Great Lakes Compact approved in Michigan

The Detroit News reports today that the Michigan Senate and House voted Wednesday to include Michigan in the Great Lakes Compact, a historic international compact designed to reserve all the water in the Great Lakes for the surrounding eight states and two Canadian provinces.   

Jeffrey Skilling: Still appealing after all these years

On April 2, the 5th U.S. Circuit Court of Appeals heard oral arguments in an appeal by Jeffrey Skilling, former CEO of Enron, of his criminal conviction for his part in the 2001 collapse of the world’s largest energy trading company. Mr. Skilling began serving a 24-year sentence in December, 2006, after being convicted of 19 counts of conspiracy, securities fraud, insider trading, and lying to auditors in connection with Enron’s downfall. He was therefore not in court on April 2 as his attorneys tenaciously argued that the prosecutors’ case against him was fatally flawed in multiple ways. While experts suggest that some of Skilling’s grounds for appeal may have merit, there remains little doubt that he deserves to serve significant time in prison for his role in Enron’s demise.

Skilling is challenging his convictions on several fronts. He is, among other things, alleging Brady violations, that the prosecution suppressed vital exculpatory evidence by failing to produce over 400 pages of raw notes from Federal Bureau of Investigation interviews with Andrew Fastow, former Chief Financial Officer at Enron. Skilling claims the interviews show inconsistencies and contradictions with Fastow’s testimony at trial regarding Skilling’s knowledge of the bogus nature of the financial schemes, masterminded by Fastow, which led to Enron’s bankruptcy. That testimony was the only direct evidence produced at trial of Skilling’s complicity in the fraud.

Legal experts are forecasting, however, that Skilling’s Brady claim will be unsuccessful because the trial judge reviewed the FBI notes at trial and concluded they had minimal value in impeaching Fastow. The government also contends that Skilling received more than 200 pages of notes plus summaries of the interviews prior to trial and that he is now taking isolated information from the notes out of context to make his challenge.

Skilling’s best chance of success on appeal appears to instead depend on a challenge to his wire fraud conviction. Skilling was convicted of conspiracy to commit wire fraud under the “honest services provision” of the federal wire fraud statute. That provision makes it a crime for anyone to knowingly carry out a scheme to defraud using interstate wire communications, including any “scheme or artifice to deprive another of the intangible right of honest services.” The concept of “honest services” is not defined in the statute, but the U.S. Circuit Courts of Appeal have limited it in various ways over the years to include specific kinds of fiduciary breaches.

Government attorneys who prosecuted the large number of criminal cases resulting from Enron’s collapse favored the honest services doctrine because of its easier burden of proof. The complicated nature of the sham transactions which falsely pumped up Enron’s stock price made it difficult to prove the elements of a securities fraud case. The prosecutors therefore also alleged “honest services” wire fraud wherever possible, which essentially required only a showing that the defendant had knowingly made material misrepresentations resulting in a breach of his or her fiduciary duty to the company and its shareholders.

Skilling was convicted of conspiracy to commit fraud based on this honest services theory. The government argued at trial that Skilling robbed Enron of his honest services by knowingly approving off-balance sheet and other transactions that fraudulently misrepresented the financial health of the company.

Shortly after Skilling’s conviction, however, the 5th Circuit ruled that the government’s use of the honest services theory in another Enron-related case, U.S. v. Brown, was fatally flawed. The court stated that a corporate employee does not unlawfully deprive his employer of honest services when the employee’s conduct is in furtherance of the employer’s stated goals. When the dishonest conduct does not involve self-dealing or bribery and is not at the expense of the company but rather in pursuit of corporate goals, honest services wire fraud does not apply. The court therefore held that Enron employees who carried out sham transactions to artificially boost Enron’s earnings were nevertheless not guilty of this type of fraud.

Experts claim that Brown calls for a reversal of Skilling’s conviction of conspiracy to commit honest services wire fraud. Skilling’s lawyers argued on April 2 that he may have been guilty of risky or even improper behavior, but he was always acting in the corporation’s best interests, to further the corporate goal of improving Enron’s share value. They in fact went further and claimed that because jury instructions linked his other convictions to the allegedly invalid conspiracy count, all the convictions are tainted and should be reversed.

Few commentators think the 5th Circuit would go so far as to dismiss the entire case against Skilling if it throws out his conviction for conspiracy. And that seems to be the right result given that each of the numerous additional counts, which related to multiple transactions over several years, was proved independently at trial. Given the jury’s findings of Skilling’s extensive involvement in the Enron debacle, he will, in all likelihood, rightly remain in prison for a long time. Regardless of the outcome of this appeal.

For the disenfranchised, who can we sue?

Michigan and Florida seem to be at the end of the road in their attempts to reverse the Democratic National Committee’s decision to strip the states of their delegates. Both states have held fruitless discussions about staging another primary, mail-in vote, or caucus that would comply with Democratic National Committee rules. And both states have appealed to the DNC’s Rules and Bylaws Committee to reverse its decision, so far to no avail. As it becomes apparent that remedial efforts such as these will not restore our delegates, the more litigious among us are asking who we can sue.

That question, as it turns out, has been asked and answered. Lawsuits have been filed and subsequently dismissed against state election officials in both Florida and Michigan, with the courts ruling that individual voters have no standing to challenge state election rules. Other lawsuits have been filed and dismissed against the Democratic National Committee, where the rulings appear bent on protecting the DNC’s First Amendment right of free association. It seems that in litigation also, the Michigan and Florida delegates are on a road to nowhere. Which is, unfortunately, as it should be. Judges and legal experts seem to agree that the convention, not the courts, is the proper forum for settling this essentially intra-party dispute.

There is one case that remains doggedly alive in the 11th Circuit, however, and it deserves watching. On August 30, 2007, Victor DiMaio, a Democratic party activist and political consultant sued both the DNC and the Florida Democratic Party. DiMaio sought a declaratory judgment that the state party’s failure to comply with DNC rules and the DNC’s refusal to seat Florida’s delegates violated his constitutional right to vote for President under Article II of the Constitution and his right to equal protection under the 14th Amendment.

DiMaio claimed that the DNC violated the Equal Protection Clause by allowing four states to hold primaries earlier than others. He alleged that it further discriminated against and disenfranchised Floridians by stripping them of their delegates. DiMaio also claimed that the state party had an obligation to its members under Article II to ensure that they participate in selecting a Democratic nominee for President. He therefore asked the court for an alternative ruling requiring the state party to change its chosen primary date to comply with DNC rules. Nowhere in the complaint did DiMaio allege that he either voted or intended to vote in the Florida primary.

The state and national parties moved to dismiss, and on October 5 the district court granted their motion without a hearing, stating in harsh language that DiMaio wholly failed to assert any real or particularized injury since he had not voted. The court further held that even if DiMaio could somehow establish standing, he failed to state a claim against either party on the merits. The court noted that Article II confers no actionable right on any individual voter, and with respect to the 14th Amendment claims, the actions of the political parties were not state actions. In any event, the court cited Supreme Court precedent for the rule that political parties have a constitutionally protected right of free association under the First Amendment to manage and conduct their own internal affairs, including the enforcement of delegate selection rules, and that right generally prevails over countervailing state or individual interests.

DiMaio appealed, and although a three-judge panel of the 11th U.S. Circuit Court of Appeals affirmed the lower court dismissal based solely on a lack of standing, the court also held that the complaint should be dismissed without prejudice so that DiMaio might refile after voting in the primary. The 11th Circuit opinion, while not long, made headlines for stating at the beginning that the “appeal raises a number of interesting and potentially significant questions concerning the impact of the Equal Protection Clause on an individual’s right to vote in a primary election, the extent of the Fourteenth Amendment’s state action requirement and the associational interests of national political parties.”

The press took this language as encouragement, noting also that the court concluded its decision by citing case law that DiMaio “might consider” in a future suit. Unfortunately, the case law that DiMaio was admonished to review was Supreme Court precedent holding not just that national political parties have the right to limit their association as they choose under the First Amendment, but that even state interests in preserving the overall integrity of the electoral process do not normally justify a substantial burden on that right.

Nevertheless, DiMaio has already refiled his complaint and promises to take the case all the way to the Supreme Court if necessary. While we may not know the outcome of the case by August 25th when the national party meets in Denver, we will at that point have finally arrived at the proper forum for determining the fate of our delegates, at long last.

U.S. Supreme Court upholds voter I.D. law in Indiana

The Court issued a 6-3 decision today, written by Justice John Paul Stevens, upholding an Indiana law that requires voters to present photo identification when voting in-person in elections. The law was challenged as unfairly burdening the voting rights of the elderly, poor and minorities, who may find it more difficult to obtain such identification. In upholding the law, the court held that the state has a "valid interest" in preventing fraud in elections.

Margaret Spellings issues new proposed regulations under NCLB

Unable to get Congress to act, the administration proposed yesterday new regulations which would require, among other things, that states to use a standardized system to calculate their graduation rates, and make reasonable efforts to notify parents of students in struggling schools of available tutoring programs or possibilities for transfer to higher-performing schools.

State product liability laws under attack by Supremes

Last month the U.S. Supreme Court ruled in the case of Riegel v. Medtronic Inc. that state product liability claims relating to medical devices are preempted under a provision of the federal Medical Device Amendments of 1976. The effect of the ruling is to bar common law tort claims challenging the safety of any medical device that has received pre-market approval from the U.S. Food and Drug Administration. The Bush Administration is celebrating a decision which supports its view that juries should not be allowed to second guess the expert judgment of the FDA in balancing the risks and benefits of these products. Democrats on Capitol Hill are, on the other hand, condemning the decision as contrary to their intent in passing the MDA. Consumer advocates and personal injury lawyers are likewise outraged that the court has eliminated such an essential tool for ensuring consumer health and safety in the use of inherently risky products.

Unfortunately, Medtronic will not be the Supreme Court’s final word on when FDA approval may preempt personal injury litigation. The real test will come next term when the court hears Wyeth v. Levine, a case which presents the much broader issue of whether FDA drug approval is grounds to preempt common law tort claims based on the manufacture and labeling of the drug. The companies in these cases have made interesting arguments that personal injury litigation weakens the authority of the FDA, which is more qualified than the courts to develop safety standards for the products it regulates. The bottom line is, however, that common law product liability claims are essential to motivate manufacturers to monitor the safety of their products both before and after they reach the market, especially these days when the FDA is understaffed, underfunded and criticized as unable to effectively regulate its industries.

The Medtronic case involves the Medical Device Amendments of 1976, which created a federal regulatory scheme for FDA oversight of medical devices. After a heart catheter ruptured in Charles Riegel’s coronary artery during heart surgery, Mr. Riegel and his wife sued, alleging common law claims of strict liability and negligence in the design, manufacture, testing, inspection, and labeling of the catheter. The Supreme Court dismissed the claims based on a preemption provision in the MDA which states innocently enough that where the FDA has established specific requirements applicable to a particular device, a state cannot establish different or additional requirements.

Justice Scalia delivered the opinion of the court, holding that because the catheter was in a class of devices subject to an extensive pre-market FDA approval process, the FDA had in fact established specific requirements applicable to the catheter and any state jury award that imposed liability despite their satisfaction effectively imposed additional or different requirements under the ordinary meaning of those terms. As Justice Scalia put it, a state tort liability award “‘can be, indeed is designed to be, a potent method of governing conduct and controlling policy.’”

Legal scholars contend that the Medtronic decision is not as alarming as it first appears because of the constraints of MDA’s preemption provision. Unfortunately, most of Justice Scalia’s reasoning could be extended to other cases of products regulated by federal agencies. Justice Scalia noted that the FDA spends an average of 1,200 hours reviewing each multivolume application, which includes full reports on a device’s safety and effectiveness, including details of the manufacture, processing, packaging, and installation of the device. In approving any application, the FDA weighs the probability of benefit against any risk of injury or illness, an essential determination that unscientific state juries in common law tort cases are unable to make. He concluded that while state tort laws may require safer products, the FDA’s expert risk analysis is the more appropriate process for determining safety standards for all purposes, including liability determinations.

The Wyeth case next term will grant the court an opportunity to extend this reasoning to the drug industry generally, which is governed by the federal Food, Drug and Cosmetic Act. Wyeth is significant because the FDCA, unlike the MDA, contains no preemption clause. However, since the process for approving new drugs is at least as rigorous as the premarket approval process for medical devices, commentators are speculating that the court may rule that federal oversight of pharmaceuticals should confer tort immunity on drug manufacturers if they comply with federal standards.

Of even larger concern is the possibility that the court will eventually extend its reasoning to other products regulated by federal agencies, such as cars, food, toys and appliances. Such a result would effectively gut product liability laws, which would be appalling at a time when both federal agencies and the regulations they administer have been severely weakened. The FDA and the Consumer Product Safety Commission in particular have been the focus of reports in recent years finding serious inadequacies in their management and scientific capabilities. Given this reality, any extension of the rule of Medtronic to drug or other product manufacturers would be highly unwarranted. Manufacturers need to know that the judicial system will impose responsibility where administrative agencies fail to ensure products are reasonably safe for consumers. Our product liability laws are essential to providing that safety net. The Supreme Court would be wrong to take that away.

Federalism is essential to good education law

The No Child Left Behind Act, signed into law by President Bush in 2001, was up for reauthorization in September of last year. After a bipartisan commission made over 75 recommendations suggesting aggressive changes to the act, legislators in the House and Senate have had difficulty putting together a responsible reauthorization package that both Republicans and Democrats can love. In fact, experts are doubtful the law will get reauthorized this year, given the opposition in both parties and the fast approaching presidential election. For that reason, last month U.S. Secretary of Education Margaret Spellings announced a new pilot program under NCLB to allow states increased flexibility in implementing required reforms in the overwhelming number of schools found to be failing since the law was enacted.

Unfortunately, experts are calling this latest fix from the Bush Administration a band-aid that will do little to make the law’s requirements more feasible or effective. While the pilot program will give some policy-making authority back to the states, more and more experts and lawmakers on both sides of the aisle are taking the position that the only way to truly fix NCLB is to return most of the control over America’s schools to state and local governments. In fact, education policy in the United States constitutionally and historically rests with state and local government, and the NCLB experiment in national regulation is a lesson in why the dictates of federalism should control.

The U.S. Constitution does not list education as an area in which the national government is empowered to act, leaving education policymaking and funding to the states. Historically the federal government has therefore had only a limited involvement in education. Consistent with principles of federalism, lawmakers believed it was better to have regulatory power reside with local stakeholders who have the ultimate responsibility for delivering, monitoring and improving the quality of the classroom experience. They understood that decentralized control allowed each state to innovate, observe and learn from their successes, and perhaps more importantly, leverage the successes and failures of others. As we have seen with NCLB, policy failure at the national level has devastating ramifications which are avoided with decentralized decision-making.

With No Child Left Behind, federal authority over education increased dramatically. In response to reports in the 1980s that our education system was behind that of other nations, complaints from business owners and colleges about high school graduates’ poor language and math skills, and a growing achievement gap between the rich and poor, the Bush Administration significantly expanded the federal role in education policy.

NCLB is a top-down statute requiring states to create and schools to administer annual standardized testing, with the goal of making yearly progress toward attaining proficiencies in math and reading among all student groups by 2014, differentiating based on grade level, race, and disabilities. Individual schools report annual testing results and if a school repeatedly falls short of benchmarks for one or more student groups, it is labeled as failing and faces sanctions which can include forced use of federal money for private tutoring, expanded transfer rights for students, and ultimately, restructuring.

In the last six years, 9000 of the country’s 90,000 schools were identified as failing, overwhelming state resources. NCLB carries enormous costs, and state and local revenues do not provide nearly enough money to shoulder the increased burden. While the federal government provides only 8 percent of education funding, studies have found that federal mandates result in 41 percent of state expenditures on education. On top of these administrative issues, researchers have found a critical problem with the law. Many states have lowered standards and test passing thresholds in order to show yearly progress under the law and avoid sanctions. Students are learning less under the NCLB regime than they did prior to its enactment, even where test scores are showing improvement. Critics are calling this the NCLB “race to the bottom.”

While the Bush Administration has not acknowledged this major flaw, last month they did acknowledge that NCLB is diagnosing too many public schools as failing by treating schools not meeting benchmarks for one or two student groups the same as those not meeting benchmarks for any. The pilot program that Ms. Spellings introduced is designed to address this problem by allowing 10 states to intervene only in schools in need of dramatic improvement, and in doing so, create their own plan for improvement rather than impose federally-mandated sanctions.

This return of control to state and local governments is encouraging, but it is not enough. Educators know there are tremendous variations in local conditions which demand different approaches to teaching across the country. Decision-making power needs to be in the hands of those who are familiar with the conditions of the classroom. While NCLB has appropriately focused the education debate on academic results and the achievement gap, the federal government has little institutional knowledge with which to successfully address these problems, and the stakes are great if they fail, as the last six years have shown. The goals of NCLB are laudable, but reauthorization efforts must include significant provision for giving states the control they need to reach those goals through programs that will work for them.