Back in October 2011, New York State Supreme Court Justice Shirley Kornreich issued a pair of strange decisions in parallel cases against Credit Suisse by the bond insurers MBIA and Ambac. The monolines, both represented by Patterson Belknap Webb & Tyler, had sued the bank in 2010, asserting claims for both fraud and breach of contract in connection with Credit Suisse mortgage-backed securities they agreed to insure. Kornreich had previously dismissed the fraud counts, holding that they merely duplicated the monolines’ contract claims. But that ruling put her at odds with at least six other state and federal judges, and when the New York Appellate Division, First Department, affirmed the consensus view in a different case, Kornreich had little choice but to reinstate the Ambac and MBIA fraud claims. As expected, she did so in those October 2011 decisions.
Amid the furor last week over whether AIG would thumb its nose at its federal rescuers and join former chairman Hank Greenberg’s $25 billion constitutional case against the United States, a curious side deal by AIG and Greenberg’s Starr International was mostly overlooked. Last year, as government lawyers prepared motions to dismiss Starr’s suits against both the United States and the Federal Reserve Bank of New York, AIG signed an agreement with Starr that kept the insurer out of the fray — even though one of the most powerful defenses against the claims Starr was asserting on behalf of AIG was that Greenberg’s lawyers had served the requisite presuit demand on the corporation’s board.
If ever there was a corporate board that should have been worried about breach-of-duty accusations, it was the directors of Countrywide in 2007 and 2008, after the collapsing real estate market exposed fatal flaws in the mortgage lender’s business model. Shareholder lawyers, always quick to sense opportunity in corporate scandal, began to file derivative suits accusing Countrywide directors of countenancing fraud in the fall of 2007. By May 2008, the cases had been consolidated in federal court in Los Angeles, and lead counsel at Bernstein Litowitz Berger & Grossmann and Grant & Eisenhofer had successfully countered most of the defendants’ dismissal arguments. At that point, it appeared that the Countrywide case could turn out to be a true rarity: a derivative suit that actually generated money damages.
The first time I wrote about private antitrust claims against banks for rigging the London Interbank Offered Rate (or Libor), it was August 2011 and the judicial panel on multidistrict litigation had just consolidated 18 class actions alleging a conspiracy to manipulate the benchmark rates, which are used to set variable interest rates on all sorts of securities around the world. I titled the piece, “The megabillions litigation you’ve never heard of.”
In litigation, as in life, there’s usually no better strategy for catching the attention of rulemakers than to tattle on subordinates for ignoring their directives. That was clearly the thinking of lawyers for a group of magazine publishers who wanted the U.S. Supreme Court to review a 2012 ruling by the 2nd Circuit Court of Appeals that revived an antitrust conspiracy case against them. The publishers’ petition for certiorari claimed that the 2nd Circuit opinion undermined the high court’s holdings in Bell Atlantic v. Twombly and Ashcroft v. Iqbal – the incredibly consequential recent Supreme Court decisions that made it easier for defendants to win the dismissal of plaintiffs’ complaints. The publishers called on the justices to use the opportunity of the 2nd Circuit decision, captioned Anderson News v. American Media, to reiterate their intentions in Twombly and Iqbal (known slangily as Twiqbal).
On Wednesday, as Dealbook reported in a terrific story Monday night, AIG’s 12 board members will hear an extraordinary presentation. Starr International Company, which is controlled by former AIG chief Hank Greenberg, will ask the company to join a $25 billion case in federal claims court that accuses the United States of wrongfully seizing control of AIG from shareholders when the government took control of the teetering insurer in September 2008. Then, according to a court filing in which AIG described the process, the government and the Federal Reserve Bank of New York will counter Starr’s arguments and urge the board to forego litigating against its federal saviors (who have since been paid back in full). By the end of the month, the board will decide whether to take on Starr’s derivative claims against the government, risking accusations of ingratitude, or to vote against pursuing the litigation, risking possible shareholder derivative claims that it has breached its own fiduciary duties.
One of the signal achievements of pro-business litigation reformers will come under the scrutiny of the U.S. Supreme Court on Monday, when the justices hear the case of Standard Fire v. Knowles.
Since 2010, when the U.S. Supreme Court unleashed corporate political spending in Citizens United v. Federal Election Commission, shareholder advocates have been warning of the dire consequences of secret campaign contributions and demanding that corporations reveal their political spending. The Coalition for Accountability in Political Spending, among other groups, called upon the Securities and Exchange Commission to mandate the disclosure of corporate campaign spending, but the SEC has so far sidestepped the issue. Activists working with groups such as the Center for Political Accountability have used the threat (and occasionally the fact) of proxy votes on disclosure to pressure more than 100 large public companies to pledge to report their campaign spending. But, as The New York Times reported this summer, it’s all too easy for corporations to evade their own promises by masking political contributions as lobbying expenses. With limited means of compelling public companies to agree to reveal political contributions — and no means of enforcing voluntary disclosure — shareholders are at the mercy of the companies they supposedly own.
Last June, while the country was transfixed by the U.S. Supreme Court’s ruling on the constitutionality of Obamacare, the justices quietly ducked an issue that has bedeviled Silicon Valley for more than a decade. The court issued a ruling that it had “improvidently” granted certiorari in a case called First American Financial v. Edwards, which presented the question of whether plaintiffs have standing to sue if they cannot demonstrate an injury. The Supreme Court’s decision to pass left in place a 9th Circuit Court of Appeals finding that plaintiffs can establish standing through a statutory claim even if they weren’t harmed by the defendant’s conduct.