The doctrine of strict textualism – in which judicial decisions are compelled solely by statutory language – has always reminded me of what my father, an internist, used to say about overeager surgeons: When your only tool is a hammer, every problem is a nail. And when your only judicial philosophy is textualism, every case is a matter of words. Simple enough, right? Wrong. Consider a ruling Friday by a three-judge panel at the 3rd Circuit Court of Appeals that turned on the definition of “an event or occurrence.”
Last month, right after U.S. District Judge Naomi Reice Buchwald of Manhattan dismissed class action antitrust and racketeering claims against the global banks that supposedly colluded to manipulate the benchmark London Interbank Offered Rate (Libor), Daniel Brockett of Quinn Emanuel Urquhart & Sullivan politely said, “I told you so.” Brockett had been pushing an alternate theory of liability against the Libor banks, focused on securities and common-law fraud, not on antitrust violations. And even in the Libor litigation wreckage that resulted from Buchwald’s ruling, he said, fraud claims like those filed in March by Freddie Mac’s conservator against a dozen Libor banks were still viable. The only catch was that plaintiffs would have to be able to show that they relied on misrepresentations by panel banks, so cases would probably have to be brought by individual investors with big enough losses in Libor-pegged financial instruments to justify the cost of solo litigation. Nevertheless, Brockett told me he believed those investors were out there.
One of the most salient bits of information in the Justice Department’s civil complaint against Standard & Poor’s and its parent, McGraw-Hill - aside from the revelation that one S&P analyst devised a 2007 dance video riffing on the Talking Heads song “Burning Down the House” – is the amount S&P supposedly earned for rating mortgage-backed securities as banks rushed to squeeze every last dollar from the securitization boom. According to the government, the agency’s Global Asset-Backed Securities Unit was assessing MBS in such a hurry in 2006 and 2007 that S&P rating committees spent less than 15 minutes reviewing analyst evaluations. Yet the agency was rewarded munificently for its efforts. In 2006, S&P was supposedly paid $278 million in fees by the banks whose MBS deals it rated. In 2007 it was paid $243 million for rating MBS.
Attorney-client privilege confers powerful protection over confidential corporate documents. But according to arulingThursday by Chancellor Leo Strine of Delaware Chancery Court, once documents have become public – even if by dubious means – they can be used in litigation.
In 2007, the U.S. Supreme Court redefined the pleading standard for antitrust suits in Bell Atlantic v. Twombly. In 2009, it extended the new standard to all civil cases in Ashcroft v. Iqbal. Since then, according to Westlaw,Twombly has been cited as a reference 191,394 times and Iqbal, 123,714. A lot of those citations in judicial opinions are boilerplate, but that very fact tells you how important Twombly and Iqbal have become. Judges now reflexively apply the Iqbal standard – which directs them to use their judicial experience and common sense to decide whether a plaintiff’s allegations are plausible, not merely conceivable – in deciding whether to dismiss complaints.
It is no exaggeration to say that billions of dollars hang on the question of whether New York Supreme Court Justice Shirley Kornreich or her colleague Justice Peter Sherwood is correct about how long mortgage-backed securities trustees have to assert claims that MBS sponsors breached representations and warranties. There’s no disagreement that under New York law, which applies to most MBS deals, the statute of limitations for breach of contract suits is six years. But in dueling opinions issued Tuesday, Kornreich and Sherwood came to different conclusions about when the statute begins to run. Sherwood sided with the securitizer Nomura and its lawyers at Orrick, Herrington & Sutcliffe, ruling that the clock starts ticking on the securitization’s closing date. Kornreich explicitly rejected that theory in a trustee case filed by Kasowitz, Benson, Torres & Friedman against DB Structured Products, finding instead that DB’s refusal to repurchase supposedly defective underlying loans triggered the statute.
For defense lawyers, it’s always a calculated risk to intimate that the judge presiding over your client’s case may not be entirely impartial. Whether you make that suggestion in a recusal motion or, in very extreme circumstances, in a mandamus petition, you’re implicitly acknowledging that your client has little or nothing to lose by challenging the trial court’s judgment (and inevitably irritating the judge).
On Monday, former New York governors Mario Cuomo and George Pataki wrote an unusual joint opinion piecein The Wall Street Journal, calling on New York Attorney General Eric Schneiderman to drop threats that he will continue to seek injunctive relief against former AIG chief Hank Greenberg, even though the AG has already had to abandon damages claims because Greenberg reached a private settlement with investors in a securities class action. As my Reuters colleague Karen Freifeld explained in a really smart analysis last Friday, Schneiderman is constrained by a 2008 ruling that limits the AG’s right to recovery in the name of investors who have already settled a federal-court class action. Freifeld said that the same holding, Spitzer v. Applied Card, may ultimately force the AG to drop claims for money damages against Bank of America in connection with its merger with Merrill Lynch and against Ernst & Young for its audit of Lehman Brothers, even though both suits were brought under New York’s powerful Martin Act, which permits the state to bring securities claims on behalf of supposedly defrauded investors.
One of the key anti-troll elements of the America Invents Act of 2011 was the patent reform law’s restrictions on joinder. After September 2011, patent owners could not file complaints that named multiple, otherwise unrelated defendants who happened to make use of the same IP. The idea was to make it more expensive for plaintiffs to bring and litigate patent suits, to prevent forum shopping and to limit trolls’ leverage. Conventional wisdom was that the new law’s joinder restrictions were going to lead to an uptick in requests for the Judicial Panel on Multidistrict Litigation to consolidate cases for pretrial proceedings. If plaintiffs could persuade the JPMDL to consolidate cases for pretrial proceedings – especially if they could direct consolidated litigation to sympathetic judges – they could take some of the sting out of joinder restrictions.
On Wednesday, the Public Citizen Litigation Group filed an appeal for the online review site Yelp, asking the Virginia Court of Appeals to review a trial-court order compelling Yelp to reveal the identity of seven anonymous reviewers who complained about a Washington carpet-cleaning service that subsequently sued them for libel and defamation. Yelp and Public Citizen contend that Alexandria City Circuit Court Judge James Clark got it wrong when he ruled that despite First Amendment protection for anonymous online critics, a Virginia statute requires the disclosure of their names when their identity is central to claims against them.