The BLT: The Blog of Legal Times

The Morning Wrap

DOJ Penalty for BofA: Under an agreement announced by the Justice Department, a Bank of America Corp. unit will pay $20 million to resolve allegations that it wrongfully foreclosed upon active-duty service members, The Charlotte Observer reports.

Shaking Liability: The Wall Street Journal spotlights some of the losers in the rescues of Chrysler Group and General Motors Co., including car-accident victims who had won damages or had pending lawsuits before their bankruptcy filings.

Pursuing Dominique: The New York Times checks in on Cyrus Vance Jr., Manhattan's district attorney, who is pursuing a rape case against Dominique Strauss-Kahn just as his office failed to convict on felony charges two police officers charged with rape.

Death and Poetry: The Washington Post reports on a Bethesda, Md., murder investigation that's focused on a a Mexican-born businessman and poet.

Nancy's Brother: A state judge in Massachusetts has sentenced Mark Kerrigan to two and a half years in prison after he was convicted of assault and battery on his own father the night he died, The Boston Globe reports.

Former NASDAQ Official Pleads Guilty to Insider Trading

A former managing director of the NASDAQ stock market who used his wife's brokerage account to trade securities based on non-public information pleaded guilty today in Alexandria federal district court to insider trading.

Justice Department officials said Donald Johnson, 56, acknowledged illegal securities trades executed between 2006 and 2009, earning more than $640,000 in the scheme. He admitted to at least eight unlawful trades, according to DOJ.

Assistant Attorney General Lanny Breuer of the Criminal Division called Johnson, in a phone call with reporters this afternoon, a “fox in a hen-house.” Sentencing is scheduled for Aug. 12 in U.S. District Court for the Eastern District of Virginia. Johnson faces a maximum penalty of 20 years in prison and a fine of $5 million.

NASDAQ-listed companies, Breuer said in prepared remarks, “entrusted him with their sensitive, non-public information so that he could provide them with analyses about their stock. He then used that very information to cheat the system and make an illegal profit.”

DOJ officials said Johnson, a managing director on NASDAQ’s market intelligence desk in New York, used his wife’s brokerage account to make small trades several times a year. “But he learned what every other trader on Wall Street must now realize: We’re watching,” U.S. Attorney Neil MacBride said in a statement.

A lawyer for Johnson, Jonathan Simms of Fairfax, Va.’s Simms & Harris, said Johnson "chose to accept responsibility for actions that happened in the past. This charge is in no way indicative of his overall character."

Johnson regularly received non-public information—including advance notice of earnings, regulatory approval and personnel moves, according to DOJ—about NASDAQ-listed companies. DOJ officials said Johnson generated “substantial gains” by reversing positions he took shortly after the companies made public announcements.

The Justice Department said Johnson traded securities in the following companies: Central Garden and Pet Co.; Digene Corporation; Idexx Laboratories Inc.; Pharmaceutical Product Development Inc.; and United Therapeutics Corporation.

The Securities and Exchange Commission today filed a civil action against Johnson in the U.S. District Court for the Southern District of New York.

Hospitals Sue HHS Over 'Basic Math Error' In Medicare Formula

More than 600 hospitals are suing the U.S. Department of Health and Human Services over a formula used to determine Medicare payments that the plaintiffs allege is based on bad math.

The plaintiffs - 677 hospitals located throughout the United States - filed suit against the department on Tuesday in U.S. District Court for the District of Columbia. The complaint (PDF) accuses department officials of relying on a formula for determining per patient payments made to hospitals that unlawfully lowers the rate each year.

According to the complaint, HHS has relied for decades on a system for determining payments that takes into consideration a standardized per patient discharge amount paid to all hospitals and also a wage index, which raises or lowers the rate paid to an individual hospital based on wages in the surrounding region.

In 1997, Congress set up a “rural floor” for the wage index, meaning that the wage index for urban hospitals couldn’t be less than the wage index in rural hospitals in the same state. In order to make sure that the adjustment wouldn’t affect the total amount of Medicare payments, HHS was directed to adjust the wage index to keep the total budget neutral.

According to the complaint, the hospitals allege that in calculating the adjustment to the payment rates needed to keep the overall budget neutral, HHS officials mistakenly duplicated the "rural floor" wage adjustment mechanism in the overall formula. This in turn lowered the overall payments to hospitals, according to the complaint, which the plaintiffs claim violated the law requiring such adjustments to be budget neutral.

The hospitals claims HHS has been relying on the formula since at least 2007. In practice, the hospitals allege that in keeping the flawed formula in place, the hospitals have unlawfully received increasingly lower payments over the years.

Stephanie Webster of Washington’s King & Spalding is representing the hospitals; firm spokesman Les Zuke said they do not comment on client matters. HHS, through a spokesman, declined to comment.

In National Security Case, Lawyer Fights to Present Client's Side

The lawyers for a former American official convicted in Italy for participating in the kidnapping of an alleged terror suspect are trying to keep alive a suit in Washington that asserts the official was immune from prosecution in the foreign proceeding.

Sabrina De Sousa, who served as a foreign service officer for the State Department, denies any role in the rendition of Egyptian cleric Abu Omar. Omar was reportedly grabbed on a street in Milan in 2003 and flown to Egypt, where he alleged he was interrogated and tortured. De Sousa was tried in absentia in Italy, convicted and ultimately sentenced to seven years in prison. She is challenging the case on appeal through counsel in Italy.

The United States did not assert diplomatic immunity on behalf of De Sousa. In her suit (PDF), filed in May 2009 in U.S. District Court for the District of Columbia, De Sousa said the State Department should have intervened in the Italian prosecution to invoke immunity.

But De Sousa’s case in Washington has stalled over a dispute about whether her attorneys can present classified information to U.S. District Judge Beryl Howell, a new addition to the bench who took over the case in January from Judge Ricardo Urbina.

Mark Zaid, a Washington solo practitioner who specializes in national security law, argued in court today he should be allowed to use classified information in response to the Justice Department’s motion to dismiss the suit. The department, he said, wants to control the flow of information to secure a litigation advantage.

De Sousa’s case, Zaid said, highlights broad and unresolved systemic issues about whether plaintiffs, judges or government lawyers should get to decide who has a need to know classified information. The Justice Department, he said, is increasingly pushing for a rule that would deny civil litigants the right at all to convey classified information to the court.

Justice Department lawyer Brigham Bowen of the Civil Division’s federal program branch told Howell that Zaid has no right to include classified information in responsive papers. Bowen said in court today that Zaid should be required to file an unclassified brief. He urged the presiding judge to rule on the government's motion to dismiss without an assessment of classified information.

After a Decade, FTC Announces Plans to Update Online Advertising Guidelines

It’s been 11 years since the Federal Trade Commission issued guidelines for online advertising, which by today's standards makes them practically ancient.

The agency today announced it plans to update its 2000 guidelines, "Dot Com Disclosures: Information About Online Advertising," and is seeking public input on a few key questions.

The original guidelines stressed that the same consumer protection laws that apply to commercial activities in other media apply online, and that any disclosures required to prevent an advertisement from being misleading must be clear and conspicuous.

Now, the FTC is asking what issues have been raised by online technologies since the guidelines were issued that should be addressed in a revised document.

“Mobile marketing has become a reality, the ‘App’ economy has emerged, the use of ‘pop-up blockers’ has become widespread, and online social networking has emerged and grown popular,” the FTC stated in the announcement. “In seeking public comment on possible revisions to the guidance document, the staff is interested in the technical and legal issues that marketers, consumer advocates, and others believe should be addressed.”

Questions include what information regarding the online marketplace, online advertising techniques, or consumer online behavior the FTC should consider, and what specific types of online disclosures, if any, raise unique issues that should be looked at separately from general disclosure requirements.

The FTC also wants to know about multi-party selling arrangements, where established online sellers provide a platform for other firms to market and sell their products, as well as website operators that are compensated for referring consumers to other Internet sites that offer products and services.

The FTC will seek public comment for 45 days, beginning today and continuing through July 11.

Trial Judge Erred In Allowing Jury To Consider Witness's 'Muttered' Statement

The District of Columbia Court of Appeals ruled today that because a trial judge allowed the jury in an assault case to consider a statement "muttered" by a witness without asking what the statement was, the defendant, Robert Garrett, will get a new trial.

The details of the underlying case weren't included in the appellate court’s opinion (PDF), but Garrett was convicted in February 2008 by a District of Columbia Superior Court jury of assault with a dangerous weapon, possession of a firearm during a crime of violence and other weapons possession-related charges.

During deliberations, the jury sent Judge Harold Cushenberry Jr. a note asking: “[If] something is muttered [by a] witness while on the stand that was not in response to a question, can we consider that utterance?”

Cushenberry expressed concern that probing the request would “violate the jury’s deliberative process,” according to the appellate judges. Garrett’s attorney objected, arguing that without further review, no one would know if the statement was something neither the court nor the parties had heard or had an opportunity to consider.

The judge denied the request, noting that perhaps the attorneys hadn’t been paying close enough attention during trial, according to the appellate opinion.

The appeals court judges wrote that while the trial judge was correct to question whether further involvement in the deliberative process was wise, there was enough ambiguity about what the jury was asking that the judge should have delved deeper. They noted that in describing the statement as “muttered,” the jury clearly saw the statement as distinct from “normal testimony.”

“While inquiring into a jury’s thinking is—as the trial court correctly recognized—always fraught with risk, in the circumstances here some limited inquiry about the remark the jurors had in mind was necessary to forestall potential reliance by the jury on a statement it had no business considering,” they wrote.

Finding that there was no way of knowing whether the error was harmless without knowing what the “muttered” statement was, the appeals court sent the case back for a new trial.

Garrett’s appeal was argued by Stefanie Schneider of the D.C. Public Defender Service. The office declined to comment. Assistant U.S. Attorney Anne Park argued on behalf of the government; Bill Miller, spokesman for the U.S. attorney’s office, declined to comment, saying the office was still reviewing the ruling.

The Morning Wrap

Caught: The Serbian president announced today the arrest of war crimes suspect Ratko Mladic, accused of orchestrating the Srebrenica massacre in 1995, The New York Times reports. Mladic is a former Bosnian Serb general whom the authorities sought for more than 15 years.

Backing Out: Goodwin Liu, whose nomination to the U.S. Court of Appeals for the 9th Circuit was the target of a Republican filibuster, withdrew his name Wednesday. "With no possibility of an up-or-down vote on the horizon, my family and I have decided that it is time for us to regain the ability to make plans for the future," Liu wrote in a letter to President Obama, according to the Los Angeles Times. The Recorder has more Liu coverage here.

Transfers: A South Texas College of Law professor examined law school transfers in a recent article, The National Law Journal reports, and concluded the system benefits students but not less-prestigious schools that invest in talented students only to see them leave after the first year. "The bottom line on transfers is that they are not bringing anyone new into the law school pipeline," Jeffrey Rensberger said. "We're shifting people around without adding any talent or diversity. That's what makes me wonder about the utility of it."

Officers Tested: The New York Times reports on a grand jury inquiry in New York that's focusing on "the age-old practice of ticket-fixing." The investigation hasn't yielded any arrests. But defense lawyers are pitching ticket-fixing questions to police officers who are witnesses in unrelated criminal cases.

Convicted: The New York Law Journal reports the conviction of lawyers in the Jenkins & Gilchrist/BDO Seidman tax shelter case marks stepped up enforcement against lawyers who promote transactions to generate paper losses.

Debt Strategy: A lawyer with $160,000 in law school debt is developing a niche practice helping graduates with their student loan debt, the Hartford Business Journal reports. The attorney, Joshua Cohen, is a 2007 graduate of Quinnipiac School of Law.

Unfit: A federal judge has declared Jared Loughner, the man charged in the shooting of Rep. Gabrielle Giffords in Arizona in January, mentally incompetent to stand trial. Loughner, removed from court yesterday following an outburst, is due back in court in September for an update on his condition.

In Whistleblower Suit, Fannie Mae Conservator Says Mortgage Giant Was Not a Public Employer

The Federal Housing Finance Agency, which took over Fannie Mae in 2008, told a Washington federal court judge today that in a wrongful termination suit before the court, Fannie Mae should not be considered any more public than a bank deemed "too big to fail" by the federal government.

The question of Fannie Mae's status has put the underlying case on the back burner in recent weeks. Fannie Mae is facing a wrongful a termination suit from one of its former executives, Caroline Herron. After Herron had left Fannie Mae, she was brought back on as a contractor in 2009, only to be fired the following year.

Fannie Mae’s status as either a federal or non-federal actor could have an effect on how it proceeds with its defense. U.S. District Court Judge Rosemary Collyer, in denying Fannie Mae's motion to dismiss, said Fannie Mae had “confused” its legal arguments as to whether it should be treated as a public or private employer. Herron’s attorneys have argued that Fannie Mae should be considered a public employer.

Collyer asked for clarification, at which point the FHFA moved to enter the case.

At a status hearing this afternoon, the FHFA’s attorney, Howard Cayne of Washington’s Arnold & Porter, confirmed that his client and Fannie Mae are maintaining that the mortgage giant should be considered a private entity more akin to a bank.

Herron’s attorney, Lynn Bernabei of Washington’s Bernabei & Wachtel, argued that Fannie Mae was chartered with a public purpose and has always had its debt implicitly guaranteed by the federal government. Cayne countered that by that logic, any financial entity deemed “too big to fail” by the federal government should also be considered public.

Collyer was hearing arguments on whether discovery was needed to clarify whether Fannie Mae should be considered public or private. She had pressed both sides to clarify their arguments to the point where they could stipulate discovery wasn’t needed.

Herron has accused Fannie Mae officials of firing her for reporting on what she has characterized as questionable practices in Fannie Mae’s handling of the Treasury Department’s Homeownership Preservation Program.

Fannie Mae has denied any wrongdoing and claims the suit is retaliation for Fannie Mae’s refusal to help Herron get a job at the U.S. Department of Treasury.

Rachel Brand Heading to U.S. Chamber Litigation Center to Fight Regulation

With a mandate to ramp up the U.S. Chamber of Commerce's battle against Obama-era regulations, former top Bush Justice Department official Rachel Brand begins work next week as a senior litigation counsel at the National Chamber Litigation Center.

Brand will serve in a new position as chief counsel for regulatory litigation at the Chamber's litigating arm, according to the center's executive vice president Robin Conrad. "The Chamber is really going to step up its activities in that area," Conrad said today.

In positions at the White House counsel's office and as assistant attorney general for Legal Policy at the Justice Department, Brand was a visible player in confirmation and other battles. She sat next to Samuel Alito's wife Martha-Ann during her emotional moments at Alito's Senate Judiciary Committee hearing in January 2006, and also helped shepherd John Roberts Jr. through his nomination as chief justice in 2005. More recently, she was counsel at Wilmer Cutler Pickering Hale and Dorr.

Also starting at the litigation center next week is Kate Comerford Todd, who was an associate White House counsel from 2007 to 2009 and a partner at Wiley Rein. Most recently teaching a course at George Washington University Law School, Todd will be chief counsel for appellate litigation. Todd was a clerk for Justice Clarence Thomas, and Brand clerked for Justice Anthony Kennedy.

Both high-profile hires are aimed at expanding the Chamber's litigating presence as it fights a range of battles spawned by what it sees as a tidal wave of regulatory burdens for business. The Chamber is involved in 21 Supreme Court cases this term, a record, according to Conrad.

Photo by Diego Radzinschi

Maryland Attorney Pleads Guilty in Insurance Fraud Scheme

Updated 5:51 p.m.

An attorney licensed to practice in the District and in Maryland pleaded guilty Tuesday in federal district court in Alexandria for participation in an insurance fraud scheme.

The lawyer, Amir Ryan Lahuti, 45, of Bethesda, charged with conspiracy to commit mail fraud, faces up to 20 years in prison when he is sentenced in August, the U.S. Attorney's Office for the Eastern District of Virginia said.

Lahuti, who has an office in Silver Spring, was not immediately reached for comment this afternoon. A member of the D.C. bar since July 1994, Lahuti has no disciplinary history on file.

The charges against Lahuti grew out of an FBI investigation of an alleged “widespread and long-running conspiracy” to defraud automobile insurance companies through false or exaggerated claims. A federal agent described, in an affidavit, a network of “runners” who solicited accident victims, referring them to chiropractic offices and law firms.

The prosecution of Lahuti stems from his relationship with a chiropractor named Jason Carle. Prosecutors said Lahuti and Carle referred clients to each other. Carle allegedly fabricated patient files to document more than $7,000 in treatment provided to Lahuti for a bicycle crash in May 2009.

The documentation Carle created falsely claimed Lahuti was incapacitated and out of work for two weeks after the reported bicycle crash, prosecutors said. Lahuti, according to the government, filed a bodily injury claim with an insurance company in November 2009. He demanded a $140,000 settlement.

Prosecutors said Lahuti received $11,000 on the bodily injury claim and $6,435 for a personal injury protection claim. Lahuti allegedly gave $3,500 to Carle for his role in the scheme. Carle pleaded guilty earlier this month and is awaiting sentencing in July.

A lawyer for Lahuti, Peter Greenspun of Fairfax, Va.’s Greenspun, Shapiro, Davis & Leary said in a statement this evening: "In May 2009 Ryan Lahuti was struck by a car causing injuries. Mr. Lahuti has admitted full responsibility though for making misrepresentations in his accident claim and for that is suffering great consequences. Ryan is devastated by his terrible judgment and looks forward to the final resolution of this case."