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This morning, at a D.C. Council oversight hearing, Ward 3 Councilmember Mary M. Cheh continued her bulldogging of interim Attorney General Peter Nickles, pressing him repeatedly on issues related to his relationship with former AG Linda Singer prior to her December resignation.

Among the biggest issues of contention: Nickles’ decision not to immediately pursue legal action against Bank of America for any potential liability in the now $50 million tax scam case. Earlier this week, Cheh sent a letter to Mayor Adrian M. Fenty (and copied to Nickles) on her stationery, co-signed by At-Large Councilmember Phil Mendelson and Council Chair Vincent C. Gray, in order to “seek assurance that, in connection with the OTR scandal, all steps are being taken to preserve the District’s legal rights against possible culpable third parties.”

The issues at stake are whethere delaying any action against B of A would cause complications with a three-year statue of limitations associated with such claims. Also at issue: whether the bank’s document retention policies might mean evidence could be destroyed before a suit could be filed. Nickles holds that the District is exempt from any statue of limitations, and that pursuing a case before the federal prosecutors have presented their case to a grand jury would be difficult, considering that the feds have crucial documentation in their possession.

In an interview this afternoon, Nickles said of Cheh’s questioning today, “I think it was over the top.”

“I have every intention after this grand jury proceeding is over to pursue any third parties very agressively,” he said. “I am very comfortable in my position on this.”

Full Cheh letter after the jump.


Councilmember, Ward 3
Chair, Committee on Public Services and Consumer Affairs

February 19, 2008

Mayor Adrian M. Fenty
Government of the District of Columbia
John A. Wilson Building
1350 Pennsylvania Avenue, NW
Washington, DC 20004

Dear Mayor Fenty,

We write today to seek assurance that, in connection with the OTR scandal, all steps are being taken to preserve the District’s legal rights against possible culpable third parties. At a recent hearing of the Judiciary Committee (January 28, 2008) and in published newspaper accounts (The Washington Post, January 28th and 29th), issues arose concerning possible legal claims that the District may have against, in particular, the Bank of America.

As you know one of the people arrested in connection with the OTR fraud scheme was an assistant branch manager at a Baltimore branch of Bank of America. That individual is charged with laundering millions of dollars through the Bank, and the Bank allegedly accepted dozens of fraudulent checks over as many as four years.

At the Judiciary hearing and in published reports, we learned that Interim Attorney General, Peter J. Nickles, directed then Attorney General Linda Singer to stop work on a tentative plan to sue Bank of America for its role in cashing the fraudulent checks. Mr. Nickles offered a number of reasons for stopping or delaying action against the Bank. He ,said that pursuit of a civil action would interfere with the criminal investigation of the U.S. Attorney and said that the Singer plan was to hire outside counsel on a contingency basis, purportedly by an illegal arrangement. He also said that the District faced no harm by not proceeding because the three-year statute of limitations that might limit recoveries could be overcome under the equitable doctrine of fraudulent concealment. Or, he suggested, it may be overcome by the general D.C. exception to the statute of limitations which is applied to certain, but not all, governmental litigation.

First, with respect to civil litigation (or seeking a tolling agreement with the Eiank) we question whether there is a real likelihood of interfering with the criminal investigation. Parallel proceedings such as this go on all of the time. Prosecutors and civil litigants have many tools to ensure cooperation, and we would like an explanation as to why such arrangements would not be available in this case. What, in other words, makes this a special and problematic case?

Second, financial arrangements wiiii outside counsel to pursue civil litigation against Bank of America need not take a particular form, and the spectre of an illegal contingency fee should not be enough to cause the District to abandon all methods of protecting its interests.

And, now, to the heart of the matter By not pursuing the filing of a complaint or seeking a tolling agreement with Bank of America, we risk having claims barred by the statute of limitations. If the theory against the Bank is a UCC-based negligence suit, then the three year statute of limitations, if applicable, would bar recovery for any actions occurring before, as of now, February 19,2005. Millions could be at stake.

It may be that the equitable doctrine of fraudulent concealment will apply, but it is not certain. That doctrine requires a high level of proof and typically relies on a standard higher than negligence. It may also be that the general immunity from statutes of limitations will apply, but that, too, is not certain. That immunity applies 1:0 governmental and not proprietary acts, and there is no dispositive D.C. or Maryland appellate decision saying that a UCC-based lawsuit, as is contemplated here, falls on the governmental side of the line.

Moreover, banks typically have retention policies that permit the destruction of records on a two to seven year basis. The; filing of a lawsuit or an agreement with the bank would cut off the destruction of documents relevant to obtaining recovery. Indeed preserving documents would be necessary even if the three year statute of limitations does not apply.

We believe that the most prudent course would be to take all necessary steps to preserve the District’s rights. We ask that you reconsider the decision to delay or abandon the possibility of lawsuits against my third party, banks, auditors, etc., who may be liable for losses connected to the OTR scandal.

Chairman Vincent C. Gray
Councilmember Mary M. Cheh
Councilmember Phil Mendelson

CC: Peter Nickles, Interim Attorney General