Daily Archives: March 10, 2005

“Senator Cornyn, take your canned response and stuff it.”

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Texas Senator John Cornyn‘s staff should think twice next time before sending out a canned response to one of his constituent’s email communications.
Robin Phelan of Haynes and Boone‘s office in Dallas has long been one of Texas’ leading experts in the area of business bankruptcy and reorganization law. As noted most recently here, Congress is getting ready to enact dubious bankruptcy “reform” legislation that has remarkably little public support except for the well-heeled consumer credit card industry.
Robin’s practice is primarily in big corporate reorganization cases, so he does not have any personal or professional stake in the consumer bankruptcy area that is the primary focus of this bad bankruptcy “reform” legislation. Nevertheless, Robin knows bad bankruptcy legislation when he sees it, and so he took the time to write Senator Cornyn a well-reasoned and dispassionate letter offering his expert view of the numerous defects in this legislation. In response, Robin received this canned email from Senator Cornyn’s office:

Dear Mr. Phelan:
Thank you for contacting me about the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (S. 256). I appreciate having the benefit of your comments on this issue.
On February 1, 2005, Senator Grassley introduced S. 256, legislation which I am proud to co-sponsor. This legislation would amend the federal bankruptcy code and reform many areas of bankruptcy practice such as consumer bankruptcy filings, small business bankruptcy, and family farmer reorganization. Additionally, it would address abuse of creditor practices and bankruptcy filings. On February 24, 2005, S. 256 was approved by the Senate Judiciary Committee and now awaits a vote on the Senate floor.
I support bankruptcy reform because America needs to restore a greater sense of personal responsibility to its financial system and must act to prevent the abuses of bankruptcy law that we have witnessed in recent years. Bankruptcy relief should be available to those who are unable to pay, not to those who are simply unwilling to pay.
I appreciate the opportunity to represent the interests of Texans in the United States Senate. You maybe certain that, as a member of the Senate Judiciary Committee, I will keep your views in mind as the Senate considers S. 256. Thank you for taking the time to contact me.
Sincerely,
JOHN CORNYN
United States Senator

Most folks receiving such a response would simply sigh and say, “Oh well, that’s politics” and move on to the next task of the day. Not Robin. Here is his reply to Senator Cornyn’s canned email:

Dear Senator Cornyn:
Nice unresponsive canned statement that parrots the line given to you by the consumer lenders.
You have ignored the comments of substantially all of the professionals and academics that are familiar with the issues. It is beyond me why you would believe the consumer lenders who have a distinct economic interest in squeezing as much as they can out of consumers and disregard the opinions of almost everybody else.
I don’t have an economic interest in consumer bankruptcies, but I’m close enough to the system, and have reviewed the bill in connection with professional activities, to have a working knowledge of the issues. Campaign contributions by the consumer lenders aside, you have a responsibility to consider that almost everyone else thinks that this is a really bad bill.
Sending an unsolicited credit card to many people is like sending a case of Jack Daniels to an alcoholic and then sending him a bill for the booze a month later. Throwing bankrupts into indentured servitude to the credit card companies isn’t the solution to the non-existent problem manufactured by the lenders.
By the way, “maybe” in the next to the last sentence should be “may be”.
Robin Phelan

H’mm, I wonder if Senator Cornyn’s staff has a canned response to that one?

More on those pesky medical malpractice premiums

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Following on this post from a couple of weeks ago, this NY Times op-ed by University of Texas law professors Bernard Black and Charles Silver, University of Illinois law professor David Hyman, and Columbia law professor William Sage contends that there recent study of malpractice awards in Texas indicates that there is scant evidence that a crisis in states’ tort systems is the driving force behind the increases in medical malpractice insurance premiums. Here is how they summarize the results of their review of all closed claims in Texas between 1988 and 2002, which was the year before the Texas Legislature enacted sweeping tort reform measures:

Large claims (with payouts of at least $25,000 in 1988 dollars) were roughly constant in frequency.
The percentage of claims with payments of more than $1 million remained steady at about 6 percent of all large claims.
The number of total paid claims per 100 practicing physicians per year fell to fewer than five in 2002 from greater than six in 1990-92.
Mean and median payouts per large paid claim were roughly constant.
Jury verdicts in favor of plaintiffs showed no trend over time.
The total cost of large malpractice claims was both stable and a small fraction (less than 1 percent) of total health care expenditures in Texas.
In short, as far as medical malpractice cases are concerned, for 15 years the Texas tort system has been remarkably stable.

The authors conclude as follows:

Malpractice premiums have risen sharply in Texas and many other states. But, at least in Texas, the sharp spikes in insurance prices reflect forces operating outside the tort system.
The medical malpractice system has many problems, but a crisis in claims, payouts and jury verdicts is not among them. Thus, the federal “solution” that Mr. Bush proposes is both overbroad and directed at the wrong problem.

Unfortunately, this is not an unusual approach for the Bush Administration to follow in enacting legislation, as reflected by this legislation.

Continental reports big revenue decrease

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The airline industry just continues to reel. Yesterday, Houston-based Continental Airlines announced that competition from Delta Air Lines‘s recent broad-based fare cuts is the primary factor behind a revenue decrease that will be at least $50 million more than it originally expected. Last year, Continental reported a net loss of $363 million on revenue of $9.74 billion.
Continental now expects annual revenue to sink by about $200 million instead of its previous estimate of $150 million, according to this SEC filing made yesterday. Although the fare cuts have brought more customers to Continental, the fare cuts are producing less total revenue.
Continental is one of Houston’s largest employers and is generally regarded as one of the healthier legacy U.S. airlines. Nevertheless, it continues to struggle to compete more effectively with lower-cost carriers such as Southwest Airlines.

Chapter 11 plan investor arrested

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In a development that you just don’t see very often, the primary investor under one of the two competing chapter 11 reorganization plans in the Hawaiian Airlines chapter 11 case was arrested yesterday in St. Louis for allegedly trying to bribe an undercover FBI agent in a fraudulent scheme to fund the plan.
I guess that means that the other plan is the odd’s on favorite to be confirmed as the winning plan.
At any rate, Paul Boghosian was arrested after he allegedly agreed to pay a half million dollaar bribe to an FBI agent who was posing as a hedge-fund manager in exchange for a $2.5 million loan. Mr. Boghosian was the lead representative of Hawaiian Investment Partners Group LLC, which is the take out financier behind one of the competing plans in the Hawaiian Airlines chapter 11 case.
In addition to the bribe allegation, the government is also alleging that Mr Boghosian made a number of misrepresentations regarding his group’s ability to provide plan funding in his group’s Disclosure Statement filed with the bankruptcy court in connection with its competing plan in November, 2004. Mr. Boghosian was charged in U.S. District Court in Manhattan with conspiracy to commit bankruptcy fraud and two counts of commercial bribery. Each count carries a maximum punishment of five years in prison.
Hawaiian Airlines has been wallowing in chapter 11 since 2003. The other competing plan — one proposed by the airline’s trustee Joshua Gotbaum, Ranch Capital LLC, and the company’s unsecured creditors’ committee — will take place today and tomorrow.
I think it’s safe to say that Mr. Boghosian will not be attending that confirmation hearing.
I often advise clients and lawyers not experienced in reorganization cases that chapter 11 is strong medicine with serious side effects. Although bankruptcy crimes are not often prosecuted, it’s easy to commit such a crime in connection with a reorganization case without even knowing it. Thus, it is a wise move to have reorganization counsel standing by at every step of the process.

Spring Break Warning

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Following on this earlier report of the increasingly dangerous situation that exists along the Texas-Mexico border, the federal government has issued a warning to students going to the Spring Break hotspots of South Texas regarding the dangers lurking in the border towns.
Parents of college students going to South Texas over Spring Break need to emphasize to their children that this is a real danger and not one to take lightly. Although security on the Texas side of the border is fine, security is simply not adequate these days in the Mexican border towns, and the smart move for young people is simply to stay out of those towns. There is plenty to do on the Texas side of the border, anyway.

Four more banks settle WorldCom claims

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The “courthouse steps” settlements continued Tuesday in the class action lawsuit over the WorldCom accounting scandal as four more financial institution-defendants reached deals with the plaintiffs in which the defendants agreed to pay a total of $428.5 million. Earlier posts on the WorldCom settlements may be reviewed here and here.
Under yesterday’s deals, ABN Amro Holding NV agreed to pay $278.4 million; Mitsubishi Securities International PLC, $75 million; and BNP Paribas Securities Corp. and Mizuho International, $37.5 million apiece, which increases the WorldCom settlement pot to $3.5 billion. Those settlements add to the list of financial institutions that have decided to hedge their ligitation risk in the case through settlement. As noted in the previous posts, Bank of America Corp. and four investment banks agreed to settle earlier this month, while Citigroup settled for a cool $2.58 billion last year.
These additional settlements increases the price of poker on the remaining financial institution defendants in the case, which include J.P. Morgan Chase & Co. and Deutsche Bank AG. As the number of deep pocket defendants is reduced, the risk of having to pay a greater percentage of a jury award increases for each of the remaining defendants. Settlement negotiations apparently are ongoing with the remaining defendants.

Enron-related developments

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The Chronicle’s Mary Flood, who continues to do a bang up job of keeping up with the unfolding events relating to the various aspects of the Enron scandal, has a couple of Enron-related news items today.
First, she reports that the next Enron-related criminal trial — the one known as “the Enron Broadband case” — has been pushed back to at least April 18 as a result of U.S. District Judge Vanessa Gilmore‘s involvement in this case. Here are the previous posts on the Broadband case.
Although the intensity of the media attention given to Enron makes it seem as if there have been a plethora of criminal trials related to the case, the Broadband case is only the second criminal case involving former Enron executives that will go to trial. Interestingly, the first case — the trial of the Nigerian Barge case — resulted in convictions of four Merrill Lynch executives and one Enron mid-level executive. However, of the two Enron defendants in that case, the Enron accountant who was closest to the alleged sham transaction in that case — Sheila Kahanek — was the only defendant who the jury acquitted in the case.
The Broadband case is interesting in that it involves a division of Enron that was one of the company’s more auspicious business failures, but one that undeniably had great potential. The five remaining former Enron executives in the case will argue that Enron’s other financial problems undermined the broadband division’s business potential, and that none of their public statements regarding the division’s business opportunity were false or intentionally misleading. Although the Enron Task Force’s public stance on the case has been typically bullish, the two former Enron executives who have copped pleas in the case to date — Ken Rice and Kevin Hannon — pleaded guilty to only one count of securities fraud in their plea bargains. The nature of those pleas does not exactly reflect that the government thinks it has a lock cinch winner in this prosecution.
Meanwhile, Ms. Flood reports in this article that the Chronicle has requested that U.S. District Judge Ewing Werlein unseal a couple of pleadings that three of the convicted Nigerian Barge defendants filed in connection with their upcoming sentencing hearings. There appears to be no basis for the pleadings to be sealed permanently, so Judge Werlein will likely grant the Chronicle’s request. Probably the only reason that the pleadings have not been unsealed to date is that the Judge probably just has not gotten around yet to ruling on the defendants’ motion to seal the pleadings.
Finally, in what could be one of the more entertaining interviews of the year, former Enron chairman and CEO Ken Lay will be interviewed on this Sunday’s 60 Minutes show in connection with the release of the new Enron book, Conspiracy of Fools by New York Times reporter Kurt Eichenwald. According to Mr. Lay’s publicist, Mr. Lay rather enjoyed the book.