Opinion

Alison Frankel

Keker & Van Nest tries (again!) to intervene in Chevron trial

Alison Frankel
Aug 12, 2011 20:54 UTC

We’re less than three months away from Manhattan federal judge Lewis Kaplan’s trial to determine whether an Ecuadorean court’s $18 billion judgment against Chevron for contaminating the Lago Agrio region of the rainforest is enforceable in the U.S. In the declaratory judgment proceeding, Chevron’s lawyers at Gibson, Dunn & Crutcher will argue, as they have for the last 18 months, that the Ecuadorean judgment was the result of political and public relations chicanery, much of it committed by the plaintiffs lawyer who spearheaded the Ecuadoreans’ case, Steven Donziger. But according to Donziger’s lawyers at Keker & Van Nest, Judge Kaplan won’t give them or their client a chance to be heard as the declaratory judgment case races to trial.

On Thursday, Keker filed its third motion asking Judge Kaplan to reconsider a May 31 ruling limiting Donziger’s participation in the case. “The exclusion of Donziger from full intervention in this ‘do-over’ trial has reached the point of absurdity,” Keker partner Elliot Peters wrote in the 11-page Donziger filing. “The trial will be about him, and he won’t be there to defend himself against Chevron calumny.”

“This is ironic, in the bitter sense,” Peters told me in an interview Friday. “The U.S. court is denying due process to a litigant in a case in which the U.S. gets to decide whether the court of a different sovereign nation denied due process.”

The controversy over Donziger’s participation arose in May, after Judge Kaplan split Chevron’s 2010 suit against Donziger and several other witnesses into two pieces — a declaratory judgment action to determine the enforceability of the Ecuadorean judgment and racketeering claims against Donziger and the other defendants for their allegedly fraudulent prosecution of the Ecuadorean case. Gibson Dunn then re-filed the declaratory judgment piece of the original case against Donziger as a separate suit, without naming Donziger as a defendant. Judge Kaplan subsequently concluded that Donziger couldn’t intervene in the declaratory judgment action because he wasn’t a party, didn’t have a financial interest in the outcome, and couldn’t repair any damage to his reputation in the separate racketeering case.

The judge granted Donziger’s lawyers the right to cross-examine deposition witnesses testifying directly about his conduct, but said that was all Keker & Van Nest could do. Though Kaplan said he might revisit the ruling, he denied two July reconsideration motions by Keker & Van Nest. The transcript of an August 2 phone conference shows that those two motions hadn’t swayed the judge at all. At the end of the conference, John Keker said, “Your honor, can I say something?” Kaplan replied: “No, Mr. Keker. You’re not in the case for this purpose.You’re being given the courtesy of being conferenced in but the scope of your intervention has been fixed.”

Vioxx judge steps in to split $350 ml plaintiffs lawyer pie

Alison Frankel
Aug 11, 2011 23:37 UTC

It was easier for the plaintiffs lawyers who represented victims of Merck’s Vioxx painkiller to finalize a $4.85 billion settlement with Merck than to reach a fee-sharing agreement with one another.

On Wednesday, the New Orleans federal court judge who presided over the Vioxx multidistrict litigation issued a 132-page final order distributing $350 million in so-called “common benefit attorneys fees” to the lawyers whose work in the MDL contributed to the 2007 global settlement with Merck. In case you weren’t keeping track, total plaintiffs lawyers’ fees in the Vioxx litigation were capped at $1.55 billion, of which more than $1 billion has already been paid out; the $350 million in common benefit fees, which comes out of that $1.55 billion, represents money that all of the lawyers who collected Vioxx contingency fees owe to the small group of plaintiffs lawyers responsible for bringing Merck to the table and negotiating a deal with the drug maker.

Judge Eldon Fallon is the most patient of jurists, but even he was disheartened by the ugliness of the fight over the $350 in common benefit fees — skirmishing that involved a special court-appointed committee of plaintiffs lawyers, a special discovery master, two rounds of objections from lawyers who claimed the committee had a conflict of interest, and a week-long hearing in which committee members and objectors had the chance to cross-examine one another. After a 10-page description of the bitter process, Fallon wrote, “Counsel for individual [Vioxx] claimants have already received over one billion dollars pursuant to contingent fee agreements. Many, if not all, of the common benefit fee applicants are also primary counsel in at least some if not many cases and thus have already received substantial compensation pursuant to contingency fee agreements with their own clients,” the judge continued. “For this reason, it is disconcerting and disappointing to receive such vexatious, vitriolic, and acerbic briefs from some of the attorneys who seek common benefit fees.”

Why Delaware and NY want a stake in BofA MBS deal

Alison Frankel
Aug 10, 2011 22:07 UTC

As expected, the Delaware attorney general’s office moved Tuesday night to intervene in Bank of America’s proposed $8.5 billion settlement with Countrywide mortgage-backed noteholders. The Delaware petition to intervene and supporting brief are notable for their moderate tone, in contrast to last week’s fiery objection and counterclaims by the New York attorney general. Tuesday’s filings, signed by Delaware deputy AG Jeremy Eicher, said that Delaware is concerned about BofA’s indemnification of the MBS trustee, Bank of New York Mellon — the same conflict-of-interest allegation raised by just about every intervenor who so far has surfaced in the case. Delaware, which noted that two of the Countrywide MBS trusts are Delaware vehicles, argued that it needs more information about the proposed settlement in order to protect investors.

The real story, though, is that both the New York and Delaware AGs believe BofA and BNY Mellon can’t resolve their liability to MBS investors without including regulators in the deal. After all, the proposed $8.5 billion settlement encroaches on turf already claimed by New York AG Eric Schneiderman and Delaware AG Joseph Biden III; in June, the New York Times broke the news that the New York and Delaware AG offices were investigating the banks involved in the mortgage-backed securitization process — including sponsors and underwriters such as Countrywide and BofA and trustees such as BNY Mellon.

The Delaware and New York securitization probes, which are running parallel to the 50-state AG investigation of banks’ mortgage foreclosure practices, gave Schneiderman and Biden a platform to argue that MBS investors, as well as homeowners, are affected by slipshod mortgage underwriting practices and widespread foreclosures. In the wider foreclosure-resolution negotiations between mortgage lenders and state AGs, New York and Delaware have taken a lead in calling for banks to also address MBS liability.

Why does Rajit Gupta want the SEC to sue him in federal court?

Alison Frankel
Aug 10, 2011 00:16 UTC

Former Goldman Sachs director Rajat Gupta and his lawyer, Gary Naftalis of Kramer Levin Naftalis & Frankel, declared what might seem to be a very strange kind of victory last week when the Securities and Exchange Commission agreed to drop its administrative proceeding against Gupta. The two-page stipulation between Gupta and the SEC makes it clear that the SEC isn’t giving up on its claims that Gupta engaged in insider trading when he allegedly passed confidential information about Goldman Sachs and Procter & Gamble to Galleon Group hedge fund chief Raj Rajaratnam. All Gupta won was a pledge that the agency will sue him in federal court. And that is indeed a huge victory.

The SEC chose an anomalous vehicle for its March 1 suit accusing Gupta of helping Rajaratnam engage in insider trading. Instead of bringing a case against Gupta in Manhattan federal court — as the SEC did when it sued 28 other Galleon insider trading defendants — the agency filed what’s known as a public administrative proceeding. Those proceedings take place before an administrative law judge under SEC rules, not the federal rules of civil procedure. There’s no jury, and the first appeal of any adverse ruling goes to the SEC commissioners, not to an appeals court.

As Gupta counsel Naftalis laid out in his March 18 federal court complaint against the SEC, the differences between an SEC administrative proceeding and a federal court case added up to a big pile of prejudice against Gupta. Gupta wouldn’t be able to take depositions or conduct full discovery to counter the SEC’s assertions. The SEC, meanwhile, would be able to introduce hearsay evidence that it might not be able to get into evidence in federal court, according to the Gupta complaint. “The only plausible inference is that the Commission is proceeding how and where it is against Mr. Gupta for the bad faith purpose of shoring up a meritless case by disarming its adversary,” the complaint asserted.

On a very dark day, BofA’s dim ray of hope

Alison Frankel
Aug 9, 2011 14:14 UTC

Monday was (another) dreadful day for Bank of America. The bank’s shares closed at a two-year low, thanks in part to AIG’s double whammy: a $10 billion fraud suit against BofA and the insurer’s simultaneous motion to intervene in opposition to BofA’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities noteholders. Bank of America and Countrywide’s securitization trustee, Bank of New York Mellon, thought the $8.5 billion deal would put their MBS woes behind them. Instead the proposed settlement seems to have made the two banks into bigger targets than they were before reaching an agreement with 22 big MBS investors.

There’s plenty of reason for BofA to worry about the AIG fraud suit. First off, the New York state court complaint was filed by Quinn Emanuel Urquhart & Sullivan, a familiar opponent for Bank of America. Quinn is counsel to the bond insurer MBIA in its MBS litigation against Countrywide, in which New York state supreme court judge Eileen Bransten has consistently sided with MBIA and Quinn Emanuel. (Among other crucial rulings, Judge Bransten rejected Bank of America’s preliminary argument that it’s not liable for Countrywide’s missteps.) Quinn also represents Fannie Mae and Freddie Mac, which forced Bank of America into a $2.8 billion settlement of MBS claims in January, and Allstate, which filed a $700 million MBS case against Countrywide in December. Different Quinn Emanuel lawyers are involved in the various BofA and Countrywide cases, but the firm isn’t starting from scratch.

The AIG fraud complaint is also a canny document. The suit lumps together allegations against Countrywide, Merrill Lynch, and BofA, painting all of them with the same tarry brush even though Countrywide and Merrill Lynch committed a good chunk of the alleged wrongdoing before they became part of BofA. Quinn includes public record information about their manifestly-deficient underwriting practices, but has brought the case as a fraud suit — not a contract case accusing BofA, Countrywide, and Merrill of breaching the representations and warranties on the mortgage loans underlying the securitizations AIG invested in. That way, AIG doesn’t have to show that it controls 25 percent of the voting rights, the threshold for standing in a securitization contract case. But under the causes of action the complaint asserts — state-law claims and federal claims under the Securities Act of 1933 — Quinn Emanuel doesn’t have to show that BofA, Countrywide, and Merrill acted with fraudulent intent.

NY AG’s BofA filing will ripple far beyond $8.5 bn MBS deal

Alison Frankel
Aug 5, 2011 21:18 UTC

Before Thursday night, opposition to Bank of America’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities investors consisted of a handful of investor groups represented by a handful of law firms. Even if you counted the six Federal Home Loan Banks that have moved to intervene but haven’t yet gone on record opposing the deal, intervenors represented less than 7 percent of all Countrywide MBS noteholders. The 22 gargantuan institutional investors that negotiated the settlement were a much more potent force.

That all changed when New York attorney general Eric Schneiderman -- in a move that stunned deal proponents — filed an explosive motion to intervene in the $8.5 billion settlement. Schneiderman didn’t just register his opposition to the proposed settlement, which he said had been reached “without ever giving beneficiaries or their representatives an opportunity to test [whether] the proposed settlement is reasonable.” He went far, far beyond mere opposition: Schneiderman accused the Countrywide MBS trustee, Bank of New York Mellon, of breaching its fiduciary duty and said that Bank of America may have aided and abetted the breach. And to show that he was serious about those assertions, Schneiderman actually filed counterclaims against BNY Mellon along with his intervention motion.

The countersuit — a truly revolutionary filing — alleges three causes of action against BNY Mellon, in what is thought to be the first time the AG has accused an MBS trustee of fraud. Schneiderman claimed the bank breached its duty to investors because the settlement includes indemnification for the trustee — a “direct financial benefit” for BNY Mellon, according to the AG’s filing. Schneiderman also asserted that BNYM let down Countrywide MBS investors long before proposing the $8.5 billion settlement, by failing to notify certificate holders that underlying Countrywide mortgages were in default. Finally, the New York AG accused Bank of New York Mellon of securities fraud under New York’s Martin Act.

Will there be fireworks at Friday’s BofA MBS settlement hearing?

Alison Frankel
Aug 4, 2011 22:42 UTC

The hearing scheduled to take place tomorrow before Manhattan state supreme court judge Barbara Kapnick could turn out to be a straight-forward affair. The judge could simply hear brief arguments on whether to expedite discovery on Bank of America’s proposed $8.5 billion settlement of Countrywide MBS noteholders’ breach-of-warranty claims, issue a ruling, and call it a day. Given that this will be the first time that the architects of the deal — Mayer Brown for Bank of New York Mellon, the MBS trustee; Gibbs & Bruns for a group of 22 major institutional investors ; and Wachtell, Lipton, Rosen & Katz for BofA — will be gathered in the same room with the small but feisty group of lawyers opposing the settlement, I’m hoping for some heated rhetoric, at the very least. Remember, this hearing is the first chance for these lawyers to register their positions with Judge Kapnick. It’s going to be very interesting to see what each of them make of that opportunity.

The nominal issue before the judge comes from a July 27 order to show cause, filed by Scott + Scott on behalf of a four public pension funds. The show-cause order argues that the schedule suggested by BNY Mellon (and approved by Judge Kapnick) doesn’t offer investors a chance to reach an informed decision about whether to oppose or endorse the proposed deal. Noteholders are supposed to file intervention notices by August 30. Scott + Scott says investors need to conduct expedited discovery before then.

“Document discovery is needed to evaluate the reliability of the expert opinions and the reasonableness of the settlement,” the filing says. “The [self-styled] public pension fund committee also believes that discovery bearing upon the interests and potential conflicts of the negotiating parties, the adequacy of the development of the facts, as well as the basis of the expert reports, is warranted.”

Twitter, Facebook, and the peril of e-discovery

Alison Frankel
Aug 4, 2011 15:16 UTC

It’s been more than 15 years since e-mail began to enliven (or blight, depending on your perspective) the discovery process. By now — despite some notable fiascos (see, for instance, here and here) — we’ve got well-established case law to guide lawyers and their clients in e-mail production. Too bad that’s yesterday’s means of communication. Today it’s all about Twitter, Facebook, and Google+, whatever that is. So to celebrate establishing a Twitter account for On the Case (@AlisonFrankel), I figured I’d look at the e-discovery frontier of social media.

The news isn’t very good. What little consideration the courts have given to social media discovery has been in the context of postings by individuals, not corporations. And all signals indicate that social media data is broadly discoverable. As Gibson, Dunn & Crutcher explains in its just-published e-discovery report, courts continue to find that when you post to Facebook, Twitter, or their equivalents, you give up the expectation of privacy, even if you’ve sent private messages or set up restrictions on who can see your profile. Judges are increasingly likely to order litigants to provide access to their social media accounts and to preserve their posts. In May, for instance, a Pennsylvania state court judge ruled that a personal injury plaintiff had to turn over even his private Facebook posts to the defense.

It’s no giant leap from that kind of ruling to a looming problem for businesses. As corporations venture into social media to promote their brands and reach out to clients and customers, they have to be prepared to face the same discovery demands. In late July, a Symantec flash poll of 1,225 information tech executives reported that “social media incidents” — such as employees posting confidential corporate information – cost businesses an average of $4.3 million, of which more than $650,000 was attributed to litigation costs. That’s just the beginning, though, according to Symantec, which says corporations face increasing risk of scrutiny for their social media posts. E-discovery of such posts is a certainty, according to Symantec. (Caveat emptor: Symantec has an ulterior motive for predicting social media e-discovery doom. On Monday the company introduced a new version of its e-mail archiving software that includes social media archiving as well.)

Angry about possible U.S. downgrade? Don’t bother suing raters

Alison Frankel
Aug 2, 2011 22:27 UTC

With U.S. markets fretting Tuesday at the prospect of a downgrade in the government’s triple-A credit rating, you may be wondering: Who can we sue? Litigation, after all, is practically an unalienable American right. The problem, however, is that any attempt to sue the credit rating agencies for downgrading U.S. securities will run smack into the Bill of Rights. The rating agencies, as many a disgruntled mortgage-backed securities investor has discovered in the last few years, are shielded from liability because their ratings are considered to be public opinion protected by the First Amendment of the U.S. Constitution.

The agencies’ First Amendment protection dates back at least to 1999, when the U.S. Court of Appeals for the Tenth Circuit upheld a Colorado judge’s dismissal of a case against Moody’s Investor’s Services. The Jefferson County School District had sued Moody’s, claiming that the credit rating agency published an unfair assessment of the district’s 1993 bond offering. (The suit alleged that Moody’s was retaliating because the district hired other agencies to rate the bonds, but that wasn’t important in the case’s outcome.) Jefferson County, which had to re-price the bonds after the unfavorable Moody’s report, claimed the rating agency had illegally interfered with its bond offering and also committed antitrust violations.

The trial court treated Moody’s as a member of the media and found that the First Amendment protected its report on the school district bond offering from both state and federal claims. On appeal, the school board argued that the report was not protected free speech, but the Tenth Circuit disagreed. The appellate panel didn’t even waste much time discussing the trial court’s assumption that Moody’s is entitled to the same First Amendment protection as, say, Reuters. Instead, the Tenth Circuit opinion analyzed the allegedly false statements in the Moody’s report and concluded they’re too vague to be “provably false,” so Moody’s was constitutionally protected.

Fed Circ’s Myriad ruling: Obama arguments don’t trump PTO policy

Alison Frankel
Aug 1, 2011 22:27 UTC

The American Civil Liberties Union and a host of researchers and breast cancer patients aren’t the only losers in Friday’s appellate ruling that Myriad Genetics has the right to patents on isolated breast cancer genes. The Obama Administration’s Justice Department offered wholehearted support to opponents of human gene patents, splitting with the U.S. Patent and Trademark Office to argue that human DNA should not be eligible for patent protection. Friday’s ruling by a deeply-divided three-judge panel of the U.S. Court of Appeals for the Federal Circuit explicitly rejects the Justice Department’s arguments in favor of longstanding PTO precedent.

The Justice Department’s decision last November, after considerable lobbying by both sides of the human gene patentability debate, to side with the ACLU and oppose DNA patents, was a huge coup for folks who believe the human genome doesn’t belong to anyone. The Obama Administration’s amicus brief seemed to repudiate PTO policy: the PTO, after all, has issued more than 2,500 patents on human genes since the 1980s, and reaffirmed its policy that unaltered DNA is eligible for patents in its 2001 review of eligibility rules. (Notably, no PTO lawyer’s name appeared on the Justice Department filing.) And when acting-Solicitor General Neal Katyal informed the Federal Circuit that he would personally present the Justice Department’s position at oral arguments in April — an unprecedented appearance at the Federal Circuit by the SG — the ACLU’s lead lawyer on the case, Christopher Hansen, told me it was a good sign for his side.

Katyal’s argument certainly made an impression on the three-judge Federal Circuit panel. All three Federal Circuit opinions the Myriad case generated — a majority decision by Judge Alan Lourie; a concurring opinion by Judge Kimberly Moore; and a dissent by Judge William Bryson -- discussed the SG’s “magic microscope” theory. Katyal asserted that the PTO should evaluate DNA patent applications with an imaginary microscope. If the material to be patented could be seen in an unaltered state through the “magic microscope,” the patent should be denied, he argued. And because the breast cancer genes at issue in the Myriad case have not been manipulated in any way but are part of the human genome, the Justice Department asserted, they fail the magic microscope test and should not be patented.

  •