Alison Frankel

Should people who illegally download music be subject to more severe punishment for their sins than, say, tobacco companies that lied about the dangers of their products? Or how about companies that colluded to fix prices or engaged in civil racketeering? Or patent thieves who deliberately infringed competitors’ intellectual property?

All of those corporate miscreants can be hit with enhanced damages for their wrongdoing, but for all of them those enhancements are limited. Congress has said that when defendants are found to have violated federal antitrust, racketeering or patent laws, they can be on the hook only for as much as three times the actual damage they caused. Punitive damages, which come into play in product liability, fraud and other state-law cases, have been restricted by the U.S. Supreme Court, which held in 2003′s State Farm v. Campbell that the Due Process Clause means punitives cannot vastly exceed actual damages.

So surely when a single mom in Minnesota is found liable for illegally downloading 24 songs via a file-sharing site, due process should limit her punishment, right? If corporate defendants only have to cough up treble damages when they’re found to have engaged in a pattern of racketeering acts, doesn’t it only makes sense that someone without a commercial motive shouldn’t face a penalty out of all proportion to the harm she caused?

Not according to the 8th Circuit. On Tuesday, a three-judge panel reinstated a jury verdict of $222,000 – a penalty of $9,250 per illegal download — against Jammie Thomas-Rasset, the aforementioned Minnesota mom.

Despite arguments by Thomas-Rasset’s lawyers at Camara & Sibley and by the Electronic Frontier Foundationand other amici that the penalty violates her due process rights, the 8th Circuit said that the music companies that sued Thomas-Rasset are entitled to statutory damages against her. In the Copyright Act, wrote Judge Steven Colloton for a panel that also included judges Diana Murphy and Michael Melloy, Congress determined that copyright violators face liability of $750 to $30,000 for each act of infringement, and up to $150,000 if the violation is willful. The opinion explained that when the U.S. Supreme Court set the rules for deciding whether statutory damages accord with the Due Process Clause way back in 1919′s St. Louis, Iron Mountain & Southern Railway Company v. Williams, the court said that Congress has wide latitude to set statutory damages as long as they’re not “so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.” Thomas-Rasset’s penalty of $9,250, the 8th Circuit said, is near the low end of the range for willful infringers like her. So, given the public interest in deterring illegal downloading, the appeals court found, that penalty complies with the Williams standard.

In July, not long after the Economist dubbed Baupost’s revered founder Seth Klarman “The Oracle of Boston,” the hedge fund abruptly dropped out of the litigation challenging Bank of America’s proposed $8.5 billion settlement with investors in Countrywide mortgage-backed securities. Baupost also sold off at least some of its Countrywide notes, signaling that after battling fruitlessly to get Countrywide and BofA to buy back allegedly deficient underlying loans, the hedge fund had decided to cut its MBS losses and run.

But it turns out that Baupost isn’t out of the MBS put-back game. On Sept. 4, the Law Debenture Trust Company of New York, as trustee for a Bear Stearns MBS trust, filed an amended complaint in Delaware Chancery Court demanding that the onetime Bear mortgage lending unit EMC (now part of JPMorgan Chase) buy back 1,141 underlying mortgage loans that allegedly breached the representations and warranties EMC made about them. The 66-page amended complaint is a must-read for MBS fans, since it’s based on a review of the actual loan origination documents for more than 1,500 mortgages in the underlying pool. The trustee obtained the files through litigation that launched in February 2011, then had them re-underwritten by The Barrett Group, which found that more than 80 percent of the mortgages it reviewed breached EMC’s reps and warranties. The complaint details not only aggregated stats on the breaches but also specific examples of how EMC supposedly failed to meet underwriting standards and let utterly unqualified borrowers take out mortgages.

The amended complaint does not name Baupost, but an Aug. 15 status report on the year-old litigation does. “A representative of the directing certificateholders attended the meet-and-confer sessions on August 6 and 7,” the report said. “The directing certificateholders are the Ashford Square Entities, which are wholly-owned subsidiaries of funds managed by The Baupost Group.”

Late Friday, Kinder Morgan announced a $110 million settlement with El Paso Corp shareholders who asserted that Kinder’s $21.1 billion acquisition of El Paso was tainted by Goldman Sachs’s involvement on both sides of the deal. You remember the case: As Chancellor Leo Strine of Delaware Chancery Court detailed in a scathing opinion in March, Goldman served as a financial adviser to El Paso even though it simultaneously held a $4 billion investment (a 19 percent ownership stake) at Kinder Morgan. Strine refused to enjoin a shareholder vote on the merger but encouraged plaintiffs’ lawyers to press on with claims for money damages, finding “a reasonable likelihood of success in proving that the merger was tainted by disloyalty.”

The settlement certainly reflects Strine’s skeptical view of the sale process. The $110 million from El Paso is as good a recovery for shareholders as we’ve seen in an M&A breach-of-fiduciary-duty suit, topping last year’s settlement in another celebrated conflict-of-interest case — against Del Monte and Barclays — by more than $20 million. (The recently upheld $2 billion judgment in the Southern Peru Copper case is a bit different, since it involved alleged self-dealing by a controlling shareholder.)

But what about Goldman Sachs? Strine’s ruling in March sent mixed messages about Goldman’s potential liability. The chancellor heaped scorn upon Goldman for refusing to be bothered with such trifles as conflicts of interest, calling the bank’s behavior “furtive” and “troubling,” and citing an email from Morgan Stanley, a co-adviser to El Paso, that described Goldman as “shameless.” Strine also said, however, that shareholder lawyers at Bernstein Litowitz Berger & Grossmann, Grant & Eisenhofer and Labaton Sucharow would have a tough time making out an aiding-and-abetting case against Goldman. Nevertheless, the plaintiffs were clearly determined not to settle the case without some contribution by Goldman Sachs. In the final settlement, that contribution came in the form of Goldman Sachs waiving payments from El Paso: a $20 million advisory fee and indemnity for Goldman’s legal costs. In essence, that means Goldman is funding upwards of $20 million of the settlement, since you can bet that its lawyers at Sullivan & Cromwell charged in excess of $1 million on the case. (A Goldman Sachs spokesman declined to comment, and Goldman counsel John Hardiman of S&C did not return my call.)

Now they tell us? More than four years after investors in mortgage-backed securities began filing class actions accusing MBS issuers of deceiving them in offering documents — and at least three years after federal judges began tossing class claims because name plaintiffs didn’t have the requisite standing — the 2nd Circuit Court of Appeals has redefined standing in MBS class actions. In a 38-page opinion that revives a class action against Goldman Sachs, the appeals court rejected what had been conventional wisdom, finding that a union healthcare fund represented by Robbins Geller Rudman & Dowd isn’t limited to claims based on specific offerings it invested in. Instead, wrote Judge Barrington Parker for a panel that also included judges Reena Raggi and Raymond Lohier, the union fund has standing to assert claims related to every certificate backed by mortgages originated by the same lenders that originated the loans backing the notes purchased by the fund.

That’s a little confusing, so I’ll explain. Robbins Geller’s class action, like every MBS securities case, alleged that investors were misled about the quality of the mortgage loan pools underlying 17 Goldman-sponsored trusts. The Goldman trusts were backed by mortgages from a plethora of subprime lenders, including Wells Fargo, Washington Mutual, GreenPoint Mortgage and SunTrust Mortgage. All 17 were governed by one shelf registration statement, but Goldman also issued prospectus supplements for each trust. Even though the union fund invested in only two of the 17 offerings, Robbins Geller asserted claims on behalf of all 17, based on alleged misstatements in the shelf registration covering all the trusts. U.S. District Judge Miriam Cedarbaum of Manhattan, in an aggressive but not unprecedented interpretation of MBS class standing, ruled that the union fund could only assert class claims on behalf of investors who bought notes in the exact same intratrust tranches as Robbins Geller’s client.

The 2nd Circuit said not only that Cedarbaum erred in her analysis of standing but also that all of the federal judges who have restricted MBS class claims to offerings in which name plaintiffs invested have applied the wrong reasoning. According to the appeals court, the correct question to guide MBS standing determinations is whether other certificate holders have “the same set of concerns” as the name plaintiff. (Oddly, that language comes from the U.S. Supreme Court’s 2003 ruling on affirmative action, Gratz v. Bollinger.) In the MBS context, the court said, plaintiffs’ claims are based on alleged misrepresentations about the quality of the loans underwritten by particular mortgage originators. So according to the 2nd Circuit, MBS class action plaintiffs have standing to bring claims on behalf of all investors whose certificates were backed by loans from the same lenders that supplied the mortgages underlying the name plaintiff’s notes.

If you hate the current state of campaign finance, in which corporations and non-profits exert influence through trade associations, political action committees and so-called super PACs, you can’t lay all of the blame at the doorstep of the U.S. Supreme Court’s 2010 ruling in Citizens United v. Federal Election Commission, which held that corporations and labor unions have the same First Amendment rights to free speech as individuals.

Nor can you say that the root of the problem was the court’s 2007 ruling in Federal Election Commission v. Wisconsin Right to Life that corporations and labor unions are permitted to spend money on election ads as long as those ads do not contain “express advocacy” for or against a candidate.

Instead, you have to look back to 1976, when the Supreme Court decided in Buckley v. Valeo that the constitution permits limits on direct campaign contributions to candidates by corporations. Such restrictions, the Buckley court held, do not violate the First Amendment.