Blawgletter®

More Air Cargo Guilty Pleas

Six of the world's biggest air cargo freight-forwarders have signed up to plead guilty to participating in international price-fixing conspiracies and to pay fines totaling just north of $50 million, the Antitrust Division of the U.S. Department of Justice disclosed today.

Freight forwarders serve as the middle persons between outfits that have cargo to ship and carriers that can get it from point A to point B.  They work for the shippers and bill the them for their services.

The DOJ's press release said that different combinations of the six guilty-pleaders agreed in six separate conspiracies to impose extra charges on their customers, including an Air Automated Manifest System fee, a New Export System fee, a Current Adjustment Factor charge, and Peak Season Surcharge.  The earliest conspiracy started in 2002, and the last one ended no sooner than the end of 2007, according to the release.

On Monday, the DOJ reported an impending guilty plea and promise to pay a $40 million fine by an air cargo carrier, China Airlines.  (Post here.) 

Today's press release mentioned two conspiracies involving shipments from China and Hong Kong, respectively.  China Airlines serves several cities in mainland China as well as Hong Kong.

China Airlines Agrees to Cargo Price Fix Guilty Plea

China Airlines, Ltd., a Taiwan carrier, has agreed with the Antitrust Division of the U.S. Department of Justice to plead guilty to price-fixing charges for air cargo services to and from the United States and to pay a $40 million fine, the DOJ announced on Monday.

The deal will bring the total fines the DOJ has collected for the pric-fixing conspiracy to more than $1.6 billion.

The DOJ press release listed the other carriers that have pleaded or agreed to plead guilty:

The airlines that have pleaded guilty, or have agreed to plead guilty, as a result of the department's ongoing investigation into the air transportation industry are: British Airways Plc, Korean Air Lines Co. Ltd., Qantas Airways Limited, Japan Airlines International Co. Ltd., Martinair Holland N.V., Cathay Pacific Airways Limited, SAS Cargo Group A/S, Société Air France, Koninklijke Luchtvaart Maatschappij N.V. (KLM Royal Dutch Airlines), EL AL Israel Airlines Ltd., LAN Cargo S.A., Aerolinhas Brasileiras S.A., Cargolux Airlines International S.A., Nippon Cargo Airlines Co. Ltd., Northwest Airlines LLC and Asiana Airlines Inc. Additionally, on Sept. 2, 2010, Polar Air Cargo LLC was charged in this investigation and is scheduled to enter a guilty plea and be sentenced on Oct. 15, 2010.

DOJ Pact to Stop High Tech Hiring Hiatus

Google agreed with other high tech giants not to cold call each other's employees with a view to poaching them.  The deals included Intel, Apple, Pixar, Intuit, and Adobe Systems.

Yesterday, the Antitrust Division of the U.S. Department of Justice said it reached a different kind of deal -- a five-year agreement with the companies to stop with the "Do Not Call Lists".  The AD also filed a complaint in the District Court for the District of the District of Columbia.  The pleading alleged:

• Beginning no later than 2006, Apple and Google executives agreed not to cold call each other's employees. Apple placed Google on its internal "Do Not Call List," which instructed employees not to directly solicit employees from the listed companies. Similarly, Google listed Apple among the companies that had special agreements with Google and were part of the "Do Not Cold Call" list;
  
  
• Beginning no later than May 2005, senior Apple and Adobe executives agreed not to cold call each other's employees. Apple placed Adobe on its internal "Do Not Call List" and similarly, Adobe included Apple in its internal list of "Companies that are off limits";
  
  
• Beginning no later than April 2007, Apple and Pixar executives agreed not to cold call each other's employees. Apple placed Pixar on its internal "Do Not Call List" and senior executives at Pixar instructed human resources personnel to adhere to the agreement and maintain a paper trail;
  
  
• Beginning no later than September 2007, Google and Intel executives agreed not to cold call each other's employees. In its hiring policies and protocol manual, Google listed Intel among the companies that have special agreements with Google and are part of the "Do Not Cold Call" list. Similarly, Intel instructed its human resources staff about the existence of the agreement; and
  
  
• In June 2007, Google and Intuit executives agreed that Google would not cold call any Intuit employee. In its hiring policies and protocol manual, Google also listed Intuit among the companies that have special agreements with Google and are part of the "Do Not Cold Call" list.

Delaware Court Okays Reverse Contingent Fee

You may recall Blawgletter's thoughts on "How to Negotiate a Reverse Contingent Fee".  We said:

The [reverse contingent fee] agreement with the client calculates the RCF as a percentage of the savings off of a benchmark number.  The benchmark reflects an estimate of the client's possible exposure.

By way of example, if the law firm and client agree that a patent infringement case exposes the client to potential liability of $10 million, the RCF would equal a percentage -- 40 percent, say -- of the difference between $10 million and any lower amount that the client pays in settlement or as a result of a judgment.  If we zero out the plaintiff, our fee totals $4 million -- .4 x ($10 million - $0) = $4 million.

You can also base an RCF on achieving goals -- such as winning a motion to dismiss or for summary judgment.  And you can use a multiplier of hourly fees to compute the premium.

The ex-CEO and COO of PRC, LLC, did just that.  Wesley T. O'Brien hired three different law firms to represent him in connection with an arbitration and litigation arising from claims that he defrauded and breached fiduciary duties to PRC.  O'Brien won.  And then he sought to recover his defense costs from PRC and its parent, IAC/InterActive Corporation, under an Indemnification Agreement and a Merger Agreement.

O'Brien had agreed to pay two of the firms a 20 percent premium on top of their hourly fees if O'Brien prevailed.  He contracted with a third firm to remit a 100 percent bonus.  Vice Chancellor Parsons, in the Delaware Court of Chancery, had to decide the indemnitors had a duty to pay not only the hourly fees but also the "success" fees.

The court held that the indemnitors did, indeed, have such an obligation.  Although O'Brien had in fact paid only a fraction of the fees he agreed to, the court ruled, he had "actually incurred" them "because he was obliged to pay that amount".  The court also rejected the indemnitors' argument that "a modest success premium is per se unreasonable in the case of officers and directors seeking indemnification from their corporations."

The Vice Chancellor allowed the 20 percent reverse contingent fees but cut the 100 percent premium for the third firm to 50 percent.  O'Brien v. IAC/InterActive Corp., No. 3892-VCP (Del. Chanc. Aug. 27, 2010)

Why would a client agree to a reverse contingent fee?  Most often to save cash, especially if the client doesn't have funds to pay hourly.  As with a regular contingent fee, the reverse variety allows the client to retain capable counsel and align the lawyers' interests with those of the client.

[Hat tip to Delaware Corporate and Commercial Litigation Blog, which discusses O'Brien here.]

Tenth Circuit Upholds $16.5 Million USF Verdict

A 2-1 panel of he Tenth Circuit today affirmed a $16.5 million award to a subclass of AT&T's California residential landline customers for overcharges on the carrier's contributions to the Universal Service Fund.  Cummings v. AT&T Corp., No. 09-3059 (10th Cir. Sept. 20, 2010) (applying New York law).

A Kansas City jury found in November 2008 that AT&T breached its Consumer Service Agreement by charging customers more than it paid into the Universal Service Fund.  The CSA described AT&T's Universal Connectivity Charge as "a monthly charge . . . to recover amounts AT&T must pay" into the Fund.  The jury rejected price-fixing claims.

USF payments by AT&T and other carriers help hospitals, schools, and other institutions afford communications services, including Internet access.

The panel also ruled 3-0 that AT&T did not breach its contract with business customers and 2-1 that sections 201 and 202 of the federal Communications Act preempt a substantive unconscionability challenge to the arbitration clause in the CSA under New York law.

Circuit Judge Murphy wrote the main opinion.  Circuit Judge Holmes dissented on the award to the California subclass;  District Judge Pollak (E.D. Pa.) dissented on preemption.

Blawgletter served as lead trial counsel for the plaintiffs in the case and argued the breach of contract issues in January.  Paul Bland presented arguments on preemption and unconscionability.

Hypomania

Do you have hypomania?

The New York Times printed an article on hypomania today -- or, as the paper of record put it, "Just Manic Enough:  Seeking Perfect Entrepreneurs".

The item says:

[A] thin line separates the temperament of a promising entrepreneur from a person who could use, as they say in psychiatry, a little help.  Academics and hiring consultants say that many successful entrepreneurs have qualities and quirks that, if poured into their psyches in greater ratios, would qualify as full-on mental illness.

Wikipedia defines hypomania this way:

Hypomania (literally, below mania) is a mood state characterized by persistent and pervasive elevated or irritable mood, as well as thoughts and behaviors that are consistent with such a mood state. Individuals in a hypomanic state also have a decreased need for sleep and rest, are extremely outgoing and competitive, and have a great deal of energy. However, unlike with full mania, those with hypomanic systems are fully functioning, and are often actually more productive than usual. Specifically, hypomania is distinguished from mania by the absence of psychotic symptoms and by its lower degree of impact on functioning.

Do you know many lawyers whose personalities fit the hypomania definition?  We don't.

We expect that a Small Number of lawyers do suffer from hypomania.  Some of the Small Number, we imagine, start their own firms.  They can't help it.

The Times item hinted at a possible downside of hypomania:

[V]enture capitalists spend a lot of time plumbing the psyches of the people in whom they might invest. It’s not so much about separating the loonies from the slightly manic. It’s more about determining which hypomanics are too arrogant and obnoxious — traits common to the type — and which have some humanity and interpersonal skills, always helpful for recruiting talent and raising money.

By coincidence, this evening we saw a 60 Minutes interview of Marc Dreier, the New York lawyer who founded Dreier LLP and who, according to the program, scammed investors out of $400 million.  Did Mr. Dreier suffer from hypomania?  A little too, uh, quirky?

Attack on Arbitration Clause Need Not Appear in Complaint, Ninth Circuit Holds

The wacky world of litigating arbitration issues keeps getting wackier.

Witness today's Ninth Circuit ruling that, no, by golly, a party needn't include in its complaint an explanation of why it doesn't have to arbitrate. 

The defendant, Fastbucks, which franchises "payday loan" stores in California and elsewhere, including its home state, Texas, urged that Golden State franchisee Bridge Fund, couldn't resist Fastbucks's motion to compel arbitration because Bridge Fund lacked the foresight to explicate in its complaint that California law wouldn't abide the clause's unconscionable features.

Yes, folks, we've now come to the point that whether you must arbitrate a dispute may turn on whether you anticipated the arbitrability question in the complaint -- the one you filed with a view not to arbitrate the dispute.

To its credit, the Ninth Circuit spent only 3.5 pages on the question.  And proceeded to affirm the district court's refusal to compel arbitration under California conflict of laws and unconscionability principles.  Bridge Fund Captal Corp. v. Fastbucks Fin'l Corp., No. 08-1707 (9th Cir. Sept. 16, 2010).

Quote of the Day: Larry Bodine

These rankings are the bedbugs of law firm marketing.

Larry Bodine, "Oh No!  The U.S. News Law Firm Rankings are Out Tomorrow", Larry Bodine Law Marketing Blog, Sept. 14, 2010) (referring to 2010 Best Law Firms in October issue of U.S. News & World Report).

Tax Cut Muddle

Federal income tax cuts expire at the end of this year.  Or should we say that taxes rise on New Year's Day?  Or that tax rates revive when that ball in Times Square reaches its nadir?

No matter what you call what will happen a few months hence tax-wise, Blawgletter cannot, for the life of us, figure out One Simple Thing.

We've heard and read lots about keeping current tax rates in place for poor people and the middle class.  We've also witnessed Much Discussion, tax-wise, about "the wealthiest Americans" (NYTimes) or "high-income earners" (WSJ).  But What Does It Mean to distinguish between wealthy/high-income people, on the one hand, and everybody else, on the other?

As best we can tell, the rule we learned in law school Taxation will keep applying:  Your federal income tax rate starts small at the low-end and rises as your income grows. 

In 2009, for instance, you paid 10 percent on every taxable dollar you earned up to $16,700; 15 percent for taxable dollars between $16,700 and $67,900; 25 percent between $67,900 and $137,050; 28 percent between $137,050 and $208,850; 33 percent from $208,0850 through $372,950; and 35 percent for everything above $372,950.

All of which means, we think, that the Debate over expiring tax cuts, raising taxes, and reviving old rates at the end of this year boils down to a Debate over the ascending rates that'll apply to income above $250,000.

Why, we wonder, does the Debate relate to "the wealthiest Americans" and "high-income earners" instead of "earnings in excess of $250,000"?

We can see why politicos would want to personalize the discussion.  We guess they picture electoral gold.  But would it kill journalistas to make clear that people who make $250,001 won't suddenly see their IRS bill jump from an average of less than 25 percent to more than 33 percent?

Too hard to explain?  How about:  Big earners would pay at higher rate only to extent they reap over $250,000.  Or:  Obama would preserve tax rates for incomes up to a quarter-million dollars, raise rates for excess amounts.

Quote of the Day: Damon Darlin

[A] nerd is someone . . . who has more e-mail addresses than pants.

Damon Darlin, "Behind My Seven Phone Numbers", The New York Times, Sept.12, 2010.

(Note:  The online version of the article changed the title to "Cellphone Carriers Are Turning to Wi-Fi, Too".)