Legal News for Tues 5/21 - Giuliani Creditors Want WABC Details, FDIC Gruenberg Resigns Over Toxic Workplace, LSAC New Socioeconomic Metric and Racial Bias in IRS Audits

Minimum Competence

This Day in Legal History: American Red Cross Founded

On this day in legal history, May 21, 1881, Clara Barton founded the American Red Cross. Inspired by her experiences providing care to soldiers during the Civil War and influenced by the International Red Cross in Europe, Barton established the organization to offer emergency assistance, disaster relief, and education in the United States. The American Red Cross received its first Congressional Charter in 1900, which was later updated in 1905 to formalize its responsibilities and relationship with the federal government.

The charter defines the organization's mission to provide aid to victims of natural disasters and armed conflict, as well as to maintain a system of national and international relief in times of peace. Under Barton's leadership, the American Red Cross played a critical role in responding to natural disasters such as the Johnstown Flood in 1889 and the Galveston Hurricane in 1900.

Today, the American Red Cross continues to be a vital component of the nation's emergency response infrastructure. It provides blood donation services, supports military families, offers health and safety training, and responds to over 60,000 disasters annually. The organization's founding marked a significant moment in the history of humanitarian aid in the United States, embodying a commitment to compassion and service that endures to this day.

In recent developments regarding Rudolph Giuliani's bankruptcy, creditors are seeking documents from John Catsimatidis, the billionaire owner of WABC Radio, which recently canceled Giuliani's show. The creditors' committee has filed a motion in the US Bankruptcy Court for the Southern District of New York to subpoena Catsimatidis for communications and documents related to Giuliani's relationship with WABC, his compensation, and details about the shows he hosted.

The move comes after Catsimatidis canceled Giuliani's show due to the former mayor's repeated false statements about the 2020 election. The creditors are also interested in information about Giuliani's termination, statements he made regarding the Georgia poll workers who won a $148 million defamation judgment against him, and other potential assets.

Giuliani filed for Chapter 11 bankruptcy following the defamation suit loss, and his recent attempt to challenge the judgment failed. The committee has expanded its efforts to subpoena over 20 individuals associated with Giuliani, including his son, to uncover additional assets for distribution among creditors.

Giuliani Creditors Target Billionaire Radio Station Owner (1)

Martin Gruenberg, head of the Federal Deposit Insurance Corp. (FDIC), announced he will step down following a report of a toxic work environment at the agency. The report, conducted by Cleary Gottlieb Steen & Hamilton, detailed allegations of harassment and discrimination, highlighting a problematic culture at the FDIC during Gruenberg’s tenure. Despite surviving intense congressional hearings, Gruenberg faced increasing political pressure, notably from Senate Banking Committee Chairman Sherrod Brown, who called for new leadership to implement fundamental changes.

Gruenberg, who has been an FDIC board member since 2005 and served twice as chairman, promised to address the agency’s issues but acknowledged his resignation once a successor is confirmed. The White House plans to quickly nominate a replacement to maintain the Democratic majority on the FDIC board, ensuring the continuation of the administration's regulatory agenda.

The FDIC is currently collaborating with the Federal Reserve and the Office of the Comptroller of the Currency on new capital requirements for big banks, a contentious issue in the financial industry. Gruenberg’s departure could impact these regulatory efforts, especially if the board becomes evenly split between Democrats and Republicans. House Majority Whip Thomas Emmer called for Gruenberg’s immediate resignation, suggesting other capable leaders could take over.

The White House expressed its commitment to appointing a new chair dedicated to consumer protection and financial stability, aiming for swift Senate confirmation. The unfolding situation underscores the ongoing challenges and political dynamics within federal financial regulatory bodies.

FDIC Chair Says He’ll Leave Job After Toxic Workplace Report (2)

The Law School Admission Council (LSAC) is developing a new "environmental context" metric to provide law schools with more information about the socioeconomic challenges applicants face. This metric will include data on institutional student spending, graduation rates, and the percentage of undergraduates receiving federal Pell Grants. Unveiled during an American Bar Association meeting, the project aims to offer a fuller picture of applicants beyond grades and test scores.

The initiative is a collaboration with The College Board, which already provides similar contextual tools for college admissions. LSAC's research director, Elizabeth Bodamer, highlighted the importance of understanding the hurdles applicants have overcome. This new metric comes after the U.S. Supreme Court's 2023 decision limiting the consideration of race in admissions, though LSAC had planned the project years earlier.

Law schools are testing the metric on 2023 applications to evaluate its impact on admissions decisions. Initial findings show that applicants from high-challenge colleges are 2.5 times more likely to be first-generation students compared to those from low-challenge colleges. Additionally, nearly all applicants from low-challenge colleges are accepted into law school, while fewer than two-thirds from high-challenge colleges gain admission.

Law school applicants' socioeconomic hurdles measured by new metric | Reuters

In my column this week, I discuss the IRS's acknowledgment of racial disparities in taxpayer audit rates, as highlighted by Stanford's Institute for Economic Policy Research in 2023. The IRS plans to reassess and refine its compliance mechanisms, but mere algorithm adjustments won't suffice. Accountability is crucial for addressing how these algorithms exhibited biases and ensuring taxpayers can trust the system's integrity. Transparency, such as open-sourcing the audit algorithms, is essential for enabling feedback from researchers and watchdog groups.

The issue of biased algorithms extends beyond statistics. Racial disparities in audits undermine trust in the tax system, which is vital for voluntary compliance. Although algorithms aren't inherently biased, the people who create them can introduce biases, whether intentionally or not. This is evident in similar cases, such as the Netherlands' tax audit scandal, where policies flagged ethnic minorities for audits on childcare benefits, leading to widespread disallowance of said benefits and massive financial harm to numerous innocent individuals.

In the U.S., the IRS's audit algorithms may disproportionately impact Black taxpayers due to the way they predict income misstatements. Stanford researchers found that Black taxpayers were audited at rates 2.9 to 4.7 times higher than non-Black taxpayers. Whether these biases are overt or incidental, the experience of those audited remains unjust.

Greater transparency in audit algorithms is necessary to ensure equity across all demographics. While there are concerns about revealing audit selection criteria, the benefits of transparency outweigh the risks. Disclosing audit rates across demographics and open-sourcing the algorithms will allow for independent assessment and help identify and eliminate biases. Open-source algorithms can also expose vulnerabilities, enabling improvements.

The column underscores that addressing biases in enforcement processes requires more than algorithm tweaks; it involves engaging with affected communities to rebuild trust through transparency and accountability. This level of openness is crucial for restoring taxpayer confidence in the fairness of the IRS's audit practices.

IRS Racial Audit Disparities Need Accountability to Be Resolved

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