Subsequent Remedial Measures Not Admissible in Contract Cases

The U.S. District Court for the Eastern District of Pennsylvania has held that Federal Rule of Evidence 407, which prohibits evidence of measures taken after an injury or harm, which if taken previously would have made the injury or harm less likely, is not solely limited to negligence claims but also to contract actions. The Courts ruling may be found here.

Rule 407 has been extensively used in negligence and tort actions to exclude evidence of remedial measures taken by a defendant to prove that the defendant was previously negligent or culpable, causing a plaintiffs injuries or damages. Hypothetically, if a plaintiff sued a defendant for negligently maintaining a walkway in front of the defendants place of business, courts would not allow the plaintiff to offer at trial evidence of the defendant repairing the dangerous walkway after the plaintiffs injury occurred. Indeed, whereas the plaintiff might wish to use such evidence to prove that the walkway was dangerous, the rule exists to ensure that defendants in such situations improve potential dangers without concern as to whether such repairs might be used against them in the future.

In this case, the Plaintiff claimed that the Rule is inapplicable to breach of contract cases, but the Court disagreed, finding that the Rule covers proof of subsequent remedial measures offered to prove any “culpable” conduct, including breaches of contracts. The Court reasoned that Rule 407 should offer defendants “predictable” protection when they are devising ways to prevent future injury or harm. In this way, a defendant need not assess the likelihood that a plaintiff will sue for breach of contract rather than negligence when determining if the remedial measures could be used against the defendant. According to the District Court, Rule 407 exists so that defendants are not penalized in court for having sought, after causing injury or damages, to prevent similar occurrences in the future.

A thorough knowledge of the Federal Rules of Evidence is necessary when presenting or defending claims in federal court. Fuerst Ittlemans litigators have substantial experience in using these Rules to benefit our clients cases and make persuasive presentations in court.

Federal Prosecutors Focus On Payment Processors In Latest Effort To Prevent Online Poker Sites From Operating

As the new year begins, federal prosecutors continue their efforts at cracking down on online poker in the US. The latest has not focused on the numerous online poker sites or the 2.5 million Americans that regularly play. Rather, the Department of Justice has focused its efforts on payment processors, the financial outfits that move money between online poker sites, their players, and the banks. Online pay for play poker sites generate over $30 billion annually.

Though there is no federal law directly addressing the regulation of online poker sites, the Department of Justice has consistently maintained the position that the operation of pay for play online poker sites violates federal law. Traditionally, the prosecution of individual bettors and intra-state gambling crimes has been largely left to the individual states, however, there are numerous federal gambling statutes that the Department of Justice has employed against large-scale gambling businesses and payment processors that operate interstate or internationally. These statutes include the Wire Act, RICO, the Bank Secrecy Act, civil forfeiture proceedings, as well as 18 U.S.C. § 1955 which makes it a crime, to conduct, finance, manage, supervise, direct, or own all or part of a gambling business, so long as it is illegal to operate such a business under state law.

The State of Washington provides a textbook example of federal prosecutorial action and the relationship between federal prosecutors and state law and law enforcement. Since October of 2010, the Department of Justice in conjunction with Washington State Gambling Commission have filed four civil forfeiture complaints against more than $20 million in cash in Bank of America, JPMorgan Chase, and Wells Fargo, belonging to various payment processing firms. The joint investigations began in 2009 shortly after the Washington Supreme Court upheld a state law prohibiting online poker for money in the state.

The largest of these forfeitures, involving $5.1 million, began after the government was notified that a player had received a payout check from Arrow Checks, a payment processor for online poker sites such as Pokerstars.net. During its investigation, the government was able to establish a series of wire transfers from other states, such as Texas, and from Canada to accounts in Washington. Payouts were then sent to players around the state. As a result of these investigations, the payment processors, which held the accounts, were charged with operating unlicensed money transmitting businesses and violating the federal wire act because online poker for money is illegal in Washington.

The Washington investigations come in the wake of the May 2010 guilty plea of Canadian payment processor Douglas Rennick for violations of the Wire act. Authorities alleged that Rennick processed over $350 million in payouts for internet poker companies. As part of the plea agreement, Rennick agreed to forfeit $583 million which included millions of dollars in payouts and funds belonging to various poker sites and players. However, the affected poker sites refunded any lost money to their players after federal authorities froze the assets of Rennick.

If you have questions pertaining to the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

Venue Defense is Waived if Not Raised in Initial Rule 12 Motion in Response to Complaint

The Eleventh Circuit Court of Appeals in Atlanta on December 28, 2010 rendered a decision in an unpublished opinion finding that a failure to raise a forum selection clause in a Rule 12, Federal Rules of Civil Procedure motion in response to a complaint waives the defense of improper venue of the lawsuit.

In Aero Technologies LLC v. Lockton Companies International Ltd., the trial court had dismissed the claims of Aero Technologies LLC (“Aero Tech”) based on a forum selection clause contained in insurance policies to which neither party to the lawsuit were signatories. Lockton Companies International Ltd., (“Lockton”) had not raised venue as a defense in its initial Rule 12 motion. The Court of Appeals reversed the decision of the trial court finding that Rule 12 (h)(1) of the Federal Rules of Civil Procedure requires venue to be raised in the initial Rule 12 motion or be waived. The Court of Appeals found the trial court erred when dismissing the claim on venue grounds when the defense was not raised by Lockton. A copy of the opinion may be found here.

The lesson of this case is that litigators must be wary to raise venue as a defense when appropriate, whether due to the existence of a forum selection clause or for convenience of the parties at the earliest possible moment or face the consequences of waiver. At Fuerst Ittleman, our experienced litigators are familiar with the law applicable to venue and can ensure a clients case proceeds in the proper venue where appropriate.

Florida Attorney General centralizes anti-pill mill initiative in West Palm Beach

Florida has become infamous for clinics, known as “Pill Mills,” that dole out tremendous amounts of pain medications. And within the state of Florida, no county has seen more Pill Mill activity than Palm Beach County.

Thus, after Pam Bondi, the newly elected Attorney General for the State of Florida, named former State Senator David Aronberg to head the States anti-pill mill initiative, it came as no surprise when Mr. Aronberg chose to centralize the Attorney Generals war against pill mills in West Palm Beach as opposed to Tallahassee, Floridas capital city. According to Mr. Aronberg, West Palm Beach is “ground zero,” but promised that Palm Beach County would continue to be a leader in eradicating pill mills.

This law firm has considerable experience representing pain clinics and other medical practices in a variety of capacities. If you have any questions about Floridas anti-pill mill initiative, please feel free to contact us at contact@fidjlaw.com.

New British Bribery law will mean trouble for American pharmaceutical firms

A new British anti-bribery law taking effect in April, in certain ways more stringent than the Foreign Corrupt Practices Act (“FCPA”) in the United States, is worrying American drug companies enough begin  strengthening existing compliance programs in anticipation of the new law.

In recent years, the U.S. Department of Justice has exacted severe monetary penalties against pharmaceutical companies for violating the FCPA, which prohibits U.S. companies from engaging in bribery of foreign government officials. A recent Wall Street Journal article found here reported that, not surprisingly, British officials may specifically target pharmaceutical companies for enforcement of this new law once it is in effect. The new law is known simply as “The Bribery Act”.  

The Bribery Act prohibits any company operating in the United Kingdom, whether foreign or domestic, from making any illicit payments to foreign government officials. However, unlike the U.S. FCPA, The Bribery Act also prohibits illicit payments to private citizens or businesses, and even applies if the person making the payment does not even realize he or she is paying a bribe.

Notably, the Bribery Act does not include a crucial exemption included in the FCPA: Facilitation payments, or “grease” payments, permissible under the FCPA under certain circumstances, are not allowed under The Bribery Act.  As such, conduct which may be perfectly legal for an American pharmaceutical company based in Britain under the FCPA, may be illegal under The Bribery Act.

A stringent compliance regime, along with an understanding of both the FCPA and The Bribery Act is necessary for a company engaged in international business to avoid the traps and pitfalls both these laws can erect to harm its business. Our firm is experienced in conducting internal investigations to ferret out potential problems and to suggest policies and procedures to steer clear of violations.

Latest developments in the Pharma lawyer obstruction of justice case

We had earlier blogged on the indictment of Lauren Stevens, the former Vice-President and Associate General Counsel for GlaxoSmithKline for allegedly making false statements and obstruction of justice in regard to a FDA investigation. That earlier blog is here. Now, in a recent development, it turns out that the government is seeking to prevent Stevens from relying on an “advice of counsel” defense at trial.

In a press account, it was suggested by her counsel that Stevens may raise an “advice of counsel” defense as it stated that Stevens did everything “consistent with ethical lawyering and the advice provided her by a nationally prominent law firm retained by her employer”. Soon afterward, the government filed a motion with the court to forbid Stevens from raising an “advice of counsel” defense at trial.

In that motion, which can be found here, the government states that “advice of counsel” cannot be a defense to the obstruction of justice charge against Stevens pursuant to 18 U.S.C. Sec. 1519 because it is not a “specific intent” crime. A “specific intent” crime is one in which the government must prove the defendant acted willfully, i.e., knew that the conduct charged violated the law. The government maintains in its motion that Sec. 1519 is a “general” intent crime, in that ignorance of the law is not an excuse; all that is required is proof that the defendant acted knowingly, i.e., not by mistake, when she allegedly covered up off label uses of a drug, with the intent to impede, obstruct or influence the FDAs investigation. According to the government, since Sec. 1519 does not require willful conduct, i.e., conduct committed with knowledge that it violated the law, advice of counsel that the conduct is lawful is irrelevant.

However, Stevens was also charged with other certain “specific intent” crimes that do require proof of willful conduct. 18 U.S.C. Sec. 1512, another obstruction of justice statute, requires proof that a defendant acted “corruptly”. 18 U.S.C. Sec. 1001, making false statements to the government, requires proof that the defendant knew he/she was acting unlawfully. In regard to these charges, the government argues in its motion that the “advice of counsel” defense should not be available until Stevens can satisfy that she fully disclosed all facts to the companys attorneys before seeking advice, and that she relied on the advice in a good faith belief that the conduct was legal. In another twist, the government takes the position that even if advice was given by lawyers to Stevens that her conduct was legal, those lawyers represented GlaxoSmithKline, not Stevens personally. Since she was not the lawyers client, according to the government, the defense should not be available.

What can so far be gleaned from the events in the Stevens case is how important it is to adequately document, in writing, the information provided to regulatory counsel and the advice received from regulatory counsel. In addition, in house counsel and compliance personnel must exercise heightened diligence to ensure that information provided to the FDA is accurate and complete. Given the governments hard nosed enforcement efforts, adequate documentation of this diligence and information and advice shared may make all the difference.

As of the date of this blog, Stevens had not yet responded to the governments motion. A hearing will most likely be held prior to a decision.

Alcatel-Lucent to pay $137 million to settle Justice Department Foreign Corrupt Practices Act lawsuit

The federal government has yet again successfully enforced the Foreign Corrupt Practices Act (“FCPA”) as Alcatel-Lucent, the large Paris-based telecommunications company, has agreed to pay more than $137 million to settle charges brought against it by the Securities and Exchange Commission (“SEC”) and Department of Justice (“DOJ”). The SECs complaint can be read here.

The company was accused of violating the FCPA by paying bribes to foreign government officials in various Latin American and Asian countries to win business. $45 million will go to the SEC, while $92 million will go to settle criminal FCPA charges brought by the DOJ.

Alcatel-Lucent subsidiaries had used third-party agents and consultants to obtain business in foreign countries. These agents and consultants were conduits for bribe payments to foreign officials to obtain or retain business. The bribes went to government officials in Costa Rica, Honduras, Malaysia and Taiwan between 2001 and 2006. The Company had listed the payments in its books and records as “consulting fees”. According to the government, leaders of Alcatel-Lucent subsidiaries either knew, or were reckless in not knowing, about the misconduct. Two executives with the company have been prosecuted, and one was sentenced to 30 months in prison.

As stated by Robert Khuzami , director of the SECs division of enforcement, “Alcatel and its subsidiaries failed to detect or investigate numerous red flags suggesting their employees were directing sham consultants to provide gifts and payments to foreign government officials to illegally win business.”

The settlement with the government is still subject to court approval. However, the case emphasizes that in todays charged enforcement environment, companies must do adequate due diligence to ensure that their overseas agents, consultants and distributors are not engaging in corrupt payments on their behalf to gain business. Red flags must be investigated and resolved to managements satisfaction. Our firm is experienced in conducting such due diligence investigations.

Civil Suit Seeks to Hold Bank Liable for Haitian Ponzi Scheme

Recently, the court appointed receiver of Creative Capital Consortium, LLC, the organization at the center of a massive Haitian ponzi scheme, filed a civil suit in the United States District Court for the Southern District of Florida against Wells Fargo Bank, N.A. for its predecessors role in furthering the ponzi scheme. This case highlights the potential culpability of financial institutions for their lack of effective anti-money laundering programs and errors in compliance with the Bank Secrecy Act.

The Bank Secrecy Act (“BSA”), and its applicable federal regulations, require financial institutions to verify the sources of money coming into its customers accounts. Financial institutions are required to file Suspicious Activity Reports (“SAR”) for transactions which appear suspicious and are given the authority to shut down accounts should money laundering be suspected. Financial institutions generally accomplish the goals of the BSA through the use of an anti-money laundering compliance program that allows a financial institution to effectively monitor transactions and determine if they are suspicious.

According to the complaint filed by the receiver, George Theodule, founder and director of Creative Capital Consortium, LLC (“CCC”), operated a massive ponzi scheme that was directed at Haitian Americans. The complaint alleges that from 2007 to the end of 2008, Theodule targeted thousands of investors from Florida, Georgia, and New Jersey by promising quick and large profits from their initial investments. Theodule allegedly formed numerous, in excess of 100, “investment clubs” and used CCC to oversee the scheme. The clubs would then structure transactions between themselves through their separate accounts to appear as investments. In total, the complaint alleges that Theodule made $68 million from the scheme.

Having already settled with Theodule in a separate suit for $5.5 million, the receiver has now turned its attention to Wells Fargo Bank, N.A. for the remainder based upon the actions of its predecessor Wachovia Bank, N.A. According to the complaint, Wachovia failed to provide adequate safeguards to prevent the scheme from occurring. The complaint alleges that Wachovia provided special privileges to Theodule, CCC, and the 36 investment clubs that had accounts at the bank and often ignored “red flags” of suspicious activity. Examples of Wachovias alleged failures include a failure to investigate and inquire into the nature of CCC and Theodules business and failing to file SARs for numerous structured transactions.

This is not the first time Wachovia has been accused of failing to comply with its duties under the BSA. Prior to its merger with Wells Fargo, in 2009, Wachovia was criminally charged with violations of the BSA for willfully failing to establish an anti-money laundering compliance program and for failing to file SARs. As a result, Wachovia and Wells Fargo entered into a deferred prosecution agreement, forfeited $110 million and paid $50 million in fines.

If you have questions pertaining to the BSA, anti-money laundering compliance or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fidjlaw.com.

Former executives of Latin Node, Inc. charged with FCPA violations for bribing Honduran government officials

In its continuing ramp up of enforcement of the Foreign Corrupt Practices Act, (“FCPA”), the government recently announced the indictments of two former senior executives of Latin Node, Inc., a provider of wholesale telecommunications services using Internet protocol technology. The two executives, the former chief executive officer and the vice-president of business development, are charged with violating the anti-bribery provisions of the FCPA and anti-money laundering laws. The indictment may be viewed here.

The FCPA forbids American businesses or persons from paying bribes to officials of a foreign government in order to obtain or retain business. It also requires public companies to make and keep accurate books and records and to devise and maintain accounting controls to detect and prevent the paying of bribes to foreign officials.

The alleged scheme to bribe Honduran officials centered on an “interconnection agreement” Latin Node, Inc. had with Hondutel, the Honduran state owned telecommunications authority. This agreement allowed Latin Node, Inc. to use Hondutels lines to establish a network between Honduras and the United States and provide long distance services. Latin Node, Inc. was required to pay Hondutel a set rate per minute for calls to Honduras.

The charged executives sought a rate reduction from Hondutel. In order to effectuate this rate reduction, they agreed to a secret deal to pay bribes to a Hondutel manager, as well as to a senior attorney for Hondutel who acted as the managers “straw man” and a minister of the Honduran government. More than $500,000 in bribes was paid to the officials, concealing the payments by laundering the money through Latin Node subsidiaries in Guatemala and to accounts in Honduras controlled by Honduran government officials.

Latin Node, Inc. had previously pled guilty to violating the FCPA regarding the same conduct for which the executives were charged. By indicting the executives, who now face prison time if convicted, the Department of Justice is showing it is “committed to holding accountable individuals and companies alike for alleged foreign bribery schemes” according to Assistant Attorney General Lanny Breuer. According to Anthony Mangione, the Special Agent in Charge of ICE Homeland Security Investigations in Miami, “anyone who believes paying bribes in foreign countries is just the cost of doing business should think about the repercussions-whether it is worth going to prison”.

According to John Gillies, Special Agent in Charge of the FBI in Miami, “this new indictment represents the FBIs commitment to investigating not just the corrupt acts of a corporate entity, but the individuals who are behind it.”

Violations of the FCPA are punishable by a maximum of 5 years in prison. Money Laundering is punishable by a maximum of 20 years in prison. The defendants may also be liable for substantial monetary fines if convicted.

It is important for companies and their executives who conduct international business to be familiar with the prohibitions contained in the FCPA and to ensure that their companies and employees are trained on how to comply with its provisions. Lawyers at Fuerst Ittleman PL are experienced in conducting internal investigations of companies and executives in order to prevent violations, and in the event of violations, to defend against regulatory or criminal proceedings brought pursuant to the FCPA.

Justice Department Announces Plea Agreement in UBS Case

On December 22, 2010, the United States Attorney’s Office for the Southern District of New York issued a press release, found here, regarding a former UBS client who entered a guilty plea to conspiring to defrauding the United States and for filing false income tax returns by hiding $4.9 million in UBS bank accounts.  As part of his plea agreement, Ernest Vogliano agreed to a civil penalty of approximately $940K, or 50% of the value as of December 31, 2004.  Mr. Vogliano was one of seven individuals indicted in April, and is the fourth to enter a guilty plea admitting is culpability.

In 2000 and 2002 Mr. Vogliano opened accounts at UBS using shell corporations in order to avoid the Bank Secrecy Act reporting requirement. In order to repatriate funds to the United States Mr. Vogliano traveled to Switzerland to obtain travelers checks that he both personally brought to the United States and mailed to the United States in order to evade detection by federal authorities.

As we previously reported, Mr. Gadola’s prosecution and plea demonstrates that the Department of Justice is targeting both participants of tax avoidance schemes and those individuals that assist in evading tax by United States citizens and resident aliens. Further prosecutions are anticipated in the months and years to come.