Opinion

Alison Frankel

Truth and justice are elusive in Chevron Ecuador case

Alison Frankel
Jan 29, 2013 21:32 UTC

On Monday, Chevron filed a new motion for summary judgment in its fraud and racketeering case against the lawyers and expert witnesses who helped 47 Ecuadoreans from the Lago Agrio region of the rainforest obtain an $18 billion judgment against the oil company from an Ecuadorean court in 2011. The motion discloses what seems to be incredibly powerful evidence that the Ecuadorean judgment was illegitimate: A onetime presiding judge on the Ecuadorean case, Alberto Guerra, submitted a declaration asserting that he acted as the middleman in setting up a $500,000 bribe from plaintiffs’ lawyers to the Ecuadorean judge who entered the judgment against Chevron. Guerra claimed that the plaintiffs actually drafted the 2011 judgment and that he, as a behind-the-scenes ghostwriter, worked with plaintiffs’ lawyers to make it seem more like a court ruling. According to his declaration, filed before U.S. District Judge Lewis Kaplan of Manhattan, Guerra had previously received regular payments from the plaintiffs in the Chevron case to ghostwrite other rulings subsequently issued by the presiding judge. And, to boot, Guerra asserted that Chevron — unlike the plaintiffs — didn’t respond to his solicitation of bribes.

Chevron filed additional new evidence to back Guerra’s declaration, including draft versions of the 2011 judgment found on the former judge’s computer, mail and bank records showing his contacts with the plaintiffs and sworn statements by other witnesses supposedly involved in the bribery scheme. “Guerra’s testimony and corroborating evidence confirm what the extensive overlap between the (plaintiffs’) internal files and the judgment already prove: that the (plaintiffs) corrupted the Ecuadorean court and wrote the $18 billion judgment against Chevron,” wrote the oil company’s lawyers at Gibson, Dunn & Crutcher.

Guerra has some credibility issues, since, by his own admission, he was dismissed from the Ecuadorean court and has been in financial straits. His declaration disclosed a payment of $38,000 from Chevron to compensate him for his time and expenses, including the surrender of his computer, flash drives and cell phones. The Lago Agrio plaintiffs and their allies claimed that isn’t all the former judge received. In a statement, Ecuadorean plaintiffs’ lawyer Pablo Fajardo said that Guerra previously offered to sell his testimony to his clients but they refused to pay. “It always was obvious that Guerra wished to sell himself to the highest bidder, a fact which undermined his credibility and made him a profoundly unreliable witness,” Fajardo’s statement said. The Ecuadoreans also claim (without supporting evidence, from what I can tell) that Chevron is using Guerra’s testimony to cajole and intimidate other former judges in Ecuador.

These latest disclosures are profoundly disheartening, regardless of which side you believe in this case. If you trust Chevron and the documentary evidence, the plaintiffs bought an $18 billion judgment from Ecuadorean judges. If you believe the plaintiffs, former Ecuadorean jurists are for sale to Chevron. Either way, I’m increasingly skeptical that we’ll ever know what happened all those decades ago in Lago Agrio. This case has been under way, in various permutations, in courts in Ecuador and the United States since 1993. There are binary questions at its heart: Either Chevron predecessor Texaco did or did not contaminate the Lago Agrio region and impair the health of its residents. Chevron has been just as adamant in denying liability as the Ecuadoreans have in asserting it. Yet the longer the case progresses, the more elusive an answer seems to be.

Chevron’s bulldog lawyers at Gibson Dunn might disagree. They’d say that with enough time, they will eventually prove all of the misbehavior they suspect of the Ecuadorean plaintiffs and their lawyers. I’d counter that they’ve been going full bore for about three years, using some of the most ingenious and aggressive litigation tactics ever deployed in a civil case. Chevron also makes no secret of its long-running investigation within Ecuador of the Lago Agrio plaintiffs and lawyers. But for all of the resources the company has devoted to discrediting its foes, in court and out, Chevron only recently obtained evidence of Guerra’s supposed bribe-taking and ghostwriting — even though Guerra’s declaration asserts that he twice solicited a bribe from a Chevron lawyer in Ecuador. (The declaration does not reveal what, if anything, Chevron’s Ecuadorean counsel told the company about Guerra’s approaches.)

Inside ‘unseemly’ lead counsel fight in Nexium antitrust class action

Alison Frankel
Jan 29, 2013 15:47 UTC

The Federal Judicial Center says that the preferred way to determine lead counsel in a complex multidistrict litigation is for plaintiffs’ lawyers to meet and reach a consensus on which firms should direct the case. But that’s not always the way things work out. Just ask Linda Nussbaum at Grant & Eisenhofer, who lost a bid last week to lead an antitrust class action by drug wholesalers accusing AstraZeneca and three generic drugmakers of conspiring to keep AZ’s blockbuster heartburn drug Nexium off of the market. Nussbaum accused three other big pharmaceutical antitrust players – Hagens Berman Sobol Shapiro, Garwin Gerstein & Fisher and Berger & Montague – of plotting to exclude her and then misrepresenting her stellar record. In the end, Nussbaum’s rivals won the battle for lead counsel, but not without also incurring the disgust of the judge overseeing the case.

In a Jan. 24 order appointing the Hagens group to lead the case, U.S. District Judge William Young of Boston meted out blame for the “unseemly squabble” among plaintiffs’ firms. “This squabble reflects most poorly on all counsel involved since it appears driven more by a desire to participate to a greater degree in a potential award of attorneys’ fees than by any nuanced professional judgment concerning how to assemble the strongest possible team of counsel,” he wrote. Young also said he planned to make sure that the cost of “this sad and unprofessional quarrel” is not passed along to the firms’ clients.

But even the strong words in Young’s order don’t convey how truly nasty the showdown between Nussbaum and Bruce Gerstein of Garwin Gerstein became, with these two leaders of the plaintiffs’ antitrust bar flinging accusations of borderline ethics back and forth for a month. Lead counsel jostling in mega-antitrust and product liability litigation is the rule, not the exception, as indicated by the briefs debating leadership of the Nexium indirect purchasers’ case, also before Judge Young. Plaintiffs’ lawyers, however, usually realize after a round or two of briefing that they’re better off reaching an agreement than parading dirty laundry before the court and the defendants; that’s what happened in the indirect purchasers’ wing of the Nexium case. This story is for anyone who doubts the wisdom of finding consensus.

Why U.S. is forgoing appeal of landmark 2nd Circuit off-label ruling

Alison Frankel
Jan 24, 2013 22:35 UTC

On Wednesday, the Food and Drug Administration announced that the government has decided not to seek review of a landmark 2012 ruling by the 2nd Circuit Court of Appeals in U.S. v. Caronia. As you probably recall, a split 2nd Circuit panel held in December that the First Amendment protects truthful speech about the off-label use of FDA-approved products, finding that the misbranding provisions of the Food, Drug and Cosmetic Act do not prohibit off-label marketing, as long as it’s not misleading. Wednesday’s announcement by the FDA means that in New York, Connecticut and Vermont, pharmaceutical and medical device makers can give physicians information about their products that they can’t discuss in other states without risking prosecution.

That disparity would have been a good reason for the government to seek en banc or U.S. Supreme Court review of the 2nd Circuit panel’s Caronia ruling, said Jeffrey Senger of Sidley Austin, a former deputy chief counsel of the FDA. Senger told me Thursday that the Justice Department, which litigates on behalf of the FDA, undoubtedly considered whether it had a responsibility to ask the entire 2nd Circuit or the Supreme Court to clarify what pharma companies can and cannot say about their products. (Former healthcare fraud prosecutor Michael Loucks, now at Skadden, Arps, Slate, Meagher & Flom, told me the same thing when the Caronia ruling came down last month. “There’s a downside to the pharmaceutical industry and to society if the Justice Department shies away from further review,” Loucks said. “It’s not helpful to drug or device companies to have a lack of clarity. It’s also not helpful to the Justice Department.”)

But there was also a downside for the government in pursuing the Caronia appeal — especially because the Supreme Court made it clear in a 2010 case called Sorrell v. IMS Health that pharma marketing is “a form of expression protected by the Free Speech Clause of the First Amendment.” Sorrell involved a Vermont law restricting the sale of pharmacy prescription records, not off-label marketing. Nevertheless, the ruling is considered a good indicator of the justices’ likely view of the issues in Caronia. And losing at the Supreme Court would extend Caronia’s reasoning beyond the confines of the 2nd Circuit, which is just what the Justice Department doesn’t want. “I think the government had a very substantial risk of losing at the Supreme Court if they had appealed,” said Senger, who added that the decision to forgo an appeal did not surprise him.

Avandia case: the new normal for plaintiffs’ fees in mass torts?

Alison Frankel
Jan 23, 2013 22:20 UTC

Last week, the court-appointed mediator in the consolidated Avandia marketing and product liability litigation against GlaxoSmithKline informed U.S. District Judge Cynthia Rufe of Philadelphia that 58 plaintiffs’ firms in the case have agreed to an allocation plan for $143.75 million in common-fund fees. As mediator Bruce Merensteinof Schnader Harrison Segal & Lewis described the process, nine law firms objected to the initial allocation plan proposed by a Rufe-appointed fee committee. After a dozen phone calls and 15 in-person sessions over the last few months, members of the fee committee adjusted their own take to bring the objectors on board. In the final allocation outlined in Merenstein’s report, the biggest share of the common fees, $22.6 million, will go to Reilly PoznerWagstaff & Cartmell is in line for $17.2 million; Andrus Hood & Wagstaff for $14.7 million; and Miller & Associates and Heard Robins Cloud & Black for more than $10 million. The Miller firm was an objector to the original allocation plan, but all of the other firms looking at eight-figure awards from the common fund were on the fee committee.

Keep in mind that the common-fund fees are on top of whatever contingency fees the plaintiffs’ firms will receive as a share of their clients’ settlements with GSK over the diabetes drug. Rufe ordered last October that all of the plaintiffs in thousands of settled (and later-settled) cases must pay 6.25 percent of their settlements into a common fund to compensate the lawyers who worked on behalf of all Avandia plaintiffs in the consolidated litigation. If you do the math, that reflects a total of $2.3 billion in Avandia settlements by GSK (Rufe doesn’t cite the total but based her order on an aggregated estimate calculated by a plaintiffs’ expert.)

So what, you may be wondering, is the total percentage of that $2.3 billion that will go to plaintiffs’ lawyers? We don’t know. And that’s why the Avandia litigation model, which GSK previously employed in the Paxil litigation, could be a boon to plaintiffs lawyers.

New suit: Financial straits led to ethics infractions by Hausfeld

Alison Frankel
Jan 22, 2013 23:45 UTC

Jon King, a California lawyer who was a founding partner at Michael Hausfeld’s eponymous antitrust shop but was fired from the firm last October, spares no accusations in the 78-page wrongful termination complaint he filed last week in federal court in the Northern District of California. The suit is a compendium of supposed misbehavior by Hausfeld and some of his partners, allegedly committed under the pressure of financial straits. I’m not sure how much fire underlies the clouds of smoke from King’s red-hot complaint, but Hausfeld has made enough enemies and is leading enough big cases — including a potentially gargantuan investor class action against the banks that allegedly manipulated Libor rates — that the suit is going to be the talk of the antitrust bar.

I want to say up front that I emailed Hausfeld, asking him to address some of the specific accusations in King’s complaint. I did not receive a reply from him, but a representative sent an email statement: “This is an employment grievance from a former partner of Hausfeld LLP,” it said. “The firm separated with Mr. King for good reason, and the allegations made by him are baseless. We abide by the highest ethical standards and will defend our reputation vigorously.”

So keep Hausfeld’s denial in mind as you consider King’s allegations that the firm took financial advantage of co-counsel in litigation over the unauthorized use of likenesses of college athletes in videogames; courted Asian electronics companies to be plaintiffs in one antitrust case even as the firm litigated against them in another action; tried to undermine client development efforts by co-counsel; and signed the name of a famous client — NFL Hall of Famer Elvin Bethea — to a letter he did not write or support. Individually the accusations may not amount to much, and there’s a lot in King’s kitchen-sink complaint that, quite frankly, seems intended to tar the reputation of some Hausfeld partners rather than to bolster King’s argument that he was fired for blowing the whistle on the firm’s unethical practices. But the complaint includes enough details about the founding and operation of Hausfeld LLP to be a fascinating inside look at the firm.

In smartphone wars, Apple stalks the elusive injunction

Alison Frankel
Jan 18, 2013 23:33 UTC

If ownership of a valid patent can’t help you stop a competitor from selling products that incorporate your proprietary technology, then — according to an extraordinary new filing by Apple – there’s something seriously wrong with the patent system.

Apple has asked the Federal Circuit Court of Appeals to bypass standard operating procedures and commit the entire court, rather than a three-judge panel, to reviewing its bid for a post-trial injunction barring the sale of Samsung devices that have been found to infringe Apple patents. U.S. District Judge Lucy Koh of San Jose, California, who presided over the trial of Apple’s claims against Samsung last summer, refused last month to grant Apple a permanent injunction, citing the Federal Circuit’s October 2012 ruling in yet another Apple case against Samsung. Though Apple has already petitioned for en banc review of that ruling, which involved a pretrial injunction, its new motion argues that the standard for injunctions is even more important when a patent holder has already gone through trial and established the illegal conduct of its competitor. The entire Federal Circuit, Apple contends, must clarify whether the appeals court really intended to contradict its own and U.S. Supreme Court precedent and make it “all but impossible” to obtain a permanent injunction in a smart-device case.

The brief includes an unusually blunt discussion of how injunction motions shape patent litigation — and why they’re such a powerful weapon for patent holders. “The injunction standard defines a patentee’s rights as against a competitor and affects numerous strategic decisions in a patent case, including whether to file, what patents to assert, what discovery requests to make, what consumer survey questions to ask, what issues to put to a damages expert, what questions to ask at depositions, what patent claims to advance at trial, and whether and when to settle,” wrote Apple’s lawyers at Wilmer Cutler Pickering Hale and Dorr and Morrison & Foerster. If the Federal Circuit takes away the possibility of a permanent injunction, Apple argued, that leaves patent holders only with the chance to obtain money damages, which their competitors will come to consider just a cost of doing business. “If that is indeed the law,” Apple’s brief said, in language that sounds like an overt challenge to the Federal Circuit, “patent rights will be greatly diminished in value.”

Supreme Court conundrum: How far does a soybean seed patent go?

Alison Frankel
Jan 17, 2013 22:53 UTC

Vernon Hugh Bowman is the rare Indiana soybean farmer destined for immortality as a U.S. Supreme Court caption.

Bowman had the temerity to attempt to outwit Monsanto, the giant agriculture company that, as you surely know, invested hundreds of millions of dollars and years of research in the creation of soybean seeds that are genetically modified to withstand the herbicide glyphosate, which Monsanto markets as Roundup. The genetically modified seeds, according to the Supreme Court brief Monsanto filed Wednesday, have been such a hit with farmers that more than 90 percent of the U.S. soybean crop begins with Monsanto’s Roundup Ready seeds. Given that every soybean plant produces enough seeds to grow 80 more plants — and that soybeans grown from Roundup Ready seeds contain the genetic modification of glyphosate resistance — Monsanto has insisted that farmers sign licensing agreements with strict restrictions. Soybean producers are only supposed to use the Roundup Ready seeds they buy to grow crops in a single season, and they’re forbidden from planting second-generation seeds harvested from first-generation crops.

The licensing agreements do contain an exception, though: Farmers are allowed to sell the second-generation seeds to grain elevators, which, in turn, are permitted to sell a mixture of undifferentiated seeds as “commodity grain.” Monsanto contends that commodity grain should be used for feed, not cultivation. But Bowman figured that the mixture sold by grain elevators probably contained mostly Roundup Ready seeds, so for several years, after harvesting his first crop (planted with authorized, Monsanto-licensed seeds), he planted a second crop with commodity grain. When he treated the second crop with herbicide, he was proved right — most of the plants were resistant.

New paradigm for mortgage put-back claims?

Alison Frankel
Jan 16, 2013 22:22 UTC

I did a double take Wednesday, when I noticed a pair of new suits by Lehman Brothers Holdings in federal court in Colorado. The complaints, which are almost identical, claim that the mortgage originator Universal American Mortgage breached representations and warranties about loans it sold to Lehman, which subsequently suffered losses as a result of those breaches. But here’s the thing: Each suit addresses only one supposedly deficient loan! Lehman’s lawyers at Akerman Senterfitt allege that Lehman sustained about $100,000 in damages on one of the loans and $120,000 on the other — numbers that are light years apart from the multibillion-dollar claims we’ve seen from groups of mortgage-backed securities investors who band together to assert contract breaches in thousands of loans at a time.

The Lehman complaints each also contained a curious paragraph, noting that the claims at issue were previously asserted as counts in an eight-loan put-back case Lehman was litigating in federal court in Miami. The judge in that case, Lehman said, had decided after a pretrial conference last week that “each loan must be filed separately, rather than joined within one action.”

That notation sent me to the docket in the Florida case, and to the order entered by U.S. District Judge James King on Jan. 9. It’s true: King ruled that every allegedly deficient loan has to be addressed in its own suit, not in a block case. “The lack of commonality among the various factual circumstances pertinent to each of the eight individual loans makes them all but impossible to be adjudicated together,” King wrote. “That lack of commonality flows from, among other things, the facts that each of these loans was made at a different time, to different borrowers, in different locations involving different purchases of different real properties; most fundamentally, each loan requires separate proof as to whether a breach occurred, what damages, if any, flowed from any such breach, and what the amounts of any such damages are.”

NY appeals court: Bond insurers have right to jury in MBS cases

Alison Frankel
Jan 15, 2013 23:29 UTC

Back in October 2011, New York State Supreme Court Justice Shirley Kornreich issued a pair of strange decisions in parallel cases against Credit Suisse by the bond insurers MBIA and Ambac. The monolines, both represented by Patterson Belknap Webb & Tyler, had sued the bank in 2010, asserting claims for both fraud and breach of contract in connection with Credit Suisse mortgage-backed securities they agreed to insure. Kornreich had previously dismissed the fraud counts, holding that they merely duplicated the monolines’ contract claims. But that ruling put her at odds with at least six other state and federal judges, and when the New York Appellate Division, First Department, affirmed the consensus view in a different case, Kornreich had little choice but to reinstate the Ambac and MBIA fraud claims. As expected, she did so in those October 2011 decisions.

But what Kornreich gave the bond insurers with one hand, she took away with the other. In the same 2011 decisions, the judge ruled that Ambac and MBIA had waived their rights to a jury trial in the contracts they signed with Credit Suisse. That meant that she, rather than a jury, would decide the merits of those newly reinstated fraud allegations — and she didn’t think there was much merit to them. Kornreich’s decisions said that Ambac and MBIA couldn’t just point to the MBS offering materials and claim they were duped. Credit Suisse, she said, had offered ample notice of potential weaknesses in the underlying loan pool. To prove fraudulent inducement, she ruled, Ambac and MBIA would have to show that the bank engaged in outright deception.

The judge did order discovery on the bond insurers’ fraud claims, though not much has taken place. In the meantime, Ambac and MBIA appealed Kornreich’s holding that they’d waived their right to a jury trial. They argued that the waiver should not apply, since it was part of a contract they claimed they’d been fraudulently induced to enter. Credit Suisse, represented in both cases by Orrick, Herrington & Sutcliffe, countered that although New York law does hold that contract waivers are not enforceable when a plaintiff is suing to invalidate the contract, Ambac and MBIA are not asking for rescission of the contract, but only for money damages. In that circumstance, Credit Suisse said, Kornreich correctly ruled that the bond insurers don’t have the right to trial by jury.

Who owns AIG’s MBS fraud claims? Billions ride on the answer

Alison Frankel
Jan 14, 2013 23:13 UTC

Amid the furor last week over whether AIG would thumb its nose at its federal rescuers and join former chairman Hank Greenberg’s $25 billion constitutional case against the United States, a curious side deal by AIG and Greenberg’s Starr International was mostly overlooked. Last year, as government lawyers prepared motions to dismiss Starr’s suits against both the United States and the Federal Reserve Bank of New York, AIG signed an agreement with Starr that kept the insurer out of the fray — even though one of the most powerful defenses against the claims Starr was asserting on behalf of AIG was that Greenberg’s lawyers had served the requisite presuit demand on the corporation’s board.

We still don’t know exactly why AIG agreed to the side deal with Greenberg and we probably won’t ever get a direct answer now that AIG is out of the case. (AIG’s board voted Wednesday to stay out of Starr’s Fifth Amendment “takings” case and Starr lawyer David Boies of Boies, Schiller & Flexner subsequently said Greenberg won’t sue the board for breach of duty.) But a filing Friday by AIG shows that the insurer has its own megabucks dispute under way with the Federal Reserve. That could be one of the reasons AIG didn’t help the government defend against Starr’s suits — and, more importantly, at this point, it could affect AIG’s $10 billion claims against Bank of America, as well as BofA’s proposed $8.5 billion breach-of-contract settlement with holders of Countrywide mortgage-backed securities.

AIG’s new filing, styled as a New York State Supreme Court complaint against the New York Federal Reserve’s Maiden Lane special purpose vehicle, requests a declaration that in 2008, when the Fed paid $20.8 billion to acquire AIG’s mortgage-backed portfolio through the Maiden Lane vehicle, Maiden Lane did not acquire AIG’s rights to sue MBS issuers for securities fraud. (The Fed has since sold off the Maiden Lane MBS portfolio, at a profit of more than $2 billion.) The complaint explains that the suit is a response to recent declarations by Fed officials in AIG’s case against Countrywide, which (as I’ve told you) Bank of America has moved to dismiss on the grounds that the Fed, and not AIG, owns the fraud claims AIG has asserted.

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