The next time Congress creates a conservator for failed government-backed entities such as credit unions and mortgage finance outfits, it would sure be nice if lawmakers were specific about just how long the bailout groups have to bring litigation to recover for their members’ losses. You already know about the statute of repose question looming over the Federal Housing Finance Authority’s cases against 18 banks that sold supposedly deficient mortgage-backed securities to Fannie Mae and Freddie Mac. With the 2nd Circuit Court of Appeals now weighing UBS’s Hail Mary argument that FHFA’s suits are time-barred under the statute of repose, which was not explicitly extended in the law creating the FHFA, most of the other banks in the litigation are waiting for an appellate ruling before they buckle down and settle the conservator’s billions of dollars of claims. (The exception, as my Reuters colleague Nate Raymond was the first to report, is GE, which had relatively small exposure to FHFA and settled last month.)
Last week a New Hampshire woman who suffered grievous side effects when she took a generic pain reliever manufactured by Mutual Pharmaceutical filed her merits brief at the U.S. Supreme Court, in a case that will determine whether the Food and Drug Administration’s regulation of generic drugs pre-empts state-law design defect claims against manufacturers. Karen Bartlett’s lawyers at Kellogg, Huber, Hansen, Todd, Evans & Figelargue that design defect claims, unlike failure-to-warn claims, do not depend on the FDA-approved labels generics are required to carry under the Hatch-Waxman Act. That fact, they contend, distinguishes Bartlett’s case (and the underlying 1st Circuit Court of Appeals ruling Mutual is challenging) from the reasoning the Supreme Court applied in its 2011 decision in Pliva v. Mensing, which held that generics are not liable for failing to warn of dangerous side effects because they are required to carry the same labels approved by the FDA for brand-name versions of their products.
Have you heard about the story by a reporter for the New York Daily News who says he inadvertently started a rumor that Senator Chuck Hagel, President Obama’s nominee to head the Defense Department, received speaking fees from a group called Friends of Hamas? The reporter, Dan Friedman, wrote in a piece Monday that earlier this month, he called a congressional staffer to check out reports that Hagel had received fees from controversial groups. He pressed for details on the groups, using what he considered farcical, made-up names like “Junior League of Hezbollah” and “Friends of Hamas.” The next thing Friedman knew, conservative websites published speculation that Hagel had accepted fees from Friends of Hamas, citing Capitol Hill sources. Eventually, after mainstream sites questioned the existence of the group, the story fizzled.
Every company considering an IPO owes a hearty thanks to U.S. District Judge Robert Sweet of Manhattan for his decision Wednesday to dismiss four shareholder derivative suits against Facebook board members. Sweet’s painstaking 70-page opinion includes holdings that are great for Facebook’s defense of a parallel securities class action over its disclosures to IPO investors, but the judge also reached precedent-setting conclusions on standing and ripeness that will help other derivative defendants ward off IPO-based claims in state court. Facebook’s lead lawyers, Andrew Clubok of Kirkland & Ellis and Richard Bernstein of Willkie Farr & Gallagher, certainly deserve credit for coming up with innovative arguments to establish valuable precedent in IPO cases.
Last month, when I wrote about the Obama administration’s apparent flip-flop on the question of federal pre-emption of product liability claims against generic drugmakers, I mentioned a curious footnote in the Justice Department’s Supreme Court amicus brief in Mutual Pharmaceutical v. Barrett. All the wrangling over liability for generics, which are required by law to use the same labels as the brand-name drugs they replicate, could be unnecessary, Justice hinted. “This office has been informed that Food and Drug Administration is considering a regulatory change that would allow generic manufacturers, like brand-name manufacturers, to change their labeling in appropriate circumstances,” the brief said. “If such a regulatory change is adopted, it could eliminate pre-emption of failure-to-warn claims against generic-drug manufacturers.”
A new complaint against Cadwalader, Wickersham & Taft and Sanford Heisler by a onetime engineer for Seagate Technology who became a whistle-blower against his former employer, is the latest evidence that whistle-blowers lead difficult lives. And according to the engineer, Paul Galloway, the lawyers who were supposed to be helping him instead made him unemployable.
If you’ve been keeping track of the Justice Department’s civil suits against banks accused of marketing deeply flawed mortgage-backed securities and collateralized debt obligations, you know there are two laws at the heart of the feds’ cases: the Financial Institutions Reform, Recovery and Enforcement Act and the False Claims Act. (Shout-outs to my Reuters colleagues Aruna Viswanatha and Nate Raymond, who noted Justice’s creative application of these two laws long before most reporters knew FIRREA from an unfortunate stomach complaint.) The FCA, which offers the prospect of triple damages, has provided the federal government with a particularly big stick to use against banks. As of last November, federal prosecutors had already cited the FCA in more than half a dozen civil fraud suits against such mortgage lenders as BofA, Citigroup, Deutsche Bank and Flagstar, obtaining more than $1.6 billion in settlements, mostly based on alleged defrauding of a federal home insurance program.
In July 2007, a recently hired analyst in Standard & Poor’s structured finance group exchanged a series of emails with an investment banking client who wanted to know how the new job was going. Things were just great, the analyst said sardonically, “aside from the fact that the MBS world is crashing, investors and media hate us and we’re all running around to save face … no complaints.” Part of the problem, the analyst said in a subsequent email, was that some people at S&P had been pushing to downgrade structured finance deals, “but the leadership was concerned of p*ssing off too many clients and jumping the gun ahead of Fitch and Moody’s.
Bank of America’s proposed $8.5 billion settlement with investors in Countrywide mortgage-backed securities gets all the attention, most recently in a column Sunday by Gretchen Morgenson of The New York Times, who cited new claims that echo old allegations of banks shortchanging MBS noteholders through modification of underlying investor-owned loans. Meanwhile, though, a similar global MBS deal between institutional investors and Residential Capital, the now bankrupt former mortgage lending arm of Ally Financial, has garnered much less outside attention, even though it permits MBS holders to assert an $8.7 billion claim in the bankruptcy, without opposition from ResCap. Friday was the deadline for objections in ResCap’s Chapter 11 to MBS investors’ $8.7 billion allowed claim. And the details that emerged in filings by ResCap bondholders, unsecured creditors and bond insurers that oppose the $8.7 billion deal add up to as compelling a story as the BofA saga, when it comes to assigning blame for and assessing victims of the mortgage crisis.