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February 28, 2005
Breakfast with Bill James
Rich Lederer over at the Baseball Analysts posts this first segment in a three part series of his recent interview with Bill James, who is the creator of Sabermetrics, the mathematical and statistical analysis of baseball records. Check out this fascinating interview, which includes such interesting observations as the following:
RL: In the 1979 Abstract, you noted that Rod Carew once swung at two pitches when he was being intentionally walked, trying to get the pitcher to throw him something he could reach. Do you think that is a strategy Barry Bonds could employ today?BJ: I don't know. I would argue about it this way. If it is genuinely advantageous for the defense to intentionally walk Barry Bonds, then logically it has to be defensible for Bonds to swing at one or two pitches to try to negate that advantage and try to tempt them into throwing him a pitch. On the other hand, if hitters never react by swinging at pitches to try to stop the opposing team from intentionally walking them, the implication is that the offense always agrees to accept it even though the defense thinks the walk is helpful, which seems somewhat illogical.
A couple of previous interviews with Mr. James can be reviewed here and here. Mr. James was hired last year by the Red Sox as a consultant and, although he would attribute the Red Sox subsequent World Series Championship as pure coincidence, I'm not so sure. Bill James is one smart cookie on matters relating to baseball.
Update: Here is the second segment of the interview.
Posted by Tom at 6:52 AM | Comments (0) | TrackBack (0)
An evening chat with U.S. Senate candidate Barbara Radnofsky
Greg's Opinion brings us this post in which he describes an evening chat with Vinson & Elkins partner and Democratic Party candidate for U.S. Senator, Barbara Radnofsky of Houston. Barbara is a formidable candidate who will be interesting to watch as her campaign develops. If she can overcome the name recognition hurdle, my sense is that she could give any Republican candidate for the Senate a real run for their money.
Posted by Tom at 6:31 AM | Comments (3) | TrackBack (0)
Is the end of the line near for Foley's?
In a deal that may well be the equivalent of Custer's last stand for department-store retailing, Federated Department Stores Inc. -- the owner of Macy's and Bloomingdale's -- has agreed to buy its longtime and smaller rival May Department Stores Co. for about $11 billion. May is the owner of Houston's venerable chain, Foley's.
Federated will pay about $36 a share in cash and stock, and assume about $6 billion in debt, to buy May, which also owns the Marshall Field's and Lord & Taylor chains. Although the proposed merger will create a huge company of nearly 1,000 department stores, the deal underscores the critical condition of department-store retailing, which has to undergo a transformation to survive in the brutal American retailing market. Big-box retailers such as Wal-Mart Stores Inc. on the low end and upscale stores such as Neiman Marcus Group Inc. on the high end are squeezing the profits of big department chains, which have been losing market share steadily over the past 25 years.
Although Federated operates only one Macy's store in Foley's home base of Houston, divestitures are still expected to occur, particularly in the 94 malls across the nation in which Federated and May both maintain locations. The merger is subject to regulatory approval, which is expected given the deteriorating condition of the department store-retailing sector.
Update: Dylan has interesting inside observations about May in this post.
Posted by Tom at 5:27 AM | Comments (0) | TrackBack (1)
Robert Dawson, RIP
Robert "Mad Dog" Dawson, who taught criminal and juvenile law to a generation of law students at the University of Texas Law School, died Saturday at his farm in Fentress at the age of 65. Although illness forced him to into a motorized scooter in the last few months of his life, Professor Dawson continued to teach his criminal law class at UT until a week and a half ago.
Professor Dawson taught at UT for 30 years and founded the school's Criminal Defense Clinic in 1974. The clinic gives third-year law the opportunity to represent criminal defendants in court under the supervision of UT law professors. Dawson authored the state's juvenile justice laws in 1973 and advised lawmakers on the revision of the Texas Juvenile Justice Code in 1995.
According to his obituary, Professor Dawson's ashes will be mixed with old horse stall bedding and scattered by manure spreader on pastures at the farm. "They will make good fertilizer for the hay crop," he wrote before his death.
Arrangements were pending with Weed-Corley-Fish Funeral Home in Austin. A memorial service is scheduled for 2 p.m. April 2 at UT's LBJ Auditorium.
Posted by Tom at 5:05 AM | Comments (0) | TrackBack (0)
February 27, 2005
Tsunami pictures from the beach
John and Jackie Knill of Vancouver, British Columbia were killed in Khao Lak, Thailand when the December 26, 2004 tsunami struck the resort at which they were vacationing. Afterward, their digital camera was found, and though the camera was destroyed, the photos of the oncoming tsunami on the camera's memory card were salvaged. Check out these spectacular photos.
Posted by Tom at 1:07 PM | Comments (0) | TrackBack (0)
NACDL files amicus brief in Andersen SCOTUS appeal
Here is the amicus curie brief of the National Association of Criminal Defense Lawyers in Arthur Andersen's appeal of its witness tampering conviction to the United States Supreme Court. The NACDL's brief addresses the prejudicial impact that the Andersen conviction will have on the attorney-client relationship, and notes the following in its Summary of the Argument:
This case places lawyers at risk of investigation, prosecution, and imprisonment for doing their jobs. When a lawyer represents a client in connection with a potential government investigation, one of the lawyer’s goals may appropriately be to prevent the government from developing evidence against the client. Within the bounds of ethics and the law, that is what lawyers do. . .In prosecuting the accounting firm Arthur Andersen LLP (“Andersen”), the government singled out the conduct of an in-house lawyer, Nancy Temple. Her crime, in the government’s view, was providing legal advice even before the SEC had issued a subpoena or launched a formal investigation. Specifically, she reminded Andersen employees to adhere to a lawful, established document retention policy and recommended changes to a draft memorandum – actions that lawyers undertake every day. According to several of the jurors, her edits to the draft memorandum were the principal basis for Andersen’s conviction.
By criminalizing this conduct, the Fifth Circuit disregards the traditional role of lawyers, which includes a duty to protect their clients by deflecting potential government investigations. In the court’s view, this goal itself is “improper” and reflects a “corrupt” purpose. Any action by the lawyer – such as vigorously asserting privileges, counseling potential witnesses about their rights, or, as here, advising employees about a company’s document retention policy and editing a draft memorandum – can violate the witness tampering statute if it is motivated even in part by this goal. Lawyers in the post-Andersen era now will operate in fear of investigation and prosecution. Those fears inevitably will dampen the zealousness of their advocacy. And that will imperil the fair administration of justice.
If allowed to stand, the decision below also will damage the attorney-client relationship by engendering potential conflicts of interest between lawyers and clients. On every close call regarding tactical and legal issues – and on many that are not so close – lawyers will have to weigh in the balance their own potential exposure to criminal liability. Yet the fundamental tenet of the attorney-client relationship is that the lawyer’s commitment to the client must be undiluted by concerns for his or her own personal interests. Moreover, by expanding the government’s ability to investigate counsel, the Fifth Circuit’s decision undermines the communication between attorney and client. If the advice of the Andersen lawyer here amounts to witness tampering, then communications long assumed to be privileged are in jeopardy of disclosure under the crime-fraud exception. Clients who are uncertain of the loyalty of their counsel or the confidentiality of their communications will simply not disclose information their lawyers need to know. That, too, imperils the fair administration of justice.
As a technical aside, neither the Anderson brief nor the NACDL brief in this SCOTUS case are bookmarked or linked in Adobe Acrobat to faciliate ease of review. Get with it, appellate lawyers. As federal courts are increasingly relying on electronic versions of pleadings and briefs, using Adobe Acrobat's bookmarking and linking tools is an easy way to make such documents more reader-friendly. And, as any judge or law clerk will tell you, a brief or pleading that is easy to read is always easier to adopt.
Posted by Tom at 11:37 AM | Comments (0) | TrackBack (0)
New ethics complaint involving DeLay?
Gosh, this is getting monotonous.
This Raw Story article reports that the National Journal is prepared to report that prominent lawyer and former lobbyist Jack Abramoff, who federal authorities are investigating for his lobbying efforts on behalf of an Indian tribe and his relationship with House Majority Leader and Houston area congressman Tom DeLay, paid thousands of dollars for DeLay and DeLay’s staff’s stay in an expensive London hotel in mid-2000. Earlier posts on the Abramoff-DeLay investigation can be reviewed here.
House rules stipulate that members or members’ employees cannot accept payment from a registered lobbyist to cover travel costs.
Posted by Tom at 7:27 AM | Comments (0) | TrackBack (1)
February 26, 2005
Nebraska v. OU Spirit Squad
The University of Nebraska football team has not been fairing well lately in its football rivalry with the University of Oklahoma. So, last year, a Nebraska lineman got confused and thought that NU was going to play the OU Spirit Squad instead. Oklahoma criminal authorities are not pleased (bugmenot login: "privatecitizen@msn.com"; password: "password").
Posted by Tom at 10:04 AM | Comments (2) | TrackBack (0)
A different question
The question being batted around the sports world the past couple of days is whether the suspension of Temple University basketball coach John Chaney is sufficient punishment for Chaney directing a goon on his team to hammer an opposing team's player, resulting in the player suffering a broken arm.
My question is different: How much will Chaney and Temple have to pay in money damages to the player? Looks to me that the liability phase of that civil case is a dead cinch winner for the injured player.
Update: Although I wouldn't want him sitting on the jury if I am representing the plaintiff, Greg Skidmore over at the Sports Law Blog has a nice analysis of the potential civil liability arising from Coach Chaney's actions. Also, Professor Palmer over at the Sports Economist is already thinking about potential damage calculations. Sounds like a budding expert witness on damages to me! ;^)
Posted by Tom at 8:26 AM | Comments (2) | TrackBack (0)
Ebbers is going to testify
In the key strategic decision of the criminal trial of former WorldCom CEO Bernard Ebbers, Reid Weingarten advised U.S. District Judge Barbara Jones on Friday that he intends to call his client Mr. Ebbers to the stand on Monday.
The prosecution rested its case on Wednesday and the defense began its case on Thursday. The defense intends to conclude by the end of next week, which means the case should go to the jury early in the following week. Here are previous posts on the Ebbers case.
Inasmuch as juries in white collar criminal cases expect to hear from the defendant, the decision to have Mr. Ebbers testify is only surprising because of how well the trial appears to have gone to date for Mr. Ebbers.
In their case in chief, prosecutors relied almost entirely on former WorldCom CFO Scott Sullivan's testimony in attempting to prove that that Mr. Ebbers helped direct a massive accounting fraud that inflated WorldCom's publicly-reported earnings and revenue numbers. Mr. Ebbers' alleged motive was to forestall a decline in WorldCom's stock price in an effort to protect his personal net worth, which was almost entirely based on WorldCom stock.
The Ebbers defense team has countered with a theory of the case that it was Mr. Sullivan who masterminded the fraud and that he concealed it from Mr. Ebbers, who was an "honest idiot." This past week, the defense put on its first witnesses, including Bert Roberts, WorldCom's former chairman, who testified that Mr. Sullivan did not implicate Mr. Ebbers when he was initially confronted with the $11 billion fraud in June 2002. Moreover, Cynthia Cooper, the internal WorldCom auditor who first uncovered the fraud, testified for the defense that Mr. Ebbers directed her to disclose negative accounting information to the WorldCom audit committee that Mr. Sullivan had wanted withheld.
Thus, the Ebbers defense team probably feels reasonably good at this point about establishing reasonable doubt in the minds of the jurors. However, I agree with the decision to put Mr. Ebbers on the stand. Although a bad performance could give the jurors second thoughts about reasonable doubt, a good or even neutral performance could clinch an acquittal.
Posted by Tom at 7:47 AM | Comments (0) | TrackBack (0)
Would you like to buy a note on a Houston downtown hotel?
There is an old saying among investors and insolvency lawyers that a hotel is such a bad investment that no owner makes any money on it until at least three prior owners have gone bust.
Well, it appears that the City of Houston is about ready to experience the truth of that observation. Following on the news from last week that the downtown Hyatt Regency Hotel has been posted for a foreclosure sale, the Chronicle reports that two other hotels -- The Magnolia downtown and the Crowne Plaza Hotel in the Medical Center -- have defaulted on a total of $15 million in redevelopment loans that the City provided in connection with the recent rehabilitation of the hotels.
It occurs to me that if I were a downtown or Medical Center hotel owner, and the City of Houston had subsidized two competitors of mine with a tax on my business, I'd be rather angry right now.
To make matters worse, the City's loans are not even secured by a first lien on the properties, so the City is not entirely in control of its options resulting from the defaults. The Chronicle article contains all sorts of optimistic statements from City officials and the hotel owners that "they are working through" the problems, but the harsh reality of the situation is that, unless the City wants to get into the downtown hotel business in even a bigger way than it already is with the city government-financed 1,200-room Hilton Americas Hotel, the City's options are limited.
Frankly, the most creative option probably is to convert the City's debt to an equity stake in hotels, install a savvy hotel operator to run the hotels, and take the risk that hotels can at least generate enough money to service the first lien debt on the properties (which, in the case of The Magnolia, may be a shaky proposition). On the other hand, if the City continues to maintain its debt position or hands it off to the federal agency that guarantees a portion of such loans, then the hotels will gradually deteriorate as cash flow is diverted to service the unrealistic debt levels. In that case, the primary purpose of the City's loans in the first place -- to redevelop run down properties -- will be effectively nullified.
The bottom line is that these are two more examples of why the City of Houston should not be in the business of financing redevelopment projects. Indeed, financing redevelopment was one of the rationalizations for this even bigger boondoggle.
Posted by Tom at 6:52 AM | Comments (0) | TrackBack (1)
February 25, 2005
Feds start investigating Krispy Kreme
A couple of weeks ago it was the sale of the corporate jet. This week it's a federal criminal investigation as formerly high-flying retail doughnut franchisor Krispy Kreme Doughnuts, Inc. moved a step closer to what appears to be an inevitable chapter 11 reorganization.
Krispy Kreme announced yesterday that the U.S. attorney for the Southern District of New York had launched an investigation that appears to be focused on the company's franchise repurchases and a profit warning that the company issued in May, 2004. As is typical in such announcements, the the Winston-Salem, N.C.-based company said that the company is "cooperating fully" with the investigation. Here are the previous posts over the past year on Krispy Kreme's mounting troubles.
The investigation deepens the problems facing Krispy Kreme, which is facing a liquidity crisis by the end of March. The company has been struggling with slowing sales and an SEC probe of its accounting practices that began last year. The company is cutting about 25% of its nonstore work force as part of a turnaround plan under Stephen F. Cooper, the Enron restructuring expert who became chief executive at Krispy Kreme in January.
Krispy Kreme stock was trading at $5.36 at the close of New York Stock Exchange composite trading yesterday, leaving the stock at about one-tenth of its peak price in August 2003. The company has also been blasted by multiple shareholder lawsuits over the past several months, which are another reason that chapter 11 appears to be an inevitable part of the company's reorganization.
Posted by Tom at 6:10 AM | Comments (1) | TrackBack (0)
Updating the Yukos case -- Judge Clark dismisses chapter 11 case
U.S. Bankruptcy Judge Letitia Z. Clark dismissed OAO Yukos' controversial chapter 11 case yesterday, concluding that there is inadequate precedent for a major foreign oil company to gain the substantial legal protections of a debtor-in-possession under U.S. bankruptcy law. Here is copy of Judge Clark's Memorandum Opinion and here are the prior posts over the past couple on months on this interesting international case.
Yukos had contended that the U.S. Bankruptcy Court had an adequate basis for jurisdiction over the company because of private American ownership of part of Yukos, two recently-created Texas bank accounts, and the fact that its chief financial officer had recently begun working out of his home in Houston.
Judge Clark's ruling sends Yukos back to the Russian and International civil justice system in an attempt to find a forum for its claims that the Russian government acted illegally in forcing the December auction of Yukos's valuable Yuganskneftegaz ("Yugansk") production unit. Yukos' former owner, Mikhail Khodorkovsky, remains in jail in Russia on fraud and tax evasion charges.
Yesterday's decision also concludes the lawsuits that Yukos filed in the Bankruptcy Court resulting from the auction, including its $20 billion "Hail Mary" against four Russian companies, including the Russian government-owned natural gas company OAO Gazprom and oil company OAO Rosneft. Rosneft purchased the Yukos unit from a shell company that that had won auction for Yugansk.
The dismissal of the Yukos case facilitates the Russian government's probable liquidation of the remainder of Yukos' assets to generate proceeds to pay the balance of Yukos alleged tax debt to the Russian government. Moreover, the Russian government will probably proceed with the merger of Gazprom and Rosneft, which had been put on hold after Yukos' chapter 11 case was filed. That planned merger will raise the Russian government's holding in Gazprom to above 50 percent, which will then allow foreigners to own shares in Gazprom.
Posted by Tom at 5:02 AM | Comments (0) | TrackBack (0)
It's "Go Texan Day!"
Read about this great Houston tradition here. This year's calendar of entertainer performances is here.
Posted by Tom at 4:57 AM | Comments (0) | TrackBack (0)
February 24, 2005
Lay-Skilling criminal trial will start in January 2006
Mary Flood of the Houston Chronicle is reporting that U.S. District Judge Sim Lake has scheduled the criminal trial of former Enron chairman Ken Lay, former CEO Jeff Skilling, and former head accountant Richard Causey to begin on January 17, 2006.
Posted by Tom at 2:44 PM | Comments (0) | TrackBack (0)
Andersen's opening brief in Supreme Court appeal
Here is Arthur Andersen's opening brief in its appeal to the U.S. Supreme Court of the firm's 2002 criminal conviction in connection with the Enron scandal. The following is an excerpt from the brief's Statement of the Case:
This case arises out of the conviction of Arthur Andersen, LLP ("Andersen") for witness tampering. . .For more than a century, it had been settled law that destruction of documents prior to the initiation of judicial or agency proceedings is not obstruction of justice. The Government accordingly sought to circumvent the limits on the crime of obstruction by indicting Anderson for "witness tampering" under 18 U.S.C. 1512, which prohibits attempts to "kill," "threaten," or "corruptly persuade" potential witnesses. In the Government's view, it was perfectly lawful for Anderson's employees to comply with the document retention policy themselves, whatever their motive might be, prior to the start of a proceeding. But it was criminal "corrupt persua[sion]" to urge others to comply with the policy if the request was even partially motivated by an intent to "impede the fact-finding ability" of some possible future investigation. . .
That expansive and illogical interpretation of the statutory language criminalizes common conduct undertaken without any consciousness of wrongdoing. . .
Posted by Tom at 7:05 AM | Comments (0) | TrackBack (0)
The real economics of Hollywood
This Jonathon V. Last-Daily Standard article reviews Edward Jay Epstein's new book, The Big Picture (Random House 2005), which examines the fascinating and ever-changing economics of moviemaking. To give you an idea of what's going on in Hollywood economics, consider this:
In 1947, Hollywood sold 4.7 billion movie tickets. The studios were hugely profitable movie factories.Times have changed. . . Television came to compete with the movies, as did home video. And despite a population boom, movie-going fell out of favor. In 2003, only 1.57 billion tickets were sold, a third the number 56 years earlier, while the real cost of making movies increased some 1,600 percent.
It wasn't just production costs that exploded. Today the average movie costs $4.2 million to distribute and nearly $35 million just to advertise. (The comparable 1947 figures, adjusted for inflation, were $550,000 and $300,000.) Such peripheral costs, Epstein explains, have grown so large that "even if the studios had somehow managed to obtain all their movies for free, they would still have lost money on their American releases."
How did Hollywood respond? Epstein observes that Hollywood transformed itself from a factory for making movies into a clearinghouse for intellectual property, which is at least as profitable as making movies used to be. The result?
The truth is that, even with terrible movies, the studios have to try hard not to make money. In this way, today's Hollywood is very much like the studio system of old. The two business models are so favorable that the quality of the product is beside the point. The difference, of course, is that the movies from the studio era were often quite good.
Read the entire review. Hat tip to EconoLog for the link to this review.
Posted by Tom at 6:30 AM | Comments (1) | TrackBack (0)
Big Oil challenges outmoded SEC reserve reporting requirements
Several big oil companies released a report yesterday that they had commissioned that challeges the way in which U.S. regulators require oil companies to measure how much oil and natural gas the companies have in the ground. Reserve numbers are a critical measure for evaluating the long term health of an oil and gas company. Here is the executive summary of the report.
Cambridge Energy Research Associates prepared the report, and it sharply criticizes the method that the Securities and Exchange Commission requires that oil and gas companies use to assess oil and gas reserves. The report contends that the SEC's method is obsolescent and that the results of using the method actually mislead investors because it underestimates the oil and gas industry's success in discovering or tapping new reserves of oil and gas. The results from using the different methods is startling -- it can amount to hundreds of millions of barrels of oil at one company alone. As a result, the report recommends that the SEC revise its reserves-accounting methodology to reflect changes in the oil and gas industry since the guideline was implemented 27 years ago.
This is a key issue for the oil and gas industry because because the long term prospects of companies in the industry is largely dependent on their ability each year to find enough new oil and gas reserves to replenish reserves that the company has generated. In short, reserves are akin to a sign of how much money an oil and gas company has in the bank.
Absent from the Big Oil sponsors of the report was Royal Dutch/Shell Group, which has been hammered over the past year by a scandal in which the company admitted that it had massively overstated its reserves. As a result, Shell has revised its reserves by about a third over the past year, and it still faces continued scrutiny from investigators in the U.S. and Europe.
Posted by Tom at 5:24 AM | Comments (0) | TrackBack (0)
February 23, 2005
Lea Fastow's motion to reduce sentence is denied
The Chronicle's Mary Flood, who continues to do a fine job of covering the Enron scandal, posted this article today regarding U.S. District Judge David Hittner's denial of Lea Fastow's motion to reduce her one year sentence for misdemeanor tax fraud to the seven months that she has already served. Here are previous posts on the Lea Fastow case.
Along with the the sad case of Jamie Olis and the Martha Stewart case, Mrs. Fastow's case is another example of the egregious lack of prosecutorial discretion that exists in today's "Justice" Department.
Posted by Tom at 5:11 PM | Comments (0) | TrackBack (0)
The pesky reality of high medical malpractice premiums
This New York Times article entitled "Behind Those Medical Malpractice Rates" addresses the myth that Bush Administration and Republican Party-fueled propaganda campaigns continue to promote in their quest to limit for damage-limit legislation:
[F]or all the worry over higher medical expenses, legal costs do not seem to be at the root of the recent increase in malpractice insurance premiums. Government and industry data show only a modest rise in malpractice claims over the last decade. And last year, the trend in payments for malpractice claims against doctors and other medical professionals turned sharply downward, falling 8.9 percent, to a nationwide total of $4.6 billion, according to data.
Lawsuits against doctors are just one of several factors that have driven up the cost of malpractice insurance, specialists say. Lately, the more important factors appear to be the declining investment earnings of insurance companies and the changing nature of competition in the industry. The recent spike in premiums - which is now showing signs of steadying - says more about the insurance business than it does about the judicial system.
Even the connection limiting damages and reducing costs for doctors is not even well-established:
[S]ome researchers are skeptical that caps ultimately reduce costs for doctors. Mr. Weiss of Weiss Ratings and researchers at Dartmouth College, who separately studied data on premiums and payouts for medical mistakes in the 1990's and early 2000's, said they were unable to find a meaningful link between claims payments by insurers and the prices they charged doctors."We didn't see it," said Amitabh Chandra, an assistant professor of economics at Dartmouth. "Surprisingly, there appears to be a fairly weak relationship.
The Times article reiterates many of the same points that are made in the June 2003 GAO report entitled Medical Malpractice Insurance: Multiple Factors Have Contributed to Premium Rate Increases and this subsequent August 2004 Congressional testimony of GAO researchers on the same topic.
Make a note of the Times article and the these GAO resources the next time that you hear a demagouge declare that legislative caps on damages will reduce high medical malpractice premiums. Appealing to public bias against unpopular plaintiffs' lawyers by promoting such legislation as a cure for high malpractice premiums amounts to rearranging the deck chairs on the Titanic. High medical malpractice premiums are a result of America's broken health care finance system, and until we force our politicians to address the problems in that system, medical malpractice rates will continue to rise.
Hat tip to the HealthCareProf Blog for the links to the GAO resources.
Update: For a critique of the Times article's conclusions, check out this Walter Olson post and this subsequent post over at the PointofLaw.com.
Posted by Tom at 7:32 AM | Comments (3) | TrackBack (1)
What's going on at Brinker International?
Another high-ranking executive at Dallas-based restaurant company Brinker International, Inc. resigned earlier this week. The resignation was the third of a high-ranking Brinker executive in the past month.
The latest Brinker executive to go was Wilson Craft, a 20 year veteran with Brinker who was most recently president of Brinker's Chili's Grill & Bar, which is Brinker's flagship restaurant chain. Chili's chief operating officer and the president of Romano's Macaroni Grill, Brinker's second-largest restaurant chain, resigned last month.
Brinker has long been one of the most successful restaurant companies in Texas, but the competitive pressures in that industry are absolutely brutal at this time. Other Brinker's chains -- none of which are close to as popular as Chili's or Macaroni Grill -- are Maggiano's Little Italy, On The Border Mexican Grill & Cantina, Corner Bakery Cafe, Big Bowl Asian Kitchen and Rockfish Seafood Grill.
Posted by Tom at 6:03 AM | Comments (1) | TrackBack (0)
Continental wins right to fly non-stop to China
The U.S. Transportation Department announced yesterday that Houston-based Continental Airlines and Dallas-based AMR Corp.'s American Airlines have won a lively contest within the U.S. airline industry to offer additional non-stop flights to China.
Continental will offer a daily, 13-hour nonstop flight to Beijing from Newark Liberty International Airport later this year while American will offer daily nonstop flights from Chicago to Shanghai beginning in April, 2006. Northwest Airlines Corp. and UAL Corp.'s United Airlines are the other U.S. airlines that are authorized to fly routes to the country.
Cargo shipments carrying goods from China to the U.S. have been leading the increase in air service between the two countries over the past several years. However, according to the DOT, passenger traffic between the U.S. and China rose over 35% from 2003 through November 2004. So, the new flights are consistent with Continental's business strategy of emphasizing profitable international flights over less profitable domestic routes.
Posted by Tom at 5:35 AM | Comments (0) | TrackBack (0)
February 22, 2005
NY Times on candidates to replace Chief Justice Rehnquist
This NY Times article does a good job of summarizing the situation surrounding the increasingly likely retirement of U.S. Supreme Court Chief Justice William Rehnquist, who is suffering from thyroid cancer and the effects of the treatment for the condition. The Times article reports that a consensus is developing within the Bush Administration that Justice Rehnquist will step down at the end of the Supreme Court's term in June. According to the Times article, the five names on the Administration's short list are as follows:
1) Michael W. McConnell of the United States Court of Appeals for the 10th Circuit,2) John G. Roberts of the United States Court of Appeals for the District of Columbia,
3) J. Harvie Wilkinson III of the United States Court of Appeals for the Fourth Circuit, and
4) J. Michael Luttig of the United States Court of Appeals for the Fourth Circuit, and
5) Samuel A. Alito of the United States Court of Appeals for the Third Circuit, who is mentioned as "another possible candidate."
This is a high caliber list of intellectual heavyweights who, I believe with the exception of Judge Alito, are all former Supreme Court clerks. My personal favorite for the appointment is Judge Roberts, who I have found to be an absolutely superb thinker and writer in the opinions that he has penned while on the D.C. Court of Appeals.
Posted by Tom at 9:44 AM | Comments (0) | TrackBack (1)
Ebbers criminal trial winding down?
In a somewhat shocking development to a world conditioned to prolonged white collar criminal prosecutions, the prosecution in the criminal trial of former WorldCom CEO Bernard Ebbers announced yesterday that it will not be calling any further witnesses from the company and that it expects to conclude its case-in-chief either today or tomorrow. The government's statement came after U.S. District Judge Barbara Jones declined to grant the government's request to call a former WorldCom employee who lost her entire retirement savings when the company collapsed,
Thus, the importance of former WorldCom CFO Scott Sullivan's testimony to the government's case against Ebbers has come into clear focus. The government used Sullivan as the principal witness to connect Ebbers' involvement in the accounting fraud at WorldCom, and the cross-examination hammered on Sullivan's lies and misstatements, including a protracted discussion about whether what Sullivan said in a particular conference call constituted the universally understood concept of "B.S."
Nevertheless, after three weeks of testimony, the government has essentially conceded that there is no paper trail to link Ebbers directly to the fraud. Sullivan's testimony is that he falsified WorldCom's accounts on numerous occasions and repeatedly lied about the company's trading position because Ebbers urged in private conversations that "We have to hit our numbers."
On cross-examination of Sullivan, the Ebbers defense promoted the "honest idiot defense" theory that Ebbers was the visionary who delegated the details of the company's accounts to the more sophisticated and better educated Sullivan. Now, with the prosecution's case winding down, the Ebbers defense team faces the key strategic decision in the case -- whether to put Ebbers on the stand or even whether to put on any witnesses other than character witnesses to attest to Ebbers' good ol' boy nature. Inasmuch as juries in white collar cases expect to hear what the defendant has to say, they generally hold not testifying against the defendant even though they are not supposed to do so. However, with the WorldCom prosecution's case relying heavily on Sullivan's credibility, the Ebbers defense team may decide that Ebbers' testimony could only hurt their defense and, thus, it's worth the risk of not putting him on the stand.
Stay tuned on this one, folks. This case may go to the jury be early next week.
Posted by Tom at 9:07 AM | Comments (0) | TrackBack (0)
Novartis rocks medical community with $8.4 billion expansion of generic drug empire
Swiss pharmaceuticals giant Novartis AG announced over the weekend an $8.4 billion expansion of its generic drug holdings in a move that is widely viewed in the drug and medical communities as the continuation of trend toward consolidation in the generic drug sector. As a result of the deal, Novartis will become the world's largest seller of generic drugs at a time when it is already the top seller of branded drugs. Novartis had total world-wide sales last year of just under $30 billion.
Novartis will pay $7.4 billion to buy Hexal AG of Germany and 68% of Eon Labs Inc., which are two generic-drug makers that are controlled by Germany's wealthy Strüngmann family. As a part of the deal, Novartis will also launch a tender offer to acquire the balance of Eon shares for about another billion.
The generic drug industry has exploded in growth since the 1980s when U.S. law was modified to make it easier for drug companies to copy successful branded drugs. As a result, the generic drug industry became increasingly aggressive at challenging the legality of branded drug patents in court, which has often resulted in patents being overturned years ahead of the normal term.
Nevertheless, the sector has always been highly fragmented and now its profits are being squeezed by brutal price competition. Thus, these difficult market conditions are prompting consolidations in the generics business, and the Novartis deal reflects that the branded drug companies are going to be involved in the consolidation in a big way.
Posted by Tom at 8:30 AM | Comments (1) | TrackBack (0)
Boston Herald tagged with big defamation jury verdict
In a case that is being followed closely by free speech advocates and lawyers who specialize in defamation cases, Massachusetts Superior Court Ernest B. Murphy hammered The Boston Herald and one of its reporters with a $2.1 million jury verdict for libeling him in a series of articles that portrayed him as being overly lenient toward criminal defendants.
The Herald reported in February 2002 that prosecutors were criticizing Judge Murphy privately for giving overly lenient sentences to criminal defendants, and used as an example a sentence of eight years' probation for a 17-year-old convicted of two rapes and an armed robbery. In a particularly inflammatory part of one article, the newspaper quoted Judge Murphy as telling prosecutors involved in the case to tell the teenage rape victim: "Tell her to get over it." The story was picked up by media outlets across the country and Judge Murphy became a target of right wing talk radio shows that tabbed him as "Easy Ernie" and "Evil Ernie." The Herald's lead reporter on the story then appeared on Fox's "The O'Reilly Factor" after his first story ran and confirmed that Judge Murphy had made the comment to three lawyers involved in the case.
In his suit against the newspaper, Judge Murphy's essentially accused the Herald of fabricating a sensational story to sell papers. Based on about a dozen articles, Judge Murphy asserted that the Herald had misquoted him in connection with the above particular quote, and that it took other of his remarks out of context. The lawsuit also alleged that the judge was bombarded with hate mail, death threats and calls for his removal from the bench as a result of the Herald's articles on the judge. The newspaper stood by its reporting of the particular quote and the series of articles in general.
The case is particularly noteworthy because Judge Murphy is a public figure, which means that Judge Murphy had to persuade the jury that either the Herald knew it was reporting false information or that it acted with a reckless disregard for the truth. That is a considerably higher standard than what a normal citizen must fulfill to win a defamation lawsuit.
Posted by Tom at 7:59 AM | Comments (2) | TrackBack (0)
Winn-Dixie tanks
Jacksonville, Fla.-based Winn-Dixie Stores Inc., the venerable Southern grocery retainler, announced early Tuesday that it had filed a chapter 11 case in New York City. The company operates 920 stores and employs about 80,000 workers in eight states and the Bahamas.
Winn-Dixie is one of the largest food retailers in the U.S., but the company reported earlier this month that it had posted a loss of almost $400 million for its most recent fiscal quarter on revenue of just above $3 billion. This result compared with an $80 million loss on almost $3.25 billion in revenue for the year earlier period. Lower revenues combined with considerably higher losses is usually a sign that that it's high time to reorganize.
As is typical in such big retail reorganizations, the main purpose of the chapter 11 is to reject the leases on about 150 stores that were the result of an ill-timed expansion effort. The company projects that those closings, along with the termination of leases on a couple of warehouses, will result in annual cash savings of at least $60 million. The company has also obtained an $800 million DIP (i.e., "debtor-in-possession") credit facility from Wachovia Bank N.A. to fund its operations during the chapter 11 case.
In early December, Winn-Dixie had the dubious distinction of being dropped from the Standard & Poor's 500 index after recording the worst performance in 2003 in the select stock index. Consequently, the company's management has its work cut out for it in this reorganization. Absent a white knight appearing to buy the company at a premium -- which is highly unlikely in the brutally competitive retail grocery business -- look for a debt-to-equity reorganization plan that will carve out a healthy piece of new equity to incentivize a new management team to turn Winn-Dixie around.
Posted by Tom at 7:32 AM | Comments (0) | TrackBack (0)
February 21, 2005
The new kid on the Supreme Court block
This Washington Monthly article profiles Tommy Goldstein, the Washington D.C. lawyer who, though still in his 20s, has elbowed his way into the select group of lawyers who regularly appear before the U.S. Supreme Court. What makes Mr. Goldstein's story most interesting is that he has accomplished this feat while starting and operating his three-lawyer firm out of his house:
He had never clerked for a justice or worked in the SG's office. He earned his law degree at plebian American University, not Harvard or Yale. Yet Goldstein is already renowned among his peers and has begun to make a lot of money, too. This year, his firm, Goldstein & Howe-- Howe is his wife and partner, Amy--will bill close to $1.5 million in fees. "His knowledge of the court is breathtaking," says Ronald Collins, a First Amendment scholar at the Freedom Forum and former court clerk. "One cannot speak about Supreme Court litigation without breathing Tom's name. And he has only just begun."
Hat tip to On Appeal for the link to this interesting story.
Posted by Tom at 6:37 AM | Comments (0) | TrackBack (0)
Black markets are in everything
Alex Tabarrok over at Marginal Revolution points out that students at at Austin High School in Austin have given school administrators a lesson in the economics of "candy" prohibition:
When Austin High School administrators removed candy from campus vending machines last year, the move was hailed as a step toward fighting obesity. What happened next shows how hard it can be for schools to control what students eat on campus.The candy removal plan, according to students at Austin High, was thwarted by classmates who created an underground candy market, turning the hallways of the high school into Willy-Wonka-meets-Casablanca. . .
During the prohibition, one student, who asked not to be identified, said that he sold candy at the school and made as much as $50 in a day.
"It's all about supply and demand," said Austin junior Scott Roudebush. "We've got some entrepreneurs around here."
The Austin High administration, which won't elaborate on how much or little it knew about the candy black market, has since replenished the vending machines with some types of candy.
Posted by Tom at 5:38 AM | Comments (0) | TrackBack (0)
Hunter Thompson, RIP
Hunter S. Thompson fatally shot himself Sunday night at his Aspen-area home. He was 67.
Mr. Thompson was a counterculture writer who popularized a new form of fictional journalism in books during the early 1970's such as Fear and Loathing in Las Vegas and and Fear and Loathing: On the Campaign Trail '72. Mr. Thompson also was the model for Gary Trudeau's balding "Uncle Duke" in the comic strip "Doonesbury."
Although Mr. Thompson was a writer for many years before joining Rolling Stone magazine in the late 1960's, that association led to a fairly large following during the 1970's. Nevertheless, Mr. Thompson's popularity as a writer peaked as a counterculture icon during the Watergate era and the Nixon Administration. He never moved beyond the vacuity of "gonzo journalism" and, thus, the popularity of his writing receded over the past three decades.
Here is an archive of Mr. Thompson's work.
Here is the ESPN.com archive of Mr. Thompson's work.
Update: Banjo Jones over at the Brazosport News has an insightful post on Mr. Thompson.
And Tom Wolfe remembers Mr. Thompson here.
Posted by Tom at 4:50 AM | Comments (0) | TrackBack (0)
February 20, 2005
The historic Medical Center divorce
Todd Ackerman is the Houston Chronicle reporter who has been doing an outstanding job covering the termination of the Methodist Hospital's 50 year primary teaching hospital relationship with Baylor College of Medicine that occurred last year. Here are the earlier posts on this historic split.
In this Sunday Chronicle article, Mr. Ackerman begins a series of articles that will explore the demise of the Baylor-Methodist relationship. Inasmuch as the Baylor-Methodist relationship was one of the many reasons that the Texas Medical Center grew over the past 30 years into one of the world's premier medical and primary research centers, the termination of the Baylor-Methodist relationship is an important part of Houston's history.
However, the divorce is also a reflection of the difficulties involved in sustaining even long-term business and professional relationships during this tumultuous period in the American health care industry. When those pressures overwhelm a productive relationship such as the one that Baylor and Methodist developed, the risk increases that a decline in the quality of medical care will be the ultimate result. That is an issue for which all of us should be concerned.
Update: Here is second article in the series.
And the third, which closes with this anecdote:
[A]s the squabbling between Baylor and Methodist shows no signs of abating, the best view might be the last line in a thank you note received by Dr. Richard Stasney, a Methodist ear, nose and throat specialist. It said,
"Let's pray for peace in the Middle East — and the Texas Medical Center."
Posted by Tom at 6:25 AM | Comments (0) | TrackBack (0)
February 19, 2005
Report on the 5th Circuit argument in the sad case of Jamie Olis
Ann Woolner of Bloomberg.com attended the Fifth Circuit oral argument on the appeal of Jamie Olis' sentence and files this report. She is optimistic, as I am, that the Fifth Circuit will reverse Olis' 24 year sentence and remand his case back to U.S. District Judge Sim Lake for resentencing. Earlier posts on the Olis case over the past year are here.
Posted by Tom at 7:02 AM | Comments (0) | TrackBack (0)
Downtown Hyatt posted for foreclosure
This Chronicle article reports that Houston's downtown Hyatt Regency Hotel has been posted for foreclosure by its lender, which is believed to be German American Capital Corp. The current owner of the hotel is Rushlake Hotels USA, which is closely-owned by a Pakistani investor group.
As with all non-judicial foreclosure sales of real property in Texas, a notice of the foreclosure sale was posted at the Harris County Courthouse at least 20 days before the first Tuesday of the following month. The first Tuesday of each month is the day on which non-judicial foreclosure sales of real property are conducted in Texas. That's the main reason why the first Monday of each month is often the day on which the highest number of bankruptcy filings takes place in Texas.
Although it has a good location, the downtown Hyatt is one of the older hotels in the downtown (it opened in 1972) and is a bit dowdy in comparison to many of the new hotels that have been built in the downtown area over the past several years. Industry experts believe that the Hyatt's occupancy rates have been below 50 percent for some time.
The Chronicle article downplays the foreclosure, but it is important to note that forced sale comes just a year after the opening of the city government-financed 1,200-room Hilton Americas Hotel a few blocks away next to the George R. Brown Convention Center. The Hilton Americas was a big part of the huge increase in the supply of downtown hotel rooms over the past several years in advance of Super Bowl XXXVIII in early 2004. During that period, downtown hotel capacity zoomed from 1,800 rooms to 5,500 rooms.
As a result, hotel occupancy rates averaged about 53 percent in downtown Houston last year, which is below the 60 percent that is generally considered an acceptable occupancy rate within the hotel industry. Nevertheless, that relatively low occupancy rate came on the heels of a 40 percent increase last year in the number of rooms in downtown Houston. So, downtown Houston actually had a strong overall increase in occupancy of hotels during 2004.
Having said that, there is no Super Bowl in Houston during 2005 and, thus, occupancy rates this year will be a better barometer of the overall health of the downtown hotel market. Thus, the foreclosure of the Hyatt is another sign of increasing troubles in the Central Houston, Inc.-coordinated redevelopment of downtown Houston over the past decade. Inasmuch as downtown restaurant and bar business has also slowed recently, it is beginning to look as if the supply of new amenities in downtown Houston needs to slow down and catch its collective breath to allow the demand for such amenities to catch up.
Posted by Tom at 6:04 AM | Comments (0) | TrackBack (1)
February 18, 2005
Law & the Media 2005
On Saturday morning (February 19), the Houston Bar Association's annual Law & the Media Seminar, co-sponsored by the Society of Professional Journalists and The Press Club, will take place on the sixth floor of the South Texas College of Law, 1303 San Jacinto in downtown Houston.
The topic for this year's program is "Maintaining the Independence of the Media," and the featured speaker is John Seigenthaler, who founded the First Amendment Center in 1991 with the mission of creating national dialogue about First Amendment rights and values. Mr. Seigenthaler served for 43 years as an award-winning journalist for The Tennessean, Nashville's morning newspaper and was the founding editorial director of USA TODAY in 1982. During the early 1960's, Mr. Seigenthaler served in the U.S. Justice Department as administrative assistant to Attorney General Robert F. Kennedy, which led to his service as chief negotiator with the governor of Alabama during the Freedom Rides.
There will also be a couple of panel discussions, which will include local journalists and attorneys. The first panel discussion will be on "Threats to the Independence of the Media" and will include four noted local journalists, Robert Arnold of KPRC, Tim Fleck of the Houston Chronicle, UH Journalism Professor Garth Jowett, and Mimi Schwartz of Texas Monthly magazine. I will be on the second panel along with local attorney Chip Babcock, Carlos Puig of Rumbo de Houston, and Olive Talley of Dateline NBC that will be discussing "Tools for Maintaining Independence of the Media."
Come on out on Saturday morning and enjoy the lively discussion of issues affecting the media and journalism. Members of the media, communications professionals and journalism and law students attend at no charge. Attorneys pay $40 for the program, which is approved for three hours of MCLE, including one hour of ethics.
Posted by Tom at 7:57 PM | Comments (3) | TrackBack (0)
Bad Bankruptcy
Following this post from last week, the Senate Judiciary Committee approved bankruptcy "reform" legislation on Thursday that imprudently makes it harder and more expensive for people to discharge their personal liability for substantial debts in bankruptcy. Given Congress' Republican majorities, the long disputed measure appears to be on track to be signed into law.
This bankruptcy reform bill is similar to others that have been batted around Congress several times during the past seven years, but each time the bills have been stymied by a combination of Democratic opposition and Republican obstinance. A nearly identical bill to the one that the Judiciary Committee just passed has been introduced in the House.
The bill's main flaw is that it takes a "one shoe fits all" approach that would likely funnel most individuals into Chapter 13 cases under which the debtor proposes a plan to repay debts based on the debtor's income. In attempting to accomplish that dubious goal, the bill threatens to create a huge bottleneck in the U.S. Bankruptcy Courts by requiring that the Bankruptcy Judge make a threshold determination in each personal bankruptcy case of whether the debtor is, in effect, a "good" debtor, who is simply down on his or her luck, or a "bad" debtor, who is just trying to avoid paying his or her debts. If the debtor is not sufficiently "good" to justify a complete discharge of personal liability for his or her debts in a liquidation under chapter 7 of the Bankruptcy Code, then the Bankruptcy Judges are to funnel them into a chapter 13 case.
Just to give you an idea of the administrative nightmare that this ill-conceived requirement will likely cause, note that 1.6 million personal bankruptcies were filed in the 12-month period ending September 30, 2004, according to data from the Administrative Office of the U.S. Courts. Bankruptcy Courts already have extraordinarily busy dockets, and plopping such a time-consuming process at the outset of each personal bankruptcy case on top of those crowded dockets is simply contrary to any reasonable notion of judicial economy.
Moreover, this bill does not have the support of of a wide coalition of business leaders and the leading academic experts in insolvency law, such as the then new Bankruptcy Code enjoyed when it was passed in 1978. In comparison, this reform bill is supported primarily by narrow special interests -- financial institutions in the credit card business -- that want to make it harder for debtors to discharge their liability for substantial credit card indebtedness. As a result, the bill makes individual bankruptcy more expensive and difficult, which undermines one of key incentives of insolvency law -- that is, a fresh start for a person who desires a second chance and an opportunity to put their financial house in order.
Meanwhile, just to make certain that the bill has bipartisan contributions of bad ideas, the Committee accepted amendments from Senator Edward Kennedy that would limit companies on the brink of a chapter 11 reorganization from from paying key employees retention bonuses and would require a special trustee to be appointed in cases where corporate fraud is suspected. Not surprisingly, retention bonuses and fraud were hot button items in the politically-charged chapter 11 case of Enron Corp.
However, preventing a financially-troubled company from attempting to keep its key employees from deserting a sinking ship is a particularly bad idea because those employees are often the most important factor in planning a successful reorganization under chapter 11 that will pay creditors a dividend and preserve jobs in a community. Consequently, by taking away a financially-strapped company's flexibility to retain key employees, Congress is increasing the risk that the company will end up in a liquidation, which means that creditors recover nothing and the community in which the company is located loses jobs. Similarly, requiring a special trustee in cases involving corporate fraud is simply unnecessary and more political grandstanding -- the Bankruptcy Code already provides for the appointment of a trustee under such circumstances.
At least Judiciary Committee Democrats are promising a floor fight next month, in which they expect to propose at least 50 amendments to the bill. Moreover, Sen. Charles Schumer plans to propose the same amendment that has doomed a couple of the previous bills in the recent past -- a provision that would prohibit protesters from using bankruptcy to obtain a personal discharge of liability for paying court fines resulting from intentionally blocking abortion clinics. Perhaps those tactics will prevent this ill-advised and unnecessary legislation from being enacted.
Former University of Texas and current Harvard Law School professor of law Elizabeth Warren made these comments in her Congressional testimony on the bill, and closed with this recommendation to the Judiciary Committee:
Don't press "one-size-fits-all-and-they-are-all-bad" judgments on the very good and the very bad. Spend the time to make the hard decisions. Leave discretion with the bankruptcy judges to evaluate these families. Based on the Harvard medical study and other research, I think you will find that most debtors are filing for bankruptcy not because they had too many Rolex watches and Gameboys, but because they had no choice.You have a choice. It's a choice that you're making for the American people. Adopt new bankruptcy legislation. Establish a means test that targets abuse. But do not enact a proposal written to address myth and mirage more than reality. Do not enact a proposal written for 1997 when the problems of the American corporate economy in 2007 deserve far more attention and the problems of the American middle class can no longer be ignored.
Overwhelmingly, American families file for bankruptcy because they have been driven there -- largely by medical and economic catastrophe -- not because they want to go there. Your legislation should respect that harsh reality and the families who face it.
This bankruptcy reform bill is not without its good aspects, such as the provision that would limit the "race to the bottom," in which bankruptcy courts in certain jurisdictions use the liberal venue provisions of the Bankruptcy Code to market themselves to debtors' lawyers who often choose the venue of big business reorganization cases. However, the bad provisions in this bill far outweigh the good, and Congress simply does not need to be wasting time on bad bankruptcy bills at a time when action on other key domestic issues is far more pressing.
Posted by Tom at 5:00 AM | Comments (0) | TrackBack (0)
February 17, 2005
On the author of "On Bullshit"
This NY Times article profiles Princeton professor Harry G. Frankfurt, who is the author of the brilliantly named new book, On Bullshit, which was the subject of this earlier post.
Posted by Tom at 8:21 AM | Comments (0) | TrackBack (0)
A lawyer you will be hearing about in the Enron case soon
This NY Times article profiles Reid Weingarten, the Washington, D.C.-based criminal defense attorney who is currently representing former WorldCom CEO Bernard Ebbers in his criminal trial.
Mr. Weingarten is also representing former Enron chief accountant Richard Causey in his criminal case that will probably go to trial this fall in Houston.
Posted by Tom at 7:27 AM | Comments (0) | TrackBack (0)
Former Schlotzsky's owners sued
As creditors pick through the scraps of bankrupt Austin-based sandwich shop franchisor Schlotzsky's (previous posts here), attorneys for those creditors teed off on former company owners and chief executives -- brothers John and Jeff Wooley -- in a San Antonio federal court in a lawsuit that alleges that the brothers ruined the company through a series of reckless transactions that drained cash at critical junctures.
As is typical in most reorganizations of retail businesses, the sale of the assets typically does not generate enough cash to pay any dividend on unsecured creditors' claims. Thus, those creditors are often left with no prospect for any recovery on their claims unless they can extract some funds through a lawsuit against the company's former owners or third parties that took advantage of the company's financial difficulties. Normally, the success or failure of such a strategy is more directly related to the net worth of the targets of such a lawsuit than the validity of the claims asserted in the lawsuit.
Posted by Tom at 7:04 AM | Comments (0) | TrackBack (0)
Updating the Yukos case -- Hearing on Motion to Dismiss cranks up
The hearing on whether Russian oil company and American debtor-in-possession OAO Yukos' chapter 11 case should be dismissed began on Wednesday in U.S. Bankruptcy Judge Letitia Clark's Houston courtroom as Hugh Ray, Deutsche Bank AG's lawyer, urged Judge Clark to dismiss the case because U.S. courts lack a jurisdictional basis to reorganize the crippled Russian oil giant. Here are the previous posts on the Yukos saga over the past year.
Mr. Ray contended that Yukos changed the dates of documents related to a $2 million bank account in an effort to create a bogus basis for jurisdiction in U.S. courts. Yukos filed its chapter 11 case in December in an effort to seek relief from the Russian government's decision to auction Yukos' main asset -- the huge production unit Yuganskneftegaz ("Yugansk") -- to collect on $28 billion in alleged back-tax claims. Deutsche Bank had led a financing group that intended to fund a bid for Yugansk that Russian natural gas giant OAO Gazprom was going to make, but Judge Clark's temporary restraining order at the outset of the Yukos case chilled Western Banks from financing an auction bid. Russian authorities eventually sold the Yugansk unit to a shell Russian company named Baikal Finance Group, which Russian state oil company OAO Rosneft then quickly acquired. As a result, the effect of the Yugansk auction is that Yukos' main production unit has been nationalized by the Russian government.
Meanwhile, Stephen Theede, Yukos' CEO, testified that seeking reorganization relief for Yukos under Russian law would have been a futile effort because the Russian government would not allow Yukos to commence a reorganization case in Russia. Inasmuch as the Russian government has frozen Yukos' assets and frozen its bank accounts, Mr. Theede testified that only protections of U.S. bankruptcy law provide the potential legal relief necessary for Yukos to fight the Russian government's efforts to liquidate the compa