Appellate Law & Practice

CA1: large law firm loses case on behalf of client

 US Securities & Exch v. Tambone, No. 07-1384. This is a close case. On the one hand, the government is bringing an enforcement action regarding misleading prospectuses to sell mutual funds. On the other hand, the defendants are represented by a large firm. The government wins. I wonder what mistakes the large firm made in representing their clients. I have been told that large firms are very detail-oriented and win all the time.

But, because these are rich defendants, the First pours a lot of type into it. However, I am just going to copy and paste from the SEC’s public domain press release, so you can get the gist of what happened.

The Commission announced that on December 3, the United States Court of Appeals for the First Circuit issued a ruling that allowed the SEC to proceed with its fraud action against James Tambone and Robert Hussey, former executives of Columbia Funds Distributor, Inc. (Columbia Distributor), the principal underwriter and distributor for a group of approximately 140 mutual funds in the Columbia mutual fund complex (Columbia Funds). The SEC had alleged in a civil injunctive action that from 1998 through 2003, Tambone and Hussey participated in a fraudulent scheme with Columbia Distributor and Columbia Management Advisors, Inc. (Columbia Advisors), the investment adviser to the funds, by secretly entering into or approving arrangements with at least eight preferred customers allowing them to engage in frequent short-term trading in certain Columbia Funds in contravention of the prospectuses that represented that the funds did not permit or were otherwise hostile to market timing or other short-term or excessive trading.

The First Circuit ruling reversed a decision by the District of Massachusetts that had dismissed the case in December 2006 on the ground that Tambone and Hussey could not be held primarily liable for false statements in the prospectuses because they did not make those statements. The First Circuit held that Tambone and Hussey could be held liable. In its decision, the First Circuit emphasized the unique role that underwriters play in the sale and distribution of mutual funds to the investing public and the reliance that the investing public places on them as a result. The First Circuit explained that Tambone and Hussey, as executives of Columbia Distributor, had a legal duty to confirm the accuracy and completeness of the prospectuses and other fund material that they distributed. By distributing the misleading prospectuses, the First Circuit reasoned, Tambone and Hussey made implied statements to potential investors that they had a reasonable basis for believing that the key statements in the prospectuses regarding market timing were accurate and complete.

The SEC first bought action against Tambone and Hussey on Feb. 9, 2005. The District Court dismissed that action without prejudice on Jan. 27, 2006. Thereafter, on May 19, 2006, the SEC filed a new complaint concerning the same conduct. The SEC's complaint alleges that the defendants violated Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and aided and abetted Columbia Distributor's violations of Section 15(c)(1) of the Exchange Act, Columbia Advisors' violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and the Columbia entities' violations of Section 10(b) and Rule 10b-5 of the Exchange Act. The SEC is seeking an order permanently enjoining Tambone and Hussey from violating the antifraud and other provisions of the federal securities laws, requiring them to disgorge funds received through their violations of the securities laws, and imposing civil monetary penalties. Although the District Court dismissed this complaint on Dec. 29, 2006, the First Circuit, in its decision, remanded the case to the District Court for further proceedings.

In related proceedings, the SEC filed a civil injunctive action against Columbia Management Advisors, Inc. and Columbia Funds Distributor, Inc., in federal court in Massachusetts on Feb. 24, 2004. That action was later dismissed when the two Columbia entities agreed to settle charges through administrative proceedings that resulted in an Order issued by the SEC on Feb. 9, 2005 requiring, among other things, $140 million in disgorgement and penalties to be distributed to investors harmed by market timing activity at Columbia. The SEC is in the process of distributing those funds to investors. [SEC v. James Tambone and Robert Hussey (United States Court of Appeals (1st Cir.), No. 07-1384)] (LR-20822)

Here is the SEC’s complaint

CA1: It’s official. Everything is mail fraud.

US v. Hebshie, 07-2339 (12/4/08). This is a federal arson case. As you know, the framers of the constitution really envisioned the federal government prosecuting insurance fraud (or, as they say, “mail fraud”). The first says that pretty much any sort of mailing in connection with collecting on an insurance policy where the defendant is up to know good is mail fraud. (Even if it is just “proof of loss.”). Even letters that expressly said it wasn’t “conceding” liability are in furtherance of a mail fraud scheme. I guess everything is now mail fraud.

CA1: no preemption where no conflict – just assistance

Fitzgerald v. Harris, No. 08-1306 (12/5/08) holds that the Allagash Wilderness Waterway ("AWW"), Me. Rev. Stat. Ann. tit. 12, § 1882 is not preempted by the Wild and Scenic Rivers Act ("WSRA"), 16 U.S.C. § 1271 et seq (which they call a “cooperative federalism statute”). A couple of canoeists (note, they were not yachtspeople). The First essentially holds that the WSRA doesn’t really impose the duties the small-boatspeople think it imposes on the state, and there neither a conflict nor a preemption, and the Federal government just “assists” the states. Whatever the case, the statute itself says that it isn’t displacing (get it?) state law.

CA1: Drinking and driving isn’t accepting responsibility

U.S. v. Jordan, No. 08-1432 (12/5/08). The defendant committed some criminal acts while out on bail – namely drinking and driving. At sentencing, the District Court denied an offense level reduction under § 3E1.1 based on his putative acceptance of responsibility. Selya sees no problem with it, because, well, the defendant “didn’t care” about his bail conditions which includes not being a criminal, and Selya points to the fact that the defendant didn’t cease all criminal activity but continued to act like a poor person and went into bars with his buddies. In the future I would advise his ilk to get wasted at the firm picnic and have the office manager call a car service.

For the opposing view, see The Pietasters.

CA1: proper punishment for a stalker that refused to retain a lawyer before not paying taxes

USA v. Steirhoff, 08-1183.  Selya tries to be dramatic.  He says “The tale of how the stalker became the stalked follows.”  Anyway, the defendant seems like a bad guy because he talked to the police without a lawyer.  And he had about $100,000 in cash lying around.  A true American would have the money in CDs or municipal bonds, and only terrorists and furries talk to the police without lawyers.  Just like people that try and avoid taxation on their interest income, this defendant said that he didn’t pay taxes and didn’t trust banks.  I hate him already. 

Anyway, the state called the IRS, and the IRS started investigating him and found out that he wasn’t pulling his weight tax-wise. 

Anyway, the legal issues are fairly straight-forward, especially when the defendant is a simpleton.  This is absolutely no evidence that he retained a tax lawyer, and, as I said he is the kind of America-hating person that talks to the cops and consents to a search without a lawyer.

So, it should come as no surprise that a search of a briefcase is held to be within the scope of the consent this idiot gave the police.  If he was a real American he would not have given the consent, and certainly not on boilerplate forms that say “letters, papers, or other property."  The defendant meekly asserted that he meant to consent only to a search of part of his computer for poetry.  Ha ha.  No cop wants to look for poetry.  All they want are looking for his guns, pr0n and cash.  Obviously, because Selya sees that this guy isn’t really acting like an American, he sides with the cops.  As he usually does.  He adds, “A police officer is not required to take a suspect's statements concerning the whereabouts of incriminating evidence at face value.”  See, if the defendant was a true American he would have not made a statement.

He also makes some BS argument that he wasn’t subject to the tax code.  Obviously this fails.  There was no evidence that he had retained a law firm to write him an opinion letter.

There is an interesting Cheek issue regarding “willfullness.”  And, in this case, since the defendant had a bunch of aliases, it was enough to infer that he was willfully not paying taxes. 

Also, the Selya says that a “summary witness” was okay.  Selya let’s it pass by saying that the witness was just adding numbers up.

And, after affirming the sentence, Selya sends the guy that couldn’t be bothered to retain counsel until after he was arrested to jail by saying “For aught that appears, the defendant was fairly tried, justly convicted, and lawfully sentenced.”

CA1: what to do about a shooting of a mentally ill person

Est. of D. Bennett v. Wainwright, No. 07-2169.  Mentally ill guy off his meds shoots at some cops.  Mentally ill guy gets shot by cops. 

There issues here of notes.  The estate appeared to make a “loss of consortium” argument, but the First says that can’t be based on the liberty or property interest of the defendant.  But, really, it seems like the plaintiff just made a bunch of legal-sounding noises (like “substantive due process”) and hoped the courts understood.  Also, the First appears to provide some discussion of the difference between a Fifth Amendment taking and a Fourth Amendment taking. 

Anyway, the First appears to take the qualified immunity arguments seriously.  However, it sides with the cops.  Based on the facts, I would say this is a great example of qualified immunity working.  However, because courts seem too willing to apply it, I can’t take that too seriously. 

They also screwed up the local Rule 56 requirements.  Though, while the First delights in saying that lots of arguments are waived, it does pause to mention that one of the cops involved was known as “Deputy Death.” 

CA1: surprise! creating false invoices to defraud Uncle Sam is corrupt

U.S. v. Marek, No. 07-2437 (11/26/08). This is sort of interesting.  There was an audit by the IRS.  The defendants appeared to participate in the audit in good faith.  Problem was that they went so far as to procure back-dated invoices from vendors that would explain why some amounts paid were expenses rather than under-the-table untaxed salaries.  This satisfied the agents, who were not told that these were recreations.  The defendants were indicted under a “Klein Conspiracy” theory under 26 U.S.C. § 7212(a).  The First Circuit says:

...the plain language of the statute supports an interpretation requiring proof that the defendant 1) corruptly, 2) endeavored, 3) to obstruct or impede the due administration of the Internal Revenue laws. See 26 U.S.C. § 7212(a); see, e.g., United States v. Wilson, 118 F.3d 228, 234 (4th Cir. 1997). Supplying false documents knowing that the documents will be used to deceive the IRS during an audit is a quintessential violation of the statute.

The First seems at a loss to explain why went wrong was bad, especially when it comes to intent.  But, the First says that a businessman would have had some suspicions that creating invoices out of thin-air was okay.

I ain’t losing sleep about this.  He didn’t get a long prison term, and his whole conspiracy seems to be to defraud the government of employment taxes which ultimately hurt his employees.

CA1: Plea waiver enforceable

US v. Acosta-Roman, Nos. 07-1238, 07-1239 dismisses an appeal based on an appeal waiver.  The defendant argued that because an enhancement wasn’t a condition of the agreement, that the issue can still be raised.  But, the First looks at the agreement, and says that there was an agreement to litigate that issue below, and therefore, because the court adhered to the boundaries of the expected sentences, all is well. 

CA1: laches and holocaust painting case

Vineberg v. Bissonnette, No. 08-1136.  This is a holocaust case.  The Nazis forced someone to give up a painting because they were not German enough (strangely this sounds like some of the rhetoric I heard in the last election).  Eventually the painting made its way to the states and a dispute arose between the successors in interest to the original owner and the current owner. 

The only issue is whether the defendant was entitled to a laches defense.  Applying Rhode Island law, the First agrees that the successors pursued their claim diligently, and the possessors were not prejudiced.

The First says that ten months for discovery in this fairly simple case is adequate.

CA1: data-mined prescription information not protected speech

IMS Health, Inc. v. Ayotte, No. 07-1945.  This is a big case.  Essentially pharmaceutical salespeople were using doctors prescription histories (in databases) to generate sales leads and shape their sales pitches.  Then, New Hampshire said that was a bad idea and enacted N.H. Rev. Stat. Ann. §§ 318:47-f, 318:47-g, 318-B:12(IV) (2006) (the Prescription Information Law).   The District Court said it infringed upon speech.  The First says, on the other hand that this law regulates conduct, not speech under, and therefore the statute passes constitution muster.

The First makes a few good points: consumers are not really benefitting from this dissemination of information (because doctors know what drugs they are telling people to take), and New Hampshire was doing its best to try and stabilize drug costs.  The First notes that there are non-commercial uses for these databases that are fairly benign, but includes “law enforcement agencies” as being benign.  It also notes that every year drug salespeople give out a billion dollars in free samples and “the average primary care physician interacts with no fewer than twenty-eight detailers each week and the average specialist interacts with fourteen.”

Now, today I ready that half of all doctors want to quit.  They say that they don’t like the paperwork.  Of course, in private, they say that they don’t like their patients.