Alison Frankel

Libor litigation lives! Schwab refiles fraud claims in state court

Alison Frankel
Apr 30, 2013 20:49 UTC

A month ago – right after U.S. District Judge Naomi Reice Buchwald of Manhattan issued a stunning decision that dismissed antitrust and racketeering class action claims against the global banks involved in the process of setting the benchmark London Interbank Offered Rate – I told you that individual investors might be able to rise from the wreckage with common-law fraud and federal securities suits, so long as they could show that they were deceived by the banks’ misrepresentations about Libor’s legitimacy and held enough Libor-pegged securities to justify the expense of litigating claims on their own. On Monday, Charles Schwab filed a new complaint in San Francisco County Superior Court asserting that it meets both of those conditions: Schwab entities supposedly purchased billions of dollars of Libor-based financial instruments based on false assurances that the benchmark was set honestly.

Citing admissions from Libor settlements that U.S. and British regulators have reached with Barclays, UBS and Royal Bank of Scotland, as well as expert reports developed in the decimated federal multidistrict Libor litigation, Schwab’s lawyers at Lieff, Cabraser, Heimann & Bernstein claim that Libor banks conspired to suppress the benchmark borrowing rate. That artificial suppression, according to Schwab, permitted the banks to pay unduly low interest rates on floating-rate securities pegged to Libor and even on short-term fixed-rate notes with returns based on Libor rates. The parent company and various Schwab funds are asserting common-law fraud, breach of contract and unjust enrichment claims; violation of California’s trade practices statute; and federal securities claims.

Schwab (which also brought individual claims, now dismissed, in the antitrust MDL) takes care to address two potential bank defenses: reliance and timeliness. The bulk of the 125-page complaint is dedicated to demonstrating that Libor was manipulated, but Schwab spends several pages detailing the banks’ public assurances that it was not. The supposed conspiracy to depress Libor, according to the complaint, “was, by its very nature, self-concealing.” Reasonable investors could not know that the rate was being suppressed, Schwab said, when officials from Credit Suisse, JPMorgan Chase, Bank of America and Citigroup were assuring the public that Libor was legitimate.

The same “fraudulent and surreptitious nature of defendants’ misconduct,” according to the complaint, should toll the statute of limitations on Schwab’s claims. Until UBS disclosed in a regulatory filing in March 2011 that it was under government investigation for tampering with the benchmark, the company argued, investors weren’t on notice of the fraud. Schwab also contends that a conspiracy to conceal the misconduct continued long after the actual alleged manipulation, so the clock didn’t begin to run on its claims until the conspiracy was exposed.

The complaint specifies each Schwab fund’s Libor-pegged holdings but does not value the company’s supposed losses from Libor manipulation. You can be sure that among other defense arguments, the banks will claim that Schwab can’t actually tie losses to the behavior of any particular bank.

Will CDO investors’ deal boost litigation against rating agencies?

Alison Frankel
Apr 29, 2013 21:28 UTC

This is a rare sentiment, but thank goodness for Congress. Were it not for reports issued in 2011 by theFinancial Crisis Inquiry Commission (an expert panel created by federal statute) and the Senate Subcommittee on Investigations, we’d have precious little public-record testimony about the role that the credit rating agencies Standard & Poor’s, Moody’s and Fitch played in the near collapse of the economy. With Friday’s settlement between S&P, Moody’s and two groups of investors in collateralized debt obligations known as Cheyne and Rhinebridge, we’ve lost one of our last remaining chances to see the rating agencies answer to private investors.

I want to emphasize that the deal is a landmark. It is apparently the first time that S&P and Moody’s have settled accusations that investors were misled by their ratings. That’s unquestionably a great result for the CDO purchasers in the case and for their lawyers at Robbins Geller Rudman & Dowd, who have battled since 2008 to keep $700 million in fraud and negligence claims alive. Unlike investors in more than three dozen other cases claiming the credit rating agencies facilitated the issue of toxic mortgage-backed securities, Abu Dhabi Bank, the Kings County pension fund and their fellow CDO purchasers survived preliminary motions, beating back the agencies’ argument that their ratings were opinions protected by the First Amendment. Then, through discovery, Robbins Geller uncovered hot documents - even more than the rating agencies produced to Congress – that helped investors withstand defense requests for summary judgment.

Lead counsel Luke Brooks and Daniel Drosman of Robbins Geller declined to disclose the terms of the CDO settlement but told me Monday that their clients are very pleased with “what we view as an extraordinary result.” (An S&P representative declined to comment; a Moody’s spokesman told Reuters that the agency wanted to put the CDO litigation behind it.)

Microsoft win in rate-setting case vs Motorola is call to litigation

Alison Frankel
Apr 26, 2013 22:15 UTC

For the first time ever, a federal district judge has decided what constitutes a reasonable license rate for a portfolio of standard-essential patents. U.S. District Judge James Robart ruled late Thursday that Motorola is entitled to royalties of a half cent per unit for Microsoft’s use of standard-essential video compression patents and 3.5 cents per unit for Motorola’s wireless communication patents. According to Microsoft, those terms would require it to pay Motorola a grand total of about $1.8 million a year in royalties – a far cry indeed from the billions Motorola requested in a royalty demand to Microsoft in 2010. It’s still to be determined at a trial this summer whether Motorola breached its obligation to license its essential technology to Microsoft on reasonable terms. But make no mistake: Robart’s ruling on reasonable royalties is a dreadful outcome for Motorola and its parent, Google.

In fact, there’s a good argument that the framework Robart used to determine a fair royalty rate is bad news for all patent holders that depend on license fees for essential technology. Until the smart device wars, when Microsoft and Apple balked at Motorola’s licensing demands, product makers generally considered themselves to be at the mercy of companies that developed essential technology adopted by international standard-setting boards. Robart’s ruling, if it is eventually upheld by the 9th Circuit Court of Appeals, gives so-called implementers like Microsoft and Apple not only the methodology to whittle down patent holders’ licensing demands but also a recourse if negotiations stall. Implementers now know they can go to court and ask a judge to decide a fair royalty based on the relative value of essential patents to their final product. We’ve already seen courts and regulators blunt the threat of injunctions by holders of standard-essential patents. Robart’s decision shifts the balance of power even further away from patent holders.

To understand why, let’s run quickly through the findings in the 207-page opinion. The judge said early on that he agreed with Motorola’s lawyers at Ropes & Gray and The Summit Law Group that the best way to set a fair royalty rate would be to consider a hypothetical bilateral negotiation. He rejected Microsoft’s proposed “incremental value” approach, which would have based the value of essential patents on the cost of adopting alternative technology. But that was just about the only positive aspect of the ruling for Motorola.

NFL profits from violence, so is it liable to brain-injured retirees?

Alison Frankel
Apr 25, 2013 21:38 UTC

On Thursday night, professional football teams will hold their annual draft of college players. For the young men who are selected, the draft will be a dream realized, the culmination of years of hard work and hard knocks. But before they sign their million-dollar contracts, they might want to have a look at a photo taken earlier this month. It’s of Mary Ann Easterling, the widow of former Atlanta Falcons safety Ray Easterling, who shot himself last year after a long struggle with dementia. Easterling’s widow broke down earlier this month, at a press conference following a crucial hearing before the federal judge overseeing consolidated litigation against the National Football League by about 4,500 retired players who claim that the NFL deceived them about the risk of traumatic brain injury. According to the players, their NFL dream ended in the tragedy of depression, dementia, and, for 40 of them, death.

The NFL, as I’ve reported, takes the position that the players’ accusations of negligence and fraud are pre-empted by collective bargaining agreements between the players’ union and NFL teams. Health and safety are addressed in the agreements, the NFL contended last September in a motion to dismiss the players’ cases, so the retirees must arbitrate their claims rather than litigate them in court. The retirees responded last October, arguing in a brief opposing dismissal that their union agreements with NFL teams don’t address the league’s own duty to protect and deal honestly with players. According to the players, the NFL wants to have its cake and eat it too: The league profits from violence, packaging the most shattering on-the-field hits in films it sells to the public, yet it disavows responsibility for the toll of that violence.

It’s a mark of how seriously the NFL takes this litigation that for arguments earlier this month before U.S. District Judge Anita Brody of Philadelphia, the league brought in Paul Clement of Bancroft, the former Bush Administration solicitor general whose typical bailiwick is the U.S. Supreme Court. (The NFL is also represented by Paul, Weiss, Rifkind, Wharton & Garrison and Dechert.) The retired players had Supreme Court counsel of their own: David Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel was brought in to argue by steering committee lead counsel from Seeger Weiss and Anapol Schwartz.

News Corp deal: a new way to police corporate political spending?

Alison Frankel
Apr 22, 2013 21:43 UTC

On Monday, the directors and officers of Rupert Murdoch’s News Corp agreed to settle a derivative suit accusing them of breaching their duty to shareholders by failing to avert the phone-hacking scandal at the company’s British newspapers. News Corp’s insurers will pay $139 million, in what shareholder lawyers atGrant & Eisenhofer called the largest-ever cash settlement of derivative claims in Delaware Chancery Court. The settlement, which comes as News Corp prepares to split its news and entertainment branches into two publicly traded companies, was produced after several months of mediation that took place while the company’s motion to dismiss was pending before Vice Chancellor John Noble.

The cash portion of the deal (which will be eventually reduced by legal fees paid to G&E, co-lead counsel fromBernstein Litowitz Berger & Grossmann and several other plaintiffs firms that managed to grab a piece of the case) is obviously the big news, but among the many corporate governance enhancements detailed in the memorandum of understanding between News Corp and shareholders, you’ll find what appears to be a historic concession by the company: News Corp has agreed to disclose its campaign and political action committee contributions to shareholders and its lobbying and Super PAC spending to the board. According to two advocates for corporate political transparency, this settlement apparently marks the first time that shareholders have used the vehicle of a derivative suit to obtain enhanced disclosure of corporate political spending. “I think it’s terrific,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington (CREW). “Any way to force companies to disclose spending is good for democracy.”

Earlier this year, you may recall, New York State’s public employee pension fund brought a books-and-records suit against Qualcomm, seeking to force the chipmaker to tell shareholders about its political spending. (Notably, the New York fund, like shareholders in the News Corp case, was represented by Mark Lebovitch of Bernstein Litowitz.) I said at the time that the novel tactic of suing corporations under the Delaware law that grants shareholders the right to request corporate books and records could be a breakthrough in the post-Citizens United effort to force companies to admit their political spending. Qualcomm certainly knuckled under. In February, less than six weeks after the New York fund sued, the previously opaque corporation agreed to disclose online all of its contributions to candidates and parties, as well as donations to Super PACs and trade associations.

Virginia Supreme Court revives epic suit against Massey Coal

Alison Frankel
Apr 19, 2013 20:22 UTC

If Hugh Caperton’s litigation against Massey Coal were a cat, it would now be entering its sixth or seventh life, thanks to a ruling Thursday by the Supreme Court of Virginia.

Long ago, in 1998 to be exact, the West Virginia coal mining executive launched his case against Massey, which Caperton accused of driving his mining business into ruin. According to Caperton and his lawyers at Reed Smith, when Massey acquired a company Caperton supplied with coal, it aborted Caperton’s supply agreement with the acquired company, put Caperton’s business on the brink of collapse, then reneged on tentative offers to buy Caperton’s operations. Caperton sued Massey’s subsidiary in Virginia state court for breaching the original supply contract and won a $6 million jury verdict. But he also brought tort claims against Massey in West Virginia, since that’s where he lived and where his fateful meetings with Massey’s then chief, Don Blankenship, took place. Caperton believed that Blankenship meant to destroy him, and a state-court jury in West Virginia apparently agreed. In 2002, it awarded Caperton more than $50 million in punitive and compensatory damages.

The West Virginia Supreme Court of Appeals, however, was more kindly disposed toward Blankenship and Massey. A lot more kindly disposed. As it would later emerge, one judge on the state high court had vacationed with Blankenship on the French Riviera. Another had received $3 million in contributions from Blankenship in his campaign for a seat on the Supreme Court – more than the combined contributions of all the rest of the judge’s supporters. Despite recusal efforts by Caperton and Reed Smith, the West Virginia high court struck down the verdict in 2007 on the grounds that a forum selection clause in Caperton’s original supply contract required him to bring any claims in Virginia – and because Caperton had already obtained a judgment in Virginia, his tort claims were barred under the doctrine of res judicata.

Placing blame for Aurora mass shooting: Is movie theater responsible?

Alison Frankel
Apr 19, 2013 03:42 UTC

I have a feeling that we’re going to be hearing a lot more about a ruling Wednesday by U.S. District Judge R. Brooke Jackson of Denver, who said that victims of the Batman movie massacre in Aurora, Colorado, may proceed with claims that the Cinemark movie theater is responsible for the tragedy under the state’s premises liability law. Moviegoers were owed “a duty to exercise reasonable care to protect them against dangers of which Cinemark knew or should have known,” Jackson ruled. The judge, who is overseeing 10 federal-court cases consolidated for discovery, found that the victims’ suits raised enough questions about whether Cinemark failed to anticipate that a killer could enter the theater unarmed, sneak out to obtain weapons and re-enter undetected – and whether the theater had in place adequate security to deal with a reasonably anticipated threat – to survive Cinemark’s dismissal motion.

He did not reach that conclusion lightly. Jackson said that he was initially skeptical of the plaintiffs’ claims, despite “overwhelming sympathy and grief for the victims of the Aurora theater shootings.” Like many people, he said, his first reaction to suits against Cinemark was, “How could a theater be expected to prevent something like this?”

That’s the question Cinemark’s lawyers at Taylor Anderson highlighted in their motion to dismiss federal-court suits against the theater, and it’s why this case should be closely watched by businesses open to the public. Is it reasonable to expect that untrained movie theater employees could anticipate a mass murder? After all, the family and doctors of the accused gunman, James Holmes, didn’t know that he would open fire in a movie theater, killing 12 people and wounding 70. Law enforcement agencies and officials at the university Holmes attended didn’t foresee it. Nor did the companies that supplied Holmes’s guns, ammunition and other weaponry. Yet suits against Cinemark would impose responsibility for the horrific tragedy only on the movie theater, under the theory that it should have known a mass murder could take place on its property and failed to take steps to prevent it.

Human rights lawyers look for silver lining in Kiobel black cloud

Alison Frankel
Apr 17, 2013 22:09 UTC

When the U.S. Chamber of Commerce rushes out a statement hailing a decision by the U.S. Supreme Court, you can be sure that opinion is a defeat for plaintiffs’ lawyers. So it is with the court’s long-awaited ruling Wednesday in Kiobel v. Royal Dutch Petroleum. All nine justices agreed with Shell’s counsel at Quinn Emanuel Urquhart & Sullivan that claims by a group of Nigerian nationals suing under the Alien Tort Statute for Shell’s alleged abetting of state-sponsored torture and murder in their country should be dismissed, though they split on precisely why. The majority, in an opinion written by Chief Justice John Roberts, held that the presumption against extraterritoriality, most recently articulated by the court in Morrison v. National Australia Bank, applies to the Alien Tort Statute even though the ATS, unlike laws regulating conduct, is strictly a jurisdictional statute. Roberts’ opinion rejected (among other things) arguments that because the ATS was enacted to address piracy on the high seas, it extends to atrocities committed on foreign soil.

Corporations like Shell, which are based outside of the United States, can now rest assured that they cannot be sued under the ATS by non-U.S. nationals who claim to have suffered harm from the corporation’s activities abroad – an outcome greeted warmly by pro-business interests. But in a call with reporters on Wednesday afternoon, human rights lawyers tried to look on the bright side, pointing to indications throughout the court’s majority opinion and three concurrences that all is not lost for victims who want their day in a U.S. courtroom.

Those indications begin with Roberts’ concluding words in the majority holding. Yes, he said, the presumption must be against extraterritorial application of the ATS, but that presumption is not inviolable when there’s a strong connection between the United States and the allegations asserted. “Where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application,” Roberts wrote.

Chevron’s road to redemption

Alison Frankel
Apr 16, 2013 22:53 UTC

The last time I wrote about the Chevron environmental contamination litigation, after Chevron revealed a declaration from an Ecuadorean judge who swore that he acted as the middleman in setting up a $500,000 bribe from plaintiffs’ lawyers to the Ecuadorean judge who entered a $19 billion judgment against Chevron, I said it was profoundly disheartening that alleged misconduct by lawyers for the Ecuadoreans who claim to have been injured by drilling in the Amazon might prevent a final answer to the question of whether they’ve actually been harmed. But Chevron’s latest stunning revelations - a pair of declarations in which scientific consultants for the Ecuadorean plaintiffs disavow their work in the case in Ecuador – cast a deep, dark shadow over the plaintiffs’ claims.

Douglas Beltman and Ann Maest of Stratus Consulting now say that the damages report by a purportedly neutral court-appointed expert in the Ecuadorean proceeding was actually written by Stratus, working under the direction of then lead plaintiffs’ lawyer Steven Donziger. Stratus even drafted the expert’s supposed response to the plaintiffs’ comments on the initial report, effectively answering their own questions about their own report, and in the process boosting the expert’s damages assessment from $19 to $27 billion. That seems bad, but what’s worse (at least in my view) is that Beltman, who was the public face of the Ecuadoreans’ scientific claims, admitted to systemic flaws in the testing process. Stratus was supposedly directed, for instance, not to attribute any contamination to Ecuador’s state-owned oil company, which has ongoing operations in the region, even though samples from those sites showed some of the highest levels of petroleum. Stratus’s assessment of soil remediation, according to Beltman’s new declaration, depended on unverified information from Donziger as well as a contamination standard dictated by the plaintiffs’ lawyer. Beltman also said that the surveys Stratus relied upon to assess cancer rates in the region were “flawed,” and that any finding of excessive cancer in the oil-production region is “invalid and unsupported.”

“I now believe the (damages) process was tainted … and not supported by reliable scientific bases and therefore I disavow the (expert) report and (expert) response,” Beltman said.

$720 mln fee request in credit card case is audacious, risky

Alison Frankel
Apr 15, 2013 22:51 UTC

In 2003, lawyers representing a class of five million merchants in antitrust class action litigation against Visa and MasterCard asked U.S. District Judge John Gleeson for $609 million in fees. They told the judge that they’d litigated all the way to jury selection in a case so vigorously defended that they’d had to oppose certiorari at the U.S. Supreme Court, and they’d achieved historic results: a $3 billion settlement fund for class members – at the time, the largest-ever recovery for Sherman Act violations – and injunctive relief that added billions more to the overall value of the deal. Their fee request represented 18 percent of the present-day cash value of the settlement fund and 9.7 times the lodestar value of their billings, but only about 2 percent of what they estimated to be the total value of the deal.

Judge Gleeson was having none of it. In a December 2003 opinion, he called the initial fee request “excessive,” “absurd” and “fundamentally unreasonable.” Gleeson instead awarded $220.3 million – about 6.5 percent of the settlement fund and a lodestar multiplier of 3.5. The judge said he considered that fee to be “generous,” and was only willing to award such an extraordinary amount of money because class counsel, led by the firm now known as Constantine Cannon, had obtained extraordinary results in a high-risk case.

I’m bringing you this little history lesson to inform your consideration of the request for $720 million in fees filed Friday with Gleeson by Robins, Kaplan, Miller & CiresiBerger Montague; and Robbins Geller Rudman & Dowd. The three firms are class counsel in another merchants’ antitrust class action against Visa and MasterCard, this one involving transaction processing “swipe fees” charged by the credit card companies. Like their predecessors in the 2003 case, which involved supposedly improper linkage of debit and credit cards, the swipe fee class lawyers have obtained a record cash settlement, $7.25 billion, and valuable, industrywide injunctive relief. (I should note that the controversial deal has not yet received final approval. Class lawyers filed a separate motion for approval on the same day as the fee request.) Plaintiffs’ lawyers in the swipe fee case argue that their unprecedented results, coupled with the nearly 500,000 hours expended by the 40 plaintiffs’ firms that worked on the case and would share in the fees, justify the outsize award.