The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

Compensation based on results aligns the interests of the lawyer with those of the client.

We’ve been living in the 21^st century for nearly eleven years.  When will the Supreme Court get here?

In a decision right out of the Gladstone era, the Supreme Court refused to even consider alternatives to the status quo, hourly (“lodestar”) billing method used by attorneys.  Why not, particularly when even the most white shoe of law firms (charging by the ever-growing billable hour) are laying off associates and dumping partners left and right?  Change should be considered from anybody’s perspective.  But I suppose the decision is not altogether surprising for a group of nine who have limited experience in the “real” legal world.  Sure, the Chief Justice had a stint as an $895/hour at Covington & Burling in Washington, DC.  But most of the Court’s experience was decades ago.

The simple fact is billing flexibility benefits the clients and attorneys.  Lawyers should be paid for the value they provide their clients; clients should only have to pay for the value they receive from their lawyers.  And sometimes that demands an adaptation of the hourly billing method.

Most importantly:

Compensation based on results aligns the interests of the lawyer with those of the client.

Traditional hourly rates don’t do so.  In fact, hourly billing does precisely the opposite — it creates an incentive for lawyers to overbill and for clients to minimize billing to save money.  That friction serves nobody’s purpose and creates an obvious impairment to a lawyer’s independence and objectivity.

I don’t mean to suggest that there is no place for the billable hour.  Courts can and should continue to look to hourly billing as a starting point to determining appropriate fees.  But lawyers and clients should have some flexibility to tailor the compensation structure.  The Supreme Court did us all a disservice with this narrow-minded ruling.

Assisted by David Martin

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Yesterday, I sat down with Steve Berk and had a short discussion about class action lawsuits. In this interview, Steve describes the nature of class action cases, the role of class representatives, and debunks some common rumors about class action attorneys.

Enjoy:

Assisted by Zach Kady

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An important securities law story went underreported last week: The SEC ordered the State of New Jersey to cease and desist fraudulent activities related to the funding of its state pension plans. This marked the first time the SEC had initiated a securities-fraud case against a state.   The New York Times reported that from 2001 to 2007 New Jersey claimed in filings with the SEC to have set aside funds in a “benefit enhancement fund” in order to pay for new benefits for teachers and general state employees.

 In reality, the fund was a simple accounting trick – there was no money and no fund. The SEC did not impose monetary damages or penalties on the New Jersey government or any of the officials associated with the fraud.   Moreover, the SEC failed to act at all against the investment bankers who underwrote and managed the fund.   Hmmmmm?  While the SEC’s effort to protect the pension funds of state employees is surely admirable, why give the underwriters and bankers a free pass?  Enforcement efforts must have some teeth to them.  Name names and impose penalties that will hurt.  If not, pension assets will remain at risk.

Assisted by Zach Kady

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Steve Berk Explains the Role of Whistleblowers in Maintaining Corporate Integrity

Published 8/27/2010

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Are you thinking, Wait a second, isn’t that simply making the car less of a hybrid and more of a standard gasoline-powered car?  Yep.  That’s exactly what the “upgrades” do.

Recently, Ken Bensinger of the Los Angeles Times reported on what appears to be a fundamental defect in the hybrid system that Honda used in its Civic model beginning in 2006. 

In 2006, Honda altered the Integrated Motor Assist (“IMA”) system in its Civic Hybrid.  The IMA dictates when the battery power runs instead of or in conjunction with the gas engine—it manages the “hybrid” aspect of the car.  Early reviews of the new Civic Hybrid were positive, but after a year or so of driving the car, owners began to experience constant low battery levels, especially in hot weather. 

The problem seems to be that the IMA system directs the battery to remain off when its power is low, and the Civic “Hybrid” runs exclusively on gas as it tries to recharge the battery.  In other words, it ceases to function as a hybrid.

Owners brought their 2006 and 2007 Civic Hybrids to dealerships en masse.  When Honda categorically refused to fix the problem free of charge (a new hybrid battery costs up to $3000 all told), owners rightfully objected.  Backlash became strong enough that this month, Honda issued a letter to owners containing an “explanation” and a “solution.”  The explanation: “frequent stop-and-go driving during warm weather” (as if Honda’s marketing of the Civic Hybrids was limited to a traffic-free, moderate-weather environment – say a small part of Eastern Tennessee in the spring).  The solution: an IMA software “upgrade” for the Civic Hybrid, free of charge.

Problem solved, right?  Do not be fooled.  Close reading of the letter shows that the software will not fix the problem; it will merely decrease the car’s battery use.  The new software will:

• Cause the engine to restart sooner when the vehicle is stopped;
• Stop the car from shutting off the engine when stopped in some instances; and
• Reduce the electric assist to the gas engine at higher speeds.

Are you thinking, Wait a second, isn’t that simply making the car less of a hybrid and more of a standard gasoline-powered car?  Yep.  That’s exactly what the “upgrades” do.  Civic Hybrid drivers report a precipitous drop in gas mileage after the upgrades.  And after paying thousands of dollars more to purchase a hybrid?  Honda should be embarrassed.

With a loyal and large customer base and plenty of goodwill, why offer such a transparently inadequate solution?  You guessed it.  $$$.  The hybrid batteries have warranties of at least eight years.  Replacing tens of thousands of defective hybrid batteries (and potentially the systems that ruined them too) would be extremely expensive for Honda.  Hundreds of millions at a minimum.  Instead the software strings along the batteries by transferring much of the burden to the gas engines (and the owners who pay for the additional gas use).  That’s not the quality and care Honda owners have come to expect.  

If you have had such an experience with the Civic Hybrid’s battery problems, we would appreciate hearing your story.  Post a comment below or visit www.berklawdc.com for contact information.

Assisted by David Martin

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The Johnson City Press reports that the NIH’s grant is intended to facilitate Professor Hillhouse and ETSU’s  efforts to get the word out to teenage girls about the risks and dangers of indoor tanning. Hillhouse’s messages will highlight the physical appearance-related risks associated with indoor tanning. Chief among these risks: sunspots and skin wrinkling.

As discussed here on many occasions, the World Health Organization has added indoor tanning to its top carcinogen risk group, joining poisons like tobacco, arsenic, and formaldehyde. Despite all of this, young women are still not heeding the warnings – even though they grow louder and clearer.

Perhaps grants like this one can serve as a grass roots model for starting to change attitudes towards indoor tanning.  Maybe the best way to go at this health risk is to appeal to vanity (the same reason many people tan).   “Indoor tanning can be ugly”.  Our hats are off to the NIH, to professor Hillhouse, and to ETSU for their creative efforts.

Assisted by Zachary Kady

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A high degree of integrity must go into every decision we make.  Our conduct must be beyond reproach.  We must all think and behave like private attorney generals.

The Corporate Observer spends a great deal of time assessing accountability. The tanning industry, Wall Street, corporate America, government regulators, banks—nobody is immune. That includes lawyers. And that is why - despite what appear to be noble motives - I must chastise attorney James B. Gottstein for his recent actions. Let me explain.

On August 12 a federal appeals court ruled that Gottstein knowingly used “sham subpoenas”in order to circumvent a protective order. Protective orders are typically filed in sophisticated commercial litigation cases to protect confidential and/or sensitive business documents from competitors (that’s the theory at least; often they are used instead to burden the process and make it more difficult to obtain the truth). 

In this particular case, plaintiffs had brought suit against Eli Lilly, the manufacturer of the anti-schizophrenic drug Zyprexa for marketing the drug “off label” to minors (for more on the Big Pharma probe, click here and here).  Serving as an expert witness in the case, Doctor David Egilman reviewed documents designated as confidential that were subject to a protective order.  Egilman saw “much to dislike” in the documents about the effects of Zyprexa—enough to ignore his vow of confidentiality and seek to expose the information.

Egilman approached Gottstein, an attorney, in hopes that Gottstein would be willing to acquire access to the documents outside the protective order (through some legal chicanery).  Egilman trusted that Gottstein’s personal beliefs as a “mental health advocate” would outweigh his feeling of professional responsibility. He was right.  The contents of the documents alarmed Gottstein; enough so that his conscience trumped his sense of duty. He improperly subpoenaed the documents in association with a different, unrelated case. Immediately upon receipt he and Egilman released the documents to the New York Times; the next day Eli Lilly and Zyprexa were on the front page.

The court immediately issued an injunction forbidding further dissemination of the information. Much of the bad light intended for Eli Lilly quickly shifted to Gottstein and his rogue attorney work. To be sure, Gottstein’s goal was to reveal the ugly truth about Zyprexa and Eli Lilly’s aggressive marketing tactics. But to do so Gottstein completely ignored his professional and legal responsibilities. And significantly, failed to anticipate the lasting effect of his actions.

In its spring edition, the American Association for Justice’s Class Action Litigation Newsletter published an article of mine which comments on the declining reputation of class action attorneys in today’s world. Despite the admirable job that most attorneys do as crucial cogs in the American justice system, it only takes a few bad apples to sour the public. James Gottstein is not a bad apple, but it takes a contemplative eye to see that; many will view his actions as reprehensible and outside his power. The rules exist for a reason and apply to everyone. If one day Mr. Gottstein cries foul and a judge ignores him he’ll have no one to blame but himself.

To whom much is given, much is required. We’ve all heard the line, but when is it more poignant? Few professions are given as much responsibility and authority as those in the legal realm.  Just bringing a lawsuit can change lives. For that reason a high degree of integrity must go into every decision we make. Our conduct must be beyond reproach. We must all think and behave like private attorney generals. And for that reason I find Mr. Gottstein’s actions understandable, but far from commendable.

Assisted by David Martin

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Last Thursday I posted an entry discussing DOJ’s investigation of Big Pharma and the possibility that this probe is the result of a whistleblower.  Since posting, we have been contacted by Mike Koehler at the FCPA Professor Blog who advised that parts of the Big Pharma investigation have been ongoing for years and are likely not the result of a Dodd-Frank whistleblower. Mr. Koehler’s blog offers considerable insight on the FCPA and his opinions are greatly appreciated.

 Despite the fact that DOJ’s current Big Pharma investigation was not spurred by whistleblowers, it may very well receive help along the way from informed citizens. We at the Corporate Observer remain vigilant in our watch for new Dodd-Frank era whistleblowers. Be sure to check in for more whistleblower updates as they occur.

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These companies are not just risking their reputations; they are risking lives. 

The world’s largest pharmaceutical companies including GlaxoSmithKline, AstraZeneca, Eli Lilly, Bristol-Meyers Squibb, Merck and more will be subject to an ongoing probe by DOJ.

The basis for these probes: the Foreign Corrupt Practices Act. The act bars any American company from offering items of value to foreign officials for profit. Because of this restriction, pharmaceutical companies operating abroad are constantly walking a narrow line.  Most hospitals and healthcare centers in foreign countries are state-run – making all employees (doctors included) foreign officials as defined under the FCPA. This means dinners, gifts, and any other special treatment for foreign doctors or healthcare professionals could land Big Pharma in some deep water for offering bribes to foreign officials.

Technically:

As the Financial Times reports, DOJ is investigating all acts that could be in violation of the Foreign Corrupt Practices Act. Violations of the FCPA resulting from over-gracious dinners, all-expense-paid travel, and many other standard Big Pharma practices will be scrutinized.

The real issue:

Investigating lavish dinners and hospitality is far from the extent of the probe. The DOJ will be investigating more serious, more egregious violations of American law by looking into Big Pharma’s relationships with physicians who work on clinical trials, but also serve on regulatory boards.

In international healthcare, getting a drug approved in certain markets can net a pharmaceutical company billions of dollars. Unfortunately, this means that a drug’s approval might reflect the intense lobbying efforts of the pharmaceutical companies, not the best science. For this reason, the FCPA must be ardently enforced to ensure protection of the health and safety of consumers everywhere. Violations of American laws whose effect is to push drugs through foreign approval programs are inexcusable. These transgressions put the legitimacy of the global healthcare industry at risk and also jeopardize the safety of thousands of patients in Big Pharma’s quest to make a buck.

Potential whistleblower?

This DOJ investigation could very well be among the first spurred by a whistleblower under the new Dodd-Frank financial reform act. The act, passed just weeks ago, allows concerned, informed citizens to speak up about corporate securities violations by filing complaints with DOJ or the SEC. (Click here and here to read our posts about the Dodd-Frank Financial Reform Act) The Dodd-Frank act historically opened up new avenues for whistleblowers to bring claims related to the FCPA. We at the Corporate Observer are watching the developments closely, and the internet is abuzz (see here) with conjecture as to whether or not this investigation is a result of a new type of corporate whistleblower. Of course there will be no proof until we move farther down the road, but the prospect of an average citizen inspiring such a massive investigation to protect consumers and healthcare patients around the world is inspiring.

Assisted by Zach Kady

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Today, consumers are paying the price for corporate America’s greed. Tomorrow, with some help from the SEC, whistleblowers will ensure that we do not make the same mistake twice.

On Wednesday I detailed for our readers what you need to know about the Dodd-Frank Wall Street Reform and Consumer Protection Act. An important question has arisen regarding the effectiveness of the whistleblower provisions within the Bill. Sources like Daily Finance are concerned that the Bill will generate little more than unsubstantiated claims from people grasping at straws in an attempt to take advantage of the enhanced benefits afforded to whistleblowers.

To supporters of the bill: these concerns cannot be dismissed out of hand. For example, employees with a poor performance record may abuse the whistleblower provision by wrapping themselves around the protections afforded legitimate whistleblowers by filing a frivolous claim. Once that claim is filed they have, at a minimum, made it more difficult to be fired based on their poor employment record.  Similarly, people seeing dollar signs will inevitably submit unsupported or frivolous allegations of fraud in an attempt to collect on the enhanced whistleblower’s reward. 

Despite this potential for mischief and abuse, my support for the whistleblower provisions remains unchecked:

First: I firmly believe that 99.9% of Americans are honest people who will not exploit this Bill. 

Second: The SEC must step in and create rules for those bringing baseless claims under the whistleblower statute. This will weed out the dishonest whistleblowers but allow those with legitimate information to rightfully benefit from the Dodd-Frank Bill’s provisions.

Third, and most importantly: On balance, the whistleblower incentives will help solve a far bigger problem than they will create. Unchecked, gambling financial executives helped bring our economy to the brink of collapse.  As former Treasury Secretary Hank Paulson re-tells in his recent memoir On the Brink, this titan of the financial world vomited under the stress of the crisis after addressing the press and Congress.  And what better watchdogs to dissuade corporate corruption than the employees that work with the executives on a daily basis?

The Sarbanes Oxley Act of 2002 was the initial attempt at protecting and promoting whistleblowers; the toothless Act has yielded hundreds of fruitless complaints from whistleblowers. One after another they have been withdrawn or dismissed. Dodd-Frank enhances Sarbanes-Oxley in the following key ways:

•           Extending whistleblower protection to employees of privately owned companies; 
•           Steepening fines for non-compliant companies;
•           Offering contingent cash rewards; and
•           Allowing complaints to be immediately filed in court.

In sum, the Bill rewards those who are diligent and more importantly, serves as a real deterrent to would-be-transgressors. This is the ultimate goal of any regulation—not to punish those who are out of line but to prevent future wrongdoing.

The categorical condemnation of the Bill’s whistleblower provisions is the equivalent of emptying out a bottle of wine to retrieve the broken cork. The Bill is not a flawless solution, but it will drastically diminish the unchecked corporate malfeasance that brought our economy to the brink of collapse; with a little regulation it can do this at a minimal public cost. Today, consumers are paying the price for corporate America’s greed. Tomorrow, with some help from the SEC, whistleblowers will ensure that we do not make the same mistake twice.

If you have suggestions for how the SEC should effectively regulate the whistleblower provisions, or if you oppose the regulation entirely, we are interested in carrying potential rules to the SEC as well as hearing other solutions.

Assisted by David Martin

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The American economy will be strengthened by the new whistleblower provision in the Dodd-Frank financial reform bill. Reporting securities violations and other corporate misconduct will both strengthen the world’s confidence in American companies and limit fraudulent schemes before they metastasize. Whistleblowers – ranging from high-powered executives to entry level employees to average citizens can be among our most useful tools in combating fraud. For this reason, The Corporate Observer applauds the Dodd-Frank bill.

Under the new bill, whistleblowers will be eligible to receive:

(1)                           10% to 30% of any monetary penalty in excess of $1 million imposed as a direct result of their assistance, cooperation, and knowledge; and

(2)                           Statutory protection from employment discrimination.

Who are whistleblowers?

Conscientious and ethical citizens who become aware of corporate misconduct; and have the courage to stick their necks out to report that conduct to the appropriate governmental authority. A Whistleblower is not a snitch or a tattle tale. Rather they are vigilant citizens who speak up to protect others from becoming victims of corporate misconduct and securities fraud.

What is a whistleblower claim?

A whistleblower claim is a formal notice to the government, in this case the SEC, of wrongdoing. For example, if you become aware of illegal conduct such as:

(1)   Maintaining improper accounting practices;

(2)   Systematically misappropriating investor monies; or

(3)   Violating any other securities law;

you should consider submitting a whistleblower claim. Claims will be reviewed by the SEC and delegated to the appropriate regulatory department. From this point, the SEC will investigate the validity of the claim, the value in pursuing the accused party, and the proper penalty to assess.

To be clear, the Dodd-Frank Financial Reform bill allows whistleblowers to report any violation of securities laws to the SEC. Specific rules will be issued by the SEC in approximately 250 days.

Why file a whistleblower claim?

Individuals across America and across the globe invest in American businesses based on their reliability and integrity. Specifically, foreign governments purchase U.S. treasury bonds because they believe in the soundness of the American system. Violators of securities laws threaten the credibility and reliability of the American economy.

Those who invest in securities deserve your vigilance. Most securities are not held by wealthy individuals, but rather by average American investors who have 401K retirement accounts, college savings funds, and pension assets in stocks of public companies. Millions of American investors – thousands of people’s futures – depend on the credibility of the securities market for financial planning.

Acting as a whistleblower for securities fraud violations is every citizen’s opportunity to right corporate wrongs and protect consumers by limiting fraud.

How?

The Dodd-Frank Financial Reform Bill allows the SEC up to 270 days from July 21, 2010 to formulate rules and regulations for submitting a whistleblower claim to the SEC. Until these rules are finalized, the SEC has requested that complaints be submitted through its online forum (http://www.sec.gov/complaint.shtml) or by mail to the SEC’s complaint center at

SEC Complaint Center.

100 F Street NE

Washington, DC

20549-0213

Check back here for updates to the SEC’s claim submission guidelines and policies.

Legal Representation

Whistleblowers submitting claims anonymously are required to retain legal representation before submitting a claim. All other whistleblowers have the option to retain an attorney, but are not required to do so. At Berk Law we are experienced in whistleblower actions. Steven Berk has served in the General Counsel’s Office of the SEC and as an Assistant United States Attorney. If you’re interested in filing, or have any questions about a whistleblower claim please contact us at info@berklawdc.com   or visit our website, www.berklawdc.com for more information.

Assisted by Zach Kady

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