Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Posts Tagged ‘Due process’
Jun 25

Appeals Court Casts Doubt on Acceptability of ‘Obey-the Law’ Injunctions

We recently blogged about the recent decision of the U.S. Court of Appeals for the 11th Circuit in Securities and Exchange Commission v. Goble, 2012 WL 1918819 (11th Cir. May 29, 2012).  There, we discussed the appeals court’s limitation on the reach of the concept of “securities fraud” under Section 10(b) of the Exchange Act and Rule 10b(5).

Another aspect of that case is also quite noteworthy and may have an impact on many corners of white-collar criminal law. In the Goble case, the court vacated an injunction that simply tracked the language of the securities laws in defining what the defendant was barred from doing. This kind of injunction is often termed an “obey-the-law” injunction.

The court wrote: “Goble correctly identifies these paragraphs as an “obey-the-law” injunction and is rightly skeptical of their validity. As the name implies, an obey-the-law injunction does little more than order the defendant to obey the law. We have repeatedly questioned the enforceability of obey-the-law injunctions not only in the context of securities cases but other cases as well.”

The appeals court pointed out that any federal court injunction must comply with the requirements of Rule 65 of the Federal Rules of Civil Procedure:

“Glaringly absent from the SEC’s brief is any discussion explaining why the district court’s injunction complied with the requirements of Rule 65. Rule 65(d)(1) states that ‘Every order granting an injunction and every restraining order must: (A) state the reasons why it issued; (B) state its terms specifically; and (C) describe in reasonable detail — and not by referring to the complaint or other document—the act or acts restrained or required.’ Fed. R. Civ. P. 65(d)(1). We have never said that a court may simply ignore these requirements because it is entering an injunction in a securities case.”

The key issue that the appeals court pointed out is that an injunction requires a certain amount of specificity, so that the defendant is fully on notice about what he can or cannot do under the order.

“Plainly,” the court wrote, “Goble would need to look beyond the four corners of the district court’s injunction in order to comply with its strictures. The mere cross-reference to provisions of the United States Code and Code of Federal Regulations does not specifically describe the acts addressed by the injunction. And, without a compendious knowledge of the codes, Goble has no way of understanding his obligations under the injunction.”

This decision may open up new lines of argument for defendants in white-collar cases, and not only in securities actions. Since broad injunctions that do little more than track a statutory prohibition can be subject to challenge, defense attorneys may be able to argue convincingly that an injunction should be more specific and more narrowly tailored to a defendant’s past conduct.


To contact Ifrah Law’s leading securities fraud attorneys, visit IfrawLaw.Com or call (202) 524-4140.   

posted in:
Civil Remedies
Sep 07

Private Lawyers on Contract to Represent States: Is That Fair?

What do a medical malpractice victim and the Kentucky Attorney General have in common? The same lawyer representing them.

A fact little known to the public is that a growing number of state government enforcement actions are not being litigated by state-employed attorneys but rather by private lawyers working for the state on contingency fee bases. While the stakes may not seem as high as in a criminal matter, an attorney with the color of state authority, and with a direct financial interest in the outcome of a case, can be daunting. Though challenged by some private parties, this reality is likely to continue.

The arrangement has been well-received by many states, including Oklahoma, Louisiana, Maryland, Mississippi, West Virginia, Rhode Island, South Carolina and Kentucky, to name just a few. But is it a good arrangement? Is it fair?

A state attorney is charged with enforcing laws and protecting the public safety. The same is not true for a private attorney wearing the hat of a public enforcer. That person’s motivation is making money. There is a strong incentive not to stand down, even if it ultimately appears that the defendant company did nothing wrong. If government attorneys were litigating the matter, there is a greater likelihood that a showing of paltry or no evidence of wrongdoing would lead to a voluntary dismissal. After all, the government’s role is to punish wrongdoers, not to dive into deep pockets for the sake of its own livelihood. (Of course, we may have that last part completely wrong.)

Several defendants have raised issues of unfairness, mainly due process violations, when they have found themselves opposite personal injury lawyers cum state attorneys. One of the latest is drugmaker Merck & Co. A subsidiary of Merck recently filed suit against the Kentucky Attorney General claiming due process violations. The case is based upon an action brought by Kentucky – through private attorneys – against Merck in 2009. The underlying action has been litigated by Kentucky personal injury law firm Garmer & Prather, which contracted with Kentucky to litigate it on a contingency fee basis.

Merck argues that the fee arrangement “amounts to a biasing influence” that increases the risk of overzealous prosecution. We agree. The private attorneys have a definite interest in finding Merck liable for as much money as possible. That’s how they get paid. Merck also argues that the Kentucky Attorney General is statutorily tasked with looking after both the consumer public and ethical sellers. The state has an obligation “to see that justice is done for all, including persons, like Merck, that have been targeted for prosecution.”

The chances of Merck prevailing are slim. Drugmaker Eli Lilly unsuccessfully brought a similar action in South Carolina a few years ago. The due process claims were dismissed summarily as the South Carolina court rejected the notion that attorneys representing the government must be neutral. Citing a 1980 U.S. Supreme Court decision, it noted that “prosecutors … are necessarily permitted to be zealous in their enforcement of the law.” It also upheld contingency fee arrangements and determined that, if there were any constitutional issues with using private lawyers, there would have been a more definitive ruling on the matter by now (what exhaustive legal reasoning!?).

Regardless, there is sound reason to be concerned with these arrangements. Sample major issue: kickbacks and/or revolving doors. Imagine this: private lawyer funds attorney general’s political campaign; private lawyer is then hired by attorney general to litigate a cash cow case.

A quick search on the Kentucky Registry of Election Finance shows that William Garmer (of Garmer & Prather, the firm handling the Merck matter on behalf of KY) donated money to both the Kentucky Attorney General’s and the Kentucky governor’s 2007 political campaigns.

posted in:
State Criminal
Jun 15

Civil Forfeiture: More Safeguards Needed to Protect the Innocent

Civil forfeiture is a legal fiction premised on two notions: that (i) property bears guilt when put to unlawful use; and (ii) monarchs are the creator’s appointed representatives on the earth. In such a world, it would make sense for guilty property to be seized and returned to the monarch. In the monarch’s hands, stained property can be washed clean and repurposed for noble use. But that is not real life.

In real life, it is not so simple. Significant challenges have been made to the procedures that local and state governments use in seizing property. See, e.g., Alvarez v. Smith, 130 S. Ct. 576 (2009), which involved a challenge to the warrantless seizure of cash and automobiles purportedly used to facilitate a drug crime. The U.S. Court of Appeals for the 7th Circuit had held that the Illinois statutory procedures “show insufficient concern for the due process right of the plaintiffs,” but the U.S. Supreme Court dismissed the case as moot.

Recently, columnist John Stossel argued in the Boston Herald that civil forfeiture is “government grand theft auto” because in most states, police and prosecutors are allowed to keep for their own use all or most of the property that they seize.

Civil forfeiture can be a useful and needed tool for law enforcement. For example, it gives law enforcement officers authority to seize an unattended rental truck based on a showing of probable cause that the truck was being used to ship products used to manufacture methamphetamine. Without civil forfeiture, officers could not stop the operation unless they could apprehend the owner or driver.

Civil forfeiture permits officers to seize the truck. Then, the Government must (i) provide notice to the interested parties (the owner and driver, for example); (ii) file a civil forfeiture proceeding; or (iii) obtain an indictment alleging that the property is subject to forfeiture. Anyone who has an interest in the property may contest forfeiture. As a practical matter, this procedural safeguard only protects the truck’s owner if the owner knows of the proceeding, the owner can afford an attorney, and the value of the truck exceeds the cost of preventing forfeiture. Ultimately, the Government must prove the property is subject to forfeiture by a preponderance of the evidence. The owner must prove the “innocent owner defense.”

Although the Civil Asset Forfeiture Reform Act (CAFRA), passed in 2000, did much to curb the abuse of forfeiture proceedings, the Act did not go far enough. Interested parties must be given ready access to the system through informal proceedings and/or court-appointed representation. And most importantly, the Government’s financial interest in forfeiture must be addressed. Until we destroy the perverse incentives of civil forfeiture, federal and local law enforcement agencies tasked with serving the public will be tempted to profit from them through the seizure and forfeiture of valuable property, including from innocent owners. Such cases turn the old superstition on its head.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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