The BLT: The Blog of Legal Times

Judge Notified of Out-of-State Disciplinary Issue in Fannie Mae Securities Class Action

Attorney Stanley Chesley, the lead plaintiffs’ counsel in a securities class action against Fannie Mae, notified the Washington federal court judge overseeing the case today about disciplinary proceedings underway against him in Kentucky.

Chesley, of Cincinnati's Waite, Schneider, Bayless & Chesley, has been representing Ohio state pension plans in their class action lawsuit against Fannie Mae since 2005. Fannie Mae and its auditor, KPMG, were sued after the federal agency regulating Fannie Mae found that the mortgage giant had overstated profits and failed to comply with other generally accepted accounting principles.

But Chesley has also been facing legal woes in Kentucky since 2009, when the Kentucky Bar Association initiated hearings on whether Chesley had unlawfully received millions of dollars in legal fees from an unrelated class action.

On Feb. 22, a Kentucky trial commissioner recommended (PDF) that Chesley be disbarred, writing that Chesley’s “callous subordination of the interests of his clients to his own greed is both shocking and reprehensible.”

The trial commissioner's report is not binding; a final decision will come following a hearing before the Board of Governors of the Kentucky Bar Association, which can then be reviewed by the Kentucky Supreme Court. If disbarred, Chesley could lose his license in the District and any other states that have a policy of reciprocal discipline.

Chesley filed a notice (PDF) informing the court about the proceedings today. It was unclear from the notice why Chesley had decided to make the filing now; he could not immediately be reached for comment.

In early March, Ohio Attorney General Mike DeWine said in an interview with the National Law Journal that he was aware of the Kentucky proceedings but was not concerned that they would have any effect on the state’s case against Fannie Mae. He could not immediately be reached this afternoon.

A status conference is scheduled for Monday. U.S. District Court Judge Richard Leon is presiding over the case.

Attorneys with O’Melveny & Myers, which is representing Fannie Mae, declined to discuss the pending litigation. Attorneys representing KPMG and other individually-named defendants – including lawyers with Williams & Connolly, Zuckerman Spaeder, BuckleySandler and Gibson, Dunn & Crutcher – could not immediately be reached this afternoon.

D.C. Courts Rolling Out Credit Card Pilot Program

Good news today for anyone ever caught without cash, checks or a money order trying to make a payment in District of Columbia Superior Court. Starting Monday, the Civil Actions Branch will roll out a pilot program to allow credit cards for nearly all fines and fees.

The courts hope to expand the program by the end of the year to all Superior Court divisions and other D.C. Courts operations, and also set up an online payment system. Most fines and fees paid to the court, regardless of the method, will continue to go to the Crime Victims Compensation Program.

The civil branch will now accept American Express, Discover, MasterCard, Visa and bank check cards; until further notice, all other divisions will continue to accept only cash, checks or money order. Certain payments will be excluded from the new system, including restitution paid to a victim and payments made on criminal bonds.

Virginia Attorney General Ends Relationship with King & Spalding

A spokesman for the Virginia Attorney General Ken Cuccinelli has confirmed earlier reports today that his office has ended its relationship with Washington law firm King & Spalding.

No additional details were immediately available from Cuccinelli spokesman Brian Gottstein. The Washington Examiner has reported that Cuccinelli made the decision following the firm’s decision earlier this week to withdraw its representation on behalf of U.S. House Republicans defending the federal Defense of Marriage Act.

Les Zuke, a spokesman for King & Spalding, said the firm does not comment on client representations.

According to the Examiner, King & Spalding was retained by the Attorney General’s office starting in September 2009 to assist with legal work on behalf of the state. The extent of the firm’s work with the state wasn’t immediately clear this afternoon.

Cuccinelli’s decision is the latest fallout from the firm’s decision to withdraw as counsel from the same-sex marriage litigation. Shortly after the firm announced its decision, former U.S. solicitor general Paul Clement, who had been leading the litigation, resigned in protest. He has since joined Bancroft, a small Washington litigation firm, and will continue representing House Republicans.

Read more on the King & Spalding decision and its aftermath from the National Law Journal’s David Ingram and Tony Mauro.

NIH Stem Cell Injunction Vacated by D.C. Circuit

The federal government can continue funding research using human embryonic stem cells, the U.S. Court of Appeals for the D.C. Circuit ruled today, reversing a lower court injunction against the National Institutes of Health.

Two scientists who work with adult stem cells sued NIH to stop embryonic stem cell research, charging that revised 2009 guidelines violated the 1996 Dickey-Wicker Amendment that bars federal funding for research in which a human embryo is destroyed.

In August, Judge Royce Lamberth granted their motion for a preliminary injunction, concluding they were likely to succeed at trial.

But in a 2-1 decision, the appeals court said no, calling the Dickey-Wicker law “ambigious.” The court found that the law “bars funding for the destructive act of deriving an [embryonic stem cell] from an embryo,” but it does not prohibit funding a research project in which such cells are used.

Under the Bush administration, NIH researchers could only work with stem cells from the approximately 60 then-extant cell lines derived from already-destroyed embryos. President Obama permitted the NIH to “support and conduct responsible, scientifically worthy human stem cell research, including human embryonic stem cell research, to the extent permitted by law.”

NIH issued the guidelines under fire in the suit in 2009.

The plaintiffs, Drs. James Sherley and Theresa Deisher, argued that the law “unambiguously bars funding for any project” using embryonic stem cells. The government countered that Dickey-Wicker is written in the present tense, addressing research “in which” embryos “are” destroyed, not research “for which” embryos “were destroyed.”

“The use of the present tense in a statute strongly suggests it does not extend to past actions,” wrote Judge Douglas Ginsburg, who was joined in the opinion by Judge Thomas Griffith. “Because the Congress wrote with particularity and in the present tense... it is entirely reasonable for the NIH to understand Dickey-Wicker as permitting funding for research using cell lines derived without federal funding, even as it bars funding for the derivation of additional lines.”

Judge Karen LeCraft Henderson dissented, writing, “The majority opinion has taken a straightforward case of statutory construction and produced a result that would make Rube Goldberg tip his hat,” she wrote. “I believe that the plaintiffs, researchers who use adult stem cells only, are likely to succeed on the merits of their challenge to the guidelines and that the district court did not abuse its discretion.”

Deputy Assistant Attorney General Beth Brinkmann argued the case for the government, and the scientists were represented by Gibson Dunn & Crutcher partner Thomas Hungar.

Dow Chemical and Sasol Facing Racketeering Lawsuit from Greenpeace

In a case that often reads like a spy movie, the first phase of discovery is moving forward in a racketeering lawsuit filed by environmental advocacy group Greenpeace Inc. against two major chemical corporations accused of overseeing secret espionage campaigns against the nonprofit.

Greenpeace has accused Dow Chemical Company and Sasol North American Inc. of hiring private security agents – through their respective public relations firms – to conduct illegal surveillance on Greenpeace, steal confidential documents and disrupt its campaigns. The nonprofit is suing under the federal Racketeer Influenced and Corrupt Organizations Act.

The alleged incidents are more than 10 years old. U.S. District Court Judge Rosemary Collyer has yet to rule on motions to dismiss filed by each of the defendants, but decided during a status hearing this morning that because of how much time has already passed, it was imprudent to delay discovery any further.

The other defendants include Ketchum, Inc., a New York-based public relations firm that Greenpeace has accused of conspiring with client Dow, and Dezenhall Resources Ltd., a Washington-based public relations firm accused of conspiring with Sasol. Four individuals who worked for Beckett Brown International (BBI), a now-defunct private security team Greenpeace has accused all the defendants of hiring, are also named as defendants.

In separate but similar motions to dismiss, the defendants argue that Greenpeace is time-barred from bringing the suit, given that most of the alleged incidents took place between 1998 and 2000, and also that Greenpeace has failed to identify any concrete injury or illegal racketeering activities.

“The alleged harms to which Greenpeace alludes — reduction in the value of its intellectual property, interference with its campaigns, and investigative expenses… are speculative and intangible,” attorneys for Ketchum argued in the motion to dismiss.

The complaint (PDF) includes accounts of “Mission: Impossible”-style activities, where BBI employees, allegedly hired by the chemical companies and their PR firms, would rummage through the nonprofit’s trash bins, place undercover operatives within the organization and infiltrate meetings and internal communications. The stolen information allegedly turned over to the defendants, according to the complaint, includes confidential strategy information on how Greenpeace planned to execute its advocacy campaigns, as well as donor records, financial reports and Greenpeace personnel files.

During the status hearing Friday morning, Collyer said she has yet to decide on any of the motions to dismiss, but was leaning towards dismissing one of the individual defendants given his affidavit that he was no longer working for the private security company when most of the alleged incidents took place.

Victoria Nugent of Washington’s Cohen, Milstein, Hausfeld & Toll is lead counsel for Greenpeace. Attorneys for the defendants include Weil, Gotshal & Manges for Dow; Fulbright & Jaworski for Sasol; Carr Maloney for Dezenhall; and Latham & Watkins for Ketchum.

Oral arguments on the motions to dismiss are scheduled for May 26. In the meantime, all the parties have been ordered to begin initial disclosures.

In Written Responses, Verrilli Tells Senate He'd Resign If Asked to Play Politics

Donald Verrilli, the Obama administration's nominee to be the next solicitor general, has told Senate Republicans unequivocally that he would resign if either the president or the attorney general ordered him to take a stance "based on partisan political considerations or other illegitimate reasons."

That declaration was among Verrilli's lengthy written responses to more than 100 written questions posed by Judiciary Committee ranking Republican member Sen. Charles Grassley, (R-Iowa), and others after Verrilli's March 30 confirmation hearing. The exchanges were posted online last week.

At the hearing, Verrilli embraced the solicitor general's long tradition of independence from political pressure as a way of preserving credibility with the Supreme Court, the primary audience for the SG's labors. But he also pointed out that the solicitor general answers to the attorney general and the president. After repeated questioning by Republicans, Verrilli acknowledged that he would resign if he was instructed by either boss to take a position that violated his principles or integrity.

But at the hearing and in the follow-up questions, Republicans indicated they thought that Verrilli was too deferential to his bosses and perhaps too slow to make his resignation pledge. "I am concerned that you do not fully appreciate the extent to which the office of the solicitor general must remain independent from both the attorney general and the president," Grassley wrote in one of his follow-up questions. In another, Grassley said Verrilli seemed "far less committed to being independent" than predecessor Elena Kagan pledged she would be in her 2009 confirmation hearing.

The backdrop of the Republicans' inquiry was Attorney General Eric Holder Jr.'s announcement in February that President Barack Obama and he had decided that Section 3 of the Defense of Marriage Act, which defines marriage as between a man and a woman, was unconstitutional and indefensible under a heightened scrutiny standard. Senators pressed Verrilli repeatedly to state that as solicitor general he would defend acts of Congress in almost any circumstance, and resign if told not to.

Verrilli's written response still stated that because of the decision made by Obama and Holder, no solicitor general "would have the authority" to defend the statute on that basis unless they had changed their minds or the state of the law had changed. "Whatever my independent judgment on the issue might have been," Verrilli wrote, "the President and the Attorney General have already made this particular decision."

Morvillo Abramowitz Opens DC Office

White collar defense powerhouse Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer has opened a Washington office led by Lisa Prager, who joins the 60-lawyer firm from Wilson, Sonsini, Goodrich & Rosati.

Prager, whose experience includes serving as the highest ranking career employee in

export enforcement at the Commerce Department, is known for her expertise in government investigations, export controls and Foreign Corrupt Practices Act matters.

This summer, she goes to trial in United States v. Goncalves et al., which the Department of Justice has described as the largest single prosecution of individuals in the history of FCPA enforcement. She represents defendant Wayne Weisler, co-owner of a company that makes body armor.

“Morvillo Abramowitz is the gold standard for vigorous and sophisticated representation and I am honored to join them,” said Prager in a news release. “I look forward to launching our DC office and continuing my trial practice there.”

The New York-based firm has represented white collar clients including Martha Stewart, John Zaccaro, who was the husband of former vice-presidential candidate Geraldine Ferraro, and Anil Kumar, who is cooperating with prosecutors in the criminal case against Galleon Group founder Raj Rajaratnam.

Say What? Defense Lawyers Challenge Enhanced Audio in FCPA Case

When government agents secretly record a criminal suspect, the audio is not always as crisp as prosecutors would like. There's background noise in some instances. Different voices talking at once. Low volume.

In a foreign bribery case in Washington, the criminal defense lawyers for a man charged in an undercover sting don't think federal prosecutors should get any benefit at trial in enhancing the audio or using subtitles to help jurors understand what people are saying on the tapes.

Enhancing the government’s tapes, Kobre & Kim partner Eric Bruce said in court papers (PDF) filed this week, would give jurors the perception that conversations between the undercover agents and the target, a man named Pankesh Patel, were clear. The tapes are central to the government’s prosecution of a group of weapons and law enforcement equipment dealers accused of conspiring in a bribery scheme.

Patel’s lawyers want Judge Richard Leon of U.S. District Court for the District of Columbia to prohibit Justice Department prosecutors from enhancing the ability the hear the audio. Bruce compared enhanced tapes to “manipulating percentages in a lab report or wiping away fingerprints.”

“[I]f the original recordings reflect that certain words were difficult to discern, then the jury should appreciate that fact,” Bruce said in court papers. “The only way to ensure that Mr. Patel and other defendants are not unfairly deprived of the evidence of that ambiguity is to require the government to rely on unaltered versions of its recording evidence.”

Untouched versions of the audio, used without subtitles, “will allow the jury to fairly and accurately judge which words were conveyed clearly in settings conducive to audibility, and which words were garbled amid considerable background noise and buried under a heap of platitudes,” he added.

Bruce said some conversations the government recorded in the undercover sting occurred on streets and in restaurants, where background noise and other distractions made it difficult for his client to hear.

If prosecutors are allowed to present enhanced audio, Bruce said the defense will want to let jurors hear the “reality of unaltered recordings.” The jury, he said, will hear each tape twice.

“Given that the government went to extraordinary lengths to bury allegedly incriminating words amongst benign chatter, it would be particularly unfair and prejudicial to defendants to permit the government to now highlight these same words at trial through the use of subtitles or scrolling text,” Bruce said.

Justice lawyers have not filed court papers in response to the defense motion to block the government from using enhanced audio or subtitles. A DOJ spokeswoman declined to comment on the defense request.

Leon set the first jury trial for a group of four defendants, including Patel, for May 12.

Morning Wrap

AIG Suit: AIG has filed the first of what could be several possible lawsuits against financial institutions it has accused of fraud in an attempt to recoup billions of dollars in damages, Am Law Litigation Daily reports.

Criminal History: The New York Times looks at how the Internet has made criminal background checks a standard part of the job-hiring process. A number of new lawsuits are challenging how employers factor criminal records in considering applicants.

WikiLeaks Investigation: A newly-uncovered legal document offers some insight into the legal strategies being considered by federal prosecutors in the WikiLeaks investigation, the Washington Post reports.

Big Day: More than two billion people around the world are believed to have watched the royal wedding this morning between Prince William and Kate Middleton. The Guardian, along with every other major news outlet around the world, has full coverage.

Immigration Advocates Pan Obama Administration's Reform Efforts

Immigration advocates bemoaned the Obama administration's failure to pass comprehensive immigration reform legislation and "ferocious" emphasis on enforcement at a panel today at American University's Washington College of Law, warning that it could cost the president reelection in 2012.

“We came in with high hopes when Obama was elected,” said Angela Kelley, vice president for immigration policy and advocacy at the Center for American Progress. “But we couldn’t even get 60 votes to pass something as sympathetic as the Dream Act.”

The Dream Act would have allowed children who were 15 or younger when they came to the United States to earn conditional permanent residency after completing two years of college or two years in the military.

Obama “can’t win [reelection] without the Latino vote,” Kelley said, noting that the Latino population is the fastest-growing in the United States. “Demographics are destiny...and right next to the economy in terms of Latino concerns is immigration.”

At this point, she said, there is “no hope for comprehensive immigration legislation. It’s not going to happen.” The result may be a patchwork of state laws. “States are grappling with a broken immigration system,” she said. “Federal lawmakers need to get out from under their desks and show some courage.”

Sarah Paoletti, who is the director of the Transnational Legal Migration Clinic at the University of Pennsylvania Law School, said that rather than focusing on “massive worksite raids that don’t project a good image” – the approach favored by George W. Bush – the Obama administration has used I-9 audits, which she called “more insidious.” Employers use the forms to verify a worker’s eligibility for employment in the United States.

“When there are more audits, more employers will switch to a cash economy, paying people off the books,” Paoletti said. “It’s pushing people further underground.”

The panelists, which also included American University history professor Alan Kraut, noted that the Obama administration has deported more people in its first two years than the Bush administration.

Paoletti did applaud the announcement yesterday by the Department of Homeland Security that it was ending the National Security Entry-Exit Registration System, or NSEERS, a program that required manual registration of citizens entering the United States from high-risk countries.

She said that the United States routinely discriminates against would-be immigrants from different countries, contrasting the treatment of Cuban immigrants with those from Haiti.

And she noted that the administration has resumed deportation of Haitians with criminal records – proceedings which had been suspended after the earthquake last year. One such deported immigrant recently died in a Haiti jail from cholera-like symptoms.