Bernie J. Ebbers, the former CEO and and co-founder of WorldCom Inc., was indicted today on three criminal charges that accuse him of directing and participating in one of the biggest frauds in the history of American business. Although Scott D. Sullivan, WorldCom’s former CFO, was named with Mr. Ebbers in the indictment, Mr. Sullivan pleaded guilty to the charges earlier in the day and said he was cooperating with federal prosecutors. Here is the indictment.

This Houston Chronicle article reports that Andrew Weissmann, the lead trial lawyer in the Enron Task Force‘s Arthur Andersen obstruction of justice prosecution, is replacing Leslie Caldwell as lead lawyer for the task force. Ms. Caldwell will soon leave the Department of Justice to enter private practice.
The Chronicle piece fawns over the accomplishments of the Enron Task Force, but my sense is that the Task Force has been much more heavy handed than successful to date. Although over two years old now, the Task Force has tried precisely one case. In that case, it obtained a controversial conviction of Arthur Andersen on obstruction of justice charges, and that conviction is currently under review by the Fifth Circuit Court of Appeals. The Task Force has entered into nine plea bargains with various ex-Enron employees, but all of those have come after multiple count indictments that left those defendants with a Hobsen’s Choice of either risking trial and the prospect of what amounts to a lifetime prison sentence or copping a plea for a relatively light sentence. As noted in this prior post, this Task Force approach to the Enron criminal cases is troubling — the government’s job is to indict and convict wrongdoers, not to sledgehammer citizens into plea bargains out of fear of unreasonably long prison sentences.

Closing arguments begin today in Martha Stewart‘s criminal trial. What I find absolutely remarkable is that closing arguments are going to take two days in what should be a rather straightforward case. Apparently, the attorneys for the prosecution and Martha’s co-defendant will give their arguments today, and then Martha’s counsel will give theirs tomorrow, followed by the prosecution’s rebuttal.
A key tip to the lawyers involved: Juries are generally asleep to what you say after about 20 minutes of closing argument. Hours of closing argument are much more likely to hurt your case with the jury than help it.
Professor Bainbridge provides a good analysis here of why this case should have never been brought against Martha. My bet remains that Martha will walk these charges.

This Atlanta Jounal Constitution article discusses an issue that UCLA law professor Lynn LoPucki characterizes as a “race to the bottom” — i.e., bankruptcy courts in certain jurisdictions bending federal bankruptcy law to market themselves to debtors’ lawyers who often are instrumental in choosing the venue of big business reorganization cases. The cost attributable to this “race to the bottom” is considerable because the two main bankruptcy venues — Delaware and the New York City — commonly approve professional fees in big reorganization cases that are at the highest level of the profession. In comparison, the high hourly rates being charged and routinely approved in the Enron reorganization case in New York would likely not have been approved if the case had been filed in Houston where Enron is based and which is a far more convenient venue for the vast majority of Enron creditors.

As a way of suggesting bias or financial benefit from such testimony, trial attorneys often ask the opposition’s experts whether they have frequently testified on one particular side of an issue. Although such cross-examination is widely assumed to be fair, the Iowa Supreme Court just handed down this interesting decision in ordering a new trial for a babysitter convicted of murdering a child under her care based in part on prosecutorial cross-examination along these very lines. The prosecution’s theory was that the babysitter had caused blunt head trauma to the child, but the babysitter’s expert testified that that the child’s head trauma had occurred much earlier than when the prosecution asserted that it had happened. On cross, the prosecution questioning attempted to connect the defense expert’s opinion to a presentation the expert had given “in front of all the defense lawyers here in the State of Iowa,” and also asked the following question: “You are routinely hired by the defense in cases where children are allegedly victims of child abuse and you testify on behalf of the perpetrator; isn?t that true?” The prosecutor also implied in other questions that the defense expert had testified on 46 occasions on behalf of persons charged with killing children.
The Iowa Supreme Court’s opinion condemns such prosecutorial questioning as an “improper effort to demean the witness,” citing the ABA Standards for Criminal Justice, which provide: “The interrogation of all witnesses should be conducted fairly, objectively, and with due regard for the dignity and legitimate privacy of the witness, and without seeking to intimidate or humiliate the witness unnecessarily.” Although this decision involves a criminal case, it should nevertheless provide pause for attorneys in civil cases who attempt to impeach an opponent’s expert through derisive and suggestive questioning.

As expected, the Justice Department this afternoon announced that it was filing an antitrust lawsuit to block the Oracle Corporation‘s $9.4 billion bid to acquire PeopleSoft Inc., its competitor in the business software market. Here is the Justice Department’s Complaint.
Update: Here is the Wall Street Journal’s ($) better article on Justice’s complaint against the merger.

Bankruptcy filings in the federal courts remained high in calendar year 2003, according to data released today by the Administrative Office of the U.S. Courts. Total bankruptcies filed in the twelve-month period ending December 31, 2003, totaled 1,660,245, up 5.2 percent from the 1,577,651 bankruptcies filed in the prior year. The majority of bankruptcy filings are non-business filings, 1,625,208 in 2003 as compare to 1,539,111 in 2002. The number of business bankruptcy filings continued to decline, totaling 35,037 in 2003 as compared to 38,540 in 2002. Chapter 11 reorganization filings — the most important bankruptcy statistic in terms of job preservation — fell 16.6 percent to 9,404 in 2003 from the 11,270 filings in calendar year 2002. Thanks to my friend Joe Epstein for advising me of the publication of this annual report.

The Daubert trilogy of Untied States Supreme Court decisions -? Daubert, Joiner, and Kumho Tire, codified in Federal Rule of Evidence 702 — has established new rules for the admissibility of expert witness evidence in federal court. However, the standards for admissibility of expert witness evidence in state courts is far more unsettled. George Mason University Law Professor David Bernstein and Jeffrey D. Jackson have published this handy law review article that analyzes the degree to which the holdings of the Daubert trilogy have been adopted by state courts. Surprisingly, there remains a wide diversity of tests within the states that, contrary to most lawyers’ popular belief, the Daubert trilogy is not yet the majority standard. A good article to review for lawyers who commonly deal with expert witness issues.

Often at the outset of business reorganization cases, the debtor-in-possession will request as one of its “first day” motions that the Bankruptcy Court allow it to pay “critical vendors.” Although these claims are unsecured claims that normally cannot be paid under bankruptcy law except pursuant to a chapter 11 reorganization plan, the theory behind allowing certain business debtors to pay “critical” vendors pre-petition claims is that the critical vendors would likely not do business with the debtor during the reorganization case unless their pre-petition claims are promptly paid. Stating the debtor’s position simply, unless such payments are made, the risk increases dramatically that the debtor’s reorganization would fail in its early stages.
At the outset of Kmart Corp‘s chapter 11 case, Kmart’s Bankruptcy Court approved an order that authorized Kmart to pay the pre-petition claims of 2,330 “critical” suppliers, which collectively received about $300 million. Another 2,000 or so vendors were not deemed ?critical? and were not paid. They and 43,000 additional unsecured creditors eventually received about 10¢ on the dollar under Kmart’s reorganization plan, mostly in stock of the reorganized Kmart. Fourteen months later, the District Court overruled the Bankruptcy Court’s critical vendor order, and Kmart appealed that decision to the 7th Circuit Court of Appeals.
Today, the 7th Circuit issued this decision that affirms the District Court’s order setting aside the Bankruptcy Court’s approval of Kmart’s payment of its critical vendor’s pre-petition claims. The decision is written a bit untidily — for example, the 7th Circuit describes the critical vendor payments as “preferential” (i.e, paid in preference to those of non-critical creditors). In reality, the critical vendor payments are post-petition payments and, by referring to them as preferential, the 7th Circuit risks confusion of those payments with voidable preferences, which can only be made prior to the commencement of a bankruptcy case. Nevertheless, the decision has a good overview on the law in this key area for business debtors, and is a good one for debtor’s counsel to review before making a record on the necessity for critical payments at the outset of a chapter 11 case.
Thanks to my old friend and former law partner, Joe Epstein of Winstead Sechrest & Minick P.C., for the pointer to this decision.

The Fifth Circuit Court of Appeals issued a decision yesterday on the important issue of expert witness testimony on damages. In this trade secrets case, the Fifth Circuit upheld the district court’s decision admitting lost-profits testimony from two of the plaintiff’s experts because the testimony had no impact on the jury verdict. Accordingly, the Fifth Circuit did not reach the issue of the testimony’s reliability. The Court noted that that the relatively small size of the jury’s $2.2 million award, in comparison with the $25 million in lost profits that the plaintiff claimed, indicated that the jury considered and rejected the entire lost-profits analysis of the plaintiff’s experts. See Dresser-Rand Co. v. Virtual Automation, Inc., No. 02-20834 (5th Cir. Feb. 23, 2004) (DeMoss, Dennis, & Prado, JJ.).