Remember the great statute of limitations schism that occurred in New York State Supreme Court in May? On the very same day, two state court judges issued drastically different decisions on when the statute begins to run in cases asserting that sponsors of mortgage-backed securities breached representations and warranties on the underlying loans. Justice Shirley Kornreich sided with investors in a put-back case against DB Structured Products, holding that the clock starts ticking when an MBS securitizer refuses a demand to repurchase defective loans in the mortgage pools. Justice Peter Sherwood, on the other hand, explicitly rejected that interpretation of the statute of limitations, ruling instead in a put-back case against Nomura that the statute is triggered when the MBS offering closes.
Over the weekend, the Obama administration made an extraordinary decision: The U.S. Trade Representative overturned a U.S. International Trade Commission injunction barring the import of Apple iPhones found to infringe Samsung standard-essential technology. It’s been almost 30 years since the ITC commissioners were previously overruled by the White House, but, as I told you last month, Apple argued that the ITC’s injunction was contrary to the emerging consensus among federal courts and executive-branch agencies that injunctions should not, except in rare instances, be based on standard-essential patents.
Regardless of what you think of the business of litigation funding, it’s here to stay. There are now hundreds of millions, if not billions, of dollars of capital invested in commercial litigation and arbitration in the United States, Britain and Australia, and some of the biggest litigation funding firms in the United States have begun to show a good enough return for their investors to justify the risk of taking sides in inherently lengthy and uncertain cases. Business groups that oppose investment in litigation tried mightily, but they simply haven’t managed to stem the industry’s steady spread, either through legislation or regulation.
On Tuesday, the small California city of Richmond announced that it has sent notices to 624 homeowners whose houses are worth less than they owe on their mortgages. Richmond said it intended to buy their mortgages for 80 percent of the fair value of their houses and to help them refinance with new, more affordable mortgages. In the event homeowners don’t want to participate in the program, Richmond said it would use its power of eminent domain to seize the mortgage loans.
The California Public Employees’ Retirement System, the largest public pension fund in the United States, rarely takes a stand as an amicus in trial court. But in an amicus brief filed earlier this month, Calpers warned that the future of private investment in California is at stake in a dispute over a few million dollars in unpaid bonuses to former employees of the now-defunct HRJ Capital. Unless a state-court judge overturns a colleague’s ruling that limited-partner investment funds are on the hook for liabilities of the general partner and fund manager, Calpers said, California risks losing its stature as an incubator of start-up business.
Jesse Strauss of Strauss Law had two goals when he filed a fraud suit on behalf of 12 graduates of Thomas M. Cooley Law School. The first was to win compensation for the Cooley grads, who had paid tens of thousands of dollars of tuition in the misguided expectation that a Cooley law degree would lead to a full-time legal career. The second, he told me, was to dispel similar misguided expectations by anyone else considering enrollment at Cooley. A ruling Tuesday by the 6th Circuit Court of Appeals will probably spell the end of the hope that Cooley graduates can get any of their money back from the school, but it should also expose the law school as a highly questionable investment for prospective lawyers.
The doctrine of cy pres – from the French for ‘cy pres comme possible,’ or ‘as near as possible’ – may have originated in trust law, but it has had its full flowering in class actions. Both defendants and plaintiffs lawyers have good reasons to resolve cases involving potentially large numbers of claimants with minuscule damages by directing money to charity instead of tracking down class members. Cy pres settlements wipe cases off the docket, which is good for defendants. And they generate fee awards, which is good for the class action bar. Class actions are, of course, overseen by federal judges, and the practice of naming a particular judge’s favorite charity as the recipient of cy pres funds in order to boost the odds of court approval has fallen into disrepute. Nevertheless, it’s the rare cy pres settlement that is rejected. Judges may ask for money to go to a different charity or may restrict attorneys’ fees, but courts usually conclude that there’s a benefit to class members in supporting charity rather than risking a trial of their claims.
In 2012, five African-American Detroit homeowners and a Michigan legal services group asserted a notably creative legal theory in a class action against Morgan Stanley. Their lawyers at Lieff Cabraser Heimann & Bernstein and the American Civil Liberties Union acknowledged that Morgan Stanley didn’t write the supposedly predatory mortgages that victimized African-American borrowers in Detroit. Those housing-bubble mortgages were originated by New Century, a notorious subprime lender that went under in 2007. But the suit argued that New Century was writing loans to feed Morgan Stanley’s securitization machine. Because Morgan Stanley wanted to bundle certain types of subprime loans into its mortgage-backed securities, the theory went, its policies guided New Century’s predatory practices. So according to the homeowners’ suit, Morgan Stanley was actually responsible for the disparate impact of New Century’s discriminatory lending.
If there were any doubt that the tech world remains transfixed by the question of whether courts should order injunctions based on standard-essential patents, check out the Federal Trade Commission’s newly released response to commenters on the Google antitrust settlement it proposed in January. Many of the 25 letters that the FTC received focused on settlement provisions barring Google from seeking an injunction based on infringement of an essential patent until a fair licensing rate is determined by a court or arbitrator. The FTC said that its final settlement with Google, which was disclosed Wednesday, holds Google accountable for its commitment to license essential technology on fair and reasonable terms. Potential licensees, the agency said, must be protected from “opportunistic behavior” and permitted “to negotiate licensing terms without facing the threat of an injunction.”
It’s safe to say that the besieged hedge fund SAC Capital has lots more to worry about than a class action by investors in Elan Corporation, one of the companies whose shares the fund supposedly traded on the basis of inside information. The New York Times and The Wall Street Journal reported Wednesday that federal prosecutors in New York are on the verge of indicting SAC, the culmination of an insider trading investigation in which four onetime fund employees have pleaded guilty and two more, including the star portfolio manager Michael Steinberg, are facing criminal charges. SAC founder Steven Cohen is busy defending against Securities and Exchange Commission allegations that could knock him out of the industry, and SAC outside investors have pulled $5 billion out of the fund.