Email to business ethics community

Is Obama administration emphasizing the targeting of individuals?

                           

To the business ethics community:

The article U.S. Effort to Remove Drug CEO Jolts Firms, appearing on the front page of the April 26, 2011 edition of The Wall Street Journal, seems to report a significant development for business ethicists.

The lead sentence of the article says, "A government attempt to oust a longtime drug-company chief executive over his company's marketing violations is raising alarms in that industry and beyond about a potential expansion of federal involvement in the business world."

Further on, the article says: "The campaign against drug-company CEOs is part of a larger Obama administration effort to pursue individual executives blamed for wrongdoing rather than simply punishing companies."

There has been longstanding debate in the ethics community about the question of punishing companies versus punishing responsible officers and employees. I have advocated in favor of more of the latter.

My primary interest has been with how I believe class action and other private civil liability litigation undermines business ethics, because of the way it has been abused by plaintiffs' lawyers to collect lots of money in small amounts from numerous innocent parties (shareholders, other employees, etc.), and how that thereby distracts, and diverts resources away, from holding responsible officers and employees accountable, and results in a failure of deterrence. See Does the Civil Liability System Undermine Business Ethics?

I hope the above development concerning the Obama administration's approach, as reported by The Wall Street Journal, will result in heightened debate in the business ethics community about the question of punishing companies versus punishing culpable officers and employees. I further hope it will result in more consideration given to the aspects of the private civil liability system that I have tried to call attention to that I think undermine business ethics.

Sincerely,

Rob Shattuck

P.S. Well, a nice contrapuntal note is this morning's business headline news about a $1 billion mortgage fraud claim by the Justice Department against Deutsche Bank. What, oh what, dear business ethics community, will deter?

WSJ 4/26/11- U.S. Effort to Remove Drug CEO Jolts Firms

The Wall Street Journal, April 26, 2011, p.A1

U.S. Effort to Remove Drug CEO Jolts Firms

By ALICIA MUNDY

A government attempt to oust a longtime drug-company chief executive over his company's marketing violations is raising alarms in that industry and beyond about a potential expansion of federal involvement in the business world.
The Department of Health and Human Services this month notified Howard Solomon of Forest Laboratories Inc. that it intends to exclude him from doing business with the federal government. This, in turn, could prevent Forest from selling its drugs to Medicare, Medicaid and the Veterans Administration. If the government implements its ban, Forest would have to dump Mr. Solomon, now 83 years old, in order to protect its corporate revenue. No drug company, large or small, can afford to lose out on sales to the federal government, a major customer.

Bloomberg

Forest Labs CEO Howard Solomon

The campaign against drug-company CEOs is part of a larger Obama administration effort to pursue individual executives blamed for wrongdoing rather than simply punishing companies. The government has tried to prosecute Wall Street executives in connection with the 2008 financial crisis, but with limited success.

The Health and Human Services department startled drug makers last year when the agency said it would start invoking a little-used administrative policy under the Social Security Act against pharmaceutical executives. This policy allows officials to bar corporate leaders from health-industry companies doing business with the government, if a drug company is guilty of criminal misconduct. The agency said a chief executive or other leader can be banned even if he or she had no knowledge of a company's criminal actions. Retaining a banned executive can trigger a company's exclusion from government business.
The "action against the CEO of Forest Labs is a game changer," said Richard Westling, a corporate defense attorney in Nashville who has represented executives in different industries against the government.
According to Mr. Westling, "It would be a mistake to see this as solely a health-care industry issue. The use of sanctions such as exclusion and debarment to punish individuals where the government is unable to prove a direct legal or regulatory violation could have wide-ranging impact." An exclusion penalty could be more costly than a Justice Department prosecution.
He said that the Defense Department and the Environmental Protection Agency, for example, have debarment powers similar to the HHS exclusion authority.
The Forest case has its origins in an investigation into the company's marketing of its big-selling antidepressants Celexa and Lexapro. Last September, Forest made a plea agreement with the government, under which it is paying $313 million in criminal and civil penalties over sales-related misconduct.
A federal court made the deal final in March. Forest Labs representatives said they were shocked when the intent-to-ban notice was received a few weeks later, because Mr. Solomon wasn't accused by the government of misconduct.
Forest is sticking by its chief. "No one has ever alleged that Mr. Solomon did anything wrong, and excluding him [from the industry] is unjustified," said general counsel Herschel Weinstein. "It would also set an extremely troubling precedent that would create uncertainty throughout the industry and discourage regulatory settlements."
The pharmaceutical industry has paid billions of dollars in civil and criminal penalties over the past decade, but the government believes they no longer have much deterrent effect.
The new use of exclusion is meant to "alter the cost-benefit calculus of the corporate executives," said Lew Morris, chief counsel for the Department of Health and Human Services's inspector general, in congressional testimony last month.
The move against Forest's Mr. Solomon—its CEO, president and chairman—brings the campaign to a new level. Lawyers not involved in the Forest case said the attempt to punish an executive who isn't accused of misconduct could tie up the industry's day-to-day work in legal knots.
"This 'gotcha' approach to enforcement runs the risk of creating a climate within organizations that is inconsistent with the spirit of innovation that is critical to the industry," said Allen Waxman of Kaye Scholer LLP in New York, who was formerly an in-house counsel at a drug maker.
Mr. Solomon became chief executive in 1977 and built Forest from a maker of vitamin tablets into a global company with more than $4 billion in annual sales.
His son is writer Andrew Solomon, who won a National Book Award in 2001 for his book about struggling with depression. Inspired by his son, Howard Solomon pushed Forest into the antidepressant market and turned Celexa and Lexapro into successes. In the year ending March 2004, the two drugs accounted for about 82% of the company's sales.
In October 2010, HHS outlined how it could use the exclusion tool on individuals without proof of personal misconduct. The first application involved the CEO of a smaller pharmaceutical maker in St. Louis. The executive stepped down. He has since pleaded guilty to a misdemeanor marketing violation and was sentenced to prison and fined.
Forest pleaded guilty to a misdemeanor in connection with its marketing of Celexa as a treatment for children and adolescents before the drug won approval for pediatric use from the Food and Drug Administration. The company also paid fines over civil accusations.
Forest assumed it had put the matter behind it after the plea hearing in March. But on April 8, the Health and Human Services inspector general sent the letter declaring its intent to exclude Mr. Solomon from his roles at Forest. Mr. Solomon has 30 days to ask the inspector general to revoke the move, but if he loses and has to take his case to federal court, he may temporarily step down from his job, according to the company. The inspector general's office declined to comment; Mr. Solomon's personal attorney couldn't be reached.
The push to target executives comes in the wake of complaints in Congress that few executives bear the cost for bad corporate behavior. The U.S. has prosecuted only a handful of individuals in the Wall Street meltdown of 2008.
In November 2010, the government indicted a former attorney for GlaxoSmithKline PLC related to allegations of improper marketing of the antidepressant Wellbutrin for weight loss. The lawyer has pleaded not guilty, and her defense counsel has said her actions were based on advice from Glaxo's outside counsel. The company has said it is cooperating with the government.
—Scott L. Greenberg contributed to this article. Write to Alicia Mundy at alicia.mundy@wsj.com

Emails to Student Bar Associations

From: RDShatt@aol.com
To: __________
Sent: 4/_/2011 ______.M. Central Daylight Time
Subj: Attorney general offices should expand and hire more lawyers

 

To: Student Bar Association

 

I am writing your Student Bar Association because I advocate that state attorney general offices should be expanded and more lawyers should be hired by those offices.  This advocacy should be of interest to law students.  I hope your Student Bar Association will make use of my advocacy.

 

For a statement of my advocacy, please see this link Attorney general offices should expand in my blog How To Combat Plaintiffs' Lawyers.

 

Thank you.

 

Rob Shattuck

3812 Spring Valley Circle

Birmingham, AL 35223

Attorney general offices should expand

A lot of class action and other "private" civil litigation should be viewed as more "public" than "private."
 

On a spectrum, I conceive of "private" litigation at one end of the spectrum being one human being having injured another human being and the latter suing the former for damages, and only those human beings are affected by the outcome of the litigation.

Where there are corporations and other organizations comprised of conglomerations of human beings in various roles and functions, there are many human beings who are affected by the outcome of litigation.  They may be shareholders, officers, or employees of a corporation, and they are differentially affected by the outcome of litigation.  Some of these human beings (officers and employees) have culpability for making decisions and carrying out corporate activities that cause the injury, whereas others (shareholders, other employees) are largely innocent bystanders concerning the corporate wrongdoing
.

Further, costs of litigation against a corporation can get spread in a more public and notable way to customers in the form of higher prices, than happens as consequence of litigation way on the "private" end of the spectrum.

Also, there is more visibility and particularity in outcomes of bigger scale litigation that cause other persons and corporations who are not party to the litigation to modify their behavior.  This is especially true when the law imposes big liabilities without there being intentional wrongdoing or negligence, or with very slight negligence.

In evaluating this "public" litigation, there are meaningful questions about whether the work of plaintiffs lawyers well serves or ill serves the societal interests that are involved, and whether state attorneys general and other publicly accountable officials such as government regulators and district attorneys would better serve the societal interests. 

Due mainly to the compensation arrangements for plaintiffs' lawyers, I contend that it would be better if state attorneys generals and other public officials were responsible for bringing and prosecuting of this "public" litigation.  For discussion and arguments in  support of this contention, please see these two blog entries, among other entries:  Does the Civil Liability System Undermine Business Ethics? and http://robertshattuck.blogspot.com/2007/11/alabama-supreme-court-elections-1994.html:

As a result, I am an advocate of an expansion of the domain of the state attorneys general in the bringing and prosecuting of this "public" civil litigation, a hiring of more lawyers by those offices, and a reduction of the role of plaintiffs' lawyers.

Contacting Alabama AG office

From: RDShatt@aol.com
To: _________@ago.state.al.us
Sent: 4/3/2011 10:26:35 A.M. Central Daylight Time
Subj: Fwd: here is what I wish

Dear _______,

Please consider this in the nature of a personal follow up.

I don't know whether my subject matter provokes your professional interest in any way. 

I think it should provoke the interest of any lawyer who has made a decision to go to work for an attorney general. 

I assume a main motivation of such a decision is a desire to work to protect the public, to obtain compensation if the public has been hurt by wrongdoing, and to deter wrongdoing.

I think I raise significant policy questions relative to the mission of any attorney general and what the attorney general can do and what others can do to help the attorney general in his or her mission.

I have previously contacted attorneys general in other states and wish to continue those contacts.

Accordingly, I ask whether you have any personal or professional acquaintances in the offices of attorneys general in other states that you would be willing to provide me contact information for.

Thanks.

Rob Shattuck

---

From: RDShatt@aol.com
To:________@ago.state.al.us
Sent: 3/26/2011 7:49:43 A.M. Central Daylight Time
Subj: here is what I wish 

Dear ________,

Thank you for taking the time to speak to me yesterday.

As a citizen "tort reform" activist (or busybody, if you wish), I believe a lot of class action and other "private" litigation should be viewed as more "public" than "private."  This is due to factors that include the scale and make up of a plaintiff class (in class action litigation) and the consequences and ramifications for the general public and other persons who are not parties that result from litigation outcomes, be they judgments or settlements, such as how behavior, particularly in the commercial world, is widely affected.  In considering this "public" litigation, the compensation objective of the plaintiffs to the litigation cannot be lost sight of.

In evaluating this "public" litigation, there are meaningful questions about whether the work of plaintiffs lawyers well serves or ill serves the societal interests that are involved, and whether state attorneys general and other publicly accountable officials such as government regulators and district attorneys would better serve the societal interests. 

Due mainly to the compensation arrangements for plaintiffs' lawyers, I contend that it would be better if state attorneys generals and other public officials were responsible for bringing and prosecuting of this "public" litigation.  You may get a sense of my arguments in  support of this contention from these two blog entries of mine, among other entries:  Does the Civil Liability System Undermine Business Ethics? and http://robertshattuck.blogspot.com/2007/11/alabama-supreme-court-elections-1994.html:

Accordingly, as I said in our phone conversation, I am an advocate of an expansion of the domain of the Alabama attorney general's office concerning this "public" litigation and a reduction of the role of plaintiffs' lawyers.

If Attorney General Strange agrees with me, and thinks it is helpful to have citizen advocates making advocacy on the subject, I would like to have his help in my finding outlets for making my advocacy.

Also, please tell Attorney General Strange that I have been endeavoring to make advocacy to attorneys general in other states and to the National Association of Attorneys General (see, e.g., http://robertshattuck.blogspot.com/2007/12/email-to-national-association-of.html).  If Attorney General Strange would like to take a lead in this on a national level, I would love to help him out.

Please let me know if you are not in a position, or wish not, to refer this email on within the Attorney General's office, so that I may, in such case, look for other contacts in the AG's office.

Thanks so much.

Sincerely,

Rob Shattuck

From: constituentaffairs@ago.state.al.us
To: rdshatt@aol.com
Sent: 3/17/2011 6:20:52 A.M. Central Daylight Time
Subj: General Comments to AG--No Reply Contact from Website

    Here is a copy of the form you submitted from the Alabama Attorney General's website:
   
    Date:  3/17/2011 @ 6:21 AM Rob Shattuck 0 (Age)
    3812 Spring Valley Circle Birmingham, AL 35223 205-967-5586 (Home Phone)
    Work Phone Not Given rdshatt@aol.com (E-Mail Address)
   
    ---Division of Attorney General form is directed to---
    General Comments to AG--No Reply
   
    ---Details---
    Description:
    Dear Attorney General Strange, 
I have a blog How To Combat Plaintiffs' Lawyers (URL http://robertshattuck.blogspot.com/ ).  Last weekend I did a post about the tort reform bills that will be considered by the Alabama legislature in this session  (URL http://robertshattuck.blogspot.com/2011/03/clarion-call-concerning-al-legislative.html). 

In my post, I strongly urge Alabama legislators to inform themselves about plaintiffs' lawyers and tort reform and to reach decisions about what, on balance, is in the best interest of Alabama citizens.  My post says that your views on the issues would be valuable for legislators to consider.  I hope you will express your views to the legislators. 

Thank you. 

Rob Shattuck 

3812 Spring Valley Circle 

Birmingham, AL

   
    ---END OF FORM---

Letter to Governor Bentley

From: RDShatt@aol.com
To: info@governor.alabama.gov
Sent: 3/23/2011 4:51:40 A.M. Central Daylight Time
Subj: WEBSITE CONTACT governor.alabama.gov- tort reform bills

Dear Governor Bentley,

I am a retired lawyer (from the _______ law firm).  I am a tort reform activist and have a blog How To Combat Plaintiffs' Lawyers. 

I want to do what I can to make advocacy concerning the tort reform bills being considered in this  legislative session of the Alabama legislature.  I have posted this on my blog: Clarion call concerning AL legislative session and tort reform . 

I have sent emails to Alabama Senators and Representatives that give links to the above blog entry.  I have also emailed Alabama newspaper editors and reporters and chambers of commerce.  I have further contacted the Deans of the Alabama and Cumberland law schools and solicited input from law professors on tort reform policy.

If I can be of any service to your Administration in making advocacy about tort reform, please do not hesitate to contact me.

Thank you.

Rob Shattuck

3812 Spring Valley Circle

Birmingham, AL 35223

(205) 967-5586

Clarion call concerning AL legislative session and tort reform

In the spring of 2011, Alabama citizens continue with great concern about the economy and their jobs and about the viability of governmental benefits and services they need.  These concerns place stresses on state and local governments to perform in the best way possible to be a positive force in governing.

There are trade offs in governmental actions to address citizens' concerns.  In the news currently are the large burdens of public employee pension and health benefits that many believe have gotten out of hand as the result of irresponsible actions and promises of politicians in the past, possibly unduly resulting from vote buying that is done by politicians.  Cutting back the benefits will help state and local governments and also a majority of the citizens, but it will entail hardship for public employees.  These are not easy choices.

The controversy about public employee beneifits is one upshot from the loud message that was sent in the 2010 elections that "business as usual" by politicians will not be tolerated and they need to do a better job in trying to help solve the country's problems at the federal, state and local levels.  Soul searching by lawmakers is called for about putting the public's interest ahead of their own and not being corrupted by the campaign contributions of the special interests.

In that vein, the current session of the Alabama legislature provides an opportunity for lawmakers and the citizens to renew their evaluation of plaintiffs' lawyers and tort reform policy issues.   The bills that are introduced and considered may be very narrowly focused.  To try to figure out how to vote, the lawmakers ought to try to see the big picture on the policy issues involved.  If they reach conclusions about the big picture, that can provide guidance about how to vote in the push/pull on narrowly focused "reform" bills.

This has been around for a long time.  There have been ongoing tort reform efforts, and the plaintiffs lawyers have been relentless in trying to fend off, undermine and get around tort reform.  That battle continues in the spring of 2011 in Montgomery.

It can be hoped that Alabama lawmakers will do a good job in considering and acting on tort reform bills that are introduced in the current legislative session.  Ultimately, doing a good job means figuring out what is in the best interests of Alabama citizens.  This is not black and white, there are trade offs, and lawmakers must parse through the contentions that may be made plaintiffs' lawyers, Chambers of Commerce, doctors, and others who have a special interest in the matter of tort reform.

The policy questions involved, and the arguments on those questions, are not simple.

One side of the argument is that class action and other civil litigation abusively impose unjustifiable costs and burdens on the economy, in order to enrich plaintiffs' lawyers and serve their interests.

The other side of the argument is that the costs and burdens are warranted for purposes of allowing proper compensation of harmed plaintiffs and also deterring wrongdoing.

To get information, there are several good books that state the case against  plaintiffs' lawyers and in favor of tort reform.  These include Walter Olson, The Rule of Lawyers; and Phillip Howard, The Collapse of the Common Good and The Death of Common Sense.  Also, there are several good websites for information, such as Walter Olson's http://overlawyered.com/  and Ted Frank's Center For Class Action Fairness .

I have written several pieces that attempt to state the case against plaintiffs' lawyers, which can be found in this blog and which are linked here .   I would particularly recommend ALABAMA SUPREME COURT-1994 and Does the Law Undermine Business Ethics?

I am not currently in a position to recommend good books or comprehensive law review articles  that state the case in support of plaintiffs' lawyers and against tort reform.  I have solicited and will continue to solicit from plaintiffs' lawyers and their supporters citations of books and articles that they recommend and will post such citations here if and when I receive them.

I consider the main argument in support of the plaintiffs' lawyers is that lawmakers and regulators are corrupted by special interest money and they fail in their fiduciary obligations to the citizens to pass laws and promulgate regulations that are a reasonable outcome of acceptable democratic processes that balance the interests all concerned parties.

I think law professors, business school professors and others in Alabama who have relevant expertise ought to be willing to provide their views to lawmakers about the policy questions at issue and the argumentation relative to the same.  I have solicited this in the past and will do so again at this time.  Judges, regulators, criminal prosecutors and the Alabama attorney general ought to be able to provide useful views too, and I will attempt to solicit that.  Newspapers and television news departments should report on the subject matter.


The current Alabama legislative session presumably has many things on its plate to try to be a positive force in governance addressing the citizens' concerns about the economy and their jobs and the viability of government benefits and services.  Tort reform issues are deserving of careful attention by Alabama lawmakers this spring.   The bills that are introduced and considered may be very narrowly focused.  To try to figure out how to vote, the lawmakers ought to try to see the big picture on the policy issues involved.  If they reach conclusions about the big picture, that can provide guidance about how to vote in the push/pull on narrowly focused "reform" bills.