Have you heard about the latest innovation of creative plaintiffs’ lawyers? As my Reuters colleague Nate Raymond reported Friday in a comprehensive piece on the trend that’s spawned a recent round of law firm client alerts, the New York shop Faruqi & Faruqi has filed almost two dozen suits asserting that corporate boards breached their fiduciary duties in connection with shareholder advisory votes on executive compensation. But unlike last year’s mostly unsuccessful suits against the boards of companies whose shareholders voted down pay packages, the Faruqi suits have been filed in advance of say-on-pay votes at annual shareholder meetings, with claims based on allegedly inadequate disclosures in proxy materials. As leverage, the suits seek to enjoin shareholder meetings. So far, according to Raymond, these say-on-pay injunction suits have produced a few beefed-up disclosures but no cash for shareholders. They’ve also netted the Faruqi firm legal fees, including $625,000 in one settlement.
Distressed debt investors need strong stomachs. Consider the events of Wednesday afternoon, in cases in opposite corners of the country that featured big-money claims by Elliott Capital and Aurelius Capital. In New York, the 2nd Circuit Court of Appeals stepped in to save Argentina from economic catastrophe, staying a ruling by U.S. District Judge Thomas Griesa that would have required the country to cough up $1.3 billion for the hedge funds if it wanted to make good on payments to bondholders who participated in Argentina’s debt restructuring. That was a huge blow to Elliott and Aurelius, which had hoped the injunction would finally break Argentine defiance of U.S. judgments. But perhaps the pain was dulled by a ruling from the 5th Circuit in New Orleans, which affirmed U.S. Bankruptcy Judge Harlin Hale’s decision that the Mexican glassmaker Vitro can’t use the Mexican bankruptcy process to block Elliott and Aurelius from pursuing more than $1 billion in claims against Vitro subsidiaries.
On its face, the brief filed late Tuesday night by the California Public Employees’ Retirement System in the municipal bankruptcy of San Bernardino isn’t especially provocative. As Reuters was the first to report, Calpers wants U.S. Bankruptcy Judge Meredith Jury of Riverside to lift the automatic stay on litigation against San Bernardino, which filed for Chapter 9 protection in August, facing a gaping $46 million deficit. San Bernardino stopped making monthly payments to Calpers after it entered Chapter 9, and its debt to the pension fund now tops $5 million. Calpers’ lawyers at K&L Gates argued in Tuesday’s brief that under California’s pension and labor laws, as well as the federal bankruptcy code, San Bernardino must make good on its obligations and pay the money it owes the pension fund. Those pension contributions, Calpers argued, are part of employee compensation, which is entitled to priority in federal bankruptcy. If San Bernardino won’t pay, the brief said, the pension fund must be permitted to bring an enforcement action.
Woe unto state jurists who think they know better than the U.S. Supreme Court. And woe unto everyone possessed of the notion that state courts have the power to undo arbitration clauses on public policy grounds.
The integrity of the federal judicial system rests on the bedrock principle that judges will put aside personal feelings and issue rulings based on the facts and the law. No matter how odious litigants (or their lawyers) may be, our system says they’re entitled to fair treatment. But judges are also human. If you push them hard enough, over a long enough period of time, they’re going to push back. And that is why Argentina now faces a dire choice: Either it puts $1.3 billion into an escrow fund to pay off renegade bondholders who refused to participate in the country’s two rounds of sovereign debt restructuring or it risks entering a technical default on $24 billion of restructured bonds. Argentina’s crisis is the product of almost 10 years of litigation, in which U.S. courts have labored to honor the rights of a foreign sovereign — and Argentina has offered no such reciprocal respect for the power of our courts.
In the two weeks since U.S. District Judge Barbara Crabb of Madison, Wisconsin, unceremoniously tossed Apple’s breach-of-contract against Motorola just as a trial to determine a fair licensing rate for Motorola’s standard-essential wireless tech patents was to begin, Apple’s lawyers at Covington & Burling andTensegrity Law Group have been struggling to persuade the judge to change her mind and dismiss the case without prejudice. I already told you about the bench memo Apple submitted on Nov. 5, after Crabb said at a hearing that if Apple wouldn’t agree to abide by the licensing rate she set, she would dismiss its declaratory judgment and specific performance claims. Apple argued, in essence, that since Crabb was dismissing on jurisdictional grounds, she hadn’t reached the merits of Apple’s case, so she couldn’t preclude Apple from refiling its claims. Apple repeated those arguments in a brief filed last week, responding to a Nov. 14 brief by Motorola’s lawyers at Quinn Emanuel Urquhart & Sullivan that urged Crabb to stick by her decision to toss the case with prejudice. “No litigant,” Motorola wrote, “should be permitted to try to engineer a judgment to its liking on the eve of the trial, then seek to walk away so that it can reengineer and refile its claims elsewhere, at some later date.”
Near the end of his 89-page opinion dismissing Starr International’s breach-of-duty case against the Federal Reserve Bank of New York, U.S. District Judge Paul Engelmayer of Manhattan engaged in a thought experiment. What’s more important, he asked: the Fed’s mission to stabilize the U.S. economy or the state-law fiduciary duties it might assume in the bailout of a private company?
On Thursday, the Securities and Exchange Commission released its annual report on the activities of the whistle-blower office it established in late 2011, at the direction of the Dodd-Frank Act. The office’s eight lawyers received 3,001 whistle-blower tips in the SEC’s fiscal year 2012, which ended on Sept. 30. A total of 547 tips involved alleged misconduct in corporate disclosure, 465 alleged offering fraud and 457 related to stock manipulation. At least one bore fruit: In August, the SEC made its first bounty payment to a whistle-blower whose tip led to a judgment of more than $1 million. The agency said the whistle-blower office is processing an undisclosed number of additional whistle-blower bounty applications.
As part of BP’s historic $4.5 billion deal Thursday to resolve criminal and civil charges related to the Deepwater Horizon oil spill in 2010, the British oil company agreed to pay a $525 million penalty to the Securities and Exchange Commission for defrauding its own investors. The settlement, which is the third-largest in SEC history, is based on the agency’s claims that BP violated U.S. securities laws when company executives filed false reports with the SEC and made false public statements about how much oil was flowing out of BP’s well and into the Gulf of Mexico. The SEC announced that the money would be used to compensate investors for their losses by way of a Fair Fund.
Huddled masses of the 99 percent, U.S. District Judge Sam Sparks of Austin, Texas, speaks for you. Here’s what Sparks had to say on Tuesday, at the end of a precedent-setting ruling that, under a provision of Sarbanes-Oxley known as Section 304, the Securities and Exchange Commission can force the CEOs and CFOs of companies that violated securities laws to surrender their bonuses and stock options: “Apologists for the extraordinarily high compensation given to corporate officers have long justified such pay by asserting CEOs take ‘great risks,’ and so deserve great rewards,” the judge wrote. “For years, this has been a vacuous saw, because corporate law, and private measures such as wide-spread indemnification of officers by their employers, and the provision of Directors & Officers insurance, have ensured any ‘risks’ taken by these fearless captains of industry almost never impact their personal finances. In enacting Section 304 of Sarbanes-Oxley, Congress determined to put a modest measure of real risk back into the equation.”