Attention, American fraudsters! If you restrict your criminal activities to conduct outside of the United States, you’re safe from prosecution under U.S. laws.
In 2011, after U.S. District Judge Richard Seeborg approved the $9.5 million settlement of a class action accusing Facebook of violating its users’ privacy through a since-dismantled program that disclosed their online purchases to their friends, the public interest group Public Citizen appealed Seeborg’s ruling to the 9th Circuit Court of Appeals. On behalf of an objecting class member, Public Citizen told the 9th Circuit that Facebook users were not slated to receive a penny in exchange for releasing claims that Facebook’s Beacon program violated their privacy rights. Instead, all of the money in the settlement that didn’t go to class counsel’s legal fees and expenses was to be directed to a new charity, the Digital Trust Foundation, with a two-person advisory board consisting of a Facebook representative and a plaintiffs lawyer from the case. Public Citizen took the position that charity-only payouts, otherwise known as cy pres settlements, are sometimes appropriate, but not when the lucky recipient of class members’ money doesn’t have the same interests as the class.
In a historic decision in June 2011, the U.S. Supreme Court ruled that female employees of Wal-Mart could not sue the company for gender discrimination as a nationwide class. The court said in Wal-Mart v. Dukes that the women could not attribute any discrimination they’d supposedly suffered to corporate policies because those policies were implemented by local managers. I’m ignoring the subtleties of a long and complex decision, but, in essence, the Supreme Court concluded that Wal-Mart’s nationwide policies weren’t strong enough glue to bind together women with individual employment histories. A sweeping class action, the court said in a decision written by Justice Antonin Scalia, could not provide “a common answer to the crucial discrimination question.”
It’s a self-evident truth that if contingency fee lawyers don’t see value in a case, they won’t bring it. With that in mind, I’ve often wondered whether class action defendants should be more vociferous about big fee requests by class counsel. I know what you’re thinking: Plaintiffs lawyers won’t agree to settle unless defense counsel pledge not to oppose their fee request. And realistically, defendants’ main concern is making a case go away as cheaply as possible. How settlement money is divided between class members and their lawyers is, for defendants, a secondary issue, at best. If objecting to class counsel’s fee request will prevent a deal from going through, most defendants won’t object.
On Friday, the online game company WildTangent filed a petition asking the U.S. Supreme Court to decide, once and for all, whether computer-implemented abstract ideas are eligible for patents. According to the company’s lawyers at Latham & Watkins, a three-judge panel of the Federal Circuit Court of Appeals ran amok in June when it held that patent eligibility extends to the concept of permitting online access to copyrighted material in exchange for viewing an advertisement. Instead of seriously considering the Supreme Court’s previous admonition about patent eligibility in Mayo v. Prometheus Laboratories, the WildTangent brief said, the Federal Circuit opinion, written by Chief Judge Randall Rader, sets up an eligibility test so easy that just about every computer-implemented abstract idea can pass. WildTangent contends that the Federal Circuit has contradicted itself, defied the Supreme Court and rewritten the Patent Act to promulgate its own expansive doctrine of patent eligibility.
The first rule of litigation in federal court is that you can’t bring a suit unless it’s based on an actual controversy. U.S. courts do not issue advisory opinions. Federal judges only have jurisdiction to oversee disputes that present an issue ripe for decision. And according to a new brief by the city of Richmond, California, its plan to use eminent domain to take over mortgages from mortgage-backed securities trusts is not ripe under Article III of the U.S. Constitution and should not be tested in the suits that MBS trustees filed earlier this month in federal court in San Francisco. Counsel for the city and Mortgage Resolution Partners (the private company supplying the capital for Richmond’s contemplated mortgage takeover plan) contend that Wells Fargo and Deutsche Bank acted precipitately when they moved for a preliminary injunction to block the city from proceeding with eminent domain takeovers.
Now that the U.S. Supreme Court has pretty much knocked down all barriers to contracts prohibiting classwide arbitration, via 2011’s AT&T Mobility v. Concepcion and last term’s American Express v. Italian Colors, have businesses actually rushed to add mandatory individual arbitration clauses to their contracts? A new study of agreements between franchisors and franchisees finds that they have not, and theorizes that the side effects of arbitration, including the limited right to appeal, may deter some businesses from adopting mandatory arbitration clauses. What’s more, the study’s authors – two law professors with long expertise in arbitration – hypothesize that the Supreme Court’s Amex ruling may permit businesses to prohibit class litigation without the collateral consequences of arbitration agreements.
On Wednesday, lawyers representing a certified class of shareholders who claim Diamond Foods deceived them about its payments to walnut growers in 2010 and 2011, notified U.S. District Judge William Alsup of San Francisco that they’ve reached a proposed settlement with the company. According to the memo in support of the deal, class counsel at Chitwood Harley Harnes and Lieff Cabraser Heimann & Bernstein were confident that they’d be able to prove at least $270 million and as much as $430 million in damages against the company. Instead, they’re settling for about $107 million, $11 million in cash and the remaining $96 million in Diamond common shares. Yes, that’s right. The supposedly defrauded and disillusioned shareholders in the Diamond class action are being compensated with more stock in the offending company. It’s like that old joke: First prize is a week in Philadelphia; second prize is TWO weeks there.
For the last, oh, 40 years or so, white-collar defense lawyers have been telling the Securities and Exchange Commission that their corporate clients would never agree to settlements that required them to admit wrongdoing because of the collateral effect of such admissions in private class action litigation with investors. Businesses can stomach paying millions of dollars in penalties and disgorgement to the SEC, the theory goes, but their gorge rises at the prospect of paying billions in damages to class action plaintiffs because they can’t contest liability. The SEC was content for decades to leave that assertion unchallenged, permitting defendants to resolve its allegations without admitting or denying their misconduct. That all changed in June, when, as you know, SEC Chair Mary Jo White announced a new policy: In the most egregious cases, the SEC would demand an admission as a condition of settlement.
Last week’s criminal complaints against former JPMorgan Chase derivatives traders Javier Martin-Artajo and Julien Grout – who allegedly mismarked positions in the bank’s infamous synthetic credit derivatives portfolio to hide hundreds of millions of dollars of trading losses in early 2012 by the JPMorgan Chief Investment Office – does not directly impact the shareholder class action under way in federal court in Manhattan. But you can be sure that the plaintiffs firms leading the class action were gratified that the Manhattan U.S. Attorney has decided the so-called “London Whale” losses merit criminal charges. When U.S. District Judge George Daniels hears arguments next month on the bank’s motion to dismiss the class action, shareholder lawyers will absolutely remind him that prosecutors believe a criminal cover-up took place. JPMorgan’s lawyers at Sullivan & Cromwell moved in June to dismiss the entire shareholder class action, but as I’ve said before, I don’t think there’s much chance Judge Daniels will toss claims based on bank officials’ statements about the London Whale losses. The government’s new criminal charges make that prospect even more remote.