Alison Frankel

The most important woman in Bank of America’s life right now may well be New York State Supreme Court Justice Barbara Kapnick. In the last five days, Kapnick has presided over two critical hearings, one to determine whether the BofA-led group challenging MBIA’s $5 billion restructuring can put on live witnesses and the other to determine whether BofA’s proposed $8.5 billion settlement with investors in Countrywide mortgage-backed securities will remain a special proceeding under New York trust law.

Bank of America got good news at the end of both hearings. Kapnick agreed on Apr. 20 to hear live testimony in the MBIA regulatory case and ruled on Apr. 24 that objectors to the proposed MBS settlement can’t convert it to a more standard adversary case. But BofA didn’t get everything it wanted.

Kapnick was very clear about limiting the evidence the banks can put on in the MBIA case, which is being brought under a proceeding known as Article 78. “This case is really, really directed towards the actions of the Insurance Department in approving this transaction,” she told bank counsel from Sullivan & Cromwell, according to this transcript of the hearing. “It’s not a case about all the intentional and terrible things that you alleged.” Under Article 78, she said, her job is simply to decide whether the state insurance department (now the Department of Financial Services) made a reasonable determination to approve the MBIA restructuring, or whether its approval was “arbitrary and capricious.” Based on the transcript, Kapnick considers that a high bar for the banks to clear.

Her deference to the regulators should, in an ironic way, have been good news for Bank of America in the other case, its proposed MBS settlement. As you no doubt remember, Bank of New York Mellon, as Countrywide MBS trustee, filed for approval of the settlement under New York’s Article 77, which permits trustees to seek a judge’s endorsement of trust decisions. BNY Mellon, BofA, and the institutional investors who negotiated the $8.5 billion deal have long argued that the standard of review in Article 77 is whether the trustee acted reasonably – precisely analogous to the standard Kapnick said she intends to apply in the MBIA case under Article 78.

But as it happens, there’s a crucial difference between Article 77 and Article 78. The New York code spells out the standard of review in Article 78 proceedings, but not in Article 77 trust proceedings. So there’s no statutory framework to guide Kapnick’s evaluation of the proposed MBS settlement.

Corporations, as Mitt Romney famously reminded us this summer in Iowa, are people under the laws of the United States. Just take a look at the U.S. Supreme Court‘s 2010 ruling in Citizens United v. Federal Election Commission. The five justices in the majority (you know who they are) held that corporations are entitled to the same First Amendment right to free speech as regular old people, so Congress’ attempt to ban corporate electioneering was unconstitutional.

When are corporations not people in the eyes of the Supreme Court? When they’re accused of torturing or killing real live human beings. Last week, in Mohamad v. Palestinian Authority, all nine justices agreed that when Congress enacted the Torture Victim Protection Act in 1991, it restricted causes of action to those against “an individual” — and individuals aren’t organizations or corporations. The court looked at the dictionary definition of the word individual, as well as the legislative history of the anti-torture law, to conclude that Congress intended the law to apply only to “natural persons.” The opinion said it’s notable that lawmakers used the word “individual” instead of “person” in defining potential torture defendants because “‘person,’ as we have recognized, often has a broader meaning in the law than ‘individual.’”

Right. Corporate “persons” have First Amendment rights to unlimited Super PAC spending but corporate “individuals” don’t exist. I’m sure the relatives of Azzam Rahim, the naturalized U.S. citizen who was kidnapped, tortured, and killed by the Palestinian Authority in the case that gave rise to the Supreme Court’s ruling, were compelled by the high court’s parsing of the distinction between a “person” and an “individual.”

The follow-up to the New York Times blockbuster scoop on Wal-Mart’s alleged cover-up of $24 million in Mexican bribes has, quite rightly, focused on the company’s potential Foreign Corrupt Practices Act exposure. But that’s not the only law Wal-Mart and its executives should be worrying about.

Good old Sarbanes-Oxley, passed in 2002 in the wake of accounting scandals at Enron, WorldCom, Tyco, Adelphia and other public companies, was intended to prevent exactly the kind of cover-up Wal-Mart allegedly engaged in, according to the Times report. The 10-year-old law imposed gatekeeper duties on corporate lawyers, who are supposed to report material violations of the securities laws up the chain of command, all the way to the audit committee of the board, if necessary. SOX also requires corporations and their auditors to report on the company’s internal controls for financial reporting – and requires that CEOs and CFOs certify the material accuracy of financial reports. According to securities-law experts, if the Times allegations are true, Wal-Mart may have run afoul of all these provisions.

The bribery allegations originated with a Wal-Mart lawyer in Mexico, who told Wal-Mart International’s general counsel, Maritza Munich, about the “irregularities.” She authorized a preliminary investigation by outside counsel in Mexico, then – quite appropriately – reported the findings to Wal-Mart’s then-General Counsel Thomas Mars, among other senior officials. Mars brought in Willkie Farr & Gallagher, which proposed that it conduct a far-reaching internal investigation. So far, so good.

Remember U.S. District Judge Victor Marrero‘s opus last month in a hedge fund case against Goldman Sachs? The Manhattan federal judge refused to dismiss claims that Goldman duped the fund, Dodona, into investing in doomed-to-fail Hudson collateralized debt obligations. In 64 vivid pages, Marrero detailed the fund’s allegations that Goldman engaged in a sweeping effort, initiated by CFO David Viniar, to shed its exposure to subprime mortgages — and simultaneously to take advantage of clients who were slower to perceive the looming collapse of the mortgage-backed securities market. Marrero described the alleged scheme as “not only reckless, but bordering on cynical.”

What a difference a judge makes. Last September, in a parallel case involving Goldman’s Davis Square CDOs, U.S. District Judge William Pauley, also of Manhattan, needed only 19 pages to dismiss fraud and negligent misrepresentation claims by Germany’s Landesbank Baden-Wuerttemberg. On Thursday, without even bothering to write a precedential opinion, a three-judge panel of the 2nd Circuit Court of Appeals upheld the dismissal. Chief Judge Dennis Jacobs and Judges Rosemary Pooler and Susan Carney agreed with Pauley that the German bank was a sophisticated investor and received plenty of warnings about the risk of investing in the Davis CDOs.

“The relationship between Landesbank and the defendants was that of buyer and seller in a standard arm’s length transaction; and by its own representations Landesbank possessed sufficient expertise to evaluate the risks of its investment,” the 2nd Circuit wrote in a summary order. “The complaint therefore fails to plead justifiable reliance.” Landesbank’s counsel at Motley Rice had notified the 2nd Circuit of Marrero’s ruling, in a letter spelling out the judge’s conclusion that even if Dodona was a sophisticated investor, its reasonable reliance on Goldman’s representations isn’t precluded as a matter of law. By giving Landesbank’s argument such short shrift, the federal appeals court clearly believes the contrary.

It’s not easy for antitrust plaintiffs to get past a defense motion to dismiss. Before the U.S. Supreme Court raised the pleading standard for everyone in Ashcroft v. Iqbal in 2009, it imposed that tough burden on antitrust claimants in Bell Atlantic v. Twombly, a 2007 opinion that held it’s not enough just to argue that alleged conspirators engaged in parallel price-fixing. Under Twombly, antitrust complaints have to offer detailed and specific facts to support a plausible argument that defendants colluded to restrict competition.

On Wednesday evening, U.S. District Judge Lucy Koh of San Francisco federal court ruled that software engineers in a putative class action against Apple, Google, Intel, Intuit, Lucasfilm, Adobe, and Pixar met that high standard. As the judge explained in her 29-page opinion, it certainly helped the plaintiffs that the defendants all entered consent decrees with the Justice Department in 2010, agreeing to end their practice of restricting cold calls to recruit one another’s engineers. But what really convinced the judge not to dismiss the engineers’ case was the “significant influence” of former Apple CEO Steve Jobs; Google chairman and Apple board member Eric Schmidt; and Apple and Google director Arthur Levinson.

At least one of those three men, Koh said, had a hand in each of the six bilateral anti-poaching agreements among the defendants. “Their overlapping board membership lends plausibility to plaintiffs’ allegations that each defendant entered into this conspiracy ‘with knowledge of the other defendants’ participation in the conspiracy, and with the intent of . . . reduc(ing) employee compensation and mobility through eliminating competition for skilled labor,’” the judge wrote.

As Reuters reported Tuesday in a piece on Citigroup shareholders voting against the $15 million board-approved pay package for CEO Vikram Pandit, investors appear to be increasingly skeptical of lavish pay for executives of corporations with underperforming stock. With companies entering the second proxy season in which shareholders can offer an advisory say on executive pay, compensation and proxy experts are predicting more votes against compensation packages than we saw in 2011, when 45 companies got a thumbs-down from shareholder in say-on-pay votes.

Such votes are strictly advisory. Dodd-Frank mandated that shareholders have a say on pay, but it didn’t require boards to do anything in response to their votes. Some boards took 2011 votes against approved compensation packages to heart; according to a Feb. 21 Wall Street Journal story, a lot of the companies that failed say-on-pay votes hired new compensation advisers and improved communications with shareholders. The Journal also noted that a quarter of the companies that failed shareholder votes got new CEOs in 2011, a turnover rate that’s twice as high as overall corporate rates. (It’s not clear whether that’s because the execs figured they could do better elsewhere or boards interpreted say-on-pay rejections as a no-confidence vote on management.)

But what happens if corporate boards simply ignore shareholder say-on-pay votes? Based on the results of the first year of say-on-pay litigation, not much.

There’s no question what Congress intended when it passed a pair of laws requiring producers of sexually-explicit materials to keep records on the age of the people engaged in sex acts (or simulated sex acts): curb child pornography. Lawmakers had already banned commercial child porn, but producers hired actors who were of age but looked young, making it tough to enforce the ban. In frustration, Congress passed a 1988 law that imposed specific record-keeping demands on porn producers, who must verify that performers are of age, maintain records to back the verification, and provide the location of those records in labels affixed to the sexually-explicit products. The law said that producers must maintain age records at their “business premises,” and must make the records available for government inspection, or else face a stiff fine and a prison sentence. A 2006 amendment to the law set the same record-keeping, labeling, and inspection requirements when sex is only simulated (albeit with a carve-out demanded by non-porn movie studios).

Because much child porn trafficking takes place underground, via private channels, the Justice Department said it would enforce the laws broadly, targeting not just porn-movie makers, but non-commercial producers of sexually-explicit material as well. The government did promise, however, that it would only prosecute those who intended to sell or trade the material.

The porn industry, as is its wont, brought constitutional challenges to the record-keeping laws, claiming that they violated the First, Fourth, and Fifth Amendments (specifically, free speech, equal protection, self-incrimination, and search and seizure provisions). In 2009, the 6th Circuit Court of Appeals sided with the Justice Department on the First Amendment question, in an 11-to-6 en banc ruling that held the record-keeping laws don’t unconstitutionally target porn producers and have only a collateral effect on free speech that’s justified by the government’s interest in protecting children from exploitation.

Has there ever been a price-fixing case in which the alleged conspirators agreed to take less money for their product and simultaneously up their production and boost competition? The answer to that question may determine the success of the Justice Department‘s e-books antitrust suit against Apple and the two publishers that have not agreed to settle DOJ’s civil charges.

On Friday, Apple and three publishers filed reply briefs in their effort to win dismissal of the private antitrust class action that parallels the Antitrust Division’s case. Those filings, coming two days after the government brought suit, offer good hints at how defense lawyers for Apple and the publishers will counter the Justice Department’s allegations. (Interestingly, Hachette and Harper Collins — the two publishers that have reached a tentative $52 million settlement with 16 state Attorneys General — did not sign the joint publishers’ motion, which suggests that they may argue their AG deal resolves the class action plaintiffs’ damages claims.)

The essence of the government’s case (as well as the private class action) is that the publishers regarded Apple’s entry into the e-books market as a chance to break Amazon’s 90-percent monopoly. As part of that effort, the publishers allegedly conspired with Apple to change the e-books model from the wholesale pricing Amazon insisted upon to so-called “agency pricing,” in which publishers set prices and Apple received a commission for every e-book it sold. Both the class action and the government suit assert that Apple and the publishers engaged in what’s known as “per se” price-fixing, which means that plaintiffs must only prove there was a conspiracy to restrain competition and raise prices. The Justice Department and private plaintiffs claim the proof of the conspiracy is the rise in e-book prices after the publishers all signed agency-pricing deals with Apple, from $9.99 to $12.99 or $14.99 for new titles.

With a single ruling this week, U.S. District Judge James Robart of Seattle federal court may have fundamentally altered the balance of power between Motorola Mobility and the leading opponents of Motorola’s soon-to-be-parent Google, Microsoft and Apple.

In another indication that the smartphone war is shifting away from individual infringement suits, Robart granted Microsoft’s motion for a temporary restraining order, which effectively bars Motorola from acting to enforce whatever relief it’s granted in an ongoing German patent case. In that case, before a court in Mannheim, Motorola has claimed Microsoft Windows and Xbox products infringe German patents that are part of Motorola’s standard-essential portfolio. The Seattle judge, according to this transcript of the order he issued in open court, agreed with Microsoft that the German patents are already at issue in Microsoft’s case before him, which accuses Motorola of breaching its obligation to offer standard-essential patents on fair and reasonable licensing terms.

Robart granted the TRO under the Anti-Suit Act, which is intended to restrict forum-shopping and harassing litigation. That’s how Microsoft and its counsel at Sidley Austin described Motorola’s German suit. According to Microsoft, Motorola first tried to extract exorbitant licensing fees for a portfolio of about 100 worldwide standard-essential patents. Then, after Microsoft filed a Seattle federal-court suit asserting that Motorola’s licensing demand was a breach of its contract with a European standard-setting body, Motorola sued Microsoft in Germany for infringing German patents that were part of the portfolio at issue in Seattle.

Litigation is frequently likened to poker, but there’s actually a big difference. Poker ends with a winner and a loser. In litigation, there’s a third option: settlement. In the overwhelming majority of cases, lawyers and their clients eventually conclude that it’s more sensible to compromise than to test your hand with winner-take-all stakes.

Not Bank of America in its three-pronged litigation with the bond insurer MBIA.

MBIA has said publicly and repeatedly that it’s eager to make deals to resolve accusations that its 2009 restructuring, which split the bond insurer’s healthy muni-bond business from its ailing structured-finance division, was a $5 billion fraud. On Wednesday, the hedge fund Aurelius Capital became the latest plaintiff to reach a deal with MBIA. (Kudos to my colleague Karen Friefeld, who broke news of the settlement.) Aurelius had filed a purported class action in Manhattan federal court on behalf of MBIA policy holders, and its lawyers at Simpson Thacher & Bartlett were litigating that case alongside a group of banks that filed similar fraud claims — as well as a separate regulatory challenge to the restructuring — in New York State Supreme Court. Aurelius’s departure from the litigation means that the bank group, which began with 18 members but has dwindled to Bank of America and two French banks, loses a powerful, well-capitalized ally. (In fact, Aurelius was scheduled to depose MBIA CEO Jay Brown this week; now the banks will depose him next week.)

Meanwhile, in MBIA’s insurance fraud and mortgage-backed securities put-back case against Countrywide and BofA, New York State Supreme Court Justice Eileen Bransten on Wednesday denied the bank’s motion to bar MBIA from deposing BofA CEO Brian Moynihan. As I’ve explained, MBIA’s lawyers at Quinn Emanuel Urquhart & Sullivan want to question Moynihan to help establish Bank of America’s successor liability for Countrywide’s MBS failings. MBIA argued that Moynihan’s public statements about BofA assuming responsibility for Countrywide’s wrongdoing are key to the question of successor liability; Bank of America’s counsel at O’Melveny & Myers countered that MBIA was trying to harass Moynihan, who has no unique knowledge of BofA’s corporate structure or decision-making on Countrywide. Bransten said Moynihan’s public statements are “undoubtedly relevant,” and only the CEO can explain what he meant when he made them. Billions of dollars hang on how Bransten — the leading N.Y. judge on bond insurers’ claims against MBS issuers — decides the question of BofA’s successor liability.