Tuesday, April 1, 2014

LawBiz® Legal Pad On the Road!: Compensation Model for Small Firms

When you're hiring another attorney, don't think about how much bringing him or her on will COST. Instead, think about what revenues he or she will bring in. Take a look at this week's clips for more...

Source: http://feeds.lexblog.com/~r/LawBizBlog/~3/3U1vL9bXxXc/

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Monday, March 31, 2014

Court Enters Owners’ Draft Order 

A Richmond Circuit Court will enter a dismissed agreed order submitted by defendant owners, in this dispute over whether a money judgment order should be entered or a dismissed agreed order due to the payment of the amount the court has said is due from defendants to plaintiff. The matter of the American Institute of ...

Source: http://valawyersweekly.com/2014/01/02/court-enters-owners-draft-order/

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ADA applies to bar applications also

The Department of Justice has accused more than one bar association of violating the Americans With Disabilities Act.Louisiana and Vermont licensure systems inquired as to the mental health of applicants. Apparently, some of the same questions of which the complaint by DOJ is registered are asked in a standard national Conference of Bar Examiners questionnaire.

The Bar is not qualified to conduct a mental health diagnosis or treatment, according to the DOJ. Past behavior ... conduct ... can be reviewed, but not one's state of mind or status.

I wonder how this analysis will resonate with those who complain that one's competency to act as an attorney can be judged by one's age. Shouldn't conduct be the standard? Aren't you presumed innocent (i.e., competent) until proven otherwise? That would be ageism ... a status I think that is also protected by law.

Source: http://feeds.lexblog.com/~r/LawBizBlog/~3/FBayFVmaX64/

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Apple And Samsung Face Off In Court Again Over Patents

Each company claims the other one has swiped its patents. This time Apple is going after patents in the Android operating system that run Samsung's Galaxy S3.

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Source: http://www.npr.org/2014/03/31/297076360/apple-and-samsung-face-off-in-court-again-over-patents?ft=1&f=1070

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Payout Resolves Objections to $1.6B Toyota Settlement

Some of the most vocal objectors to the $1.6 billion settlement with Toyota Motor Corp. have agreed to drop their challenge in exchange for $1.5 million to research electronics systems used in cars.

Source: http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202637032014&rss=rss_nlj

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Rachel Vitti: School superintendent's wife making her own mark on educational and human rights issues (Florida Times-Union)

Share With Friends: Share on FacebookTweet ThisPost to Google-BuzzSend on GmailPost to Linked-InSubscribe to This Feed | Rss To Twitter | Law - Video News, RSS and RSS Feed via Feedzilla.

Source: http://news.feedzilla.com/en_us/stories/law/video/363474178?client_source=feed&format=rss

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Affirmative action ban in state constitution violates US constitution (8-7)

Michigan voters adopted a state constitutional amendment that prohibits "all sex- and race-based preferences in public education, public employment, and public contracting."

The 6th Circuit (8-7) held this provision - as it relates to education - violates the 14th amendment's equal protection clause.

Coalition to Defend Affirmative Action v. Univ of Michigan (6th Cir 11/15/2012)

(Plaintiffs limited their challenge to racial discrimination in public education.)

The court said that a black applicant could seek adoption of a constitutionally permissible race-conscious admissions policy only through the "lengthy, expensive, and arduous process" of amending the state constitution. On the other hand, someone wishing to change any other aspect of a university's admissions policy has four options - lobby the admissions committee, petition the leadership of the university, seek to influence the school's governing board, or initiate a statewide campaign to alter the state's constitution.

"The existence of such a comparative structural burden undermines the Equal Protection Clause's guarantee that all citizens ought to have equal access to the tools of political change."

Seven judges wrote five DISSENTING opinions. Six said that the majority relied on two US Supreme Court cases that "have no application here," and one said that the majority relied on "an extreme extension" of those cases. The cases are Hunter v. Erickson, 393 US 385 (1969), and Washington v. Seattle Sch Dist, 458 US 457 (1982).

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Source: http://www.lawmemo.com/blog/2012/11/affirmative_act.html

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A Painful Arrest – For The Arresting Officer

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There are lots of ways to resist arrest. This one in particular, every male officer would likely agree, should carry an enhanced sentence. As reported by The Chicago Tribune:

“Something’s wrong with her,” said Cook County Judge Adam Bourgeois Jr., who initially ordered the 20-year-old held on $50,000 bail. After a short recess, Bourgeois decided to instead release Ashleigh Heather Edwards on an individual recognizance bond with electronic monitoring.

You’re curious, right? What did she do?

Edwards, of Berwyn, assaulted [an] officer on a parked train outside the Galewood station on Chicago’s Northwest Side at about 3:40 p.m. Friday, according to an arrest report. The officer tried to remove Edwards after crew members said she entered the train’s “engine compartment” without permission.

Edwards yelled and ran to the other side of the train, police allege, before the officer caught her and attempted to place her under arrest. At that point, police and prosecutors said, Edwards grabbed the officer’s penis and squeezed it to inflict pain, while also kicking and punching and trying to pull away.

Ouch, ouch, ouch! But that wasn’t the end of it.

The officer used pepper spray to restrain her, the arrest report said. But while exiting the train in the 2000 block of North Narragansett Avenue and walking toward the police cruiser, prosecutors said Edwards again grabbed and squeezed the officer’s genitals.

The Juice is inclined to agree with the Judge’s assessment that “Something’s wrong with her.” And in case you think it wasn’t that big of a deal for the officer …

The Metra policeman was taken by ambulance to West Suburban Hospital in Oak Park, where he was treated and released, according to court documents.

As for Ms. Edwards:

[She] will return to court Friday. She faces a felony charge of aggravated battery to a peace officer, along with misdemeanor counts of resisting a police officer and criminal trespass to state land. No booking photo was immediately available.

Here’s the source, including her mug shot.

Source: http://rss.justia.com/~r/LegalJuiceCom/~3/C9QY9GyK_G8/asdf-14.html

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Sound The Retreat (Update)

Remember when the word "wilding" was introduced into the general lexicon so that we would have a word to capture the "super-predator" gangs of youths who were intent on destroying society?  It came out of the Central Park Five case, and produced a huge shift in our approach to juvenile prosecution and punishment. 

"Justice," people cried. They demanded justice. Don't let these super-predator kids destroy our world with wilding. 

Except it didn't happen. The kids never beat and raped a woman in Central Park, and were coerced into false confessions.  Of course, we didn't learn that until much later, after the wilding scare had done its damage to our laws, procedures and psyches, to save us from the super-predators and give us justice.

The New York Times has a post-Zimmerman-verdict editorial today that threatens to do the same. It's titled "Trayvon Martin's Legacy," a blatant appeal to emotion. Invoking the name of a dead child has proven one of the most utilitarian methods of manipulation available, and the Times unabashedly uses it to further its point.
But the point of the editorial is just plain wrong:
The jury reached its verdict after having been asked to consider Mr. Zimmerman’s actions in light of Florida’s now-notorious Stand Your Ground statute. Under that law, versions of which are on the books in two dozen states, a person may use deadly force if he or she “reasonably believes” it is necessary to prevent death or great bodily harm — a low bar that the prosecutors in this case fought in vain to overcome.

These laws sound intuitive: who would argue that you may not protect yourself against great harm? But of course, the concept of “reasonable belief” is transformed into something deadly dangerous when firearms are involved. And when the Stand Your Ground laws intersect with lax concealed-carry laws, it works essentially to self-deputize anyone with a Kel-Tec 9 millimeter and a grudge.

It's been explained, calmly and rationally, over and over. It's impossible to believe that the editorial board of the Times, a smart bunch of folks, didn't hear it or grasp it. If so, then what's written here can only be attributed to disingenuousness and a deliberate effort to deceive.

Stand Your Ground laws apply to one aspect of the larger concept of self-defense, and only one: they eliminate the requirement that a person retreat if he can safely do so. To be clear, I believe that Stand Your Ground laws are fundamentally wrong. The balance is a human life, on the one hand, and some machismo principle that a person should not have to endure the humiliation of retreat on the other.

The argument is that they have a right to stand their ground and fight rather than be forced to run away in the face of an attack, even if they can safely do so. Life is not so cheap that it should be taken to protect ego. Many disagree with me, and they're allowed. This isn't a legal judgment, but a moral balance. I come out in favor of life, and have no plans to change.

But that's not how the Times plays the game in its editorial. While blaming Stand Your Ground, they are attacking the basic concept of self-defense having absolutely nothing to do with Stand Your Ground. It's not merely intuitive, which is used to suggest the inherent fight or flight instinct in human beings, but characterized by the Times as some unnatural shift imposed by law to empower "self-deputized" gun nuts with "a grudge."

This is an artfully crafted diversion from the law that existed long before anybody came up with the cool phrase, Stand Your Ground. We always had the right to defend our lives when threatened with death or serious physical injury. If we could safely retreat, then that was the best option and we were required to do so. If not, then we defended our lives.

The underlying gripe is twofold, neither of which have anything to do with Stand Your Ground. The first is playing the race card.  Like most people, I can't let go of the assumption that race influenced perceptions here, even though I have no basis for the assumption. But there is no law, nor can there be, that requires us to behave one way when the interaction is black and white versus white and black, or people of the same race. Does the Times suggest we start writing two sets of laws, maybe more, to accommodate the races of participants?

The second is the gun card, as reflected in the "Kel-Tec 9 millimeter" language. New York, not being at all gun-friendly, is easily shaken by words that make guns sound particularly vicious and high tech. And again, I'm no personal fan of guns, having no interest in strapping one on. But a great many other people are fans, and the Second Amendment protects their right to be fans. It's irrelevant whether that's my favorite amendment, just as it's irrelevant whether cops like the Fourth.

The same Constitution we invoke to protect the rights we favor protects some things that we don't. Either we honor the Constitution or not, and that includes all the parts, even the ones that aren't as dear to us as others.

A guy is cornered, there is no escape. The other guy is big. Huge. Strong. And is about to bash his head in. The cornered guy has a gun (give it whatever nasty gun-type name you want). Should the law prohibit him from using it to save his life? But that's not the facts in Zimmerman, you say. True, but laws don't exist for every conceivable set of facts and circumstances people can come up with, and the law of self-defense applies to this scenario the same as it did in Zimmerman. Would it make you feel better to have the cornered guy die because the law prohibited him from using his gun to save his life?

While the New York Times editorial may fairly argue for racial tolerance and the evils of guns, Second Amendment be damned, what it cannot do is lie to people by claiming that Trayvon Martin would not be dead but for Stand Your Ground laws, and then call for the evisceration of our basic, age-old right to self-defense. The alternative to self-defense when one cannot safely retreat is to die. 

While it's painfully hard to know whether a person's fear of harm was "reasonable," especially when there is only one side to the confrontation who is alive to tell the story, it's a necessary evil in distinguishing whether force can be lawfully used. The choice was made hundreds of years before anyone ever heard of Trayvon Martin or George Zimmerman, and it's been the right choice for all those years since.

As much as many feel that it played out poorly here, it was always understood that some variations in fact on the same theme would touch our sensibilities differently than others. But the flaw was never with the law. The flaw is that we're human and subject to feelings that may defy reason, and not every application of sound and neutral law will make us feel good about what happened.  It's what we must suffer in a society of laws. And the New York Times should know this and be ashamed of itself for engaging in this deception.

Update:  In an interview on Anderson Cooper 360, one of the jurors spoke:

COOPER: Because of the only, the two options you had, second degree murder or manslaughter, you felt neither applied?

JUROR: Right. Well, because of the heat of the moment and the stand your ground. He had a right to defend himself. If he felt threatened that his life was going to be taken away from him or he was going to have bodily harm, he had a right.

This mention of stand your ground gave rise to an apology from Eugene Volokh, who had also written about this Times editorial subsequent to this post.

It thus appears that at least one of the jurors did “consider Mr. Zimmerman’s actions in light of the ... Stand Your Ground provision in Florida’s self-defense law,” and on that the Times editorial was right, and I was wrong to criticize it; my apologies to the editorialists, and to our readers.

While there is no issue that stand your ground had no legal bearing on the case, Eugene apologized for arguing that the aspect of the editorial suggesting that the jury somehow relied on it in reaching its verdict. My view is that these were empty words to the juror, having been uttered too many time in the media before trial, and she offered them in the interview either without any grasp of what they meant or inadvertently.

It was a loose phrase, not a reflection that an unrelated legal concept, mentioned in passing as part of pattern jury instructions, and never argued to the jury, played a role. Loose language shouldn't be taken too seriously and serve as a basis for assuming scholar-like attention to something that scholars universally agree had no place in the case. 

While it was gracious of Eugene to apologize, it was both unnecessary and, perhaps, a mistake to feed misguided understandings about a law which is being blamed for a role it never played.



© 2007-13 Simple Justice NY LLC. This feed is for personal, non-commercial & Newstex use only. The use of this feed on any other website is a copyright violation. If this feed is not via RSS reader or Newstex, it infringes the copyright.

Source: http://blog.simplejustice.us/2013/07/15/sound-the-retreat.aspx?ref=rss

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Not Your Average Battery

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When you hear the word “battery” you think of 2 things:  “Hey, do you have a AAA battery?” Or you think of someone getting the ass kicked.  The Juice is quite confident that you would not think of something like this.  Per The Northwest Florida Daily News:

A man was charged with battery after he poured water on a woman during an argument, an arrest report indicates.

Yes, water.

The man, who is 39 and lives in Niceville, admitted to Niceville Police officers he poured water on the woman during their spat and told officers to take him to jail.

As you wish.

The charge was a misdemeanor.  His plea date is April 22.

Sounds like a candidate for the litter patrol, and maybe some anger management counseling.

Source: http://rss.justia.com/~r/LegalJuiceCom/~3/LKNiYCW4yiE/asdf-15.html

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High Court Leaves New York's Online Sales Tax Law in Place

Dec. 2 was an extraordinary day for Amazon.com: Cyber Monday sales reached new heights, its fanciful plan to use drones to make deliveries was creating buzz -- and then the U.S. Supreme Court spoiled it all by turning down Amazon's challenge to online sales taxes.

Source: http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202631211450&rss=rss_nlj

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Sunday, March 30, 2014

NLRB: Firing for Facebook posting was legal

Let the NLRB's press release tell the story:

The National Labor Relations Board has found that the firing of a BMW salesman for photos and comments posted to his Facebook page did not violate federal labor law, because the activity was not concerted or protected. [Decision here]

The question came down to whether the salesman was fired exclusively for posting photos of an embarrassing and potentially dangerous accident at an adjacent Land Rover dealership, or for posting mocking comments and photos with co-workers about serving hot dogs at a luxury BMW car event. Both sets of photos were posted to Facebook on the same day; a week later, the salesman was fired from Knauz BMW in Lake Bluff, IL.

The Board agreed with Administrative Law Judge Joel P. Biblowitz, who found after a trial that the salesman was fired solely for the photos he posted of a Land Rover that was accidently driven over a wall and into a pond at the adjacent dealership after a test drive. Both dealerships are owned by the same employer.

In a charge filed with the NLRB, the salesman maintained that he was principally fired for posting photos and sarcastic comments about his dealer serving hot dogs, chips and bottled water at a sales event announcing a new BMW model. “No, that’s not champagne or wine, it’s 8 oz. water,” the salesman commented under the photos. Following an investigation,the regional office issued a complaint. Judge Biblowitz found that this activity might have been protected under the National Labor Relations Act because it involved co-workers who were concerned about the effect of the low-cost food on the image of the dealership and, ultimately, their sales and commissions.

The Land Rover accident was another matter. A salesperson there had allowed a customer’s 13-year-old son to sit behind the wheel following a test drive, and the boy apparently hit the gas, ran over his parent’s foot, jumped the wall and drove into a pond. The salesman posted photos of the accident with sarcastic commentary, including: “OOPS”.

The National Labor Relations Act protects the group actions of employees who are discussing or trying to improve their terms and conditions of employment. An individual’s actions can be protected if they are undertaken on behalf of a group, but the judge found, and the Board agreed, that was not the case here.

As Judge Biblowitz wrote, “It was posted solely by [the employee], apparently as a lark, without any discussion with any other employee of the Respondent, and had no connection to any of the employees’ terms and conditions of employment. It is so obviously unprotected that it is unnecessary to discuss whether the mocking tone of the posting further affects the nature of the posting.” Because the posts about the marketing event did not cause the discharge, the Board found it unnecessary to pass on whether they were protected.

However, the three-member panel differed in its opinions of a “Courtesy” rule maintained by the employer regarding employee communications. Chairman Mark Gaston Pearce and Member Sharon Block found the language of the rule to be unlawful because employees would reasonably believe that it prohibits any statements of protest or criticism, even those protected by the National Labor Relations Act.

Dissenting, Member Brian E. Hayes found that the employer’s rule was “nothing more than a common-sense behavioral guideline for employees” and that “nothing in the rule suggests a restriction on the content of conversations (such as a prohibition against discussion of wages)”.

The Board ordered Knauz BMW to remove the unlawful rules from the employee handbook and furnish employees with inserts or new handbooks. The decision, dated Sept. 28 but made public today, was the Board’s first involving a discharge for Facebook postings; other such cases are pending before the Board.

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Source: http://www.lawmemo.com/blog/2012/10/nlrb_firing_for.html

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From The Birth Of The iPhone To An Era Of Lawsuits

On the eve of the next trial in the continuing patent war between Apple and Samsung, one of the iPhone's original designers is speaking out publicly for the first time.

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Source: http://www.npr.org/blogs/alltechconsidered/2014/03/26/294877279/from-the-birth-of-the-iphone-to-an-era-of-lawsuits?ft=1&f=1070

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Washington's sexual orientation discrimination amendment is not retroactive

The Washington State Supreme Court held today that a sexual orientation discrimination amendment adopted in 2006 is not retroactive.

The court also concluded that conduct that took place prior to the amendment is admissible background evidence to prove the discriminatory nature of certain conduct occurring after the amendment.

Loeffelholz v. Univ of Washington (Washington 09/13/2012)

Loeffelholz sued under the Washington Law Against Discrimination (WLAD) claiming discrimination based on sexual orientation. WLAD was amended in 2006 to include sexual orientation as a protected class, and Loeffelholz alleged several pre-amendment acts and one post-amendment act.

The Washington Supreme Court held that (1) the WLAD amendment is not retroactive and the pre-amendment conduct is not actionable as it was not unlawful when it occurred, and (2) the post-amendment allegedly discriminatory comment is arguably similar enough to the pre-amendment conduct to survive summary judgment.

Loeffelholz alleged that her supervisor between 2003 and June 2006 maintained a hostile work environment based on sexual orientation. This was prior to the WLAD amendment. Loeffelholz also alleged a single act of discrimination by this supervisor after the WLAD amendment.

The court's findings:

(1) Pre-amendment conduct is not actionable. Retroactive application of the amendment would violate the employer's due process rights. The plain language of the amendment and its legislative history indicate only prospective application.

(2) Pre-amendment conduct is admissible as background evidence to prove why the post-amendment conduct is discriminatory.

(3) The post-amendment conduct was a single statement by Loeffelholz's supervisor, who was about to be deployed to Iraq, that he was "going to come back a very angry man." The court found that a reasonable jury could infer that this comment was a natural extension of pre-amendment conduct - the supervisor's dislike of lesbians and his anger management problems as illustrated by his comments that he had a volatile temper and kept a gun. This is enough to preclude summary judgment.

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Source: http://www.lawmemo.com/blog/2012/09/washingtons_sex.html

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Senate Committee Advances Four Judicial Nominations

The Senate Judiciary Committee approved four nominations today, including a unanimous voice vote on Boies, Schiller & Flexner partner Tanya Chutkan to serve on the U.S. District Court for the District of Columbia.

Source: http://www.law.com/jsp/law/sign_me_in.jsp?article=http://www.law.com/jsp/nlj/legaltimes/PubArticleLT.jsp?id=1202648625635&rss=newswire

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Summary of Knox v. SEIU

My summary of Knox v. SEIU at SCOTUSblog.com: Knox knocks unions on mid-year assessment for non-members.

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Source: http://www.lawmemo.com/blog/2012/06/summary_of_knox.html

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Md. Lawmakers Raise Threat of Eminent Domain Against ‘House of Cards’

Maryland lawmakers are proposing to use the power of eminent domain to seize the property of the production company behind the Netflix streaming drama "House of Cards" unless the series keeps filming in the state.

Source: http://blogs.wsj.com/law/2014/03/28/md-lawmakers-raise-threat-of-eminent-domain-against-house-of-cards/?mod=WSJBlog

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LawBiz® Legal Pad: Rule 1.17

Ed discusses Rule 1.17 and how it pertains to succession planning.

Source: http://feeds.lexblog.com/~r/LawBizBlog/~3/uC3D-ERog7c/

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Entropy: It's Not What It Used To Be*

In thermodynamics, entropy is the measure of how things go from order to disorder. Its application is far broader, however, applying to life in general. For those of us, like me, who strive to maintain order, it is the enemy.

My ability to do what I do, to function, depends on my maintaining order. In a world of chaos, it's a constant battle. No man is an island, and so almost every function relies to some greater or lesser extent on interactions with others. In order to prepare an affidavit, a person must take or return my phone call, do so in time for me to get their words on paper in both an accurate and comprehensible manner, make sure I've captured their thoughts properly, get it executed and file and serve the document.  If the person decides that he would rather go to the beach than speak with me, but will get back to me later, the entire scheme can fall apart. A call back on Monday at 11 doesn't help when the papers are due Monday at 9.

When I explain how their conduct affected my ability to do my job, the response is one of two things: "Oh, I didn't realize," or "you should have told me that before."  Of course, I can't tell you anything if you don't take or return my call. "Oh."

It's a fragile set up at best. Some people are reliable in a way that allows other to count on them, to plan ahead and not find themselves in a quagmire from which they can't emerge.  These are people who make other people's lives go smoothly. They tend to be somewhere along the anal compulsive spectrum, which sounds pretty nasty but is actually a really good thing for organized people, especially lawyers.

Others are chaos personified, off in the thousand directions without any thought whatsoever to the consequences for themselves or those who rely on them. Their alternative to order is their tolerance of disorder. It's not that they don't eventually come to realize what they failed to accomplish because of their chaotic approach to responsibility, but that they can live with themselves that way.

God, grant me the serenity to accept the things I cannot change,
The courage to change the things I can,
And wisdom to know the difference.
Then again, it has nothing to do with God. It has to do with us. We make choices. If you're inclined to believe in a deity, then know that the deity imbued you with the power to make wise or foolish choices, and left it to you to decide which.

You can choose a ready guide in some celestial voice.
If you choose not to decide, you still have made a choice.
You can choose from phantom fears and kindness that can kill;
I will choose a path that's clear-
I will choose Free Will.
When I'm asked how I manage to get as much done in a day as I do, the answer is order. I organize. I plan ahead. I try to anticipate the chaos I will confront in the course of trying to get things done so that I can accommodate it as much as possible, and will give myself enough room so that someone else's choice of disorder won't completely undermine what I need to accomplish.

The other day, a massive failure to accomplish a task upon which I relied was explained to me as the result of unforeseen circumstances. It wasn't quite true. Getting hit by a truck is an unforeseen circumstances. Making overly optimistic promises which you chose not to keep when time or interest gets tight is not an unforeseen circumstances. It's life.

There is a difference between explanations and excuses.  When something doesn't go as intended, which happens despite best efforts and planning, there is either an explanation or it was just a screw-up. If the former, then there is a reason. If there is no reason, then it's a screw-up.  Yes, screw-ups happen. No, they don't have to. Are they your fault? Yes. That's why we call them screw-ups.

Excuses are a different animal. Excuses are explanations that shift the fault onto the party who caused the problem.  Most are imperfect, in that fault is born by more than one party, often all parties, who either failed to do what they should have, or said they would, as well as parties who failed to anticipate or accommodate the chaos wrought by others involved. See how that works?  We knew that other people screw-up, and so we assume the responsibility of inserting that potential in our equation of order. When we organize our world, we do so in anticipation of entropy.

It's all a choice. Frankly, the failure to realize this, to conduct oneself as an island of order in a world tending toward chaos, to both live an ordered life and recognize that others don't or won't, is a choice. If you want to do what you can to do better, be more responsible, keep your promises to others despite reliance on those who infuse their chaos into your world, you can. But you must make the choice.

It's hard to fight entropy, but those who do keep the world running.

* The title is brazenly stolen from Buzzfeed's 21 Jokes Only Nerds Will Understand.


© 2007-13 Simple Justice NY LLC. This feed is for personal, non-commercial & Newstex use only. The use of this feed on any other website is a copyright violation. If this feed is not via RSS reader or Newstex, it infringes the copyright.

Source: http://blog.simplejustice.us/2013/07/14/entropy-its-not-what-it-used-to-be.aspx?ref=rss

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United States Supreme Court Resolves Circuit Split and Narrows Scope of SLUSA

In Chadbourne & Parke LLP v. Troice, Nos. 12-79, 12-86 and 12-88, 2014 U.S. LEXIS 1644 (U.S. Feb. 26, 2014), the Supreme Court of the United States resolved a split in the circuits regarding whether alleged misrepresentations were made “in connection with the purchase or sale of a covered security” for purposes of the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), 15 U.S.C. § 78bb(f)(1)(A).  The Court held that a “misrepresentation or omission of a material fact” is made “in connection with the purchase or sale of a covered security” only if the misrepresentation is “material” to the plaintiff’s decision to buy or sell that covered security.  This decision narrows the scope of removal and preclusion of state law securities fraud class actions by the federal courts under SLUSA.

Plaintiffs were private investors who brought state law class claims against defendant firms and individuals in Louisiana and Texas state courts, alleging that defendants had assisted Stanford International Bank (the “Bank”) and Alan Stanford (“Stanford”) in perpetrating a fraud on the plaintiffs.  Stanford had run a multibillion dollar Ponzi scheme through which he and his affiliates sold to plaintiffs Bank certificates of deposit (“CDs”).  The CDs were debt assets that promised a fixed rate of return.  Plaintiffs expected Stanford to use the money it received to buy assets and invest in publicly traded securities.  Instead, Stanford used the money to repay old debts, live a lavish lifestyle and finance speculative real estate ventures.

Defendants removed the state law class actions to federal court and sought dismissal under SLUSA.  SLUSA generally authorizes the removal to federal court and dismissal of state law class actions that allege misrepresentations or misleading omissions in connection with the purchase or sale of “covered securities.”  SLUSA adopts the definition of “covered security” in the Section 18 of the Securities Act of 1933, 15 U.S.C. § 77r, as one that is “listed, or authorized for listing, on [various national stock exchanges]” or one that is “issued by an investment company that is registered . . . under the Investment Company Act of 1940.”

The United States District Court for the Northern District of Texas granted defendants’ motion to dismiss, concluding that plaintiffs’ claims were precluded under SLUSA.  The district court acknowledged that the CDs were not “covered securities” under SLUSA because the CDs were not “traded nationally [or] listed on a regulated national exchange.”  However, the district court noted that each complaint alleged that the fraud included misrepresentations that the Bank held significant holdings in covered securities, which made the CDs more secure.  The district court thus held that this provided the necessary “connection” between plaintiffs’ state law fraud claims and “transactions in covered securities,” and that the claims were therefore precluded by SLUSA.

As previously reported here, the United States Court of Appeals for the Fifth Circuit reversed.  The Fifth Circuit agreed with the district court’s determination that the complaints described misrepresentations about covered securities.  The Fifth Circuit held, however, that the “heart” of the allegedly fraudulent scheme centered on representations that the uncovered CDs were safe and secure.  The Fifth Circuit held the falsehoods concerning the covered securities were too “tangentially related” to the “crux” of the fraud to be sufficiently “in connection with” the purchase or sale of a covered security for purposes of SLUSA.

The Supreme Court affirmed.  The Court first noted that SLUSA focuses on transactions in covered securities, not uncovered securities.  The Court also observed that the pertinent phrase of SLUSA, “material fact in connection with the purchase or sale,” suggests a connection between the misrepresentation or omission and a purchase or sale that “matters.”  The Court determined that a connection “matters” where the misrepresentation makes a “significant difference to a person’s decision to purchase or sell a covered security,” but not an uncovered security.  Plaintiffs’ complaints alleged misrepresentations regarding the Bank’s ownership of covered securities, but did not allege misrepresentations in connection with the “purchase or sale of a covered security” by plaintiffs.  Thus, the complaints did not provide the necessary “connection” between the materiality of the misstatements and the “purchase or sale of a covered security.”

The Court also noted that its interpretation of the “in connection with” language in SLUSA should not significantly impair the SEC’s enforcement powers for violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), because the definition of “security” under the Exchange Act is broader than that of “covered security” under SLUSA.

The Court’s decision in Chadbourne would appear to limit SLUSA to cases where plaintiffs allegedly purchased, sold or held (see Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006); see blog article here) “covered securities.”  Class actions where plaintiffs allegedly purchased, sold or held uncovered securities, even if covered securities are lurking in the background, may proceed in state court.

Source: http://www.corporatesecuritieslawblog.com/2014/03/united-states-supreme-court-resolves-circuit-split-and-narrows-scope-of-slusa/

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