Daily Archives: August 8, 2006

The WSJ gets it right on the BetOnSports case

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david-carruthers.jpgAfter being oddly slow in objecting to the prosecutorial abuses of businesspeople that have resulted in this, this and this (among many others), the Wall Street Journal ($) editorial page finally gets it right in this editorial on the outrageous conduct of the Justice Department in arresting BetOnSports executive David Carruthers while he changed planes in Dallas. Read the entire piece, but the conclusion sums up the outrage well:

. . . BetOnSports and Mr. Carruthers are not charged with dishonest behavior toward their customers. They are being told that a business they believed was legal was a criminal enterprise even if it was being run in the open. That suggests that prosecutors believe they have the right to enforce compliance with even ambiguous U.S. laws on any business, wherever based, solely because some of the people accessing their site happen to be Americans. As a legal theory, this is a stretch. But as an excuse to incarcerate a foreign national just passing through, it smacks of a politically opportunistic prosecution.

You just knew this was coming

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Magnolia2.jpgFollowing on posts here and here from last year regarding the City of Houston’s ill-advised investment in several downtown hotel properties, this Matt Stiles/Chronicle article reports that the City had decided to “restructure” (translated: Can you please pay us something?) $15 million in second lien loans on the Magnolia and the Crown Plaza hotels in downtown Houston rather than attempting to foreclose on the properties and deal with the messy business of attempting to eke out a profit from the two highly-leveraged properties in an overbuilt downtown hotel market.
As noted in this previous post, the Magnolia and Crowne Plaza are poster projects for why local governments should rarely get involved in financing projects that private financing sources will not support. In reality, the City is nothing more than a preferred equity investor in these highly-leveraged properties and, thus, its entire $15 million investment is at serious risk of being lost. That type of loss is not going to break the City of Houston finances, but the quality of the City’s investment decision should give one pause when considering the amount of money the City is throwing around in regard to these equally dubious investments.

The first salvo in the Bagwell disability claim lawsuit

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Bagwell waving.jpgConnecticut General Insurance Co. — the lead insurer on the Stros’ disability insurance policy on the best player in the history of the Houston Astros Baseball Club, Jeff Bagwell — has fired the first salvo in the Stros’ lawsuit against the insurer for its failure to pay the Stros’ claim under the policy resulting from Bagwell’s injured right shoulder. Previous posts on the issues relating to the disability insurance policy on Bagwell are here.
In this motion, Connecticut General requests that U.S. District Judge Keith Ellison sever the two extra-contractual claims from the Stros’ contractual claim that the Stros have asserted against the insurer in the lawsuit and abate the extra-contractual claims pending the disposition of the lawsuit over the contractual claim. The insurer points out that Bagwell’s play late last season during the Stros’ playoff drive and in the post-season raises a legitimate question as to whether Bagwell is totally disabled. Accordingly, Connecticut General argues that the Stros’ extra-contractual claims (which are a basis for greater damages against the insurer than breach of contract damages, which are fixed by the insurance policy) likely have no merit and that, even if those claims survive the breach of contract lawsuit, the insurer should not have to defend against those claims until after the dispassionate breach of contract claim is sorted out.
As one would expect, the Stros’ response (download link here) suggests that the circumstances surrounding Connecticut General’s denial of the club’s claim under the Bagwell disability insurance policy indicate a reasonable basis for the extra-contractual claims and, thus, that Judge Ellison should exercise his discretion to have a jury consider all of the claims in one efficient trial. Even if the Stros are successful in opposing Connecticut General’s motion to sever and abate the extra-contractual claims, this is likely not the last that the club will hear on this issue before trial. The insurer will probably request a summary judgment dismissing the entire lawsuit before trial, but almost certainly will request a partial summary judgment attempting to knock out the extra-contractual claims before trial. If Connecticut General is successful on that move, then the insurer would limit its risk of taking the case to trial to the contractual damages, which is a flyer that Connecticut General might just be willing to take.

More Food Fifth Circuit News in the Nigerian Barge Case

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James Brown — the only former Merrill Lynch executive who remains in prison after last week’s Fifth Circuit decision reversing and vacating the convictions of the four former Merrill Lynch executives in the Nigerian Barge case — appears to be on the verge of being released from prison pending further disposition of his appeal.

In a motion filed with the Fifth Circuit, Brown’s attorneys argue persuasively that the year that Brown has already served in prison in regard to his conviction on perjury and obstruction of justice charges — combined with the fact that substantial issues remain as to whether Brown’s conviction on those charges should stand (read Judge DeMoss’ dissent from the Fifth Circuit decision on that issue) — is more than enough to justify Brown’s release from prison pending further disposition of his appeal.

In a pleasant surprise, the Justice Department filed a short response to Brown’s motion not opposing Brown’s release. Inasmuch as it would be highly unusual for the Fifth Circuit not to grant such an unopposed motion under the circumstances, Brown should be released from prison shortly, perhaps as early as today.

Does the Justice Department’s response signal something?

After last week’s decision in the case, Ellen Podgor, among others, speculated that the DOJ might request that the Fifth Circuit conduct an en banc review of the panel’s decision. That’s certainly possible, but the DOJ should be careful what it asks for — my sense is that a good number of other Fifth Circuit judges would view the case much as DeMoss did.

If the DOJ is concerned that the panel’s decision is going to be dished up to them in virtually every deprivation of honest services case, then just think how often the DOJ would have to confront an en banc decision that adopts Judge DeMoss’ dissent as the majority view. As a result, although the DOJ may still request it, I would not be surprised if the DOJ passes on en banc review in this case.

Update: The Fifth Circuit has now issued an order directing Brown’s release. What a wonderful surprise for the Brown Family and hopefully the beginning of the end to a long nightmare and travesty of justice.