of the past couple of years is the result of lax regulation of financial markets:

Human beings are as good at devising ex post facto explanations for big disasters as they are bad at anticipating those disasters. It is indeed impressive how rapidly the economists who failed to predict this crisis — or predicted the wrong crisis (a dollar crash) — have been able to produce such a satisfying story about its origins. Yes, it was all the fault of deregulation.

There are just three problems with this story. First, deregulation began quite a while ago (the Depository Institutions Deregulation and Monetary Control Act was passed in 1980). If deregulation is to blame for the recession that began in December 2007, presumably it should also get some of the credit for the intervening growth. Second, the much greater financial regulation of the 1970s failed to prevent the United States from suffering not only double-digit inflation in that decade but also a recession (between 1973 and 1975) every bit as severe and protracted as the one we’re in now. Third, the continental Europeans — who supposedly have much better-regulated financial sectors than the United States — have even worse problems in their banking sector than we do. The German government likes to wag its finger disapprovingly at the “Anglo Saxon” financial model, but last year average bank leverage was four times higher in Germany than in the United States. Schadenfreude will be in order when the German banking crisis strikes.

We need to remember that much financial innovation over the past 30 years was economically beneficial, and not just to the fat cats of Wall Street. New vehicles like hedge funds gave investors like pension funds and endowments vastly more to choose from than the time-honored choice among cash, bonds and stocks. Likewise, innovations like securitization lowered borrowing costs for most consumers. And the globalization of finance played a crucial role in raising growth rates in emerging markets, particularly in Asia, propelling hundreds of millions of people out of poverty.

The reality is that crises are more often caused by bad regulation than by deregulation. [.  .  .]

.  .  . Taxpayers, therefore, should beware. It is more than a little convenient for America’s political class to blame deregulation for this financial crisis and the resulting excesses of the free market. Not only does that neatly pass the buck, but it also creates a justification for . . . more regulation. The old Latin question is highly apposite here: Quis custodiet ipsos custodes? — Who regulates the regulators? Until that question is answered, calls for more regulation are symptoms of the very disease they purport to cure.

Stated another way, it’s not that rules are unnecessary for markets to perform efficiently. But what type of rules are better?

Rules that politicians enact and government bureaucrats enforce generally are far less efficient than rules that emerge as a result of the voluntary interactions of millions of individuals and companies. The successes and mistakes of those individuals and companies pursuing their own interests create rules that are the product of competition and personal responsibility. When those rules become sufficiently important in the fabric of a market economy, they become formalized as common law and precedent by courts. The distinction between inefficient government-imposed rules and the decentralized rules that facilitate productive market economies is an important one to understand as we wade through this current financial crisis.

The rules that the government is currently making up on the fly in connection with the Chrysler bankruptcy are a good example of rules that are destined to allocate resources inefficiently.

More Collision

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This earlier post provided the trailer for Collision, the new Darren Doake-directed documentary about the series of debates and conversations last year between Christopher Hitchens and Douglas Wilson over the existence of God. Here is a longer sneak peak of the documentary. It looks as if it is very well done. Enjoy.

Thinking about the Chrysler deal

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chrysler_logo Unworkable credit situation, UAW ownership and Italian engineering. What could possibly go wrong?

The blogosphere has really stepped up in analyzing the government-pushed and government-subsidized asset sale by Chrysler out of its only recently-filed chapter 11 case (handy site on the chapter 11 case is here). The best technical bankruptcy analysis has been provided by Steve Jakubowski, while Larry Ribstein, Professor Bainbridge, Mark Roe and the Epicurean Dealmaker have weighed in ably on the policy considerations of the deal. But Todd Zywicki in this W$J op-ed does the best job of summing up the long-range risk of what the Obama Administration is doing here:

By stepping over the bright line between the rule of law and the arbitrary behavior of men, President Obama may have created a thousand new failing businesses. That is, businesses that might have received financing before but that now will not, since lenders face the potential of future government confiscation. In other words, Mr. Obama may have helped save the jobs of thousands of union workers whose dues, in part, engineered his election. But what about the untold number of job losses in the future caused by trampling the sanctity of contracts today?

Chrysler’s proposed asset sale is unusual, but not unprecedented. Still, the legality of what is going on here is certainly sketchy. And what is unprecedented about this case is the participation of the government in financing the deal and the new Chrysler. Theoretically, another bidder could emerge and top the new Chrysler’s bid for the assets. However, such a competing bid simply could not be financed under current market conditions absent a subsidy from another government.

So, what to make of all this? Here’s what I will be watching.

Will the government market in Chrysler debt? If so, how will the market price it?

Or will the government simply hold the Chrysler debt as the company attempts to re-invent itself, turning the debt into a type of quasi-equity?

And will a company owned predominantly by a union and the government be able to attract the type of creative management and engineering talent that will be necessary to create wealth for the owners?

Frankly, the government bailout is the easy part. Creating wealth is a whole lot tougher.

The State of the Skilling case

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The attorneys for former Enron CEO Jeff Skilling filed a petition for a writ of certiorari with the U.S. Supreme Court yesterday, which is quite interesting and is being widely reported in the mainstream media.

However, as interesting as a Supreme Court appeal is, that is not the most interesting aspect of the Skilling case right now.

But first the petition.

As usual, Skilling’s legal team at O’Melveny & Myers did an outstanding job in lucidly presenting why the Supreme Court should consider Skilling’s appeal.

In short, Skilling’s petition contends that the Fifth Circuit Court of Appeal’s decision in Skilling’s appeal made a mess of two key issues:

(i) application of the honest services wire fraud statute (18 U.S.C. § 1346) to Skilling’s actions, and

(ii) application of the standard for deciding the proper venue for Skilling’s trial in the face of a presumption of community prejudice against Skilling.

As noted previously, the Fifth Circuit panel’s decision in Skilling’s appeal failed to reconcile its reasoning in upholding Skilling’s conviction for honest services wire-fraud under 18 U.S.C. § 1346 with earlier Fifth Circuit panel decisions on the same issue in the Nigerian Barge and Kevin Howard cases.

Inasmuch as there is now a clear split between Fifth Circuit decisions and other circuit appellate courts on the scope of honest services wire-fraud, the issue appears ripe for Supreme Court consideration. Indeed, Skilling’s petition notes Supreme Court Justice Scalia’s recent observation about the need for the high court to take up the issue:

“Without some coherent limiting principle to define what ‘the intangible right of honest services’ is, whence it derives, and how it is violated, this expansive phrase invites abuse by headline grabbing prosecutors in pursuit of local officials, state legislators, and corporate CEOs who engage in any manner of unappealing or ethically questionable conduct.” Sorich v. U.S., 129 S.Ct. 1308, 1310 (2009). [.  .  .]

There is a “serious argument” that, as Justice Scalia put it, “a freestanding, open-ended duty to provide ‘honest services’—with the details to be worked out case-by-case”—amounts to “nothing more than an invitation for federal courts to develop a common-law crime of unethical conduct.” Sorich, 129 S.Ct. at 1310. And because the notion that courts can “discover[]” whether conduct is criminal using common-law reasoning is “utterly anathema,” [cite deleted] there is an equally serious argument that § 1346 is unconstitutionally vague. [cite deleted].It should not be the task of federal courts to save a facially vague and unenforceable statute from itself. Only Congress can properly demarcate the boundaries of honest-services fraud. . .

Yeah, we know all about those “headline grabbing prosecutors,” don’t we?

The venue issue is even simpler. Skilling argues that the Fifth Circuit improperly allowed U.S. District Judge Sim Lake to rebut a presumption of community prejudice against Skilling through a superficial examination of individual jurors even though the Fifth Circuit concluded that Judge Lake had improperly failed to apply the presumption of community prejudice against Skilling. The Fifth Circuit’s ruling is at odds with several other circuit courts decisions that maintain that such a presumption simply cannot be rebutted, so that conflict between the circuits tees up another Supreme Court issue.

Frankly, given the extensive evidence of both pervasive media bias and prospective juror bias against Skilling, if the Supreme Court allows the Fifth Circuit’s decision to stand on the venue issue, then a denial of a motion to change the venue of a trial within the Fifth Circuit will no longer be grounds for an appeal.

But now for the more interesting developments in Skilling’s case.

Flying almost completely under the radar screen is the fact that the Fifth Circuit decision remanded a portion of Skilling’s case for two reasons.

First, the Fifth Circuit ordered Judge Lake to re-sentence Skilling because of an error that was made in applying a sentencing enhancement in assessing Skilling’s 24-year sentence.

Moreover, the Fifth Circuit decision invited Skilling to file a motion for new trial based on issues of prosecutorial misconduct. Specifically, the Fifth Circuit was particularly concerned about the failure of the Enron Task Force to comply with federal rules requiring the disclosure of exculpatory evidence to the defense from the Task Force’s pre-trial interviews with main Skilling accuser, former Enron CFO Andrew Fastow.

Fastow testified at trial that he told Skilling about the Global Galactic agreement, which purportedly documented a series of illegal “side deals” between Fastow and former Enron chief accountant Richard Causey that guaranteed Fastow would not lose money on certain special purpose entities that he was managing. Skilling denied any knowledge of the purported agreement.

After Skilling’s conviction, the Skilling defense team discovered Fastow interview notes that the Enron Task Force had failed to disclose to the Skilling team prior to trial. Among other things, those notes revealed that Fastow had told the Task Force lawyers that he didn’t think he had told Skilling about the Global Galactic agreement. The Fifth Circuit characterized the Task Force’s non-disclosure as “troubling” in inviting Skilling to file a motion for new trial with the District Court.

So, where does the Fifth Circuit’s remand of the Skilling appeal stand in the District Court?

Well, a review of the District Court docket of Skilling’s criminal case reveals that Judge Lake originally scheduled Skilling’s resentencing for July 30th.

However, in a highly unusual move, Skilling and the prosecution filed a joint motion requesting Judge Lake to put off the re-sentencing indefinitely pending the filing of Skilling’s motion for a new trial, the prosecution’s response to that motion, and the Court’s disposition of the motion. Moreover, the parties requested that the deadline for Skilling’s motion be pushed back to July 10th, which Judge Lake approved.

So, what is going on here?

Could it be that Skilling’s team has discovered even more exculpatory evidence that the Task Force failed to disclose to the Skilling defense prior to the trial?

Could it be that the government’s current lawyers — who were not members of the now disbanded Task Force and who have little incentive to cover for their predecessors — are now finding themselves dealing with a serious failure of the Task Force members to comply with rules requiring the disclosure of exculpatory evidence to the defense in Skilling’s case?

Could the Skilling case be turning into something similar to this?

Stay tuned.

How did it come to this?

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Judge Kent _3 That’s the question I kept asking myself as I watched former U.S. District Judge Sam Kent be sentenced to 33 months in federal prison yesterday (previous posts here).

I had an early-morning hearing in federal court yesterday and another one in the mid-afternoon. So, instead of returning to my office between hearings, I decided to attend the sentencing hearing for Judge Kent. It’s not every day that a federal judge is sentenced to prison.

The first hour or so of the hearing was stupefying as prosecutors and Kent defense attorney Dick DeGuerin argued over objections to the government’s pre-sentencing report. The main reason for the boredom was that, for the most part, no one except the lawyers in involved in the case and U.S. District Judge Roger Vinson knew what they were talking about. That vacuum of information was a direct result of Judge Vinson’s dubious decision to keep a substantial amount of the information about the charges against Kent under seal and away from public scrutiny.

Judge Vinson’s decision in that regard might have been somewhat defensible had the two victims of Kent’s sexual assaults requested secrecy to preserve what little privacy they could salvage from this ordeal. But neither of the victims requested such treatment, and my sense is that Kent didn’t want it, either.

So, Judge Vinson decided to conduct this case largely outside the public eye for his own reasons. In my 30 years of practicing law, I have never seen the volume of information in a case placed under seal as was done in this case.

In sentencing Kent, Judge Vinson claimed that he was upholding the justice system by showing that even a powerful judge is not above the law. Unfortunately, he undermined that same system by preventing the public from learning the details of the accusations against Kent and Kent’s responses to those allegations.

Although the first part of the hearing could have induced a snooze, the pace picked up dramatically when the two victims of Kent’s assaults made their way to the podium to make their victim statements to the court (one of the victim’s statements is here, courtesy of the Houston Chronicle). Both victims were extremely impressive in their presentations, describing the emotional and family carnage that Kent’s assaults and abuse of power caused. We also learned tidbits of information that likely would have been already been revealed had Judge Vinson not maintained such tight control over information:

The case manager reported Kent’s assaults to her supervisor, who did not take appropriate steps to report it to higher authorities out of fear for her job;

A "culture of fear" existed among employees at the Galveston federal courthouse as a result of Kent’s manipulative behavior and frequent drunkenness; and

Kent is estranged from much of his family.

There was a good bit of discussion from the victims and the lawyers regarding Kent’s alcoholism and his "serious" psychological issues, for which Judge Vinson ordered him to continue treatment. Also, Kent has been rendered virtually insolvent from his funding of the cost of defense of the case.

For his part, Kent did a good job in his statement to the court, apologizing to his accusers, his staff, his family, other judges and "the system." He promised Judge Vinson that he would continue to rehabilitate himself regardless of the sentence. My sense was that Kent was sincere.

I do not know Kent personally. I handled several hearings in his court over the years and never had a problem with him.

However, I know plenty of lawyers who found Kent insufferable and rude (see also here), and I heard the rumors about his alleged favoritism of certain Galveston lawyers, particularly in admiralty cases. In 2001, the Chief Judge of the Southern District of Texas took the unprecedented step of reassigning 85 cases away from Kent that were being handled by one of Kent’s best friends.

And now it appears that Kent was drinking heavily for much of the past decade and that he was frequently intoxicated while at the courthouse. You have to wonder whether concerns about Kent’s behavior impacted out-of-town parties’ decisions in cases such as this one?

So, I circle back to the question I asked at the beginning of this post — how did the judicial career of Sam Kent come to this sordid and sad ending?

Where were Kent’s "friends" who knew about his excessive drinking and other personal problems, and were in a position to intervene and help him before it was too late?

What are we to make of the federal government’s human resources apparatus that an entire federal courthouse could have been placed under a culture of fear by the abusive behavior of one man?

And doesn’t the Fifth Circuit Judicial Council have some explaining to do on why it issued its agreed order of public reprimand of Kent without interviewing either of the victims during the council’s investigation?

Finally what are we to conclude about our justice system that the Houston Chronicle — which, along with its coverage of Hurricane Ike, should have been won a Pulitzer Prize for its reporting on the Kent case — provides much more information to the public about the crimes of an abusive judge than the prosecution of that judge?