Alison Frankel

DOJ dismissal motion leaves mystery in shipping magnate’s libel case

Alison Frankel
Sep 15, 2014 20:38 UTC

We know the U.S. government believes that it has such significant national security interests at stake in a libel suit by the Greek shipping magnate Victor Restis against the non-profit United Against Nuclear Iran that on Friday, the Justice Department invoked the state secrets privilege and asked for Restis’ suit to be dismissed. What we don’t know is why.

The government’s brief is maddeningly opaque about its interest in a private libel case. It states just that the head of an unnamed federal agency has determined that information related to Restis’ claim is subject to the powerful and rarely invoked state secrets privilege. Even revealing the identity of the agency or the basis of the assertion of the privilege, according to Justice, might compromise “classified and privileged matters,” the brief said. All of the specifics on Justice’s claim of privilege are contained in declarations that only U.S. District Judge Edgardo Ramos of Manhattan – and not even lawyers for Restis and UANI – can see. The judge will have to decide whether to permit Justice to intervene, though that’s really a formality because of the executive branch’s broad discretion to claim the state secrets privilege.

It’s extremely unusual, though not unprecedented, for the government to invoke the state secrets privilege and move to intervene in private litigation. In a 2010 decision called Mohamed v. Jeppesen Dataplan, for instance, Justice secured the dismissal of an Alien Torts Act suit against a company that allegedly helped the Central Intelligence Agency transport suspected terrorists for interrogation outside of the United States, after the 9th U.S. Circuit Court of Appeals, sitting en banc, concluded that the case implicated the state secrets privilege.

But the U.S. government’s interest in shrouding the CIA’s extraordinary rendition program seems obvious. The national security implications of Restis’ case against UANI are, as the New York Times reported Sunday, much murkier. Restis’ lawyer, Abbe Lowell of Chadbourne & Parke, told the Times that “there is no precedent, literally, for what the government is attempting to do.” (Lowell didn’t return my call.) Ben Wizner of the American Civil Liberties Union, who represented plaintiffs in the 9th Circuit case that was dismissed under the state secrets doctrine, told Times reporter Matt Apuzzo, “I have never seen anything like this.”

The government’s motion to dismiss Restis’ case clearly benefits UANI, a group headed by Mark Wallace, who served as a United Nations ambassador in the George W. Bush administration. (UANI’s other founders include former CIA director James Woolsey and the late Richard Holbrooke, a diplomat and former assistant secretary of state.) UANI has issued public denunciations of Restis, accusing him of violating international sanctions and aiding Iran’s development of nuclear arms by secretly exporting Iranian oil in his company’s ships. Restis said UANI’s “name and shame” announcements were hurting his business and sued for libel.

N.Y. appeals court: Shareholders can see board docs before filing suit

Alison Frankel
Sep 12, 2014 20:53 UTC

In July, the Delaware Supreme Court gave shareholders a fancy new driving wedge to use against corporate boards. The justices ruled in Wal-Mart v. Indiana Electrical Workers that under Delaware’s books-and-records law, investors are entitled to see more than just bare-bones board materials and accounting information when they’re investigating whether directors breached their duty. Even officer-level documents that the board didn’t see – and even some privileged communications – are fair game for shareholders evaluating the board’s conduct in anticipation of a possible derivative suit against directors.

New York has now joined Delaware in holding that just conducting an investigation of alleged board misconduct entitles shareholders to see a broad swath of corporate documents. On Thursday, a five-judge panel of the state’s Appellate Division, First Department, ruled that McGraw-Hill, which is incorporated in New York, must produce books and records to a Florida pension fund examining what the board knew about Standard & Poor’s ratings of mortgage-backed securities and collateralized debt obligations. (In case you are an alien who just arrived on Earth, S&P’s ratings of these instruments weren’t very reliable; the company is in the midst of defending multibillion-dollar claims based on those ratings by state AGs and the Justice Department.)

Like the Delaware Supreme Court, the New York appeals court said that collecting information to inform a possible derivative suit is a proper purpose for demanding corporate documents. “Indeed, (the pension fund) identified several reasons for making (its) demand, including assessment of policies that the board had implemented when issuing credit ratings and investigation of possible wrongdoing by the respondent’s board of directors,” the opinion said. “Each of these purposes adequately justifies petitioners’ access to certain board documents.”

Robbins Geller tries to ward off aftereffects of Boeing sanctions

Alison Frankel
Sep 11, 2014 21:32 UTC

The prolific class action firm Robbins Geller Rudman & Dowd had to know that the taint of a decision last month by a trial judge in Chicago federal court – who sanctioned the firm under Rule 11 and ordered it to pay Boeing’s legal fees and costs for defending an unjustified securities class action – was going to be hard to erase. But on the evidence of a letter the firm filed Wednesday in a securities class action against JPMorgan Chase in Manhattan federal court, Robbins Geller seems determined to stop the stain from spreading.

JPMorgan’s argument that Robbins Geller isn’t fit to represent a class of mortgage-backed-securities investors dates back to last January, when the bank’s lawyers at Sidley Austin filed a brief opposing class certification. The brief attached as an exhibit a letter to the court from a lawyer for one of the 11 confidential witnesses cited in Robbins Geller’s complaint against JPMorgan. The letter, written after U.S. Magistrate Judge James Francis ruled that Robbins Geller had to disclose to JPMorgan the identity of its confidential witnesses, claimed that Robbins Geller’s investigator had deceived the witness in 2009, when they first spoke. The investigator supposedly said he was just researching the mortgage meltdown, not that he was working for plaintiffs’ lawyers. According to the letter from his lawyer, the witness only found out that his statements had been quoted in a complaint a couple of years later, when the investigator contacted him again. In that conversation, the letter said, a Robbins Geller lawyer who had been “secretly” listening to the phone call informed the witness that the firm had used his statements in its filing – after he disavowed quotes the investigator read to him.

Sidley’s brief opposing class certification asserted that the witness’s accusations against Robbins Geller were consistent with similar claims of confidential witness chicanery in other cases the firm had handled. The brief cited a March 2013 ruling by the 7th U.S. Circuit Court of Appeals that reamed Robbins Geller for basing a class action against Boeing on the unverified testimony of an unreliable confidential witness. Judge Richard Posner, who wrote the 7th Circuit opinion, said the Boeing example was part of a pattern of misconduct in which Robbins Geller either misrepresented statements from confidential witnesses or relied on witnesses who denied their supposed statements. In the JPMorgan case, Sidley said, Robbins Geller showed the same “lack of diligence and candor” that the 7th Circuit had criticized.

Apple lawyers to defend Samsung in Microsoft licensing dispute

Alison Frankel
Sep 10, 2014 21:04 UTC

When my whip-smart Reuters colleague Dan Levine noticed Tuesday that George Riley and several other lawyers from O’Melveny & Myers had entered appearances as defense counsel for Samsung in its month-old dispute with Microsoft over allegedly unpaid patent royalties, my immediate thought was that O’Melveny’s new assignment was another sign of the waning tensions between Apple and the South Korean electronics company.

O’Melveny, after all, regularly represents Apple and has done so since Steve Jobs’ 1997 return to the company he founded. Riley was a close friend and adviser to Jobs and has appeared for Apple in everything from patent litigation and securities cases to the no-poaching antitrust collusion suit underway in federal court in San Jose, California. Apple and Samsung, as all the world knows, have been at each other’s throats in global smartphone litigation for the past four or five years, but the two companies called a partial truce in August, when they agreed to drop all of their patent litigation against one another in jurisdictions outside of the United States. I figured that O’Melveny wouldn’t have agreed to defend Samsung against Microsoft’s royalties claims if Apple hadn’t blessed the assignment, reflecting Apple’s recent overseas detente with Samsung.

I may have jumped to the wrong conclusion. O’Melveny declined to comment on its client relationships, but the public record shows that the firm has been representing Samsung for years – even in patent litigation over component smartphone parts and even as O’Melveny counseled Apple in the smartphone wars.

Delaware judge OKs forum selection clause adopted on same day as deal

Alison Frankel
Sep 9, 2014 21:18 UTC

Chancellor Andre Bouchard of Delaware Chancery Court struck a double blow Monday for corporations that want to restrict shareholder litigation to a single jurisdiction. In a decision upholding the validity of a bylaw requiring shareholders of First Citizens Bancshares to sue board members only in North Carolina, Bouchard ruled that Delaware corporations can designate venues other than Delaware as the exclusive forum for shareholder claims – an issue of first impression in Chancery Court. But that wasn’t all. Bouchard also rejected shareholder arguments that First Citizens’ forum selection clause can’t be enforced because it was enacted on the same day that the North Carolina bank announced its $676 million acquisition of a related First Citizens entity in South Carolina.

According to First Citizens’ lawyer Sandra Goldstein of Cravath Swaine & Moore, Bouchard’s ruling is the first to uphold a forum selection bylaw adopted in connection with a merger (and in anticipation of the inevitable shareholder suits that follow M&A deals). In an interview Tuesday, Goldstein predicted that the chancellor’s reasoning on the timing of First Citizens’ bylaw will turn out to be of broader significance than his holding on non-Delaware jurisdictions, since most forum selection clauses direct all shareholder litigation to Delaware.

Bouchard said that First Citizens shareholders hadn’t shown that the board had an improper motive in restricting litigation to a single venue just because directors adopted the clause in connection with a merger. The First Citizens clause doesn’t preclude shareholder suits, he said; it just regulates where they can be filed. “That the board adopted it on an allegedly ‘cloudy’ day when it entered into the merger agreement with FC South rather than on a ‘clear’ day is immaterial given the lack of any well-pled allegations … demonstrating any impropriety in this timing,” Bouchard wrote.

BP’s friends at the Supreme Court: new faces, old arguments

Alison Frankel
Sep 8, 2014 21:43 UTC

It must have been a lot of fun for the lawyers at King & Spalding to write the first couple of sentences in a new amicus brief at the U.S. Supreme Court, supporting BP’s petition for review of two rulings by the 5th U.S. Circuit Court of Appeals. King & Spalding’s client is the British government, which, like BP, believes that the 5th Circuit was wrong to uphold the oil company’s 2012 class action settlement because the deal supposedly permits recoveries even to businesses with no injuries attributable to the 2010 Deepwater Horizon oil spill. By now, that’s a well-worn argument, after BP’s two ultimately unsuccessful appeals at the 5th Circuit and its failed request for an emergency stay from the Supreme Court. But when you represent the Queen of England’s government, here’s how you get to introduce yourself:

“Her Britannic Majesty’s Government of the United Kingdom of Great Britain and Northern Ireland respectfully submits the following brief in this important matter,” the brief begins. “Although Her Majesty’s Government takes no position on any points of interpretation of United States law, it notes that the combination of rulings now before this court has produced an untenable and exceptionally important result.” Soon thereafter, the UK brief cites the 1765 edition of Blackstone’s Commentaries on the Law of England for “the proposition that plaintiffs must prove all of the elements of their claims,” which, according to the brief, is fundamental to “our nations’ shared legal tradition.”

Drafting that paragraph had to be a kick for the American lawyers representing Britain. And I’m sure BP was gratified that The Financial Times gave the UK government’s amicus brief big play on Sunday. Even the class action lawyers who have fought to preserve their multibillion-dollar settlement with BP told me in an email statement that it took “gumption” for BP to persuade “the Queen of England to say that centuries-old English law would frown on BP paying damages.”

New ISDAfix rate-rigging antitrust case isn’t just Libor redux

Alison Frankel
Sep 5, 2014 20:29 UTC

Daniel Brockett of Quinn Emanuel Urquhart & Sullivan knows as well as anyone what happened last year in the litigation over an alleged conspiracy to manipulate the London Interbank Offered Rate. You remember: In a true shocker of a decision, U.S. District Judge Naomi Reice Buchwald, who is presiding over Libor litigation consolidated in federal court in Manhattan, ruled that the alleged Libor rate-rigging didn’t give investors a cause of action for antitrust violations because the supposed conspiracy among Libor panel banks was not anticompetitive. For Brockett, who had been advising clients to bring Libor suits under securities and contract law, Buchwald’s ruling was an opportunity to push his alternative theory of how to recover for Libor manipulation.

So when I saw Brockett’s name at the top of an antitrust class action complaint filed Thursday in federal court in Manhattan – accusing 13 global banks of colluding to manipulate a different interest rate benchmark, the U.S. dollar ISDAfix – I suspected that the allegations would have been drafted with Buchwald’s Libor reasoning in mind. And so they were, according to Brockett and co-counsel from Robbins Geller Rudman & Dowd. In interviews Friday, Brockett and Patrick Coughlin and David Mitchell of Robbins Geller told me why they believe their ISDAfix antitrust allegations can withstand the judicial analysis that killed off (at least for now) Libor antitrust allegations.

The key difference between their case and the dismissed Libor claims, according to the plaintiffs’ lawyers, is that they accuse the banks involved in setting the ISDAfix benchmark of engaging in transactions in order to manipulate the rate. Libor rates were determined by averaging the rates reported by banks on the rate-setting panel. The ISDAfix benchmark – a daily measure of the fixed rate for interest rate swaps that affects the price of trillions of dollars of derivatives – is a reference rate that, like Libor, relies on submissions from panel banks. But when the markets operator ICAP calculated the rate during the time period at issue in the suit, it also took into account the average trading rate of interest rate swaps at 11 o’clock every morning. According to the complaint, the banks involved in the ISDAfix-setting process conspired with each other and ICAP to manipulate the trading rate through (among other things) engaging in high-volume, coordinated buying or selling just before ICAP’s daily 11 a.m. assessment. The complaint claims that bankers called such rate-rigging “banging the close.”

Target’s bid to ditch $18 bln case by credit and debit card issuers

Alison Frankel
Sep 4, 2014 21:09 UTC

When hackers from Eastern Europe stole financial information from more than 100 million Target customers last fall, the data breach caused a huge headache for banks that issued the compromised credit and debit cards. In the midst of the holiday shopping season, card issuers had to notify clients about the breach, cancel accounts that had been hacked, reissue cards and reimburse customers for fraudulent transactions. The issuing banks have estimated that each card they replaced cost them between $15 and $50. In all, they have alleged in a class-action complaint against Target, their damages from the data breach fiasco may add up to more than $18 billion.

Target says those losses aren’t its responsibility. In a brief filed Tuesday in federal court in St. Paul, Minnesota, the retailer’s lawyers at Ropes & Gray and Faegre Baker Daniels argue that Target has no legal duty to the banks that were forced to replace hacked credit and debit cards because it has no direct relationship with the issuers and owes them no special care.

Every retail business and payment card issuer ought to be paying attention to Target’s arguments. There have been only a handful of rulings in the past few years on merchants’ liability to payment card issuers, and they’ve all been in small actions by individual banks – nothing remotely approaching the scale of the Target class action. All but one of the previous decisions (at least according to Target’s brief) have gone against payment card issuers, concluding that merchants don’t have a duty to credit card issuers. But if U.S. District Judge Paul Magnuson, who’s overseeing the consolidated Target data breach litigation, eventually disagrees and finds that bank issuers can sue retailers for the cost of dealing with data breaches, that will drastically increase merchants’ exposure in data breach litigation.

Can U.S. terror-financing litigation curtail terrorism?

Alison Frankel
Sep 3, 2014 23:46 UTC

I’ve spent the past two days in a federal courtroom in downtown Brooklyn, listening to the former head of Israel’s Palestinian Affairs Department, Arieh Spitzen, make a convincing case that Jordan’s Arab Bank processed tens of millions of dollars to Hamas leaders and Hamas-controlled organizations during the second Palestinian Intifada, when Hamas was engaged in a campaign of bombings that killed more than 600 Israeli and foreign civilians. Spitzen was the final witness for nearly 300 American victims of Hamas terrorism operations between 2000 and 2004, and his expert testimony weaved together the strands of their case into a neat bundle. According to Spitzen, Arab Bank transferred more than $4 million into accounts held by 18 prominent and publicly known Hamas officials; processed more than $32 million from Hamas’ worldwide fundraising operations to Hamas-controlled groups fronted by charities; and facilitated another $35 million in payments to Palestinians injured or imprisoned in the Intifada or to families of those who died in the uprising.

Arab Bank will still have a chance during its cross-examination to raise doubts about Spitzen, who has been paid more than $700,000 for his work on behalf of the American plaintiffs. The bank will also, of course, call its own witnesses, who are expected to testify that Arab Bank conducted nothing more than routine banking operations, appropriately terminating relationships with account holders once people or organizations were designated as international terrorists. Arab Bank has long argued that it and other global financial institutions must be permitted to rely on these international designations or else no legitimate bank will operate in terror-ridden parts of the world. “It is the government who decides who should be designated as a criminal and put on the lists,” the bank’s lead trial lawyer, Shand Stevens of DLA Piper, said during opening arguments in August. “That is the way banking works.”

In the abstract, that’s a compelling argument, but through Spitzen’s testimony, lawyers for Hamas’ American victims brought specificity to claims that Arab Bank knew or should have known that it was financing terror. Spitzen, who served with a joint military and Defense Ministry group called the Coordinator of Government Activities in the (Palestinian) Territories, told jurors about dozens of Hamas leaders who either held accounts at the bank or headed supposed charities with Arab Bank accounts. Jurors saw slides with the Hamas operatives’ names, photographs and prison histories. They heard about Israel’s raids on some of the charities, which turned up not only evidence of links between Hamas and the purportedly humanitarian groups but also “martyr files” on suicide bombers whose survivors received wire transfers at Arab Bank branches from the Saudi Committee for the Support of the Intifada Al Quds. (The bank has said that it just processed payments to the families as per the instructions it received from a correspondent bank in Saudi Arabia and that “martyrs” is a term describing all of the more than 3,000 Palestinians who died in the second Intifada, not necessarily suicide bombers.)

Justice Department to federal judges: Get off my lawn

Alison Frankel
Aug 29, 2014 20:38 UTC

Have you heard the old joke about the difference between God and a federal court judge? The punchline is that God doesn’t think he’s a judge – implying, of course, that federal judges have a perhaps inflated perception of their omnipotence.

The Justice Department is doing its best to prick that bubble, at least when it comes to judicial oversight for its deals with corporate defendants. None of the government’s megabillion-dollar settlements with banks for their alleged mortgage securitization crimes, for instance, has been subject to review by a federal judge, since all of the deals have been struck before Justice actually filed cases. (Better Markets has been sounding an alarm on these settlements since February, when it sued Justice over JPMorgan Chase’s $13 billion deal.) Formal non-prosecution agreements, which also permit Justice and corporate defendants to sidestep federal judges, have been on the rise for more than a decade. Gibson, Dunn & Crutcher‘s midyear corporate crime report, issued in July, said Justice has struck five non-prosecution agreements – including one settlement, with SunTrust Mortgage, that introduced a whole new category of non-prosecution deals, the “restitution and remediation agreement” – so far in 2014. (Sue Reisinger at Corporate Counsel had a good piece Friday on this latest avenue of evasion for corporate defendants.)

Deferred prosecution agreements, which the Justice Department has deployed more frequently than non-prosecution agreements, do involve judicial oversight, thanks to the Speedy Trial Act of 1974. The act, which requires the federal government to try criminal defendants expeditiously, entails judicial approval for agreements that toll time limits. Historically, such deals involved individual defendants, and judges reviewed them to be sure that prosecutors and defendants weren’t colluding to delay trials.