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Law-Breaking Company Offers to Build Houses for Habitat for Humanity

Submitted by Amaris Elliott-Engel on Tue, 05/26/2015 - 11:14

Here's a piece I wrote for the Connecticut Law Tribune about an unusual sentencing request:

The normal drill for punishment in federal court is prison time, fines or probation. But a North Branford-based construction company that ran afoul of the law is asking U.S. District Judge Janet Bond Arterton to consider sentencing the company to build two homes.

The hook is that the houses wouldn't be sold for profit. They would be constructed for Habitat for Humanity, and the efforts would be considered community service.

Cherry Hill Construction Co. pleaded guilty to filing a false tax return and a making a false statement in connection with the documents required by the Employee Retirement Income Security Act of 1974, which sets out a minimal standard for retirement plans. The company stated that its contributions to the retirement plans needed to be only $52,198 when they should have totaled nearly $580,000.

The company faces a $500,000 fine and five years' probation. But instead of paying the fine, Cherry Hill wants to build two new family homes in New Haven on behalf of Habitat and donate all the labor and materials. The company placed the value of such an effort at $155,000 to $200,000.

The government is opposing the proposal for several reasons. U.S. Attorney Deirdre Daly and Assistant U.S. Attorney Douglas Morabito said in court papers that Cherry Hill should be made to pay the full $500,000 because corporations can't be imprisoned and fines are the principal deterrent against criminal behavior by corporations.

The government officials said they also oppose providing a benefit to just one organization, rather than society in whole. "The proposal puts the court in the unusual position of directing that community service be done for the benefit of a specific entity," prosecutors said. "Although Habitat for Humanity is a wonderful organization, to some extent this proposal puts the court in the position of picking and choosing beneficiaries of a criminal sentence."

The government also had qualms about the possibility of Cherry Hill reaping positive news from the proposal even though it has promised not to seek any such publicity for any court-ordered community service.

Cherry Hill owner Robert Sachs, who authorized the guilty plea of his family's firm, said in a statement to the court that the 42-year-old company's financial problems started because an employee embezzled money. With the economy in a tough spot in 2010, the company's cash flow dried up. That led to the company underfunding its employee benefit plans and submitting false paperwork to the plan's administrator, Sachs said. The company also falsely claimed a tax deduction for more than the company actually paid into the plan.

In court papers, Cherry Hill's counsel, Robert Casale, argued that community service should be substituted for a monetary fine because the diversion of funds from the employee benefit plan was not driven by corporate greed but because the company's cash flow was eaten up from embezzlement and poor conditions in the construction market.

Robert Santillo, who worked as Cherry Hill's manager, pleaded guilty in 2012 to two counts of tax evasion. He had received more than $790,000 from a subcontractor used by Cherry Hill on asbestos removal projects and created a limited liability company to conceal his taxable income. Casale said in court papers that Santillo is also estimated to have stolen between $1 million and $2 million from Cherry Hill, eating "away at the company like an intestinal parasite."

"Cherry Hill is a defendant in this case because it made a bad decision during a time of crisis," Casale wrote. "There is no question that the company appreciates the wrongfulness of its actions and has taken steps to ensure that this will not happen again."

The company also agreed to make full restitution to the retirement plan funds and to pay back the taxes it owes to the Internal Revenue Service.

Casale declined to comment. Morabito did not respond to a request for comment.

Alan Sobol, chairman of Pullman & Comley's white collar, criminal defense and corporate investigations practice, said the defense strategy was interesting, but not likely to succeed. For one thing, he said, fines are meant to benefit all of society, not just one particular cause. He called Cherry Hill's idea an "interesting and creative approach. [But] it's not likely to carry the day with the court."

Sobol said he would instead recommend arguing that the sentencing guidelines for white-collar crimes regarding financial fraud are not based on empirical data and can be set aside altogether since sentencing guidelines are no longer mandatory.

An example of guidelines that are based on data are the drug offenses involving powder cocaine, Sobol said. But he argues the guidelines regarding financial fraud and drug offenses involving crack cocaine were developed out of knee-jerk reactions to, respectively, financial scandals over the last three decades and fears about the increasing use of crack in the 1980s. That is a strong reason, he said, that one could argue against the $500,000 fine in the Cherry Hill case.

Canada Moves Toward Self-Directed Health Care

The Canadian province Ontario has empowered patients and their caregivers to control the types of services they receive at home, The Canadian Press reports. The self-directed care program will start with pilot projects first with the goal "to give patients and their caregivers more flexibility and control over the care they receive by involving them more in the planning and coordination at the start." Additional funding will provide 80,000 additional nursing hours for patients with more complex needs so they can stay at home instead of being cared for at a hospital or nursing home.

Texas Moves to Reform Grand Jury Selection

Who knew? Texas is the last state in the country to have a "pick-a-pal" system in which grand jurors are selected through a list of individuals prepared by an acquaintance chosen by a local judge. Texas legislators have approved bills to end this method of selecting grand juries, the Houston Chronicle's Brian Rosenthal reports.

The difference between the state House and state Senate versions is a provision requiring courts empaneling grand juries to consider '"the county's demographics related to race, ethnicity, sex and age,'" Rosenthal further reports.

Houston Chronicle columnist Lisa Falkenberg won a Pulitzer for revealing the problems with Texas' method of selecting grand juries, including "instances of judges' friends sitting on multiple grand juries and potential conflicts of interest going undetected, such as allowing former police officers to hear a case in which a lawman is accused of a crime."

'Choose Life' License Plates Barred As 'Patently Offensive'

The U.S. Court of Appeals for the Second Circuit has ruled that New York can exclude "Choose Life" license plates from the state's specialty license plate program, The Volokh Conspiracy's Eugene Volokh writes. The Department of Motor Vehicles found that the plates are patently offensive, which the Second Circuit, 2-1, upheld.

The license plates are nonpublic forums in which "the government may select which speech is allowed, so long as the restriction is reasonable, viewpoint-neutral, and doesn’t vest excessive discretion in government officials, since such excessive discretion would lend itself to forbidden viewpoint discrimination," Volokh writes. The Second Circuit said the program excludes all viewpoints on the subject of abortion and thus is reasonable, viewpoint-neutral and doesn't vest excessive discretion in government officials.

Volokh agrees with the dissent that the DMV can't pick and choose what "'custom plates to permit, based solely on ... subjective judgment regarding the degree to which any given political, religious, or social issue is “inflammatory'" at any given time.

Justice Department: When Cops Use Drones They Can't Violate Rights

The Justice Department has issued its first guidelines for the use of domestic drones by law enforcement, saying that the use of drones must not violate civil rights or the right to privacy, the Associated Press reports. The department said drones can't be used just to monitor protests and other activities protected by the constitution.

WV High Court Protects Some Academic Records From Public Access

While West Virginia does not have an academic-freedom exemption to its public records law, that state's high court has ruled that documents that are "internal memoranda" from a university researcher's examination of the impact of mountaintop-removal mining on public health are exempt from disclosure.

The Charleston Gazette's Ken Ward Jr. reports that Alpha Natural Resources' efforts to get West Virginia University to release research documents would expose the predecisional, deliberative "'decision-making process in such a way as to hinder candid discussion' by university faculty and 'undermine WVU’s ability to perform its operations.'" The court was examining the exemption for internal governmental communications reflecting a "'public body's deliberative, decision-making process."'

Researcher Michael Hendryx has found that people living near mountaintop removal face increased risks of premature death, cancer and birth defects.

Patent Lawsuits Fall for First Time in Five Years

The pace of patent litigation has fallen for the first time in five years, which can be directly traced to the U.S. Supreme Court's ruling last year about software patents in Alice Corp. v. CLS Bank, The Washington Post's Brian Fung reports. That case raised the bar for patentability and enforcement of software patents.

Supreme Court Considers Letting Businesses Pay to End Class Actions

The U.S. Supreme Court has agreed to decide whether a defendant in a class action case can end litigation by offering full payment to the lead plaintiff, Bloomberg's Greg Stohr reports.

Plaintiff Campbell-Ewald Co. is facing hundreds of millions of dollars for allegedly violating the Telephone Consumer Protection Act (TCPA) by sending automated text messages. The lead plaintiff was offered $1,503 for each text mesage he received, which Campbell-Ewald said makes the case legally moot because the lead plaintiff was offered everything to which he might be entitled.

The TCPA is being criticized by Campbell-Ewald as "' an extortionist weapon in the hands of class action attorneys seeking to extract lucrative attorneys’ fees for class-wide settlements.'"

Delays in Settlement Conferences Breaking Foreclosure System

Financial Services Superintendent Benjamin Lawsky said New York's foreclosure system is "'broken and badly in need of change"' because of delays in the settlement conferences that must be held before houses can be foreclosed, New York Law Journal's Joel Stashenko reports.

The Department of Financial Services found that it takes nine months, on average, from when a foreclosure is filed in New York to when the settlement conferences conclude. The study also found that the biggest reason for delays is the lack of a definition for what it means that homeowners and banks are required to negotiate in good faith. Lawsky called for legislation to more clearly define what negotiation in good faith means.

The Law Behind ISIS

Andrew F. March and Mara Revkin have a fascinating analysis in Foreign Affairs of the legal underpinnings of the Islamic State (ISIS)'s efforts to build an Islamic Caliphate state. They note that ISIS is governing millions of people and sees itself as building an authentic legal order based upon a "social contract with the Muslim population it aspires to govern." For example, ISIS has issued administrative guidelines for groups wishing to pledge allegiance to the caliphate, set up courts and has criminalized threats against the state and public order, crimes against religion or public morality and crimes or torts against particular individuals.

Here's a good excerpt on ISIS' theory of governance: "The caliph is seen as a custodian of divine law. His power is not portrayed as absolute, but he does have plenty of room to issue laws and policies. The system follows a classical Islamic theory of statecraft known as siyasa sharʿiyya. The term means “religiously legitimate governance,” but it implies more than just the application of formal sharia. Instead, it sets up a kind a dualistic model of law and governance. On the one hand, the system requires sharia courts for the application of Islamic legal rules in routine matters for which specific rules exist. But it recognizes that rules do not exist for every conceivable matter. And so the 'siyasa sharʿiyya' theory posits that there are legitimate authorities—from market inspectors to military commanders and governors up to the caliph himself—that have the right to make lawlike decisions as long as those decisions are issued solely with the welfare (maslaha) of the Muslim community in mind and do not violate known laws."

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