Bashian & Papantoniou, P.C.

SEC Lawsuit Against JPMorgan results in $153.6 Million Settlement

One of the most significant legal actions involving Wall Street’s role in the 2008 financial crisis recently ended in settlement.  JPMorgan Chase & Co.  has agreed to pay $153.6 million to settle civil fraud charges brought against it by the SEC. The SEC lawsuit charged JP Morgan with misleading investors into purchasing complex mortgage securities immediately prior to the collapse of the housing market.  

The case revolves around the need for the sellers of securities to sufficiently disclose all relevant information to potential purchasers. JPMorgan failed to inform investors that the mortgage securities were part of an investment portfolio that a hedge fund helped construct.  More significantly, investors were never told that the same Hedge Fund was betting that the portfolio would fail.  Following the resolution of the lawsuit, SEC Enforcement Chief Robert Khuzami stated “the appropriate disclosures would have been to inform investors that an entity with economic interests adverse to their own was involved in selecting the portfolio.”

JPMorgan itself has produced statements showing that it lost $900 million on the investment.  Incidentally, just two weeks earlier, JPMorgan CEO Jamie Dimon complained to Federal Reserve Chairman Ben Bernanke that new financial regulations put in place following the financial crisis placed too high a burden on banks. 

The investors who were harmed, mostly large financial institutions, will be reimbursed for all of their losses as part of the settlement.  The remaining portion of the settlement, consisting of approximately $30 million, will go to the U.S. Treasury. In addition, JPMorgan, while neither admitting nor denying wrongdoing, agreed to improve its procedures for reviewing and approving mortgage securities transactions.  Just a year earlier, similar charges were brought against Goldman Sachs & Co., resulting in a $550 million settlement, the largest penalty against a Wall Street firm in SEC history.  Read More

The Costs of a Not So Pretty Picture: Tobacco Companies are Displeased with the FDA’s New Cigarette Labeling Regulations

As of September 2012, tobacco companies in the United States will need to make some pretty expensive and undesired changes to the packages and advertisements of their products. As per the new Food and Drug Administration (FDA) regulations, tobacco companies will be required to modify the packaging of their cigarette products to include 1 of 9 horrifyingly vivid images along with a caption demoting smoking. The images and textual warnings are the result of efforts made by The Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act) which was signed into law by President Obama in 2009. The goal: to make tobacco-related death and disease part of the nation’s past, and not our future.

The pictures, which can be found on the FDA’s website, include a mouth with an open soar and rotten teeth, a dead man with his body sewn up, and a man with a hole in his neck. The text warnings alert readers to cautions such as, “Tobacco smoke can harm your children” and “Cigarettes cause fatal lung disease.” The new cigarette health warnings will cover the top 50% of both the front and back of each cigarette package and occupy at least 20% of the upper portion of each cigarette advertisement.

A requirement now mandated under the Tobacco Control Act, a bipartisan law passed by Congress in June 2009, leaves tobacco companies without a choice in the matter. That does not mean however, that they are taking this decision lying down. The FDA reported that letters received both from R.J. Reynolds and Phillip Morris USA, the two largest tobacco companies in the U.S. expressed their beliefs that the new requirements violate their First and Fifth Amendment rights and are thus unconstitutional. They argued that forcing tobacco companies to stigmatize their own product, and in such an imposing size violates their constitutional rights. In response, the FDA points to case law and highlights that the images and warnings convey information about the effects of smoking that is factual and uncontroversial and thus subject to a more lenient standard of review. Citing to the court in Commonwealth Brands v. United States, the FDA calls attention to the district court’s opinion that, “the government’s goal is not to stigmatize the use of tobacco products on the industry’s dime; it is to ensure that the health risk message is actually seen by consumers in the first instance.”

The United States is joining the more than 30 countries including our Canadian neighbor who have already implemented this regulation, marking the first change in cigarette warnings in the U.S. in over 25 years. According to the Centers for Disease Control and Prevention, tobacco use is the leading cause of premature and preventable death in the United States, responsible for 443,000 deaths each year and causing 8 million to live with a smoking-related disease. This is coupled with the nearly $200 billion annual price tag to our economy in medical costs and lost productivity. Although this new regulation may be causing tobacco gurus to dig deep into their pockets, with figures like those mentioned above, it’s costing the American government and its people a much more unforgivable expense.

The Cancer Scare Strikes Again: Cell Phone Radiation and the Ensuing Threat of Litigation

The International Agency for Research on Cancer (IARC), a branch of the World Health Organization (WHO), announced on Tuesday, May 31 some concerning findings. Cell phone usage, the radiation of which has now been classified as a carcinogen, may cause some forms of brain cancer. The study suggests that mobile devices, now finding itself in the same category as engine exhaust and chloroform, have been linked to a malignant form of brain cancer known as glioma. This conclusion was not based on any new scientific research but was instead, the result of an extensive review of numerous past studies. Namely, the decade-long Interphone research study that showed a 40% increase in risk for glioma for people who used their cellphones for an average of 30 minutes per day over a 10 year period.

So what are the legal ramifications of such findings? To get the manufacturers and service providers on the hook, the IARC’s re-classification of cell phone radiofrequency emissions will need to be enough to support a cancer or fear of cancer claim; an unlikely occurrence. The precedent setting case of Ferrara v. Gallagher decided in 1958 in New York provides insight to a “fear of cancer” claim. The Plaintiff suffered from bursitis in her right shoulder following a series of negligently administered X-ray treatments. Approximately two years after receiving the treatments that left her with some scarring and discoloration in skin pigmentation, she visited a dermatologist who informed her that she should have her shoulder checked every six months, as the area may become cancerous. The Court ultimately awarded her a judgment of $25,000 for “mental suffering” based largely on the testimony of a neuro-psychiatrist indicating that the Plaintiff was suffering from a severe cancerophobia, that is, the phobic apprehension that she would ultimately develop cancer in the site of the radiation burn.

However, since then, the court has supplemented this mental suffering with the requirement of physical proof evidencing the toxin or its effects on one’s body. Thus, plaintiffs will have to do more than simply present their existence of glioma and cite to the IARC’s re-classification of the mobile device radiofrequency emissions as a carcinogen. They will have to show the link between the two, and specifically, that the emissions were the cause of the manifestation in the brain which led to cancer; a complex and exceptionally high burden. Although the providers of 6 billion cell phone users globally will sleep easier knowing this, the public is left more than a little uneasy and uncertain about the veritable dangers of this new information and its related hurdles in the justice system.

Wal-Mart Prevails: Supreme Court denies Sex-Discrimination Class Action suit of 1.6 million women

The Supreme Court, overturning a decision by the 9th U.S. Circuit Court of Appeals, ruled in favor of the retail giant. The Court dismissed the class action suit brought on behalf of 1.6 million of Wal-Mart’s past and current female employees. Alleging that they had encountered a glass ceiling in regard to pay and promotions in their posts as Wal-Mart employees, Betty Dukes and 5 others began this class-action nearly 10 years ago. At the trial stage, this case would have been certain to cost the corporation billions, setting new precedent for sex discrimination suits against other conglomerate of moguls present in the American market.

Both parties provided the Court with differing statistical information concerning women and their salaries and positions at Wal-Marts across the nation. Attorneys for the corporation argued that a class action representing every female employee of the company would be far too encompassing given that hiring and promotion decisions were made on an individual basis, independent of their counterparts. The Court sided with Wal-Mart; Justice Scalia noting the lack of commonality in the elements tying together “literally millions of employment decisions at once.” In essence, merging all Wal-Mart female employees both past and present into a single class and claiming that they have altogether been subjected to gender discrimination was not supportable.

The Supreme Court decision, crippling the women from bringing their claim in the form of a nationwide class action, is devastating to their cause and that of women fighting similar claims against other sizeable employers. Such a decision leaves the 6 original Plaintiffs and their successors with the somewhat unrealistic option of pursuing their claims individually, a task that would require them to take on the dauntingly exorbitant costs of doing so singularly.

Future Uncertain for Organization fighting for Equality in School Funding

The Campaign for Fiscal Equity (C.F.E.) is an advocacy organization whose victory in a historic lawsuit in 2006 brought billions in additional funding to poor school districts in New York State.  The future of the C.F.E. is now uncertain, as they no longer have sufficient funding to continue operations.  The lack of funding reflects the emerging trend amongst donors away from the traditional legal battle over equality between poor and wealthy school districts.  Many donors have turned their focus to new ideas, such as research into teacher effectiveness and charter schools.

In 2006, after 13 years of litigation, C.F.E.’s victorious lawsuit resulted in Governor Elliot Spitzer pledging to phase in $7 billion in additional funding over five years, beginning in 2007.  New York City alone was to receive $5.4 billion.  However, after the economic downturn two years later in 2009, the New York Legislature froze the additional aid at the prior year’s level.  Subsequently, in 2011, an overall $1.3 billion reduction in education aid brought school financing levels roughly back to the levels prior to the C.F.E. lawsuit.  For example, New York City is set to receive $643 million in C.F.E. funds in 2012 from the state, but the overall cut in state aid is $812 million.  According to the city’s Department of Education, the result is an overall net decrease in funding. 

 C.F.E. is currently contemplating a merger with the Education Law Center, a New Jersey-based advocacy organization that recently won a $500 million judgment in a school-financing lawsuit.  The Education Law Center shares the same mission as C.F.E. of ensuring that “students in poor school districts are not deprived of their constitutional right to a sound basic education.”

Trial begins in $30 million Tax Fraud Scheme

The trial of two former accountants began last week in Tampa, Florida.  George B. Calvert and Gregory F. Guido, both Florida natives, are alleged to have masterminded an energy tax credit scheme that defrauded the Internal Revenue Service of more than $30 million.

The case revolves around an IRS provision that allowed producers of fuels from nonconventional sources to claim a tax credit on sales of the fuel to third parties.  The defendants allegedly forged documents stating that the owners of various landfills used to produce methane gas, which qualifies under the provision as fuel from a nonconventional source, had signed over to them the rights to the energy tax credits resulting from sales of the methane. In reality, most of the landfills did not even exist, and those that did were incapable of producing methane gas.  

Calvert and Guido then involved Tax preparers from all over the country into their scheme.  The tax preparers were recruited convince their clients to invest in the methane-producing landfills.  They were told that in exchange for investing, they would receive the tax credit that they could apply to their tax return.  From the perspective of the investors, there seemed to be very little risk, as they were not required to pay any money until after they received the tax refund from the IRS. 

The investors were provided with falsified promissory notes, giving them the impression that they had invested in the landfills.  The investors were then directed to include the fake promissory notes with their tax returns in order to receive the credit.  Upon receipt of their IRS refund, the investors would then send up to eighty percent of the refund to Calvert and Guido’s company.  Calvert and Guido used a portion of the money to pay off the tax preparers and kept the rest for themselves.  At this point, it is unknown whether the IRS will attempt to recover any of the ill-gotten money from individual taxpayers.

The key witness for the prosecution, Robert H. Anderson, was a prior co-conspirator in the tax credit scheme.  Anderson pled guilty in a previous lawsuit to charges related to his role in the fraud and was sentenced to thirty-seven months in prison.  Both Calvert and Guido were also named in the previous lawsuit.  Both men agreed to permanent injunctions barring them from any involvement in the tax credit program. The federal trial is expected to last approximately a month.  If found guilty of all ten counts of fraud and money laundering, both Calvert and Guido could each face up to ninety-five years in prison and be required to pay restitution.

Torts: Not always a bad dog? Then owners may be off the hook for the actions of their pets.

A plaintiff commenced an action seeking damages for injuries he sustained in a motorcycle accident when he attempted to avoid hitting the defendants’ dog, which had entered the road. The lower court denied defendants’ motion seeking summary judgment dismissing the complaint. The Supreme Court, Appellate Division, Fourth Department, however reversed the lower Court’s decision and granted the defendant’s request for dismissal.  The Court reasoned that it is well established that the negligence of the owners of a domestic animal is not a basis for liability for injuries caused by the, unless the owners knew or should have known that the animal had a vicious which includes a propensity to interfere with traffic. 

In the case at hand, it was undisputed that, on the date of the accident, the defendant closed the gate on the six-foot chain link fence surrounding defendants’ yard but failed to secure it and that the dog pushed open the gate and ran down the 100–foot driveway and into the road. However, the defendants established that the dog had never been unrestrained outside of the confines of their yard prior to that date and further, the defendants submitted plaintiff’s deposition testimony that he lived one-quarter mile from defendants’ house and that he passed defendants’ house at least twice per day and had never seen the dog prior to the date of the accident.  The Court concluded that the plaintiff failed to raise a triable issue of fact whether the dog had a propensity to interfere with traffic and therefore reversed the lower Court’s order and granted the motion dismiss the complaint.

Education – Children’s report cards and teacher comments are not admissible under business records exception to hearsay rule.

In an issue of first impression, the Family Court, Kings County, held that children’s report cards and teacher comments are not admissible under the business records exception to the hearsay rule.

The Court considered many factors in its decision and also into consideration that a child’s academic and social progress in school and the relative capacity of each parent to foster the child’s intellectual development are often major considerations in custody disputes, and evidence bearing on those issues is certainly relevant.

 The Court reasoned that before business records may be admitted as an exception to the hearsay rule, the proponent must establish specific foundational facts: (1) that the record be made in the regular course of business—essentially, that it reflect a routine, regularly conducted business activity, and that it be needed and relied on in the performance of the functions of the business, (2) that it be the regular course of such business to make the record, in other words, a double requirement of regularity—essentially, that the record be made pursuant to established procedures for the routine, habitual, systematic making of such a record, and (3) that the record be made at or about the time of the event being recorded—essentially, that recollection be fairly accurate and the habit or routine of making the entries assured.

 The Court concluded that while recording teacher grades and comments may be part of the business of a school, the grades and comments themselves are clearly hearsay and do not constitute an “act, transaction, occurrence or event,” within meaning of business records exception to hearsay rule; but rather, they are expressions of the subjective judgments of the teacher who determines or authors them, formulated over a period of time, and based on any number of factors.

Family Law: Mother entitled to a hearing on return of children who had been removed from her home and placed with their father

In the early morning hours of February 4, 2009, three children, then aged six years, four years, and nine months, respectively, were found by a police officer wandering the streets alone. The next day, February 5th, the New York City Administration for Children’s Services filed petitions in the Family Court, Queens County, alleging that the mother neglected her children as a result of this incident. The Family Court issued an order of protection prohibiting all contact between the mother and her children, with the exception of ACS-supervised visitation. The children were then paroled to the care of their father and his mother (the children’s paternal grandmother), with whom the father lived. On June 2, 2009, the mother orally requested a hearing pursuant to Family Court Act § 1028 for the return of her children. Ultimately, the Family Court denied the mother’s request for a Family Court Act § 1028 hearing on the ground that a hearing was not required because the children were paroled to the father’s care. 

The Supreme Court, Appellate Division, Second Department held that the Family Court’s finding of a legal distinction between a child’s “removal” from the home and placement in the custody of another parent, on one hand, and placement in the custody of a governmental agency, on the other hand, is illusory.  The Court reasoned that the removal of children from their mother’s home and temporary placement into the custody of their father, on an emergency basis, was a “removal” triggering a hearing on the mother’s application for return of the children, even though the children were not placed into government-administered foster care. The statute requiring a hearing upon the application of a parent of a child who had been temporarily removed did not make any distinction between removal and placement into the custody of another parent, on one hand, and removal and placement into the custody of a governmental agency, on the other hand. Read the Court’s Opinion.