This Wall Street Journal ($) article reports on the annual American Lawyer review of law firm finances, which found that America’s richest law firms got even richer last year.
New York City based Wachtell, Lipton, Rosen & Katz topped the list with average profits per partner of $2.58 million. Other New York firms, helped by the Wall Street recovery, dominated — claiming 13 of the top 15 spots.
Strong revenue growth generated a 9.8% increase in average profit per equity partner to $930,700. Nonequity partners made an average $357,597 per partner.

In this article, the Wall Street Journal ($) does a good job of summarizing the initial reactions to the U.S. Supreme Court’s decision last week in Blakely v. Washington, a decision that could have major implications for the federal sentencing guidelines and, for at least eight states, holds that judges cannot increase a defendant’s sentence based on facts and behavior that were not presented to a jury. Though the decision involved just one state’s sentencing system, legal specialists on guidelines say that the decision could affect the guidelines under the federal system.
The federal sentencing guidelines evolved from the Sentencing Reform Act passed by Congress in 1984. Congress created a commission to set guideline ranges that specify sentences for each class of convicted person. Courts generally select sentences from within the range based on the consideration of acts or behavior of the defendant that often was not the subject of the criminal charges. Legal sentencing guideline specialists say the Supreme Court’s ruling in Blakely could invalidate everything within that range except for the lowest level.
In Blakely, the majority said all facts essential to the sentence must be tried before a jury. Federal and many state sentencing guidelines currently involve finding facts during the non-jury sentencing phase that may increase a convict’s time served. Blakely would appear to hold that all such facts would have to be charged and tried before a jury, or those facts are formally waived for sentencing purposes.
Yesterday’s decision is the second in a week questioning the validity of sentencing laws. Last Friday, U.S. District Judge William Young ruled that federal sentencing laws were unconstitutional because they gave prosecutors too much power.
Moreover, the Journal article speculates that another sentencing appeal that will be closely watched as a result of Blakely is the sad case of Jamie Olis, the midlevel executive of Dynegy Corp. who was recently convicted and sentenced to 24 years based partly on an expert’s estimate of the amount of market value that was lost as a result of the fraud in which Mr. Olis participated. The Journal article states that the government expert’s estimate was not presented to the jury. However, my recollection is that the government expert’s testimony on that subject was presented to the jury, but not rebutted by the defense during trial, and that U.S. District Judge Sim Lake concluded that he could not consider the defense expert’s estimate post-trial if it was not presented during trial.
Look for Professor Ribstein to comment on these developments upon his return from vacation.

One U.S. District Judge is doing something about the federal sentencing guidelines.
Here is the opinion.
Here is a follow-up NY Times article on the opinion.

This NY Times article reports on the latest investor lawsuits that seek damages from German financial giant Deutsche Bank and several accounting, law and financial services firms — including American Express — for selling abusive tax shelters from 1999 to 2001. The investor plaintiffs in both cases, who collectively owe the federal government millions of dollars in back taxes as a result of the tax shelters being disallowed, are seeking to recover fees, interest and penalties.
Let’s see if I understand the theory of the plaintiffs’ case in these lawsuits. We rich people make speculative invesments in tax shelters to save big bucks from non-payment of taxes. We know that the deals are shady, but what the heck, we don’t like paying taxes. Now that the tax shelters have been disallowed, we should not have to pay the taxes that we owed in the first place. Rather, these financial institutions should have to pay for indulging our greedy desire not to pay our share of taxes. How dare they take advantage of us like that?
Only in America.

The Curmudgeonly Clerk sorts out a rather odd situation that developed in a husband and wife law firm in San Antonio.
An enterprising duo, to say the least.

This NY Times article reports on a scrape that Dallas-based law firm Jenkens & Gilchrist got into with a New York judge over an unauthorized letter that the firm recently sent to clients who bought tax shelters that the firm promoted. Here are earlier posts on Jenkens & Gilchrist’s tax shelter-related problems.
Jenkens & Gilchrist agreed in March to pay $75 million in settlement of a class-action lawsuit that had been brought on behalf of over 1,100 clients of the firm who had bought the disputed tax shelters. The settlement included some provisions for protecting the clients’ identities in court records that would be available to the general public.
However, in a letter that Jenkens & Gilchrist sent to its clients on May 28, the law firm offered the opportunity to stay completely out of the public record of the case by accepting just $100 from the firm rather than each client’s share in the $75 million settlement.
That offer went over about as well as a fart in church with the judge in the class action case. U.S. District Judge Shira A. Scheindlin sent a rather unusual letter of her own yesterday to the 1,100 Jenkens & Gilchrest clients instructing them that they should ignore the Jenkens & Gilchrest letter because she had not approved it as part of the settlement.
A lawyer representing Jenkens & Gilchrist said yesterday that the firm had withdrawn the offer to its clients contained in the letter and that the whole affair had been a big misunderstanding.
I guess so.
However, none of these machinations over the proposed class settlement will hide the Jenkens & Gilchrist clients’ identities from the Internal Revenue Service. In May, U.S. District Judge James Moran ordered the firm to turn over the names of all its tax shelter clients to the I.R.S.

Long-time Houston and more recently Dallas-based business litigation attorney John C. Nabors died on Monday. Mr. Nabors was recently diagnosed with cancer.
Mr. Nabors was well-known in both Houston and Dallas business law circles, and was perhaps best known for his long representation and friendship with the mercurial Jack Stanley, who is a legendary Texas promoter of highly-leveraged oil and gas deals and an aggressive utilizer of chapter 11 to restructure debt that he raised in those deals.
Update: Here is the Dallas Morning News obituary on Mr. Nabors:

Nabors, JOHN C., passed away on June 14 in Dallas, Texas after a brief illness.
John graduated with a B.B.A. from the University of Texas at Austin in 1965. He then received a J.D. from the University of Texas School of Law with honors in 1967, where he was an associate editor of the Texas Law Review, a member of Chancellors, and a member of the Order of the Coif.
John Nabors was a Senior Partner at the law firm of Gardere Wynne Sewell LLP in Dallas, where he had practiced since 1989. He was a member of numerous committees and areas of service during his tenure there, including most recently being a Trial Team Leader in the firm’s Trial Section. Before joining the law firm of Gardere Wynne Sewell LLP, he was a partner at the law firm of Liddell Sapp Zivley Hill & Laboon in Houston where he began practicing in 1967. He maintained significant client and personal relationships in Houston after moving to Dallas in 1989.
John was admitted to practice before the US Supreme Court, Texas Supreme Court, US Court of Appeals for the Fifth and Eleventh Circuits, US Court of Claims, US District Courts for the Southern, Northern, Western and Eastern Districts of Texas, as well as the US District Court for the District of Nevada and the Superior Court for the State of California, County of Los Angeles. His professional memberships include the following: American Bar Association, American Bar Foundation (Life Member), Texas Bar Association, Dallas Bar Association, the Dallas Bar Foundation (Fellow), Houston Bar Association, and Texas Bar Foundation. Among his many other accomplishments, he was voted a Texas Super Lawyer in 2003 and 2004 by his peers, was featured in an article in the American Lawyer Magazine in 2002, and was a member of the Outstanding Lawyers of America.
He is survived by his wife of 22 years, Kathleen, and daughters Kathleen Nabors, Sarah Nabors, Carol Spiars and son-in-law Kevin Spiars, son John David Nabors, and grandchildren, John Nabors, Nicholas and Elijah Spiars, and sisters-in law Maureen Englishbey, Colleen McGlocklin, MaryEllen Raymond, Eileen Jacobson, and Tracy Sudan, and 10 nieces and nephews.
John was an avid outdoorsman who loved spending time on his operating cattle ranch in Hamilton, Texas. In 1978 John set a Guiness Book record by winning the longest canoe race in the world (419 miles). John was a member of The Houston Club, The Petroleum Club and the Brookhollow Golf Club. He will be dearly missed by his many friends and relatives. A private family burial service will be held on Wednesday in Hamilton, Tx. A memorial service will be held at 10:00 a.m. Friday, June 18 at Sparkman-Hillcrest Chapel, Northwest Highway, Dallas, Texas. Memorials may be made to Leukemia and Lymphoma Society. Dignity Memorial Sparkman Hillcrest 7405 W. Northwest Hwy. Dallas (214) 363-5401

Professor Ribstein — who is the blogosphere’s foremost commentator on the troubling trend in the government’s criminalization of business — points us to this interesting this New York Times Magazine article in which novelist Mark Costello (most recently ”Big If”) and formerly a prosecutor for nine years addresses the problems involved in attempting to punish all types of crime in a uniform manner. In particular, Mr. Costello notes the sad case of Jamie Olis:

Dynegy’s slogan was ”We believe in people.” Many people working there idolized Chuck Watson and his downright dynegistic saga. One fellow in particular, a pudgy middle manager, had an especially inspiring biography. Born in Korea to a Korean mother and a G.I. father who abandoned the family, the young man came to Texas as a child. He lived in a shack in the wash of an often-flooded gully. At school, the other children beat him and made fun of him. But the lad was bright and resolute, and this is America, where every dream is possible. He went to college on full scholarship. He became a lawyer and a C.P.A. He married, had a child, and at the age of 36 enjoyed the corporate plumage of a throat-clearing title: senior director, Tax Planning and International.
His name is Jamie Olis. Two months ago, he was sentenced to 292 months (let’s call it 25 years), one of the longest prison terms for fraud conspiracy in U.S. history.

Mr. Costello then decries the attempt to take prosecutorial and judicial discretion out of the sentencing process in criminal cases:

If an arraignment is one place to see the truth about a prosecution, a second place would be the other end of the great and ceremonial intestine of the courts — namely, sentencing. Sentencing is where the state can make a statement. We like to think the statement is about right and wrong, the certain bedrock of our values. This would be resonant and satisfying, a good end to the movie. But sentencing, in fact and practice, is a thing of fault lines, feeling versus theory, science against sympathy. We don’t often get what we want from the drama of a sentencing, because we don’t always know what it is that we want. More pain in punishment, like the record whack received by Jamie Olis, and those who’ll follow Olis, will only put more pressure on these fault lines.

Mr. Costello closes with the salient thought that sentencing in criminal cases — as with most issues in life — is not usually black and white:

But in truth, sentencing is more often about wrong and wrong, relative crimes and comparative punishments, the sins of Jamie Olis (who got 25 years) versus those of his co-workers (who could get 5 years), the sins of Mr. Embezzler versus those of the kids from Newark. Everyone is equal and should be treated equally, yet everyone’s unique, or so we think.
As Dickens once said, ’tis a muddle. As we prepare to ratchet up the ”war” on corporate fraud with new shock-and-awe-type sentences, perhaps we should pause, or go slowly at least. Perhaps we should respect the muddle, the humane confusion underneath the act of punishing all criminals — the violent and nonviolent alike. Nine years as a prosecutor taught me this: when we use force (here, a jail cell) without the calm of a theory, the result is rarely something we are proud of.

Professor Ribstein has more thoughts here on the inhumanity of the federal guidelines that constrict federal judges’ discretion in sentencing matters.

In this earlier post, the recent Fifth Circuit decision in (Southland Sec. Corp. v. INSpire Ins. Solutions, Inc., No. 02-1055 (5th Cir. March 31, 2004)) was noted for holding that the group pleading doctrine for alleging a company’s public statements (such as press releases or regulatory filing statements) as a basis for fraud against corporate officers does not withstand the Private Securities Litigation Reform Act of 1995 (PSLRA)’s specificity requirements.
However, other federal courts have not been as demanding as the Fifth Circuit in requiring specific allegations of fraud against defendants. In the recent decision of In re NUI Sec. Litig., 2004 WL 895846 (D.N.J. April 23, 2004, the court found that the plaintiffs had adequately pled a sufficiently strong inference of scienter to sustain Rule 10b-5 claims against the corporate defendant (NUI) based on allegations that a stock-for-stock acquisition of another company gave NUI a motive to inflate the price of its stock and that NUI’s associate general counsel (who is not a defendant in the case) knew of NUI’s fraudulent conduct. As to NUI’s CEO and CFO (both of whom are defendants in the case), the court concluded that the plaintiffs’ allegations regarding their motive to commit fraud and knowledge of the fraudulent conduct were insufficient to sustain the Rule 10b-5 claims against them.
But wait. The CEO and CFO are not off the hook. Inasmuch as they controlled NUI and the court found that a Rule 10b-5 claim was adequately pled against NUI, the Section 20(a) claims against the CEO and CFO based on control person liability can continue. Ouch!
This decision — as with last year’s decision in In re Interpublic Securities Litigation, 2003 WL 21250682, (S.D.N.Y. May 29, 2003) — are eroding the PSLRA’s requirement that plaintiffs specifically plead scienter as to each defendant in the lawsuit. Normally, courts reject “collective scienter” theories — that is, in determining whether a corporate defendant acted with scienter, courts examine the specific state of mind of the individual corporate official who made or approved the corporate statement rather than the collective knowledge of all the corporation’s officers and employees. However, in the In re NUI Sec. Litig. decision, the court clearly imputed the knowledge of the associate general counsel to the corporate defendant for scienter purposes despite the fact that the associate general counsel was not alleged to have made or issued the false statements.
This is a trend worth keeping an eye on. Hat tip to the 10b-5 Daily for the link to the NUI decision.