Don's Review: Law, Politics, Science, Philosophy

Feb. 15, 2010

Michael Bayard Fensterstock is Marketing Director of Fensterstock & Partners LLP in New York , NY

Some say leaders have the will of a champion; some say leaders have a dogged pursuit of a higher standard of excellence; others believe leaders have loyal followers from whom respect is earned. Traits common to all leaders are self-awareness, integrity, vision, communication skills, the ability to think out of the box, and the will and ability to create other leaders.

Through many discussions with people in and out of the legal industry, and throughout my life, I have learned that people admire and respect leaders and want to find out exactly how they do what they do. Needless to say, it takes experience, heart, commitment, and, among other things, certain intangibles, which I highlight in this article focusing on Blair C. Fensterstock, managing partner of one of the best commercial litigation boutiques in New York City and in the United States.

The Changing US Law Firm

Since the financial meltdown in 2006 (e.g., Lehman, Bear Stearns, Madoff), the legal industry in the United States has changed dramatically; in fact, a cynical chemist would liken what’s occurred within the industry to an unforeseen disastrous chemical reaction. Some large firms with long lines of history have shut their doors. Others have consolidated, reduced head count, frozen salaries, deferred associates and refused other partnerships. However, out of this reaction, many compounds and stars were and will be discovered.

Interesting enough, though, certain firms which stayed the course, have emerged as the alpha firms, especially in the commercial litigation boutique area. One such firm is Fensterstock & Partners LLP. Its founder, Blair C. Fensterstock, often referred to by peers and clients as a relentless cheetah, a scorpion, and David vs. the many Goliath law firms in the nation, has stuck to his guns and consistently differentiated his firm from the rest of the pack.

Fensterstock’s broad experience as an associate at Simpson Thacher & Barlett (1975-1979) and Dewey Ballantine (1979-1983), as associate general counsel at Reliance Group Holdings, Inc. (1983-1990), general counsel at Frank B. Hall & Co. Inc. (1987-1991), a partner at Sutherland Asbill & Brennan, and the founder and managing partner of Fensterstock & Partners LLP (1998-present), practicing complex commercial litigation in tax shelters, insurance, securities, defamation, employment, terrorism, product liability, construction, and intellectual property has taught him to deal with co-counsel and opposing counsel in a collegial manner, consistently holding himself to the highest ethical standards and acting with integrity.

Fensterstock has controlled his overhead and managed to find a comfort zone in terms of size and personnel. This past year, when many firms were decreasing in size, Fensterstock decided to expand into Fort Worth, Texas, bringing on an experienced litigator and good friend, Dan McDonald, whose 30 years of commercial litigation experience have helped him to big wins involving catastrophic injuries and wrongful death. Since 1993, McDonald has earned 81 trial or settlement victories in excess of $1 million. McDonald has also had the distinction of serving as regional steering counsel for the silicone gel breast implant litigation, the fen-phen diet drug litigation, and the Baycol litigation.

“The business side of law is pretty simple. Revenues minus expenses equals profit. Expenses, for the most part, are rent and people. So they are not hard to predict year over year,” says Mr. Fensterstock when asked about budgeting. “Marketing is part of the game.”

Exemplary Leader

Running a successful commercial litigation boutique is a time consuming task which combines two difficult jobs: the first is running a business; the second is being a great litigator (a rare breed), which means seeing the forest from the trees, parsing the essential facts, exercising good business judgment, and efficiently reaching towards a just result. At a small firm, the buck starts and stops with the managing partner, a position where one must thrive on pressure and demand to be in the driver’s seat. What makes Fensterstock so successful, other than countless intangibles, is his innate ability to lead, ceaselessly push forward, and stay optimistic in vision and in practice. No stone left unturned, no theory left unquestioned, no strategy unconsidered, Fensterstock works smarter and harder than the competition because a major ingredient in the sauce of winning and beating worthy adversaries is preparedness. “Practice makes perfect. Perfection wins cases, along with compassion and a sense of humor,” says Fensterstock, sounding like the owner or coach of Super Bowl winners, the New Orleans Saints--champions.

Great attorneys should have plenty of work to do, the flexibility to think outside of the box, enjoy client interaction, and the ability and desire to choose which cases to work on. Fensterstock employs a mentoring system within his firm, encouraging Socratic dialogue and challenging intellectual discussion to develop associates and winning legal theories.

At the end of 2006, Fensterstock’s peers elected him president of the New York American Inn of Court and since then, the NYIOC has had active membership rise almost fourfold, including federal and state judges, partners and associates from diverse law firms, hosting monthly sessions at various law firms around New York City and having gained CLE accreditation. Again, the mark of leader.

Uncovering the Leading Edge

Leaders have a vision, are quick on their feet, and can see what others fail to see. Having recognized in 1998 that the standard hourly billing system for law firms would be outdated, and was, in some ways, unfair and encouraged inefficiencies, Fensterstock devised his “Chinese menu” of fees which he has presented to his clients since 1998. “My clients and I are partners. Their interests are our interests. Clients and their counsel should be on the same page in terms of billing arrangements, strategy, and end result.” His flexible billing options allow clients to test their appetite for risk, meanwhile providing a framework for clients to think about how much a case is worth.

Other examples of his having seen the forest from the trees are his having recognized tax shelters and Ponzi schemes as fertile areas of litigation before they were commonplace, seeing the voids in audits before they were obvious, recognizing the adverse public policy implemented by putting Arthur Anderson out of business (he represented all of the senior retired partners of Arthur Andersen in obtaining substantial recovery on their retirement benefits claims), and his leadership role in all of the civil cases arising out of the 1993 bombing of the World Trade Center. He brought the first of 400 cases; was asked by the Chief Administrative Judge of New York to take the lead on those cases, and led the team to a successful liability verdict for all of those cases.

However impressive his results, business does not necessarily swarm to a firm like moths to lamps. A typical year for Fensterstock includes an annual trip to Palm Beach in January, another trip to Colorado in February, a trip to The Masters (golf championship) in April, quarterly jaunts to Scotland, a family trip to Puerto Rico in December, and biweekly business trips scattered around the U.S. (Texas, Washington, D.C., Boston, California, Indiana) and abroad (Colombia, London, the Hague, Israel) for client meetings. In addition to all of these trips, Fensterstock is out most mornings at 7 a.m. and most evenings until 11 p.m. on the endless road to relationship building and business development. Meanwhile, he runs a successful litigation boutique and is there on a daily basis, constantly challenging his associates and employees, helping them overcome common obstacles but never micro-managing, and pushing each employee to evolve into something greater each and every day.

The one thing all his trips have in common is (competitive) sport, work, and play. And all are done 24 hours a day. His communication is constant, his Blackberry overworked. Sleep is obsolete and irrelevant for Fensterstock who constantly seeks a new challenge, challenges himself to win, to develop more meaningful relationships, and to get the most out of life.

Conclusion

Entrepreneurs in the law must also be excellent lawyers, keen businessmen, loyal friends, trusted confidants, and worthy adversaries. Known to the upper echelon in finance as a cheetah, the rare breed of litigator, businessman, lovable father and family man, fanatical aspiring golfer, and world traveler, Blair C. Fensterstock is someone special. An animalistic adversary one would not want to come up against in litigation and the best person to have on your team, Fensterstock continuously demonstrates how to be a leader and how to combine business and the law.

So when people ask me how I like working for my father, my response is easy: it’s a privilege and a pleasure to work for such an astute, honest, wise man of integrity, moral compass, fierce competitive nature and compassionate understanding. He raises the bar for everyone around him, and it is true that a rising tide raises all ships.

Feb. 14, 2010

Investigative reporter John Burt Caylor is editor and publisher of Insider Magazine (www.insider-magazine.com). Previously, he worked as a television and newspaper reporter, a contract investigator for federal agencies, a licensed private investigator and a network communications consultant. He is a native of Enterprise, Alabama, where his father was police chief and a member of the Dixie Mafia.

The Obama Justice Department lost any credibility inNovember by opposing Supreme Court review of former Alabama Gov. Don Siegelman's 2006 conviction on the bogus corruption charges that authorities filed against him during the Bush era.

Under President Obama, Bush holdovers are still helping Siegelman's corrupt trial judge Mark Fuller cover up a massive conspiracy by rogue federal prosecutors and Karl Rove, whose diabolical schemes to corrupt Alabama politics pre-dated his Bush White House jobs.

You're about to read my eye-witness account of a real-life John Grisham novel about my hometown of Enterprise, Alabama. I share that hometown with Mark Fuller, whose father and mine comprised part of the notorious Dixie Mafia whose drug-running, arms-smuggling and gambling operations play a huge role in the state's politics and economy.

Right now, bingo gambling in nearby Dothan and related scandals are the biggest issue in the state's governor race.

Of even greater significance is that Mark Fuller presides as chief federal judge in the middle district of Alabama, continuing to abuse his vast powers. Most dramatically, he refuses to recuse himself from continuing to rule over Siegelman, who he helped railroad into prison and solitary confinement - and whom Fuller hates with a passion over a longtime grudge.

This constitutes a challenge not just for those of us in Alabama living in this corrupt system, but for everyone in the United States who wonders why the Obama administration continues to resist this travesty of justice in the most infamous U.S. prosecution of the decade, which has escalated to the status of an international human rights disgrace.

For these reasons, the House Judiciary Committee must restore public confidence promptly by launching an impeachment investigation of his trial judge regardless of how the Supreme Court rules on Siegelman's plea for justice.

One focus should be on Judge Fuller's long-running help for what Justice Department Chief of Staff Kyle Sampson described in 2005 to Rove's office as the "loyal Bushies." They included federal prosecutors nationwide who were framing Siegelman and other Democrats to remove them from office.

Another focus must be on Fuller's already documented fraud seeking $300,000 from Alabama's taxpayers in a scheme involving Doss Aviation, Inc., the former drug-smuggling company that Fuller controls as its largest stockholder.

I am among the many who will step forward to testify on these matters. But first, the Judiciary Committee must take the lead to holding public hearings calling these criminals to testify public alongside whistleblowers. Do-nothings in the Justice Department will never start this on their own because too many secrets will come out.

An honest and competent Judiciary Committee probe of these matters would blow the lid off massive corruption in Alabama and Washington. That corruption is causing major abuses in defense contracting, election rigging, high-level bribery, and even worse crimes that are destroying our country's basic freedoms.

As noted, one of these scandals currently dominating Alabama's 2010 gubernatorial race involves the gambling casinos and dog track operators who have shaped our state's politics for many years.

They are now in open warfare against each other to control the future of government policy in Alabama, most immediately in a huge bingo-related development project near Dothan.

The leading Republican candidate for governor, Bob Johnson, is raising hell about millions of dollars in Jack Abramoff-related Indian casino graft that had been channeled to the incumbent Republican Gov. Bob Riley. For years, Riley cited his abhorrence for gambling to oppose Siegelman's lottery proposals to fund education and more currently the bingo development. So it's remarkable to see so much new documentation of Riley's hypocrisy, especially coming from a fellow Republican like Johnson.

Meanwhile, our presumed Democratic gubernatorial frontrunner Artur Davis, a congressman and African-American pal of Obama dating from their Harvard days, is conniving with Rove's business allies.

Davis hopes to use his connections with the Business Council of Alabama (BCA) to slip into office amidst the Republican confusion without taking principled stands on the mind-boggling scandals in Alabama that have caused so much harm locally and nationally. Under President Bill Canary, BCA is well-connected to his friend Rove and U.S. Chamber of Commerce President Tom Donohue, who share common roots in the American Trucking Association, Republican politics and Alabama skullduggery going back many years.

In my opinion, the worst scandal arising from Alabama -- and certainly the most dramatic is the 2008 murder of federal witness Mike Connell via sabotage on his airplane. I've been helping Ohio's Common Cause investigate the crash as part of its probe of election software fraud in Ohio that helped provide the 2004 margin for George W. Bush's victory.

As his family feared in early 2008 when he turned against his co-conspirators, someone not currently known damaged Connell's plane and caused it to crash just before his scheduled testimony as a cooperating federal witness revealing his work assisting Rove's election-rigging operation.

Years ago, Rove had set up election software study centers in Alabama and Tennessee to develop expertise in the kind of voting machine fraud that cost Siegelman his 2002 re-election.

As well known by now, Riley narrowly beat Siegelman after officials in rural Baldwin County announced on Election Night that they had reversed 3,000 votes for Siegelman and put them into the Riley column after polls closed with Siegelman initially declared the statewide victor.

Let me disclose that I'm currently in hiding from Florida's state authorities in fear for my own life, especially after police fatally beat my mother outside her home in what I believe to have been retribution for my investigative work.

Later, a Florida county court sentenced me to six months in jail on a disturbing the peace charge for my 2006 attempt to obtain county courthouse records under Florida's Sunshine law about my mother's death and the unrelated death of a 14-year-old boy after he was severely beaten in a state juvenile home.

During my first night in jail on the disorderly conduct charge, Florida police withheld the life-saving heart medicines that I require, especially now that I'm trying to recover also from very serious cancers.

So just call me a "fugitive for justice" now that I'm free on bond and living in what we'll call an undisclosed location.

But I'm willing to risk everything to come to Washington to help an honest oversight inquiry of these scandals by the House Judiciary Committee if anyone there has the nerve to do what's right.

That's because corruption I've seen connected with Judge Fuller and his confederates is literally destroying our country.

For years, I've been writing a book about it called “Inside the Dixie Mafia.” But I cannot delay my findings any longer at this key juncture. Sadly, the Obama administration is showing that it wants to continue the Justice Department's Siegelman cover-up for whatever devious purposes the Obama group itself might have.

Thus, the cover-up has by now morphed from a Bush scandal to one at Obama Justice Department (DOJ). Among recent developments have been the Justice Department's:

Firing Justice Department whistleblower Tamarah Grimes, a paralegal on the Siegelman case who objected to its paramilitary-style, win-at all-costs implementation wasting taxpayer dollars

Keeping the lid on the Siegelman case by seeking 20 additional years in prison for Siegelman during his resentencing by Fuller, who originally had the defendant put in solitary confinement and barred from contact with family and the news media.

Retaining the corrupt U.S. Attorney Leura Canary, whose middle district office prosecuted Siegelman. Her husband, William Canary, is Rove's close friend and head of the Business Council of Alabama and former Republican National Committee chief of staff.

Advocating George Beck as Leura Canary's successor as U.S. attorney. Beck disgracefully permitted Canary's office to blackmail his client Nick Bailey via more than 70 paramilitary-style interrogations at an Alabama Air Force base. Fearful of government exposure of his sex life, pressure on his partners and a threatened 10-year prison sentence, Bailey gave misleading and, in essence, since-recanted testimony that convicted Siegelman on corruption charges. .

As the final straw, Obama's new Solicitor General Elena Kagan is arguing that the Supreme Court should not review the Siegelman prosecution, even though it's by now an international human rights disgrace.

Some of Obama's actions are doubtless to curry favor with Alabama's powerful Senators Richard Shelby and Jeff Sessions, who have no interest in seeing their friend Fuller and his secrets exposed.

It's likely also that Obama's own friend Kagan thinks her status as a hot-shot legal superstar will one day propel her to a U.S. Supreme Court nomination. Kagan, who formerly taught at the same tight-knit University of Chicago Law School faculty with Obama, went on to become dean at her alma mater Harvard Law School. Might Senate approval for a Supreme Court nomination be easier if she curries favor with Sessions, the Judiciary Committee's Republican ranking member?

If she thinks so, she's yet another Harvard-educated fool, at best. In the tradition of Bob Hope's character in the movie “Son of Paleface,” she's as clueless as the Senators who approved Fuller's nomination without a single question about the military contractor Doss Aviation that he'd been running for the previous 13 years.

Sessions operates in a world of power politics and almost unimaginable hypocrisy. For him and his crowd, anyone who extends a cowardly gesture of friendship, such as Kagan's stance on Siegelman, is regarded simply as weak.

More important, Kagan, Holder and Obama for all their fancy rhetoric and law degrees don't seem to understand the passion for justice that some of us in Alabama feel about the Siegelman case and how our numbers are now augmented nationwide by Internet communications.

The corporate-owned newspapers and broadcasters look for guidance from commentators like Rove on such complex topics. Rove is one of their own as a columnist for the Washington Post-owned Newsweek and the Wall Street Journal. Among his public opinion tools is broadcast of his opinions at Fox News TV, and a new book with mass media interviews this spring.

But the Internet's capabilities are a game-changer-as Obama's campaign knew, but as his administration now seems to forget.

For these reasons, the public must pressure the House to ramp up an investigation of Fuller and his fellow criminals, such as Rove, even though a number of the House's own members have much to hide from transgressions that rogue authorities have captured via warrantless electronic surveillance, easily enabled by modern technology.

Fortunately, whistleblowers and investigative reporters have documented so much evidence against Fuller that it would take only one or two honest congressional members to solve the problem.

With the public desperate for a hero, here's a summary of what any courageous congressional member would find if he or she were willing to buck the cover-up system in the way that Florida freshman Representative Alan Grayson recently did to decry the financial frauds afflicting our country:

Fuller's formal title is chief U.S. judge for Alabama's middle district, which is based in the capital city of Montgomery. But as the record shows, his real title should be "kangaroo court judge" as only that Wild West term for justice conveys the Fuller style: Shoot-from-the-hip with his "I-am-the law" arrogance.

How do I know? I'm an Alabama-raised investigative reporter reared in Enterprise, which is located near the Gulf and became Alabama's center for the Dixie Mafia of organized crime. Mobsters moved to my hometown after Phenix City to the east forced them out following a particularly notorious assassination in 1954.

My jobs have included work as a private investigator and undercover federal drug investigator. In the course of such work or the social conversations growing out of it, I've met former CIA Director and future President George H.W. Bush, retired Cuban Mafia leader Santo Trafficante and Iran-Contra leader Oliver North.

One of my first jobs was as a photographer for Cliff Wentworth, an attorney and friend of my father's who would go on to become a notorious cocaine smuggler working directly with Colombia's most notorious kingpins, Pablo Escobar and Carlos Lehder, to distribute a billion dollars of cocaine throughout the Southeast.

Wentworth was later convicted and given a slap on the wrist: Six years, suspended after six months served in a country-club type minimum security facility. That illustrates the kind of federal judges we see in my neck of the woods who coddle their friends in such matters without any real scrutiny from Congress, the Justice Department or the media.

In March 2007, I met several of Siegelman's prosecutors on their way to a victory party at my then-neighbor Rove's home at Rosemary Beach just south of Alabama on the Florida Panhandle. Curiously, Rove testified before House Judiciary Committee staff last summer that he had scant interest in the Siegelman case and no one had the gumption to challenge him with specifics on that or a hundred other points where an honest and reasonably competent first-year law student could have nailed Rove.

Enterprise is also the hometown of Fuller, who was born in 1958, a few years after me. My father was the Enterprise police chief who welcomed so many outlaw refugees from Phenix City to mingle with our leading citizens and gung-ho military men populating the fast-growing bases in our region. Mark's father was a state district attorney for the Twelfth Circuit Court based in Enterprise.

Mark Fuller is dirty. I personally know he is dirty. Moreover, I know the whole damn bunch associated with him.

The gist is that both our fathers used their respectable fronts to hide involvement in massive drug smuggling from Colombia by working with outlaws from the Dixie Mafia who had direct ties to major city Mafiosi as well as to the very top smugglers in Colombia.

The racket, which was nicknamed The Enterprise, enjoyed semi-protected status especially during the Iran-Contra era, which was when Lt. Col. Oliver North and his colleagues used to visit with my father, with me and with others in town.

Control of Doss Aviation, one of the early companies involved in the smuggling, was passed along from my father and his group to Mark's father and his cronies, and then ultimately in 1989 to Mark, who that year became Doss Aviation chairman and chief executive officer.

The company won dozens of CIA and Air Force contracts with the help of the region's longtime Republican representative, Terry Everett, a senior member of the House Armed Services Committee. I used to work for Everett on the local newspapers and broadcasting properties that he owned.

Fast forward: As a George W. Bush-nominated federal judge appointed in 2002, Fuller retains a controlling interest in Doss Aviation, ensuring that as a judge he will have a fabulous amount of non-judicial income.

The proceeds include some $300 million in Bush administration awards to Doss Aviation since 2006, the year the Siegelman trial began. All of this has been amply documented in on-the-record materials by courageous whistleblowing legal figures Paul Weeks, Jill Simpson and Tamarah Grimes, and several very thorough investigative reporters whose exposes have fallen on deaf ears, exposing the degree of corruption at the Justice Department and the indifference, if not complicity, of elected representatives to these big-dollar scandals.

Fuller is also part-owner of the CIA front company Oceaneering International, Inc. As the former Navy Intelligence analyst Wayne Madsen has reported, Oceaneering's roots are in the Bush family business Zapata Offshore Oil Co. that George H.W. Bush led before he entered politics and became CIA director from 1976 to 1977. http://www.fundinguniverse.com/company-histories/Oceaneering-International-Inc-Company-History.html http://www.waynemadsenreport.com/articles/20080522_1

The Justice Department likes to argue in court that Fuller's massive income from his side businesses such as Doss Aviation doesn't violate the law of judicial recusal because not a single reasonable American might think this kind of money from government contracting would affect his judgment in a political prosecution like Siegelman's.

Count me as part of the chorus of helpless ordinary observers who say that Fuller should have recused himself, or been forced to recuse himself. The leading Supreme Court case demands he do so under his own motion, and the country's citizens should be outraged that his fellow federal judges don't understand that their own integrity is at risk if they tolerate this kind of corruption.

In this instance, Fuller has held a shareholder stake of up to 44 percent of the privately held Doss Aviation firm at the same time that he's been railroading his longtime enemy Siegelman into prison, and indeed solitary confinement, on charges trumped up by the White House's operatives in Alabama and Washington.

His stockholder share of Doss Aviation apparently has been reduced to 30 percent, according to Huffington Post articles here ("Alabama Decisions Illustrate Abuse of Judicial Power" http://www.huffingtonpost.com/andrew-kreig/alabama-decisions-illustr_b_213732.html) and here ("Siegelman Deserves New Trial Because of Judge's "Grudge', Evidence Shows" http://www.huffingtonpost.com/andrew-kreig/siegelman-deserves-new-tr_b_201455.html).

But 30 percent still leaves Fuller as controlling shareholder of a company with just six other retainers, according to judicial reporting forms as of last year.

Specifics On How Siegelman Was Framed

As background, the main federal charges against Siegelman stem from his reappointment of businessman Richard Scrushy to a state board in 1999 after Scrushy contributed to a state non-profit advocating for more spending for education via creation of a state lottery. Ninety-one former state attorney generals have so far argued to the Supreme Court that Siegelman's actions were not a crime.

But the Obama administration has not only urged the Supreme Court to reject a hearing, but asked Fuller to sentence Siegelman to an additional 20 years in prison. This continuing travesty of justice is fully documented by on-the-record investigative reporting that sadly is largely ignored by the mainstream, corporate-owned media.

http://www.waynemadsenreport.com/articles/20100202_4.

Original Content at http://www.opednews.com

^.

Nov. 19, 2009. Norman Arnoff and Sue C. Jacobs practice law in New York City.

                “Sunlight is the best disinfectant,” declared Justice Louis Brandeis.  A lawyer who has internalized the concept of this key principle adopts the best measure for ultimately collecting his or her attorney fees and avoiding legal malpractice and breach of fiduciary claims.  Obtaining informed consent from the client and confirming it in writing, not merely at the beginning of the representation but at any discrete moment of the representation is the best professional liability insurance and the cheapest. It is a roadblock even to frivolous litigation.

                The best way to approach these key concepts for the wellbeing of our professional practices is to review Part 1200, The Rules of Professional Conduct for Attorneys, effective April 1, 2009.  Both the definitions in the Rules and the emphasis placed upon the concepts of informed consent and confirmed in writing in various Rules clearly establish the best foundation of professionalism for our practices.

Definitions

                Rule 1.0 provides a series of definitions that we should key into any analysis necessary for interpretation and application of the Rules.  The definitions are as follows:

                (f)            “Differing interests” are “every interest that will adversely affect either the judgment or the loyalty of a lawyer to a client,” i.e., interests that have to rise to a sufficient level to impact the judgment or loyalty of the lawyer.

                (i)            In cases for a finding of “fraud,” it is mandatory to have the “element of scienter deceit, intent to mislead, or knowing failure to correct misrepresentations that can be reasonably expected to induce detrimental reliance by another.”

                (j)            “Informed consent” occurs where the lawyer “communicated information adequate for the person to make an informed decision” and “adequately explained to the person the material risks of the proposed course of conduct and reasonably available alternatives.”

                (e)           “Confirmed in writing” occurs either by a writing from the client or the lawyer.  A statement on the record before a tribunal is also a separate means to obtain informed consent.  If it is “not feasible to obtain or transmit the writing at the time the person gives oral consent, then the lawyer must obtain or transmit it in writing within a reasonable time thereafter.”

                (x)           “Writing” is defined as “a tangible or electronic record of a communication or representation.”  A “signed writing” includes “an electronic sound, symbol or process attached to or logically associated with the writing and executed or adopted by a person with the intent to sign the writing.”¹

The Substantive Rules

                Rule 1.1 (c)(1)states, in regard to “competence”  that the “lawyer shall not intentionally fail to seek the objectives of the client through reasonably available means permitted by law and these Rules.”

                Rule 1.2(a), addressing the “scope of representation,” provides “… a lawyer shall abide by a client’s decisions concerning the objectives of representation  …[and]…shall consult with the client as to the means by which they are to be pursued.”

                                (c)           “A lawyer may limit the scope of the representation if the limitation is reasonable under the circumstances, and the client gives informed consent.…”

                                (d)           “The lawyer shall not support the client in illegal or fraudulent conduct,” except that the lawyer may discuss the legal consequences of any proposed course of conduct with the client.”

                Rule 1.4, (a)(1), Communication, provides “A lawyer shall promptly inform the client of any decision or circumstance with respect to which the client’s informed consent, as defined in Rule 1.0(j)…, (2) reasonably consults with the client about the means by which the client’s  objectives are to be accomplished, (3) keep the client reasonably informed about the status of the matter” and (b), “a lawyer shall explain a matter to the extent reasonably necessary to permit the client to make informed decisions regarding the representation.”

                Rule 1.5: In respect to Fees and Division of Fees,

(b) “A lawyer shall communicate to a client the scope of the representation and the basis or rate of the fee and expenses for which the client will be responsible.  This information shall be communicated to the client before or within a reasonable time after commencement of the representation and shall be in writing where required by statute or court rule.”

                (c) “…Promptly after a lawyer has been employed in a contingent fee matter, the lawyer shall provide the client with a writing stating the method by which the fee is to be determined, including the percentage or percentages that shall accrue to the lawyer … litigation and other expenses to be deducted from the recovery; and whether such expenses are to be deducted before or, if not prohibited by statute or court rule, after the contingent fee is calculated.  The writing must clearly notify the client of any expenses for which the client will be liable regardless of whether the client is the prevailing party.”²

                (e) In domestic relations matters, the lawyer must inform a prospective client with the statement of client’s rights and responsibilities.

                (g) There can be no division of fees between independent lawyers unless there is full disclosure including the respective percentages “and the client’s agreement is confirmed in writing.”

                Rule 1.6: Confidentiality of Information provides that the lawyer cannot disclose confidential information unless the client gives informed consent, as defined in Rule 1.0(j).

                Rule 1.7: Conflict of Interest with Current Clients, provides that the lawyer cannot assume or continue representation if the conditions prescribed by the Rule, including “(4) each affected client gives informed consent confirmed in writing” and this requirement must be strictly observed.  Further, “(f) A lawyer shall not accept compensation for representation of a client, or anything of value related to the lawyer’s representation of the client, from one other than the client unless…the client gives informed consent.”  Additionally, “(g) A lawyer who represents two or more clients shall not participate in making an aggregate settlement of the claims of or against the client, absent court approval, unless the client gives informed consent in a writing signed by the client.  The lawyer’s disclosure shall include the existence and nature of all the claims involved and of the participation of each person in the settlement.”

                Further, Subdivision (h) provides that the lawyer cannot represent a client who is involved in litigation with a lawyer who is related to the lawyer representing the firm’s client “unless the client consents to the representation after full disclosure and the lawyer concludes that the lawyer can adequately represent the interests of the client.”

                Rule 1.11 (a) (2), Special Conflicts of Interest for Former and Current Government Officers and Employees, provides that a lawyer who has formerly served as a public officer or employee of the government “shall not represent a client in connection with a matter in which the lawyer participated personally and substantially as a public officer or employee unless the appropriate government agency gives its informed consent, confirmed in writing to the representation.”

                Rule 1.12, Specific Conflicts of Interest for Former Judges, Arbitrators, Mediators or Other Third-Party Neutrals, provides:

(b) “(A) lawyer shall not represent anyone in connection with a matter in which the lawyer participated personally and substantially as  an arbitrator, mediator or other third party neutral …a law clerk to a Judge or other adjudicative officer…unless all parties to the proceeding give informed consent, confirmed in writing.”

                Rule 1.13 Organization As Client, provides, in respect to the organization that a lawyer is representing and when dealing with its employees and agents whose interests may differ, that “the lawyer shall explain that the lawyer is the lawyer for the organization and not for any constituents.”  There can be concurrent representation of officers, directors, agents, etc., provided there is informed consent in writing.

                Rule 1.17, Sale of Law Practice, states in subdivision (b)(5) and 6) that the seller may not provide the buyer with client confidential information or privileged information “absent the consent of the client after full disclosure,” including the identity of the buyer and conflict waivers are obtained in writing.

                Rule 1.18, Duties to Prospective Clients, provides that (d) {w}hen the lawyer has received disqualifying information …representation is permissible if …both the affected client and the prospective client have given informed consent, confirmed in writing.

                Rule 5.8, Contractual Relationship between Lawyers and Non Legal Professionals, states that the fact of such a contractual relationship must be disclosed to the recipient of the legal services and the client in addition to being given a “Statement of Client’s Rights to Cooperative Business Arrangements” pursuant to Section 1205.4 of the Joint Appellate Division Rules” has given informed written consent.

Recent Case

A recent case Fielding v Kupferman³ addresses the informed consent issue and its integral relationship to bad advice. Plaintiff-husband sued his matrimonial lawyer. He settled with his former spouse. In exchange for receiving a cooperative apartment Plaintiff-husband agreed to pay his former spouse $1,597,013 including relinquishing all claims to brokerage accounts.  Initially, $1,200,000 was to be paid and the balance in monthly installments.  The $1.2 million was to be paid within thirty (30) days of execution.  Plaintiff-husband anticipated obtaining a home-equity line of credit in order to complete this transaction which in reality could not occur.  Plaintiff withdrew one half (1/2) of his retirement account but was allegedly not advised by Defendant-lawyer that there were significant tax consequences attendant to the withdrawal.

Counsel acknowledged the settlement was unrealistic and should have been better explained. However, it was conceded by Plaintiff-husband that he expressly represented the "funds were immediately available". The Plaintiff alleged legal malpractice and the Court deemed sufficient the allegations. The Court held that a reasonably competent lawyer reading the stipulation and knowing the source of funds was the retirement account had to know there were significant tax consequences that should have been addressed. The allegation also deemed sufficient was that the lawyer inadequately explained the operative document. The Court held:

"...[P]laintiff alleges that but for defendant's malpractice in advising him to sign the stipulation of settlement without advising him properly of tax consequences arising out of his withdrawal money from retirement accounts, he would have avoided actual ascertainable damage i.e the tax liability resulting from the withdrawal of the money.  He further alleges that defendants were not knowledgeable with regard to the tax consequences and failed to advise him to obtain tax advice from another source.

Defendant's documentary evidence not only fails to refute plaintiff's allegations… conclusively, it supports plaintiff's claim of malpractice in a key respect. The stipulation identifies...accounts in plaintiff's name representing his financial assets and states that....[it]is in a "Profit Sharing Keogh Account", a retirement account that has specific rules regarding the withdrawal of funds and requires that significant taxes be paid upon pre-retirement withdrawal.  Thus, the stipulation makes clear that the sum of money that plaintiff needed to comply with its requirements was not "immediately available", yet defendants advised plaintiff to sign it. Given that the ground for plaintiff’s claim of malpractice is apparent from the face of the stipulation, the allegations contained in the complaint are not conclusory and plaintiff properly has pleaded a cause of action for legal malpractice."

Referring to precedent established by the New York Court of Appeals, the Court passed over the slippery slope that can come about when we make disclosure rote and mechanical and do not consider what the lawyer must in reality communicate to the client and what the client does not need to be informed about because it is self-evident.  The Appellate Division, First Department observed;

"The Court of Appeals recently stated that 'the conclusiveness of [an] underlying agreement does not absolutely preclude an action for professional malpractice against an attorney for negligently giving to a client an incorrect explanation of the contents of a legal document." Bishop v Maurer, 9 N.Y.3d. 910, 875 N.E.2d 883, 844 N.Y.S.2d 165(2007).  Although the Court found that the complaint in Bishop was devoid of any non-conclusory allegations that incorrect legal advice was given to the plaintiff, the facts of that case are distinguishable."

            The First Department distinguished Bishop because the husband and wife in that case executed trust documents that "contained an acknowledgement that both parties read and understood the documents and waived any conflict of interest due to their joint reliance on the same attorneys in executing the documents" and "[o]n their face, the documents were proper and did not establish that the defendants provided improper advice or engaged in any act of malpractice".  It is a distinction without a difference to say a client understands a document that he signs with an express recital that he understands and a document in which the client executes with words and ideas the implications of which have to be understood by persons of reasonable intelligence and experience.

The Court in the cited case overstated the breath of the obligation to obtain informed consent because informed consent should both be within the scope of the representation, i.e.,  implicates the expertise for which the client hired the lawyer; and an issue beyond the capacity of the client to understand without an explanation from his or her lawyer.  The cited case certainly raises the issue of how a reasonably sophisticated client could not know that there would be tax consequences to a withdrawal from a retirement account.  It is clear from the New Code, however that implied consent is no longer is an option. The lesson from the case and the New Code is that informed consent should not only be rigorous but confirmed in writing; and not as a mere formality. Boilerplate consent forms should not be employed because informed consent has to be thoughtful and not mechanical.

Also implicated in the concept of informed consent is not merely selection of a strategy or a course of conduct but competent legal advice as the essential premise of the client's informed choice.  Getting a client to sign off is not sufficient; the lawyer has to be reasonably sure the client's signature or acknowledgement represents an informed choice.  The Courts, however, have to be balanced in their judgments and not allow clients to avoid responsibility for matters that come within the client's ken.

The Pervasive Theme

                It is self-evident that “Informed Consent” and “Confirmed in Writing” is the pervasive theme in the New Rules of Professional Conduct for Attorneys in New York.  The fact that these concepts are so prevalent in a number of the Rules and informed consent can easily be evidenced and memorialized by either the lawyer’s or the client’s writing makes the Rules a very effective means for every lawyer to prevent liability for legal malpractice and to avoid professional misconduct charges, whether with or without merit. A word of caution, however, lawyers should not rely on implied consent and at least on the material terms and strategies of the representation memorialize the client’s informed consent to the course the engagement is going to pursue, both generally and specifically.  Moreover that which is not self-evident should always be researched and discussed   with the client in an informative manner.

Endnotes

1. The order in the subparagraphs of Rule 1.0 are reversed but for this article the sequence above is correct because it is more meaningful in context.

2. The language that emphasizes informed consent and confirmed in writing is italicized to illustrate the pervasiveness of the concepts in the New Code.

3. 2009 NY Slip Op. 6151; 2009 N.Y. App. Div. LEXIS 6000 (First Department 2009).

Nov. 13, 2009

WHAT DOES SELECTIVE SERVICE PROVIDE FOR AMERICA?

"A Relatively Low-cost Insurance Policy," says President Clinton

On May 18, 1994, President Clinton informed Congress that:

"Maintaining the Selective Service System and draft registration provides a hedge against unforeseen threats and a relatively low cost "insurance policy" against our underestimating the maximum level of threat we expect our Armed Forces to face.... As fewer and fewer members of our society have direct military experience, it is increasingly important to maintain the link between the All-Volunteer Force and our society-at-large. The Armed Forces must also know that the general population stands behind them, committed to serve, should the preservation of our national security so require."

"A Fair and Equitable Draft," says Mr. Perry

Then Secretary of Defense, William J. Perry, recommended to Congress in August 1995 that the Selective Service be funded adequately. "This small, but important agency," he wrote, "should be maintained in its current state of readiness, and its peacetime registration program involving America's young men should be preserved to help ensure that any future draft, if needed, would be fair and equitable."

Some of those words in one MTA bus ad attached to a commanding “You Must Register” caught me by surprise recently. The U.S. still has a Selective Service. I thought the draft was over in the mid-1970s when, after being involved in two lottery drawings—and for once in my life being lucky and getting GOOD numbers, the draft was abolished. Or so I thought.

The glory days of my youth, when hopes were high and hormones raged also included circumstances that left indelible marks on my teen-age psyche: the riots in Chicago and Watts, the assassinations of JFK, RFK, and Martin Luther King Jr., the sight of coffins arriving from Vietnam, protests on the White House grounds bordering on violence, and, the real humdingers, young men my age burning the U.S. flag AND their draft cards on national network news hours. (Something the Fawning Corporate Media would never show today.)

After surviving those two lottery drawings and seeing the draft abolished, I assumed that was it. I thought the U.S. ran its war machine via volunteer armies lured by tuition for college and jobs for the unfortunate. With 9/11 and its horrific aftermath, I learned that the U.S. war machine ground ever onward, but—I thought—with that same “volunteer army,” plus mercenaries like Blackwater.

I have two nephews who are about 22. I thought they stood no chance of getting hogtied into the fight for oil in Afghanistan, Iraq, Pakistan, and, maybe, Iran. But, alas, I was wrong. The Selective Service still exists and if the president and Congress—who are we kidding?—if the president wants to suck my nephews into harm’s way to keep America’s sports cars humming, he sure can with a flick of his pen.

Conscription in the United States (also called compulsory military service or the draft) has been employed several times, usually during war but also during the nominal peace of the Cold War. The United States discontinued the draft in 1973, moving to an all-volunteer military force, so there is currently no mandatory conscription.

However, the Selective Service System remains in place as a contingency plan; men between the ages of 18 and 25 are required to register so that a draft can be readily resumed. The question these days doesn’t solely include any conflagration in the Middle East; it could include snuffing out riots here in the homeland via U.S. NorthComm.

The system also maintains information on those potentially subject to military conscription. All males between the ages of 18 to 25 are required by law to register within 30 days of their 18th birthday. As of the end of 2008, the names and addresses of over 14 million men were on file. [Hello, Big Brother!] Registration for Selective Service is also required for various federal programs and benefits, including student loans, job training, federal employment, and naturalization.

The Selective Service System provides the names of all registrants to JAMRS for inclusion in the JAMRS Consolidated Recruitment Database. The names are distributed to the Services for recruiting purposes on a quarterly basis.  The system is an independent federal agency within the Executive Branch of the federal government of the United States. The Director of the Selective Service System reports directly to the President of the United States of America.

During peacetime (current structure), the agency comprises a national headquarters, three regional headquarters and a Data Management Center. During a mobilization (draft), the agency would greatly expand by activating an additional 56 state headquarters, 400 plus area offices as well as 40 plus alternative service offices.

Mobilization (draft) procedures: Congress and the President authorize a draft. The president claims a crisis has occurred which requires more troops than the volunteer military can supply. Congress passes and the President signs legislation which revises the Military Selective Service Act to initiate a draft for military manpower.

A lottery based on birthdays determines the order in which registered men are called up by Selective Service. The first to be called, in a sequence determined by the lottery, will be men whose 20th birthday falls during the calendar year the induction takes place, followed, if needed, by those aged 21, 22, 23, 24, 25, 19, and 18 (in that order).

Physical, mental and moral evaluation of registrants: Registrants with low lottery numbers receive examination orders and are ordered to report for a physical, mental, and moral evaluation at a Military Entrance Processing Station (MEPS) to determine whether they are fit for military service. Once he is notified of the results of the evaluation, a registrant will be given 10 days to file a claim for exemption, postponement, or deferment. [Editor’s Note: Why is only the ‘He’ pronoun used?]

 Local and Appeal Boards will begin processing registrant claims/appeals. Those who passed the military evaluation will receive induction orders. An inductee will have 10 days to report to a local Military Entrance Processing Station for induction. First draftees are inducted: According to current plans, Selective Service must deliver the first inductees to the military within 193 days from the onset of a crisis.

Lottery procedures: If the agency were to mobilize and conduct a draft, a lottery would be held in full view of the public [Hard to believe.]. This would be covered by the media. [I doubt that. Let’s get serious.] First, all days of the year are placed into a capsule at random. Second, the numbers 1-365 (1-366 for lotteries held with respect to a leap year) are placed into a second capsule. These two capsules are certified for procedure, sealed in a drum, and stored.

In the event of a draft, the drums are taken out of storage and inspected to make sure they have not been tampered with. The lottery then takes place, and each date is paired with a number at random. For example, if Jan. 16 is picked from the "date" capsule and the number 59 picked from the "number" capsule, all men of age 20 born on Jan. 16 will be the 59th group to receive induction notices. This process continues until all dates are matched with a number.

Should all dates be used, the Selective Service will then conscript men at the age of 21, then 22, 23, 24, and 25. Men ages 18 and 19 are not likely to be inducted to the system. Once all dates are paired, the dates will be sent to Selective Service System's Data Management Center.

Legal issues: Although the Selective Service System is authorized by the Selective Service Act, some dispute the constitutionality of the act, claiming the law violates the Thirteenth Amendment to the United States Constitution of the U.S. Constitution by providing for military conscription. Opponents of the law contend that the draft constitutes "involuntary servitude", under the amendment, which states:

Neither slavery nor involuntary servitude, except as a punishment for crime whereof the party shall have been duly convicted, shall exist within the United States, or any place subject to their jurisdiction.

This has not been supported by the courts; as the Supreme Court said in Butler v. Perry:

The amendment was adopted with reference to conditions existing since the foundation of our government, and the term 'involuntary servitude' was intended to cover those forms of compulsory labor akin to African slavery which, in practical operation, would tend to produce like undesirable results. It introduced no novel doctrine with respect of services always treated as exceptional, and certainly was not intended to interdict enforcement of those duties which individuals owe to the state, such as services in the army, militia, on the jury, etc.

Constitutionalists have since noted, however, that such "owed duties" also preceded the established fundamental precepts of "inalienable rights" to life and liberty, which would presumably supersede them, and by which the states originally declared the principal basis for their independence from Great Britain in 1776; accordingly, American governments could derive no just power or authority to impose duties that interfered with such rights, since otherwise this would provide government with a "loophole" for doing so. Therefore while the court clarified that the draft did not violate the 13th Amendment per se, it failed to address either the 9th Amendment regarding such rights which were retained by the People, despite not being specifically enumerated in the Constitution; or the 10th Amendment safeguards against the enlargement of federal powers, over those specifically delegated therein.

Exemption of women: Currently, the law exempts women from registration. The issue of women being exempted was addressed and approved in 1981 by the U.S. Supreme Court in Rostker v. Goldberg, with the Court holding "The existence of the combat restrictions clearly indicates the basis for Congress' decision to exempt women from registration. The purpose of registration was to prepare for a draft of combat troops. Since women are excluded from combat, Congress concluded that they would not be needed in the event of a draft, and therefore decided not to register them."

At the request of President Bill Clinton, the Department of Defense reviewed the issue, but concluded that the exclusion remains justifiable in light of past draft results.

Perception of the draft as unfair: Some people feel that the draft is fundamentally unfair (or illegal in a way) because only males must register with the Selective Service. Many masculists as well as feminists hold this view. For example, the National Organization for Women, a feminist organization, passed a resolution in 1980 opposing males-only draft registration as discriminatory, and the American Civil Liberties Union's Women's Rights Project provided aid to the plaintiff in the Supreme Court case Rostker v. Goldberg, in which the plaintiff unsuccessfully challenged males-only draft registration. Congress retains the right to conscript women and considered doing so during the Second World War.

Other discriminating factors regarding conscription include age, with a preference for younger draftees, and residency, since only those in the U.S. may be drafted.

The draft has been perceived by some as unfairly targeting the poor and lower middle classes. Because of college deferments, children of wealthy and upper middle class families that could afford to send them to college could avoid the draft. The fact that President Bill Clinton had been attending college during the time period in which conscription was active and received a collegiate deferment caused controversy during his campaigns and during his time in office. Similar controversy has surrounded prominent figures in the Bush Administration, such as Dick Cheney and Paul Wolfowitz.

Some of these issues may have had an effect inthe Fort Hood (Texas) incident recently:

Major Nidal Malik Hasan, an Army psychiatrist has been charged with shooting to death 13 soldiers and a civilian at Fort Hood. Major Hasan, who was posted to Fort Hood in July and assigned to assess soldiers before they were deployed to combat, is accused of methodically using a FN Hertsal, 5.7 millimeter pistol he bought last summer to gun down soldiers who were gathered Nov. 5 in a processing center to receive medical attention before being sent overseas.

Here is what Matthis Chiroux, who was a Sergeant in the U.S. Army and is now an active member of Iraq Veterans Against the War (IVAW), had to report in commondreams.org this past week.

“So he screamed Allahu Akbar before he pulled the trigger. Ever hear what Soldiers scream in combat? It's a combination of profane, blood-lustful jargon and cries for reassurance from the almighty. "Ain't no such thing as an atheist in a fox-hole," I've heard. What about Christians behind mass murder?

“They happen in Iraq and Afghanistan all the time. There's a million dead, and they didn't all kill themselves. Knowledge of this is what drove Maj. Hassan to the realization that our wars are genocidal. Lack of legal recourse is what drove him to violent madness, as it nearly did me.

“I wish we could have just said no and walked away, but the law is wrong, and many in our all-volunteer Army would actually consider themselves prisoners of war. Bound by contract often signed under duress to carry out the bloody will of others; waiting for their time in service to end, praying to avoid stop-loss.

“The Greatest Generation's involvement in WWII lasted three-and-a-half years. Three and a half years ago, we were already trapped in a civil war that we helped start two years prior! With 30 percent of those deploying to Iraq and Afghanistan coming home with mental illness, we can expect a lot more tragedy where this came from, unless we do something now.

“Soldiers must be given the right to walk away as Maj. Hassan tried to do so many times. If half the military quits, so be it. We'll rest assured knowing our truly volunteer force is getting twice the care and attention.”

Oct. 15, 2009

At the risk of talking about me all of the time, I worked for Standard & Poor’s as an editor for about six years prior to 2000—during the bubble’s expansion into bursting territory, circa summer 2008.

At S&P, we all worked in divisions, departments—what-not. They focused on things like corporate debt and structured debt. Structured was where they put the really good editors. We guessed it was because the S&P financial analysts coming up with ratings on structured bonds needed astute editors to understand their reasoning when they gave an A, a B, a ‘AAA.’ I read some of those analyses. They were convoluted. We in the corporate section thought the ‘structured’ people were more savvy than us as they gave a rating to mortgages that had been bought and sold several times and repackaged for sale to other folks. But the ratings were set at one-after-another meetings between S&P analysts and the clients. Backslapping 'face' time.

Turns out no one had a clue. But in corporations in the Wall Street area, S&P is at 55 Water Street, it can cost you your bonus and/or job if you admit you “Don’t Understand.” This is especially true when you would  be aditting that to your client who is PAYING S&P to “objectively” assign a rating to their hodge-podge of debt. They need S&P’s best rating so they can get the most when they sell the debt. And S&P needs the client’s fee to pay the rent at 55 Water Street.

Sort of a catch-22. Conundrum. Win-win situation. Well, not win-win—exept for the players within eyesight. The buyers of that toxic debt are out of sight, maybe even overseas. By the time they find out—who cares? So, like six-year-old boys raiding the freezer for ice cream because dad’s in the bedroom watching football (out of sight, so he’ll never find out), the master’s of the universe in conjunction with some of my old mates at S&P took the ice cream. They knew that the little people would get sick and puke it up, as they did with the bailout. They knew that their ratings system may end up in court, but, don’t they have freedom of speech? The rating is only an OPINION isn’t it?. Like an editorial in a newspaper?

Thus the meltdown in September-October 2008. No money to back up the toxic debt when the money was requested.

Ahh. The chickens were coming home to roost as a Minnesota farmer might say.

Now there are court issues to be decided. Questions about ratings agencies, such as S&P, and the First Amendment, and alleged fraud and conflict of interest.

The questions stirring around include some discussed by Internet writers and some by John C. Coffee of Columbia Law School, who says the free-speech claim for ratings is weak because S&P is paid by sponsors.

The issues:

1) The meltdown of 2008: Many people fault rating agencies as signing off on junk.

2) Floyd Abrams—yes, THAT Floyd Abrams--will contend that S&P’s ratings deserve exactly the sort of free-speech protections afforded to journalists, on the theory that a bond rating is like an editorial — an opinion based on an educated guess about the future. And for the same reason you can’t sue editorial writers, Mr. Abrams will argue that you can’t sue a bond rater because the economy went into a free fall that few saw coming.

3) But the First Amendment is no defense against fraud, and that is what is alleged by many of the plaintiffs. Against them, Mr. Abrams will argue that S&P was every bit as blindsided as nearly everyone else in the private sector and in the regulatory sphere.

4) Abrams is aggressive: “I very much hope that we can get rid of these litigations on motions for dismissal,”

5) “You can’t have a financial calamity without lawyers “You need them to issue an opinion that a certain trading strategy is O.K., even if it might be really questionable. That can be invaluable to an investment bank. The lawyers say, ‘This is all right; everybody is doing it.’ And you’re off to the races.”

a) It would be silly, however, to expect lawyers who work for Wall Street to acknowledge errors by their employers.

6) “In my view, he hasn’t done the industry much good because his tactics have been too aggressive,” says Jerome S. Fons, a former Moody’s managing director. Mr. Fons has an example in mind: in 2004, the SEC proposed a voluntary regulatory framework for the rating agencies. It never got much past the conceptual phase

7) Main issue: Like its competitors, S&P is paid by the issuers of the bonds it assesses, setting up what appears to be a rather spectacular conflict of interest — like a teacher appraising the work of the students who pay his salary.

8) Another main issue:. the now-infamous back and forth of instant messages between two S&P analysts, one of whom says the firm’s risk assessment model hasn’t captured half the risk of a particular deal.

“It could be structured by cows,” the analyst wrote, “and we’d rate it.”

9) “I don’t think that a rating is the same as an editorial, because The New York Times’s editorial page isn’t paid for by a sponsor. The direct, commercial relationship of the issuer of the bond and the rating agency puts it into the field of commercial speech.”

10) Issue, fraud: “There’s no question that the rating agencies are entitled to some level of First Amendment protection,” it is said. “What’s harder to figure out is what degree of regulation we can impose on the companies. There are millions who rely on the objectivity of those ratings, and if you could prove that those ratings were corrupted by a bribe or tainted by a clear conflict of interest, my view is that those protections would be reduced or eliminated entirely.” Suits alleging fraud against S&P present other complications. Mr. Abrams maintains that the law protects S&P and its judgments about the future as long as analysts at the company truly believe the ratings they come up with

11) There is little chance that a meteorologist has a financial stake in saying, “It’s going to be sunny.” The rating agencies, on the other hand, essentially get paid by the people who need a prediction of clear skies, and the customers can always ask a different forecaster if they don’t hear what they like

12) And all sorts of financial institutions are required by law to rely on ratings. (For instance, there are plenty of money market funds that can’t buy bonds unless rated triple-A.) That elevates the commercial importance of those ratings, which gives them a different legal status than, say, a weather report.

13) One of the largest American pension funds, Calpers, has filed suit against all three rating agencies, alleging that “wildly inaccurate” ratings had led to $1 billion in losses. The fund had bought structured investment vehicles, a package of securities that include subprime mortgages, which had been given high ratings before all but evaporating last year. The rating agencies, according to the suit, used methods that “were seriously flawed in conception and incompetently applied.”

14) Issue: S&P lately also has been accused of helping with “predatory equity,” the buying of buildings filled with poor tenants and then using legal tactics to scare them out. A year ago, no one would have included a rating agency in a list of picket-worthy institutions, and as the tobacco companies learned, the public image of a corporation can have a huge impact on its fate in court

A scary throwback to 9/11, the nation’s defining tragedy, which reports since have clarified that warnings had been ignored:

On Sept. 29, an Associated Press story said an ex-Moody's employee warned the SEC about muni issues.

The AP continues: As Congress steps up scrutiny of the credit rating industry, allegations by another former employee of Moody's Investors Service have come to light and the big rating agency is being called to account before a House panel.

A former Moody's employee warned the Securities and Exchange Commission in March about deficiencies in the firm's monitoring of municipal bonds after being rebuffed by Moody's executives, a document shows.

Scott McCleskey, who was a senior vice president for compliance at Moody's until he left a year ago, wrote a letter to an official at the SEC alleging a "lack of meaningful surveillance of municipal securities, contrary to statements by Moody's to the public and to Congress."

McCleskey was to testify at a hearing by the House Government Oversight Committee, which is examining the role of the Wall Street rating agencies in the financial crisis and weighing regulatory changes to help prevent future blowups.

McCleskey's allegations add to the recent public complaint by another former Moody's analyst who said the firm continues to inflate its ratings and is gripped by conflicts of interest. The former analyst, Eric Kolchinsky, also will testify at the hearing. Unfortunately, a very highly placed former S&P executive whom I contacted would not comment for this piece.

And a pokesmen for Moody's in New York had no immediate comment. Richard Cantor, the chief risk officer of the agency's parent, Moody's Corp., and the chief credit officer of Moody's Investors Service, is scheduled to appear at the hearing as well.

The credit rating industry — dominated by Moody's, Standard & Poor's and Fitch Ratings — was widely criticized for failing to identify risks in securities backed by subprime mortgages, whose collapse touched off the financial crisis.

The agencies had to downgrade thousands of the securities last year as home-loan delinquencies soared and the value of those investments plummeted. The downgrades contributed to hundreds of billions in losses and writedowns at big banks and investment firms.

"Now, one year later, little has changed," Rep. Edolphus Towns, D-N.Y., chairman of the oversight panel, said in a statement.

Another House panel, the Financial Services subcommittee on capital markets, was to hold a hearing on reform of credit rating agencies. An SEC official as well as high-ranking executives of Moody's, S&P and Fitch were scheduled to testify.

The agencies are crucial financial gatekeepers, issuing ratings on the creditworthiness of public companies and securities. Their grades can be key factors in determining a company's ability to raise or borrow money, and at what cost securities will be purchased by banks, mutual funds, state pension funds or local governments.

The SEC recently proposed rules designed to stem conflicts of interest and provide more transparency for credit rating agencies.

SEC spokesman John Nester said the agency "has established an examination program for credit rating agencies ... that includes reviews of disclosures, policies and procedures regarding municipal securities ratings."

"We are focusing carefully on the tips and complaints we receive and following up, where appropriate, with examinations targeting suspected problems," he said.

Regulators say they hope to spur more competition in the rating industry, with possibly new entrants — as well as the other seven existing agencies — challenging the dominant firms. One of the SEC's proposals would bar companies from "shopping" for favorable ratings of their securities, by requiring companies to disclose whether they had received preliminary ratings from other agencies.

McCleskey said in his March 12 letter to the SEC that in his position as a compliance officer, he became aware that Moody's did "virtually no surveillance" on public finance securities, the debt issued by states, counties, towns and school districts.

When he raised concerns to managers, he said, "My guidance was, to put it politely, ignored." In fact, at one point last year he and others were told in a meeting that they were forbidden to mention the issue in any e-mails or other written form, McCleskey said.

"Senior management at Moody's is well aware of these facts but is unwilling to make more than a token effort," he wrote.

Kolchinsky has said that Moody's knowingly assigned inaccurate ratings to complex securities this year. He told another executive of the firm in a detailed memo in August that he believed Moody's was engaging in illegal conduct.

Oct. 8, 2009

How is it that corporations, which did not exist in their monstrously powerful form in the Founding Fathers’ days, achieved essentially equal status with human beings in U.S. courts? Certainly, the founding fathers would have placed a check and balance in place to stop their beloved United States from being tyranized by a faceless, heartless, organization whose managers, most of them, seem to have been born without the gene for empathy.

This has become apparent since “Saint” Reagan took over in 1980 and was pushed past the tipping point during W’s reign. Now, after a Sept. 9 hearing at which a majority of Supreme Court justices sharply questioned the government’s rationale for limiting corporate speech with campaign finance laws, W’s pro-corporation High Court seems ready to hand the beast even more oomph.

The tough questions led opponents of campaign finance restrictions to believe they had scored a victory, while some supporters of the law sponsored by Sens. John McCain (R-Ariz.) and Russ Feingold (D-Wis.) expressed pessimism. In an unusual re-hearing of a case pitting a conservative nonprofit group, Citizens United, against the Federal Election Commission (FEC), justices expressed skepticism at the government’s right to prohibit corporate communications related to elections.

The case originally examined whether Citizens United could use funds donated by corporations to produce and show a movie slamming then-presidential candidate Hillary Rodham Clinton. But in order to fully examine the ramifications of its actions, the court expanded the case to include arguments over two other cases, McConnell v. FEC and Austin v. Michigan Chamber of Commerce, concerning whether bans on corporate communications about political candidates within certain time periods of an election are constitutional.

Four justices pressed Solicitor General Elena Kagen to explain just what sorts of speech the government would ban. Kagen suggested that certain bans, such as a prohibition on books, would not be enforced, but she admitted the government’s rationale for keeping corporate money out of politics had changed.

Election law experts and Supreme Court watchers said the questioning, led by Chief Justice John Roberts and joined by Associate Justices Antonin Scalia, Anthony Kennedy and Samuel Alito, indicated the court will rule in Citizens United’s favor. The question that remains, they said, is not whether the conservative group wins the case, but how far the court goes in overturning aspects of campaign finance law.

“Most of the questioning was about how Citizens United gets to run their movie, not whether,” said Marc Elias, a Democratic attorney at Perkins Coie.

Though Justice Clarence Thomas did not ask questions, he has sided repeatedly against campaign finance reform laws. Thomas dissented in McConnell and sided with the majority in FEC v. Wisconsin Right to Life, a case that upheld an as-applied challenge to McCain-Feingold.

Kennedy, widely viewed as at the center of the court’s ideological spectrum, suggested he may side with conservatives and aid them in going as far as possible in allowing corporate speech.

“There is no place in which an ongoing chill [in speech] is more dangerous than the electoral process,” Kennedy said.

Former Solicitor General Ted Olson, arguing for Citizens United, called communication in an election “the most fundamental right we can exercise in a democracy.” He pointed out that a corporation has been deemed to have the same rights as an individual in previous court cases.

Justices Ruth Bader Ginsburg, John Paul Stevens and Stephen Breyer grilled Olson over his views, while Justice Sonia Sotomayor, making her debut as a member of the court, cited stare decisis — the judicial principle for respecting settled precedent — as a concern in ruling for Citizens United.

After the arguments, McCain and Feingold both blasted justices for being dangerously out of touch.

“The questioning shows a real disconnect, a strong disconnect between the justices and political reality,” McCain said at the press conference.

“I wish that one of the justices who were standing up for people’s First Amendment rights had ever run for county sheriff,” he added. The justices showed an “extreme naïveté of the influence of corporate money and soft money.”

County sheriffs were more in the vernacular when the U.S. court system somehow made one of its biggest mistakes, equating corporations with individual human beings.

From Internet sources, it went something like this: At the California Constitutional Convention of 1878-79, the state legislature drew up a new constitution that denied railroads "the right to deduct the amount of their debts [i.e., mortgages] from the taxable value of their property, a right which was given to individuals." Southern Pacific Railroad Company refused to pay taxes under these new changes. The taxpaying railroads challenged this law, based on a conflicting federal statute of 1866 which gave them privileges inconsistent with state taxation (14 Stat. 292, §§ 1, 2, 3, 11, 18).

San Mateo county, along with neighboring counties filed suit against the railroads to try to recoup the massive shortage of tax revenue stemming from Southern Pacific's refusal to pay. After hearing arguments in San Mateo County v. Southern Pacific Railroad Company, the California state Supreme Court sided with the county. Using the Jurisdiction and Removal Act of 1875, a law created so black litigants could surpass hostile southern state courts if they were denied justice, Southern Pacific was able to appeal all the way to the U.S. Supreme Court.

The decisions reached by the Supreme Court are promulgated to the legal community by way of books called United States Reports. Preceding every case entry is what's known as a headnote, a short summary where a court reporter summarizes the opinion as well as outlining the main facts and arguments. For example, in U.S. v. Detroit Timber and Lumber (1905), headnotes are defined as "not the work of the Court, but are simply the work of the Reporter, giving his understanding of the decision, prepared for the convenience of the profession."^[5]

The court reporter, J.C. Bancroft Davis, wrote the following as part of the headnote for the case:

"The court does not wish to hear argument on the question whether the provision in the Fourteenth Amendment to the Constitution, which forbids a State to deny to any person within its jurisdiction the equal protection of the laws, applies to these corporations. We are all of the opinion that it does."

In other words, corporations enjoyed the same rights under the Fourteenth Amendment as did natural persons. However, this issue is absent from the court's opinion itself.

Before publication in United States Reports, Davis wrote a letter to Chief Justice Morrison Waite, dated May 26, 1886, to make sure his headnote was correct:

Dear Chief Justice, I have a memorandum in the California Cases Santa Clara County v. Southern Pacific. As follows. In opening the Court stated that it did not wish to hear argument on the question whether the Fourteenth Amendment applies to such corporations as are parties in these suits. All the Judges were of the opinion that it does.

Waite replied:

I think your mem. in the California Railroad Tax cases expresses with sufficient accuracy what was said before the argument began. I leave it with you to determine whether anything need be said about it in the report inasmuch as we avoided meeting the constitutional question in the decision.

C. Peter Magrath, who discovered the exchange while researching Morrison C. Waite: The Triumph of Character, writes "In other words, to the Reporter fell the decision which enshrined the declaration in the United States Reports...had Davis left it out, Santa Clara County v. Southern Pac[ific] R[ailroad] Co. would have been lost to history among thousands of uninteresting tax cases."

Author Jack Beatty wrote about the lingering questions as to how the reporter's note reflected a quotation that was absent from the opinion itself.

Why did the chief justice issue his dictum? Why did he leave it up to Davis to include it in the headnotes? After Waite told him that the Court 'avoided' the issue of corporate personhood, why did Davis include it? Why, indeed, did he begin his headnote with it? The opinion made plain that the Court did not decide the corporate personality issue and the subsidiary equal protection issue.

The court's actual decision was uncontroversial. A unanimous decision issued by Justice ruled on the matter of fences -- in that the state of California illegally included the fences running beside the tracks in its assessment of the total value of the railroad's property. As a result, the county could not collect taxes from Southern Pacific that it wasn't allowed to collect in the first place.

The Supreme Court never reached the equal protection claims. Nonetheless, this case is sometimes incorrectly cited as holding that corporations, as juristic persons, are protected by the Fourteenth Amendment. As such, it did not technically - in the view of most legal historians - have any legal precedential value. However, the Supreme Court is not required by Constitution or even precedent to limit its rulings to written statements.

Justice William O. Douglas wrote in 1949, "the Santa Clara case becomes one of the most momentous of all our decisions.. Corporations were now armed with constitutional prerogatives."

Justice Hugo Black wrote "in 1886, this Court in the case of Santa Clara County v. Southern Pacific Railroad, decided for the first time that the word 'person' in the amendment did in some instances include corporations...The history of the amendment proves that the people were told that its purpose was to protect weak and helpless human beings and were not told that it was intended to remove corporations in any fashion from the control of state governments...The language of the amendment itself does not support the theory that it was passed for the benefit of corporations."

However, ‘Santa Clara’ has left a devastating legacy, making the U.S. essentially into a nation by the corporations for the corporations.

The latest presidential election is a case in point, according to Chris Hedges, from commondreams.org:

Barack Obama is a brand. And the Obama brand is designed to make us feel good about our government while corporate overlords loot the Treasury, our elected officials continue to have their palms greased by armies of corporate lobbyists, our corporate media diverts us with gossip and trivia and our imperial wars expand in the Middle East. Brand Obama is about being happy consumers. We are entertained. We feel hopeful. We like our president. We believe he is like us. But like all branded products spun out from the manipulative world of corporate advertising, we are being duped into doing and supporting a lot of things that are not in our interest.

What, for all our faith and hope, has the Obama brand given us? His administration has spent, lent or guaranteed $12.8 trillion in taxpayer dollars to Wall Street and insolvent banks in a doomed effort to reinflate the bubble economy, a tactic that at best forestalls catastrophe and will leave us broke in a time of profound crisis. Brand Obama has allocated nearly $1 trillion in defense-related spending and the continuation of our doomed imperial projects in Iraq, where military planners now estimate that 70,000 troops will remain for the next 15 to 20 years. Brand Obama has expanded the war in Afghanistan, including the use of drones sent on cross-border bombing runs into Pakistan that have doubled the number of civilians killed over the past three months. Brand Obama has refused to ease restrictions so workers can organize and will not consider single-payer, not-for-profit health care for all Americans. And Brand Obama will not prosecute the Bush administration for war crimes, including the use of torture, and has refused to dismantle Bush's secrecy laws or restore habeas corpus.

Brand Obama offers us an image that appears radically individualistic and new. It inoculates us from seeing that the old engines of corporate power and the vast military-industrial complex continue to plunder the country. Corporations, which control our politics, no longer produce products that are essentially different, but brands that are different. Brand Obama does not threaten the core of the corporate state any more than did Brand George W. Bush.

The Bush brand collapsed. We became immune to its studied folksiness. We saw through its artifice. This is a common deflation in the world of advertising. So we have been given a new Obama brand with an exciting and faintly erotic appeal. Benetton and Calvin Klein were the precursors to the Obama brand, using ads to associate themselves with risqué art and progressive politics. It gave their products an edge. But the goal, as with all brands, was to make passive consumers mistake a brand with an experience.

In an age of images and entertainment, in an age of instant emotional gratification, we do not seek reality. Reality is complicated. Reality is boring. We are incapable or unwilling to handle its confusion. We ask to be indulged and comforted by clichés, stereotypes and inspirational messages that tell us we can be whoever we seek to be, that we live in the greatest country on Earth, that we are endowed with superior moral and physical qualities, and that our future will always be glorious and prosperous, either because of our own attributes, or our national character, or because we are blessed by God. Reality is not accepted as an impediment to our desires. Reality does not make us feel good.

Also, from the Internet: The capitalist state has two roles long recognized by political thinkers. First, like any state it must provide services that cannot be reliably developed through private means, such as public safety and orderly traffic. Second, the capitalist state protects the haves from the have-nots, securing the process of capital accumulation to benefit the moneyed interests, while heavily circumscribing the demands of the working populace, as Eugene Debs observed from his jail cell.

There is a third function of the capitalist state seldom mentioned. It consists of preventing the capitalist system from devouring itself. Consider the core contradiction Karl Marx pointed to: the tendency toward overproduction and market crisis. An economy dedicated to speedups and wage cuts, to making workers produce more and more for less and less, is always in danger of a crash. To maximize profits, wages must be kept down. But someone has to buy the goods and services being produced. For that, wages must be kept up. There is a chronic tendency-as we are seeing today-toward overproduction of private sector goods and services and underconsumption of necessities by the working populace.

The classic laissez-faire theory is even more preposterous than Greenspan made it. In fact, the theory claims that everyone should pursue their own selfish interests without restraint. This unbridled competition supposedly will produce maximum benefits for all because the free market is governed by a miraculously benign "invisible hand" that optimizes collective outputs. ("Greed is good.")

Is the crisis of 2008-09 caused by a chronic tendency toward overproduction and hyper-financial accumulation, as Marx would have it? Or is it the outcome of the personal avarice of people like Bernard Madoff? In other words, is the problem systemic or individual? In fact, the two are not mutually exclusive. Capitalism breeds the venal perpetrators, and rewards the most unscrupulous among them.

In sum, free-market corporate capitalism is by its nature a disaster waiting to happen. Its essence is the transformation of living nature into mountains of commodities and commodities into heaps of dead capital. When left entirely to its own devices, capitalism foists its diseconomies and toxicity upon the general public and upon the natural environment--and eventually begins to devour itself.

The immense inequality in economic power that exists in our capitalist society translates into a formidable inequality of political power, which makes it all the more difficult to impose democratic regulations.

If the paladins of Corporate America want to know what really threatens "our way of life," it is their way of life, their boundless way of pilfering their own system, destroying the very foundation on which they stand, the very community on which they so lavishly feed.

Back to the hearing on Sept. 9:

The Supreme Court upheld the McCain-Feingold law several times while former Justice Sandra Day O’Connor served on the court. O’Connor was the Senate majority leader in the Arizona state Senate; the court now has no member who has held elected office.

O’Connor’s departure and the arrival of Alito has shifted the balance of the court against McCain-Feingold, according to people on both sides of the debate.

Feingold warned that, should the court roll back sections of McCain-Feingold by overturning Austin and McConnell, it would leave Congress with “no ability” to reform the campaign finance system.

A few feet away, attorneys from the Campaign Legal Center, a reform advocacy group, were subdued. Scott Thomas, a former chairman of the FEC who serves on the group’s advisory board, admitted: “The government’s got a tough row to hoe.”

“It really does seem that there are five justices of the Supreme Court who, given their druthers, would throw out Austin and would allow corporations to make independent expenditures,” said Rob Kelner, a Republican attorney who heads the election law practice at Covington & Burling. “The real question is whether all five of those justices follow their inclinations or whether some of them decide that the court should proceed more slowly and deliberately and decide the case in a more limited way, and leave the question to some future cases.”

Olson argued in favor of campaign finance reform as a solicitor general in the Bush administration on behalf of the Bipartisan Campaign Reform Act spearheaded by McCain and Feingold. But on Wednesday, he used First Amendment arguments to criticize the same bill as infringing on speech.

Though Congress has expressed its will numerous times over the past 60 years in prohibiting corporate campaign communications, Olson said the court “must always second-guess Congress when the First Amendment is in play.”

Floyd Abrams, a New York attorney representing Senate Minority Leader Mitch McConnell (R-Ky.), argued that justices should consider striking down an entire section of McCain-Feingold because it would bring so many as-applied challenges — that is, challenges made on a case-by-case basis, as to constitute an overly broad statute.

“It is worth our moving away, in this case, from looking for the narrow way out,” Abrams said. “There is a block to public discourse caused by this congressional legislation.”

Source:
http://thehill.com/homenews/campaign/57887-court-sharply-questions-ban-on-corporate-spending

The contents of this site are © 2009 Capitol Hill Publishing Corp., a subsisiary of News Communications, Inc.

Corporations do not breathe, walk, reproduce, laugh or cry. Their objective is to make money to the exclusion of all other pursuits. They have no moral compass by their very definition. Positive corporate values and pursuits, by their legal definition, are driven by their single purpose of generating revenue. The founders framed our constitutional direction against self-interest to achieve a greater good - corporations cannot because they follow a defined legal mandate. The framers of our constitution sought to base our laws on, and made specific reference to, checks and balances; resulting in the separation of powers. Can a corporation have a conscience?

This issue really involves corporate "personhood" and by allowing these artificially created legal entities to take an even greater control of our political processes, we are relinquishing the fate of our democracy to them.

In 2004, I had the kind of pneumonia that killed Jim Henson, creator of the Muppets late last century. I was in a medically induced coma for one month with my feet hanging over the metal rails at the end of my too-short bed (I am only six-feet tall.).

The result to this day, among other things, are scars on the outer sides of each leg just above the ankle. Even though the scars look horrid, people say, "Oh, dear," and walk  away. From the photo above, perhaps, you can see how dangerous my hospital's negligence was: the bedsores near my ankles were one centimeter deep and oozing yellow pus. After my insurance rand out and I was sent home, I still required a visiting nurse to clean and bandage them each day. The photo you see is about 3 weeks after returning home, which would be nearly 5 months after the initial negligence.

To this day, I cannot return to the jogging I once did. However, the high-powered, Wall Street attorneys I was referred to did not think they could get enough of a reward to make a court case worthwhile for them.

But, I'm still standing--and stumbling. 

That is what fries my ham about Barack Obama, who is turning out to be just another Illinois politician who focuses only on election results. President Johnson had guts. He would have been a spectacular president except for his macho not-willing-to-lose a war mind-stink. He signed the Freedom of Information Act, knowing that the release of the president's dirty laundry or that of Congress would only be for the good in a democracy.

Obama hides behind a so-called "fear of enraging our enemies and endangering our soldiers even more" schtick that doesn't wash. Our soldiers will be tortured and hurt by ANY enemy they fight, since the last, relatively "gentlemenly" war and the Geneva Conventions of World War II. Here's what sticks in my scars:

Among other things in the Homeland Security appropriations bill President Obama signed into law on Oct. 28 a provision that authorizes the Defense Department to continue to conceal photos of the torture and abuse of detainees by U.S. forces.

The American Civil Liberties Union had specifically sought those photos, and sued to get them, among other documents relating to detainee abuse, in a Freedom of Information Act lawsuit. The exemption signed, however, is much broader than simply the photos sought in the lawsuit. It would apply to any other photos taken between Sept. 11, 2001 and Jan.22, 2009 that the Secretary of Defense has certified would, if released, endanger U.S. citizens, servicemen, or employees overseas.

President Obama initially agreed to release the photos, but changed his mind after consulting with Defense Secretary Robert Gates and others at the Pentagon, who warned the photos would endanger U.S. servicemen in Iraq and Afghanistan. Two federal courts have already heard and rejected that argument, however, ruling that the Freedom of Information Act can’t be trumped by citing unspecified dangers to unspecified potential targets of the anger that the information may produce. The government has appealed that ruling to the Supreme Court.

The bill signed Oct. 28 is an effort to get around those court rulings, and to prevent a similar ruling from the high court.

Still, it’s not clear if passage of the new law will necessarily moot the pending court case. The lawyers could still try to challenge the new legislation or the Pentagon’s right to invoke it.

Here’s part of the response from Jameel Jaffer, director of the ACLU National Security Project, from a statement released on Wednesday:

Congress should not give the government the authority to hide evidence of its own misconduct, and if it does grant that authority, the Secretary of Defense should not invoke it. If this shameful provision passes, Secretary Gates should take into account the importance of transparency to the democratic process, the extraordinary importance of these photos to the ongoing debate about the treatment of prisoners, and the likelihood that the suppression of these photos will ultimately be far more damaging to our national security than their disclosure would be.

From the blogs: To follow up on my earlier post about Rep. Louis Slaughter (D-N.Y.) and her speech on her colleagues’ move to amend the Freedom of Information Act to prevent the release of photographs depicting abuse of detainees in U.S. custody, it’s worth looking at the conference report on the bill. The bill is called the “Protected National Security Documents Act of 2009,” but refers not to any “documents” per se, but only to any “photograph” taken between Sept. 11, 2001 and Jan. 22, 2009, that “relates to the treatment of individuals engaged, captured, or detained after September 11, 2001, by the Armed Forces of the United States in operations outside of the United States.”

The provision was proposed by Sen. Joseph Lieberman (I-Ct.), as Steven Aftergood of Secrecy News explains, specifically “to thwart a successful FOIA lawsuit brought by the American Civil Liberties Union” which wants the government to turn over photos documenting abuse of detainees in U.S. military custody.  I wrote about the bill and its progress last week here. Although a federal appeals court ruled last year that the government must produce those unclassified photos under the Freedom of Information Act, the government has refused, and filed a petition to the Supreme Court for review.

The Supreme Court hasn’t yet decided whether it will hear the case, though, and given that Congress may resolve the matter by hiding the unclassified photographs with this legislation, Solicitor General Elena Kagan last week asked the court to put off deciding, since it looks like Congress is prepared to decide the matter — and conceal the photographs — on its own.

“From an open government point of view, it is dismaying that Congress would intervene to alter the outcome of an ongoing Freedom of Information Act proceeding,” writes Aftergood in his blog. Aftergood adds that the move reveals Congress doesn’t have much confidence in its own Freedom of Information Act, the federal courts interpreting it, or the principles behind it, if it feels the need to exempt this specific set of photos from the law’s purview.

On the other hand, he notes that it could be worse: the Supreme Court could have taken the case and upheld the Obama administration’s right to exempt the photos “simply because they may pose an unspecified danger to unspecified persons.” “Such a Supreme Court ruling would have left a gaping hole in the Freedom of Information Act even larger than what the Obama Administration and Congress have now created,” writes Aftergood.

Or, of course, the Supreme Court might have just done its job, and recognized, as the two lower courts who’ve heard this case did, that unclassified documents can’t be concealed based simply on the executive’s fear that exposing government wrongdoing will incite anger at the United States and endanger national security. After all, if preventing anger at the United States were a legitimate reason to conceal unclassified information about the government, then there would be considerably less Information left for the Act to protect.

Rep. Louise Slaughter (D-N.Y.) blasted the Obama administration, as well as some of her colleagues in the House and Senate, for including a provision in the Homeland Security Appropriations Bill that would amend the Freedom of Information Act to exempt from disclosure photos depicting the abuse of detainees in U.S. custody.

Slaughter’s full remarks made this morning on the House floor about why FOIA should not be amended and the photos should not be concealed:

“There are few things that say more about our country and our trust in the public’s right to know than the Freedom of Information Act.

“It’s one of the most powerful statements of openness and transparency we have. It affords ordinary people the ability to peer behind the curtains of power and see inside the many bureaucracies that define the federal, state and local governments in this country.

“It’s a symbol for all that despite anything else that our government does in the name of the people, there should be no secrets.

“Over the years, FOIA laws have been used for a wide range of purposes. FOIA helped us discover the ugly truth about the use of Agent Orange in Vietnam, Laos and Cambodia during the 1960’s. And FOIA was also used to uncover data showing that Ford Pintos were built with serious fuel system defects that made them more prone to fire and explosions.

“In some ways, FOIA is simply a reminder to the public that there is an avenue to pursue if they believe the government is keeping secrets. At the heart of FOIA is the concept that the people’s right to know is more important than the government’s desire to keep things secret.

“The FOIA laws in this country have enabled reporters and citizens from all spectrums access to information that otherwise might never see the light of day.

“Signed into law by President Johnson in 1966, FOIA laws allow for the full or partial disclosure of information and documents with only a narrow list of exemptions.

“So it was with some dismay when we learned recently that the House and Senate conferees on the Homeland Security appropriations bill had slipped in a provision that gives the government the option of making old photos of detainee abuse exempt from FOIA laws.”

This case has already followed a lengthy path, beginning with a lawsuit filed by the ACLU against the Pentagon. Last spring, when it appeared that the lawsuit might go against the government, this Administration responded by asking some members of the House and Senate to insert language into legislation to make sure the photos stay secret.

Joining the ACLU against the Pentagon was the American Society of News Editors, The Associated Press, Cable News Network, Inc., the E.W. Scripps Company, Gannett Co., Inc., the Hearst Corporation, Military Reporters and Editors, the National Press Club, NBC Universal, Inc., the New York Times Company, the Newspaper Association of America, the Newspaper Guild-CWA, the Radio-Television News Directors Association, the Society of Professional Journalists and The Washington Post.

Never mind that the photos in question likely have very little value, given that a similar set of photos showing abuse were released under the Bush Administration. Despite some complaints that releasing the photos would put servicemen and women in danger, the fact is there was absolutely no increase in violence or attacks after the previous detainee photos were released. My guess is that if we were to release new photos the result would be the same.

And many observers argue that releasing the photos was actually a clear break from the abuses of the past – and a signal to our allies and everyone else that the days of this type of detainee mistreatment were over and that the United States is willing to come to terms with its past practices.

In June, I and other House leaders prevailed and the FOIA exemption was dropped from legislation.

However, the conferees – apparently under direct orders from the Administration – quietly put it back into the bill.

“It’s hard for me to express how disappointed I am with that decision. I am sorry because I believe that we had turned a page from the cloud of suspicion and secrecy that marked the previous Administration. It runs so counter to our principals and stated desire to reject the abuses of the past. The FOIA laws in this country form a pillar of our First Amendment principals.

“It’s unfortunate given that this Administration promised that openness and transparency would be the norm. We should never do anything to circumvent FOIA and I believe that our country would gain more by coming to terms with the past than we would by covering it up. I hope that the President will follow judicial rulings and consider voluntarily releasing these photos so we can put this chapter in history behind us.

Oct. 17, 2009

This article briefly discusses key legal issues confronting practitioners whose clients engage in the new and rapidly expanding field of nanotechnology and reviews existing and proposed governance oversight and risk management mechanisms intended to address potential nanotechnology risks. While much has been written about the potential liabilities associated with applied nanotechnology, no reported cases have appeared involving nanotechnology claims. Few question, however, that it is only a matter of time before a nanotechnology action is brought given the relatively high level of scientific uncertainty surrounding nanotechnology.

Nanotechnology

Nanotechnology is defined as the understanding and control of matter at dimensions of roughly 1 to 100 nanometers, where unique phenomena enable novel applications, according to the National Nanotechnology Initiative (NNI).[2] Nanotechnologies are expected to generate many new products and applications. Lux Research, Inc., the New York-based nanotechnology research and advocacy firm, predicts that products that incorporate nanotechnology will constitute 15 percent of global manufacturing output by 2014 and will represent $2.6 trillion in value.[3]

One of the key reasons why governments around the world today are focusing on nanotechnology is the lack of understanding regarding the environmental, health, and safety (EHS) effects of exposure to engineered nanoscale materials. Some believe that the lack of information suggests a need for caution.

Most simply put, the small size of nanoparticles facilitates their uptake into cells and their movement through the body more readily than is the case with their macro counterparts.[4] In addition to size, other factors contribute to a general sense of uncertainty as to the biological and environmental effects of exposure to engineered nanoscale materials. Size, shape, surface chemistry, and surface coating, for example, can all influence how these materials behave. In some cases, the exquisitely small size might allow a particular engineered nanoparticle to enter and affect living organisms. In other cases, the fact that nanoscale materials can have unusual or unique properties -- properties that do not conform to conventional physics and chemistry -- may increase the potential for risk.

Many federal agencies are non-engaged in the vigorous review of nanotechnology applications and their EHS implications. These include the U.S. Environmental Protection Agency (EPA),[5] the Food and Drug Administration (FDA),[6] the Occupational Safety and Health Administration (OSHA),[7] the National Institute for Occupational Safety and Health (NIOSH),[8] the National Toxicology Program (NTP),[9] and the Department of Defense (DOD),[10] among others. Regulatory and health agencies globally are similarly engaged. EPA is most prominently involved in reviewing the EHS implications of nanotechnologies and in identifying and funding research initiatives regarding the beneficial environmental applications of nanotechnologies in a wide variety of areas.[11]

Products of nanotechnology are diverse and growing rapidly. According to NNI, nanoparticles and nanoscale materials are used in many industries, including electronics, pharmaceuticals, chemicals, energy, and biomedical. Reportedly, areas producing the greatest revenue using nanoparticles are chemical/mechanical polishing, magnetic recording tapes, sunscreens, automotive catalyst supports, biolabeling, and electroconductive coatings and optical fibers. According to at least one source, there are possibly over 1,000 nano-enabled products in commerce today, including paints, sporting goods, cosmetics, stain-resistant clothing, electronics, and surface coatings.[12]

The uncertainty of nanotechnology and the health and safety implications occasioned by its commercialization, the publics receptivity to this technology, and the global governance mechanisms that may be brought to bear to manage risk potentially arising from nanoscale materials do not play well to investors, insurers, regulators, or the public. The hope is that prudent business practices will prevail, the promise of nanotechnology will materialize, and the science will unfold in ways that support smartly continued commercialization. In the interim, lawyers and their clients will be challenged to address robustly an increasingly complex constellation of legal, commercial, regulatory, and public relations issues.

Potential Liabilities

All businesses face potential liabilities. Entities engaged in nanotechnology face more. Assessing these potential liabilities is difficult given the relative infancy of the field, the lack of direct legal precedent, relative lack of legal and regulatory standards, the developing nature of industry best practices, and the fast-evolving science. Nonetheless, several areas of potential liability warrant note here.

Product and Other Tort Liability -- The specter of product liability, and tort liability in general, casts a shadow over nanotechnology innovations, just as it does with other product and technological innovations. The adverse publicity following the Magic Nano product recall in Germany in 2006 has become the poster child for nanotech product liability concerns.

Magic Nano, a household glass and ceramic tile sealant in an aerosol can, was first sold in supermarkets and discount stores in March 2006 in Germany. According to the German federal Institute for Risk Assessment (BfR), between March 27 and March 30, 2006, almost 100 people who used the product claimed to experience breathing problems requiring hospital treatment. Ironically, it was ultimately determined that the product contained no nanoparticles.

That the product contained no nanoparticles, and even less magic, is irrelevant in the court of public opinion, and the incident was widely regarded as a wake-up call to industry as to the mischief nano can inspire. Strict liability, negligence, and breach of warranty, and claims made in connection with these legal principles (e.g., design defect, manufacturer defect, and failure to warn), arguably could be asserted against manufacturers or suppliers of nano-enabled consumer products, given the right facts. Claims for damages could include personal injury, medical monitoring, fear of future injury, deceptive trade practices (inviting treble damages), and punitive damages.

While no reported litigation appears to have been brought to date involving nanotechnology claims of personal injury resulting from nanotechnology or from a nano-enabled product, many believe such actions are inevitable. One need only click on http://www.carbonnanotubelawyer.com to see an image of a bed-ridden person being tended to by a doctor along with a detailed description of nanotube lung disease to appreciate this fact. Nanobusinesses need to stay abreast of fast-changing scientific developments, rapidly evolving industry standards and practices, regulatory developments and disclosure practices, and emerging risk management strategies to be well-positioned to avoid liability and respond effectively to new information and shifting liability standards.

The full range of protective measures to minimize product liability must be considered, including contractual protections with upstream and downstream suppliers; implementation of best management practices; contractual representations and warranties; indemnification agreements; and appropriate and legally sound warnings, labeling, and related disclosure strategies. Additionally, businesses should track post-sale consumer product complaints and incident reports and respond to each quickly and thoroughly.

Businesses also must be sensitive to the need for transparency, communication, and effective public relations. Workers, community residents, downstream formulators and vendors, and customers can be expected to want to know what a nano-enabled product contains (if so labeled), the health implications from exposure to the product and its nano components, the considerations for proper disposal of nano-enabled products at the end of their useful life, and related product safety information that stakeholders have come to expect under right-to-know laws and the expectations they invite. If disclosure of any nano component is not now being made, voluntary labeling should at least be considered as a risk management measure.

Some speculate that the Consumer Product Safety Commissions (CPSC) expanded role as a consumer product watchdog could be a potential source of concern for the nanotech industry. The Consumer Product Safety Improvement Act of 2008 (CPSIA), which became law on August 14, 2008, provides CPSC greater resources to remove consumer products from the market, would raise fines for safety violations to $15 million from the current $1.825 million, and would require CPSC to create a database containing reports of injuries, illnesses, and deaths from consumer products based on information submitted by the public.[13]

The CPSIA also provides state attorneys general with authority to file lawsuits to stop sales of dangerous products and require third-party safety certifications of childrens products. With this new authority, it is not much of a leap to believe that nano product producers would be concerned about the potential for enhanced CPSC scrutiny of nano-enabled consumer products. While theoretically such scrutiny is possible, it is unlikely CPSC will engage in this area given its preoccupation with CPSIA implementation, limited staff, and historic lack of engagement in nano issues.

Securities Law Reporting -- For domestic companies, the issues of accountability and transparency raised by the Magic Nano recall serve as a reminder that nanotech businesses need to be scrupulous in complying with corporate disclosure reporting requirements and with the Sarbanes-Oxley Act of 2002, where it applies. Sarbanes-Oxley requires, among other things, that the chief executive officer (CEO) and chief financial officer (CFO) of a corporation certify the accuracy of each U.S. Securities and Exchange Commission (SEC) filing the company makes.

For publicly traded nanotech companies, three sections of Regulation S-K, which predates Sarbanes-Oxley and specifies the disclosure requirements for periodic reports filed with the SEC, require the disclosure of environmental liabilities. First, S-K 101 requires a company to disclose material effects that compliance with environmental laws will have on earnings, including effects on estimated material capital expenditures for environmental control facilities for the current fiscal year, the next fiscal year, and additional periods, if material. Signing off on a description of the material effects of compliance with environmental laws under S-K 101 is more challenging when it is uncertain whether and when some of those laws will affect a nanotechnology product or a consumer product enabled by nanotechnology.

Second, S-K 103 requires a description of any material pending legal proceedings, other than ordinary routine litigation incidental to the business to which the registrant or any of its subsidiaries is a party. Environmental litigation is not considered ordinary or routine. The projected impacts of environmental litigation inspired by nanotechnology similarly are complicated in the absence of a litigation history.

Third, S-K 303 sets out a general requirement to disclose any known trends or any known demands, commitments, events or uncertainties that are reasonably likely to have a material effect on a companys financial condition and results of operation -- this requires companies to assess, for example, the likely future consequences of new environmental costs or liabilities. In 1989, the SEC issued an Interpretive Release emphasizing that this requirement applies to environmental trends and uncertainties, including anticipated new regulations and Superfund liabilities.[14] While not explicit in its application to nanotechnology, the scope of this release is sufficiently broad to include potential regulatory measures pertinent to nanotechnology.

Sections 302 and 906 are also relevant. These sections require CEOs and CFOs to certify that a companys financial statements fairly present the companys financial status. Section 404 requires that an independent financial auditor review and attest to the adequacy of the companys internal controls.

A related bundle of uncertainties for public and privately held companies involves disclosure required by the Generally Accepted Accounting Principles (GAAP).[15] In the environmental area, the most notable GAAP is Financial Accounting Standard No 5, Accounting for Loss Contingencies (FAS 5).

The advocacy group As You Sow Foundations Corporate Social Responsibility Program noted in early 2009 that product safety shareholder resolutions urging companies to disclose the presence of nanomaterials in food and personal care products have greatly increased in the recent past.[16] According to the Investor Environmental Health Network (IEHN), shareholders filed or refiled 46 resolutions at 28 companies for consideration at shareholder meetings between 2006 and 2008. Many of these specifically requested information on nanomaterials.[17]

A more recent IEHN report, Bridging the Credibility Gap: Eight Corporate Liability Accounting Loopholes that Regulators Must Close,[18] is even more critical of regulatory enforcement of disclosure standards. According to the report, innovative technologies included under the broad heading of nanotechnology illustrate the failure of regulatory requirements to compel disclosure of potential and pending liabilities and other information that is necessary to ensure investors and the public are adequately informed of potential problems and companies are accurately portrayed.

Insurance -- The uncertainties noted above help explain the formidable challenges that insurance coverage presents -- both in providing coverage and in obtaining it. The key issue in insuring against nanotechnology liabilities is the relative lack of certainty regarding potential EHS risks. Swiss Res much-cited report, Small Matter -- Many Unknowns, bluntly states that, in the case of nanotechnology, uncertainties prevail, because neither the probability nor the extent of the potential losses are precisely calculable, and businesses can expect to see creative approaches by the insurance industry as it tries to address a growing need among an expanding client base that relies on nanotechnology.[19] This may mean that some risks will be explicitly excluded from coverage, because some essential element in the calculus is too speculative.

This prediction morphed into fact on September 24, 2008, when Continental Western Insurance Group announced to its policyholders a coverage change in the form of an endorsement to its general liability policy. Under the terms of endorsement CW 33 69 06 08, Nanotubes and Nanotechnology Exclusion, bodily injury, property damage, or personal and advertising injury related to the actual, alleged, or threatened presence of or exposure to nanotubes or nanotechnology in any form, or to harmful substances emanating from nanotubes or nanotechnology are excluded from insurance coverage. Nanotubes are defined as hollow cylinders of carbon atoms or carbon fibers or any type or form of nanotechnology. Nanotechnology is defined to mean engineering at a molecular or atomic level.

According to a Background on Nanotubes document prepared by and posted on Continentals website (but since removed), Continentals intent in adding the exclusion is to remove coverage for as yet unknown and unknowable risks created by products and processes that involve nanotubes. The exclusion is being added to make you and your customers explicitly aware of our intent not to cover injury and/or damage arising from nanotubes, as used in products and processes. The exclusion was later withdrawn and apparently abandoned.

The announcement caused significant concern for several reasons. The terms nanotubes and nanotechnology as used in the exclusion are vague and ill-defined. As written, the exclusion could exclude from commercial liability insurance coverage losses incurred by manufacturing activites undertaken by entire sectors of the economy. As noted in one media account, a hollow-carbon-fiber fishing rod that makes no claim to be a product of nanotechnology or to contain carbon nanotubes (CNT) could be considered within the scope of the exclusion, because it is a hollow cylinder made of carbon atoms.

Other options that insurers may consider pursuing include capping coverage at one end or the other (either insurers will pay claims only up to a specified ceiling, or they will pay the excess only after the insured shoulders a large deductible), other types of risk-pooling agreements, and limitations and exclusions narrowly defined. This is an emerging area, and no hard and fast rules yet apply.

Acquisitions -- In these early years of the 21st century, the duties and challenges posed by environmental licensing and compliance issues for a seller/transferor and, especially, for a prospective purchaser/transferee of a business or a commercial property, are well-known. If the business uses or produces chemical substances or if the property has been used for the manufacture, storage, treatment, or disposal of these substances, it becomes all the more critical to ensure that the environmental due diligence is completed thoroughly and to negotiate the appropriate representations, warranties, and indemnities in the contract for purchase, merger, or other acquisition, as well as any associated lending arrangement. If the business being acquired processes, manufactures, discharges, or emits nanomaterials, the goals of the due diligence do not change, but this context adds challenging scientific, risk-identification, and risk-allocation wrinkles for the parties to consider in their negotiation.

No nanomaterial has been explicitly listed as hazardous under the Comprehensive Environmental Response, Compensation, and Liability Act or any of the other federal statutory environmental authorities, and no such listing seems to be on the near-term horizon. There is no reason to think that engineered nanoscale versions of listed hazardous substances would be treated differently from their conventionally-sized listed counterparts.

The picture presented here is only a snapshot of the regulatory and best-practices landscape, which necessarily will evolve as nanomaterials become better identified, characterized, and understood from a risk assessment and risk management perspective. In an ideal world, from a purchasers perspective, the purchase/sales agreement could be fashioned to insulate the purchaser against exposure to hypothetical future liabilities of this kind. In reality, a seller will refuse to go beyond a certain point in consenting to bear the costs of long-term contingent liabilities, in most cases drawing the line at what has occurred or what is, or should be, known as of the transactions closing date.

Regulatory Noncompliance -- While the federal and most state regulatory agencies seem far from poised to assert claims of noncompliance with regulatory standards for nanotechnology practices, there are several areas that are riper than others. Occupational safety and health issues are the most likely areas of concern. Workers in facilities engaged in nanotechnology and potentially expand to nanomaterials pose the greatest risk. The Hazard Communication Standard (HCS) compels clear communication of workplace hazards to employees. The Occupational Safety and Health Acts General Duty Clause under Section 5(a)(1) mandates that employers ensure workplaces are free from recognized hazards likely to cause death or serious physical harm. Given the breath of this general duty, care should be taken to ensure workplace hazards are managed to comply with the standard.

Governance Mechanisms

Against this backdrop of potential liabilities and the evolving nature of legal claims, nanotech regulatory initiatives and governance mechanisms become all the more important. As EPA, other federal and state regulatory bodies, and stakeholders alike have the benefit of better information about the EHS impacts of nanoscale materials, the regulatory pathway forward will be more informed and, from a stakeholders perspective, less fluid. While a more developed regulatory framework is still years away, businesses need to be mindful of the potential for citizen action suits to be filed under federal and state laws, seeking the imposition of liability for cleanup of hazardous substances and natural resource damages. Even if such actions are unsuccessful, their nuisance value and potential for inviting unwanted media attention should not be underestimated.

Traditional government mechanisms, such as statutory enactments and Administrative Procedure Act notice and comment rulemakings, are thought by some to be challenging and ill-suited tools for addressing potential EHS risks posed by the lightning-fast pace of evolving nanotechnology. Even if these tools are believed suitable, most government agencies are of the view that they now lack sufficient data and information to make informed judgments on the specific types of potential hazards and risks posed by some nanoscale materials. It may take years, not months, to obtain needed data. In the interim, EPA -- and regulatory bodies globally -- are pursuing more innovative governance strategies to assist in addressing potential risks associated with nanotechnology.

Government-Sponsored Voluntary Initiatives

Key among EPAs governance responses to nanotechnology is the Office of Pollution Prevention and Toxics (OPPT) voluntary Nanoscale Materials Stewardship Program (NMSP). OPPT announced its interest in considering how best to obtain information on existing engineered nanoscale materials and convened a public meeting to discuss various options in June 2005 and rolled the program out on January 28, 2008. Under the Basic Program of NMSP, participants are invited to voluntarily report available information on the engineered nanoscale materials they manufacture, import, process, or use. Under the In-Depth Program, participants voluntarily develop data over a longer period of time, alone or in consortia, for a particular nanoscale material.

On January 12, 2009, EPA released its interim report on NMSP.[20] EPA stated that based on its then current interim results, the NMSP can be considered successful. Since the new Administration took over, however, the news has been far less rosy. Indeed, most believe the program did not achieve its goals. EPA is quick to note that a number of environmental health and safety data gaps still exist. EPA is now considering how to best use testing and information gathering authorities under the Toxic Substances Control Act [(TSCA)] to help address those gaps. According to EPA, it will continue to review new chemical nanoscale materials submitted under TSCA Sections 5(a) and 5(h)(4) and apply, as appropriate, testing requirements and exposure controls under Section 5(e) and significant new use rules (SNUR) under Section 5(a)(2). EPA is now reportedly preparing a TSCA Section 4 test rule on CNTs and TSCA Section 8 information rule.

OPPT also continues to work extensively with international organizations on voluntary initiatives to understand and address the environmental applications and implications of nanotechnology. The Organization for Economic Cooperation and Development (OECD) established a Working Party on Manufactured Nanomaterials (WPMN), and EPA is actively participating in the WPMN and contributes to all of these projects. Of particular relevance to the in-depth component of EPAs NMSP is the project on Safety Testing of a Representative Set of Manufactured Nanomaterials. The WPMN has identified a representative list of manufactured nanoscale materials for EHS testing. The WPMN has also published a list of testing endpoints in the following areas: nanomaterial information/identification, physical/chemical properties, material characterization, environmental fate, environmental toxicology, mammalian toxicology, and material safety.

In 2008, WPMN also launched a Sponsorship Program for Testing Manufactured Nanomaterials. OECD will act as a clearinghouse for the sponsorship program and will prepare a guidance manual for sponsors. EPA is sponsoring environmental affects and fate testing of fullerenes, single-walled CNTs, multi-walled CNTs, and cerium oxide.

EPAs Office of Pesticide Programs (OPP) also is active in nanotechnology. OPP has formed an intra-office workgroup of 20 members to develop a regulatory framework and to assist in the examination of hazard, exposure, policy, regulatory, and international issues arising in connection with nanoscale pesticides.

OPPs Nanotechnology Workgroup has the job of addressing issues pertinent to nanopesticides. The Workgroup includes individuals with expertise in chemistry, environmental law and policy, toxicology, exposure and risk assessment, and other areas. The Workgroup has particularly focused on potential exposure and hazards of nanoscale pesticides and how these concerns may or may not be addressed by traditional testing paradigms and risk assessment approaches.

OPP has also coordinated with the OECD Working Party on Pesticides (WPP) and Task Force on Biocides (TFB) to develop a survey to gather basic information from OECD member countries on their respective involvement with pesticides/biocides and nanotechnology and to identify the various OECD member countries regulatory approaches to nanotechnology-related pesticide and biocide issues.

On May 1, 2008, the International Center for Technology Assessment (ICTA) filed a petition for rulemaking, requesting that EPA regulate products containing nanoscale silver as pesticides. The petition requested that EPA classify nanoscale silver as a pesticide and require registration. EPA requested comment on the ICTA petition on November 19, 2008.[21] OPP expects to issue a formal response to the petition after reviewing any public comment and coordinating with EPAs Office of Enforcement and Compliance Assurance. To aid OPP in responding to the petition, EPA scheduled a Scientific Advisory Panel (SAP) meeting on November 3-6, 2009.[22] More information about pesticide nanotechnology issues is available from EPAs website.[23]

Regulatory Initiatives

On the regulatory front, EPA has received and reviewed many new chemical notices under TSCA Section 5 for nanoscale materials, including CNTs and other nanoscale materials. On November 5, 2008, for example, EPA issued a final SNUR for 56 substances, two of which included nanoscale substances. On October 31, 2008, EPA published a notice outlining the TSCA requirements potentially applicable to CNTs, and advised manufacturers of CNTs of EPAs position that CNTs must be listed on the TSCA Inventory. Since March 1, 2009, CNTs that are manufactured for commercial purposes and that are not listed on the TSCA Inventory or are otherwise exempt are considered by EPA to be unlawful and have been the subject of compliance monitoring efforts. To assist manufacturers in understanding the regulatory status of chemical nanoscale materials, EPA prepared a policy statement dated January 2008, TSCA Inventory Status of Nanoscale Substances -- General Approach. More recently, however, EPA Assistant Administrator for Toxics Steve Owens announced EPA is revising this general approach, inspiring concerns and a good deal of anxiety in the regulated community over the legal status of certain nanoscale substances.

Another emerging regulatory mechanism involves the use of mandatory disclosure requirements. On December 12, 2006, the Berkeley, California, City Council unanimously approved a proposal to require businesses to report nanoparticles being used, provide available toxicological information, and outline measures for safe handling of the materials. Under the proposal, all businesses that manufacture or use nanoparticles must submit a written report of the current toxicology of the nanomaterials reported, and methods for safely handling, monitoring, containing, disposing, and tracking the inventory.

On January 8, 2007, the City Council of Cambridge, Massachusetts, asked the Cambridge Public Health Department (CPHD) to review the Berkeley ordinance and recommend a similar statute for Cambridge. In response to that request, the city manager made appointments to a Nanomaterials Advisory Committee (NAC). The Cambridge Chamber of Commerce solicited input from companies and organizations active in the manufacture, research, or use of nanomaterials to ensure full industry participation in the citys review of the need for regulation and the possible development of statutes to that end.

On July 28, 2008, the City Council voted to accept a set of recommendations for a municipal health and safety policy on nanomaterials. The recommendations were set forth in a report prepared by CPHD and NAC.[24] Cambridge thus became the second city in the United States -- Berkeley is the other -- to take municipal action on nanomaterials.

The recommendations call for Cambridge to take the following steps:

* establish an inventory of facilities that manufacture, process, handle, or store engineered nanoscale materials;

* offer technical assistance to help firms and institutions evaluate their existing health and safety plans;

* offer up-to-date health information to residents on products containing nanomaterials;

* track rapidly changing developments in research;

* track the evolving status of regulations and best practices concerning engineered nanoscale materials; and

* report back to the City Council every other year on the changing regulatory and safety landscape.

Product Stewardship Strategies

Given the relative paucity of legal and regulatory standards specific to nano manufacturing operations, nanotech businesses and other stakeholders have devoted considerable effort to developing alternatives to traditional regulatory initiative to identify and manage risk. Key initiatives are summarized below.

Key Industry Standard-Setting Initiatives

Several major efforts are underway to develop standards involving nanotechnology. The International Organization for Standardization (ISO) Technical Committee 229 is preparing international consensus standards on several aspects of nanotechnology, including vocabulary, terms, and definitions; measurement and metrology; and EHS.[25]

ASTM International is working on a similar set of standards.[26] ASTM International Committee E 56 on Nanotechnology is developing standards and guidelines for nanotechnology, specifically including: terminology and nomenclature; characterization, environmental, and occupational safety and health; international law and intellectual property; liaison and international cooperation; and standards of care and product stewardship.

Key Government-Led Initiatives

In addition to the NMSP and related voluntary initiatives sprouting up around the world, OECD is engaged in a robust nanotechnology program. OECD includes 30 member countries, of which the United States is one, and maintains relationships with 70 others.[27]

Two OECD group activities are relevant. In September 2006, OECD established WPMN. The chemicals sector is the principal focus of the WPMN, and EPA and FDA are engaged in the WPMN. Current projects involve generating an EHS database, developing an EHS research strategy, evaluating existing testing guidelines, safety testing a representative set of manufactured nanomaterials, cooperating and exchanging information on voluntary reporting and regulatory schemes, and performing risk assessment and exposure measurement.

In March 2007, OECD created the Committee on Scientific and Technological Policy (CSTP), which focuses on considering applications of nanotechnologies. CSTPs primary objective is to promote international cooperation that facilitates research, development, and the responsible commercialization of nanotechnology in member countries.

NIOSH has been extremely active in the nanotechnology area. Approaches to safe nanotechnology managing the health and safety concerns associated with engineered nanomaterials is an excellent resource. The document reviews what is currently known about nanoparticles toxicity, process emissions and exposure assessment, engineering controls, and personal protective equipment. The document serves a dual purpose: it is a summary of NIOSHs current thinking and interim recommendations; and it is a request from NIOSH to occupational safety and health practitioners, researchers, product innovators and manufacturers, employers, workers, interest group members, and the general public to exchange information that will ensure that no worker suffers material impairment of safety or health as nanotechnology develops.

Key Private-Sector Stewardship Initiatives

In June 2007, the Environmental Defense Fund (EDF) and DuPont formally announced the release of their joint effort, the Nano Risk Framework. The framework is rapidly becoming the standard for measuring best management practice in the nano industry. The framework defines a systematic and disciplined process for identifying, managing, and reducing potential environmental, health, and safety risks of engineered nanomaterials across all stages of a products lifecycle -- its full life from initial sourcing through manufacture, use, disposal or recycling, and ultimate fate.[28]

EDF and DuPont believe that the framework, which is aimed primarily at organizations, both private and public, that are actively working with nanomaterials and developing associated products and applications, helps users organize and evaluate currently available information; assess, prioritize, and address data needs; and communicate clearly how risks are being mitigated. Ultimately, EDF and DuPont believe that the adoption of the Framework can promote responsible development of nanotechnology products, facilitate public acceptance, and support the formulation of a practical model for reasonable government policy on nanotechnology safety.

The framework consists of six distinct steps and is intended to be used iteratively as stages of development advance and new information becomes available. The six steps follow.

* Step 1: Describe Material and Application. The first step is to develop a general description of the nanomaterial and its intended uses, based on information in the possession of the developer or in the literature. The user also identifies analogous materials and applications that may help fill data gaps in this and other steps.

* Step 2: Profile Lifecycle(s). Step 2 defines a process to develop three sets of profiles -- the nanomaterials properties, its inherent hazards, and associated exposures throughout the lifecycle. The user considers the nanomaterials full lifecycle, from material sourcing, through production and use, to end-of-life disposal or recycling. The user considers how the materials properties, hazards, and exposures may change during that lifecycle.

* Step 3: Evaluate Risks. In this step, all of the information generated in the profiles is reviewed to identify and characterize the nature, magnitude, and probability of risks presented by the nanomaterial and its anticipated application. The user considers gaps in the lifecycle profiles, prioritizes those gaps, and determines how to address them -- either by generating data or by using, in place of such data, reasonable worst case assumptions or values.

* Step 4: Assess Risk Management. In the fourth step, the user evaluates the available options for managing the risks identified in Step 3 and recommends a course of action. Options include engineering controls, personal protective equipment, risk communication, and product or process modifications.

* Step 5: Decide, Document, and Act. In Step 5, the user consults with the appropriate review team and decides whether or in what capacity to continue development and production. Consistent with transparent decision-making, the user documents those decisions and their rationale and shares appropriate information with the relevant internal and external stakeholders. A worksheet is provided in the frameworks appendix for documenting information, assumptions, and decisions.[29]

* Step 6: Review and Adapt. Through regularly scheduled and triggered reviews, the user updates and re-executes the risk evaluation, ensures that risk management systems are working as expected, and adapts those systems in the face of new information or new conditions. Reviews may be prompted by development milestones, changes in production or use, or new hazard or exposure data. As in Step 5, the user not only documents changes, decisions, and actions, but also shares appropriate information with relevant stakeholders.

A third excellent resource is the International Council on Nanotechnologys (ICON) GoodNanoGuide.[30] To cater to all audiences, the guide provides basic, intermediate, and advanced options to choose from to contribute to or search within the online forum. This innovative approach sets a new standard for creative, interactive, Internet-based product stewardship tools. The newest contribution to the field is ICONs GoodNanoGuide. It is an Internet-based collaboration platform specially designed to enhance the ability of experts to exchange ideas on how best to handle nanomaterials in an occupational setting. It is meant to be an interactive forum that fills the significant need for up-to-date information about current good practices, including highlighting new practices as they develop and on a real-time basis.

Another initiative recently launched in the United States is the Responsible NanoCode. Britains Royal Society, the Nanotechnology Industries Association, Insight Investment, and the U.K.-government-sponsored Nanotechnology Knowledge Transfer Network collaborated on the code. The objective of this principles-based voluntary code of conduct is to encourage industries, retailers, universities, research institutes, and other public or privately funded bodies involved in developing, manufacturing, and selling products of nanotechnology to adhere to seven principles to demonstrate responsible governance.

* Principle One -- Each organization should ensure that responsibility for guiding and managing its involvement with nanotechnologies resides with the board or governing body.

* Principle Two -- Each organization should proactively engage with its stakeholders and be responsive to their views in its development or use of products using nanotechnologies.

* Principle Three -- Each organization should identify and minimize sources of risk for workers handling products using nanotechnologies, at all stages in the production process or in industrial use, to ensure high standards of occupational health and safety.

* Principle Four -- Each organization should carry out thorough risk assessments and minimize any potential public health, safety, and environmental risks relating to its products using nanotechnologies.

* Principle Five -- Each organization should consider and respond to any social and ethical implications and impacts during the development or sale of products using nanotechnologies.

* Principle Six -- Each organization should adopt responsible practice in the sales and marketing of products using nanotechnologies.

* Principle Seven -- Each organization should engage with suppliers and business partners to encourage and stimulate their adoption of the code and so ensure its own ability to fulfill its code commitments.[31]

Conclusion

Nanotechnology businesses must look to existing rules, voluntary and stewardship initiatives, and best industry practices to avoid liability. At the same time, these entities must discover new ways to proceed in an arena where the state of knowledge still is catching up to entrepreneurial initiatives. Staying on top of the science, developing industry best practices, and evolving legal standards are key to success in this fast-changing arena.

[1] Lynn L. Bergeson is managing director of Bergeson & Campbell, P.C., a Washington, D.C., law firm concentrating on conventional and engineered nanoscale chemical, pesticide, and other specialty chemical product approval, regulation, litigation, and associated business issues. Bergeson is president of The Acta Group, L.L.C. and The Acta Group EU, Ltd. Bergeson counsels clients on a wide range of issues pertaining to chemical hazard, exposure and risk assessment, risk communication, and related legal and regulatory aspects of conventional and nanoscale chemical regulatory programs.

First published on Sept. 23, 2009

Peter E. Masaitis is a partner in the Los Angeles office of Alston & Bird LLP. His practice is focused primarily on the defense of product liability, toxic tort and complex business litigation. www.alston.com

They say that where there's smoke there's fire. Another truism might be that where there is public fear about a new technology (whether justified or not), there are plaintiffs' attorneys ready to file suit. While no lawsuits targeting a specific nanomaterial have yet been filed, history suggests that when there are gaps in scientific knowledge combined with public concerns about health, safety or environmental hazards, as is the case with nanotechnology, tort litigators are never far behind.

The gap in scientific knowledge about the potential risks of nanomaterials, particularly with respect to their toxicity, is well-documented. Governments, NGOs and companies around the world have been struggling with how best to close that gap, with few effective solutions surfacing to date. As reported in the May issue of IndustryWeek, the U.S. Environmental Protection Agency and California's Department of Toxic Substances Control have both tinkered with voluntary and mandatory information call-ins of toxicological data on specific nanoscale materials with uneven results. While calls for greater research into the potential health and safety risks of nanotechnology continue, we remain in a state of uncertainty.

In the public sphere, many people's perception of nanotechnology is shaped more by science fiction than science (e.g., Michael Crighton's novel, "Prey," in which nano-sized robots develop intelligence and threaten civilization). A significant majority of Americans have never even heard of nanotechnology, but the most vocal of the minority who have tend to focus on the unknown risks. Reports that certain nano-particles can pass through the blood-brain barrier, and that laboratory-controlled exposure to a particular type of carbon nano-tube caused lung damage in mice only feed a broader, amorphous (mis)perception that all nanotechnology is something to fear. This mix of scientific uncertainty and public fear forms a foundation upon which prospecting litigators are likely to build.

Of course, the same limits of scientific understanding that create this uncertainty and speculative fear also shackle litigators who might otherwise attempt to bring personal injury lawsuits on behalf of one or many individuals. Such claims could arise on behalf of workers who handle nanomaterials or consumers who use nanotechnology-enabled products and claim injurious exposure to the nanoparticles within.

But a personal injury claimant in a toxic tort suit bears the burden of proving that a specific substance caused his or her injury, and the toxicological and epidemiological knowledge required to meet this burden in the field of nanotechnology does not yet exist. This difficulty is multiplied in class action suits, where class treatment of a group's claims requires a plaintiff to also demonstrate that the facts underlying his or her own case are sufficiently similar to those of every other individual within the purported class -- differences in each individual's exposure type, dose, medical conditions, and alternative causes of their conditions are likely to subsume any similarities, rendering class treatment unlikely.

It is for these reasons that consumer claims are likely to form the leading edge of nanotechnology litigation. Consumer claims, such as false advertising, require no showing of physical harm because they seek only economic damages. These claims typically seek reimbursement of the purchase price of a product pursuant to a state consumer protection statute, and are often bundled together into a class action in order to aggregate damages that are individually relatively small. The theory underlying such a claim is likely to be one of the following: failure to label a product as containing nanomaterials; failure to warn consumers of the possible health risks of the nanoparticles contained in a product; or misrepresentation of the benefits or risks of a nanotechnology-enabled product.

Several consumer groups have already spoken out in favor of product labeling that clearly identifies nanomaterial ingredients, while at the same time, some companies have stopped disclosing the nanoparticle content of its products to avoid potentially negative safety connotations. It therefore appears likely that the labeling and marketing of nanotechnology-enabled products will become a litigated issue in the near future.

Another possibility is that the initial wave of nanotech-related litigation will focus on medical monitoring claims. Like consumer claims, medical monitoring claims may be brought in certain jurisdictions without any evidence of then-existing physical injury. Merely the increased risk of some future physical harm attributable to the product is enough to state a claim in those venues. As the title suggests, such claims would seek the costs of ongoing medical observation, testing and evaluation for plaintiffs who claim that exposure to a nanomaterial has left them more susceptible to a particular disease. In jurisdictions where an existing injury is a predicate to a medical monitoring claim, we may see novel allegations that bioaccumulation of nanoparticles within the body, or some type of subclinical change in the plaintiff is sufficient evidence of physical harm to substantiate a claim.

What we do know for certain is that it is only a matter of time before enterprising attorneys find a way to bring litigation that directly targets the nanotechnology industry, particularly given the often-publicized projections that the global nanotechnology market will be worth a fantastic $1.5 trillion by 2015. Those in the industry would be well-served to carefully assess and manage all risks associated with their products, not only in line with wise risk management principals generally, but specifically with an eye toward protecting themselves from future litigation.

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