Alison Frankel

Disqualifying defense counsel two years into a case is a rare and drastic step, but on Monday that’s what U.S. District Judge Richard Andrews of Wilmington, Delaware, did to a company called MobiTV and its lawyers at Latham & Watkins. Andrews tossed Latham because it formerly represented the parent of the company suing MobiTV (and many, many others) for patent infringement — even though the client relationship ended in 1995, two years before the patent at issue in the case was even awarded and eight years before any alleged infringement by MobiTV began.

Latham’s onetime client, a company once called TV Answer and now known as EON Corp, claimed in a disqualification motion filed almost a year ago that the firm had become privy to proprietary information about interactive video data service technology, which underlies the patent EON is asserting against MobiTV. The firm worked closely with the inventor of the technology and represented EON’s predecessor company before the Federal Communications Commission. A total of 34 Latham lawyers worked on EON matters, including one who became the company’s general counsel and another who sat on EON’s board. “The potential harm and detriment to EON are obvious,” wrote EON’s lawyers at Reed & Scardino and Fox Rothschild. “Latham is seeking to discredit EON’s attempt to protect the same … technology that formed the basis of Latham’s prior relationship with EON Corp and that Latham previously lauded and advocated on EON Corp’s behalf.”

In its response, Latham pointed out that of those 34 lawyers, only 7 are still practicing at the firm, and the two partners leading the MobiTV case, Bob Steinberg and Ryan Hatch, weren’t even at Latham during the long-ago representation of EON. No Latham lawyers, moreover, had anything to do with obtaining EON’s patent, according to the firm, since Latham doesn’t do patent prosecution. And besides, the Latham brief said, EON’s supposedly private information entered the public domain when its patent was issued. EON, the brief argued, “does not identify any specific item of information that Latham allegedly has that would benefit MobiTV in this case.”

Every reference to a specific piece of information is redacted from the Latham brief, but the Delaware judge disclosed that he reviewed a bunch of letters and memos between Latham and EON’s predecessor that involved (among other things) licensing and patent valuation issues. All of the documents Andrews cited date from 1990 to 1992 — almost two decades before Latham began representing MobiTV and at least 17 years before the firm established an ethical wall in October 2010.

Nevertheless, Andrews said that because the validity of EON’s patent is part of MobiTV’s defense, EON might long ago have disclosed to Latham confidential information that could be relevant to the case. That information certainly wasn’t revealed to the Latham lawyers representing MobiTV, Andrews conceded, but under U.S. District Judge Leonard Stark’s ruling last year in Intellectual Ventures v. Checkpoint Services, the law firm’s knowledge is imputed to its partners. Latham’s ethical wall wasn’t a good enough answer to that conflict of interest, according to Andrews, because the firm’s prior representation of EON might come before a jury, and any accommodation that might be made to prevent that “is the sort of thing that would give rise to the perception by the general public that the (conflict) rules are designed to avoid.”

Weil, Gotshal & Manges has asked a great question in a new post at the Harvard Law School Forum on Corporate Governance: Why is the U.S. Supreme Court suddenly so passionate about federal securities litigation? According to Weil’s survey, the justices have generated more securities fraud precedent in the last two years than in the previous two decades: Merck v. Reynolds and the infamous Morrison v. National Australia Bank in 2010; Matrixx Initiatives v. Siricusano, Erica P. John Fund v. Halliburton, Janus v. First Derivative Traders and (tangentially) Wal-Mart v. Dukes in 2011. The court has looked at when shareholders are on notice of fraud, how broadly U.S. securities law extends to foreign defendants, who can be sued for misstatements and when companies have a duty to inform shareholders of potential problems — in other words, a huge range of issues reflecting deep interest in shareholder rights (or lack thereof).

The Weil post says we’ll have to leave it to future historians of the Roberts Court to figure out exactly why these justices seem to be fascinated by securities class actions. In the meantime, though, we can study the briefs in the next big securities case up for Supreme Court consideration. On Thursday, Connecticut’s pension fund filed its 67-page brief in the case that will hereafter be known in SCOTUS jurisprudence as Amgen v. Connecticut Retirement Plans. Oral arguments will take place on Nov. 5 in the case, which presents the question of whether plaintiffs must provide evidence of materiality to win certification of a securities fraud class; or whether, under the Supreme Court’s 1988 fraud-on-the-market ruling in Basic v. Levinson, the class must only demonstrate an efficient market and allegedly public misstatements. Amgen also considers whether defendants have a right to rebut the fraud-on-the-market theory at the class certification stage.

It’s notable that the Connecticut fund opted to bring in David Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel to argue its case at the Supreme Court. I had asked in a post in June whether the fund would stick with its lawyers at Labaton Sucharow or — like Amgen, which brought in Seth Waxman of Wilmer Cutler Pickering Hale and Dorr – go with an appellate specialist. Frederick was a smart choice. Justice Elena Kagan recently signaled the high court’s preference for arguments by members of the specialized Supreme Court bar, and no one has more recent success before the justices on behalf of shareholders than Frederick, who lost in Janus but won in Merck and Matrixx.

On Wednesday, Reuters confirmed what it first reported last month: Apple and four book publishers have offered to settle a European Commission investigation of price-fixing in the market for e-books. That’s particularly notable because Apple and two of those publishers – Macmillan and Viking – have refused to settle with the U.S. Justice Department’s antitrust division, which reached an agreement last April with three other publishers accused of conspiring with Apple to change the pricing model for e-books. Neither the DOJ settlement nor the proposed EC deal involve a financial penalty, so why would Apple, Viking and Macmillan agree to settle with antitrust regulators from the European Union but not their U.S. counterparts?

Two reasons: EC procedure and U.S. liability.

First, a caveat. I reached out to Macmillan’s lawyers at Sidley Austin, Penguin’s counsel at Akin, Gump, Strauss, Hauer & Feld and Apple’s lawyers at Gibson, Dunn & Crutcher, but none would comment, nor did Apple respond to a request for comment. In other words, I’m offering informed speculation rather than from-the-horse’s-mouth reporting.

That said, consider the way antitrust cases proceed at the EC, which is the trade section of the European Union. After regulators complete their investigation and conclude that defendants have engaged in anti-competitive behavior, they have the power to levy a fine before there’s any court ruling on liability. Those fines, moreover, can be huge. In 2008, the EC levied a $1.3 billion penalty against Microsoft for failing to comply with a previous EC directive to permit competitors to run programs on Windows. The following year European regulators set a new record with a $1.4 billion fine for the accused chip monopolist Intel.

Never underestimate the power of a lone Exchange Act claim in federal district court in Manhattan.

On Tuesday, U.S. District Judge Paul Gardephe refused to stay a consolidated derivative case claiming that the directors of News Corp breached their duty to shareholders in the phone-hacking scandal — even though a nearly identical case in Delaware Chancery Court is so much further along that Vice Chancellor John Noble heard arguments on the board’s motion to dismiss on Wednesday. Gardephe’s justification for allowing the New York federal case to proceed was that, in addition to their breach-of-duty claims under Delaware law, shareholders also asserted federal securities claims under the Exchange Act of 1934. “Because federal courts have exclusive jurisdiction over [those] claims,” the judge wrote, “they will not be resolved in the Delaware action. Staying this action in favor of the Delaware action is therefore improper.”

Gardephe shrugged off arguments by the board’s lawyers at Skadden, Arps, Slate, Meagher & Flom that the New York plaintiffs had tacked on the Exchange Act allegations simply to distinguish their case from the Delaware suit, which predated the New York litigation. According to the judge, the threshold issue under the U.S. Supreme Court’s 1976 ruling in Colorado River Water Conservation District v. U.S. was whether the New York and Delaware cases were parallel. He concluded they were not, because the Delaware case didn’t include a federal cause of action. So even though the New York case involves Delaware law questions about whether shareholders can establish the futility of demanding action from the News Corp board, Gardephe said, the Exchange Act claim cannot be resolved by the Delaware court.

If there’s one theme that ran through U.S. Supreme Court Justice Antonin Scalia’s interview Monday with Reuters Editor-in-Chief Stephen Adler, it’s that words matter. Time and time again, Scalia and Bryan Garner, the co-author with Scalia of the book Reading Law: The Interpretation of Legal Texts, endorsed originalism and textualism, doctrines that demand judges stick to interpreting the words in front of them rather than attempting to divine legislative intent or (heaven forbid!) imposing their own policy agendas. According to Garner and Scalia, textualism is a sure-footed guide, regardless of where it leads.

“A textualist will frequently end up with — an uncomfortable result. With a result that feels bad,” Garner said, according to a transcript of the interview, which he also participated in. “That’s the funny thing. The judges who are not textualists will essentially always do what they consider to be the better policy. But textualists will frequently decide cases that they think, ‘Wow, it’s a shame I have to do this.’”

If words alone must determine outcome, let’s take a look at what Scalia had to say when Adler asked a question posed by an audience member who wanted to hear the justice’s opinion on term limits for judges. Scalia called term limits “a solution without a problem,” arguing that, in his experience, William Douglas is the only justice who stayed on the Supreme Court too long. The question also led Scalia to muse, however, on how judicial salaries affect the composition of the federal judiciary. “The salaries of federal judges are so low that you’re not getting the best lawyers anyway,” Scalia said. “You’re [not] getting the, the best private lawyers. You may be getting good people, but they’re people who have been an assistant U.S. attorney, then they’re … you know, a minor state judge, then a bankruptcy judge, and then a magistrate judge. And, you know, they finally get appointed to a federal district court. A huge percentage of our federal judges now have never practiced law privately.”

Earlier this month, when the 2nd Circuit Court of Appeals issued a ruling in a Goldman Sachs case that redefined standing in class actions involving mortgage-backed securities, I questioned how much impact the opinion would have, given that we’re four years into MBS class litigation. Sure, the 2nd Circuit opened the door to much broader MBS classes when it held that name plaintiffs can pursue claims on behalf of all the trusts backed by mortgages originated by the same lenders as those they invested in. But I wondered, as a practical matter, whether the ruling was too late to help most MBS class claimants, since most of their cases have long since crossed the threshold of standing.

Now we know that for at least one defendant — JPMorgan Chase — the newly widened definition of standing came all too soon. On Friday, U.S. Senior District Judge Edward Korman of Brooklyn issued an order drastically expanding the claims for which the name plaintiff in an MBS case against JPMorgan, the Mississippi Public Employees’ Retirement System (MissPERS), has standing to sue.

In his previous decision on JPMorgan’s motion to dismiss, Korman had taken a hard line on MissPERS’s standing. He ruled in February that the Mississippi fund, represented by Bernstein Litowitz Berger & Grossmann and Wolf Popper, had only purchased certificates in eight of the 33 MBS trusts (with a face value of $36.8 billion) at issue in the class action. Korman said that MissPERS could only assert claims on behalf of certificate holders in five of those trusts — and, even more restrictively, that it could only represent investors in the same tranches it bought into. For JPMorgan’s lawyers at Sidley Austin, that February ruling was about as resounding a victory as the bank could have hoped for.

The old proverb says that the only certainties in life are death and taxes. In the context of litigation, you can add one additional inevitability to that list: legal fees. In a ruling Thursday, the 5th Circuit Court of Appeals avoided the subject of taxes, but took the opportunity of a case about death to address the question of attorneys’ fees.

I’ve been writing a lot recently about courts rejecting outsize fees for plaintiffs’ lawyers whose clients received no (or minimal) monetary recovery. This 35-page decision involved a diametrical counterpoint to that scenario. The plaintiffs — 10 individual coffin purchasers and a group called the Funeral Consumers Alliance — originally filed a class action against the largest U.S. casket maker, Batesville, and the three biggest U.S. funeral home chains, claiming that they conspired to make it impossible for consumers to buy Batesville coffins directly from discount providers. After U.S. District Judge Kenneth Hoyt of Houston refused to certify a class, the plaintiffs reached a settlement with one of the funeral chains (Stewart Enterprises) that, according to the 5th Circuit, covered all of their compensatory damages, including the treble damages available under the Clayton Act. Hoyt then dismissed the case against the remaining defendants, ruling that the plaintiffs no longer had standing to sue because they couldn’t recover additional damages.

The plaintiffs, represented by lead counsel at Constantine Cannon and Gibbs & Brun (as well as a host of other firms on behalf of individual clients), appealed the dismissal to the 5th Circuit, arguing that the Clayton Act also provides for the recovery of legal fees and costs. Matthew Cantor of Constantine told me Friday that monetary damages available to antitrust plaintiffs — which consist of compensatory damages, legal fees and costs — have to be considered as a three-part whole. Cantor declined to discuss the specifics of the Stewart settlement, but said that “it did not satisfy all three buckets.”

For good or ill, one of my themes over the last 18 months has been frustration with the Securities and Exchange Commission’s enforcement efforts. And according to a recently published study by Berkeley Law professor Stavros Gadinis, I’m not alone. Gadinis’s paper, posted Wednesday at the Harvard Law School Forum on Corporate Governance, said that it’s been three decades since any academic analysis of SEC enforcement actions against broker-dealers. In that time, Gadinis wrote, the information vacuum has been filled with complaints about the commission’s perceived foot-dragging and questions about the so-called revolving door between the SEC and private law firms. To add some substance to the discussion, Gadinis undertook what he said was the first systematic examination of SEC enforcement actions against broker-dealers — a category that includes major financial institutions — in 30 years, analyzing more than 400 cases finalized in 1998 and 2005-2007. (Gadinis added 1998 to the study so it would include cases brought in a Democratic administration.) His overall conclusion: Size matters, at least when you’re a broker-dealer facing off against the SEC. According to the prof’s data, firms with more than 1,000 employees fared much better than their smaller counterparts in terms of whether cases are brought against individual defendants; whether the SEC brought cases as administrative proceedings; and what kind of sanctions the SEC extracted.

“Big firms get different treatment,” Gadinis said in a phone interview Thursday. “That could be for many reasons (but) it’s not a nice result for the SEC, which is supposed to be a unbiased regulator of markets. Whatever the motivation, the results are not good.”

Gadinis said it’s too soon to opine on the SEC’s actions since the first four months of 2007, which is when his study ended. He also said that ideally, his data would have included SEC investigations that did not result in enforcement actions, but, as I’ve noted, those aren’t captured in publicly available materials. But with those caveats, Gadinis said his study indicates that, historically, the SEC “is reluctant to bring cases against individuals connected with big firms.”

Should people who illegally download music be subject to more severe punishment for their sins than, say, tobacco companies that lied about the dangers of their products? Or how about companies that colluded to fix prices or engaged in civil racketeering? Or patent thieves who deliberately infringed competitors’ intellectual property?

All of those corporate miscreants can be hit with enhanced damages for their wrongdoing, but for all of them those enhancements are limited. Congress has said that when defendants are found to have violated federal antitrust, racketeering or patent laws, they can be on the hook only for as much as three times the actual damage they caused. Punitive damages, which come into play in product liability, fraud and other state-law cases, have been restricted by the U.S. Supreme Court, which held in 2003′s State Farm v. Campbell that the Due Process Clause means punitives cannot vastly exceed actual damages.

So surely when a single mom in Minnesota is found liable for illegally downloading 24 songs via a file-sharing site, due process should limit her punishment, right? If corporate defendants only have to cough up treble damages when they’re found to have engaged in a pattern of racketeering acts, doesn’t it only makes sense that someone without a commercial motive shouldn’t face a penalty out of all proportion to the harm she caused?

In July, not long after the Economist dubbed Baupost’s revered founder Seth Klarman “The Oracle of Boston,” the hedge fund abruptly dropped out of the litigation challenging Bank of America’s proposed $8.5 billion settlement with investors in Countrywide mortgage-backed securities. Baupost also sold off at least some of its Countrywide notes, signaling that after battling fruitlessly to get Countrywide and BofA to buy back allegedly deficient underlying loans, the hedge fund had decided to cut its MBS losses and run.

But it turns out that Baupost isn’t out of the MBS put-back game. On Sept. 4, the Law Debenture Trust Company of New York, as trustee for a Bear Stearns MBS trust, filed an amended complaint in Delaware Chancery Court demanding that the onetime Bear mortgage lending unit EMC (now part of JPMorgan Chase) buy back 1,141 underlying mortgage loans that allegedly breached the representations and warranties EMC made about them. The 66-page amended complaint is a must-read for MBS fans, since it’s based on a review of the actual loan origination documents for more than 1,500 mortgages in the underlying pool. The trustee obtained the files through litigation that launched in February 2011, then had them re-underwritten by The Barrett Group, which found that more than 80 percent of the mortgages it reviewed breached EMC’s reps and warranties. The complaint details not only aggregated stats on the breaches but also specific examples of how EMC supposedly failed to meet underwriting standards and let utterly unqualified borrowers take out mortgages.

The amended complaint does not name Baupost, but an Aug. 15 status report on the year-old litigation does. “A representative of the directing certificateholders attended the meet-and-confer sessions on August 6 and 7,” the report said. “The directing certificateholders are the Ashford Square Entities, which are wholly-owned subsidiaries of funds managed by The Baupost Group.”