Saturday, January 19, 2008

Did the former Attorney General break the law by working for MCI?

Kingfish note: see comments. There are some excellent comments and a T. Frank gives several very good and plausible answers to these questions.

Mississippi Code Section 73-3-51 states:
"It shall be unlawful for the Attorney General or any assistant attorney general, or any district attorney, or any attorney at law associated in the practice as attorney or counselor at law with any attorney general or district attorney, to accept employment from or to represent as attorney or counselor at law any railroad corporation, street railway corporation, telephone or telegraph corporation, express company, or other common carrier, or public service corporation whatsoever, and any attorney violating this section shall be guilty of a misdemeanor and, on conviction, shall be fined in a sum not less than Ten Dollars ($10.00) nor more than One Hundred Dollars ($100.00), and shall forfeit his license to practice law in this state." http://www.mscode.com/free/statutes/73/003/0051.htm

The question is whether the law applies to former Mississippi Attorney General Mike Moore, who represented MCI when Mississippi Attorney General Jim Hood's office hired recently convicted attorneys Timothy Balducci and Joey Langston to seek recovery of taxes owed to Mississippi from the years of 1998-2002, when Mr. Moore was in office. The case was settled in May, 2005 for $100 million. The fees paid to Mr. Langston and Balducci were $14 million.

The case law is rather vague on this issue as Mr. Moore was a former attorney general when he accepted employment from MCI as he had recently left office in January, 2004. The question is then if the law applies to Mr. Moore as a former attorney general.

The purpose of such a law is to prevent unethical behavior by the state's prosecutors. It is a settled principle of legal ethics that a lawyer can not go to work for another side opposing his current or past client for obvious reasons. Trust in the legal profession would be completely shattered if a client or victim had to worry about his lawyer or prosecutor working changing sides. Such rules are in place to keep attorneys from being bribed by opposing parties. These principles were undoubtedly the goal of the legislature when it passed this law as such corporations are regulated by the state.

Mr. Moore was the attorney general until a little more than a year before the MCI case was settled. One would think that the legislature does not want its attorney general and prosecutors immediately representing someone that is the target of a lawsuit or investigation by the state after they leave office as they are privy to much privileged information. The state tax commission filed suit against MCI on March 26, 2004, barely two months after Mr. Moore returned to the private sector. Considering the size and complexity of the case, it is foolish to expect that such a complaint was put together in only a few weeks by a brand new attorney general.

Indeed, then-state auditor Phil Bryan states:
"According to the third and final report of Dick Thornburg, Bankrputcy Court Examiner, dated January 26, 2004, "To confirm the anticipated tax treatment of the royalty income by the Company, the Company (through special Mississippi tax counsel) and KPMG submitted a joint request to the Mississippi State Tax Commission seeking confirmation among other things....." http://www.osa.state.ms.us/documents/performance/mci-tax-review06.pdf (There is a timeline of the settlement on page 12). This statement was made three weeks after Mr. Moore left office, meaning the state was already investigating the tax liabilities of MCI.

Consequently, one must ask if the state's investigation against MCI for tax evasion was conducted while Mr. Moore was attorney general. If so, did Mr. Moore violate his ethical and statutory duties by representing MCI during the last two months of its settlement negotiations in 2005?

The following questions must be asked:
1. When did MCI become a target of an investigation by the attorney general or other state agencies for tax evasion?
2. Did any communications regarding the investigation take place between Langston, Hood, and Moore before Mr. Moore left office?
3. One news report said that Mr. Hood immediately began reviewing cases when he assumed office. Considering how quickly he retained a private law firm and filed suit, how did Mr. Hood and the law firm become aware of MCI's possible tax evasion?
4. Did Mr. Moore make Hood, Langston, or their associates aware of the investigation by the state tax commission?

If the law was violated, then it is clear and concrete: Mr. Moore should be disbarred and is guilty of a misdemeanor. The former Attorney General is entitled to due process and is presumed to be innocent. However, it might be time to see how much further the legal incest extended in the MCI case.

One futher question remains. The law says at http://www.mscode.com/ it was repealed at the end of 2006. It would be interesting to know which legislators sponsored the repeal and what was said during the legislative debate.


related story of the MCI litigation: http://djournal.com/pages/archive.asp?ID=193010&pub=1&div=News
Auditor's review of MCI settlement (Includes copy of settlement): http://www.osa.state.ms.us/documents/performance/mci-tax-review06.pdf

7 comments:

T. Frank said...

Answering your questions in order:

1. When did MCI become a target of an investigation by the attorney general or other state agencies for tax evasion?

A: Billy Quin presented the case theory, which he developed, to Jim Hood on January 30, 2004 - approximately one week after the Third Report of the Bankruptcy Examiner was released. Neither Mike Moore, nor Jim Hood, nor Joey Langson nor the Tax Commission nor anyone else was aware of the claim against MCI before Quin presented it because Quin had not disclosed it to anyone before January 30.

2. Did any communications regarding the investigation take place between Langston, Hood, and Moore before Mr. Moore left office?

A: No. None of these persons knew anything about any MCI tax issues before Moore left office. In fact, the Tax Commission did not understand or appreciate the tax issues at this time either. This fact is evidenced by the fact that the Commission filed a $3 million claim for franchise taxes before the AG hired Quin and amended its claim to $1 billion.

3. One news report said that Mr. Hood immediately began reviewing cases when he assumed office. Considering how quickly he retained a private law firm and filed suit, how did Mr. Hood and the law firm become aware of MCI's possible tax evasion?

A: Attorney General Hood became aware of the claim when Quin presented it to him on January 30. Quin developed the theory during the week of January 24. Langston became aware of the case theory a few weeks after Quin presented the case to Hood. Langston became involved because Quin's firm, Lundy & Davis, needed assistance in prosecuting the case.

4. Did Mr. Moore make Hood, Langston, or their associates aware of the investigation by the state tax commission?

A: No. As previously stated, the Tax Commission did not recognize the tax debt owed by MCI - Quin did. In fact, the "investigation" of the Tax Commission consisted of sending an auditor to the Company to review its books. The Commission concluded after this review that MCI only owed $3 million in franchise tax, which was uncollectable at that time of the WorldCom bankruptcy.

T. Frank said...

Addressing other matters within your commentary:

1. "One would think that the legislature does not want its attorney general and prosecutors immediately representing someone that is the target of a lawsuit or investigation by the state after they leave office as they are privy to much privileged information."

A: Your commentary is anchored by a false premise. Mike Moore was not privity to any information relative to MCI's tax debt because no one knew of it before Quin presented the case theory on January 30.

That said, MCI could have chosen any lawyer it wanted, and it chose Mike Moore - and, it is good for the State that it did. Before Moore was hired, the Company offered $0 and then $20 million. It is only after these offers were refused and the State began to aggresively prosecute its case in the Bankruptcy Court that Moore was hired. Within a few weeks of his being hired the Company increased its offer to $100 M in cash, plus the property and attorneys fee payment. Moore talked sense into MCI and the State is better for it. You should thank him.

2. "The state tax commission filed suit against MCI on March 26, 2004, barely two months after Mr. Moore returned to the private sector. Considering the size and complexity of the case, it is foolish to expect that such a complaint was put together in only a few weeks by a brand new attorney general."

A: I'm sure Quin takes your disbelief as a compliment. The simple fact is that Quin developed the entire case theory on his own within one week. As far as the complaint itself, the MCI claim began as a Proof of Claim within the bankruptcy proceeding. Completing it is as simple as writing "$1 billion+" on a standardized form.

Anonymous said...

TFrank sure works overtime on the web to refute the fact that Hood gave his buddy Joey Cash a sweet, sweet deal.

Kingfish said...

I wanted to say thanks to T Frank for his thoughtful and informative post. It answered alot of concerns. Mr. Frank, I can assure you that these are questions ALOT of people have right now. The beauty of these forums is that we can ask these questions and have a good discussion about them. In fact, I am making a note about your comment at the top of the post so that it gets fair coverage and credit. I still have questions and will write them later but I wanted to say thank you for your response. I had two attorneys review my post before I posted it so I don't want you thinking Kingfish was just going out on a limb there. Its nice to have a discussion such as this. Thanks.

T. Frank said...

To anonymous:

I do try to take every opportunity presented to address and reject criticism of the MCI settlement. It is a matter which is near and dear to my heart.

With respect to the "sweet" deal handed to Langston, one must remember a few VERY important points: 1) No jurisdiction had ever pursued a tax recovery under the theory utilized by Mississippi. In fact, the State was not only opposed in the litigation by MCI, it was opposed by the collection of other States which had made back tax claims and the Multi-State Tax Commission. The thought among these states and the Commission was that MCI's tax debt was zero sum - ie., either MCI owed all of the other states and not Mississippi, or it owed Mississippi and not the other states. Mississippi took the position that all states were owed due to the manner in which MCI avoided taxes, and its intent in doing so. 2) The AG's office did not have sufficient support within the Tax Commission. On several occasions, Tax Commission personnel made it clear to the SAAGs that taxation was their turf and not the AGs, and that they did not support pursuing a claim against MCI. The AGs office hired multiple experts to address Tax Commission concerns, conducted countless meetings to address Tax Commission concerns and maintained open lines of communication with the Commission throughout the case. Yet, the Commission never provided full support. 3) The MCI case was complex and potentially extremely expensive. Luckily, MCI decided to settle the case before much of the potential expense was realized, but that fact does not lessen the expense expectation at the outset of the case. 4) Because of these problems, the MCI endeavor was highly risky. I doubt any attorney who is both objective and competent in analyzing the chances of success of an endeavor such as the MCI tax case could truthfully tell you that Hood "handed" Langston a "sweet deal". Langston chose to invest his time and money in a risky endeavor that proved successful due to his own efforts, as well as the efforts of Quin and others. Without those efforts, Langston/Lundy & Davis would have been left with nothing more than a failed investment and none of you would care.

To Kingfish:

Thank you for your response to my posts above. I am always glad to address MCI questions, to the extent I can.

To everyone:

Langston's and Balducci's guilty pleas are sad and angering on a multitude of levels. I assure you T. Frank has experienced a range of emotions with regard to these men and their actions which led to the pleas. Justice should be done with respect to Langston and Balducci, and I trust Judges Mills and Biggers will ensure such occurs.

That said, their actions and pleas do not involve the MCI tax case nor do they lessen the good lawyering and great result obtained in the MCI tax case.

Anonymous said...

I do try to take every opportunity presented to address and reject criticism of the MCI settlement. It is a matter which is near and dear to my heart.

How so? Why don't you disclosure the reason for your vehemence?

T. Frank said...

The reason for my vehemence is simple. The MCI case was a great deal for the state and would not have occurred but for the AGs ability to hire outside counsel who present him with confidential work product. The history of the case has been reported on several occasions within statewide publications; yet, you and your ilk continue to allege and imply wrongdoing of some sort.

You and the other critics of the MCI settlement are wrong. Your criticism is seldom if ever rooted in fact or law, but instead is derived from an unwavering, palpable hatred of Jim Hood.

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