The Intersection Among Torts, Science, Corporate Law, Insurance & Bankruptcy

Ken Feinberg Provided a Catalyst for the Player Image Antitrust Suit Against NCAA

Posted in Antitrust, Litigation Industry

Ken Feinberg draws lots of attention for his settlement broker role in mass tort situations. However, there is more – according to an August  21, 2014 article in Bloomberg by Paul Barrett.  Ken was an indirect catalyst for change at the NCAA. More specifically, the article explains that Ken arranged for a meeting between a plaintiff’s lawyer (Michael Hausfeld) and long-time  shoe person (Sonny Vacaro) who became a foe of the NCAA  after he retired. According to the article:

“After lucrative stints with Adidas (ADS:GR) and Reebok, Vaccaro retired in 2007, he says, “to do some good.” Whatever his mix of motives—redemption, attention seeking, maybe altruism—he began delivering speeches on how the college athletes he’d turned into human billboards deserved a share of the revenue. “I didn’t get very far at first,” he says. “Make a speech, one-day story, it disappears.”

That changed after he visited Howard University in Washington in 2008 to deliver one of his stemwinders about athletic inequities. An old friend in the audience introduced Vaccaro to Kenneth Feinberg, a prominent Washington attorney who oversees mass-disaster settlements. Feinberg, in turn, connected Vaccaro to Michael Hausfeld.

A professorial plaintiffs’ lawyer based in Washington, Hausfeld wears pastel bow ties and rarely speaks above a whisper. He has successfully challenged ExxonMobil(XOM) on behalf of Native Americans and Swiss banks on behalf of the survivors of Holocaust victims. “I have to confess that at first I didn’t understand a lot of what Sonny told me,” Hausfeld says, “both because he speaks so quickly and because I’m not a sports nut.”

Political Donations and Asbestos Litigation – a 2014 Update on One Side of the Coin

Posted in Asbestos, Elected Judges, Litigation Industry

Years ago, Joe Rice very correctly said something to the effect of:  ”Why would Congress ever end asbestos litigation. It’s the nation’s most consistently big fundraising and lobbying topic, ever.”

For 2014, Legal Newsline provided an August 15, 2014  report on contributions from some asbestos plaintiff’s firms to politicians. The numbers are impressive and telling in some ways. More or less the same report also was issued by the Madison-St. Clair Record.

As is typical, however, the two pro-insurer publications  failed to cover the other side of the topic, which of course is the corporate side of the political giving coin.


Exponential Change in Computing Power – Lawyers Beware

Posted in Litigation Industry, Science

How much faster and smaller is a 2014 supercomputer when compared to a 2011 supercomputer? The quick answer is:  24x faster, and 90% smaller.

Want proof? Consider the following excerpt from an American Lawyer article by Susan Beck regarding the extent to which computers will replace lawyers; the relevant part of the article focuses on Watson, the IBM supercomputer that played and won Jeopardy in 2011:

“Scott Ferrauiola is the lead lawyer for IBM’s 
Watson project and Stephen Gold is the company’s vice president of marketing and sales operations for Watson Solutions. In a discussion about Watson, they point out that the technology has made huge advances since it was displayed on “Jeopardy” in 2011. “On ‘Jeopardy’ it read 200 million pages of data in three seconds,” says Gold. “Now [the machine] is 90 percent smaller and 24 times faster.” Ferrauiola adds, “One way to think about it is that the machine used on ‘Jeopardy’ filled a room. Now it would fill three pizza boxes.”

Think about the exponential scale of some of  that change. 24x faster, in 3 years.  Are you 24x faster at anything you do today compared to three years ago? Are you 2x faster at anything you do? 5X?

Also not so bad is 90 percent smaller, in 3 years.

The scale and impact of exponential change is hard for humans to grasp. But it is happening.

Corporate Executives and Criminal Charges – Some Issues are Highlighted by an Ongoing Criminal Trial in Georgia for Alleged Evidence Cover Up Involving Peanut Related Salmonella Poisoning

Posted in Criminal Law and Torts, Crisis Management, Mass Tort Issues

When should corporate officers face criminal charges? Judge Rakoff famously commented on DOJ not indicting bankers from the 2008 financial fiasco. There also are ongoing media stories regarding GM’s ignition switch recall failures, and some related calls for new criminal laws to foster criminal charges. (see this July 16, 2014 McClatchy News article by Greg Gordon).

With that in mind, it’s worth noting that there already are ways to seek criminal convictions for covering up evidence and corporate officials previously have faced criminal charges in the US. The point is emphasized by an ongoing criminal trial in Georgia that accuses corporate execs of covering up evidence of salmonella contamination, as reported in an August 8, 2014 article on Mercury News. The US Department of Justice indicted corporate officials in a 63 count indictment. The current trial evidence reportedly will not disclose to jurors that people died after consuming the contaminated products. According to the news article:

Witnesses say Stewart Parnell and others at Peanut Corporation of America knowingly shipped salmonella-tainted products, and that they sent customers lab results from other clean batches rather than wait for tests to confirm their products were free of deadly bacteria. Defense lawyers correctly noted for the jurors that salmonella tests aren’t even required by federal law.


Their plant in rural Blakely, Georgia, was shut down and the company went bankrupt. Long after consumers ate contaminated peanut butter, ice cream, energy bars and other products, the outbreak prompted one of the largest food recalls in U.S. history.   But Stewart Parnell, his brother and food broker, Michael Parnell, and quality assurance manager Mary Wilkerson aren’t charged with killing anybody. In fact, prosecutors agreed not to mention the death toll to the jurors.  The 76-count indictment instead accuses the Parnell brothers of defrauding customers that used Peanut Corporation’s contaminated products as ingredients. Stewart Parnell and Wilkerson are charged with concealing information from federal investigators.


Public outcry over the peanut case and several other outbreaks of food borne illness led Congress to pass the Food Safety Modernization Act of 2011, which was supposed to give the FDA more resources and enforcement power.


Salmonella causes an estimated 1.2 million illnesses every year in the United States, with about 23,000 hospitalizations and 450 deaths, according to the U.S. Centers for Disease Control and Prevention. The bacteria can cause severe diarrhea and vomiting, with infections that spread throughout the body, killing people who aren’t quickly treated with antibiotics. The elderly, infants and people with compromised immune systems are particularly vulnerable.

The CDC says it has tracked salmonella outbreaks since 1962. It even has an interactive map with county-by-county information on the impact. And while many sources are never discovered, dozens of food producers have been identified through the years. Some egregious incidents have resulted in fines, and victims have found private attorneys to file civil lawsuits that often get settled out of court. But illnesses, and deaths, continue.

 “Could all these people have been charged criminally with something? The answer is, hell yes,” said Bill Marler, an attorney who claims to have won $500 million for victims of food-borne illnesses over the past two decades.

Three other cases — a salmonella outbreak traced to eggs in Iowa, a listeria outbreak blamed on dirty cantaloupes in Colorado and an E. coli outbreak linked to Odwalla juices in California — resulted in federal plea deals without prison time. This is the first to go to trial, Marler said.

The DOJ’s press release and the February 2013 indictment are online at DOJ. The press release states the following:

Former Officials and Broker of Peanut Corporation of America Indicted Related to Salmonella-Tainted Peanut Products Allegations Include Mail and Wire Fraud, Introduction of Adulterated and Misbranded Food into Interstate Commerce with Intent to Defraud or Mislead, and Conspiracy ___________________________________________________________________________

A 76-count indictment was unsealed yesterday charging four former officials of the Peanut Corporation of America (PCA) and a related company with numerous charges relating to salmonella-tainted peanuts and peanut products, the Justice Department announced today.   Stewart Parnell, 58, of Lynchburg, Va.; Michael Parnell, 54, of Midlothian, Va.; and Samuel Lightsey, 48, of Blakely, Ga., have been charged with mail and wire fraud, the introduction of adulterated and misbranded food into interstate commerce with the intent to defraud or mislead, and conspiracy.   Stewart Parnell, Lightsey and Mary Wilkerson, 39, of Edison, Ga., were also charged with obstruction of justice.


Also yesterday, an information filed against Daniel Kilgore, 44, of Blakely was unsealed.   On the same day that charges against Kilgore were filed, he pleaded guilty to that information, which charged him with mail and wire fraud, the introduction of adulterated and misbranded food into interstate commerce with the intent to defraud or mislead, and conspiracy.  


The investigation into the activity at PCA began in 2009, after the Food and Drug Administration and the U.S. Centers for Disease Control and Prevention traced a national outbreak of salmonella to a PCA plant in Blakely as the likely source.  As alleged in the indictment, the Blakely plant was a peanut roasting facility where PCA roasted raw peanuts and produced granulated peanuts, peanut butter, and peanut paste; PCA sold these peanut products to its customers around the country.  


The charging documents charge that Stewart Parnell, Michael Parnell, Lightsey and Kilgore participated in a scheme to manufacture and ship salmonella-contaminated peanuts and peanut products, and in so doing misled PCA customers.   As alleged in the indictment, those customers ranged in size from small, family-owned businesses to global, multibillion-dollar food companies.


“When those responsible for producing or supplying our food lie and cut corners, as alleged in the indictment, they put all of us at risk,” said Stuart F. Delery, who heads the Justice Department’s Civil Division.   “The Department of Justice will not hesitate to pursue any person whose criminal conduct risks the safety of Americans who have done nothing more than eat a peanut butter and jelly sandwich.”


Although PCA is now no longer in business, the allegations against each of the defendants arise from his or her conduct while at PCA and a related company.   The following allegations are set forth in the indictment:  Stewart Parnell was an owner and president of PCA; Michael Parnell, who worked at P.P. Sales, was a food broker who worked on behalf of PCA; Lightsey was the operations manager at the Blakely plant from on or about July 2008 through February 2009; and Wilkerson held various positions at the Blakely plant – receptionist, office manager and quality assurance manager – from on or about April 2002 through February 2009.   As charged in the information, Kilgore served as operations manager of the PCA plant in Blakely from on or about June 2002 through May 2008.


“We all place a great deal of trust in the companies and individuals who prepare and package our food, often times taking it for granted that the public’s health and safety interests will outweigh individual and corporate greed,” said Michael Moore, U.S. Attorney for the Middle District of Georgia.  “Unfortunately and as alleged in the indictment, these defendants cared less about the quality of the food they were providing to the American people and more about the quantity of money they were gathering while disregarding food safety.  This investigation was complex and extensive, and I credit the cooperation of our federal agencies with not only making sure that the cause of this outbreak was uncovered and the people responsible called to account, but also with working hard every day to make sure that parents across the country can feel confident that the food they are feeding their children is safe.”


The charging documents allege that Stewart Parnell, Michael Parnell, Lightsey and Kilgore participated in several schemes by which they defrauded PCA customers about the quality and purity of their peanut products and specifically misled PCA customers about the existence of foodborne pathogens, most notably salmonella, in the peanut products PCA sold to them.   As the charging documents allege, the members of the conspiracy did so in several ways – for example, even when laboratory testing revealed the presence of salmonella in peanut products from the Blakely plant, Stewart Parnell, Michael Parnell, Lightsey and Kilgore failed to notify customers of the presence of salmonella in the products shipped to them.


In addition, the charging documents allege that Stewart Parnell, Michael Parnell, Lightsey and Kilgore participated in a scheme to fabricate certificates of analysis (COAs) accompanying various shipments of peanut products.   COAs are documents that summarize laboratory results, including results concerning the presence or absence of pathogens.   As alleged in the charging documents, on several occasions these four defendants participated in a scheme to fabricate COAs stating that shipments of peanut products were free of pathogens when, in fact, there had been no tests on the products at all or when the laboratory results showed that a sample tested positive for salmonella.  


After the salmonella outbreak that gave rise to this investigation, FDA inspectors visited the plant several times in January 2009.   According to the indictment, the inspectors asked specific questions about the plant, its operations, and its history, and, in several instances, Stewart Parnell, Lightsey and Wilkerson gave untrue or misleading answers to these questions.


 “The charges announced today show that if an individual violates food safety rules or conceals relevant information, we will seek to hold them accountable,” said FDA Commissioner Margaret A. Hamburg, M.D.   “The health of our families and the safety of our food system is too important to be thwarted by the criminal acts of any individual or company.”


Stewart Parnell, Michael Parnell, and Samuel Lightsey are each charged with two counts of conspiracy; multiple counts of introducing adulterated food into interstate commerce with the intent to defraud; multiple counts of introducing misbranded food into interstate commerce with the intent to defraud; multiple counts of interstate shipment fraud; and multiple counts of wire fraud.   Stewart Parnell, Lightsey and Wilkerson are also charged with multiple counts of obstruction of justice.


Kilgore pleaded guilty to one count of conspiracy to commit fraud, one count of conspiracy to introduce adulterated and misbranded food into interstate commerce, eight counts of introducing adulterated food into interstate commerce with the intent to defraud, six counts of introducing misbranded food into interstate commerce with the intent to defraud, eight counts of interstate shipment fraud, and five counts of wire fraud.


Mark F. Giuliano, Special Agent in Charge, FBI Atlanta Field Office, stated, “The FBI was brought in to this matter to provide additional resources and expertise to a complex and very serious investigation. We fully understand the victim impact as a result of this salmonella outbreak and will be asking to hear from other possible victims in this matter.”


Individuals who feel that they may have been affected by or have become ill from tainted PCA products, and businesses that purchased products that were recalled as a result of the outbreak, should visit the following website for further details:        


The case is being prosecuted by Trial Attorneys Patrick Hearn and Mary M. Englehart of the Consumer Protection Branch of the Civil Division of the Department of Justice and Assistant U.S. Attorney Alan Dasher of the Middle District of Georgia.   Marietta Geckos, formerly a Trial Attorney with the Consumer Protection Branch, also worked on the prosecution.   The case was investigated by the Food and Drug Administration’s Office of Criminal Investigations and the FBI.


An indictment is merely an allegation, and every defendant is presumed innocent until proven guilty beyond a reasonable doubt.




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The Modern Oxymoron: “Secure Web Site” – Liability to Follow

Posted in Cyber law issues, D + O Issues, Uncategorized

“Over a billion email accounts stolen.” The phrase sounds somewhat like the old McDonald’s ads about the number of burgers sold. For now, though, the cyber crooks are not advertising their numbers. Other sources (such as Krebs on Security), however, are revealing the numbers, and they are staggering. They also reveal a modern oxymoron: “Secure web site.”

Not surprisingly, and far too late, corporate directors are starting to be sued and lawyers are writing about Caremark duties related to cyber security.   Soon we will see arguments that the risks and harms were not foreseeable until now. But that  argument should fail since cyber security has been much discussed for many years, which is easy to see by looking at a decade of past blog posts and articles by Mr. Krebs, or the reality that the annual Black Hat security conference dates back to 1997.


Class Action Litigation In Europe in the Age of Social Media – The Facebook Example of 11,000 People Expressing a Desire to Join – A Lesson for Class Actions and Mass Tort Bankruptcies

Posted in Uncategorized

11,000 persons are said to be seeking to join a class action against Facebook, in Europe. See here. This outcome, if true, provides a concrete example that highlights the risks and due process farces inherent in current handling and distribution of notices and other information (including claim submissions)  related to class actions, and the de facto class actions commonly referred to as mass tort bankruptcies.

Statements During Settlement Negotiations Can Be Used for Many Purposes – Insurance Companies and Others Seek to Pervert the Principles of Rule 408 and State Law Analogs

Posted in Insurance, Insurance Coverage for Tort Claims

Rule 408 and analogous state law rules are intended to protect a good faith settlement offer from being used at trial to prove liability. See generally “Of “Purposes Not Prohibited”:  New Federal Rule of Evidence 408(B),  40 Creighton L. Rev. 679 (2007).  Insurers (and others), however, have perverted the principles of Rule 408 to try to shield their “bad faith” (really, failure to act good faith) conduct from any scrutiny. For example, insurers fail to make up front, timely good faith settlement offers to insureds (or the victim of an insured’s negligence), and seek to delay, deny, defend on any possible ground. Meanwhile, the insured may well become cash strapped and desperate for any money, leading to an unfair “settlement” extorted by the insurer by failing to honor its obligations. Consider, for example, the plight of an asbestos defendant facing dozens or hundreds of  personal injury claims, but an insurer or its TPA resolutely refuses to pay for anything, citing some real or imagined issue about long-term apportionment of financial responsibility between multiple insurers.

At about that moment, insurers may demand that the insured sign a document containing a waiver of the right to offer evidence – for any purpose – of subsequent acts by the insurer.  For example, in California, the insurer may  demand a “White Waiver” as a prerequisite to having settlement talks. The point of the White Waiver is to block the insured from using any part of the remaining settlement dance to prove the insurer’s failure to act in good faith.

Courts need to block forced waivers when demanded by insurers, TPAs or others  - one party to a contract does not have a right to withhold performance until the other waives contract rights. The proper name for withholding performance is breach of contract. And Rule 408(B) makes it plain that the rule never was intended to protect insurers or others against claims for failure to act in good faith, and the rule was never intended  to throw a privilege shield around all communications between insureds and insurers, or all communications between multiple insurers. For example, Rule 408 does not block discovery of and trial use of communications between third-party claim adjusters and insurers involved in wrongful conduct, even if the “adjuster” is a lawyer. For cites to that effect, see this February 14, 2014 post from Presnell on Privilege and other posts linked in that post. Or see this recent NY opinion, among others cited by Mr. Presnell. Nonetheless, more and more insurers are hiring law school graduates to act as adjusters, and then are asserting blanket claims of privilege for any and all communications, as described in a March 1, 2013 article by Joe Cahill in the ABA Journal.

How Common or Rare is Corporate Fraud ?

Posted in Fraud

Facts are useful when debating the extent of fraud. Within the world of corporate fraud, a useful source for some facts is KPMG’s 2013 summary report on corporate fraud. According to the web page for the study:

“Global profiles of the fraudster contains KPMG International’s analysis of 596 fraudsters member firms investigated between 2011 and 2013 with insights into the relationship between the attributes of fraudsters, their motivations and the environments in which they flourish.

KPMG International gathered data from fraud investigations conducted by KPMG member firms’ forensic specialists in Europe, Middle East and Africa (EMA), the Americas, and Asia-Pacific regions between August 2011 and February 2013.

The survey examined ‘white-collar’ crime investigations conducted across the three regions where we were able to identify the perpetrator and could provide detailed contextual information on the crime.

We have developed a series of themes in order to understand the changing relationship among the fraudster, his/her environment and the frauds committed. And after taking into account the insights of our investigation leaders around the world, we conclude that the type of fraud and the type of fraudster are continually changing.”


Update on the Status of the Delaware Litigation Industry in Terms of Changes in State Court Judges

Posted in Litigation Industry

The status of the litigation industry in Delaware in terms of changes in state court judges is covered in a July 30, 2014 post from Edward McNally at Morris James. Delaware of course remains one of the outlier jurisdictions that lacks an abundance of the historic economic advantages (e.g. land, oil, gold, etc), and so it seeks to thrive by creating an industry tied to particular sets of financial interests and related laws. Despite claims that entrepreneurs thrive on risk, the popularity and existence of Delaware and other outlier jurisdictions proves that the opposite is true – investors want to maximize certainty and predicability.

The review of the Delaware industry does not mention other aspects of the Delaware litigation industry. For example, the post does not cover the October 2013 failure of the efforts to create secret Delaware arbitrations runs by Chancery judges. The update also does not cover changes in the Delaware bankruptcy court.  For years, Delaware and New York lawyers and businesses built a thriving bankruptcy practice with predictable rulings.  The court’s rulings, however, produced a large number of economic failures, according to Professor Lynn LoPucki’s  2005 book:  Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts.