The BLT: The Blog of Legal Times

In Year-End Report, Roberts Urges End to Judicial Confirmation Logjam

In his annual report on the state of the federal judiciary, Chief Justice John Roberts Jr. today called on the "political branches" -- the President and Congress -- to find a long-term solution to the "persistent problem" of filling judicial vacancies.

"Each political party has found it easy to turn on a dime from decrying to defending the blocking of judicial nominations, depending on their changing political fortunes," Roberts wrote in the report, released to the public at 6 p.m. Since Republicans are the ones doing the defending and the blocking in the current Senate, the comment puts the conservative Roberts in unusual alignment with Senate Democrats who have criticized Republicans for impeding confirmations.

Roberts said he was "heartened" by a flurry of confirmations in the final days of the Senate session last week, which we reported here. Overall, the Senate confirmed 60 appeals and district court judicial nominees in the 111th Congress, leaving 19 nominees without a yes-or-no vote. Roberts said the vacancies have created "acute difficulties" and "extraordinary caseloads" in some judicial districts. He singled out the Eastern District of California for mention as a court that has been hampered by vacancies.

In a more conciliatory vein, Roberts also highlighted the judiciary's cooperation with Congress in finding ways to rein in spending. "The judiciary has worked closely with Congress in exercising self-imposed fiscal discipline, and Congress in turn has stood ready to provide funding for the judiciary's vital needs," Roberts wrote, pledging continuing efforts to control spending. He said the judiciary has worked with the General Services Administration to reduce rental rates for office space, and has reassessed its office space and personnel needs.

"The Supreme Court itself is doing its part," Roberts reported, adding that because of cuts, its 2012 budget request will be smaller than 2011's. "Not many federal government entities can say that."

Unlike some of his past annual reports, Roberts this year was silent on a subject near and dear to the hearts of his robed colleagues at all levels of the judiciary: salary increases. Since the recession took hold, the Judicial Conference has all but abandoned hope of winning a significant pay raise for judges from Congress anytime soon.

Roberts also gave a shout-out to a committee of the Judicial Conference headed by Judge Charles Breyer of the Northern District of California for its recently issued report offering a "strategic plan" for the future of the federal judiciary. The report stated principles and goals to foster the courts' basic mission of providing "fair and impartial resolution of legal disputes," as Roberts put it. The plan focused on internal management of the courts, insuring litigants with "reasonable and economical access" to the judicial process, as well as external goals of fostering good relations with the other branches of government and "enhancing the public's understanding of the role of the courts." Breyer is the brother of Supreme Court Justice Stephen Breyer.

Looking to the past as well as the future, Roberts also noted that the Supreme Court in 2010 marked the 75th anniversary of the opening of its current home, "a majestic building" that stands as a "familiar and iconic monument to the rule of law." Roberts wrote, "The architect's use of classical elements and durable stone has aptly captured the Court's imperishable role in our system of government."

The Court and the national judicial system, Roberts said, "are the model for justice throughout the world. But that is no reason for complacency. As the world moves forward, the courts must be responsive to change, while preserving their place as the venue where justice is achieved through impartial judgment and dispassionate application of law."

The Morning Wrap

Regulation of Greenhouse Gases Sets Stage for Clash: With the federal government set to regulate greenhouse gases from factories and power plants for the first time, the Obama administration and the new Congress are headed for a clash that carries substantial risks for both sides. The New York Times reports that if the administration moves too fast, Congress could handcuff the Environmental Protection Agency and set back the effort to slow climate change for years.

The End of FEMA Trailers? Five years after Hurricane Katrina, New Orleans is taking steps to do away with the 221 FEMA trailers in the city, which have become a symbol of the prolonged rebuilding from Katrina. Citing them as blight, city officials have told FEMA trailer residents to be out of them by the start of 2011 or face heavy fines, The Associated Press reports.

Paulson Feels Housing Pain: Former Treasury Secretary Henry Paulson knows better than most how the economic downturn battered housing prices. Paulson sold his three-bedroom home in Washington last week for close to a third less than his initial asking price and more than $1 million below what he paid for it more than four years ago, Reuters reports.

Sorry Billy: New Mexico Gov. Bill Richardson declined to pardon Old West outlaw Billy the Kid, who was shot dead in 1881 after escaping jail where he was awaiting hanging for the killing of a sheriff. The Wall Street Journal reports that the prospect of a pardon for the man known as "Mr. The Kid" in the movie Bill and Ted's Excellent Adventures grabbed international headlines.

U.S. Bank: FDIC Should Cover Cost of Bad Tax Advice

U.S. Bank has filed a federal suit in Washington against the Federal Deposit Insurance Corp., alleging that the failed bank for which the FDIC was acting as receiver gave U.S. Bank bad tax advice that cost it millions in IRS penalties.

From 2005 to 2010, U.S. Bank acted as trustee for R-G Crown Mortgage Loan Trust and made regular payments to R-G Premier International Bank, a division of R-G Premier Bank of Puerto Rico, from the proceeds of recoveries from a portfolio of mortgage assets.

According to U.S. Bank’s complaint, filed on Dec. 28 in the U.S. District Court for the District of Columbia, R-G Premier directed the trust not to withhold taxes from its payments, saying that the distributions were not subject to withholding or income taxation based on the “portfolio interest” exemption under the IRS code.

But on Feb. 17, the trust received a notice from the IRS that it had failed to withhold 30% of the payments as required by law. The IRS told the trust that it owed tax liabilities of $860,000 for 2006 and $764,000 for 2007.

According to the complaint, under the terms of the trust the trustee cannot be held personally liable for “any action taken or omitted to be taken by it in accordance with the instructions of any certificate holder.”

The complaint also argues that the trust cannot be held liable for actions taken or not taken in accordance with the advice of counsel. As part of the trust transaction, the complaint said, R-G Premier provided a legal opinion that supported the idea that the trust was not required to withhold taxes from the payments it made to Premier.

The complaint is signed by William Davis III of Bethesda, Md.-based Offit Kurman and Jonathan Parritz of Minneapolis-based Maslon Edelman Borman & Brand.

In April, the R-G Premier was closed by the Office of the Commissioner of Financial Institutions of Puerto Rico, and the FDIC was named receiver.

In August, U.S. Bank filed a claim with the FDIC, asserting that the bank regulator is liable for the tax penalties and legal fees that U.S. Bank generated in the defense against the IRS demand.

On Nov. 2, the FDIC denied that claim.

U.S. Bank has asked that a judge hold the FDIC liable for the tax penalties and other costs. The complaint also alleges that U.S. Bank is entitled to set-off against any amount owed to the FDIC as receiver “any and all amounts arising from or in any way related to any taxes, penalties or interest accrued upon any amounts previously distributed to premier. U.S. Bank is also seeking attorneys’ fees.

No lawyers have entered an appearance for the FDIC yet.

D.C. Appeals Court Tweaks Convictions in Sexual Assault Scheme

The D.C. Court of Appeals has asked a Superior Court judge to issue a new sentence in the case of Lafayette Bailey, a former employee of the D.C. Prisoners’ Legal Services Project who devised an elaborate scheme to extort sexual favors from individuals who had been recently released from prison by using forged documents and the threat of re-incarceration.

The appeals court found that the lesser counts of sexual abuse Bailey received should be merged into the two first-degree sexual assault convictions and that the forgery convictions against him should be dropped.

In an opinion handed down today, Judge Anna Blackburne-Rigsby describes the “bizarre” scheme Bailey concocted to force himself upon two men who were on probation or parole from prison.

BAR/BRI Settlement Payments Coming Soon

Claimants in the long-running BAR/BRI class action are set to begin receiving settlement payments to help compensate them for the alleged conspiracy between BAR/BRI and Kaplan that caused about 130,000 prospective law students to overpay for bar-review prep courses. Those payments will begin being sent to claimants next month.

Earlier this month, the U.S. District Court for the Central District of California approved a partial payment plan that will dole out some of the money in the settlement that has languished for years while plaintiffs’ lawyers and Los Angeles federal judge Manuel Real sparred over the amount that those lawyers would receive in fees.

In February, Real determined that McGuire Woods was not entitled to the $12 million it sought in fees after it scored a $49 million antitrust settlement with BAR/BRI parent company West Publishing Corp. in July 2007 because of a conflict of interest that violated ethics rules. McGuire Woods has appealed that finding to the U.S. Court of Appeals for the 9th Circuit, which has already upheld the settlement but remanded the case to the trial judge to re-evaluate attorneys’ fees.

But due to a motion filed in October by lead plaintiffs’ attorney Sidney Kanazawa, an L.A.-based McGuire Woods partner, the money in the settlement fund that isn’t affected by the appeal will begin being handed out in January.

“We felt that it didn’t make sense for that money to sit waiting in the fund until all of the appeals were exhausted. This was a way to start getting some of that money to the people to which it is owed,” Kanazawa said.

According to the Web site set up to inform claimants of the case’s status, $30 million of the settlement fund will be distributed. The total amount of the payment class members can receive cannot amount to more than 30% of the amount paid by the claimant for their bar review course.

In the case of the partial payments, for each recognized claim of $2,000, a partial reward of $277 will be sent out. Kanazawa said that once the fee issue is settled, claimants stand to receive more money.

The class action was filed on behalf of all prospective law students who purchased a full-service bar review course from BAR/BRI anywhere in the United States anytime from Aug. 1997 through July 2006. In order to have their claim considered, claimants must have had their claim form postmarked no later than Sept. 17, 2007.

Updated 3:58 p.m. to include link to BAR/BRI settlement Web site.

The Morning Wrap

Pakistan's Disappearing Insurgents: The New York Times reports that the Obama administration is concerned by reports that thousands of political separatists and captured Taliban insurgents have disappeared into the hands of Pakistan’s police and security forces, and that some may have been tortured or killed. The issue threatens to become the latest source of friction in the often tense relationship between the wartime allies.

Constitution To Take Center Stage in GOP-Controlled House: For the first time in the House's 221-year history, the Constitution will be read aloud in the chamber when Republicans take majority control next week. Republicans will also require will that every new bill contain a statement by the lawmaker who wrote it citing the constitutional authority to enact the proposed legislation. Those moves come thanks to two new rules that have gained strong support by the incoming wave of tea-partiers, The Washington Post reports.

Loan Spigot Opens at Big Banks: The Wall Street Journal reports that some big U.S. banks are starting to increase their lending to businesses as demand for loans rises and healthier banks seek to grab customers from weaker rivals. After declining steadily for most of the past two years, the amount of commercial and industrial loans held by commercial banks inched upward during the past two months, according to the Federal Reserve.

O'Donnell's 'Phony' Federal Investigation: Christine O'Donnell, the Delaware Republican who led an unsuccessful Senate campaign earlier this year, says that a reported federal investigation into her finances is "phony" and based on "unsubstantiated allegations and rumors." USA Today reports that the FBI and federal prosecutors are looking into whether O'Donnell used campaign funds to pay her personal bills.

DOJ Calls on SEC, CFTC to Make Derivatives Rules More Strict

The Justice Department has called on the Securities and Exchange Commission and the U.S. Commodity Futures Trading Commission to make some of their rules dealing with over-the-counter derivatives more stringent, arguing that the rules don’t go far enough to keep groups of major market players from banding together to control derivatives exchanges.

In separate comment papers sent to each agency today, Christine Varney, who heads the Justice Department’s Antitrust Division, says that DOJ supports the rules proposed by the SEC and the CFTC to limit to 20% the amount that individual derivatives dealers can own of security-based swap execution facilities and national securities exchanges.

But Varney goes on to say that the proposed rules don’t do enough to limit the amount that a small group of entities can own in aggregate. She wrote that it would be possible for as few as three entities to control a majority of the SEF or exchange and for as few as five to own them outright.

In both comment papers, Varney compares that possibility to three or five of the nation’s largest airlines controlling all landing rights at every U.S. airport. “The big carriers could use this control to disadvantage smaller carriers by restricting landing rights or raising their rivals’ costs to access the airports.”

In the case of SEFs and exchanges, Varney wrote, “[M]ajor dealers might use their control of a SEF or Exchange to exclude rivals, limit pre-and post-trade transparency, decline to trade certain contracts to disadvantage rivals, or try to evade exchange-trading requirements. In the Department's view, limiting both individual ownership shares and the aggregate shares held by major dealers would be the most effective structural approach to protecting competition in the derivatives markets.”

Varney recommended that both the SEC and the CFTC include caps on the aggregate amount of an SEF or exchange that can be owned.

In the comment paper sent to the SEC, Varney wrote that the Justice Department supports the proposed rule requiring that at least 50% of the members of a SEF/exchange’s board of directors and executive and membership committees be independent. Varney wrote that DOJ also supports the proposed SEC rule requiring that 100% of a SEF or exchange’s nominating and regulatory oversight committees be independent.

In the case of the governance rules proposed by the CFTC, Varney wrote that the proposed rules are “modest” at best. Under the CFTC’s proposed rule, while regulatory committees must be 100% independent, boards of directors and executive and membership committees have to be only 35% independent.

“Under this arrangement, enumerated entities could both control a [designed contract market or swap execution facility] voting equity, and through a majority presence on the board, its management decisions,” Varney wrote.

A Retirement at the Copyright Office

By Marcia Coyle

The last day of 2010 marks the end of the 16-year tenure of Marybeth Peters as the Register of Copyrights for the U.S. Copyright Office, the highest position in that office.

Peters is a classic case of “up through the ranks” success. Her career began in 1965, when she worked as a shelflister in the processing department. From there, she became an examiner and then chief of the examining division. She also served as acting general counsel before taking on the top job in 1994.

In an extensive interview in the office’s house organ, “Copyright Notices,” Peters, a graduate of George Washington University School of Law, said she plans to get a dog, volunteer at an animal shelter and “play some role in the field of copyright,” perhaps teaching and urging passage of orphan works legislation.

Maria Pallante, senior adviser to the Librarian of Congress, has been appointed acting Register of Copyrights.

D.C. Circuit Denies Review of Case Involving New Mexico Kickback Scheme

In an opinion handed down yesterday, The U.S. Court of Appeals for the D.C. Circuit has declined to weigh in on the case of Guy Riordan, the owner of several brokerage firms who was sanctioned by the Securities and Exchange Commission for paying kickbacks to the New Mexico state treasurer in exchange for being able to invest some of the state’s revenue in securities.

Riordan, who asked the D.C. Circuit to review those sanctions in August, argued that the SEC lacked sufficient evidentiary support and that some of the SEC’s sanctions were imposed for conduct that occurred outside the statute of limitations. Riordan was represented on appeal by Jason Bowles, an Albuquerque, N.M., criminal defense lawyer.

In the court’s 10-page opinion, Judge Brett Kavanaugh wrote that the evidence “overwhelmingly” demonstrates that Riordan paid then-state Treasurer Michael Montoya kickbacks between 1996 and 2002.

Montoya, whose testimony was among the evidence the SEC considered when deciding whether to sanction Riordan, told SEC officials that he received cash payments of between $300 and $3,000 in exchange for steering business to Riordan through a variety of devices. The opinion notes as examples that Riordan was allowed to see competitors’ bids before placing his own and had been allowed to submit bids past their due date.

Montoya pleaded guilty to extortion under color of official right in 2005 and agreed to cooperate with federal investigators.

While the Justice Department declined to pursue criminal charges against Riordan, the SEC slapped him with sanctions that included civil fines of $500,000, a bar on future association with securities brokers or dealers, an order to cease and desist from violating securities laws, and disgorgement of all commissions and bonuses he received from his dealings with Montoya. All told, Riordan was required to pay a total of $1.9 million.

Kavanaugh wrote in the opinion, “The record overwhelmingly demonstrates that Riordan paid Montoya in return for state business. To recount just some of the most damning evidence: Montoya testified about the kickbacks at length and in detail; another witness corroborated key aspects of Montoya’s testimony; Riordan himself admitted to having met Montoya twice in response to Montoya’s demands for kickbacks; and the SEC’s financial expert found that the Treasurer’s Office records reflected a corrupt process – a conclusion that Riordan’s own expert was largely unable to contradict.”

Kavanaugh also wrote that Riordan’s statute of limitations arguments were “without merit.”

The SEC was represented on appeal by Lisa de la Torre, SEC senior litigation counsel who argued the case in October; David Becker, SEC general counsel; Mark Cahn, SEC deputy general counsel; Jacob Stillman, SEC solicitor; and Dimple Gupta, an SEC attorney.

The Morning Wrap

Come Together: It appears that insurgents in Pakistan and Afghanistan are setting aside long-held rivalries to join forces against the U.S., The New York Times reports. After one recent attack on a remote base in eastern Afghanistan, a check of the dead insurgents found evidence that the fighters were from three different factions, military officials said.

A Housing Double Dip? The Wall Street Journal reports that a new bout of declining home prices is threatening to hamper the U.S. recovery, just as consumers and the overall economy have been showing signs of healing. Home prices across 20 major metropolitan areas fell 1.3% in October from September, the third straight month-over-month drop, according to the S&P/Case-Shiller home-price index released Tuesday.

Reconciliation Rollback: Talking Points Memo reports that a peek at proposed House rules for the upcoming Congress reveals that House Republicans plan to rollback changes made by Democrats that limited loopholes in the reconciliation process. Citing a report by the The Center on Budget and Policy Priorities, TPM reports that the proposed rules would allow the House to use reconciliation to push through bills that increase deficits as long as the deficit increases result from tax cuts, while barring the use of reconciliation in the House for legislation that reduces the deficit if that legislation contains a net increase in spending that is more than offset by revenue-raising provisions.

South Korea Proposes Nuclear Talks With North: South Korean President Lee Myung-bak described international talks as the necessary means to coax North Korea's denuclearization, opening a narrow window for resuming long-dormant negotiations, The Washington Post reports. Lee's comment--coming after weeks of more hawkish rhetoric--suggests that South Korea won't rely solely on military muscle to pressure its neighbor.