“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.

Thoughts on legal education

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A good time was had by all yesterday evening as I helped my old friend Randy Wilhite teach his Family Law class at the University of Houston Law Center.
Randy is one of the best family law practitioners in Texas, and he provides his students with a broad and useful curriculum of the myriad issues that they will confront in family law cases. The subject of this particular class was the impact that bankruptcy law and the risk of insolvency have on divorce cases, which is always a lively topic. Most of the students in the class had not yet taken bankruptcy law, but they caught on quickly and asked quite insightful questions regarding the interplay of insolvency and divorce law. You can download my PowerPoint presentation for the class here, which provides a basic introduction of bankruptcy law principles for Texas divorce cases.
Teaching the class yesterday reminded me to pass along a bang up new continuing education resource called Ten Minute Mentor, a free series of Web lectures that the Texas Young Lawyers Association and the Texas Bar CLE launched on March 1st with the well-thought out sales pitch of “Concise. Practical. Free.” Moreover, the program is not limited in any way and is available to lawyers and interested laypersons everywhere.
The Ten Minute Mentor is a library of short video presentations by some of the state’s best-known experts in various areas of law, firm management, and professional development. For example, longtime Houston trial lawyer Harry Reasoner describes how to structure a legal argument, while plaintiff’s lawyer extraordinaire Joe Jamail articulates his view of a lawyer’s role in society. The TYLA is actively adding to the video library, which already includes over 100 videos on various topics and can be searched by either speaker or category.
The Ten Minute Menton is another outstanding addition to the Texas Bar CLE’s continuing education program, which is becoming a model for such programs. Check it out.

Bad Bankruptcy bill clears Senate

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The Senate on Tuesday rejected further opposition to approval of the horrific bankruptcy “reform” legislation, which clears the way for a final Senate vote on the bill over in the next couple of days. House Republican “leaders” have already publicly announced that they would approve the Senate bill next month and send the bill to the White House later this spring.
Harvard Law professor Elizabeth Warren wrote the following about this special interest-backed abomimation on a temporary “subweblog” on the bankruptcy bill that she has been contributing to over on Josh Marshall’s blog:

So the bankruptcy bill moves forward, speeding toward inevitable passage in the Senate and the House. That’s good news for credit card companies, particularly those that are loading their cards up with surprise interest rate jumps and a dozen other tricks and traps. Good news for payday lenders, for banks raking in profits on overdraft accounts, and for car lenders that focus on no-credit-check lending. Good news for all of those who squeeze the American family when someone loses a job, gets sick, or otherwise falls behind in a tough economy.

Previous posts on this dubious legislation may be reviewed here, here, here and here.
Banks, credit-card companies and retailers have poured money into Republican campaign war chests for the past decade while pushing for this ill-conceived legislation. The demagouges supporting the bill contend that it is “too easy” for consumers to run up debt and then use bankruptcy protections to bail themselves out.
The Senate bill would limit the ability of individuals to use a liquidation under chapter 7 of the U.S. Bankruptcy Code to eliminate credit-card debt or certain loans. It would require those with the means to pay some of their debts to file under chapter 13 of the Bankruptcy Code, which requires that the debtor propose a plan for repayment of a portion of his debts from future income.
On the other hand, wealthy individuals will not be affected all that much by the legislation because the bill retains many of the same exemptions that can be used to shelter valuable assets from the bankruptcy estate that is established upon the filing of a bankruptcy case. The new legislation even retains a loophole that permits people to set up so-called “asset protection trusts,” which are exempt from being used to pay off debts in a bankruptcy case.
The most important change in the legislation makes it more difficult and expensive for families under heavy debt loaks from filing a chapter 7 liquidation case, which provides the “fresh start” discharge of personal liability for debts that is central to American insolvency law. The new legislation will force more debtors to file Chapter 13 cases, in which the Bankruptcy Court oversees a three to five year repayment plan. About 70% of individuals currently filing for bankruptcy do so under chapter 7.
The legislation does retain the liberal real estate homestead exemption of Texas and several other states, which allows wealthy debtors to come out of a bankruptcy case retaining the value of their high-priced homestead. However, the legislation does limit the exemption by requiring that debtors own their homes for 40 months to qualify for the exemption.
During yesterday’s Senate debate on the bill, the Senate also rejected efforts to drop the loophole in the legislation that permits wealthy people to protect assets by opening special trust accounts in several states, including Alaska, Delaware, Rhode Island, Nevada and Utah. Doctors in those states have been setting up these asset-protection trusts for years to protect themselves from potential malpractice liability, and many business executives are now doing the same out of concern for potential liability for corporate accounting scandals. Experts estimate that approximately 1,500 domestic asset-protection trusts holding more than $2 billion in assets were created between 1997 and 2003.
Finally, the reform legislation also provides a potential procedural nightmare for bankruptcy courts in that it imposes a strict “means test” to assess whether a prospective debtor would be allowed to liquidate under chapter 7, and adds new paperwork and legal burdens on debtors’ lawyers that will undoubtedly increase the cost of filing bankruptcy.
Make no mistake about it, I am against this bankruptcy “reform” legislation because it is an ill-conceived modification of a well-thought out but underappreciated bankruptcy system that contributes much to the strength of the American economic system. The “fresh start” of a bankruptcy discharge encourages entrepreneurs to take risk and create businesses and jobs, and gives individuals hope that they can rebound from a financial disaster to rebuild wealth for their families. I, for one, am not interested in giving that system away for the parochial benefit of the credit card industry.
Meanwhile, as Republican legislators harp about this “business-friendly” bankruptcy legislation, the Bush Administration’s criminalization of business continues unchecked. When are business leaders going to wake up and realize that the marginal benefit to business interests of “reforming” bankruptcy legislation pales in comparison to the damage done by the federal government’s increasing regulation of business through criminalization of merely questionable business transactions?

Dr. DeBakey: Health model

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Dr. Michael DeBakey is Houston’s most famous physician and one of the most reknowned of the post-World War II generation of doctors who changed the way medicine was practiced in the world. But in this Wall Street Journal ($) article, Dr. DeBakey is something entirely different — a model for longevity and good health:

[L]ong a role model for physicians, [Dr. DeBakey] now can serve as a role model for another group: anyone turning the corner on what used to be called old age. In 1965, Dr. DeBakey appeared on the cover of Time magazine. He was 56. Almost 40 years to the month later, the 96-year-old remains a player in the field of medicine, his most recent article (“Kismet or assiduity?”) having appeared only last month in the journal Surgery.

Entering the room, Dr. DeBakey looked only slightly older than he did in photographs taken decades ago. Sitting down, he poured himself a cup of coffee with a steady hand. For anyone who wrestles with the health implications of caffeine, this gesture might have borne significance, except that during the two hours we spoke Dr. DeBakey barely took a sip of it. “This will be my only cup of the day,” he says, touting moderation.
His hearing was sharp; I never repeated a question. . .

His personal habits largely parallel what doctors order. He always has been a light eater, and on most days takes only one meal, dinner, often consisting of a salad. “My wife is a great salad maker,” he says. Though he doesn’t take vitamins or engage in what he calls “formal exercise,” he walks from place to place, putters around the garden and chooses stairs over elevators. He is on no medications, doesn’t drink and never smoked. His military uniform still fits him perfectly.

Interestingly, Dr. DeBakey views the key to his longevity and health to be something that the medical profession often characterizes as damaging to health — hard work and stress:

But here is what Dr. DeBakey sees as the real secret to his longevity: work. He rises at five each morning to write in his study for two hours before driving to the hospital at 7:30 a.m., where he stays until 6 p.m. He returns to his library after dinner for an additional two to three hours of reading or writing before going to bed after midnight. He sleeps only four to five hours a night, as he always has.

But isn’t stress harmful? In the Time magazine article of 40 years ago, Dr. DeBakey expressed scorn for the alleged ill effects of stress: “Man was made to work, and work hard. I don’t think it ever hurt anyone,” he said then. Now, that quote elicits a sheepish smile from him. “I was being provocative,” he says.
Although he concedes now that stress can be damaging, he also believes that work is underrated as a health tonic. “What we call stress is sometimes stimulating and can bring out the best features in our makeup,” he says, adding that no vacation spot could ever prove as relaxing for him as did the operating room. “Work can block out the unpleasant things we have to deal with every day. When you concentrate, you are not distracted by the things that are bothering you.”

My anecdotal experience with my late father — Dr. Walter Kirkendall — certainly supports Dr. DeBakey’s views. Walter worked as a professor of medicine at the University of Texas Medical School in Houston literally up to the day he died suddenly of a heart attack in 1991. Although stress arguably played a role in his sudden death, Walter’s work during his final years was a large part of what sustained him, giving him the focus and purpose of a much younger man. Walter would not have wanted to live his life in any other way.
The examples of Walter and Dr. DeBakey remind us that the motivation to excel in what we do is inextricably tied to our will to live.