Is there any private equity investor with a more flamboyant personal style than Lynn Tilton, CEO of the distressed debt private equity firm Patriarch Partners? Tilton is Yale- and Columbia-educated and Wall Street-trained, but here’s the first impression she made in a 2011 interview with New York magazine: “Tilton’s lipstick is frosty pink, her eyelashes are long and inky black, her hair is Barbie-doll blonde, with curls spilling over cleavage that is invariably visible, invariably tan, invariably accentuated by a diamond necklace, and invariably supported by a tight-fitting garment made by one of her favorite designers. Today she has chosen a Roberto Cavalli miniskirt accessorized with spike-heeled suede boots and a fur-trimmed cape.”
Sheldon Adelson, the billionaire atop the Las Vegas Sands casino empire, must surely hold the unofficial U.S. record for appearances as a libel and defamation plaintiff. I’ve written before about Adelson’s quick trigger for libel claims, but he outdid himself this February when he sued Kate O’Keefe, a reporter for The Wall Street Journal in Hong Kong, over a December 2012 piece in which she and a co-author referred to him as “a scrappy, foul-mouthed billionaire from working-class Dorchester, Mass.” Adelson took exception to being described as “foul-mouthed,” but his underlying objection may have been to the premise of the article, which drew a contrast between Adelson and the equally abrasive but more polished former Sands China CEO Steven Jacobs, with whom Adelson has been engaged in litigation over the company’s casino operations in Macau. The Journal reporter whom Adelson sued in Hong Kong had previously written stories about Jacobs’s claim – asserted in legal filings in his Nevada wrongful termination action against the Sands – that Adelson had condoned a “prostitution strategy” at the Macau casino. Adelson, who subsequently sued Jacobs for defamation in Miami-Dade Circuit Court, seems to have regarded The Wall Street Journal as a favored recipient of leaks from his archenemy Jacobs.
The biggest news to come out of Tuesday’s ongoing hearing to evaluate Bank of America’s proposed $8.5 billion settlement with investors in 530 Countrywide mortgage-backed securities trusts is that the Office of the Comptroller of the Currency gave Bank of America clearance to put Countrywide into bankruptcy if Countrywide’s liabilities threatened BofA’s existence. Or at least that’s what Kathy Patrick of Gibbs & Bruns, who represents 22 institutional investors that negotiated the proposed deal with BofA and Countrywide MBS trustee Bank of New York Mellon, said her clients were told by BofA Chief Risk Officer Terry Laughlin in 2011 as they tried to come to terms on a settlement of investor claims that Countrywide breached representations and warranties about the underlying mortgage loans. To my knowledge, Patrick’s assertion – which was intended to support her argument that MBS investors risked getting much less than $8.5 billion for their put-back claims – is, if true, the first tangible indication that Bank of America ever did more than hypothesize bankruptcy for Countrywide.
To say that the hearing to evaluate Bank of America’s proposed $8.5 billion breach of contract settlement with investors in Countrywide mortgage-backed securities got off to a slow start would be something of an understatement. In a courtroom so crowded that New York State Supreme Court Justice Barbara Kapnick repeatedly admonished observers to clear a path to the door, the judge heard hours of pretrial motions, many on issues she regarded as already settled. In particular, objectors to the settlement – led by AIG, several Federal Home Loan Banks and other assorted pension and investment funds – told Kapnick that they should not be forced to proceed with opening statements until they’ve had a chance to take depositions based on privileged communications between Bank of New York Mellon, the Countrywide MBS trustee, and its lawyers at Mayer Brown. Kapnick ordered the documents produced late last month, and AIG counsel Daniel Reilly of Reilly Pozner said it wouldn’t be fair to begin a hearing to determine whether BNY Mellon made a reasonable decision to agree to the $8.5 billion settlement – which resolves potential claims by 530 trusts that Countrywide breached representations and warranties about underlying mortgage loans – until objectors have quizzed witnesses on the confidential material.
Remember the motion by California’s public employees’ retirement system to disqualify Winston & Strawn from representing the bond insurer National Public Finance (the muni bond wing of MBIA) in the Chapter 9 bankruptcies of two California cities, Stockton and San Bernardino? Calpers’s lawyers at K&L Gatesargued last month that under California law, Winston must automatically be disqualified from representing National because it hired a K&L partner who had represented the pension fund, which is in direct conflict with the bond insurer over priority of payouts by the bankrupt municipalities.
Janet Cooper Alexander, a professor at Stanford Law and a scholar of civil procedure and class actions, is not a fan of the U.S. Supreme Court’s 2011 ruling in AT&T Mobility v. Concepcion. In an upcoming paper for the University of Michigan Journal of Law Reform, Alexander discusses why, in her view, the high court majority “fundamentally misread” legislative history and congressional intent when it used the Federal Arbitration Act “to advance an agenda that is hostile to consumer litigation and classwide procedures.” Alexander argues that Concepcion‘s overarching endorsement of mandatory arbitration clauses has had a dire impact on the ability of consumers and employees to litigate small claims, since they’re “subject to unilaterally imposed arbitration provisions that overwhelmingly contain class waivers.”
Deference to the decisions of corporate boards is a bedrock principle of Delaware law, embodied in the business judgment rule that guides most Chancery Court analysis. But there are exceptions. In particular, the Delaware Supreme Court has made clear that deals in which a controlling shareholder wants to buy out minority stock owners must be evaluated very carefully, lest the controlling shareholder unduly influence the going-private process. In the landmark 1994 case Kahn v. Lynch, the state high court said that the appropriate standard of review for going-private deals is not business judgment but the entire fairness of the transaction, which gives courts discretion to second-guess the board’s decisions.
U.S. District Judge Otis Wright‘s May 6 ruling in Ingenuity 13 v. John Doe is one of those decisions every lawyer should read. It’s only six pages long and sprinkled with Star Trek references, but its value lies in the cautionary tale outlined by the San Francisco judge. Wright was presiding over one of the many, many cases filed in the last few years by copyright owners suing tens of thousands of defendants over the supposedly illegal downloading of their content via online file-sharing sites. The litigation, as you probably know, is a specialty of pornography producers, whose cases benefit significantly from defendants’ understandable reluctance to be outed (even falsely) as consumers of online pornography. Occasionally defendants or their Internet service providers have stood up to porn purveyors. More often, defendants identified through subpoenas of their ISPs chip up a few thousand bucks to make the whole nightmare go away, leading public interest groups such as Public Citizen and the Electronic Frontier Foundation to call these en masse illegal downloading cases a shakedown operation.
U.S. District Judge Danny Reeves of Frankfort, Kentucky, has just contributed a new episode to the ongoing saga of whether state attorneys general may hire contingency-fee lawyers to prosecute cases on behalf of consumers. Last Thursday, in a thoughtful 33-page opinion, the judge ruled that Kentucky’s attorney general,Jack Conway, has not violated Merck’s constitutional due process rights by using the private firm Garmer & Prather to litigate consumer claims related to Merck’s marketing of the pain reliever Vioxx. Reeves rejected arguments by Merck’s counsel at Skadden, Arps, Slate, Meagher & Flom that contingency-fee lawyers should not be permitted to represent the AG in a quasi-enforcement action.
Federal courts in Kentucky, Ohio, Tennessee and Michigan may soon be seeing an influx of securities class actions claiming strict liability under Section 11 of the Securities Act of 1933, thanks to a ruling Thursday by the 6th Circuit Court of Appeals in Indiana State District Council of Laborers v. Omnicare. Judge Guy Cole, writing for a panel that also included Judge Richard Griffin and U.S. District Judge James Gwin of Cleveland, found that shareholders asserting Section 11 claims for misrepresentations in offering documents need not show that defendants knew the statements to be false.