Ponzi scheme mastermind pleads guilty

The Associated Press reports that an Oakland County man accused of a $200 million investment scam pleaded guilty in federal court April 29.

Edward May, who was charged in 2009, is accused of misleading people into thinking they were putting money into telecommunication deals. The government says it was a massive Ponzi scheme, with money recycled between investors.

The government says losses exceeded $35 million by 2007 when the U.S. Securities and Exchange Commission stepped in with a civil lawsuit.

In March, Michigan Lawyers Weekly reported on Detroit-area stockbroker Frank J. Bluestein — who was accused of advising and selling bogus investments as part of May’s scheme — having an SEC complaint filed against him, asserting he received $3.8 million for steering investments toward May. That litigation is pending.

MSC to COA: Tell us why arguments can’t be filmed

In last week’s issue, Gary Gosselin wrote about Eric VanDussen, a freelance journalist who asked the Court of Appeals if he could film  a the May 10 oral argument involving Michigan’s medical marijuana law.

The Court of Appeals’ administrative order denying VanDussen’s request, vaguely stating that “fair administration of justice requires such action.”

In an April 27 order, the Michigan Supreme Court said that reason wasn’t good enough.

On order of the Court, the motion for immediate  consideration is GRANTED. The complaint for superintending control is considered and, in lieu of granting relief at this time, we REMAND this case to the Court of Appeals to articulate the reason why “the fair administration of justice” warrants the denial of the plaintiff’s request to film oral argument on May 10, 2011. Administrative Order 1989-1(2)(b).

The court asked for an answer by May 2 and will likely make a ruling on the order soon thereafter.

Whistleblower sues Wayne County

A former deputy chief of staff to Wayne County Clerk Cathy Garrett has filed a whistleblower suit against the county, alleging bribery within the office. [Detroit Free Press]

David Springsteen, 39, said Garrett and her top aides got rid of him after he met with the Wayne County Sheriff’s Office to discuss his suspicions that clerks in his office were accepting bribes to expedite permit applications and approve licenses for convicted felons and others who were denied licenses.

According to the story, the FBI is investigating but has yet to find any proof of wrongdoing.

Garrett and other staffers named in the lawsuit didn’t respond to requests for comment. But Ronnie Cromer, an attorney for Garrett and her staff, said the clerk cooperated with investigators and did nothing wrong.

“In all my years of practice, I can’t recall a more baseless lawsuit,” Cromer said. “He will fail miserably.”

(Apparently, Cromer has adopted his interview style from Donald Trump.)

Springsteen told the Freep that learned of the problem when an applicant complained of not getting his CPL license “despite paying the expediting fee.” There is no expediting fee.

The case is in U.S. District Court before Judge Patrick Duggan.

In their opinions

[A]lthough the constitutional privilege against self-incrimination must be protected, the constitutional right of a plaintiff in a civil case to have his day in court must also be protected.”

- from the per curiam opinion of the Michigan Court of Appeals in The Huntington Nat’l Bank v. Ristich.

Jovica Ristich borrowed $55,000 from The Huntington National Bank to buy a used BMW and took out a $25,000 line of credit. The problem, as the bank later claimed, was that Ristich didn’t provide a security interest in the Beemer and misrepresented his income on the loan and credit applications.

That’s what the bank alleged in its suit. Funny thing, said Ristich, I think the feds are investigating me for the same thing. So instead of answering the suit, he asserted his Fifth Amendment privilege, moved for an evidentiary hearing and asked for a stay of proceedings.

At the bank’s request, the county clerk entered a default. The bank argued that Ristich couldn’t dodge answering the complaint with a blanket assertion of the Fifth Amendment.

That’s right, said Macomb County Circuit Court Judge David Viviano. Ristich couldn’t “just wave a magic wand because he’s been indicted and say I’m immune from civil process.”

Viviano ordered Ristich to answer the complaint and to plead the Fifth paragraph-by-paragraph where Ristich believed it was appropriate.

The bank moved for a default judgment. Ristich argued the default should be set aside, claiming in an affidavit that he had a good defense and that he didn’t owe as much as the bank said he did.

Viviano noted the conspicuous absence of supporting material to find good cause to set aside the default. And, he ruled, Ristich had to do more than just generally deny how much was owed to avoid a default judgment. Viviano entered an $86,000 default judgment, plus interest, against Ristich.

In the Court of Appeals, Judge Jane M. Beckering, William C. Whitbeck and Michael J. Kelly, made short work of Ristich’s argument that his motion to stay proceedings was the functional equivalent of a motion to extend time under MCR 208(E).

[D]efendant has not pointed to any legal rule supporting the assertion that the two motions are equivalent.

Moreover, defendant’s argument, which focuses on the factual circumstances of his case, ignores a significant distinction between motions for a stay of the proceedings and for an extension of time to file an answer.

While a defendant might assume that a motion to stay the proceedings extends the time for filing an answer, nothing in the motion notifies the trial court of the defendant’s desire to extend the time as does a motion under MCR 2.108(E).

The trial court could assume that the defendant fully intends to answer within 21 days of service. For this reason, motions to stay the proceedings and to extend the time for filing an answer should not be treated synonymously.

In order to request an extension of time for filing an answer, a defendant must file a motion pursuant to MCR 2.108(E), particularly requesting the extension.

But wait, Ristich argued, my motion for a stay and an evidentiary hearing was “other action permitted by law” under MCR 2.108(A)(1) and I’ve otherwise defend[ed]” myself under MCR 2.603(A)(1). Not so, said the COA panel:

Although a defendant in a civil action may raise the privilege against self-incrimination in his answer to the complaint, we have not discovered any Michigan law excusing a defendant who invokes the privilege from filing an answer.

To the contrary, our Supreme Court’s opinion in People ex rel Moll v Danziger, 238 Mich 39, 44; 213 NW 448 (1927), suggests that the invocation of the privilege does not excuse the obligation to file an answer. …

[T]he essence of defendant’s motion was not defensive; rather, the essence of the motion was to postpone the proceedings indefinitely, i.e., for as long as the chance that he could be criminally indicted existed. Nothing in defendant’s motion demonstrated that he was intending to defend or was defending the action.

Finally, defendant’s suggestion that he defended himself by raising self-incrimination concerns in his motion fails because … the proper method for invoking the privilege against self-incrimination is through a responsive pleading.

Bottom line: there’s nothing wrong with taking the Fifth in a civil suit, it’s just how you take it that matters.

Should he stay or should he go?

LANSING, MI, April 27, 2011 – A dispute over whether a Lansing judge can remain in office will be heard by the Michigan Supreme Court in oral arguments on Tuesday, May 3, at the Michigan Hall of Justice in Lansing.

At issue in Attorney General v 54-A District Court Judge is whether Hugh Clarke, Jr., who was appointed by former Governor Jennifer Granholm to Lansing’s 54-A District Court on December 20, 2010, can continue to serve as a judge. Clarke filled the seat vacated by former 54-A District Court Judge Amy Krause, whom Granholm appointed to the Michigan Court of Appeals on November 23, 2010 – three weeks after Krause was elected to a six-year term on the district court. Attorney General Bill Schuette has asked the Michigan Supreme Court to remove Clarke from office, arguing that Clarke could only continue in the district court seat until January 1, 2011.

In support of his position, Schuette cites a Michigan Supreme Court decision, Attorney General v Riley, 417 Mich 119 (1983). In December 1983, outgoing Governor William Milliken appointed Justice Dorothy Comstock Riley to the Supreme Court to succeed Justice Blair Moody, Jr., who died in November 1982 after being re-elected to the Court. In February 1983, after initially voting against her ouster, a majority of the Court voted to remove Riley; then-Chief Justice G. Mennen Williams concluded that the Michigan Constitution barred Riley from serving past the end of 1982. Riley won election to the Supreme Court in 1984 and served on the Court for 13 years, including four years as chief justice.

Clarke argues that the Riley decision does not apply to his case. Moreover, statutes that govern district courts permit Clarke to continue in office until a successor is elected and qualified, he contends.

Oral arguments in Attorney General v 54-A District Court Judge will begin at 9:30 a.m. in the Supreme Court’s courtroom on the 6th floor of the Hall of Justice. The Court’s oral arguments are open to the public.


Source: Michigan Supreme Court

MSC tosses Anglers case

The Michigan Supreme Court vacated its Dec. 29, 2010, opinion in Anglers of the AuSable Inc. v Department of Environmental Quality; the December opinion had been considered a win for environmentalists concerned with polluted discharge into Northern Michigan’s Kolke Creek.

The Court dismissed the case on the basis of mootness. Chief Justice Robert P. Young Jr. said that the case is now moot because:

a) defendant has quit-claimed its easement interest back to the riparian owner;
b) defendant no longer has the physical means of discharging water into Kolke Creek or the AuSable River’
c) defendant is now disposing of the water by alternative means;
d) defendant no longer has a permit that allows discharge into Kolke Creek or the AuSable River;and
e) the Department of Environmental Quality has attested that “there no longer exists the possibility of surface water discharge to Kolke Creek or the AuSable River.

But dissenters Michael F. Cavanagh, Marilyn Kelly and Diane M. Hathaway took issue with the Court’s rehearing of the case in the first place.

Wrote Cavanagh in his dissent: “Contrary to Justice (Brian K.) Zahra’s belief that this Court ‘disregard the mootness doctrine,’ this Court previously considered, at great length, defendants’ arguments related to this issue, as evidenced by my concurring statement … to this Court’s June 18, 2010, order denying defendant Merit’s motion to dismiss for mootness. … Defendants make no new arguments in their current motions, and the June 18, 2010 order was properly decided, therefore, reconsideration on mootness grounds is improper.”

That was just one chapter in the book of “You Started It.”

Cavanagh in his dissent quoted Young’s dissent in the 2009 case, United States Fidelity Ins & Guar Co v Michigan Catastrophic Claims Ass’n, where Young asked: “What changed?”

The facts have not changed the text of the statute at issue has not changed. The parties’ arguments have not changed. And the rationale advanced in the opinions of this Court has not changed. Yet, within a matter of months, a decision of this Court, thoughtfully briefed, argued and considered by seven justices, is no longer worth the paper it was written on. Even the casual observer, however, does not really need to ask why. The reason is obvious: … the composition of this Court changed.

And it has changed again, from a Democrat majority to a Republican majority, since Anglers was decided in an opinion authored by then-Justice Alton Thomas Davis.

Young responded to Cavanagh’s use of his own words by stating, “The answer is simple: the majority opinion in USF&G prevailed over my dissenting opinion, and I see no reason to remain bound by a position that failed to receive majority support two years ago. Today’s order merely applies the very same principles that former Justice (Elizabeth A.) Weaver and Justices Hathaway, Marilyn Kelly and notably Justice Cavangh himself applied in deciding to grant rehearing in USF&G.”

So there. Neener, neener, neener.

Zahra concurred with Young: “MCR 7.313(E), this Court’s rule governing motions for rehearing, is a discretionary rule as it does not define a standard under which this Court is to decide motions for rehearing. … Historically, in exercising discretion, the Justices of this Court consider whether the Court properly interpreted and applied the law.”

He said that it’s not surprising that the justices who were on the court at the end of last year have not changed their minds on the matter. But there are two new Republican justices: Zahra and Mary Beth Kelly.

“It is suggested that Justice Mary Beth Kelly and I ought not cast our votes based on the merit of the legal arguments and the correctness of the opinion … and, instead, limit our review to a determination whether any new arguments have been presented to this Court that were not previously presented at the time of the opinion under review was released.”

But Zahra said that there is nothing in MCR 7.313(E) that supports the idea that the Court “may only grant rehearing where new legal arguments are presented.” And he also pointed out that when it comes to whether or not the two new justices should weigh in on reconsideration, “This same conclusion has been reached by virtually every Justice faced with this situation.”

Zahra noted that Davis voted to grant reconsideration in Duncan v State of Michigan, and Hathaway voted to grant rehearing in USF&G. Young and then-Justice Maura D. Corrigan did the same in McCready v Hoffius.

“Like every Justice on this Court,” Zahra wrote, “I respect the role stare decisis plays in Michigan’s jurisprudence. That said, every Justice on this Court, with the exception of Justice Mary Beth Kelly and myself, has at one time or another found it appropriate to overrule precedent because the Justice concluded doing so served the best interest of Michigan’s jurisprudence.”

Forward down the field: Judge ends the Football Apocalypse … for now

Because, really, this is the biggest legal news of the last 24 hours: [Wall St. Journal]:

A federal judge in Minnesota ruled in favor of the National Football League’s players Monday, moving to end the league’s seven-week-old lockout.

New England quarterback Tom Brady, the lead plaintiff in the NFL players’ antitrust suit against the league.

In other words, less than 72 hours before the NFL Draft, our fearless Gridiron Heroes are back … for now.

But relief for the players could be temporary, as the league plans to appeal the ruling to the Eighth U.S. Circuit Court of Appeals in St. Louis. It plans to ask the appeals court to issue an immediate stay that would keep the lockout in place during the 30-to-60-day period the judges are likely to take to consider the matter.

The decision can be found here, if you have the time or inclination to read all 89 pages of it. The analysis starts on page 18. The Cliff’s Notes version? The judge found the union’s decertification to be ”not a mere tactic because it results in serious consequences for the Players,” thus 1) the Norris-LaGuardia Act doesn’t preclude an injunction, and 2) the NLRB doesn’t have jurisdiction over the dispute.

If you have an interest in labor law, the history of the NLA, and NFL labor history, read away. Otherwise, I suggest you simply read Sports Illustrated’s excellent NFL guru Peter King for the layman’s version.

Of course, this dispute is over how the players and the owners will split up $9 billion. As the decision details, both the players and the teams have succeeded wildly under the current system, as the NFL might just be the healthiest professional league in the world both financially and competitively. But don’t take Judge Nelson’s word for it. From Roger Goodell, the league commissioner:

For players, the system allowed player compensation to skyrocket—pay and benefits doubled in the last 10 years alone. The system also offered players comparable economic opportunities throughout the league, from Green Bay and New Orleans to San Francisco and New York. In addition, it fostered conditions that allowed the NFL to expand by four teams, extending careers and creating jobs for hundreds of additional players.

For clubs and fans, the trade-off afforded each team a genuine opportunity to compete for the Super Bowl, greater cost certainty, and incentives to invest in the game. Those incentives translated into two dozen new and renovated stadiums and technological innovations such as the NFL Network and nfl.com.

[He doesn’t mention how much league revenues have skyrocketed and how much the cities have ponied up for those “two dozen new and renovated stadiums.” And Dan Snyder paid $800 million for the Redskins and one of those new stadiums, FedEx Field, in 1999. Today, according to Forbes, the team is worth $1.55 billion.]

Many commentators, sports and otherwise, have opined that the sides will work this out because that’s just too much money to not be able to come to an agreement. I disagree but for the same reason: it’s just too much money to make an agreement that easy. And all this is going to do is push back the process as we wait for the 8th Circuit to deal with it.

Taxed pensions – not just for teachers anymore

Tomorrow the House Committee on Tax Policy will take up a package of bills that propose taxing the pensions of all public employees, including judges (but not including military personnel).

According to an analysis by the House Fiscal Agency, taxing teacher, state worker, legislator and judge pensions would add some $209.7 million to the state coffers in the fiscal year 2012-2013.

The bill, if passed into law, would take state income tax from employee pensions on Jan. 1, 2012.

So far, the State Bar of Michigan has not taken a position on the bill, nor have Michigan Judges Association and the Michigan District Judges Association.

If you’d like to read the bill and a summary of its impact, click here.

And here’s the link, if you care to watch it live. The meeting will be webcast live at 10:30 a.m., Wednesday April 27.

Western District proposes attorney admission, discipline rule changes

The U.S. District Court for the Western District of Michigan is thinking about beefing-up its local rules governing admission to the court’s bar, attorney discipline and reinstatement proceedings.

In Administrative Order 11-041, the court tentatively approved amendments to its local court rules.

Key changes:

  • Admission applications could be granted or denied by the chief judge.
  • The chief judge could refer applications to a three-judge panel. The proposed change provides for broader participation of the court’s senior judges and further provides that bankruptcy judges could sit on the panels.
  • The proposal also conforms the local rules to the disciplinary and contempt power granted to magistrate judges by statute. 28 U.S.C. sec. 636(e).

The court is seeking comments by May 23 before promulgating a final version of the proposed changes.

Michigan patent office nixed for now as result of budget cuts

Looks like Michigan will have to wait a while longer to be a part of patent law history.

And it looks like patent law attorneys will have to keep waiting, period.

On Thursday, David Kappos, director of the U.S. Patent and Trademark Office (USPTO), announced that congressional budget cuts have forced the agency to table plans for a Detroit satellite office, along with considerations of any other satellite offices.

“In view of the funding cuts reflected in the final budget and affecting the U.S. government as a whole,” he said in a memo to USPTO employees, “we will be unable to expend the additional $85-$100 million in fees that we will be collecting during this fiscal year — funds that we had anticipated being able to use to fund operations this year.”

Postponing the opening of the Detroit office — which was scheduled for August and would have had 100 examiners — puts a damper on a positive thing happening for Michigan and the Midwest tech hub, said Charles A. Bieneman of Rader, Fishman & Grauer PLLC.

But the real hardship, he said, was Kappos’ announcement that, as part of the budget cuts, existing patent examiners won’t be paid overtime, and that there would be a hiring freeze.

“What that means,” he said, “is that fewer applications are going to be examined, the backlog [of 700,000-plus filed patent applications] is going to continue to grow, and the general slowness in resolving patent applications is going to continue and increase.”

Bieneman noted that there have been hiring freezes before — when he was a patent examiner, he got in just before such a freeze — and they come and go.

But he added that he speculates whether Kappos is trying to call someone’s bluff with his Thursday announcement.

“The whole issue of the PTO’s budget has always been a political hot potato,” Bieneman said, “because they’re a fee-funded agency, meaning that they’ve historically generated more revenue than they’ve budgeted to expend, because Congress has practiced what’s called ‘fee diversion.’”

How so?

“They basically skim some fees off the top,” he said, “and in the patent bar, it ticks people off, because we’re paying all this money to have our patent applications examined, and then it’s not even going to fund that. … The $100 million taken out of the PTO’s budget, it’s not like it’s tax revenue allocated to the PTO. Those are fee revenues — money the PTO has generated that Congress has taken away.

“It’s like if you’re a business and you want to pour your money into research and development, and they’re saying, ‘No, sorry, you’ve got to give that money to some other business.’”

That’s been business as usual, said Anna M. Budde of Harness, Dickey & Pierce, PLC in Troy. She noted that, according to the Intellectual Property Owners Association, since 1990, more than $800 million in USPTO user fees have been withheld from the agency — “dollars that could otherwise be spent on improving patent and trademark examination and reducing patent pendency.”

The USPTO had been making efforts over the last few years via pilot programs to tackle the backlog, such as:

• Allowing applicants to accelerate the examination of applications pertaining to green technologies;

• Having patent offices in select countries use findings for a patent application from another country’s patent office to speed the process; and

• Having inventors abandon one application in exchange for another application being advanced out of turn.

The USPTO’s Three-Track System, which would have let applicants have their applications processed as “prioritized examination” for a $4,000 fee, was to have started on May 4. In Kappos’ announcement, he said that that, too, has been postponed.

Naturally, this isn’t the kind of news patent law attorneys would have wanted to hear as they head into Easter weekend.

(If you would like to comment on this story, contact Douglas J. Levy at (248) 865-3107 or email douglas.levy@mi.lawyersweekly.com.)

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