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More on the Chris Dodd-Countrywide Connection

The Associated Press has this breaking news:

WASHINGTON - Despite their denials, influential Democratic Sens. Kent Conrad and Chris Dodd were told from the start they were getting VIP mortgage discounts from one of the nation's largest lenders, the official who handled their loans has told Congress in secret testimony.

Both senators have said that at the time the mortgages were being written they didn't know they were getting unique deals from Countrywide Financial Corp., the company that went on to lose billions of dollars on home loans to credit-strapped borrowers. 

Read the whole thing.


Ashcroft v. Iqbal: Supervisory Liability Under Bivens and Section 1983

In its recent opinion in Ashcroft v. Iqbal, the United States Supreme Court confused the law of supervisory liability.  Iqbal's bare majority did not, contra the some gasps in the dissent, overrule supervisory liablity under Bivens or Section 1983.  The Court did confuse the law of supervisory liablity.  Let's look at where the Court went wrong.

Bivens Actions. A state or local government official who violates a citizens constitutional rights may be sued under federal statute - 42 U.S.C. 1983.  Section 1983 was not used for decades.  Then, in the 1960s, the Supreme Court awoke Section 1983 from hibernation - in Monroe v. Pape.  

Monroe, however, involved a lawsuit against state officials.  Such lawsuits were covered directly under federal statute.  

How then, if at all, may a citizen sue a federal agent who violates the Constitution?  This is a tricky question.  Is the Constitution self-executing?  Or must Congress first create enabling legislation allowing a private party to sue federal agents?   

Section 1983, e.g., is a enabling legislation.  The Constitution is the source of the substantive rights. Section 1983 is what allows a party to file a lawsuit.  What then to do with federal officials?

In Bivens v. Six Unknown Named Agents, the Supreme Court answered the controversial question.  In Bivens, the Court held that at least some parts of the Constitution were self-executing.  Thus, even without enabling legislation, a citizen could sue federal agents for violating the Constitution.

Bivens Divides Liberal and Conservative Justices.  Conservatives hate Bivens.  Liberals love it.  There are fantastic arguments for love and hate.  Some conservatives say that Article III courts lack the power to create common-law causes of action.  Plus, conservatives, as a matter of realpolitik, don't like lawsuits against the police.  On the former point, liberals say that's silly: There is indeed a substantial body of federal common law.  On the latter point, liberals say nothing.  Pointing out conservative's pro-government bias is bad manners.

Reasonable minds disagree. But Bivens exists.  Now what?

Conservative justices, when they can, limit Bivens.  When they get the votes, the write opinions which state: "Because implied causes of action are disfavored, the Court has been reluctant to extend Bivens liability 'to any new context or new category of defendants.'"  Which is exactly what the conservative 5 justices of the United States Supreme Court wrote in Ashcroft v. Iqbal. 

Supervisory Liablity.  Under Section 1983, a supervisor may be sued for his subordinate's unconstitutional acts.  However, a supervisor is not strictly liable under respondeat superior.  Rather, supervisory liability attaches only where a plaintiff can show that the supervisor's policy or custom was a moving force behind the civil rights violation.  To hold a supervisor liablity, a plaintiff must show ratification, or acquiesce.  

For example, a cop hits you over the head with a baton because you're wearing a "Goldman Sachs is Evil" t-shirt.  No supervisory liablity.  If the supervisor issued a memo saying, "Hit anyone over the head who defames Goldman Sachs," then the supervisor would be liable.  The supervisor would have ratified an official policy.

The Supreme Court has recognized, though, that policy is created based on not just what you say - but on what you don't say.  Imagine your employees come into the office at 9:30 a.m.  You say nothing.  The de facto start time for the workday, then, would be 9:30.  You need not issue a memo for your subordinates to learn the policy or custom.  That you issued no such memo, though, doesn't mean there isn't a policy or custom.  There is acquiesce.

Thus, in City of Canton v. Harris, the Supreme Court held that supervisory liablity may attach where "policymakers were aware of, and acquiesced in, apattern of constitutional violations."  If the chief of police knows that his officers are beating up people who speak ill of Goldman Sachs and does nothing, then one could infer that he's sanctioned the policy.  After all, it's his job to tell officers what to do - and not do.  Moreover, policymakers should not be able to avoid liablity through an ostrich policy. 

Iqbal Ignores Canton.  In Iqbal, the majority writes: 

[Plaintiff] argues that, under a theoryof "supervisory liability," petitioners can be liable for "knowledge and acquiescence in their subordinates' use of discriminatory criteria to make classification decisions among detainees." That is to say, respondent believes a supervisor’s mere knowledge of his subordinate’s discriminatory purpose amounts to the supervisor’s violating the Constitution. We reject this argument. Respondent’s conception of "supervisory liability" is inconsistent with his accurate stipulation that petitioners may not be held accountable for the misdeed sof their agents. In a §1983 suit or a Bivens action—where masters do not answer for the torts of their servants—the term "supervisory liability" is a misnomer. Absent vicarious liability, each Government official, his or her title notwithstanding, is only liable for his or her own misconduct. In the context of determining whether there is a violation of clearly established right to overcome qualified immunity, purpose rather than knowledge is required to impose Bivens liability on the subordinate for unconstitutional discrimination; the same holds true for an official charged with violations arising from his or her superintendent responsibilities.

The majority ignores Canton, but also fails to note that a government official's misconduct includes failure to properly train or supervise his subordinates; and for creating unconstitutional policies that are the moving force of civil rights violations.  Thus, the majority's statement: "Absent vicarious liability, each Government official, his or her title notwithstanding, is only liable for his or her own misconduct," is nonsensical.  

The Iqbal majority ignored decades of case law.  It has cast doubt over the elements in a cause of action brought against supervisors who fail to properly train or supervise subordinates; or who close to their eyes to constitutional rights violations.

The real action now will occur in the lower courts.  

Lower courts should recognize that, as the Supreme Court noted in Canton, supervisors have an independent duty to supervise and train employees; and to prevent their employees from creating a culture of lawlessness.  

Holding supervisors accountable for their actual, unconstitutional conduct is not imposing strict liablity.  Thus, as has always been the case, post-Iqbal plaintiffs will be required to prove that the supervisor failed to supervise his subordinates.  Simply alleging a supervisor-subordinate relationship is not enough.  

Rather, as most jury instructions provide, the plaintiff must show: "[3. (a) the defendant knew, or reasonably should have known, that [his] [her] subordinate[s] were engaging in theseact[s] and that their conduct would deprive the plaintiff of these rights; and(b) the defendant failed to act to prevent [his] [her] subordinate[s] from engaging in such conduct.]"  Ninth Circuit Model Civil Instructions No. 9.3.  

A few stray sentences in Iqbal should not uproot longstanding law.

Does the Aleynikov Prosecution Violate the Equal Protection Clause?

If I were Sergio Aleynikov's lawyer, I'd seek to dismiss the case under a class-of-one equal protection theory.  Why is Aleynikov, unlike other people who allegedly stole trade secrets from Wall Street firms, being criminally prosecuted?  Does AUSA Joseph Facciponti, the attorney prosecuting Aleynikov, have a secret and improper relationship with Goldman Sachs?  

Why did the FBI, less than 48 hours after Goldman Sachs reported the alleged theft, arrest Aleynikov?  Why did Facciponti work all nighters and lie to a federal judge?  These are questions that we should ask.  There needs to be a full evidentiary hearing into Facciponti's prosecutorial misconduct; and to the Department of Justice's preferential treatment of Goldman Sachs.

The class of one defense is not mere theory:

The former Goldman Sachs programmer who allegedly stole some of the Wall Street firm’s top secret proprietary trading code picked the wrong firm to mess with–really. If Aleynikov had been an employee of UBS, he might only be facing a civil lawsuit right now–not federal criminal charges.

In March, nearly four months before Goldman ran to federal prosecutors with their concerns about Aleynikov, UBS was in New York State Supreme Court filing a civil lawsuit against three former employees, charging them with doing much the same thing the ex-Goldman employee did. The only difference is no criminal charges have been filed against the three former UBS employees.

The UBS lawsuit was first reported in June by Dealbreaker.com, after going unnoticed for several weeks. It’s getting more attention now in the wake of the Goldman case, which has begun to shed light on the importance of so-called high frequency trading strategies to Wall Street firms.

More here.

Diversity and Police Abuse

The Gates case raises an interesting issue no one wants to discuss.  It causes too much cognitive conflict. 

We are told that we need "diverse" police forces so badly - even if this means discriminating against whites - because more divesity means less police abuse.  It means blacks won't be discriminated against - presumably because.... Well, I don't know why and have never seen any empirical support for the argument.  

Yet we are also being told that the police discriminated against Gates.  Racism!  Racial profiling!

Watch those two worlds collide.  Show this picture to your friends.  Watch cognitive dissonance in action:


Police Diversity

Karen Ann Escobar is Unethical Prosecutor

Another day, another unethical prosecutor.  From United States v. Nobari (here):

 The defendants raise several claims on appeal, including an allegation that the prosecution improperly presented, as evidence of the defendants’ guilt, testimony that drew generalizations on the basis of ethnicity about “Middle Easterners” and “Mexicans.” 

You need to read pages *9657-9662  (6-11 of the .pdf) of the opinion to get a sense for the argument.  It was a classic ethnic syllogism: "All Mexicans cook meth.  The defendant is a Mexican.  Therefore, the defendant cooked meth."  It really was that bad.  Here is what the prosecutor said in closing argument:

[W]ithin the context of methamphetamine manufacturing, the fact that George, Shino and Nobari happened to be Assyrian, happened to be Middle Eastern is significant because, as you heard, Middle Easterners typically occupy the role of pill broker and are not involved in the actual manufacture of methamphetamine.

Within the context of methamphetamine manufacturing, the role of obtaining pills for the manufacture of methamphetamine is typically assumed by Mexicans. In fact, as you heard in many of the recordings, George himself talks about unloading the pills to the Mexicans, who in his experience would take 50 cases at a time.

Slip op. at *9661-62.  Who was the prosecutor who made racist arguments, in violation of the Constitution and Rules of Professional Conduct?  The opinion doesn't identify the prosecutor.  That three judges refused to identify a racist (and therefore unethical) prosecutor is to be expected.  Federal judges often protect unethical prosecutors.  Thankfully, the docket report on PACER provides the information we need:

Karen Ann Escobar 
United States Attorney 
LEAD ATTORNEY 
ATTORNEY TO BE NOTICED

It could be that one of AUSA Escobar's subordinates elicited the specific line of testimony.  It's hard to say for sure.  However, as a supervising lawyer, AUSA Escobar is responsible for the arguments her subordinates make in court.  Thus, directly or indirectly, Escobar made those inappropriate arguments.

UPDATE: In the oral argument, AUSA Escobar says, "I did handle the trial."  (28:01 in this audio recording.)  She made the comments.  She defended her comments on appeal.  Shameless.


High Frequency Trading and Goldman Sachs

The New York Times has an excellent article on high frequency trading.  Sergey Aleynikov, a man did something very right for the wrong reasons, even makes a cameo.  Read the whole thing.

If you want to get a better feel for the issues, the Themis Trading blog shows how high frequency trading looks:

The three HFT horsemen are C, BAC and CIT. These three stocks traded 860 million shares today which is 10% of all US Equity volume

Look at the intraday chart of all three of these stocks and you will see a something in common: an early morning move followed by a flatline with a very tight range (around .05). Meanwhile, while these stocks were flatlining the market was heading higher. The S&P 500 gained around 10 points in the afternoon (or 1%) but these 3 stocks did not move. 

There was a constant bid to these stocks yet anytime they wanted to lift there seemed to be a constant offer just a few pennies higher. This is what HFT looks like. The HFT’s made a killing in these 3 names today – in addition to the .01-.02 spread, they collected about .005/share in liquidity rebates. Not a bad day for a supercomputer.

Aleynikov will be given a super-sweet plea bargain.  If his case proceeds towards trial, the world will learn about Goldman Sach's high frequency trading program.  Sure, AUSA Joseph Facciponti will try to keep the case under seal.  Too many people are paying attention.  Reporters and judges want to know what is up with Goldman Sachs.

Fortunately, C&F's post disclosing Facciponti's fraud in open court has made the rounds.  Unless Facciponti finds a judge who is willing to serve as his co-counsel, it's unlikely that Facciponti will continue to get away with lying to federal judges.

The Southern District of New York is on notice: Facciponti is serving as Goldman Sachs' de facto lawyer.  Facciponti, less than 48-hours after Goldmans' software code was reportedly stolen, worked all-nighters to get Aleynikov arrested.  In a trade secret case.  There is no other trade secrets case where a government lawyer moved so quickly to serve private interests.

Goldman Sachs has already downplayed the Aleynikov case.  The code theft, which caused a man to be arrested less than 48 hours after the Department of Justice was called, was no big deal.  That's what Goldman must say.  To speak the truth would be to invite people more skeptical than AUSA Facciponti.  Indeed, the New York Times is now covering high frequecy trading.

The case against Aleynikov needs to go away.  Quietly. Keep an eye on PACER.


Rep. Marcy Kaptur Cross-Examines Henry Paulson About Warren Buffet-Goldman Sachs Deal

Henry Paulson loaned taxpayer money to Goldman Sachs.  Warren Buffett loaned private capital to Goldman Sachs.  Who got the better deal?

Rep. Marcy Kaptur cross-examined Paulson about this issue.  Before heading Treasury, Paulson  was CEO of Goldman Sachs.  One does not rise to the top of Goldman Sachs unless he is a supreme alpha of finance.  One cannot legitimately question Paulson's tenacity or ability to strike hard deals. 

Thus, if Paulson had indeed been acting as a fidiciary for taxpayers, he should have gotten at least as good of a deal as Warren Buffett.  Why didn't he?
 



Paulson's reply?  "It was in the middle of a crisis."  How is that an answer?  Since when dooes one give sweet heart loans to people who are desperate for money?  It was awfully gracious for Paulson, a steward of United States taxpayer money, to not engage in predatory lending practices.  Still, was Buffett's deal predatory?  No expert has suggested that it was.

The chart, below, shows just how much better Buffett's deal was.  Goldman recently repuchased the warrants for $1.1 billion.  So Paulson's deal (reflected in the bottom line) was only three times worse than Warren Buffett's!

Buffett v. Paulson

Tasers and Excessive Force/Section 1983

The Eighth Circuit Court of Appeals issued an opinion I'll need to review later.  Here is the Clerk's summary:

081640P.pdf 07/22/2009 Sandra Brown v. Rob Zarrett, etc. U.S. Court of Appeals Case No: 08-1640 U.S. District Court for the District of Minnesota - Minneapolis [PUBLISHED] [Wollman, Author, with Riley and Shepherd, Circuit Judges]
Civil case - civil rights. Given the circumstances surrounding plaintiff's Tasering and arrest, the district court did not err in concluding that defendant Zarrett's use of force was not objectively reasonable as a matter of law; the law was sufficiently clear to inform a reasonable police officer that it was unlawful to Taser a nonviolent, suspected misdemeanant who was not fleeing or resisting arrest, who posed little to no threat to anyone's safety and whose only noncompliance with officer commands was to disobey orders to end her phone call to a 911operator; as a result, the district court did not err in denying the defendants' motion for summary judgment based on qualified immunity; accepting plaintiff's version of events, a jury could find defendant is not entitled to official immunity because he willfully violated plaintiff's right to be free from excessive force.