Opinion

Alison Frankel

The sad tale of the contract lawyer who sued Skadden (and lost)

Alison Frankel
Sep 17, 2014 22:01 UTC

David Lola wanted to be a patent lawyer. He’d been a chemistry major at the University of Texas, then gone to work as a pharmaceutical researcher for Warner-Lambert. But when the company said it would pay his way through law school, he took the offer. Lola applied to only one school, the University of San Diego School of Law, because it was close by. His plan was to keep working as a scientist at Warner-Lambert until he earned his law degree, then to switch over to advising the company on patenting the drugs it developed.

The plan didn’t work out. There are all sorts of reasons why: big things like Warner-Lambert’s merger with Pfizer and the dot.com bust of 2001; and personal tragedies like a car accident and a failed marriage. A decade after Lola graduated from law school in 2003, he was eking out a living as a contract lawyer in North Carolina, reviewing documents for Skadden, Arps, Slate, Meagher & Flom for $25 an hour. Lola regarded his duties as clerical. According to him, all he did was scan for assigned search terms and click pre-set buttons when he found them. Lola decided that if he was going to do work that didn’t require a law degree, he wanted to be paid overtime when he put in more than 40 hours a week. In 2013, he sued Skadden and Tower Legal Staffing, which was his actual employer on the document review, in a wage-and-hour class action in federal court in Manhattan.

Lola lost his case Tuesday. U.S. District Judge Richard Sullivan ruled that when lawyers provide legal services, they are deemed to be lawyers regardless of the specific duties of their job. And since lawyers are exempt from federal overtime provisions, Sullivan dismissed Lola’s suit.

Sullivan’s opinion is long on law and short on story. It left me wondering who David Lola is and why he became a contract lawyer. I learned a little about him from other filings in the case, in particular a sanctions motion in February by defense lawyers at Ogletree, Deakins, Nash, Smoak & Stewart. Ogletree claimed that Lola and his lawyers at Joseph & Kirschenbaum had misrepresented facts about Lola’s work on the Skadden documents. As evidence, they attached a resume Lola sent in response to a 2014 advertisement for contract lawyers. (Sullivan eventually said he didn’t see any obvious inconsistency between the resume and Lola’s complaint.)

The resume showed that Lola had kicked around a lot, first in California and then in North Carolina. He’d worked at a couple of law firms and tried to make a go of a solo practice, but he kept filling in the gaps with document review for legal staffing companies. Was Lola a victim of the much-publicized glut of young law school graduates who can’t find steady work as lawyers?

Allergan restrictions on shareholders’ meetings were too tough to swallow

Alison Frankel
Sep 16, 2014 22:23 UTC

In the middle of a status conference Friday, Delaware Chancellor Andre Bouchard asked a blunt question of Theodore Mirvis of Wachtell, Lipton, Rosen & Katz. Mirvis represents Allergan, the pharmaceutical company fending off a unique tag-team hostile bid by the Canadian drugmaker Valeant and the hedge fund Pershing Square. In late August, Pershing notified Allergan that it had amassed the requisite shareholder support to call for a special meeting to oust the company’s directors, despite the onerous consent procedures Allergan had adopted in a bylaw enacted earlier this year. On the same day, Pershing and Valeant sued Allergan in Delaware Chancery Court to force the company to schedule the special meeting.

By Friday, when lawyers for all three combatants appeared before Bouchard, Allergan had already set a date, Dec. 18, for the special meeting. But Pershing and Valeant told the chancellor that they were still worried Allergan would use provisions of the controversial bylaw – which, among other restrictions, revokes rights for shareholders who are net short on Allergan stock and requires investors to provide continuous updates on their holdings until 10 days before the special session – to call off the meeting.

Bouchard heard about the bylaw’s board-friendly features from Pershing’s lawyer, David McBride of Young, Conaway, Stargatt & Taylor, and from Valeant counsel Robert Saunders of Skadden, Arps, Slate, Meagher & Flom. Then, with Mirvis on the phone, the judge cut to the heart of their case. “Mr. Mirvis, the question I have for you is, tell me more broadly any other circumstance where a company has adopted a bylaw like this,” Bouchard said, according to a transcript of the conference. “I mean, this is quite a horse-choker of a bylaw.”

DOJ dismissal motion leaves mystery in shipping magnate’s libel case

Alison Frankel
Sep 15, 2014 20:38 UTC

We know the U.S. government believes that it has such significant national security interests at stake in a libel suit by the Greek shipping magnate Victor Restis against the non-profit United Against Nuclear Iran that on Friday, the Justice Department invoked the state secrets privilege and asked for Restis’ suit to be dismissed. What we don’t know is why.

The government’s brief is maddeningly opaque about its interest in a private libel case. It states just that the head of an unnamed federal agency has determined that information related to Restis’ claim is subject to the powerful and rarely invoked state secrets privilege. Even revealing the identity of the agency or the basis of the assertion of the privilege, according to Justice, might compromise “classified and privileged matters,” the brief said. All of the specifics on Justice’s claim of privilege are contained in declarations that only U.S. District Judge Edgardo Ramos of Manhattan – and not even lawyers for Restis and UANI – can see. The judge will have to decide whether to permit Justice to intervene, though that’s really a formality because of the executive branch’s broad discretion to claim the state secrets privilege.

It’s extremely unusual, though not unprecedented, for the government to invoke the state secrets privilege and move to intervene in private litigation. In a 2010 decision called Mohamed v. Jeppesen Dataplan, for instance, Justice secured the dismissal of an Alien Torts Act suit against a company that allegedly helped the Central Intelligence Agency transport suspected terrorists for interrogation outside of the United States, after the 9th U.S. Circuit Court of Appeals, sitting en banc, concluded that the case implicated the state secrets privilege.

N.Y. appeals court: Shareholders can see board docs before filing suit

Alison Frankel
Sep 12, 2014 20:53 UTC

In July, the Delaware Supreme Court gave shareholders a fancy new driving wedge to use against corporate boards. The justices ruled in Wal-Mart v. Indiana Electrical Workers that under Delaware’s books-and-records law, investors are entitled to see more than just bare-bones board materials and accounting information when they’re investigating whether directors breached their duty. Even officer-level documents that the board didn’t see – and even some privileged communications – are fair game for shareholders evaluating the board’s conduct in anticipation of a possible derivative suit against directors.

New York has now joined Delaware in holding that just conducting an investigation of alleged board misconduct entitles shareholders to see a broad swath of corporate documents. On Thursday, a five-judge panel of the state’s Appellate Division, First Department, ruled that McGraw-Hill, which is incorporated in New York, must produce books and records to a Florida pension fund examining what the board knew about Standard & Poor’s ratings of mortgage-backed securities and collateralized debt obligations. (In case you are an alien who just arrived on Earth, S&P’s ratings of these instruments weren’t very reliable; the company is in the midst of defending multibillion-dollar claims based on those ratings by state AGs and the Justice Department.)

Like the Delaware Supreme Court, the New York appeals court said that collecting information to inform a possible derivative suit is a proper purpose for demanding corporate documents. “Indeed, (the pension fund) identified several reasons for making (its) demand, including assessment of policies that the board had implemented when issuing credit ratings and investigation of possible wrongdoing by the respondent’s board of directors,” the opinion said. “Each of these purposes adequately justifies petitioners’ access to certain board documents.”

Robbins Geller tries to ward off aftereffects of Boeing sanctions

Alison Frankel
Sep 11, 2014 21:32 UTC

The prolific class action firm Robbins Geller Rudman & Dowd had to know that the taint of a decision last month by a trial judge in Chicago federal court – who sanctioned the firm under Rule 11 and ordered it to pay Boeing’s legal fees and costs for defending an unjustified securities class action – was going to be hard to erase. But on the evidence of a letter the firm filed Wednesday in a securities class action against JPMorgan Chase in Manhattan federal court, Robbins Geller seems determined to stop the stain from spreading.

JPMorgan’s argument that Robbins Geller isn’t fit to represent a class of mortgage-backed-securities investors dates back to last January, when the bank’s lawyers at Sidley Austin filed a brief opposing class certification. The brief attached as an exhibit a letter to the court from a lawyer for one of the 11 confidential witnesses cited in Robbins Geller’s complaint against JPMorgan. The letter, written after U.S. Magistrate Judge James Francis ruled that Robbins Geller had to disclose to JPMorgan the identity of its confidential witnesses, claimed that Robbins Geller’s investigator had deceived the witness in 2009, when they first spoke. The investigator supposedly said he was just researching the mortgage meltdown, not that he was working for plaintiffs’ lawyers. According to the letter from his lawyer, the witness only found out that his statements had been quoted in a complaint a couple of years later, when the investigator contacted him again. In that conversation, the letter said, a Robbins Geller lawyer who had been “secretly” listening to the phone call informed the witness that the firm had used his statements in its filing – after he disavowed quotes the investigator read to him.

Sidley’s brief opposing class certification asserted that the witness’s accusations against Robbins Geller were consistent with similar claims of confidential witness chicanery in other cases the firm had handled. The brief cited a March 2013 ruling by the 7th U.S. Circuit Court of Appeals that reamed Robbins Geller for basing a class action against Boeing on the unverified testimony of an unreliable confidential witness. Judge Richard Posner, who wrote the 7th Circuit opinion, said the Boeing example was part of a pattern of misconduct in which Robbins Geller either misrepresented statements from confidential witnesses or relied on witnesses who denied their supposed statements. In the JPMorgan case, Sidley said, Robbins Geller showed the same “lack of diligence and candor” that the 7th Circuit had criticized.

Apple lawyers to defend Samsung in Microsoft licensing dispute

Alison Frankel
Sep 10, 2014 21:04 UTC

When my whip-smart Reuters colleague Dan Levine noticed Tuesday that George Riley and several other lawyers from O’Melveny & Myers had entered appearances as defense counsel for Samsung in its month-old dispute with Microsoft over allegedly unpaid patent royalties, my immediate thought was that O’Melveny’s new assignment was another sign of the waning tensions between Apple and the South Korean electronics company.

O’Melveny, after all, regularly represents Apple and has done so since Steve Jobs’ 1997 return to the company he founded. Riley was a close friend and adviser to Jobs and has appeared for Apple in everything from patent litigation and securities cases to the no-poaching antitrust collusion suit underway in federal court in San Jose, California. Apple and Samsung, as all the world knows, have been at each other’s throats in global smartphone litigation for the past four or five years, but the two companies called a partial truce in August, when they agreed to drop all of their patent litigation against one another in jurisdictions outside of the United States. I figured that O’Melveny wouldn’t have agreed to defend Samsung against Microsoft’s royalties claims if Apple hadn’t blessed the assignment, reflecting Apple’s recent overseas detente with Samsung.

I may have jumped to the wrong conclusion. O’Melveny declined to comment on its client relationships, but the public record shows that the firm has been representing Samsung for years – even in patent litigation over component smartphone parts and even as O’Melveny counseled Apple in the smartphone wars.

Delaware judge OKs forum selection clause adopted on same day as deal

Alison Frankel
Sep 9, 2014 21:18 UTC

Chancellor Andre Bouchard of Delaware Chancery Court struck a double blow Monday for corporations that want to restrict shareholder litigation to a single jurisdiction. In a decision upholding the validity of a bylaw requiring shareholders of First Citizens Bancshares to sue board members only in North Carolina, Bouchard ruled that Delaware corporations can designate venues other than Delaware as the exclusive forum for shareholder claims – an issue of first impression in Chancery Court. But that wasn’t all. Bouchard also rejected shareholder arguments that First Citizens’ forum selection clause can’t be enforced because it was enacted on the same day that the North Carolina bank announced its $676 million acquisition of a related First Citizens entity in South Carolina.

According to First Citizens’ lawyer Sandra Goldstein of Cravath Swaine & Moore, Bouchard’s ruling is the first to uphold a forum selection bylaw adopted in connection with a merger (and in anticipation of the inevitable shareholder suits that follow M&A deals). In an interview Tuesday, Goldstein predicted that the chancellor’s reasoning on the timing of First Citizens’ bylaw will turn out to be of broader significance than his holding on non-Delaware jurisdictions, since most forum selection clauses direct all shareholder litigation to Delaware.

Bouchard said that First Citizens shareholders hadn’t shown that the board had an improper motive in restricting litigation to a single venue just because directors adopted the clause in connection with a merger. The First Citizens clause doesn’t preclude shareholder suits, he said; it just regulates where they can be filed. “That the board adopted it on an allegedly ‘cloudy’ day when it entered into the merger agreement with FC South rather than on a ‘clear’ day is immaterial given the lack of any well-pled allegations … demonstrating any impropriety in this timing,” Bouchard wrote.

BP’s friends at the Supreme Court: new faces, old arguments

Alison Frankel
Sep 8, 2014 21:43 UTC

It must have been a lot of fun for the lawyers at King & Spalding to write the first couple of sentences in a new amicus brief at the U.S. Supreme Court, supporting BP’s petition for review of two rulings by the 5th U.S. Circuit Court of Appeals. King & Spalding’s client is the British government, which, like BP, believes that the 5th Circuit was wrong to uphold the oil company’s 2012 class action settlement because the deal supposedly permits recoveries even to businesses with no injuries attributable to the 2010 Deepwater Horizon oil spill. By now, that’s a well-worn argument, after BP’s two ultimately unsuccessful appeals at the 5th Circuit and its failed request for an emergency stay from the Supreme Court. But when you represent the Queen of England’s government, here’s how you get to introduce yourself:

“Her Britannic Majesty’s Government of the United Kingdom of Great Britain and Northern Ireland respectfully submits the following brief in this important matter,” the brief begins. “Although Her Majesty’s Government takes no position on any points of interpretation of United States law, it notes that the combination of rulings now before this court has produced an untenable and exceptionally important result.” Soon thereafter, the UK brief cites the 1765 edition of Blackstone’s Commentaries on the Law of England for “the proposition that plaintiffs must prove all of the elements of their claims,” which, according to the brief, is fundamental to “our nations’ shared legal tradition.”

Drafting that paragraph had to be a kick for the American lawyers representing Britain. And I’m sure BP was gratified that The Financial Times gave the UK government’s amicus brief big play on Sunday. Even the class action lawyers who have fought to preserve their multibillion-dollar settlement with BP told me in an email statement that it took “gumption” for BP to persuade “the Queen of England to say that centuries-old English law would frown on BP paying damages.”

New ISDAfix rate-rigging antitrust case isn’t just Libor redux

Alison Frankel
Sep 5, 2014 20:29 UTC

Daniel Brockett of Quinn Emanuel Urquhart & Sullivan knows as well as anyone what happened last year in the litigation over an alleged conspiracy to manipulate the London Interbank Offered Rate. You remember: In a true shocker of a decision, U.S. District Judge Naomi Reice Buchwald, who is presiding over Libor litigation consolidated in federal court in Manhattan, ruled that the alleged Libor rate-rigging didn’t give investors a cause of action for antitrust violations because the supposed conspiracy among Libor panel banks was not anticompetitive. For Brockett, who had been advising clients to bring Libor suits under securities and contract law, Buchwald’s ruling was an opportunity to push his alternative theory of how to recover for Libor manipulation.

So when I saw Brockett’s name at the top of an antitrust class action complaint filed Thursday in federal court in Manhattan – accusing 13 global banks of colluding to manipulate a different interest rate benchmark, the U.S. dollar ISDAfix – I suspected that the allegations would have been drafted with Buchwald’s Libor reasoning in mind. And so they were, according to Brockett and co-counsel from Robbins Geller Rudman & Dowd. In interviews Friday, Brockett and Patrick Coughlin and David Mitchell of Robbins Geller told me why they believe their ISDAfix antitrust allegations can withstand the judicial analysis that killed off (at least for now) Libor antitrust allegations.

The key difference between their case and the dismissed Libor claims, according to the plaintiffs’ lawyers, is that they accuse the banks involved in setting the ISDAfix benchmark of engaging in transactions in order to manipulate the rate. Libor rates were determined by averaging the rates reported by banks on the rate-setting panel. The ISDAfix benchmark – a daily measure of the fixed rate for interest rate swaps that affects the price of trillions of dollars of derivatives – is a reference rate that, like Libor, relies on submissions from panel banks. But when the markets operator ICAP calculated the rate during the time period at issue in the suit, it also took into account the average trading rate of interest rate swaps at 11 o’clock every morning. According to the complaint, the banks involved in the ISDAfix-setting process conspired with each other and ICAP to manipulate the trading rate through (among other things) engaging in high-volume, coordinated buying or selling just before ICAP’s daily 11 a.m. assessment. The complaint claims that bankers called such rate-rigging “banging the close.”

Target’s bid to ditch $18 bln case by credit and debit card issuers

Alison Frankel
Sep 4, 2014 21:09 UTC

When hackers from Eastern Europe stole financial information from more than 100 million Target customers last fall, the data breach caused a huge headache for banks that issued the compromised credit and debit cards. In the midst of the holiday shopping season, card issuers had to notify clients about the breach, cancel accounts that had been hacked, reissue cards and reimburse customers for fraudulent transactions. The issuing banks have estimated that each card they replaced cost them between $15 and $50. In all, they have alleged in a class-action complaint against Target, their damages from the data breach fiasco may add up to more than $18 billion.

Target says those losses aren’t its responsibility. In a brief filed Tuesday in federal court in St. Paul, Minnesota, the retailer’s lawyers at Ropes & Gray and Faegre Baker Daniels argue that Target has no legal duty to the banks that were forced to replace hacked credit and debit cards because it has no direct relationship with the issuers and owes them no special care.

Every retail business and payment card issuer ought to be paying attention to Target’s arguments. There have been only a handful of rulings in the past few years on merchants’ liability to payment card issuers, and they’ve all been in small actions by individual banks – nothing remotely approaching the scale of the Target class action. All but one of the previous decisions (at least according to Target’s brief) have gone against payment card issuers, concluding that merchants don’t have a duty to credit card issuers. But if U.S. District Judge Paul Magnuson, who’s overseeing the consolidated Target data breach litigation, eventually disagrees and finds that bank issuers can sue retailers for the cost of dealing with data breaches, that will drastically increase merchants’ exposure in data breach litigation.

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