Earlier this month I told you about a certiorari petition that has the potential to end securities class action litigation as we know it. Halliburton has asked the U.S. Supreme Court to dismantle the very foundation of modern shareholder fraud litigation: the court’s 1987 decision in Basic v. Levinson, which held that investors are presumed to have relied on public misrepresentations about stock trading in an efficient market. Basic preserved defendants’ opportunity to rebut that presumption of reliance, but as a group of eminent law professors and former officials of the Securities and Exchange Commission said in an Oct. 11 amicus brief supporting Halliburton’s petition, that’s more of a theoretical right than an actual one. “A quarter-century of experience with Basic has demonstrated that the fraud-on-the-market presumption is effectively not rebuttable, and that it essentially eradicates the element of reliance,” the brief said. “Time has borne out Justice (Byron) White’s concern that, ‘while, in theory, the court allows for rebuttal…such rebuttal is virtually impossible in all but the most extraordinary case.’ ” In fact, according to a working paper by Stanford law professor and former SEC Commissioner Joseph Grundfest, who signed on to the Halliburton amicus brief and is cited liberally within it, there have only been five – five! – cases in which securities fraud defendants actually succeeded in countering Basic’s presumption of reliance.
There’s an air of devilish glee in a new malpractice complaint against Wachtell, Lipton, Rosen & Katz, filed on Oct. 24 by CVR Energy in federal court in Kansas. Wachtell, as the suit explains, counseled CVR in its 2012 defense of a hostile tender offer by Carl Icahn. Icahn won the takeover fight, despite the involvement of the outspoken anti-takeover law firm and its investment-bank allies from Goldman Sachs and Deutsche Bank. So CVR is now an alter ego of Carl Icahn, who is using this suit to thumb his nose at Wachtell, his frequent opponent in takeover battles and the issuer of countless pronouncements about the scourge of activist investors like him.
The Federal Housing Finance Agency, the Congress-created conservator of Fannie Mae and Freddie Mac, operates independently of the U.S. Justice Department, which is why FHFA was able to announce its $5.1 billion settlement of securities fraud and breach-of-contract claims against JPMorgan Chase on Friday evening, before the much-ballyhooed but as yet unsigned $13 billion global deal between the bank and the government. As you know, FHFA and its lead counsel at Quinn Emanuel Urquhart & Sullivan have been whipping JPMorgan and its fellow bank defendants for as long as the conservator’s cases have been before U.S. District Judge Denise Cote in Manhattan. Facing a June 2014 trial date, and with no higher-court relief from Cote’s rulings in sight, JPMorgan had little choice but to settle FHFA’s claims that the bank and its predecessors Bear Stearns and Washington Mutual duped Fannie and Freddie about the mortgage-backed securities they were peddling. FHFA had all the leverage here.
A class action involving the supposed misappropriation of images of college athletes by the videogame maker Electronic Arts has provoked a thorny question about who truly represents the interests of absent class members. Is it the name plaintiff who filed the case on behalf of everyone who allegedly suffered the same injury as him? Or is it the lawyer who has been acting on the class’s behalf – even if he’s been fired by the name plaintiff?
Everyone with an interest in the future of class action settlements ought to be paying close attention to arguments slated to take place at the 5th Circuit Court of Appeals on Nov. 4. Objectors to BP’s multibillion-dollar settlement with victims of the 2010 Deepwater Horizon oil spill will tell a three-judge appellate panel why, in their view, U.S. District Judge Carl Barbier improperly approved a class settlement in which similarly situated claimants are treated differently. The plaintiffs steering committee that reached the agreement with BP will argue that the intricate 1,000-page settlement, painstakingly negotiated over several months, meets all of the requirements for class certification. And BP? Well, that’s where this appeal gets complicated – and fascinating.
By all accounts, JPMorgan Chase is on the verge of a record-setting $13 billion settlement with the Justice Department and other state and federal regulators that will resolve the bank’s civil liability to the government for the sale of mortgage-backed securities, by JPMorgan itself and by Bear Stearns and Washington Mutual. We still don’t know precisely what admission JPMorgan will make as part of the deal, and based on the bank’s shrewd blame-taking in its London Whale trade losses settlement with the Securities and Exchange Commission, we can assume any admissions will be tailored to limit collateral damage in private litigation. Nonetheless, regardless of how JPMorgan phrases its acceptance of responsibility, the bank’s $13 billion settlement is an acknowledgment of the obvious: The mortgage-backed securities market was infested at its foundation, like a house gnawed away by termites.
If you haven’t already, please read Charlie Savage’s fascinating story, “Door May Open for Challenge to Secret Wiretaps,” in Thursday’s New York Times. Savage reported that the Justice Department is poised for the first time to notify a criminal defendant that evidence against him was obtained through the FISA Amendment Act of 2008 (FAA), which granted the Foreign Intelligence Surveillance Court the power to approve sweeping, warrantless wiretapping. The notification is significant because it will establish the defendant’s standing, under the U.S. Supreme Court’s ruling last February in Clapper v. Amnesty International, to challenge the constitutionality of warrantless wiretapping authorized under the FAA.
A young Floridian named Daniel Wultz died tragically in 2006 when he was fatally wounded in a suicide bombing at a bus stop in Tel Aviv. Wultz’s parents believe that among those responsible for their son’s death is Bank of China, which they accuse of facilitating payments to Palestine Islamic Jihad, the group said to be responsible for the attack. The Wultzes and their lawyers at Boies, Schiller & Flexner contend that Israeli counterterrorism officials warned the Chinese government at meetings in China in April 2005 that an alleged Islamic Jihad leader, Said al-Shurafa, was financing the group’s operations through his Bank of China accounts. The Wultzes’ Antiterrorism Act suit, filed in federal court in Washington but later transferred to Manhattan federal court, alleges that Chinese officials passed those warnings on to the bank.
Fifteen years ago, when trial lawyers were flush with cash from representing state attorneys general in their global $365 billion settlement with the tobacco industry, the phrase “regulation through litigation” was much in vogue. On the plaintiffs’ side, it was a rallying cry, a call for lawyers to use the tactics of the tobacco litigation – including their partnership with state regulators – to accomplish societal goals, such as reducing gun violence or cutting carbon emissions. Tort reformers, meanwhile, sounded alarms about ceding policy-making to unelected lawyers driven by their own potential profits. Despite the fervor on both sides, regulation through litigation turned out to be more of a slogan than a reality as ambitious cases against, for instance, gun- and lead- paint makers faltered.
When Matthew Mustokoff of Kessler Topaz Meltzer & Check walked out of oral arguments before U.S. District Judge Keith Ellison of Houston last November, he wasn’t at all sure that his case – a suit by individual pension funds claiming to have been duped by BP – would survive BP’s motion to dismiss. The judge had expressed sympathy for holders of London-listed BP common shares, whose federal securities claims are barred by the U.S. Supreme Court’s 2010 ruling in Morrison v. National Australia Bank. Mustokoff and co-counsel from Jason Cowart of Pomerantz Hufford Dahlstrom & Gross were attempting to plead around Morrison by asserting fraud and misrepresentation claims under state and common law. But Judge Ellison seemed to be very interested in a novel constitutional argument BP’s lawyers at Sullivan & Cromwell had crafted in response to the pension funds’ Morrison-dodging. BP said that the funds’ case violated the dormant Commerce Clause as it applies to international commerce because state laws may not exceed the bounds of federal law. Funds couldn’t assert claims under state law, according to BP, when parallel federal-law claims were barred. Ellison was so intrigued by S&C’s Commerce Clause argument that at least half of the hearing on BP’s motion to dismiss the funds’ two related suits, Mustokoff told me, was dedicated to that defense.