Opinion

Alison Frankel

The $44 mln Accenture judgment riddle: When is it time to pay up?

Alison Frankel
Feb 7, 2014 21:29 UTC

You might have thought that after nearly 225 years of American jurisprudence, the law was clear on whether a defendant can avoid surrendering a final award while it seeks review from the U.S. Supreme Court. But based on a $44 million fight between the consulting company Accenture and a would-be oil and gas services software company called Wellogix, it isn’t at all.

Wellogix’s business plan was to sell oil and gas companies proprietary software to streamline their planning and procurement processes. It made the apparent mistake, however, of partnering with other companies that supplied core accounting software. In 2005, Wellogix and SAP made a joint bid to provide global software for complex services to BP. Unbeknownst to Wellogix, however, SAP was also working directly with BP’s consultant, Accenture, on a software system. Wellogix came to believe that SAP and Accenture had hijacked pieces of its design and, in so doing, had destroyed the company. In 2008, Wellogix sued SAP, Accenture and BP, accusing them of stealing and misappropriating its trade secrets. U.S. District Judge Keith Ellison of Houston dismissed SAP for lack of jurisdiction. BP and Wellogix agreed to arbitration. Accenture went to trial.

A Houston federal jury returned a verdict against Accenture in May 2011, awarding Wellogix $26.2 million in compensatory damages and $68.2 million in punitive damages. Judge Ellison reduced the punitive damages to $18.2 million but otherwise denied Accenture’s post-trial motions for judgment as a matter of law or for a new trial. Accenture posted a $49 million bond to cover the judgment and interest, and took its case to the 5th Circuit Court of Appeals. Ellison stayed enforcement of the judgment “pending final disposition of Accenture’s appeal.”

In a highly fact-specific opinion last May, the 5th Circuit panel of Judges Leslie Southwick and Stephen Higginson and Senior Judge Harold DeMoss upheld the jury verdict and damages award against Accenture. The appellate opinion, written by Higginson, said that the judges might have found differently had they been in the jury box, but that “there was sufficient evidence to support the jury’s verdict and the resulting damages awards.” Accenture’s lawyers at Baker Botts and Sidley Austin moved for reconsideration and en banc review. Last month the 5th Circuit denied the motions. On Jan. 24, the 5th Circuit issued its mandate affirming the judgment against Accenture.

Wellogix’s counsel at Laminack, Pirtle & Martines immediately sent a letter to Baker Botts, demanding that Accenture pay up. Accenture refused. It asked Judge Ellison to stay enforcement of the judgment until it filed a petition for certiorari and the Supreme Court decided whether to take the case.

Big guns roll out to defend securities class actions as SCOTUS amici

Alison Frankel
Feb 6, 2014 19:40 UTC

Conventional wisdom has it that the future of most securities fraud class actions will come down to U.S. Supreme Court Chief Justice John Roberts (and possibly Justice Samuel Alito, who, as a judge on the 3rd Circuit Court of Appeals, wrote quite interesting decisions about fraud-on-the-market reliance). Last term, in dissents in Amgen v. Connecticut Retirement Plans, Justices Antonin Scalia, Clarence Thomas and Anthony Kennedy made clear their skepticism about the court’s 1988 precedent in Basic v. Levinson, the case that made securities fraud class actions possible via its holding that shareholders may be presumed to have relied on corporate misstatements about a stock that trades in an efficient market. Based on the Amgen majority opinion, Justices Ruth Bader Ginsburg, Stephen Breyer, Elena Kagan and Sonia Sotomayor seem disinclined to overturn Basic when the court once again takes up the issue of classwide shareholder reliance on March 5 in Halliburton v. Erica P. John Fund.

Presumably with Chief Justice Roberts in mind, the Erica P. John Fund and its lawyers at Boies, Schiller & Flexner made deference to Supreme Court precedent a major theme of the merits brief they filed last week. As I told you, Boies Schiller cast Basic as a decision rooted in the 80-year-old history of this country’s securities laws, entwined with government regulation of the securities markets and implicitly endorsed by Congress, which has had multiple opportunities over the last 25 years to roll back the presumption of reliance and has repeatedly declined to do so.

As of late Wednesday, it’s not only Boies Schiller saying so to the Supreme Court. Erica P. John – and, by extension, the securities class action industry – has received powerful support in amicus briefs from (among many others) the Justice Department; two former chairmen of the Securities and Exchange Commission (one Republican, one Democrat); 11 current and former members of Congress; and scholars of the doctrine of stare decisis, whose filing was authored by Harvard Law professor Charles Fried – the onetime U.S. solicitor general who wrote the Justice Department brief supporting investors in the original Basic case at the Supreme Court.

Two judges question proposed discovery limits in Federal Rules

Alison Frankel
Feb 5, 2014 22:12 UTC

You’ve got only 10 days left to offer your opinion of the U.S. Judicial Conference’s proposed changes to the Federal Rules of Civil Procedure: The comment period ends on February 15. I don’t share the apocalyptic vision of the U.S. civil justice system that Senator John Kyl described in a Jan. 20 Wall Street Journal op-ed on the proposed new rules, but I do endorse his advice that you speak up if you’ve got something to say about how the changes will affect your practice.

Nearly 600 people and organizations already have, according to Regulations.gov, where their letters are posted. I spent several hours Wednesday reading public comments on the proposed rule changes. (I confess. I was preparing to moderate a panel on the proposals on Thursday at Hofstra Law School.) For the most part, the comments reflect the deep divide I’ve already described: Defense lawyers and business groups laud the Judicial Conference for attempting to reduce the burdens of discovery in civil litigation in the federal courts; plaintiffs lawyers are gravely worried that proposed limits on depositions, interrogatories and other discovery tools – and more discretion to defendants opposing discovery demands – will exacerbate the challenge of acquiring legitimate information from defendants who don’t want to surrender it.

I read more than a dozen letters from public interest groups and private lawyers who specialize in plaintiffs work, and all of them said the same thing: Presumptive limits on discovery will unfairly disadvantage people suing corporations and governments and will lead to more motions practice as lawyers ask judges to lift those limits. Plaintiffs lawyers are also very concerned about a new emphasis on “proportionality” in the new rules, which would permit defendants to refuse discovery demands if they believe the cost of production is disproportionate to the size and significance of the case. That unilateral discretion, according to detractors, is going to cause them undue harm.

How SemGroup trustee survived summary judgment in $1.1 bln PwC case

Alison Frankel
Feb 4, 2014 22:37 UTC

If any law firm out there has learned from bitter experience the difficulty of suing audit firms for supposedly helping companies run themselves into ruin, it’s Quinn Emanuel Urquhart & Sullivan. The firm represented litigation trustees for Refco and the Italian dairy company Parmalat, and though Quinn sued the auditors of both fraud-beset corporations, the trustees’ claims foundered on the doctrine of in pari delicto, which holds that one wrongdoer can’t sue another over their joint misconduct. It’s a weird irony of litigation against audit firms: In pari delicto defenses are most powerful in cases brought by former clients (or the shells that remain of those clients) whose fraud is unequivocal.

So when Quinn Emanuel sued PricewaterhouseCoopers on behalf of the litigation trustee of the private oil transport and storage firm SemGroup, it carefully pleaded around in pari delicto. The complaint, filed in 2010 in state court in Tulsa, Oklahoma, asserted claims for professional negligence and breach of fiduciary duty. It does not argue that PwC enabled Thomas Kivisto, the former CEO of SemGroup, when he lost hundreds of millions of dollars in corporate funds through risky trades in oil price derivatives through a separate company owned by him and his wife, or that PwC abetted Kivisto when his similarly speculative trades for SemGroup drove the company into Chapter 11. Instead, the suit asserted that PwC failed to comply with professional standards when it signed off on SemGroup’s financial statements, homing in on the auditor’s supposed failure to assure accurate reporting and adequate corporate controls.

“Kivisto and others were responsible for SemGroup issuing corporate financial statements that misreported these activities,” the complaint said. “PwC, in turn, audited and ‘blessed’ these financial statements year after year as fair and accurate, even though they were not. Had PwC conducted its audits of SemGroup according to even minimal standards of care, Kivisto’s self-dealing and speculative trading would have been revealed, and the devastating financial consequences of each would have been avoided.” (Kivisto settled a Securities and Exchange Commission case accusing him of misleading SemGroup investors about his risky trading in 2011; he and four other former SemGroup executives settled with the litigation trustee for $30 million in 2010.)

State and Justice agree: No retroactive immunity for Indian diplomat

Alison Frankel
Feb 3, 2014 21:17 UTC

Remember the diplomatic crisis with India that followed the arrest last December of a deputy consul general named Devyani Khobragade? Khobragade, who worked at the Indian consulate in Manhattan, was picked up by the Diplomatic Security Services for allegedly committing visa fraud to get her nanny into the United States. Indian officials were outraged when Khobragade said she’d been strip-searched, even though the U.S. Marshals later said that she was not subjected to an internal cavity search. The crisis took a peculiar turn when Manhattan U.S. Attorney Preet Bharara – whom the Indian government criticized for abusing his prosecutorial discretion – put out a statement defending Khobragade’s arrest and processing. Among Bharara’s points in the Dec. 18 announcement: State Department agents had arrested the deputy consul, not prosecutors from his office.

The State Department, meanwhile, was re-evaluating Khobragade’s diplomatic status after the Indian government, following her arrest, appointed her to India’s permanent mission at the United Nations. Khobragade’s lawyer, Daniel Arshack of Arshack, Hajek & Lehrman, told Reuters at the time that Khobragade’s new post entitled her to retroactive diplomatic immunity for her supposed crimes. With the State Department issuing vaguely worded statements of regret about Khobragade’s treatment, I wondered if State might make the whole mess quietly disappear by granting the Indian diplomat immunity. That action would leave U.S. Attorney Bharara and the Justice Department stranded, but would quell foreign allies in India.

Instead, State has chained itself to Justice in the Khobragade case. On Friday, Bharara’s office filed its response to Khobragade’s motion to dismiss the indictment against her. According to the Justice Department brief, which attaches a declaration from the State Department’s Office of the Legal Advisor, Khobragade surrendered any claim to full diplomatic immunity when she left the United States earlier this month. Nor is she entitled to limited retroactive immunity for her conduct as deputy consul, the brief said, because her alleged crimes were not connected to her official duties. What’s interesting is the filing’s lack of ambiguity: The brief leaves no quiet escape route open for the U.S. government. Both State and Justice, in other words, are determined to keep charges against Khobragade alive, in the event she ever falls within the jurisdiction of U.S. courts.

Can this brief save securities fraud class actions?

Alison Frankel
Jan 30, 2014 19:56 UTC

There is an awful lot of weight on David Boies‘s shoulders in the U.S. Supreme Court case known as Halliburton v. Erica P.John Fund. The renowned litigator and his partners at Boies, Schiller & Flexner represent the EPJ Fund, but in a larger sense, they represent everyone who invests in shares listed on U.S. exchanges. If Boies and his firm can’t persuade the justices of the Supreme Court to leave intact the court’s 1988 precedent in Basic v. Levinson, securities fraud class actions will be decimated. Small investors without the resources to bring their own fraud claims will be stranded – as will all of the lawyers, economists, academics and consultants who make a living in the multibillion-dollar securities class action industry.

So how does Boies Schiller intend to convince the Supreme Court not to meddle with private securities litigation? Based on the firm’s newly filed merits brief, by appealing to the court’s respect for its own precedent and deference to Congress and regulators.

As you would expect, Boies Schiller’s 85-page filing offers a long list of arguments to counter Halliburton and the many pro-business organizations urging the Supreme Court to overturn Basic’s holding that investors trading in an efficient market can be presumed to have relied on alleged corporate misstatements. (That presumption of reliance, as you know, is what permits investors to band together as a class to pursue securities fraud claims; without the presumption, individual investors would be forced to prove that they relied on misinformation when they made trading decisions.) Some of the new brief’s points are technical, such as its discussion of whether defendants should be permitted to rebut the presumption of reliance by offering evidence that the supposed misrepresentations had no impact on share price. Some are political, emphasizing defendants’ success in fending off unwarranted fraud class actions. Boies Schiller also dedicates several pages to defending what the brief calls “the simple economic truth” at the heart of Basic v. Levinson. Regardless of debate among economists about the mechanisms of market efficiency, the brief argues, there’s no controversy around “the proposition that developed markets generally respond to material information.”

Will old M&A class settlements tank private equity collusion case?

Alison Frankel
Jan 29, 2014 20:08 UTC

In his latest update on class actions filed in the wake of deal announcements, Dealbook’s Deal Professor Steven Davidoff (whose day job is teaching law at Ohio State) found that in 2013, shareholder suits followed almost all – 97.5 percent – deals of more $100 million. That’s not quite as inevitable as night following day but it’s getting there, especially when you consider that the rate of post-M&A class action filings is up from 91.7 percent in 2012 and 39.3 percent in 2005. Companies grumble all the time that these suits are nothing more than a “deal tax,” a sort of legal extortion racket by plaintiffs lawyers whose true motive is not enhancing shareholder value but skimming millions in fees for holding up transactions with silly claims.

Regardless of the merits of that argument, I’m sure that when shareholders in seven companies acquired by private equity funds in the early 2000s settled M&A class actions, they never imagined that those settlements could come back and complicate a completely different case. Nor could the settling defendants have imagined that their deal-tax settlements could very well shield them from facing an antitrust collusion class action and its attendant treble damages.

That would be the unintended consequence of M&A shareholder settlements if U.S. District Judge William Young of Boston agrees with Bain Capital, Blackstone, KKR, Goldman Sachs and two other private equity firms that former shareholders in eight companies that changed hands in leveraged buyout deals cannot be certified as a class because of broad releases by shareholders in seven of the deals. In their recently filed brief opposing class certification, the private equity defendants assert that the previous judge in the case, now retired Edward Harrigan, already ruled that shareholders who sold stock in the various deals cannot introduce evidence from those transactions against defendants they released from liability in M&A settlements. As a result of that ruling, the private equity funds argue, the plaintiffs’ evidence of the funds’ alleged overarching collusion to suppress prices is a patchwork, with different plaintiffs permitted to make claims against different defendants in different deals, all depending on which plaintiff released which defendants in which LBO.

The novel legal issues in Tarantino’s copyright suit vs Gawker

Alison Frankel
Jan 28, 2014 20:40 UTC

I don’t usually cover the same cases as TMZ and Entertainment Weekly, but Quentin Tarantino’s copyright complaint against Gawker, filed Monday in federal court in Los Angeles, could well turn out to be one of those extremely rare celebrity suits that end up being more important for the legal principles they establish than for the name in the caption. Believe it or not, the prickly filmmaker’s suit against the snarky website raises apparently unprecedented questions about whether a news organization contributes to copyright infringement when it knowingly links, without elaboration, to copyrighted material.

In case you’ve somehow managed to avoid the case so far, here are the mostly undisputed facts. Tarantino is the author of a screenplay for a Western titled “The Hateful Eight.” Earlier this month, when Tarantino found out that a draft of the script had leaked, albeit narrowly, he abruptly stopped working on the film. The filmmaker told the website Deadline Hollywood that he was depressed by the unknown leaker’s betrayal, although he also said, according to Deadline, “I am not talking out of both sides of my mouth, because I do like the fact that everyone eventually posts it, gets it and reviews it on the net. Frankly, I wouldn’t want it any other way. I like the fact that people like my shit, and that they go out of their way to find it and read it.”

Gawker Media’s Defamer site reported the flap on Jan. 22, in a post that ended with a casual invitation: “If anyone would like to name names or leak the script to us, please do so at tips@defamer.com.” Someone took Defamer up on the offer and tipped the site that the script was posted at Anonfiles.com. On Jan. 23, Defamer published a post entitled, “Here Is the Leaked Quentin Tarantino Hateful Eight Script,” which provided a link to the purported screenplay at Anonfiles. (The post was later amended to add a second link at Scribd.com; both links are now disabled.) Defamer also quoted a summary of the script from Badass Digest, which had posted the first two pages of the screenplay. The Defamer post concluded, “For better or worse, the document is 146 pages of pure Tarantino. Enjoy!”

In Swatch copyright opinion, 2nd Circuit boosts financial news cos.

Alison Frankel
Jan 28, 2014 16:11 UTC

Can corporations use copyright laws to block news organizations from publishing their own information about themselves? Not according to a ruling Monday from the 2nd Circuit Court of Appeals in an intriguing case called Swatch v. Bloomberg. The appeals court said that Bloomberg was entitled to publish an audiotape of an invitation-only analyst call with Swatch officials, even though Swatch held a U.S. copyright on the recording and told analysts who participated in the call that the audio could not be published or broadcast. The 2nd Circuit’s extremely broad view of the media’s fair use of copyrighted corporate information – which gives primacy to the investing public’s interest in financial reports and data – is good news indeed for financial news reporters and their employers. In combination with the appeals court’s 2011 holding in Barclays v. Theflyonthewall, the Swatch opinion makes it clear that when a corporation’s statements constitute news, the corporation doesn’t have the right to control how that news gets out.

Under Monday’s decision, that’s true even when a news organization uses the copyrighted material for commercial purposes – and even when the information isn’t transformed in any way before publication. The investing public’s right to know, according to the 2nd Circuit, can’t be trumped by corporate copyrights. “Whether one describes Bloomberg’s activities as ‘news reporting,’ ‘data delivery,’ or any other turn of phrase, there can be no doubt that Bloomberg’s purpose in obtaining and disseminating the recording at issue was to make important financial information about Swatch Group available to American investors and analysts,” wrote Chief Judge Robert Katzmann for a panel that also included Judges Amalya Kearse and Richard Wesley. “Bloomberg’s overriding purpose here was not to ‘scoop’ Swatch…but rather simply to deliver newsworthy financial information to American investors and analysts. That kind of activity, whose protection lies at the core of the First Amendment, would be crippled if the news media and similar organizations were limited to authorized sources of information.”

Pretty resounding language, and that’s despite good arguments by Swatch and its lawyers at Collen IP that Bloomberg’s publication of the audiotape didn’t amount to fair use. I’ve written before about the unusual facts of the case, but here’s a brief recap. Foreign-based companies like Swatch aren’t subject to the same disclosure requirements as U.S. corporations, so when Swatch released its 2010 earnings in February 2011, it organized an invitation-only call with analysts who track the stock. Reporters were not invited to participate, but very shortly after the conclusion of the 132-minute call, Bloomberg posted an audiotape and transcript to subscribers of its financial research service. When Swatch found out, it demanded that Bloomberg take down the materials; when the news organization refused, Swatch obtained a copyright on its executives’ statements during the earnings call and sued Bloomberg for infringement.

Dinesh D’Souza faces ‘surprisingly frequent’ campaign finance charges

Alison Frankel
Jan 24, 2014 23:07 UTC

After news broke Thursday that federal prosecutors had charged conservative commentator, author, film-maker and professional Obama-basher Dinesh D’Souza with violating campaign finance laws, Walter Olson at the Overlawyered blog posted on the relatively mild civil sanction meted out to a “big-league trial lawyer” who’d done pretty much the same thing D’Souza is accused of. D’Souza has been indicted for allegedly paying $20,000 to reimburse straw donors to the campaign of Republican Senate candidate Wendy Long, who lost a 2012 contest against incumbent Kirsten Gillibrand. Arkansas trial lawyer Tab Turner, as Overlawyered recounted in 2006, reimbursed donors of $8,000 to John Edwards’ 2004 presidential campaign and just had to cough up a $9,500 civil fine. By highlighting the contrast in his post Thursday, Olson seemed to be suggesting that D’Souza has been selectively targeted for prosecution because he’s so critical of the Obama administration.

Former acting U.S. attorney general George Terwilliger of Morgan, Lewis & Bockius raised the same suggestion in an interview Friday. Terwilliger, who served in the administration of two Republican presidents and later defended noted Los Angeles lawyer Pierce O’Donnell against campaign finance charges similar to those leveled against D’Souza, told me there are “legitimate questions that could be asked about the political motivation for bringing the case.” Want more conspiracy theorism? Dominic Gentile of Gordon Silver, who represented Nevada campaign finance defendant Harvey Whittemore, conducted exhaustive research on so-called conduit payments of the sort D’Souza is accused of making. In Whittemore’s sentencing memo, he documented civil and criminal penalties in “straw donor” cases. “Twenty thousand dollars?” Gentile told me. “I’ve never heard of a $20,000 criminal case” for campaign finance violations.” And at D’Souza’s arraignment Friday in Manhattan federal court, his own lawyer, Benjamin Brafman, told U.S. District Judge Richard Berman that whatever D’Souza did, his conduct wasn’t criminal.

There’s certainly enough prosecutorial discretion in the enforcement of campaign finance laws to provoke suspicion about the D’Souza case, if you’re inclined to be suspicious of the Justice Department. As the Whittemore memo chronicles, most campaign finance cases are resolved civilly, through Federal Election Commission enforcement actions – and there’s sometimes no explanation for why one case ends up before the FEC and another with similar facts is prosecuted criminally. “It’s a purely political decision,” Gentile told me.

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