Practical Matters: Brackets? We don’t see no stinkin’ brackets

By David M. Heilmann
Clausen Miller

Brackets are coming out in a few days.

That’s what an Iowa attorney friend said to me the other day.

I, of course, had no idea what he was talking about.

“March Madness, Dave,” he said. “The Sweet 16, Final Four, the brackets, the pools. We have a terrific one at the office.”

Ohhhh. You mean those sheets that people copy from the newspaper or get online that they madly fill out and keep running to Thursdays through Sundays for a few weeks? The ones where you throw in a few bucks with some friends and hopefully are smart enough not to pick a bunch of 13 seeds advancing to the final game?

“Yes, those sheets.”

We don’t do that in Illinois. Especially lawyers.

In an unofficial survey of 100 law firms, I discovered that not one practicing lawyer in Cook County has ever seen anything like this.

Besides, gambling is illegal in Illinois. And we don’t break the rules around here, buster. Everyone stays right at the speed limit, makes complete stops at signs, and stays away from those wretched, workplace-ruining pools. We are officers of the court, by God.

In Illinois, a person “commits gambling” when he plays a game of chance or skill for money or other thing of value. A person does not commit gambling when making wagers at the racetracks, boats, bingo halls, or going broke purchasing lottery tickets every day.

Apparently there is some distinction, presumably from Rome, and so those are exceptions.

I didn’t get a chance to read the legislative comments on why pools are illegal, but I can assume there was a fear of thousands lying in the gutters, begging for food and money, wailing, “Why did I pick all Big Ten teams?”

In some states pools are legal, others aren’t. But has a trend started toward official sanction of such pools?

In Connecticut there was a smidgen of interest in pools right around the Super Bowl for some reason. But gambling is illegal in Connecticut. The state has no exception for office pools, but one section exempts from punishment wagers incidental to a bona fide social relationship. As opposed to all those artificial social relationships we all have.

But just to make sure there was no confusion, the week before the Super Bowl, Connecticut AG Richard Blumenthal said, “Office pools are generally legal unless they’re done for a profit by the person organizing it.”

How about neighboring New York? The New York Constitution states that pool-selling, book-making, or any other kind of gambling shall not be allowed.

But that same week before the Super Bowl, Dutchess County DA William Grady said the state penal laws draw a distinction between those pools where the winners split the whole purse from those where someone is taking a cut of the action.

“Informal office pools, while technically a form of gambling, are not criminal so long as no one is making a profit from the venture,” Grady said.

On Jan. 30, 2008, California Assemblyman Kevin Jeffries introduced legislation that would decriminalize participation in Super Bowl pools, March Madness brackets, and other office pools.

“At a time when we can’t keep car thieves, multiple DUI offenders, and armed robbers in prison, it is silly to continue to threaten people with jail time for buying a $5 square at a Super Bowl party,” Jeffries said.

Back in the Midwest a few years ago, Iowa Department of Inspections and Appeals Director Steve Young made clear that office pools are legal, subject to a few stipulations, such as the pools being on a social basis and no more than $50 is lost in a 24-hour period. This begs the obvious question of what happens in the West Coast bracket triple-OT games extending past midnight CST.

Last March, Michigan State Rep. Kim Meltzer introduced a bill to allow the office pools saying: “What makes March Madness unique is that all kinds of people and sports fans of all levels fill out their brackets and enjoy the tournament. It’s a crime we consider that a crime, and I want to change it.”

The Michigan legislature then passed a bill making legal any office pool where bets remained under $10 and the total pot was less than $1,000.

An August 2007 survey done by the Society for Human Resource Management revealed that nearly one-third of human resource professionals knew betting pools for the NCAA basketball tournament exist at their company.

The other two-thirds didn’t answer because they were filling out their brackets.

Few if any of you reading this have ever seen one of these pools in an Illinois law firm. So you’re probably totally unaware of the subject, as was I. That’s why it was necessary to provide this critical insight so that now, before it’s too late, we can warn our clients
of the laws of the State of Illinois and the dangers of this practice.

Unless the AG says it’s okay. Then fade the Big Ten.

Climbing the Ladder: Reputation is hard to build and easy to lose

By William B. Oberts
Tribler Orpett & Meyer

When you hear the names Philip H. Corboy and Robert A. Clifford, you think of the top tier of attorneys. Those names are as synonymous to the practice of law as Mercedes and Lexus are to luxury automobiles. But their reputations did not come overnight.

Building those reputations took years of hard work at becoming skilled practitioners, while also realizing the importance of bar association activities and giving back to the community.

As a young lawyer, it is important to think about building your reputation throughout your career.

As Benjamin Franklin said, “[I]t takes many good deeds to build a reputation and only one bad one to lose it.” Which is why reputation is hard to build and easy to lose.

I confess that I watch “Celebrity Apprentice.”

On a recent episode, Piers Morgan was the project manager for the men’s team and asked Vinny Pastore to act as a “rat” and spy on the women’s team. Piers eventually ratted out Vinny, causing the women’s team to turn against him, which led to Vinny’s demise on the show. Vinny later realized that Piers’s overall objective was to eliminate him from the show.

Why am I providing an overview of “Celebrity Apprentice” in Chicago Lawyer? Good question. I believe that we can all learn several lessons about reputation from that episode.

Piers and Vinny were both strong players throughout the show and over time they earned the respect of their teammates. However, it took only one act to lose the respect they earned and the reputation they built. In the end, the men’s team lost trust in Piers and the women’s team trusted neither Piers nor Vinny.

Although there are thousands of attorneys in Chicago, it’s still a small legal community, and reputation is everything.

Reputation is not just about being a skilled practitioner. Reputation is built upon civility and trust.

As a young lawyer, it is important to think about earning the respect of your peers and the judiciary.

Civility is an important aspect of building a reputation.

You will encounter many different types of lawyers throughout your practice - some civil, some not so civil. An opposing counsel’s lack of civility may tempt you to become equally uncivil. I urge you to refrain and take the higher road.

Young lawyers are sometimes uncivil because they believe that being uncivil makes them appear tougher.

In reality, it emphasizes their status as a “young” lawyer who has yet to learn what it means to truly practice law. On the other hand, some older lawyers may act uncivilly toward younger lawyers in an effort to intimidate the younger lawyer. But this just shows the immaturity of the older lawyer.

Regardless of your years in practice, always remember that this may not be the only time that you will have a case against this practitioner, his or her law firm, or before that judge.

That’s why it is so important to practice civility - regardless of the lack of civility of the other counsel.

Trust is another vital aspect of building a reputation. Your opposing counsel must be able to trust you. Trust also must be earned before the judiciary.

Therefore, be prepared when you step before the bench and do not assert facts that you cannot support. Once you lose the trust of your opposing counsel or the judge, it’s very hard to earn it back.

Vinny learned the hard way that losing a person’s trust can lead to ultimate demise. As for Piers, he may have accomplished his objective to eliminate Vinny, but his reputation among the remaining participants is severely damaged.

Similarly, an attorney’s lack of civility or trustworthiness may serve to accomplish a specific, short-term goal, but it would be at the expense of his or her long-term reputation.

The legal community in Chicago is closely knit - people talk.

Don’t fool yourself into thinking that your lack of civility or deception toward a particular attorney or judge will be an isolated incident. Your colleagues will likely hear of your conduct and it will surely affect your reputation.

You may be questioning my authority to be preaching about reputation, and you are right to do so. I may be no Mercedes at this stage of my career; however, I work on building my reputation with each case and each court appearance, and I try to be civil in the hopes of earning the respect of my opposing counsel and the judiciary.

In the end, a person’s reputation boils down to what people think of him or her. People’s opinions are based on, and affected by, a person’s conduct, trustworthiness, and even the company one keeps.

Keep this in mind every time you converse with another attorney or step into a courtroom. One misstep could lead to your professional demise.

All in the Family: Put your kids to work

By Joseph N. DuCanto
Schiller, DuCanto and Fleck

To paraphrase “W,” no kid should be left unemployed.

School may or may not be more difficult these days, but there’s no doubt that the “kiddie tax” has become even more taxing. No longer does it stop at taxing the passive income of children less than 14 years old at their parents’ highest marginal rate.

The depressing truth is that in 2006, the kiddie tax increased its amplitude to include all children up to age 18.

In 2007 the tax hammer fell once again, raising the applicable age to 19 - or more. The kiddie tax now also is a “smartie tax,” if the “kiddie” is a full-time student up to age 24, fails to earn enough to provide more than half of his or her own support, and is the parents’ not-so-bouncing baby exemption.

Perhaps this is the opposite of “no child left behind”.

This time it means “no child gets ahead.” These mean-spirited directives prevent wealth-building by the young.

This legislation springs from a basic assumption that inter-generational wealth transfer from parents to their young children is a pernicious device used by senior family members solely to escape taxation on their lofty income.

Baloney.

Most of us are not Rockefellers or rock stars. But we also get hit, and our children suffer for it both now and in the long run, because the kiddie tax is extremely short-sighted.

Teaching youngsters the value of saving and the judicious use of their money is a worthwhile endeavor and ultimately produces financially intelligent citizens.

Reality intrudes, however, and one asks, “What’s a parent to do?”

Be smart.

If you are a business owner or a professional, hire your kid! It’s not only desirable, it’s legal.

In some instances, the age limitation for child labor is lower for family members working in a family enterprise than is generally applicable to unrelated employees. It is thus possible for a business owner to shift some of her highly taxed income to her 16-year-old daughter who works full-time during the summer and part-time while in school, assisting with routine office work, reception, and related jobs.

Such additional temporary help is often completely justified by using the child to
fill in for vacationing full-time, unrelated employees.

Assume an Illinois mother has a 38 percent tax burden, including state taxes. Assume further that she employs her child for $9 an hour for 12 weeks, resulting in a gross income of $4,320 for the child.

Now add a 10-hour-per-week part-time job for 30 weeks during the school year, adding another $2,700 to the child’s income, and totaling $7,020 for the year.

Such earned income is not subject to the kiddie tax since that tax relates only to investment income. Additionally, while the child is still claimed as a dependent by her mother, the child may nonetheless use her 2008 standard deduction of $5,450 to shield her income from taxation.

Before April 15, 2009, this fond and doting mother gifts the child with a contribution of $5,000 to the daughter’s newly established Individual Retirement Account.

Despite receiving the IRA funds as a gift, the child may nonetheless still claim the IRA deduction as an income offset for taxable year 2008, completely shielding all of her income from any tax, including FICA, which does not tax income of a child under 18 while the child is employed by a parent.

Consider here that the mother has indelibly impressed upon the child the necessity of maintaining the IRA over future years.

This is a great lesson in thrift and the miracles of tax-free compounding.

Mother is able to demonstrate that daughter’s continuation of the $5,000 per year contribution for 50 years, at an average growth of 7 percent compounded annually, produces an astonishing end fund of $2,032,645! How can one resist the logic of use of this major wealth-building strategy?

In summary, Mother has successfully shifted an avoidable tax burden of $2,668 (38 percent of $7,020) to the daughter and is financially “out” only $2,332 after gifting the IRA contribution to the daughter, who now has a head start on a lifetime of wealth-building and financial planning.

And, when the daughter receives a tax refund in 2009, reflecting a return of taxes withheld from her weekly wages, she will
get a big lesson on the impact of taxation in American life.

The scenario is not a sleazy game but a perfectly legitimate use of good financial-tax sense.

The job is real, is actually performed by the child onsite, and is justified by the needs of the business.

Perhaps, you say, Mother would not have hired someone from outside the family to provide these services; but then, as all parents will attest, “charity” begins at home.

Take THAT, Uncle Sam.

Deals // Verdicts // Settlements

Big Deals

Schiff Hardin’s client, Dorel Industries Inc. completed the acquisition of Cannondale Bicycle Corporation.

This is the second bicycle company deal Schiff Hardin has handled for Dorel Industries Inc. In 2004, Schiff Hardin represented Dorel in its acquisition of Pacific Cycle, Inc.

The Schiff Hardin team was led by Bruce P. Weisenthal and Roger R. Wilen, with key assistance from attorneys Alexander B. Young, Ismail Alsheik, Melody R. Barron, John Schietinger, Larry Jacobson, Lauralyn G. Bengel, Chris L. Bollinger, Marina Rabinovich, Ann K. Pikus, Stephen J. Bonebrake, and Laura B. Friedel, as well as paralegal Paul Bernacki.

Sonnenschein Nath & Rosenthal served as counsel to Votorantim Cement North America in its recent acquisition of Bridgeview-based Prairie Material Sales, a leading supplier of ready-mix concrete, with 81 plants in Illinois, Michigan, Indiana, and Wisconsin.

Votorantim Cement North America (VCNA), through its U.S. affiliate, Votorantim Cimentos North America, Inc., acquired Prairie Material Sales, Inc. and some of its ready-
mix concrete, aggregates and related cartage businesses.

VCNA is the North-American subsidiary of Votorantim Cimentos, an international cement manufacturer and part of the Votorantim Group of companies, one of Brazil’s largest industrial conglomerates.

Based solely on projections for the acquired assets, Prairie’s 2007 sales were about $450 million. Prairie employs over 1,800 people within the businesses related to the acquired assets.

Andrew Weil, a corporate partner in the firm’s Chicago office, was the lead attorney on the deal.

The other attorneys representing Votorantim included corporate partners Linda Harris and Kathy Ingraham, and corporate associates Nadim Kazi, Jacqueline Farinella, Matthew McKim, and Katherine Moore. Other partners who worked on the deal: Barry Nekritz, real estate; Jeff Fort, environmental; Kelli Toronyi, employee benefits; Roger Brice, labor and employment; and Gary Senner, antitrust.

Verdicts

In one of the more significant business decisions in several years, the U.S. Supreme Court ruled, 5-3, in Stoneridge Investment Partners v. Scientific-Atlanta Inc. that investors could not hold secondary actors liable for securities fraud by a public company if the investors did not rely on the conduct or statements of the secondary actors. Charter Communications, a cable company, created a series of fraudulent transactions with some of its vendors that would allow Charter to overstate its revenue. The 8th Circuit dismissed the suit and the Court affirmed, with Justice Anthony Kennedy writing the majority opinion. The impact of the decision was apparent almost immediately, as the Court denied certiorari to Enron shareholders in Regents of the University of California v. Merrill Lynch Pierce Fenner & Smith Inc., a case in which the petitioners argued for a “financial services” exception to the principle that third parties who do not communicate with investors are not subject to private securities fraud suits.

Stephen Shapiro of Mayer Brown argued the case for the respondents in Stoneridge, his 27th oral argument before the Court. Here, Shapiro discusses the impact of Stoneridge.

Chicago Lawyer: How significant is the Stoneridge ruling?

Shapiro: The Wall Street Journal characterized the Stoneridge case as the most important securities case in a generation. One leading law professor in the field was quoted repeatedly in the press describing the case as the “Roe v. Wade of business cases.”

General public interest and importance were reflected in an unprecedented number of amicus briefs in a business case. There were 15 amicus briefs on each side. About 20 former SEC commissioners and enforcement officials took different positions on the case, and the current SEC was divided three-to-two on the proper resolution of the matter. Banking agencies and the Department of Treasury participated in the administration’s review of the case, and made recommendations to the solicitor general, who ultimately agreed with us about the merits.

At issue in the case was the question of whether investors in public companies can sue not only their companies and management in cases of bankruptcy or business decline, but also a wide range of other persons who did business with those public companies. Under the theory of “scheme liability” advanced by the plaintiffs in Stoneridge, all these business partners — including lenders, product vendors, investment banks, insurers, accountants, and lawyers — could be roped into multibillion-dollar class-action lawsuits and accused of complicity in the public company’s misleading financial statements.

Third parties are in no position to serve as watchdogs of an independent company’s financial reporting, and an extension of liability would have chilled ordinary commercial relations, particularly international trade. And it would have interfered with the regulation of federally supervised and insured lending institutions, as the solicitor general pointed out.

It is a good thing for the U.S. economy and investor welfare overall that the Supreme Court rejected “scheme liability” in Stoneridge.

Chicago Lawyer: Given the Credit-Suisse decision, Stoneridge, and the denial of cert in Regents, what is the landscape now for business-fraud lawsuits?

Shapiro: What the Supreme Court is saying in all these cases is that private class-action litigation is not a suitable means for resolving these issues.

In Billing [Credit-Suisse], the private suit trespassed on the SEC’s expert regulatory regime. There was a real risk of conflicting judgments that would interfere with capital formation in this country. In Stoneridge, the Court again opted for expert and disinterested SEC supervision of the subject. The Court concluded that this was Congress’ preferred policy, and that the judge-made implied right of action under Section 10(b) should not be extended to permit open-ended private suits.

A week after the Supreme Court decided Stoneridge, it denied certiorari in the Regents case, making clear that Stoneridge is not limited to manufacturers. It applies to any category of defendant (including investment banks) when the defendant does not itself make false statements to the investing public and investors rely on the public company that issued the securities. At the same time that the Court denied certiorari in Regents it also summarily vacated a 9th Circuit decision that had accepted “scheme liability” and applied it to a variety of business partners. The Court is sending a strong message with these three rulings.

Chicago Lawyer: Can you discern a jurisprudence with this Court as it relates to business regulation in general?

Shapiro: The Court’s decisions over the last several years, whether written by justices appointed by Republican or Democratic administrations, show a cautious approach generally in reviewing massive damage claims in business cases. The Court looks closely for signs of congressional intent and does not make up new liabilities demanded by trial lawyers without some congressional warrant. It is concerned about the perverse economic effects of these huge lawsuits.

The Court in Stoneridge noted that unconstrained civil liability appears to be driving U.S. securities offerings and registrations overseas. The Court, I believe, is also looking more deeply at questions of investor welfare. Not every lawsuit filed by an investor advances the welfare of investors generally. In Stoneridge, for example, the plaintiff was trying to take money from one group of innocent investors and pay it to another group of investors, with a big rake-off for the lawyers. This undermines investor welfare, and does little for investor protection. Investors pay the tab for these wealth transfers, including fees for plaintiffs’ lawyers and defense costs, not to mention disruption of business operations.

Chicago Lawyer: Heading into oral arguments in Stoneridge, what did you think was the petitioner’s strongest argument?

Shapiro: I thought the petitioner’s best argument was that everyone that has some role in facilitating a misstatement should be brought to justice. Our response to that was that Congress dealt with the issue and relegated these questions to the SEC, an expert and impartial administrative agency.

“Scheme liability” claims are elusive and their merits never get adjudicated in private cases. The threatened liabilities are so exorbitant in class-action proceedings that all defendants are forced to pay large settlements, regardless of the merits. Legal rights and obligations don’t get clarified in that kind of system. These cases were bad for the development of the law and for the economy, benefiting lawyers and no one else.

Chicago Lawyer: Can you tell from Justice Kennedy’s opinion which of your arguments struck home?

Shapiro: Justice Kennedy was apparently impressed with the direct relevance of the prior Central Bank decision of the Court, which had foreclosed private “aiding and abetting” claims under the securities laws. He didn’t want to see it eroded by re-labelling “aiding and abetting” as “scheme liability,” which the trial lawyers attempted to do. He also gave weight to Congress’ judgment that these cases should be handled by the SEC. As in Central Bank, the Court, speaking through Justice Kennedy, warned of the dangers of expansion of implied causes of action — including driving securities offerings overseas, chilling international trade, and generating unnecessary business costs to the detriment of investors and consumers. Central Bank previously explained that expansion of civil liability reduces the availability and drives up the costs of professional services too. These are still important concerns.

A Jenner & Block team led by Susan C. Levy secured a significant victory for client General Dynamics Land Systems (GDLS), a designer and manufacturer of land and amphibious combat systems for the U.S. Army and Marine Corps, in a multimillion-dollar contract dispute with an Israeli armor manufacturer involving the “best efforts” provision of their contract.

The U.S. District Court for the Southern District of New York denied the plaintiff’s petition to vacate a 2007 arbitration award in favor of GDLS and granted GDLS’s motion to confirm the award.

The companies had entered into an agreement that granted GDLS the exclusive right to market and sell the armor company’s unique technology, Light Improved Ballistic Armor (LIBA), in the U.S. in exchange for a royalty on the amount of LIBA used or sold. The contract terms provided that “GDLS will use its best effort to expand and maximize the U.S. market for the LIBA product.”

In 2005, the armor company filed an arbitration demand against GDLS claiming more than $250 million in damages due to GDLS’ alleged failure to maximize the sales of LIBA in the United States.

During the 12-day arbitration hearing, the Jenner team established that GDLS sold more LIBA in the U.S. than the claimants sold in any other country and that there were valid technical reasons why LIBA was not competitive on other products. The arbitrator ruled in favor of GDLS on all claims in the case, finding that GDLS did not breach the best efforts clause.

In denying the plaintiff’s motion to vacate and granting GDLS’ motion to confirm the award, the U.S. district court held that “the arbitrator’s determination was predicated on facts that are not reviewable by this Court under the language of the contract.”

In addition to Levy, the Jenner & Block team included partners Richard T. Franch, Susan Kohlmann, Debbie L. Berman, Matthew J. Thomas, and R. Clay Stiffler; associate Joelle K. Blomquist; and senior paralegal Jessica Merkouris.

Settlements

A federal judge has approved a $3.45 million settlement for family members who were injured when a truck rear-ended their car.

In 2003, the Charvat family — which included the father, Richard, the mother, Kelly, three daughters, ages 19, 17, and 15, and their 11-year-old cousin - was on I-55, driving to Pekin. An earlier crash stalled traffic in Livingston County, and the Charvat’s car was struck from behind by a tractor-trailer driven at 57 m.p.h.

All the occupants in the car were injured. There were two brain injuries, a ruptured thoracic aorta, a collapsed lung, and fractures of the ribs, pelvis, clavicle, femur, ankle, jaw, and teeth. All of the family members suffered some scarring.

The family members were represented by Robert J. Bingle of Corboy & Demetrio and James Behrens and Michael Schroeder of Behrens, Gioffre & Schroeder, of Cleveland. The defendants were represented by Stephen M. Passen.

— Robert Yates

Doctors and Lawyers: Witness intimidation?

By Pat Milhizer

When mail came from the Florida Medical Association, Dr. John H. Fullerton just thought the group was looking for a new member.

The letter might as well have been burning in his hands.

“I think I even dropped it,” Fullerton said. “It felt like a hot potato. And I remember just being stunned and shocked and then just ­furious.”

The letter was a blistering complaint from three Florida doctors who were defendants in a 2004 medical malpractice case in which Fullerton testified as an expert for the patient. The letter said that Fullerton aided a frivolous lawsuit by promoting unsound theories just to make a buck.

Fullerton responded with a defamation law­suit against the association and the doctors, and the case is pending.

These days, Fullerton believes, doctors face heightened pressure from private medical groups to avoid moonlighting as expert witnesses for plaintiffs in malpractice cases.

“There were times in the ‘50, ’60s, and beyond where that white coat of silence was talked about, where it was hard to get doctors to testify against other doctors,” said Fullerton, who practices medicine in San Francisco and is also licensed in Florida. “With stuff like this going on, it’s a resurgence of that kind of activity.”

And it’s not limited to water-cooler talk anymore.

Some medical associations have issued policies on the standards for courtroom experts and the potential for the peer review of one’s testimony. Plaintiff’s attorneys call it a form of witness intimidation.

“They act like they’re looking at testimony, but all they’re doing is trying to have the doctor never testify again,” said Joseph W. Balesteri of Power, Rogers & Smith. “It’s become a great way to keep very well-qualified experts from wanting to testify.

“It’s a real thing that a lot of people don’t know about,” he said. “And it’s becoming much more prevalent.”

Here in Illinois, the tension is only escalating between doctors and plaintiff’s lawyers, who are still smarting from the General Assembly’s decision in 2005 to cap non-economic damages in medical malpractice cases.

The debate

On a recent day at the office, Stephen D. Phillips fired off an e-mail to his colleagues at the Illinois Trial Lawyers Association.

Phillips, who co-chairs the group’s Medical Negligence Committee, wanted to hear their stories about problems they’ve had when trying to secure doctors to testify.

Phillips already has a few stories of his own.

In one case, he found a doctor willing to testify on behalf of a plaintiff who ended up with a severe nerve injury after a standard knee procedure. The doctor was the “all-star of knee surgeries” and had invented a form of the procedure, Phillips said.

“And he calls me a month before the deposition saying he can’t do it. I had the guy. And then I had to scramble to get another expert,” Phillips said.

In another instance that happened after a trial, a hospital president called a physician into his office and brandished copies of his trial testimony and deposition testimony while telling the doctor, “We don’t testify against other doctors around here,” Phillips said.

“It’s a prime example of the length that certain members of the medical profession will go to continue cloaking the truth and impeding the courthouse doors for victims of medical malpractice,” he said.

For their part, two prominent medical asso­ciations provided their policies on expert testimony.

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