If JPMorgan Chase and the Justice Department thought that all the zeroes at the end of the bank’s multibillion-dollar settlement for mortgage securitization failures would foreclose questions about the bank’s actual wrongdoing, clearly they thought wrong. Days after the much-leaked-about $13 billion deal was finally announced, New York Times columnist Gretchen Morgenson looked at the admissions accompanying the settlement and wondered why it had taken the federal government so long to hold the bank accountable for conduct that’s been in the public domain for years. Morgenson’s column echoed posts at Bloomberg and Slate that also scoffed at JPMorgan “admissions.” On Monday, even a commissioner of the Securities and Exchange Commission piled on. Dan Gallagher, a Republican, criticized the settlement as a penalty on the bank’s current shareholders that’s not justified by JPMorgan’s admitted conduct. “It is not rational,” Gallagher told an audience in Frankfurt at an event organized by the American Chamber of Commerce in Germany.
Are Sears and Whirlpool trying to hoodwink the justices of the U.S. Supreme Court about cases that could devastate consumer class action litigation?
If there’s one assumption that underlies the shareholder litigation I’ve covered over the years, it’s that truly independent boards serve shareholder interests. Plaintiffs lawyers often don’t agree with defendants about whether particular directors are actually independent, but the corporate governance ideal of a disinterested board is rarely questioned by either side. Changes in the composition of corporate boards seem to reflect that assumption. In 1998, according to a forthcoming article by Emory University School of Law professor Urska Velikonja for the North Carolina Law Review, S&P 500 companies reported that 78 percent of their board members were independent. By 2012 the number was up to 84 percent. Even more dramatic, according to Velikonja, has been the rise of boards with only one insider – the CEO – on the board. As recently as 2000, Velikonja found, these so-called supermajority independent boards represented only 20 percent of public companies. In 2012, by contrast, 59 percent of public company boards had only one non-independent director.
In Tuesday’s ruling that Detroit is eligible for federal bankruptcy protection, U.S. bankruptcy judge Steven Rhodes set crucial precedent on a municipality’s right to cut pension benefits through the Chapter 9 process. Michigan’s state constitution, like those of many other states, specifically protects the pension rights of public employees. Before Detroit even filed for Chapter 9 in July, some of its pensioners went to state court to block the bankruptcy, arguing that it’s a violation of the state constitution to tamper with their benefits. Rhodes squelched that litigation and asserted his federal-court jurisdiction, but retirees and unions continued their challenge to the city’s right to meddle with their pensions, just as California’s vast public pension fund, Calpers, has relentlessly resisted any suggestion that the bankrupt cities of Stockton and San Bernardino might reduce their pension obligations. In a first-ever ruling on the impairment of pension obligations in a Chapter 9 proceeding, Judge Rhodes held Tuesday that neither the Contracts Clause nor the Tenth Amendment of the U.S. Constitution prohibits Detroit from cutting pension benefits, even if those benefits are protected in the state constitution.
Last month, the U.S. Supreme Court heard arguments in Hood v. AU Optronics, the case that will determine whether consumer suits by state attorneys general must be litigated in federal court under the Class Action Fairness Act or may be tried in the plaintiffs-friendly confines of state court. I’ve been harping on these AG cases, known as parens patriae suits, because they’re increasingly the most viable way to hold corporations accountable in court to consumers, thanks to the Supreme Court’s predilection for arbitration and skepticism about class actions. An array of pro-business groups seized the opportunity of the AU Optronics case – in which the 5th Circuit Court of Appeals split with several other federal circuits and held that parens patriae suits are removable to federal court under CAFA – to ask the Supreme Court to rein in state AGs, just as the justices last term curbed class action lawyers who tried to stipulate their way out of federal court.
Ever heard the old adage that when your only tool is a hammer, every problem looks like a nail? The law firm Gibson, Dunn & Crutcher has no shortage of tools, but among its most powerful is a premier appellate practice that in the last few years has won landmark rulings from the U.S. Supreme Court in Hollingsworth v. Perry, the California same-sex marriage case; Wal-Mart v. Dukes, which raised due process defenses against class certification; and Citizens United v. Federal Election Commission, the infamous corporate free speech case. When your litigators are expert at winning constitutionality arguments, an awful lot of problems seem to have constitutional dimensions.
On this Thanksgiving Eve, as we recall the generosity of the Wampanoags who helped early Bay Colony settlers learn how to survive in the New World, securities class action lawyers may want to spare a thanks or two for 12 members of the Ute tribe as well. Why? Because if the U.S. Supreme Court ends up eliminating fraud-on-the-market reliance in the Halliburton case to be heard later this term, one of the few remaining avenues for securities class actions is open because of a case those Utes brought to the Supreme Court back in 1971.
Satire, according to an opinion Tuesday by the D.C. Circuit Court of Appeals in a defamation suit against Esquire magazine, is hard to define. But like U.S. Supreme Court Justice Potter Stewart contemplating hard-core pornography (in his oft-quoted concurrence in the 1964 case Jacobellis v. State of Ohio), the appeals court knows it when it sees it. A three-judge appellate panel upheld the dismissal of claims by two prominent members of the ‘birther’ movement, ruling that an Esquire blog post reporting the withdrawal of a book purporting to expose the falsity of President Obama’s birth certificate satisfied the elusive criteria for satire, even if some of the blog post’s readers didn’t get the joke.
On Wednesday, when most people are calculating how early they can slip out of work and begin their Thanksgiving festivities, an awful lot of high-priced New York lawyers will be fighting for seats at 27 Madison Avenue, where the New York Appellate Division, First Department, hears appeals. Billions of dollars of claims for breaches of representations and warranties on mortgage-backed securities hang on what the state appeals court decides about the time limits for these suits. Does the clock start ticking when the securities are issued and representations about underlying mortgage loans take effect? Or does New York’s six-year statute of limitations begin running only when the MBS seller refuses to repurchase loans that breach its contractual assurances? A five-judge appellate panel will confront the issue Wednesday in a case called Ace Securities v. Deutsche Bank Structured Products. The courtroom should be packed with lawyers and clients on both sides of New York’s sprawling MBS put-back litigation docket, who are hoping for clues about what the appeals court will decide.
Oh, those greedy contingency-fee lawyers. Is there nothing they won’t do to wring a few million bucks in fees from corporate defendants blamelessly and selflessly going about their business? Dish Network’s majority shareholder, Charles Ergen, and his friends and colleagues on the board performed a great service for the company’s minority shareholders when they secured Dish’s spot as the stalking-horse bidder for LightSquared spectrum licenses. Sure, Ergen had his own personal interest in the LightSquared deal because he’s the biggest creditor of the bankruptcy company. But Dish’s board went above and beyond Nevada’s statutory requirements for transactions in which a director has a conflicting financial interest. It appointed a special transaction committee of independent directors, who hired their own lawyers and financial advisors. With help from Ergen, his personal lawyers and Dish managers, the independent committee came up with a $2.2 billion bid, which the board voted to approve and the bankruptcy judge overseeing LightSquared’s Chapter 11 subsequently deemed the leading offer in the LightSquared auction process.