Alison Frankel

Big Tobacco, graphic packaging, and the First Amendment

Alison Frankel
Nov 8, 2011 15:35 UTC

Even tobacco companies are entitled to the free speech protections of the First Amendment.

As U.S. District Judge Richard Leon of Washington, D.C. federal court explained in a fascinating ruling Monday, the Constitution grants not just the right to speak, but also the right not to. “Compelled speech” violates the First Amendment, except in a narrow commercial context; the U.S. government can require businesses to make “purely factual and uncontroversial” disclosures to protect consumers.

Judge Leon found that nine graphic images the Food and Drug Administration and the Department of Health and Human Services planned to require tobacco companies to carry on every pack of cigarettes amounted to compelled speech. He granted the tobacco companies an injunction against the requirement, finding that “unfortunately for the government, the evidence here overwhelmingly suggests that the rule’s graphic-image requirements are not the type of purely factual and uncontroversial disclosures that are [permissible].” “Indeed, the fact alone that some of the graphic images here appear to be cartoons, and others appear to be digitally enhanced or manipulated, would seem to contravene the very definition of ‘purely factual.’”

The judge said that the Justice Department simply could not show that the government’s intention in requiring the images — which are supposed to cover half of the front and back of each pack — is only to inform consumers. Instead, he found, the goals of the requirement are “to say the least, unclear.” The images appeared to have been chosen to evoke an emotional response and persuade consumers either to stop smoking or never begin, Judge Leon said. And in that, they breached the tobacco companies’ right not to be forced to advocate against the use of their own lawful product.

“He was very troubled by the question, which he asked the government several times: ‘How can I tell the difference between factual and uncontroversial material and material that constitutes advocacy?’” said Lorillard counsel Floyd Abrams of Cahill Gordon & Reindel, who shared oral argument with RJ Reynolds counsel Noel Francisco of Jones Day. “We argued that any images of the sort suggested by Congress are unconstitutional.”

Lawyers for MF debt, equity holders are sharpening their knives

Alison Frankel
Nov 4, 2011 21:53 UTC

On Thursday, a firm called Brower Piven filed a Manhattan federal court securities-fraud class action against Jon Corzine and three other officials of the bankrupt brokerage MF Global. The complaint, as Jon Stempel reported for Reuters, claims that beginning in May, the MF execs deliberately misled shareholders about the brokerage’s leverage and risk-management controls. It’s really a placeholder: the plaintiff is one individual investor, and the suit asserts a single count of securities fraud based only on public MF Global regulatory filings, press releases, “and other information readily obtainable on the Internet.”

But meanwhile, behind the scenes, the big players in securities litigation are busily analyzing potential claims for MF shareholders and, perhaps more importantly, MF bondholders. They’re drafting memos and talking to the clients who usually lead major securities class actions — institutional investors such as public and union pension or health-care funds. There hasn’t been a lot of juicy securities fraud litigation of late, one plaintiffs’ lawyer told me, so firms are trying to figure out how to position themselves to lead this case. “It’s going to be a bloodbath,” another lawyer said. “Everyone is looking at this.” (Almost everyone I talked to declined to be named because they haven’t firmed up their plans for the MF litigation.)

So let’s take a look at how the shareholder and bondholder cases may shape up, and what pitfalls MF investors may face.

Facebook challenger’s new lawyer: I’m not afraid of Gibson Dunn

Alison Frankel
Nov 3, 2011 21:22 UTC

On Thursday, the Buffalo federal court judge overseeing Paul Ceglia’s claim to own half of Facebook — by virtue of a 2003 contract he claims CEO Mark Zuckerberg signed as a Harvard undergraduate — is expected to enter an order directing Ceglia to return from Ireland to produce crucial undisclosed computer evidence, and to answer Facebook’s withering questions about the authenticity of the contract and his own failures to comply with previous court directives.

For Facebook’s lawyers at Gibson, Dunn & Crutcher, this order, which follows a three-hour hearing Wednesday, is the latest success in a string of rulings that express the judge’s concern with the evidence offered by Ceglia, an upstate New York wood-pellet salesman who decamped to Ireland in the face of Facebook’s relentless attacks. Facebook’s lead lawyer, Orin Snyder of Gibson, said that when Ceglia finally produces the evidence ordered Thursday, his purported two-page contract with Zuckerberg will be indisputably exposed as a fraud.

But Ceglia’s latest lawyer — who joined the case about two weeks ago, after four other firms resigned over the last year — told me in a long interview Wednesday evening that he and Ceglia have turned the tables on Facebook and Gibson Dunn. In the face of sanctions motions by Facebook, California solo Dean Boland filed retorts accusing Facebook and Gibson Dunn of tampering with the original contract between Ceglia and Zuckerberg, who did some coding work for Ceglia before founding Facebook, and with Zuckerberg’s Harvard email account. Facebook and Gibson have argued, very persuasively, that the Harvard email records prove Ceglia fabricated a series of emails between him and Zuckerberg to bolster his false account of their contract.

Are big banks now in the clear for allegedly aiding Madoff?

Alison Frankel
Nov 2, 2011 20:19 UTC

Irving Picard has given the bankruptcy laws one hell of a workout. As trustee in the Chapter 7 bankruptcy of Bernard Madoff’s securities firm, Picard, a partner at Baker & Hostetler, has been more aggressive and creative than any bankruptcy trustee in history in his search for defendants to blame for Madoff’s epic Ponzi scheme. His most ambitious gambit, as everyone knows, was a series of megabillion-dollar suits against the international financial institutions that Picard’s team of lawyers at Baker & Hostetler accused of willfully ignoring warnings of Madoff’s fraud.

The trustee’s suits were provocative headline-grabbers — and on Tuesday, a second Manhattan federal judge concluded that they’re fatally flawed. U.S. District Court Judge Colleen McMahon dismissed Picard’s common law tort claims against JPMorgan Chase and UBS (and related defendants), finding that Picard does not have standing. Her ruling expands and reinforces a previous decision on the same issue by her Manhattan federal court colleague Judge Jed Rakoff, who in July dismissed Picard’s common law claims against HSBC and UniCredit. Tuesday’s decision wipes out about $20 billion in alleged damages, leaving Picard with about $450 million in traditional bankruptcy court clawback claims against JPMorgan and about $80 million against UBS. It’s a huge win for JPMorgan’s lawyers at Wachtell, Lipton, Rosen & Katz — who were actually the first lawyers to ask a federal district court judge to hear one of Picard’s cases — and for UBS’s lawyers at Gibson, Dunn & Crutcher.

But now the question is whether Picard’s allegations that these global banks helped Madoff perpetuate his scheme are dead. The answer is not quite. The trustee’s spokesperson has already announced that Picard’s team from Baker & Hostetler intends to appeal McMahon’s ruling to the 2nd U.S. Circuit Court of Appeals; the trustee has already filed a notice of appeal of Rakoff’s decision. Moreover, as both McMahon and Rakoff discussed in their opinions, Madoff’s customers have the standing Picard lacks. Some enterprising plaintiffs lawyer could certainly capitalize on Picard’s spade work and file a class action against the banks on behalf of Madoff victims.

BNYM, Gibbs ask 2nd Cir. to remand BofA MBS case to state court

Alison Frankel
Nov 1, 2011 22:43 UTC

It’s been a busy couple of weeks for the lawyers who filed Bank of America’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities investors. On Oct. 19, as you doubtless recall, U.S. District Judge William Pauley III of Manhattan federal court ruled that the proposed settlement should be evaluated in federal court as a mass action under the Class Action Fairness Act, and not in New York State Supreme Court, where the case was filed back in June. Yesterday Bank of New York Mellon (the Countrywide MBS trustee) and the investor group that negotiated the $8.5 billion deal with BofA responded to Pauley’s ruling. In appellate briefs by Mayer Brown and Dechert (for BNY Mellon) and by Gibbs & Bruns (for the institutional investor group), the settlement’s supporters asked the U.S. Court of Appeals for the Second Circuit to step in and right Pauley’s wrongs.

On the same day, BNY Mellon filed a “joint” case management report with Pauley, in response to the judge’s instruction in the Oct. 19 ruling. The joint report is actually two divergent proposals for how the case should proceed in federal court. A group of Countrywide MBS investors who don’t like the proposed deal, led by the Walnut Place coalition and AIG, are asking Pauley to fashion an ad hoc vehicle to evaluate the settlement and permit investors who don’t like it to opt out. BNY Mellon and the Gibbs & Bruns group, as I predicted, want Pauley simply to answer the limited question they posed to New York State Supreme Court Justice Barbara Kapnick when BNY Mellon filed the case as an Article 77 proceeding under state trust law: Did BNY Mellon act unreasonably or unethically when it agreed to the settlement on behalf of MBS trust investors? The objectors, not surprisingly, want Pauley to permit them to start discovery while the appeal of his ruling is pending. BNY Mellon and the Gibbs group want Pauley to stay discovery until the Second Circuit determines whether he should keep the case.

BNY Mellon and Gibbs & Bruns also filed yet another set of briefs Monday night, these in response to an old case-management order the state court judge entered before Walnut Place’s lawyers at Grais & Ellsworth removed the settlement to federal court. The briefs, styled as consolidated answers to settlement objectors, are a bit of theater, given that Kapnick no longer controls the case. But they’re a forum for BNY Mellon and the big investors who negotiated the deal to fire back at critics who’ve complained that (among other things) the trustee is conflicted because of a side letter in which BofA indemnified BNY Mellon for costs associated with the settlement; and that Gibbs & Bruns and its clients co-opted settlement talks. Here’s BNY Mellon’s brief, and here’s the investor group’s.