Opinion

Alison Frankel

Countrywide MBS investors emerge from shadows as deadline looms

Alison Frankel
Aug 30, 2011 21:44 UTC

Last October, when BofA’s proposed $8.5 billion settlement of Countrywide mortgage-backed securities breach of contract claims was just a twinkle in Kathy Patrick’s eye, David Grais of Grais & Ellsworth told me that one of the biggest problems for lawyers representing disgruntled MBS noteholders was the investors’ reluctance to come forward. Noteholders were afraid to provoke the banks that issued mortgage-backed securities, Grais said, so they didn’t want to sue under their own names. That’s why one of Grais & Ellsworth’s early put-back cases was filed on behalf of an ad hoc coalition of anonymous Countrywide MBS investors operating under the name Walnut Place.

It’s also why the Gibbs & Brun investor group that negotiated the BofA deal made such a splash. Kathy Patrick’s big institutional investor clients, including Pimco, BlackRock, and the New York Federal Reserve’s Maiden Lane funds, showed their faces when they offered public support for the proposed $8.5 billion settlement. In fact, after Grais’s Walnut Place investors filed an objection to the proposed deal, supporters of the settlement drew a contrast between the Gibbs group’s public face and Walnut’s anonymity.

But as time runs out for investors to claim a place in the litigation over the proposed settlement, more and more Countrywide MBS noteholders are shrugging off secrecy. On Monday, six new interventions motions appeared in either the original state court docket or in federal court, where Grais & Ellsworth removed the case last week. (A seventh intervention petition, by American Fidelity Assurance, popped up Tuesday morning.) The big news was the placeholder petition Grais filed on behalf of the Federal Deposit Insurance Corporation, which says it is “the receiver of numerous banks and owner of many certificates issued by many of the trusts that would be covered by the proposed settlement.” (Hard to know from that how big a stake the FDIC has in the Countrywide MBS offerings.) Like the six Federal Home Loan Banks that have already intervened in the proposed settlement, the FDIC isn’t yet objecting to the deal, but said it wants more information to evaluate the fairness of the deal.

I was intrigued by a point Squitieri & Fearon made in an intervention petition on behalf of Waterfall Eden Master Fund, which owns certificates in six Countrywide MBS offerings. Waterfall’s lawyers cited the class action bombshell in the recent appellate opinion tossing out a settlement between freelancers and publishers. The BofA MBS settlement isn’t a class action — it was filed as a special proceeding under a New York State law permitting trustees to seek court approval of their actions. But as Waterfall notes, if Grais & Ellsworth manages to keep the case in federal court as a mass action under the Class Action Fairness Act, the Second Circuit’s new requirement that subclasses have their own counsel could turn out to be quite a messy complication for Bank of America.

Perhaps the most intriguing of the latest filings came from Peter N. Tsapatsaris, who’s working with Talcott Franklin of the Investors Clearinghouse. Franklin has worked closely with Grais & Ellsworth in the past, but the request for information he filed Monday isn’t as aggressive as some of David Grais’s intervention papers. It’s not a formal objection to the proposed settlement or even a motion to intervene, but is instead styled as an “objection in the form or a request for more information.”

11th Circ. on prosecutorial misconduct: what does ‘or’ mean?

Alison Frankel
Aug 29, 2011 22:20 UTC

The three judges who heard the Justice Department’s appeal in a case called United States v. Ali Shaygan knew full well how consequential their ruling would be. The government wanted the appellate court to overturn a Miami federal judge’s imposition of $602,000 in sanctions for the U.S. Attorney’s prosecution of Shaygan, a physician accused of illegally writing prescriptions for controlled substances. And as Judge Pryor wrote in the majority opinion in the case, the issues on appeal were profound: “They involve the sovereign immunity of the United States, the constitutional separation of powers, and the civil rights and professional reputations of two federal prosecutors.”

That’s why it’s so compelling that the Eleventh Circuit’s ruling came down to an interpretation of the word “or” in the Hyde Amendment of the 1998 Appropriations Act. The Hyde Amendment says federal judges can sanction prosecutors when “the position of the United States was vexatious, frivolous, or in bad faith.” The majority in the Shaygan case — Eleventh Circuit judge William Pryor Jr. and Fifth Circuit judge Rhesa Barksale, sitting by designation — decided that the government’s prosecution of the doctor wasn’t vexatious or frivolous, so by definition it wasn’t conducted in bad faith. The majority vacated the $602,000 attorneys fee award, as well as a public reprimand of two of Shaygan’s prosecutors. But in a dissent, Chief Judge James Edmondson said the Hyde Amendment’s plain language means a prosecution can be undertaken in bad faith even if it isn’t vexatious or frivolous. He found Shaygan was prosecuted in bad faith, so the district court’s $602,000 fee award should have been upheld.

Shaygan’s lawyer, David Markus of Markus & Markus said he plans to ask the entire Eleventh Circuit to review the ruling en banc, and, if that is denied, to appeal to the U.S. Supreme Court. “The way Judge Pryor tried to rewrite the statute — the Eleventh Circuit or the Supreme Court is going to be very interested in that,” he told me.

BofA MBS settlement shocker: Grais removes case to federal court

Alison Frankel
Aug 26, 2011 23:04 UTC

There is never a dull moment in Bank of America’s attempt to resolve its Countrywide mortgage-backed securities liability. In a stunning move Friday, the law firm leading the fight against BofA’s proposed $8.5 billion settlement with Countrywide MBS noteholders removed the case from New York state supreme court to federal court. “The purpose of removal is to make sure that this proceeding is adjudicated in the proper forum,” Grais & Ellsworth wrote in a letter to lawyers for Bank of New York Mellon (the Countrywide MBS trustee) and for the big institutional investors who crafted the proposed settlement. “We believe in good faith that this proceeding is subject to federal jurisdiction as a mass action under the Class Action Fairness Act.” (Here’s the Grais & Ellsworth letter with the removal petition attached.)

The removal to federal court plunges the proposed settlement, at least temporarily, into more uncertainty than ever. Judge Barbara Kapnick, who is presiding over the unusual state court proceeding to evaluate the proposed deal, had imposed an August 30 deadline for Countrywide MBS investors to intervene in the case. She had also established a preliminary schedule for the discovery Grais & Ellsworth and other objectors’ counsel have demanded from BNY Mellon, BofA, and the institutional investors and their Gibbs & Bruns counsel. The removal to federal court means that Judge Kapnick isn’t in charge of the case, so it’s not clear whether lawyers are required to abide by her schedule.

The Grais & Ellsworth filing was a surprise tactic. The firm has been in the state court litigation since early July, filing its initial petition to intervene only days after Bank of New York Mellon, as Countrywide trustee, filed a suit asking for court approval of the settlement of investors’ claims. David Grais even appeared before Judge Kapnick at an August 5 hearing on objectors’ requests for expedited discovery. Grais & Ellsworth apparently waited to remove the case to federal court until Judge Kapnick granted the firm’s motion to intervene in the state court case on Monday. (Grais, who was not in the office Friday, didn’t respond to my e-mail; his partner Owen Cyrulnik, who signed the letter to opposing counsel, didn’t respond to an e-mail and phone message.)

Who will lead J&J hip replacement MDL?

Alison Frankel
Aug 25, 2011 22:40 UTC

In the next day or two, W. Mark Lanier of the Lanier Law Firm will file a letter with Dallas federal judge Ed Kinkeade outlining the reasons why he should lead what Lanier believes will become a huge mass tort: the multidistrict litigation over DePuy’s Pinnacle hip replacements. More than 300 personal injury suits accusing the Johnson & Johnson unit of failing to warn patients about design defects in the best-selling product have been filed in federal courts around the country and consolidated before Judge Kinkeade. Lanier made a preemptive play to take charge of the MDL, proposing that he and a handful of other well-known mass tort veterans head up a broadly inclusive plaintiffs steering committee. But instead, in an August 10 order, Judge Kinkeade threw open the leadership contest with a call for plaintiffs firms to respond to a long list of questions about their experience in big cases.

“It’s an interesting situation,” Lanier told me. “You’ve got the usual crew of mass tort lawyers who’ve done this rodeo time and time again. And then you’ve got a new crew of Dallas lawyers who are looking to be in leadership roles because they know the judge, know the Dallas system.”

Lanier’s allies include Edward Blizzard of Blizzard McCarthy & Nabers; Richard Arsenault of Neblett Beard & Arsenault; Kenneth Seeger of Seeger Salvas; and Paul Hanly of Hanly Conroy Bierstein Sheridan Fisher & Hayes. Blizzard told me that coalition is holding together, “but what I took from Judge Kinkeade is that he’s going to make his own decision.” The judge, who has never before presided over an MDL, has said he may even interview candidates to lead the case.

2011: A Samsung litigation odyssey

Alison Frankel
Aug 24, 2011 23:36 UTC

As all the world knows, Samsung is engaged in a do-or-die international patent battle with Apple. On Wednesday alone, Samsung saw a court in the Netherlands enjoin it from infringing an Apple smartphone patent; planned for an injunction hearing in Germany, where a court enjoined the Samsung Galaxy Tab, then lifted the preliminary injunction; and went before Judge Lucy Koh in San Jose federal court, where Apple is demanding yet another injunction barring Samsung devices.

But all that bet-the-company stuff doesn’t mean there’s no place for fun. In an August 23 declaration that set the tech world snickering, Samsung’s lawyers at Quinn Emanuel Urquhart & Sullivan asserted that Apple’s extremely broad design patents on the iPad were anticipated by (among other pop culture reference points) Stanley Kubrick’s 1969 movie 2001: A Space Odyssey. Quinn even helpfully provided a link to a YouTube clip of the crew of the Kubrick spaceship Discovery using thin rectangular devices that look curiously like iPads. (A similar Star Trek clip suggests Captain Picard also used an iPad before Apple invented it.)

The argument isn’t quite as wacky as you might think. Just recently, lawyers for Yves Saint Laurent told Manhattan federal judge Victor Marrero that Christian Louboutin can’t trademark red soles because Dorothy had red shoes in The Wizard of Oz; Judge Marrero cited Dorothy’s “famous ruby slippers” on the first page of his opinion knocking out Louboutin’s trademark. Trademarks have squishier standards than patents, but if it worked for Yves, maybe it’ll work for Samsung as well.

Decoding Lloyd Blankfein’s retention of Reid Weingarten

Alison Frankel
Aug 23, 2011 18:34 UTC
The market assumed the worst Monday after Reuters’ great scoop on Goldman Sachs CEO Lloyd Blankfein bringing in Reid Weingarten of Steptoe & Johnson to represent him in the Justice Department’s investigation of the bank. Goldman’s share price fell almost 5 percent on the fear that Weingarten’s entrance signals that DOJ is getting serious about its follow-up to the April 2011 Senate subcommittee report on the financial crisis. In one sense, that’s reading way too much into the mere fact that Blankfein has brought in his own lawyer. It’s standard operating procedure for corporate executives at companies under investigation to have separate counsel. Consider the example of other alleged villains of the financial meltdown. Richard Fuld of Lehman, Joseph Cassano of AIG, Angelo Mozilo and David Sambol of Countrywide, John Thain of Merrill Lynch, Kenneth Lewis of Bank of America: they all have their own lawyers, and none of them have faced any criminal charges. Only Mozilo and Sambol even had to answer to the SEC.
Lawyers who represent corporations — Sullivan & Cromwell, in Goldman’s case — have a duty to the company. And though CEOs and other high-ranking executives often think their interests are exactly the same as the corporation’s, lawyers have to anticipate a divergence between what’s good for the company and what’s good for its leaders. A company under investigation might be best served by cooperating with prosecutors and turning over (for instance) its lawyers’ interview notes; execs may have conflicting interests. Even if they don’t, lawyers are supposed to avoid even the appearance of a conflict, so as soon as it’s clear that investigators are interested even in just interviewing an individual executive, white-collar defense lawyers will typically advise bringing in separate counsel.

A couple of cases from the last few years drove home that lesson. Proskauer Rose represented Allen Stanford’s Stanford Financial as the Ponzi scheme collapsed. Proskauer partner Thomas Sjoblom was in the room with Stanford Financial’s chief investment officer, Laura Pendergest-Holt, when she was interviewed by the SEC in 2009. Sjoblom told the SEC that he was representing the company, not Pendergest-Holt. But she ended up indicted for lying to investigators and obstructing justice based on that SEC interview. Pendergest-Holt turned around and sued Sjoblom and Proskauer, asserting that she was never told the firm wasn’t representing her. Sjoblom subsequently resigned from Proskauer. (Proskauer’s spokesman didn’t return my call.)

In another case, Irell & Manella represented Broadcom in an internal investigation of its stock options backdating practices. As part of that investigation, Irell lawyers interviewed Broadcom CFO William Ruehle. Irell was simultaneously representing Ruehle in two securities suits, and, he later said that he believed Irell was his counsel. But it wasn’t: when Broadcom decided to cooperate with prosecutors, Irell turned over its notes of the Ruehle interview. Ruehle was indicted and (among other things) blamed Irell for misleading him. The trial judge in Ruehle’s case, Cormac Carney, blasted Irell for breaching its duty to Ruehle, though the U.S. Court of Appeals for the Ninth Circuit later cleared the firm of wrongdoing. (Judge Carney eventually tossed charges against Ruehle for other reasons.)

So Sullivan & Cromwell and Blankfein are both better off now that the CEO’s interests are protected by another lawyer, even if Blankfein only brought in counsel for an interview with DOJ investigators. In that regard, we shouldn’t assume that Weingarten’s entrance necessarily bodes ill for Goldman or Blankfein. Goldman told Reuters Monday that this is entirely routine: “As is common in such situations, Mr. Blankfein and other individuals who were expected to be interviewed in connection with the Justice Department’s inquiry into certain matters raised in the PSI report hired counsel at the outset,” the bank said.

Nortel IP sale will help Google win OK for Motorola bid

Alison Frankel
Aug 18, 2011 22:43 UTC

Remember the Cold War military doctrine of Mutually Assured Destruction? The idea was that if the United States and the Soviet Union both knew the enemy had enough weapons to wipe the entire country off the map, neither would actually use those weapons. Mutually Assured Destruction got the entire world through the age of fallout shelters and Barry Goldwater. So the doctrine should be powerful enough to get Google, Apple and Microsoft past Justice Department antitrust regulators.

It’s a given that Google’s $12.5 billion Motorola bid is going to be scrutinized for its antitrust implications. Google’s law firm on the deal, Cleary Gottlieb Steen & Hamilton, has conceded that point; the firm announced that David Gelfand – who previously escorted Google unscathed through antitrust reviews of its DoubleClick and AdMob acquisitions — will be antitrust counsel on the Motorola bid. The $4.5 billion acquisition of Nortel’s intellectual property by a consortium led by Microsoft and Apple is already under review by the DOJ’s antitrust division. I’m betting that each patent plays will have an easier time passing regulatory muster because of the other.

Before I get to why, there’s the issue of which agency will be investigating the Google deal. Both the Federal Trade Commission and the Justice Department have the power to conduct premerger antitrust reviews. They’ve both looked at Google acquisitions in the past: the FTC green-lighted the 2007 DoubleClick and 2010 AdMob deals; the DOJ rejected Google’s proposed advertising partnership with Yahoo in 2008 and approved, with some modifications, its deal with ITA Software in 2011. The FTC is also reportedly conducting a widespread antitrust investigation of Google’s search engine business. But I have it on good authority that the Justice Department will be handling the Motorola review, partly because DOJ has historically overseen competition in the telephone industry and is already reviewing the AT&T merger with T-Mobile and the Nortel IP sale.

Blogger: Weitz & Luxenberg got $92.5 ml pot for Seroquel clients

Alison Frankel
Aug 17, 2011 22:14 UTC

AstraZeneca’s approach to the 28,000-case litigation over its antipsychotic Seroquel has been notable for two things. First, the pharma company was incredibly successful in court. It won pre-trial dismissal of hundreds of state and federal suits blaming Seroquel for causing diabetes and more serious injuries and got a defense verdict in the one Seroquel case that made it to trial. Second, AZ has been notoriously secretive about settling the remaining cases. AZ reached private deals with plaintiffs firms that controlled big Seroquel dockets, offering token amounts of money to plaintiffs in exchange for their lawyers agreeing to drop out of the litigation. The company disclosed settlements in blocks, finally announcing in late July that it had reached agreements in principle to resolve all but 250 Seroquel suits for a total of $647 million — a small fraction of what plaintiffs lawyers once hoped they’d get.

The last big holdout on the plaintiffs side of the litigation was Weitz & Luxenberg, an asbestos powerhouse that had one of the biggest Seroquel dockets in the country. Weitz fought harder and sank more resources into Seroquel cases than any other firm; partner Paul Pennock was still insisting the cases would yield big settlements even after he lost the first (and, as it turns out, only) Seroquel trial, a New Jersey state court case that went to a defense verdict in March 2010.

Weitz apparently capitulated earlier this summer, agreeing to settle its 2,300 remaining cases. And last week, the Seroquel Lawsuit blog posted what purports to be the letter Weitz & Luxenberg sent to its Seroquel clients, announcing the group settlement and explaining the allocation process. According to the letter, AZ offered Weitz & Luxenberg a $92.25 million pot to divide amongst its clients. Clients were given three options: they could sign up for a quick $12,000 payment; they could present the facts of their case to a special master for an individualized payment that could be less than $12,000; or they could reject the offer and endanger the entire settlement, which depends on the participation of 98 percent of Weitz & Luxenberg’s clients.

Microsoft beats Google in Motorola fight

Alison Frankel
Aug 16, 2011 22:42 UTC

Monday was mostly a good day for Google and Motorola. Unless you’re on vacation where there’s no Internet access, in which case you’re not reading this, you’re surely aware that Google announced its $12.5 billion acquisition of Motorola, which means that Google is picking up one of the best patent portfolios in wireless history — and supposedly had the pleasure of besting Microsoft in doing so. But the news wasn’t all good for Google and its new best friend, Motorola. Deep down in the patent litigation trenches at the U.S. International Trade Commission, Administrative Law Judge Theodore Essex denied Google’s high-profile, third-party motion for sanctions against Microsoft in Microsoft’s infringement suit against Motorola.

Okay, so it’s not exactly on a par with the $12.5 billion deal. It’s a little humbling, though, for Google and its lawyers at Quinn Emanuel Urquhart & Sullivan. As I mentioned yesterday, Google filed an Aug. 10 motion for sanctions in the Microsoft ITC case, claiming that Microsoft violated a confidentiality order when it disclosed Google code to one of its experts without informing Google. (The ITC proceeding, in case you hadn’t figured it out, involves Motorola products that employ Google’s Android operating system.) Google asserted that when it found out what Microsoft planned to disclose, in-house lawyer Matthew Warren emailed a Microsoft lawyer to request a conference. Microsoft, according to Google, didn’t respond. Google then filed the sanctions motion.

But Judge Essex said Google rushed to judgment. The ground rules in the case, in which just about everything is (frustratingly) shielded by the confidentiality order, say that any party that objects to another’s use of confidential materials has to make a good-faith effort to resolve the dispute, and then must wait two days before filing a motion for sanctions. “The ALJ finds no basis to discern from Google’s statement whether Google made a reasonable, good-faith effort to resolve the matter with Microsoft,” Judge Essex wrote. “The ALJ notes to Google failed to attach the Warren email to its motion and it is unclear whether Google even notified Microsoft of its intention to file the instant motion.”

Google’s Motorola deal is good news for Quinn Emanuel

Alison Frankel
Aug 15, 2011 19:00 UTC

There are all sorts of questions out there about Google’s $12.5 billion acquisition of Motorola Mobility. What will the deal mean for HTC and Samsung, the other cellphone makers using the Android platform? Will the merger force Microsoft to make a bid for Nokia? And is Carl Icahn, Motorola’s biggest shareholder, finally satisfied? I’ll leave it to others to ruminate on all that. I’m interested, as always, in what this deal means for lawyers.

The one clear answer is that a union between Google and Motorola is a good thing for Quinn Emanuel Urquhart & Sullivan.

Quinn’s Charlie Verhoeven and his patent litigation team are favorites of both Google and Motorola in the smartphone wars. With Google’s endorsement, Quinn has been representing both Samsung and HTC in high-stakes litigation against Apple; Quinn got those assignments after amassing an impressive collection of patent trial wins for Google in the Eastern District of Texas. (Even Verhoeven and Google can’t win ‘em all; I reported in May on a $5 million verdict against Google in the Bedrock patent trial.)

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