The California Public Employees’ Retirement System, the largest public pension fund in the United States, rarely takes a stand as an amicus in trial court. But in an amicus brief filed earlier this month, Calpers warned that the future of private investment in California is at stake in a dispute over a few million dollars in unpaid bonuses to former employees of the now-defunct HRJ Capital. Unless a state-court judge overturns a colleague’s ruling that limited-partner investment funds are on the hook for liabilities of the general partner and fund manager, Calpers said, California risks losing its stature as an incubator of start-up business.
Jesse Strauss of Strauss Law had two goals when he filed a fraud suit on behalf of 12 graduates of Thomas M. Cooley Law School. The first was to win compensation for the Cooley grads, who had paid tens of thousands of dollars of tuition in the misguided expectation that a Cooley law degree would lead to a full-time legal career. The second, he told me, was to dispel similar misguided expectations by anyone else considering enrollment at Cooley. A ruling Tuesday by the 6th Circuit Court of Appeals will probably spell the end of the hope that Cooley graduates can get any of their money back from the school, but it should also expose the law school as a highly questionable investment for prospective lawyers.
The doctrine of cy pres – from the French for ‘cy pres comme possible,’ or ‘as near as possible’ – may have originated in trust law, but it has had its full flowering in class actions. Both defendants and plaintiffs lawyers have good reasons to resolve cases involving potentially large numbers of claimants with minuscule damages by directing money to charity instead of tracking down class members. Cy pres settlements wipe cases off the docket, which is good for defendants. And they generate fee awards, which is good for the class action bar. Class actions are, of course, overseen by federal judges, and the practice of naming a particular judge’s favorite charity as the recipient of cy pres funds in order to boost the odds of court approval has fallen into disrepute. Nevertheless, it’s the rare cy pres settlement that is rejected. Judges may ask for money to go to a different charity or may restrict attorneys’ fees, but courts usually conclude that there’s a benefit to class members in supporting charity rather than risking a trial of their claims.
In 2012, five African-American Detroit homeowners and a Michigan legal services group asserted a notably creative legal theory in a class action against Morgan Stanley. Their lawyers at Lieff Cabraser Heimann & Bernstein and the American Civil Liberties Union acknowledged that Morgan Stanley didn’t write the supposedly predatory mortgages that victimized African-American borrowers in Detroit. Those housing-bubble mortgages were originated by New Century, a notorious subprime lender that went under in 2007. But the suit argued that New Century was writing loans to feed Morgan Stanley’s securitization machine. Because Morgan Stanley wanted to bundle certain types of subprime loans into its mortgage-backed securities, the theory went, its policies guided New Century’s predatory practices. So according to the homeowners’ suit, Morgan Stanley was actually responsible for the disparate impact of New Century’s discriminatory lending.
If there were any doubt that the tech world remains transfixed by the question of whether courts should order injunctions based on standard-essential patents, check out the Federal Trade Commission’s newly released response to commenters on the Google antitrust settlement it proposed in January. Many of the 25 letters that the FTC received focused on settlement provisions barring Google from seeking an injunction based on infringement of an essential patent until a fair licensing rate is determined by a court or arbitrator. The FTC said that its final settlement with Google, which was disclosed Wednesday, holds Google accountable for its commitment to license essential technology on fair and reasonable terms. Potential licensees, the agency said, must be protected from “opportunistic behavior” and permitted “to negotiate licensing terms without facing the threat of an injunction.”
It’s safe to say that the besieged hedge fund SAC Capital has lots more to worry about than a class action by investors in Elan Corporation, one of the companies whose shares the fund supposedly traded on the basis of inside information. The New York Times and The Wall Street Journal reported Wednesday that federal prosecutors in New York are on the verge of indicting SAC, the culmination of an insider trading investigation in which four onetime fund employees have pleaded guilty and two more, including the star portfolio manager Michael Steinberg, are facing criminal charges. SAC founder Steven Cohen is busy defending against Securities and Exchange Commission allegations that could knock him out of the industry, and SAC outside investors have pulled $5 billion out of the fund.
Three weeks ago, the 2nd Circuit Court of Appeals ruled in a case called In re IndyMac Mortgage-Backed Securities Litigation that the filing of a class action does not stop the clock on the three-year time bar for federal securities claims. According to the appeals court, the U.S. Supreme Court’s famous 1974 ruling in American Pipe v. Utah, which said that the statute of limitations can be tolled by the filing of a class action, does not apply to the statute of repose because that absolute time bar gives defendants substantive rights that cannot be abridged. The 2nd Circuit’s decision, as I’ve reported, was at odds with a 13-year-old ruling from the 10th Circuit, which found in Joseph v. Q.T. Wiles that a pending class action tolls the statute of repose as well as the statute of limitations.
The biggest municipal bankruptcy proceeding in U.S. history is less than a week old but it’s already promising to generate enough legal controversy to gainfully employ the platoons of lawyers vying for a role in the Chapter 9 case. A state court judge in Lansing, Michigan, has teed up a fight over Michigan Governor Richard Snyder’s right to authorize Detroit’s petition for Chapter 9 protection. That’s a novel procedural question, as I’ll explain below. I don’t think doubts about Snyder’s authorization will stop U.S. Bankruptcy Judge Steven Rhodes from pushing Detroit’s Chapter 9 proceeding forward – but they may well impact Rhodes’s eventual determination of the city’s eligibility for Chapter 9 protection.
If Khaled Asadi, a former GE Energy executive who lost his job after alerting his boss to concerns that GE might have run afoul of the Foreign Corrupt Practices Act, had sued his old employer in New York or Connecticut, things might have worked out differently for him. Several federal trial judges in those jurisdictions have ruled that whistle-blowers who report corporate wrongdoing internally are protected by the Dodd-Frank Act of 2010, even though the statute defines whistle-blowers as employees who report securities violations to the Securities and Exchange Commission. But Asadi, who worked in GE Energy’s office in Amman, Jordan, filed a claim that the company had illegally retaliated against him in federal district court in Houston. And on Wednesday, the 5th Circuit Court of Appeals – with hardly a nod to contrary lower-court decisions in other circuits – ruled that Asadi is not a whistle-blower under Dodd-Frank because he talked to his boss and not the SEC.
Remember UBS’s attempt to play what it considered a get-out-of-jail-free card in the megabillions litigation over mortgage-backed securities UBS and more than a dozen other banks sold to Fannie Mae and Freddie Mac? UBS’s lawyers at Skadden, Arps, Slate, Meagher & Flom came up with an argument that could have decimated claims against all of the banks: When Congress passed the Housing and Economic Recovery Act of 2008 and established the Federal Housing Finance Agency as a conservator for Fannie Mae and Freddie Mac, UBS said, lawmakers explicitly extended the one-year statute of limitations on federal securities claims – but neglected to extend, or even mention, the three-year statute of repose. UBS argued that FHFA’s suits, which in the aggregate asserted claims on more than $300 billion in MBS, were untimely because they were filed after the statute of repose expired.