Legal Feed

The Denver-based U.S. Court of Appeals for the 10th Circuit has ruled that federal authorities may withhold mugshots of federal prisoners from the public.

The ruling Wednesday puts the court in line with the Atlanta-based U.S. Court of Appeals for the 11th Circuit. Only the Cincinnati-based U.S. Court of Appeals for the Sixth Circuit has determined that prisoners’ booking photos must be turned over under the Freedom of Information Act.

The 10th Circuit case stems from a lawsuit filed in 2008 by the Tulsa World, challenging decisions by the U.S. Marshals Service and the Justice Department to withhold booking photos of six pretrial detainees. The World had argued that releasing the photos served the public interest in at least nine ways.

(1) determining the arrest of the correct detainee

(2) detecting favorable or unfavorable or abusive treatment

(3) detecting fair versus disparate treatment

(4) racial, sexual, or ethnic profiling in arrests

(5) the outward appearance of the detainee; whether they may be competent or incompetent or impaired

(6) a comparison in a detainee’s appearance at arrest and at the time of trial

(7) allowing witnesses to come forward and assist in other arrests and solving crimes

(8) capturing a fugitive

(9) to show whether the indictee took the charges seriously

The 10th Circuit, in a unanimous opinion written by Judge Paul J. Kelly Jr., ruled that disclosing the photos didn’t align with the intent of the Freedom of Information Act — namely, to inform citizens of a government agency’s adequate performance of its function.

“When the public interest is balanced against the privacy interest in a booking photo, Tulsa World’s request would not further the purpose of the FOIA,” Kelly wrote. Senior Judge Bobby R. Baldock and Judge Timothy M. Tymkovich joined him.

A lawyer for the World did not immediately respond to a request for comment. If the newspaper appealed, it’s anyone’s guess whether the Supreme Court would take the case.

Josh Gerstein at Politico, who has a report on Wednesday’s ruling here, noted that the high court declined last month to consider a Florida case raising the same issue.

We bring you some sad news for the California legal community, particularly for those involved in the battle over that state’s voter initiative banning same-sex marriage.

On Friday, M. Katherine Baird Darmer, a Chapman University School of Law professor and an active campaigner for marriage equality, died after falling from a building in Irvine. Officials said Tuesday that her death was a suicide, according to the Orange County Register.

A memorial service will be held on Saturday, Feb. 25, in Newport Beach, according to the Orange County Equality Coalition, an organization that Darmer helped found after the passage of Proposition 8 in 2008.

Words of Darmer’s death triggered an online outpouring of remembrances from colleagues, students and activists who called her a remarkable scholar, mentor and champion of civil liberties.

Here’s a selection:

“Katherine was our rock; she was the person who we turned to in our hour of need. She spoke out for us when we didn’t have a voice, and she made everyone listen. Her fearlessness gave us the courage to stand up, and for that we will be eternally grateful.”- Cas Gregory, former board chair, Orange County Equality Coalition

“Katherine was a truly wonderful person. She was a terrific teacher and scholar and a deeply committed activist who used her knowledge to make a real difference. Most of all, she was a terrific human being.”- Erwin Chemerinsky, Dean, UC Irvine Law School

“This is a tragedy. Katherine Darmer was one of the most inspirational teachers I ever had…  She changed my life.”- Mike Labeda, former student

A 1989 Columbia University law graduate, Darmer clerked for U.S. District Judge Kimba Wood in the Southern District of New York and for the late Judge William H. Timbers in the U.S. Court of Appeals for the Second Circuit. She spent four years as a litigation associate at Davis Polk & Wardwell, then worked as an assistant U.S. attorney in the Southern District from 1995 to 1999 prosecuting public corruption, gang and narcotics cases, according to her faculty biography.

In 1999, Darmer married fellow lawyer Roman Ernest Darmer II, according to a New York Times wedding announcement. Her husband is a partner at the Irvine office of Jones Day.

She arrived at Chapman in 2000, where she specialized in criminal and constitutional law.  Darmer co-edited the books “Civil Liberties vs. National Security in a Post-9/11 World” and “Morality and the Law.” Her legal writings included pieces on torture, civil rights and the legal landscape after Proposition 8.

“Her students, staff and faculty colleagues remember her as a passionate advocate for marriage equality and a vigorous opponent of discrimination based on gender or orientation,” Chapman University Chancellor Daniele C. Struppa said in a statement.  “She was a very effective teacher, because she brought her legal experiences, as well as her passion for justice, to the classroom.  I know I interpret the sentiment of all of you when I say that we will all miss her.”

Congress did not intend for the Volcker Rule restrictions in the Dodd-Frank Act to apply to venture capital funds, according to fifteen House Members. In a letter to the SEC and banking agencies, the House Members noted that Congress treated venture capital funds different than hedge and private equity funds in the legislation because of the unique characteristics of their investment model. Consistent with this intent, the House Members urged the SEC and other regulators to use the flexibility in the Dodd-Frank Volcker Rule provisions to avoid restricting access to venture capital funds and other types of illiquid funds.

Venture capital funds are uniquely different from hedge funds and private equity funds. They are not highly leveraged, have set fund terms, said the House Members, and are usually invested in private companies. These characteristics mean that investment in venture capital funds do not pose a danger to safety and soundness or create systemic risk.

Section 619 of Dodd-Frank, the codified Volcker Rule, limits financial institutions from investing in or sponsoring hedge funds and private equity funds. But Congress clarified that these statutory restrictions were not intended for venture capital funds. The text of the statute refers solely to hedge funds and private equity funds, specifically leaving out venture capital funds. The House Members reminded that the fact that Section 619 was not intended to apply to venture capital funds was affirmed by a colloquy between Senator Chris Dodd (D-CT) and Senator Barbara Boxer (D-CA) that took place as the Senate was debating the Dodd-Frank Act conference committee report.

According to then Senate Banking Chair Chris Dodd, the purpose of the Volcker Rule is to eliminate excessive risk taking activities by banks and their affiliates while at the same time preserving safe, sound investment activities that serve the public interest. It prohibits proprietary trading and limits bank investment in hedge funds and private equity for that reason. The colloquy between Chairman Dodd and Senator Boxer revealed that properly conducted venture capital investment will not cause the harms at which the Volcker rule is directed. (Cong. Record, July 15, 2010, S 5904-5905).

Section 619 explicitly exempts small business investment companies from the rule, and because these companies often provide venture capital investment, the intent of the rule is not to harm venture capital investment. In the event that properly conducted venture capital investment is excessively restricted by the provisions of Section 619, Chairman Dodd expects the appropriate federal regulators to exempt it using their authority under Section 619 (d)(1)(J).

Senator Boxer noted the crucial and unique role that venture capital plays in spurring innovation, creating jobs and growing companies. She said that it is not the intent of Congress that the Volcker rule should cut off sources of capital for technology startups, particularly in this difficult economy.

Never doubt the power that is Saturday Night Live political satire.

Last week, we told you that the Virginia House of Delegates passed a measure which would require women seeking an abortion to have an ultrasound, and that could likely mean a more physically invasive transvaginal ultrasound for women in the early stages of pregnancy. Gov. Bob McDonnell indicated his support for the law.

On Saturday, SNL’s Weekend Update ridiculed the Virginia General Assembly and the bill, with Amy Poehler saying “transvaginal” was her “favorite airline.” Weekend Update anchor Seth Myers also mocked the Virginia bill that declares life begins at conception.

Now, Gov. McDonnell has backed off his unconditional support for the ultrasound bill, according to the Washington Post. The governor’s staff and delegates were scheduled to meet Tuesday night on a compromise, after they learned that some ultrasounds could be more invasive than first thought, the Post noted.

McDonnell’s office said he would “review” the bill in its final form, if it is approved.

Supporters of the bill, such as Kathy Byron, a Republican delegate from Campbell, said that ultrasounds are recommended by both Planned Parenthood and federal abortion guidelines to determine gestational age, which supports the state’s existing informed consent law, according to the Richmond Times-Dispatch.

The legislation has gotten national attention beyond the SNL moment. The Rachel Maddow Show and PoliticsNation with Al Sharpton both featured the issue on their programs, and Jon Stewart on Tuesday likened the procedure to women getting “a TSA patdown inside their vagina.”

Associated Press

Special courts are very in right now, whether for the mentally ill, drug addicts — or pet owners. San Antonio, Texas, seems to be the pioneer of tribunals of the latter breed. According to the WSJ’s Nathan Koppel:

Municipal Court Judge Daniel Guerrero carefully considers alleged crimes involving canines of all sort—Labradors, Chihuahuas, Shih Tzus—and even the occasional cat, whose owners must appear in court to defend charges that carry fines ranging from hundreds to thousands of dollars.

San Antonio’s animal court may be unique in the U.S., legal experts say. City officials decided it was needed to crack down on recurring civic problems that weren’t getting requisite attention on regular courts’ dockets, such as dog bites, stray pets and residents who fail to register and vaccinate their animals.

Joe Angelo, the interim director of San Antonio’s Animal Care Services department, told Koppel the court is part of a larger effort to change the climate in the city of 1.3 million, where more than 3,000 residents annually are bitten by dogs and more than 150,000 stray dogs roam city streets on any given day.

The city has collected more than $250,000 in fines against pet owners since the court was formed. Critics say the city is going after minor offenses.

“Why are they wasting taxpayer money on this nonsense?” said Ramal Shaw, who faces charges that his Chihuahua, Phillie, bit his 6-year-old son, who had complained to his school nurse. It was only a scratch, Shaw said, adding that his son was just trying to “play hooky” from class.

Big tab: Taxpayers have advanced nearly $50 million in legal payments to defend former executives of Fannie Mae and Freddie Mac in the three years since the government rescued the giant mortgage companies. NYT, WSJ

DSK, in the spotlight again: Former IMF chief Dominique Strauss-Kahn was taken into custody for questioning over allegations of a prostitution ring operating out of the northern French city of Lille and reaching as far as Washington. His lawyers have stated repeatedly their client wished to be heard by Lille prosecutors “as quickly as possible,” saying they wanted to put an end to a “press lynching.” His lawyers weren’t available to comment Tuesday. WSJ

Paulson sued: A former investor in John Paulson’s hedge funds is suing Paulson’s firm, alleging it failed to conduct sufficient due diligence into Sino-Forest Corp. before and after purchasing shares of the Chinese forestry company, an investment that cost Paulson & Co. about $500 million last year. Late on Tuesday, Paulson & Co. sent a letter to its investors addressing the suit. “We firmly believe that the lawsuit is completely without merit and that there is no basis in law or fact for the action.” WSJ

No RICO: In another setback to efforts by the trustee seeking to recover money for victims of convicted Ponzi-scheme operator Bernard Madoff, a federal judge has thrown out some claims against Italian bank UniCredit SpA and three other affiliated defendants in a multibillion-dollar lawsuit. WSJ

No respite: State courts across the United States are bracing for another year of austerity as a new budget cycle threatens once again to limit funding for the courts. NLJ (sub req)

Starting April 2, the UK Financial Services Authority will realign into a twin peaks model of regulation paralleling the new financial regulatory system that will take effect next year. In remarks to the British Bankers Association, FSA CEO Hector Sants said that for the rest of the year the FSA will move as close as possible to the new style of regulation outlined in the government’s White Paper. Namely, that firm- specific supervision for banks, insurers and major investment firms will be carried out by two separate entities, one for prudential and one for conduct regulation.

The White Paper announced a plan to transfer prudential supervision for banks, insurers and major investment firms to a new Prudential Regulation Authority, and rename the FSA the Financial Conduct Authority, which will focus on consumer protection and market regulation. These actions will create a twin peaks style regulatory model in the UK. The current expectation is that the move to the new structure will occur early in 2013, noted the official, but this timetable is dependent on the successful passage of proposed new legislation, the Financial Services Bill, which was introduced in late January and is currently moving through the legislative process.

Meanwhile, the FSA must operate within the current legal framework of the Financial Services and Markets Act and thus cannot entirely replicate the approach set out in the White Paper. However, Mr. Sants emphasized that the FSA will move as close as possible to that model in order to ensure that the cutover to the actual oversight by the PRA and FCA is as smooth as possible.
Under the new model, there will be two independent groups of supervisors for banks, insurers and major investment firms covering prudential and conduct. All other firms, such as those not dual regulated, will be solely supervised by the conduct regulators. The supervisors will make their own, separate, set of regulatory judgments against different objectives.

In addition, under the doctrine of independent but coordinated regulation, the conduct and prudential regulators will coordinate internally to maximize the exchange of information which is relevant to their individual objectives. But they will act separately when engaging with firms.
The FSA will retain the principle of seeking to ensure that regulatory data is only collected once. In that regard, the common, current data infrastructure will be retained.

More broadly, the FSA official said that the move to twin peaks is an opportunity to drive home and further embed the move to forward-looking, proactive, judgment-based regulation. The regulator will move from the old style reactive approach to the new style proactive approach. The essence of a judgment-based approach is a willingness to intervene when the regulator decides that the outcomes will, in the future, be at variance to its mandate, even if the firm does not agree. This type of proactive intervention needs to be proportionate and justified.

The objective of the prudential group will be closely aligned with that of the coming Prudential Regulatory Authority. The overarching objective is to seek to ensure the safety and soundness of firms and to avoid disorderly failure with systemic consequences.

Similarly, the conduct group’s objective will be aligned as closely as possible with that of the Financial Conduct Authority. The overarching aim here is to ensure that markets work well by protecting consumers and protecting and enhancing the integrity of markets. Essentially, this can be distilled into three objectives, said Mr. Sants, a fair deal for consumers, fair and resilient markets, and minimizing the possibility that firms may be used for financial crime. The new conduct group within the FSA will not, however, be required to take into account the new responsibilities and powers that the pending legislation is proposing for the FCA. .

Finally, the senior official said that the new regulatory approach will abolish box ticking regulation, which was rooted in the old FSA’s conduct agenda and the days of better regulation and light touch regulation, which essentially meant that regulators were seeking to avoid second guessing management. The FSA believed that it would be sufficient to give consumers risk information at the point of sale and to seek to ensure that firms could demonstrate that they had the right systems and controls in place to ensure consumers were treated fairly.
This focus on ensuring firms had the right systems and controls and right management information led to a proliferation of requests and to the regulator being swamped by data and information. The focus was not on the outcomes experienced by consumers but on the firm’s controls. The official emphasized that in future the focus will be on whether the firms’ judgments and in particular their business models deliver good outcomes for consumers.

Supreme Court justices seemed pretty sure Tuesday that they knew how to interpret the meaning of the word “interpreter,” signaling they are likely to rule in favor of a former Japanese baseball player in a case involving translation costs.

Kouichi Taniguchi, a Japanese citizen, brought the suit in 2008 after falling through a deck at a hotel in Saipan, a U.S. territory. When he lost, the hotel tried to make him pay the $5,257.20 cost of translating written documents such as medical records, even though U.S. law says only that the winner in such cases can recoup costs of “interpreters” and “interpretation services.” (Read our preview here.)

At arguments Tuesday, justices kept returning to the literal meaning of “interpretation,” which most dictionaries define mainly as the rendering of oral remarks into another language. Justice Samuel Alito said he doubted that even 2% of uses of “interpreter” could be interpreted as referring to the translation of written documents.

Justice Antonin Scalia said translations of literary works such as “War and Peace” may credit the translator with words such as “John Smith, trans.” but never “John Smith, int.”

Justice Scalia drew laughter when he offered a suggestion to explain why lower courts have sometimes allowed the billing of translation costs. “Stupidity, madam, sheer stupidity,” Justice Scalia said, quoting 18th-century author Samuel Johnson.

Justice Elena Kagan conceded that a language expert’s role might be ambiguous in some cases, such as when the expert is shown a document in court and asked to read a translation aloud. But she called them “marginal” cases and said, “The fact that there are some few minutes in every 24-hour period where it’s hard to say that something is night or day does not mean that there is no night and that there is not day.”

The lead lawyers arguing Taniguchi’s side had never met their client and appeared to view the case more as an intellectual pursuit than a way to rack up fees. Douglas Cushnie, a Saipan lawyer who initially took the case and did meet Mr. Taniguchi, declined to discuss what he was being paid, but said in a brief interview, “It’s an issue that should be resolved and we decided to try to resolve it.”

Interpreting the leanings of Supreme Court justices based on oral arguments is a risky business, but Tuesday’s case left little doubt that the justices were prepared to translate Taniguchi’s wish to save about $5,000 into reality. A decision is expected by July.

For those wishing to draw their own interpretation, the full transcript of Tuesday’s court session is available here.

Are Grutter v. Bollinger‘s days numbered?

In the 2003 decision, the court ruled 5-4 that racial diversity in higher education qualified as a compelling state interest, essential finding when the government classifies individuals by race.

But in 2007, a year after Justice Samuel Alito replaced Justice Sandra Day O’Connor (who authored the majority opinion Grutter), he joined four other conservatives in a ruling that barred public-school districts from promoting diversity through race-conscious pupil-assignment plans.

The court is revisiting the issue of affirmative action in state-college admission, this time in a case involving the University of Texas at Austin, which said it based its policy on Grutter, the WSJ’s Jess Bravin reports. The Supreme Court agree to hear the case Tuesday, but the arguments aren’t expected until the court’s 2012-13 term, beginning in October.

Both sides see the case as a vehicle for narrowing or even overruling O’Connor’s opinion in Grutter, according to Bravin.

The university seized on what it said were procedural flaws in the case to urge the justices to take a pass, and the Obama administration tried to kill the case in the lower courts, filing a brief on UT’s side at the Fifth Circuit.

“I hope the [Supreme] Court will decide that all future UT applicants will be allowed to compete for admission without their race or ethnicity being a factor,” Fisher said in a statement issued by the Project on Fair Representation, a Washington-based foundation that opposes race-conscious government actions and has underwritten her lawsuit.

UT said in a statement that it’s “firmly committed to a holistic admissions policy that is narrowly tailored to achieve the educational benefits of a diverse student body.”

Justice Elena Kagan, who was solicitor general when the Obama administration filed the Fifth Circuit brief, recused herself from the case.

Metro Weekly has news of the next step in the Proposition 8 case:

Charles Cooper, the lead attorney for the proponents of Proposition 8, tells Metro Weekly that the proponents of the California marriage amendment will be asking the full U.S. Court of Appeals for the Ninth Circuit to review the three-judge panel decision issued on Feb. 7 holding that Proposition 8 is unconstitutional.

Earlier this month, the divided Ninth Circuit panel ruled that California’s gay marriage ban was unconstitutional. Judge Stephen Reinhardt, writing for the majority, found that the proponents of the ban didn’t offer a rational basis for stripping same-sex couples of the right to marry. He but declined to wade into the broader issue of whether the Constitution guarantees gays and lesbians the right to marry.

What happens now? The Ninth Circuit will consider whether to rehear the case en banc. In a normal (read: less massive) circuit, hearing a case en banc means all judges on the court sit at once. The Ninth Circuit is too big for that, so a panel of 11 judges would rehear the case.

What’s the strategy? Wiser people that we have suggested that if the Ninth Circuit reheard the case, it could rule broadly that gays and lesbians have a Constitutional right to marry. That would make the case a much bigger target for the Supreme Court — and perhaps more dangerous for proponents of gay marriage.

The Times’ Adam Liptak put it this way in a recent column: Prop 8 supporters “could lose more thoroughly and so elicit a decision that the Supreme Court would feel compelled to hear and be more likely to reverse.”

As it stands, the ruling is specific to California. So there’s a chance the Supreme Court would see it as a local problem not worthy of its time.

“I’ve always thought that the smart thing to do is to win this case for California and to keep this case out of the Supreme Court,” said Nan Hunter, a law professor at Georgetown, told Liptak.  “In this court at this time, it will be very tough to sell a challenge” to the roughly 40 states that prohibit same-sex marriage altogether.

If Paramount Pictures gets its way, the latest “Godfather” sequel novel will sleep with the fishes.

The film studio has sued the estate of Mario Puzo, arguing that the heirs of the author of the “Godfather” were tarnishing the reputation of the studio’s film trilogy by publishing a pair of sequel novels.

The lawsuit, filed Friday in Manhattan federal court, seeks damages and to prevent publication of a Godfather novel set for release this year, claiming that it would be a threat to the “legacy and integrity” of Paramount’s film franchise.

Puzo sold the studio the rights to the Godfather story in 1969, the lawsuit said. The first two Godfather films produced by the studio both received the Academy Award for Best Picture.

Paramount claims that after Puzo’s death in 1999, the studio agreed to allow his estate to publish a a single novel by another author continuing the story. That novel, “The Godfather Returns” was released in 2004.

But Paramount, a unit of Viacom Inc., is now seeking damages from the Puzo estate, claiming that it violated its rights to the franchise by publishing a subsequent, unauthorized sequel in 2006, and planning another.

“The Godfather’s Revenge” was released in 2006 to “mediocre reviews” and “weak sales,” the lawsuit said. “The Family Corleone” is set for release this year.

“Far from properly honoring the legacy of The Godfather, the unauthorized The Godfather’s Revenge tarnished it,” Paramount said in the complaint. The publication of another novel would be a violation of Paramount’s copyright, the lawsuit said, and “a threat to the legacy and integrity of the Godfather franchise.”

Bert Fields, an attorney representing the Puzo family, called the complaint “utter hogwash.” He said the 1969 agreement between Paramount and Mario Puzo explicitly excluded book publishing rights.

“The Puzo estate repeatedly told [Paramount] they were about to sign a publishing contract” for the sequel novels, Fields said. “They made no protest.”

“The studio has tremendous respect and admiration for Mario Puzo, whose novel The Godfather was acquired in 1969 and helped spawn one of the most celebrated film trilogies of all time,” a Paramount spokeswoman said in an emailed statement. “We have an obligation to and will protect our copyright and trademark interests.”

References to the Financial Industry Regulatory Authority (FINRA) replace existing references to the National Association of Securities Dealers (NASD) throughout the Illinois securities rules, to reflect the official name of the organization that now regulates broker-dealers and investment advisers, effective February 8, 2012. Other adopted changes by the Securities Department include restating that the CRD, not the IARD, is the electronic database for receiving investment adviser representative filings and fees; specifying that new and re-registration applications for investment advisers or IA branch offices, along with re-registrations for investment adviser representatives and re-notifications for federal covered investment advisers, annually expire at the end of the day on December 31; amending the language of the grandfathering provision of the exam requirement for investment adviser principals and representatives, from “on the effective date of this section” to “on May 1, 2000,” replacing legalese, e.g., “hereunder,” “such,” and “which,” with plain English, e.g., “the” or “that,” and substituting current terms or dates for outdated references.

Raise your hand if you saw this coming. Yup, that’s all of you.

Late Friday, the U.S. Supreme Court blocked Montana from enforcing a state law banning corporate political spending, after the Montana Supreme Court ruled in late December that the law could stand, even in the face of the 2010 Citizens United decision, which struck down limits on corporate and union electioneering. The U.S. Supreme Court’s stay order can be seen here.

While the Court hasn’t yet granted review of the case, in which a group called American Tradition Partnership challenged the Montana ruling, two Justices have already gone on record saying it could be time for Citizens United to be reconsidered.

Justice Ruth Bader Ginsburg said the case “will give the Court an opportunity to consider whether, in light of the huge sums currently deployed to buy candidates’ allegiance, Citizens United should continue to hold sway.” Ginsburg was joined by Justice Stephen Breyer in her statement. Ginsburg and Breyer were among the four dissenters in the 2010 case.

Ginsburg also said: “Montana’s experience, and experience elsewhere since this court’s decision in Citizens United v. Federal Election Commission, make it exceedingly difficult to maintain that independent expenditures by corporations ‘do not give rise to corruption or the appearance of corruption,’” WSJ noted.

American Tradition Partnership asked the Court to see its application as the equivalent as a petition asking for reversal of the Montana Supreme Court decision, but the justices granted stay “pending the timely filing and disposition of a petition,” meaning the Partnership must submit a more complete request for review, which they have until the end of March to do.

Montana Attorney General Steve Bullock, who represented the state in defending the ban on corporate political spending, issued a statement following the stay decision, saying he is “encouraged that the Supreme Court will give this careful consideration,” Huffington Post reported.

It’s unlikely the Supreme Court would have a final ruling on the case in its current term, according to SCOTUSblog. That would allow corporations to spend unlimited amounts of money in Montana during the state’s political campaigns this year.

The Department of Justice has thrown in the towel in the hotly-contested “FCPA sting case.”

On the heels of two trial setbacks, federal prosecutors said in a motion Tuesday that they wouldn’t  pursue the indictments against the case’s remaining 16 defendants.

The case’s third trial, the product of an elaborate Federal Bureau of Investigation sting operation targeting corruption in the military products industry, was scheduled to begin on March 13. The Justice Department initially portrayed the case as an example of its robust efforts to enforce the Foreign Corrupt Practices Act, which prohibits bribes to foreign officials to win business.

But earlier this month, Criminal Division Chief Lanny Breuer and Washington, D.C., U.S. Attorney Ronald Machen said they were evaluating whether or not to move forward with the case’s third trial. The department said it would drop the case after careful consideration, in Tuesday’s two-page motion.

“The government has carefully considered (1) the outcomes of the first two trials in which, after extensive deliberations, the juries remained hung as to seven defendants and acquitted two defendants, and one defendant was acquitted on the sole charge against him pursuant to Fed. R. Crim. P. 29; (2) the impact of certain evidentiary and other legal rulings in the first two trials and the implications of those rulings for future trials, including with respect to Rule 404(b) and other knowledge and intent evidence the government proposed to introduce; and (3) the substantial governmental resources, as well as judicial, defense, and jury resources, that would be necessary to proceed with another four or more trials, given that the first two trials combined lasted approximately six months. In light of all of the foregoing, the government respectfully submits that continued prosecution of this case is not warranted under the circumstances.”

A Justice Department spokeswoman declined to comment further.

The trials are the product of a complicated undercover operation. The investigation’s targets were asked to participate in a purported scheme to pay a $1.5 million bribe to the Gabonese defense minister in return for what undercover investigators said was a $15 million contract to outfit his country’s national guard.

The contract was a ruse, with undercover FBI agents posing as representatives of Gabon’s defense minister and no officials from the West African nation involved. In total, 22 businesspeople, mostly owners and executives of small military-equipment companies, were charged as a result of the sting. Three people have pleaded guilty.

In January, a Washington, D.C.,  jury acquitted two defendants in the case’s second trial. A week later, U.S. District Judge Richard Leon declared a mistrial after the jury deadlocked on the charges against the remaining three defendants. The mistrial was the same result Leon handed the Justice Department last summer after another jury deadlocked in the case’s first trial.

A hearing is scheduled for this afternoon.

Delaware Court of Chancery

Judge Judy may look like a judge, but she’s really an arbitrator. Chancellor Leo Strine Jr. and his colleagues on the Delaware Court of Chancery may act like arbitrators sometimes, but they’re judges, through and through.

We’re not directly comparing the two, or maybe we are; the point is that playing judge is generally accepted, but the question of whether a real judge, paid by taxpayers, should be able to run secret arbitrations is unsettled.

Peg Brickley reports in today’s WSJ on a legal challenge to the high-profile business court’s experiment with arbitration. The judges are facing a lawsuit by a citizens group questioning the legality of judge-run arbitrations and accusing the court of conducting secret proceedings.

Lawyers involved in the Delaware case say the state is the only jurisdiction in which companies bring cases for arbitration before a sitting judge. The Delaware Coalition for Open Government, which filed the lawsuit in October, says under the Delaware system, there are no public records that say how many cases are being arbitrated, what subjects are being decided or how much of the court’s resources are being used in arbitration. The lawsuit claims the arbitration violate the public’s constitutional right of access to judicial proceedings.

The group filed the lawsuit in October in federal court in Delaware, but the judges recused themselves, sending the case to U.S. District Judge Mary McLaughlin in Philadelphia.

The Chancery judges filed papers in the case saying companies would take private disputes to private arbitration panels outside the court if the procedure was opened to public view.

Lawrence Hamermesh, who represents the Chancery judges, says corporations can already choose arbitration over litigation. ”The hope is that people who have decided to arbitrate will say that Delaware’s chancellors are pretty sophisticated and we should use their system,” Hamermesh says.

Paul Kirgis, a professor of alternative dispute resolution at St. John’s University School of Law, said the process steps “toward a two-tier court system, in which the wealthy get secret justice on a fast track, while others [get] messy public processes,” says Paul Kirgis, a professor of alternative dispute resolution at St. John’s University School of Law.

FCPA: A Sunday morning email informed Japanese gambling tycoon Kazuo Okada that Steve Wynn was dumping him and that Wynn Resorts Ltd. was forcibly buying out his 20% stake in the company at a big discount.

The move came after former FBI Director Louis Freeh and his investigative firm concluded that Okada had made improper payments to gambling regulators in the Philippines, potentially in violation of the Foreign Corrupt Practices Act.

On Monday, Okada said he would sue to block the board’s “outrageous” action and accused it of operating like a “star chamber.” A spokesman for Wynn Resorts followed with a terse statement: “Mr. Okada’s challenges to the board process are a desperate attempt to divert attention from his misdeeds.” WSJ

Following the business south: Mexico’s growing economy is attracting renewed attention to the country by foreign law firms looking to expand business. Global law firm DLA Piper became the latest to enter the region by taking over the 14-lawyer Mexico City office of Texas-based law firm Thompson & Knight LLP last week. WSJ

Prescription painkillers: The federal government alleges Cardinal Health Inc. and CVS Caremark Corp. were aware of high-volume orders of prescription painkiller oxycodone shipped to two pharmacies in Florida, in a closely watched case probing how much responsibility companies bear for a growing drug-abuse problem. The companies said they support measures taken by law enforcement to combat drug use but have denied wrongdoing. WSJ

Man arrested in robbery of Justice Breyer: Police in the Caribbean country of St. Kitts and Nevis charged Vedel Browne, 28 years old, with the robbery at the justice’s vacation home. A lawyer for Browne, who works as a gardener and painter, could not be reached. WSJ

Higher crime and fewer charges: The Justice Department files charges in only about half of Indian Country murder investigations and decline nearly two-thirds of sexual assault cases, according to new federal data. Prosecutors say they turn down most reservation cases because of a lack of admissible evidence. NYT

Associated Press

Monsignor William Lynn

Tuesday, Feb. 21

• The Supreme Court will hear arguments in Freeman v. Quicken Loans Inc. (10-1042) and Taniguchi v. Kan Pacific Saipan Ld. (10-1472)

• Jury selection is scheduled to begin in Philadelphia in the trial of Monsignor William Lynn, who was the Archdiocese’s point person for allegations of clerical abuse from 1994 to 2004. Prosecutors say Lynn criminally endangered two young men — who were allegedly raped when they were 10 and 14 — by looking the other way. He denies the charges.

Wednesday, Feb. 22

• The Supreme Court will hear arguments in U.S. v. Alvarez (11-210) — a case over the constitutionality of the 2005 Stolen Valor Act, which made falsely claiming a military honor or decoration a crime — and Blueford v. Arkansas (10-554).

• The U.S. Court of Appeals for the Second Circuit will hear oral arguments at 10 a.m. in a lawsuit filed by the ex-wife of SAC Capital Advisors founder Steven A. Cohen. Patricia Cohen alleges he hid assets during their divorce proceedings. A lower court dismissed the case in March 2011. (11-1390)

• Thursday, Feb. 23

At 4 p.m., U.S. District Judge Jed Rakoff in the Southern District of New York will preside over a pretrial conference in Madoff trustee Irving Picard’s case against the New York Mets owners Fred Wilpon and Saul Katz. Pickard has accused them of ignoring warning signs of the Ponzi scheme. The men, through their lawyers, have said they had no inkling of the scheme. (1:11-cv-03605)

• Friday, Feb. 24

The Second Circuit will hear oral arguments beginning at 10 a.m. in a dispute between Porsche Automobil Holding SE and several hedge funds over alleged market manipulation in its bid to merge with Volkswagen AG. (11-397)

Got something to add? Email us at joe.palazzolo@wsj.com

The Amsterdam Court of Appeal approved settlement agreements of a securities fraud action for non-US exchange purchasers because the settlements are reasonable in all aspects, are in the best interests of all non-US shareholders, and fully satisfy the requirements under Dutch law for approval. A US federal judge had earlier approved a settlement agreement with US exchange purchasers. (SCOR Holding (Switzerland) AG Securities Litigation, Amsterdam Court of Appeal, Jan. 17, 2012)

During the period of 7 January 2002 through and including 2 September 2004, Converium Holding AG, which is now known as SCOR Holding (Switzerland) AG) announced reserve increases in its North American business of approximately USD 526 million, including a 20 July 2004 announcement that it would take a charge of up to USD 400 million to increase reserves in its North American business. The price of the company’s common stock declined after the 20 July 2004 announcement. The action alleged that the company and certain of its officers allegedly disseminated false and misleading statements during this period of time regarding the company’s financial condition, including the adequacy of loss reserves in its North American business, which alleged misstatements and omissions purportedly had the effect of artificially inflating the price of the company’s securities.

The total amount that is available under the agreements for the non-US exchange purchasers is (before deduction of costs and fees) USD 58,400,000. That sum is proportionally considerably lower than the settlement payment for the smaller group of US exchange purchasers (USD 84,600,000), who found themselves in a comparable position to the non-US exchange purchasers insofar as it concerns their alleged loss. According to petitioners, the justification for this difference may be found in the fact that the US federal district court (SDNY) excluded the non-US exchange purchasers from participation in the class, so that they have no effective course of justice for validating their potential legal claims.

The Amsterdam panel noted that the events to which the compensation pertains took place in the period 2002-2004 and, since then, outside of the United States no litigation has been brought to obtain compensation. Petitioners, submitting reports by experts, have pointed to the various factual and legal circumstances that impede obtaining such compensation in court proceedings outside of the United States. Leaving aside whether and to what extent those circumstances render the acquiring of compensation impossible, the appeals court found it plausible that they will form a real obstacle for many non-US exchange purchasers to
have their potential claims awarded in court outside of the United States.

In view of their being excluded from participation in the US class, continued the panel,it is not plausible that they would still have effective remedies to this end in the United States. It may thus be assumed that the legal position of the non-US exchange purchasers is essentially different to that of the US exchange purchasers. This also means that there is no unacceptable difference in the treatment of equal cases.

The appeals court also pointed out that non-US exchange purchasers who still want to bring their claims to court have the possibility of opting out of the binding nature of the agreements by issuing an opt-out statement, so that they are at liberty to bring individual litigation. However, it is more plausible that in view of the time and the costs and the risks that are associated with conducting individual litigation many of the non-US exchange purchasers will not bring litigation and therefore would not receive any compensation at all if the settlement agreements are not approved. Moreover, the non-US exchange purchasers will in relative terms, certainly in comparison with conducting individual litigation, receive the awarded compensation with ease and speed and against no or very mincosts.

It is critical to ensure that the final regulations implementing the Dodd-Frank provisions on the disclosure of payments by resource extraction issuers are strong and robust and in keeping with Congressional intent, said Bill Gates in a letter to the SEC. Mr. Gates is particularly interested in these regulations in light of the report on financing for development that he presented to G20 leaders last year in which he referred to the U.S. government's important lead role in enacting legislation requiring exchange-listed mining and oil companies to disclose payments to governments and recommended that other G20 countries follow the U.S. government's lead and endorse legally binding transparency requirements. In his view, transparency of financial flows is critical to ensuring that valuable natural resources in Africa and elsewhere are transformed into public benefits.

Section 1504 requires companies to report the type and total amount of payments made for each project as well as the type and total amount of such payments made to each government.

The legislative intent of Section 1504 is clear, posited Mr. Gates, to make publicly available and easily accessible the detailed information on the payments companies engaged in the commercial extraction of oil, gas, and mining resources made to governments around the world, country by country, project by project, and payment type by payment type.

These provisions are consistent with and should reinforce the U.S government's long-standing policy against corruption, such as the Foreign Corrupt Practices Act, which details the obligations of corporations doing business in the U.S. to refrain from the bribery and corruption of overseas officials.

According to Mr. Gates, a primary goal for the disclosure of payments by resource extraction issuers is to make this information available to citizens when their own government denies them access. It is in the most secretive jurisdictions that corruption, poverty, and instability flourish, he noted, and the risk to investors is greatest. He stressed that any exemption from reporting payments to governments that object to such disclosure would defeat a primary purpose of the Dodd-Frank provision.

It is also important to seek disclosure below the country level. In his view, project level reporting will give both citizens and investors valuable information. Defining the term "project" in the regulations as activities in a particular geologic basin or province would be of limited use to both citizens and investors. This concept also has no relation to how companies actually make payments to governments. Royalty rates, tax payments, cost recovery, tax holidays, and the like are defined in laws, leases, and licenses, not by geologic basin. Defining projects in an artificial manner would increase compliance costs while greatly reducing the benefits to users, he noted, and would require companies to create new databases
unrelated to how they currently pay most taxes.

Finally, and more broadly, Mr. Gates said that the SEC has a mandate to implement final regulations reflecting the intent and reporting requirements established by. Congress, adding that such regulations would be consistent with emerging international practice, and reinforce a competitive and level playing field for U.S. corporations and foreign companies.

In a letter to the European Securities and Markets Authority, the Managed Funds Association urged ESMA to provide additional flexibility in the technical standards implementing the EU Regulation restricting transactions in short sales and credit default swaps. The Regulation, (2010) 0482, was approved recently and will be immediately and directly applicable in all Member States from November 1, 2012, with no possibility for Member State regulators to interpret or implement the Regulation in a way which fits local circumstances. With that in mind, the MFA asked that ESMA be given time to consult with market participants on the issues and seek additional relevant data, such as the frequency of settlement fails for short sales. The letter was signed by former US Rep. and House Capital Markets Subcommittee Chair Richard Baker, who is currently MFA President.

The Regulation is intended to harmonize the rules on short selling and credit default swaps and thereby ensure that the EU internal financial market functions correctly. Under the Regulation, a person may only enter into a short sale of a share admitted to trading on a trading venue where one of the following three conditions is met. First, the person has borrowed the share or has made alternative provisions resulting in a similar legal effect. Second, the person has entered into an agreement to borrow the share or has another absolutely enforceable claim to be transferred ownership of a corresponding number of securities of the same class so that settlement can be effected when it is due. Third, the person has an arrangement with a third party under which that third party has confirmed that the share has been located and has taken measures vis-à-vis third parties necessary for the person to have a reasonable expectation that settlement can be effected when it is due.

In its comments, the MFA accepted that, in the case of shares, information on the exact percentage of holding and equivalent number of shares would provide competent authorities with useful information as well as an opportunity to conduct checks on the accuracy of calculations. In this regard, MFA broadly agrees with the format of the net short position fields in the Notification Form for Net Short Positions annexed to the draft technical standards.

However, the MFA believes that, for the purposes of public disclosure, the net short position size should be rounded down to one decimal place rather than two, as suggested in the draft. This approach would follow the language and the legislative intent of Article 6 of the Regulation more closely. The thresholds contained in Article 6 are expressed in one decimal point format, said the hedge fund association, which indicates that the legislative intent was to monitor the variations of 0.1% and not positions in between. ESMA did not identify any public policy reasons as to why disclosure of position in two decimal point format would be preferable. Thus, the MFA believes that it would be disproportionate for ESMA to require public disclosure in that format.

The MFA agreed that there should be one standard form for public disclosure of information on significant net short position in shares. Similarly, the association agreed that there should be one standard format for notifying relevant competent authority for each type of instrument.

The MFA is concerned with the binary nature of the assessment of whether a share is a “liquid share” and thus whether it falls within the Standard Same Day Locate Confirmation and Measures or the Liquid Shares Locate Confirmation and Measures. In the MFA’s view, these should be collapsed into what is currently proposed to be the Liquid Shares Locate Confirmation and Measures, but with a different name to remove the reference to Liquid Shares.

In addition, the MFA believes that the proposed definition of a “liquid share” from the Market in Financial Instruments Directive (MiFID) would not be appropriate in the context of locate arrangements. The liquid shares concept in MiFID was introduced for the purposes of pre- and post-trade transparency, such as provisions relating to disclosure of firm quotes in liquid shares and publication of share turnover statistics. In the context of short sale transactions and the trading of securities in general, however, what may be considered to be liquid can change from day to day. For example, a share that may be liquid under the MiFID definition may in fact be extremely illiquid at the time of the short sale transaction due to a merger announcement or other corporate event.

As a practical matter, reasoned the MFA, the approach that a locate provider uses, such as a prime broker in relation to a hedge fund, is fundamentally the same regardless of liquidity of the relevant shares. There is no simple line that can be drawn between liquid shares and illiquid shares; instead, there is a spectrum with liquid shares at one end, then hard to borrow shares and finally extremely hard to borrow shares at the other end.

A useful indicator of where the share falls in that spectrum is the cost that the locate provider charges the investor for the locate, which reflects the cost of borrowing such shares from other parties in order for the locate provider to satisfy its obligation to the investor. The MFA believes that the locate provider should make the assessment of the relative liquidity or illiquidity of shares available to it, to settle an investor’s sale, whenever it provides a locate to an investor. In doing so, the locate provider should have regard to the relevant criteria, including the cost that the locate provider is charging the investor and the daily sources of supply of such shares available.