Archive for the ‘In Focus’ Category

After news of the AIG bonuses was released, the Obama administration requested additional oversight of AIG, which has several different branches including insurance, and other companies that have received federal bailout money.  During his recent press meeting, President Obama noted that regulations from the 1940s were outdated and needed to be reformed.  The debate over whether insurance companies should be regulated by the states or the federal government is not new.  However, with the outrage over the bailout in general and AIG’s actions specifically, the Obama administration and those in favor of federal regulation may now have the political capital to achieve the goal of federal regulation of insurance companies.

Background of State Regulation

Under general principles of constitutional law, any authority not specifically granted to the federal government in the United States Constitution is reserved to the states.  In 1868, the Supreme Court followed this principle in Paul v. Virginia by favoring state regulation of insurance companies.  In 1945, Congress also adhered to this principle by passing legislation that stated the states would have control over insurance regulation.  Even with this history, advocates of federal regulation have always existed.

Recent Debate

After the federal government committed $85 million to bailout AIG because “it was too big to fail,” John Sununu, a Republican senator from New Hampshire, Tim Johnson, a Democratic senator from South Dakota, Melissa Bean, a Democratic congresswoman from Illinois, and Ed Royce, a Republican congressman from California, wrote an opinion that was published in the Wall Street Journal on September 23, 2008.  In the opinion, the legislators argued that the AIG bailout was necessary because of the lack of comprehensive, federal oversight of insurance companies.  AIG and other insurance companies like it, they argued, have immense assets and cover multiple countries.  Because of their size, these insurance companies cannot be adequately regulated by one state, with jurisdiction only to its state borders. 

In response, state regulators spoke out against federal regulation at their annual meeting.  The state regulators argued that state regulation has done an excellent job of regulating insurance, but that AIG’s problems related to its financial holdings, which are federally regulated.  The state regulators noted that the U.S. Office of Thrift Supervision regulates the AIG holding company that needed financial assistance, while AIG’s 71 insurance units are regulated by the states.  They argued that the insurance units, by contrast, were the healthiest parts of AIG, which allowed the Federal Reserve to approve the $85 million bailout.

State Investigations into AIG Bonuses

Many were upset by the lack of a federal response to the AIG bonuses, but, in truth, the federal government had little authority to question AIG’s actions.  Congress ordered hearings.

On the state level, attorneys general of Arizona, Connecticut, Delaware, Illinois, Kentucky, Louisiana, Maine, Michigan, Mississippi, Montana, Nebraska, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, Pennsylvania, Texas, Washington, and West Virginia have launched investigations into AIG’s expenditures and bonuses.  Each of these states have demanded names and documents related to the bonuses.  Because the bonuses related to AIG’s financial holding company, it is unclear what authority these states have to compel AIG to comply with their requests.  AIG has countered that the employees are entitled to the bonuses under state contract law.  Many employees are voluntarily returning the bonuses based on the public’s response.


These issues are complicated, as is everything related to the bailouts and the recession.  Even with little understanding of the intricate details, many individuals are outraged over taxpayer dollars being given to the same employees who caused the company to experience financial difficulties.  Whether these circumstances will allow advocates of federal insurance regulation to succeed in their goal remains to be seen.


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Legislators have put forward HB 1611, which would allow house committees to broadcast their meetings over the internet, as a measure to increase transparency in committee meetings.  As a techno-nerd, I think this is a great idea (although with a $40,000 a year price tag, I’m not sure this is really the best time to invest in the technology that will probably be obsolete in a few years).  As an attorney, I have a few qualms.

Arkansas attorneys routinely have to argue about what a certain law means, and there are several methods of phrasing these arguments.  Generally, the best place to start is by talking about what the law says–the words used by the General Assembly in passing the law.  In other states, you could also go to the legislative history of the law, which is what members of the house and senate said about the bill when it was being debated.  Arkansas doesn’t have “legislative history” in this sense because there is no official publication of what’s said.

Occasionally, a person or group will record a debate or hearing in the house or senate and have that proceeding transcribed unofficially.  I’ve seen attorneys try to offer these unofficial transcripts as evidence of legislative history, but this kind of evidence is generally inadmissible.  First, it’s not official or sanctioned by the General Assembly.  Second, it’s not fair.  The group that is putting forward the unofficial version cannot provide the entire legislative history (not just one committee meeting or hearing) to opposing counsel to review.  The true legislative history of a bill is expansive and would contain all of the opposing viewpoints of the legislators as the bill moved through the General Assembly.  Having legislative history can only be fair if all of it is available to everybody.

Under HB 1611, a house committee can broadcast its meetings over the internet.  It sounds simple enough, but it could create the problem discussed above.  Although the proposed law doesn’t say that that the broadcast constitutes official legislative history, it would be very easy to argue this based on the existence of the law itself.  But there is no way to cure the fairness problem with allowing access to a minute excerpt of legislative history.  The bill addresses house committees only and does not provide access to any debates or hearings in the senate.  Further, the bill is discretionary.  A house committee can broadcast, or it can chose not to.

I still think this is a good bill, but I would add another sentence stating, “Broadcasting of any house committee proceedings is not intended to create legislative history.”  I think this language would solve the problems I’ve addressed above, while still allowing for transparency in house committee meetings.  Also, it’s likely that this bill is just the first step in making all proceedings in the General Assembly accessible to everyone (true legislative history).  Once the methods have been tested, and everyone has equal access, then the General Assembly could choose to make such broadcasting official legislative history.

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I first learned of this interesting development a few weeks ago when I stumbled upon the blog New World Liberty.  While this is not the normal sort of blog I would read, I was intrigued by the discussion nonetheless.  I happened upon the blog again today, with its updated version of the article I first read.  I clicked on the link for Arkansas and was taken to the Arkansas legislature home page and found the proposed law.

I’m somewhat taken aback by the stark language used:

THAT the State of Arkansas hereby claims sovereignty under the Tenth Amendment to the Constitution of the United States over all powers not otherwise enumerated and granted to the federal government by the Constitution of the United States.

BE IT FURTHER RESOLVED that this resolution serve as Notice and Demand to the federal government, as our agent, to cease and desist, effective immediately, mandates that are beyond the scope of these constitutionally delegated powers.

BE IT FURTHER RESOLVED that it is the position of the State of Arkansas that all compulsory federal legislation that directs states to comply under threat of civil or criminal penalties or sanctions or requires states to pass legislation or lose federal funding be prohibited or repealed.

BE IT FURTHER RESOLVED that the clerk of the House of Representatives distribute a copy of this resolution to the President of the United States, the President of the United States Senate, the Speaker of the United States House of Representatives, the Speaker of the House and the President of the Senate of each state’s legislature of the United States of America, and each member of the Arkansas Congressional delegation.

State sovereignty has always been an intriguing proposition to me.  I wonder why states are deciding to do this now?

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I’ve heard about this controversy for some time and, honestly, have given it very little thought.  Recently, however, I read an article in the Arkansas Times, “Kid Gloves,” which caused me to consider the issues raised and, eventually, dismiss them.  To read the Arkansas Times article, click here.  The following is a summary of why I have no problem with Judge Willard Proctor ordering people to attend Cycle Breakers or his involvement with Cycle Breakers.

Civil Probation

As an initial matter, judges order people to attend classes all the time.  Sometimes the label of “probation” is attached to the order.  I can’t tell you how many speeding tickets I’ve had that were resolved with probation.  I’ve attended so many defensive driving classes, I could teach one myself.  I have no idea who put those classes on–and each one was different–but I didn’t care.  I paid my money to attend, gave up a Saturday, and got out of having a ticket on my record.

If you’re arrested for anything related to domestic violence, you’ll likely be ordered to attend a set amount of anger management classes.  You’ll be scheduled a follow-up hearing in front of the judge, and the judge’s staff will call to make sure you attended all of the classes you were supposed to.  If not, you’re in contempt of court.  If you’ve got a good enough excuse for why you didn’t attend all of the meetings like you were ordered, you may get out of being thrown in jail.  You’ll definitely be ordered to attend some more of the meetings.  The meetings, of course, are not free.  I have no idea who runs them.

If you want to get a divorce or separation and you have children, you’ll be ordered to attend parenting classes before the judge will grant your divorce or separation.  I have no idea who runs these classes, and they’re definitely not free.

I’m sure there are many other examples of “civil probation” out there.  The reason I include these here is to show that (1) Judge Proctor is not the only judge who orders people to attend classes in lieu of other punishment and (2) he is not the only judge who uses contempt of court to enforce his judgment and make sure the person does what he has been told.

Interestingly, many of these classes are run by local and state government.  A judge is an employee of the state, so–technically–anytime a judge orders someone to attend a class put on my by local or state government, there’s a potential conflict of interest.  I haven’t seen any articles written about this “money machine.”

Cycle Breakers

I haven’t done any independent research into this non-profit corporation, and my thoughts that follow are based only on my understanding of charitable organizations in general.

No one makes money off of a charitable non-profit.  Even if Judge Proctor is the sole shareholder of Cycle Breakers, he isn’t receiving dividends on the “profit” of the corporation.  If Cycle Breakers is making any money, that money has to be reinvested back into the organization.  Based on the building/loan troubles discussed in the Arkansas Times article, it seems pretty clear that Cycle Breakers (like most new businesses) isn’t even breaking even yet.  A non-profit may have employees, but there’s no information to suggest that Judge Proctor is a paid employee of Cycle Breakers.

Charitable non-profits don’t pay taxes like you and me.  To qualify as a charitable non-profit, an organization has to operate for a certain kind of purpose (church, education, etc.).  After filing out a bunch of paperwork to create the non-profit, the IRS watches closely to make sure that ALL of the activities of the organization fit into that purpose.  I’ve worked with several charitable non-profits, and you always have to be careful to stay within the limited parameters of the organization’s charter.

If Cycle Breakers were to fold today, it would not hurt Judge Proctor financially.  Cycle Breakers is a corporation and is considered a separate “person” under the law.  Unless Judge Proctor personally guaranteed debts of Cycle Breakers, the creditors of Cycle Breakers would most likely not be able to recover any money from Judge Proctor.  This is true even if Judge Proctor helped fill out loan documents or supplied information about Cycle Breakers.

Arkansas Code of Judicial Conduct

If you wish to read through the various canons regulating a judge’s conduct, click here, which is the website for the Arkansas Judicial Discipline & Disability Commission.  Once there, you can click on the subject in the Code of Judicial Conduct you wish to read.

The main thread of all the different canons is that, understandably, we want our judges to be impartial.  If I sue Judge Proctor’s brother (assuming he has one), and the case is assigned to Judge Proctor, then, of course, he has to recuse from hearing the case.  Another example is suing Wal-Mart, and Judge Proctor owns a substantial amount of Wal-Mart stock (assuming he does).

Family and financial ties are generally pretty clear, but most potential conflicts of interests are not.  Judges are presumed to impartial, and they are given wide latitude in determining for themselves whether they should recuse.  Here are some other examples in which judges didn’t have to recuse:

  • A judge is not required to recuse from a criminal case relating to the same crime that has been committed against the judge.  Even if a judge had been raped in the past or a family member murdered, the judge does not have to recuse.
  • A judge is not required to recuse from a criminal case even if she has personal knowledge of the case from other judicial proceedings.
  • A judge is not required to recuse from a criminal case even though the judge prosecuted the same defendant several years earlier.
  • A judge is not required to recuse from a criminal case even if the judge threatens to have the defendant’s mouth taped closed to prevent him from disrupting a hearing.
  • A judge is not required to recuse because one of the lawyers in the case ran against the judge and/or plans to run against the judge again.


I am interested in hearing what the Judicial Discipline Board has to say about the matter, especially given that it will have ALL of the facts.  Without more than what has been presented in public forums against Judge Proctor, I’m not buying it.  I’m happy to have a judge who cares so much about his community.

Finally, besides the upcoming hearing in front of the Judicial Discipline Board, there are two other options to stop Judge Proctor from ordering people to attend Cycle Breakers:  (1) Vote him out–he’s an elected official or (2) Change the Code of Judicial Conduct/pass some statute against it.  Again, without more, I don’t believe I will support either of these options.

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