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Aguirre files suits against law firm
Breaking Legal News | 2007/08/09 06:01
City Attorney Michael Aguirre picked a new legal fight for San Diego this week, filing two malpractice suits against a New York law firm that probed the city's financial failures and prepared a report on them a year ago. The lawsuits, which target a high-powered law firm that has handled billion-dollar deals for business clients, were filed without City Council approval. As a result, they will test not only Aguirre's legal strategies, but also new council limits on his ability to file lawsuits without authorization.

Aguirre alleges that Willkie Farr & Gallagher overbilled the city and essentially failed to follow terms of a contract to assist the risk-management firm Kroll Inc. with a project that became an 18-month, $20 million effort.

The suit alleges that the law firm duplicated much of Kroll's work, submitted inadequate bills to disguise that, and went beyond the scope of its agreement, in part by billing the city for “lobbying” meetings with The San Diego Union-Tribune editorial board and the San Diego Regional Chamber of Commerce.

Partner Benito Romano, who led the New York law firm's engagement in San Diego, stood by the firm's work yesterday but declined further comment about the complaint because he hadn't seen it.

In a letter that spelled out its arrangement as “counsel and assistance” to Kroll, the law firm's duties are broadly said to include “other matters that . . . may require inquiry or investigation.”

The two complaints were filed in San Diego Superior Court and could be consolidated. One suit was filed on behalf of the city of San Diego and the other on behalf of California residents, although both basically seek the same results. Aguirre is demanding $29.2 million, a total that is triple the $9.7 million the city paid Willkie Farr & Gallagher.

Outside attorney Bryan Vess, who will work on a contingency basis, filed the lawsuits for Aguirre on Tuesday after Mayor Jerry Sanders and most City Council members had begun vacations timed with a monthlong August recess. Aguirre's office made them public yesterday in response to inquiries.

Councilwoman Toni Atkins was surprised by the filing and looked forward to hearing more about it in a briefing next month.

“I think the council would like to be part of the discussion,” Atkins said. “Which is not to say that we wouldn't agree with him, but we weren't given the chance.”

San Diego's legal bills began piling up after Aguirre was elected in 2004 on a vow to root out corruption at City Hall. Increasingly, the council has argued that it should authorize all of Aguirre's lawsuits because it controls spending, but Aguirre says as the lawyer for San Diego he can file suits as necessary.



Judge: Super Bowl Funds OK for Churches
Law Center | 2007/08/09 05:57
Most of the $736,000 the city promised to three churches as part of a program to clean up the city ahead of the 2006 Super Bowl was justified, but some were not, federal judge has ruled.

U.S. District Judge Avern Cohn ruled Wednesday that most of the grants were allowed because any downtown property owner was eligible to apply. He noted that the churches used the grants on lighting, parking lots, sanctuaries and landscaping.

But Cohn said some of the money the churches spent on improving large signs and stained glass windows containing religious imagery violated the separation of church and state.

It wasn't clear exactly how much grant money would be disallowed under Cohn's ruling. The judge gave both sides until Aug. 28 to discuss how much of the money won't be paid to the churches.

New Jersey-based American Atheists, which sued the city, said it may appeal.



Judge rules fired state employees can go back to work
Breaking Legal News | 2007/08/09 03:58
A judge Wednesday reinstated two state employees fired by the Blagojevich administration, describing the case as "bizarre, even as Kafkaesque."

After 16 months without paychecks, Dawn DeFraties and Michael Casey, held up as examples of Gov. Rod Blagojevich's effort to thwart government corruption, could be back at work as early as Monday with back wages.

Sangamon County Circuit Judge Patrick Kelley ruled that the Illinois Civil Service Commission mishandled the matter. DeFraties and Casey had a hearing last winter to get their jobs back, but the commission in May called for resuming the case to collect more evidence.

State law requires a ruling within 60 days of the end of testimony, a deadline Kelley agreed the commission blew. He noted commissioners did not explain why they wanted more evidence or what they were seeking.

"The facts of this case can be described as bizarre, even as Kafkaesque," Kelley said. "Clearly, these were the actions of a mysterious, calculating bureaucracy whose motives we can only speculate about."

DeFraties and Casey declined comment. DeFraties will get roughly $127,584 in back pay and Casey, $78,400.

The decree is a significant blow to Blagojevich. He fired the former personnel workers in April 2006 for allegedly rigging the state hiring process after an investigation by the state's executive inspector general.

DeFraties and Casey claimed they were being singled out for giving politically connected job applications -- many of which came from the governor's office -- special treatment to divert attention from federal prosecutors' inquiries about Blagojevich's hiring practices.

One of the attorneys for the state, Joseph Gagliardo, said an appeal is likely. The state attorney general will decide whether to appeal after consulting the commission, a spokesman said.

"The governor will spare no tax dollar getting his way," said Carl Draper, who represents DeFraties and Casey.

Gagliardo's law firm, Laner Muchin, has represented the state in the matter. The firm has gotten $2.2 million since July 2005, according to state records, but that work includes at least 12 other cases, Blagojevich spokeswoman Abby Ottenhoff said.

Another law firm, Schiff Hardin, has been paid $2.9 million during the same period. Blagojevich said the firm was hired to review state employment procedures after the federal inquiry began.



"It's unfortunate that the court's decision today is based on the Civil Service Commission's review process, not on the merits of the inspector general's findings," Ottenhoff said.

An administrative law judge who presided over the hearing, however, ruled on the merits, recommending the commission put DeFraties and Casey back to work after 14-day suspensions.

The commission balked and Draper sued in June, arguing not only that the 60-day clock had expired, but that his clients' due process rights were violated because the case, filed in May 2006, dragged on too long. Kelley rejected the due process argument.

Removing troublemakers from office shouldn't be an endless ordeal, Draper told Kelley.

"There's a reason courts have countenanced this process: Fire first and get your hearing later. But do it in a timely manner," Draper said. "To use the words of Larry the Cable Guy, 'Get 'er done.' If you have bad people, get 'er done."

The government countered that the commission had indeed made a decision in May -- to collect more evidence, which pushed back the deadline.

Matthew Bilinsky, an assistant attorney general representing the commission, said the hearing should have continued, the additional evidence collected, and then a judge could decide whether the process was proper.

"Who gets to say when the (hearing) transcript has to be cut off and no additional information be applied to it?" Bilinsky said.

The administrative law judge found evidence that the pair violated laws in evaluating job applications too weak to support dismissal and said they weren't insubordinate for failing to answer questions about hiring posed by a Schiff Hardin lawyer.

But he said they should be suspended for 14 days for not doing enough to stop the special review process for applications that came from the governor's office, legislators or other politicians.


Judge Says Couey Eligible For Death Penalty
Court Watch | 2007/08/09 02:00
Circuit Judge Richard Howard ruled Tuesday that John Couey is not mentally retarded. That means Couey, 48, is eligible for the death penalty. Defense attorneys argued Couey cannot face execution because he is retarded. Howard sifted through a great deal of evidence and testimony on the issue of Couey's mental status and ultimately relied on what he called the most credible intelligence test: one administered by prosecution expert Gregory Pritchard, a clinical psychologist.

Couey scored 78. The legal cutoff point is 70.

"The judge's ruling is consistent with the position that I took. He [Couey] is not retarded, and he's not retarded beyond a reasonable doubt," Chief Assistant State Attorney Ric Ridgway said Tuesday night. The prosecutor had read the judge's ruling earlier in the evening.

Couey was convicted in March of burglary, kidnapping, sexual battery and murder in the 2005 death of Jessica, a 9-year-old third-grader from Homosassa. The same Miami jury recommended, in a 10-2 vote, that the convicted sex offender be sentenced to death.

The judge's ruling means a possible death sentence is looming. Howard is not obliged to follow the jury's recommendation, but is required to give it "great weight."

Ridgway declined to predict the sentence. A hearing is scheduled for Aug. 24.

"It would not be appropriate to say this foreshadows what the judge's ruling will be," Ridgway said.

To have proven Couey was retarded, defense attorneys had to show that his IQ was less than 70, that he lacks adaptive functioning and that the retardation existed before he was 18. A 2002 Supreme Court ruling forbids the execution of the mentally retarded.

Members of the Lunsford family could not be reached Tuesday for comment.


Ex-CEO guilty in backdating of options
Securities | 2007/08/08 08:50
In a significant slap at Silicon Valley, the first chief executive to stand trial for the backdating of stock options was found guilty Tuesday of securities fraud and making false statements. Gregory L. Reyes, former CEO of Brocade Communications Systems Inc. of San Jose, faces the possibility of 20 years in prison and a $5-million fine for rewarding key employees with options to buy company stock at artificially low prices.

The criminal case has been closely watched by technology firms, many of which maintained that the widespread practice of backdating options was harmless and legal. This so-called scandal, executives quietly asserted, would quickly fade.

Moments after Reyes' conviction on all 10 counts, that belief began to waver, industry observers said.

"It's clear that this jury believes backdating was a serious crime," said Kirk Hanson, executive director of the Markkula Center for Applied Ethics in Santa Clara, Calif. "Every executive in Silicon Valley who has been waiting to find out if the Department of Justice will charge them now has a strong incentive to begin talking to prosecutors."

Dozens of companies throughout the valley and elsewhere have been ensnared in backdating cases.

After the verdict was read, the 44-year-old Reyes appeared stunned. He stared straight ahead, even when U.S. District Judge Charles Breyer dismissed the jury and then left the courtroom himself. Reyes finally stood up and made his way over to his wife, Penny.

She cried, and they held each other tight for a long time.

Reyes is a Silicon Valley native son with deep technology industry roots. His father, Gregorio, is a management consultant and has served as an executive and board member in the semiconductor and disk drive industries. His uncle George is the chief financial officer of Google Inc. Reyes also co-owns the San Jose Sharks hockey team with a consortium of Silicon Valley leaders.

Known in the industry for his aggressive style, Reyes built up Brocade from a company with $24 million in annual revenue in 1998 to $750 million in 2006. His antics to motivate employees included smashing pumpkins inscribed with a competitor's name and blowing up a competitor's product with a cannon.

David A. Kaplan, a technology historian, said he couldn't remember the last time an executive at a major Silicon Valley company was tried and convicted in a federal courtroom.

"Prosecutors have discovered Silicon Valley. If I were a valley executive, I'd be taking note," Kaplan said.

Reyes' lawyer, Richard Marmaro, declined to talk at the courthouse but issued a statement saying that his client would ultimately be exonerated.

"Today, we are disappointed. Tomorrow, we will continue the fight," Marmaro said.

Almost as distraught as the Reyeses were members of the nine-women, three-men jury. Three of the women shed tears. None of the jury members would talk to the media. They ejected reporters who got onto an elevator with them.

Interim U.S. Atty. Scott N. Schools dismissed the argument that the government was unfairly persecuting companies and executives over practices that were widely accepted.

"There's a test of that criticism — the jury," Schools said at a news conference at his offices. Reyes' defense was vigorous and well-resourced, he noted, adding: "I don't think anyone suggested that this was anything other than a fair fight."

Still, Schools declined to cast the verdict as symbolic. "It's our assessment that this was a single jury evaluating evidence in a single case. All of these cases stand on their own merits."

Options are the lifeblood of tech companies. They give recipients the right to buy a stock for a set amount — the exercise price — within a certain period. Typically, the exercise price is the stock's market price on the day the option is granted.

But executives who backdated looked back in time and cherry-picked particularly low prices for the options. That would give the recipient an instant paper profit.

Backdating became a widespread tool for recruiting and retaining key employees during the dot-com boom of the late 1990s. In itself it is not illegal. But it is a crime to fail to report it in financial statements, which is what Reyes was accused of doing in collaboration with Stephanie Jensen, Brocade's head of human resources. By granting discounted options, a company also could be understating its expenses and thus overstating its profit, misleading shareholders.

During the five-week trial, the government argued that Reyes knew he was violating accounting rules when he backdated options. It further asserted that he lied on securities filings to cover up his deception.

Marmaro argued that the government had failed to prove that Reyes, like many CEOs, knew the accounting rules well enough to know that backdating options and not reporting the practice was wrong. Besides, the lawyer said, Reyes never backdated stock options he granted himself.

Charles Ross, a white-collar defense lawyer at Charles A. Ross & Associates in New York, said he was surprised at the guilty verdict.

"I thought the government did not have a lot of smoking-gun evidence," he said. "But it's a tough environment out there to defend any corporate fraud charge these days."

The verdict, Ross predicted, "will embolden some prosecutors."

The government's pursuit of backdating has caused more than 100 companies to restate their financial results.

Brocade, a designer of data storage networking products, restated its earnings between 2000 and 2004 and was fined $7 million by the Securities and Exchange Commission in May.

The SEC is pursuing a civil case against Reyes, former human resources Vice President Jensen and former Chief Financial Officer Antonio Canova.


Court Seizes OJ Simpson's All-Pro Football Earnings
Court Watch | 2007/08/08 08:43

Relatives of murder victim Ron Goldman won a court order on Tuesday seizing any money O.J. Simpson earns for lending his name and likeness to a football video game with a fictional team called the Assassins and a knife-wielding mascot. The legal victory was part of an effort by Goldman's estate to satisfy a $33.5 million judgment won against Simpson in a wrongful death suit brought against him in the 1994 stabbing deaths of Goldman and Simpson's ex-wife, Nicole Brown Simpson. The former star running back was acquitted of criminal charges in 1995 at the end of a sensational murder trial but was found legally responsible for their deaths by a civil court jury two years later.

Simpson has maintained his innocence and vowed never to pay the jury award voluntarily.

Last week, Goldman's estate, led by his father Fred Goldman, secured rights to Simpson's aborted book, "If I Did It," containing his hypothetical first-person account of the murders, after a long legal fight with the now-bankrupt company set up to collect Simpson's reported $1 million advance.

In their latest bid to collect on the civil judgment, the Goldmans went after any licensing fees, royalties or other compensation Simpson was paid or will be paid for his name and likeness in the new video game, "All-Pro Football 2K8."

The game is published by Take-Two Interactive Software (TTWO.O), the company behind such controversial video game titles as "Grand Theft Auto" and "Manhunt 2," which was banned in Britain and given the equivalent of an adults-only rating in the United States.

TEAM OF "ASSASSINS"

"All-Pro Football" features the likenesses of 240 retired National Football League players, including Simpson, whom game users can assign to fictional teams with preset names, one of which is "The Assassins."

As previewed on a Web site for video game promotional trailers, the team mascot is a hooded figure who makes stabbing motions with a large knife in the end zone when the Assassins score. Simpson does not have to be assigned to that team, but he was in a clip shown on the Game Trailers Web site.

Take-Two has declined to say how it obtained rights to Simpson's name and likeness but said he was compensated. The company also has issued a statement saying the knife-wielding Assassins mascot is "not specifically associated with O.J. Simpson, and the game does not promote any such connection."

Under the order issued by Los Angeles County Superior Court Judge Gerald Rosenberg, any earnings to Simpson that "have been paid, are due or may be due in the future" for use of his image and likeness in the video game must be turned over to the Goldman estate.

Moreover, Simpson was ordered to turn over copies of his Take-Two contract and related documents, as well as any other financial deals he has yet to disclose.

"Basically he (the judge) said to Mr. Simpson, 'Pay up,"' Goldman attorney David Cook said after the hearing.

Ronald Slates, a lawyer for Simpson, argued against the order, saying the California court lacked jurisdiction over his client, who has lived in Florida for several years.



Court denies test drugs to dying patients
Law Center | 2007/08/08 07:44
People who are dying do not have the right to obtain unapproved drugs that are potentially lifesaving, even if their doctors say the treatment offers their best hope for survival, a U.S. appeals court here ruled Tuesday. In an 8-2 decision, the court said federal drug regulators were entrusted by law with deciding when new drugs were safe for wide use.

The families of terminally ill patients, several of whom died after they were denied promising drugs that were still in tests, filed suit. They said that patients who were dying were far more willing to take risks and argued that they should not be forced to wait years for new treatments to win final approval from the Food and Drug Administration.

The judges said the families should take their pleas to Congress, not the courts.

However, the two dissenters said the ruling ignored the Constitution's protection for individuals and their right to life, and instead bowed to "a dangerous brand of paternalism" that put the government's interest first.

Leaders of the Abigail Alliance for Better Access to Developmental Drugs said they would appeal to the Supreme Court. The group was named in honor of Abigail Burroughs, a 21-year-old University of Virginia student who died of cancer in 2001. Her father, Frank, said she was denied the use of two investigational anti-cancer drugs that were recommended by her oncologist. These drugs later received FDA approval.

"We are talking about terminally ill patients and about drugs that were shown to work in earlier trials," said alliance co-founder Steve Walker, a St. Petersburg, Fla., geologist whose wife died of colon cancer.

In 2003, the alliance petitioned the FDA, urging it to change its rules so that drug companies could make available to dying patients "investigational drugs" that had won preliminary approval. There is a "different risk-benefit trade-off facing patients who are terminally ill and have no other treatment options," it said.

The FDA turned away the plea, saying it needed "to maintain a strong clinical trial system" to gather evidence before approving drugs for general use.

With the aid of the Washington Legal Foundation, a conservative nonprofit, the alliance sued the FDA. It said the Constitution should be read to "embrace the right of a terminally ill patient with no remaining approved treatment options to decide, in consultation with his or her own doctor . . . to seek access to investigational medications that the FDA concedes are safe and promising enough for substantial human testing."

The case touched on issues that had been debated fiercely in medical and legal circles.

Medical experts have long disagreed on whether the FDA moves too slowly or too quickly in approving new drugs. Some doctors have argued that clinical trials should be opened to more patients who might benefit from the new treatments.

And since the Roe vs. Wade ruling in 1973 that set out the right to abortion, many legal scholars have frowned on judges creating "new rights" from vague clauses in the Constitution. The suit over new drugs focused on the 5th Amendment, which says "no person shall be . . . deprived of life, liberty or property, without due process of law."

In 2004, a federal judge rejected the alliance's suit, saying there was "no constitutional right of access to unapproved drugs."

Last year, however, a three-judge panel of the U.S. appeals court sided with the group.

In a 2-1 decision, it said a "terminally ill, mentally competent adult patient" had a right to "potentially lifesaving investigational new drugs" which had been found to be safe for humans.

But before that decision could take effect, the full U.S. Court of Appeals for the District of Columbia voted to rehear the case. And Tuesday, it reversed its panel's ruling.

"We conclude there is no fundamental right 'deeply rooted in this nation's history and tradition' of access to experimental drugs for the terminally ill," said Judge Thomas B. Griffith, a Bush appointee, citing a Supreme Court decision that rejected the notion of a constitutional right to die. Griffith's opinion was joined by conservative and liberal members of the appeals court.

The two dissenters were Judge Judith W. Rogers, a Clinton appointee, and Chief Judge Douglas H. Ginsburg, a Reagan appointee.

"In the end, it is startling," Rogers wrote, that the Constitution has been read to include unnamed "fundamental rights" to marry, to control a child's education, to have sex in private and to have an abortion, "but the right to save one's life is left out."

Julie Zawisza, an FDA spokeswoman, said the agency was pleased with the ruling because it upheld the agency's "role in facilitating appropriate treatment access to investigational therapies while at the same time protecting the public at large by requiring that drugs are proven to be safe and effective before they may be marketed to U.S. consumers."

She also said that "on a limited basis," some patients and their doctors were permitted to obtain new drugs that were in clinical trials.


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