LJN Newsletters

Most of us have experienced at one time or another the long arm of the Department of Justice reaching into a civil action, whether it be an SEC proceeding, a class or derivative action or a contract dispute, to intervene and stay discovery in favor of a pending criminal investigation or proceeding. And, far more often than not, the federal government's request is granted. However, courts on both coasts in the past year have shown that they are willing to scrutinize carefully government assertions of prejudice and potential witness tampering and defendants' claims of hardship and prejudice. In several instances, they have denied intervention and/or discovery stays.

For companies in highly regulated industries, lawsuits and government investigations are a cost of doing business. This cost goes well beyond the fees for lawyers, experts and consultants. In the early stages of a lawsuit or investigation, much of it comes from the diversion of personnel from their business responsibilities to complying with requests for information made by an adverse party or the government. Instead of running the business, employees spend their time meeting with lawyers and reviewing historical records.

On June 24th, the Supreme Court decided a case that has sent a virtual shock-wave through the criminal justice system and threatens to upset the long-established practice of sentencing defendants under the federal Sentencing Guidelines. In Blakely v. Washington, 124 S.Ct. 2531 (2004), the Court invalidated a defendant's sentence imposed under the State of Washington's sentencing guidelines by holding that the Sixth Amendment prohibits a judge from increasing a defendant's sentence based on facts beyond those found by the jury or admitted by the defendant.

The latest rulings of interest to you and your practice.

Telecom companies invest substantial amounts to acquire their assets, such as underground cables or fiber optic networks. As a consequence of building or acquiring this capital-intensive infrastructure, telecom companies often pay millions of dollars in annual property tax assessments. When telecom asset values drop (as has most recently been the case), telecom companies generally focus on keeping their businesses afloat, rather than on their property taxes.

A bankruptcy judge's mandate, and the purpose of a section 363 sale process, is to obtain the "highest and best" offer for the assets. Finality and integrity of the process are also important policy considerations. Bankruptcy sales are designed to facilitate the estate's ready realization of value from its assets, while at the same time giving purchasers some degree of certainty that they will obtain clear title to an asset, without the fear of having the transaction later reversed. At times, however, these principles may be in conflict, as outlined by the Seventh Circuit.

Bankruptcy lawyers may not get involved in their clients' transactions until it is too late. They may be called in only upon the occurrence of a default, litigation, or the commencement of a bankruptcy case. At that point, they are faced with deals that have been "set in stone" -- drafted and structured by lawyers specializing in the front-end, who may have looked at the transaction from an overly optimistic viewpoint, especially in the case of a long-term deal with another party that presently is in good financial health.

On August 25, the Federal Trade Commission released a proposed final rule, 'Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures," known more commonly as the "Franchise Rule." FBLA's editorial staff is now working on an in-depth analysis of the Franchise Rule in a special report that will be distributed to all subscribers. To read the proposed Franchise Rule, go to the FTC's Web site at www.ftc.gov/opa/2004/08/franchiserule.htm.