Opinion

Alison Frankel

With FCPA under scrutiny, will DOJ expand use of Travel Act?

Alison Frankel
Mar 12, 2012 21:40 UTC

If the Foreign Corrupt Practices Act is Peyton Manning, the Travel Act could turn out to be his little brother Eli.

Allow me to explain. As we all know, until the last several months, FCPA has been one of the Justice Department’s Hall of Fame success stories. Prosecutors have reaped billions in settlements with corporations accused of bribing foreign officials to obtain state-sponsored contracts. The list of FCPA defendants that signed plea deals — including Siemens and Halliburton — is long and sobering, which means the Justice Department met the dual goals of buffing up its prosecution record and satisfying the larger U.S. policy interest in deterring overseas corruption. But of late the department’s FCPA record has taken a hit (sort of like Peyton’s neck) with the dismissal of the Lindsey Manufacturing and Africa sting case.

Is this the moment for the Travel Act to catch up with its better-known brother, a la Eli Manning?

William Sullivan of Pillsbury Winthrop Shaw Pittman told me Monday that government prosecutors have shown a “renewed interest” in the Travel Act, a broad, catch-all law originally designed to combat racketeering. (In a terrific discussion of the Travel Act last month at Thomson Reuters News and Insight, Mike Emmick of Sheppard Mullin Richter & Hampton said the law “makes it a crime to engage in any interstate or foreign travel, or to use any mail or facility in foreign or interstate travel, with the intent to ‘carry on’ or ‘facilitate’ any ‘unlawful activity,’” including bribery.) As Sullivan explained in a new Pillsbury client alert, the Travel Act actually allows greater leeway than the FPCA, since it doesn’t target just bribes to foreign officials. Any bribe, or even attempted bribe, with a commercial purpose can trigger prosecution under the Travel Act, so long as the accused corporation is subject to an underlying state law prohibiting bribery for commercial purposes. (And as Sullivan notes, prosecutors can usually find some state law to fit their allegations.)

The Travel Act also permits the government to extend the statute of limitations through a hybrid federal conspiracy charge that claims the defendants intended to violate the FCPA and the Travel Act. “This makes it much easier for prosecutors to string together seemingly unlinked fact patterns, and also affords prosecutors additional advantages with respect to statutes of limitations, as the statute is tolled until the last act in furtherance of the conspiracy,” the Pillsbury client alert said.

Chevron tries, tries again to attach Ecuadoreans’ $18 bln award

Alison Frankel
Mar 12, 2012 14:51 UTC

It’s been all of three weeks since U.S. District Judge Lewis Kaplan of Manhattan federal court lifted a stay on Chevron’s fraud and racketeering suit, which was filed in 2010 against the Ecuadoreans who accuse the oil company of contaminating the Lago Agrio region of the rainforest as well as the Ecuadoreans’ lawyers and advisers. But the two sides in this corollary to the endless litigation that produced an $18.2 billion judgment against Chevron in the Ecuadorean courts have picked up as though they never left off. This week Chevron filed a motion for partial summary judgment and renewed its motion for an attachment order that would effectively block the Ecuadoreans from enforcing their award. Lawyers for the RICO defendants, predictably, have responded with accusations of dirty tricks against Chevron and its counsel at Gibson, Dunn & Crutcher.

Chevron’s summary judgment motion, which asks Kaplan to reject collateral estoppel defenses based on findings in the Ecuadorean courts, is mostly a reformulation of arguments that have become all too familiar to anyone who follows the litigation. So I’ll focus on the new attachment motion, which includes some information we haven’t seen before. In January, you may recall, Kaplan denied Chevron’s request for a highly unusual pretrial order that would essentially have frozen the assets of the RICO defendants in anticipation of a Chevron victory and damages award in the New York case. The judge said that Chevron hadn’t sufficiently specified its alleged damages, aside from citing the $18.2 billion Ecuadorean judgment. “In these circumstances, Chevron has not demonstrated a likelihood of recovering any specific amount of damages,” Kaplan wrote. But he invited Chevron to come back when it had firmer evidence of its potential damages.

Chevron said in this week’s motion that it now has the evidence Kaplan asked for. The company hired two academic economists, Harvard’s Steven Shavell and Stanford’s Steven Grenadier, to determine the current value of the $18.2 billion judgment. Based on “the prices already paid or promised in exchange for interests in the judgment,” the economists opined that at this moment, the $18.2 billion award is worth $200 million. Chevron said that under RICO’s treble damages, it can realistically claim $600 million in a potential award in the fraud and racketeering case.

Louis Vuitton and Penn offer unintended lesson in trademark law

Alison Frankel
Mar 9, 2012 16:24 UTC

Is there any trademark owner with less of a sense of humor than Louis Vuitton? I thought the French fashion house couldn’t outdo its 2010 trademark case against Hyundai for a momentary glimpse of a basketball with a Vuitton-like pattern in a Superbowl ad spoofing the rich. I was wrong. Last week Louis Vuitton trademark counsel Michael Pantalony sent a cease-and-desist letter to the dean of the University of Pennsylvania Law School, demanding that Penn take down posters advertising a March 20 fashion IP symposium because the posters “misappropriated and modified” Vuitton’s trademarked monogram design.

“This egregious action is not only a serious willful infringement and knowingly dilutes the LV trademarks, but also may mislead others into thinking that this type of unlawful activity is somehow ‘legal’ or constitutes ‘fair use’ because the Penn Intellectual Property Group is sponsoring a seminar on fashion law and ‘must be experts,’” the letter said. (You can see the whole missive at Charles Colman‘s Law of Fashion blog.)

Seriously? Consider the audience at whom this particular poster is directed: people interested in fashion trademark issues. These are not guileless consumers who might be misled into thinking that Louis Vuitton had modified its famous monogram design to include TMs instead of LVs. They’re folks who get the joke, who understand that the clever designer who created the poster was probably riffing on Louis Vuitton’s reputation as a notoriously relentless enforcer of its mark. The layers of irony in Vuitton’s reaction to the poster are remarkable.

How plaintiffs’ lawyers are winning the Delaware injunction game

Alison Frankel
Mar 7, 2012 22:39 UTC

Robert Rosenkranz was one hell of a CEO and chairman for Delphi Financial Group. As Vice Chancellor Sam Glasscock details in a 56-page ruling issued late Tuesday, when Rosenkranz took the insurance holding company public in 1990, he created two classes of shares, one for the public and one for him. His shares carried 10 times the voting power of the public shares, which meant, for all intents and purposes, that he controlled the company despite owning only a 13 percent equity stake. Rosenkranz did surrender some rights in Delphi’s charter, though. Upon the sale of the company, his Class B stock would convert to Class A, which, according to Glasscock, was intended to eliminate the possibility that Rosenkranz would receive a control premium for his shares if the company were acquired.

That assumption, however, underestimated the creativity of Robert Rosenkranz. When a company called Tokio Marine Holdings came along with an offer to acquire Delphi, Rosenkranz told Delphi’s board that he wouldn’t agree to any deal that treated him like an ordinary shareholder. As Glasscock put it: “Notwithstanding the charter provision, he would not consent to the sale without a premium paid for his Class B stock.” Rosenkranz argued that the charter precluding such an arrangement could simply be amended to permit it. (Rosenkranz inspired Deal Prof Steven Davidoff to write a column on the hubris of CEOs — and the scrutiny they can now expect to receive in Delaware.) The Delphi board, advised by Cravath, Swaine & Moore, was in a bind. Tokio Marine was offering a huge premium on Delphi’s share price, as much as 75 percent. But its controlling shareholder — and the sole negotiator of the deal — said he would veto the acquisition if he didn’t get his way.

A special committee of independent board members ultimately held its nose and endorsed a $9 per share differential between public shares and Rosenkranz shares in Tokio Marine’s overall $2.7 billion offer. Shareholders, predictably, sued to block the deal, arguing (among other things) that Rosenkranz and the rest of the board breached their fiduciary duty to the Class A shareholders by permitting Rosenkranz to negotiate a control premium for himself. The Delphi shareholders, who had counsel from about half of the M&A class action bar — Grant & Eisenhofer; Bernstein Litowitz Berger & Grossmann; Prickett, Jones & Elliot; Robbins Geller Rudman & Dowd; and Kessler Topaz Meltzer & Check — asked the court to enjoin a shareholder vote on the deal.

SCOTUS: Should U.S. courts police international human rights?

Alison Frankel
Mar 7, 2012 15:53 UTC

In a stunning order Monday, the U.S. Supreme Court essentially said it had been looking at the wrong issue in an Alien Tort Statute case called Kiobel v. Royal Dutch Petroleum. It called for new briefs that reframe Kiobel as an examination of the extraterritorial application of the ATS. Given the justices’ reluctance to extend U.S. jurisdiction beyond our borders, expressed so fatefully in their 2010 ruling in Morrison v. National Austrialia Bank, the recasting of Kiobel has the potential to devastate U.S. human rights litigation based on overseas conduct.

The comparatively narrow question Kiobel originally presented to the Supreme Court was whether corporations can be held liable under the ATS, a once-obscure 1789 law that human rights advocates revived in the 1980s to address international atrocities against non-U.S. citizens. The 2nd Circuit Court of Appeals had ruled in Kiobel that corporations are immune under the ATS; three other federal appeals courts had held otherwise. The Kiobel merits briefing by Shell and the Nigerian claimants (available here) mostly addressed the corporate liability question.

But barely had Kiobel oral arguments begun last Tuesday when Justice Anthony Kennedy interrupted plaintiffs lawyer Paul Hoffman of Schonbrun DeSimone Seplow Harris Hoffman & Harrison to point out that the United States appears to be the only country in the world to “exercise universal civil jurisdiction over alleged extraterritorial human rights abuses to which the nation has no connection.” (Kennedy was reading from an amicus brief Chevron filed in support of Shell.) Other justices picked up and amplified Kennedy’s point. Justice Samuel Alito put the question most bluntly, asking Hoffman, “What business does a case like this” — a suit by foreign nationals against a foreign-based corporation for its alleged complicity in state-sponsored torture and murder in Nigeria — “have in the courts of the United States?”

Credit Suisse gets no Janus protection in National Century SJ ruling

Alison Frankel
Mar 6, 2012 16:27 UTC

The Countrywide mortgage-backed securities investors who have accused Kathy Patrick and her firm, Gibbs & Bruns, of being patsies in Bank of America’s proposed $8.5 billion MBS put-back settlement might want to talk to Credit Suisse about whether Patrick is inclined to collude with bank defendants.

Late Friday, as Jon Stempel reported for Reuters, U.S. District Judge James Graham of Columbus federal court denied Credit Suisse’s motion for summary judgment on federal and common-law securities fraud claims by investors who bought National Century Financial bonds about a decade ago. National Century was supposed to be securitizing healthcare receivables, but those receivables turned out to be largely illusory. The company collapsed and its three leading officials are now serving long prison terms. Patrick represents a group of large National Century noteholders, including PIMCO, who allege that Credit Suisse facilitated the fraud by serving as a manager in some $2 billion in private placements of National Century bonds. Kasowitz Benson Torres & Friedman represents several other National Century noteholders and has worked alongside Gibbs & Bruns in the multidistrict litigation consolidated before Graham.

There’s a lot to digest in the judge’s 115-page summary judgment ruling, including more than you ever wanted to know about the applicability of various state blue-sky securities laws to Credit Suisse’s alleged abetting of fraud at National Century. But the most significant portion of the opinion is Graham’s discussion of why Credit Suisse is potentially responsible for alleged misstatements in National Century’s private placement memos, despite warnings in the memos that the bank didn’t independently verify the information contained within.

Chubb v. Travelers grudge match costs asbestos victims $500 mln

Alison Frankel
Mar 5, 2012 17:06 UTC

If it weren’t for the $500 million that won’t go to asbestos victims as a result of the enmity between Chubb Insurance and Travelers Insurance, this story would be a funny O. Henry-esque lesson in the ironies of litigation. But there’s nothing funny about plaintiffs losing out on $500 million they’ve been counting on since 2004, especially because they had absolutely nothing to do with the loss. What we have here is a cautionary tale of the unintended consequences that abound in long-running, complex litigation.

On Thursday, as Jon Stempel reported for Reuters, U.S. District Judge John Koeltl of Manhattan federal court ruled that a 2004 settlement between Travelers and asbestos victims who long ago brought suits against the insurer was unenforceable. In a 32-page opinion that makes a valiant effort to streamline one of the most complicated records you’ll ever see, Koeltl concluded that the preconditions of the settlement were not satisfied because Travelers hadn’t been released from all the claims the deal was supposed to resolve.

To understand why, we have to back up to 2004. That’s when Travelers decided it was cheaper, in the long run, to buy peace with people asserting asbestos claims deriving from Travelers’ coverage of Johns Manville than to continue insisting the insurance company was absolved from liability through an $80 million contribution to the Manville Trust in 1986. Travelers agreed to put up a total of $445 million to settle with three groups of plaintiffs. As a condition of the settlement, Travelers insisted on a final court order releasing it from any asbestos-related claims.

Tortured opinion is Strine’s surrender in El Paso case

Alison Frankel
Mar 1, 2012 21:47 UTC

Chancellor Leo Strine of Delaware Chancery Court is thoroughly sick of what he perceives as Goldman Sachs’ disregard for the M&A rules everyone else plays by. His 34-page decision Wednesday in a shareholder challenge to Kinder Morgan’s $21.1 billion acquisition of El Paso Corp is filled with scorn for Goldman’s eagerness to remain an adviser to longtime client El Paso even though Goldman held a $4 billion stake and two board seats at Kinder Morgan. Writing four months after he took Goldman to task for manipulating valuations in the Southern Peru Copper case, Strine used words like “tainted,” “furtive,” and “troubling” to describe the investment bank’s continuing influence on El Paso CEO Douglas Foshee, even after it was supposed to be walled off from the Kinder deal.

“This behavior,” Strine wrote, “makes it difficult to conclude that the [El Paso] board’s less-than-aggressive negotiating strategy and its failure to test Kinder Morgan’s bid actively in the market through even a quiet, soft market check were not compromised by the conflicting financial incentives of these key players.”

That’s tough talk, and Strine supplied some juicy details about Goldman’s conduct to back it. For one thing, the chancellor wrote, Goldman’s lead El Paso banker, Steve Daniel, didn’t inform El Paso that he personally had a $340,000 investment in Kinder Morgan. According to Strine, Goldman and El Paso also structured the fee arrangement for Morgan Stanley — the financial adviser the board engaged for the Kinder Morgan negotiations in order to wall off Goldman — so that Morgan Stanley was only paid if El Paso agreed to the acquisition. And Goldman chairman Lloyd Blankfein, Strine wrote, made a really peculiar call to El Paso CEO Foshee to assure Goldman’s continued role as an El Paso adviser. Strine quoted from the “obsequious” draft script Steve Daniel prepared for Blankfein: “Hello Doug — it’s been a long time since we have had the chance to visit/[I] wanted to reach out and say thank you for everything from [Goldman] …./You have been very good to [Goldman] in having us help on all kinds of transactions over the years …./And of course I was very pleased you reached out to us on this most recent matter [the Kinder Morgan proposal].”

Plaintiffs’ lawyers spend millions in online ads. Should we care?

Alison Frankel
Mar 1, 2012 17:04 UTC

As I read the Institute for Legal Reform’s just-released report on “digital marketing efforts of plaintiffs’ attorneys and litigation firms,” I was left with a disquieting image. I pictured a devastated husband and wife returning home from a doctor’s office with the awful news that one of them has mesothelioma, the fatal asbestos-linked cancer. They sit down at the computer, type “mesothelioma” into Google’s search engine, and instead of finding dispassionate medical advice or a support group for fellow sufferers, they end up with a list of sites that are, directly or indirectly, contingency-fee firms looking to file a personal injury suit on their behalf.

That’s precisely the picture the ILR, an arm of the U.S. Chamber of Commerce, wants to evoke. The report asserts that plaintiffs’ lawyers are spending upward of $53 million a year to secure keywords that will lead unsuspecting Google searchers to their websites. The report, prepared by New Media Strategies, examined cost-per-click search data from Google AdWords on 125 keywords the ILR “identified as of interest to trial lawyers.” (The keywords included mesothelioma, asbestos, several drug brand names, and phrases like “corrupt practices” and “whistleblower laws.”) Based on a 45-day study of how much plaintiffs’ firms appeared to be paying to secure prominent places in search results, ILR’s study extrapolated estimates of annual spending.

Its findings? Plaintiffs’ lawyers are paying almost three times more for keyword advertising than the Obama campaign spent in 2008, and more than twice as much as Apple spends on keyword ads for iPhones and iPads. And that $52.6 million is only what the trial bar supposedly spends on Google keyword advertising, so it doesn’t even include increasingly sophisticated client-magnet techniques plaintiffs’ lawyers are said to be using on Twitter and Facebook. The ILR study identified seven tort firms that it said spent more than $1 million a year on Google keyword ads, led by Danziger & De Llano ($16.6 million), Sokolove Law ($6.3 million), and the Lanier Law Firm ($5 million).

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