Alison Frankel

How to woo a judge (when $8.5 bln is at stake)

Alison Frankel
May 6, 2013 23:01 UTC

With the gigantic news Monday that Bank of America has reached a global settlement with the bond insurer MBIA - agreeing to pay MBIA $1.7 billion and acquiring five-year warrants on about 10 million shares of the insurer’s holding company – the bank’s most pressing piece of litigation has become its proposed $8.5 billion settlement with investors in Countrywide mortgage-backed securities. Friday was the deadline for noteholders who have previously intervened in the special proceeding to evaluate the deal to announce where they stand.

There were some encouraging developments for BofA and fellow settlement proponents Bank of New York Mellon (the Countrywide MBS trustee) and the major institutional investor group represented by Gibbs & Bruns. The investment management firm Fir Tree, whose funds hold Countrywide notes with a face value of $550 million, announced support for the proposed settlement, asserting that the “widespread lack of objection” by Countrywide MBS investors “reflects deep and broad support among holder of securities for the proposed settlement.” The Federal Housing Finance Agency, which had filed a wishy-washy “conditional objection” to the deal back in September 2011, dropped its half-hearted resistance. And the New York and Delaware attorneys general, who entered the case with a bang, departed with a whimper, deferring to “capable and sophisticated counsel” for private noteholders with objections to handle things from here.

But a total of 68 noteholders objected to the settlement in filings on Friday. And though 20 of them are affiliated with AIG, they’re otherwise a diverse group that includes four Federal Home Loan Banks, a couple of public pension funds and Cranberry Park, the nom de litigation of an investment fund family with a significant Countrywide MBS stake. As I read competing briefs by objecting noteholders, who want New York State Supreme Court Justice Barbara Kapnick to reject the $8.5 billion settlement, and by BNY Mellon, which brought the special proceeding under state trust law to win court approval of the deal, I was struck by the difference in the way the two sides want Kapnick to look at the settlement. Opponents are asking the judge to examine the settlement through a microscope, scrutinizing details. Proponents want her to take a broad view of the trustee’s discretion and the magnitude of $8.5 billion.

The simpler course for Kapnick would be to approve the settlement. As BNY Mellon noted throughout the brief it submitted Friday, the $8.5 billion deal would be one of the largest payouts in U.S. litigation history. Does any judge want to make that much money disappear, especially when only 68 noteholders, of presumably thousands that own Countrywide MBS, have objected to the agreement? Besides, according to BNY Mellon, the very fact that objectors dispute the value of investors’ breach-of-contract claims justifies its decision to settle. In the trustee’s account, BNY Mellon had a choice of agreeing to an $8.5 billion deal supported by investors holding upward of $30 billion in notes in hundreds of Countrywide trusts or of rejecting the settlement and taking the risk that MBS noteholders would receive nothing unless they succeeded in very difficult and time-consuming litigation. BNY Mellon’s lawyers at Dechert and Mayer Brown argued that Kapnick should accord considerable deference to the trustee and approve any settlement it reached in good faith. But even if the bank is held to a higher standard, the brief said, BNY Mellon’s decision to take the $8.5 billion ultimately offered by Bank of America wasn’t even a close call.

“Certificateholders with billions of dollars in holdings requested that the trustee enter into (the settlement). The settlement amount – $8.5 billion – was $3.7 billion more than Countrywide was able to pay assuming (counterfactually) no other liabilities, and the prospect of recovering from Bank of America under theories of successor liability were dim,” BNY Mellon’s brief said. “And the alternative of years of litigation with no certain outcome was one that the trustee in good faith believed was not in the best interests of certificateholders.”

Kiobel’s first casualty: Turkcell drops ATS bribery case

Alison Frankel
May 2, 2013 21:19 UTC

Last April, when the Turkish cellular services company Turkcell filed an Alien Tort Statute suit against South Africa’s MTN Group in federal district court in Washington, I was skeptical. Sure, Turkcell raised salacious allegations about how MTN wrested away its contract to provide cell services in Iran, including supposedly illegal arms deals and vote-peddling at the United Nations. But I said at the time that allegations of corporate corruption aren’t usually the stuff of ATS suits, and, moreover, that the U.S. Supreme Court had already agreed to take up the issue of the statute’s reach beyond U.S. borders in Kiobel v. Royal Dutch Petroleum. I predicted that Turkcell’s case – which was so explosive that MTN’s stock fell 6 percent when it was disclosed – would not survive in American courts.

Yep, this is going to be one of those “I told you so” posts. In October, after the Supreme Court heard oral arguments in Kiobel, U.S. District Judge Reggie Walton stayed the Turkcell litigation until the justices issued a ruling on the extraterritorial application of the ATS. As you know, the Supreme Court finally decided Kiobel in April, ruling that plaintiffs must be able to demonstrate a strong connection between their allegations and the United States to overcome a presumption that the ATS does not apply to overseas conduct. That decision sealed the fate of Turkcell’s suit, which alleged only glancing ties to the United States. On Wednesday, the company’s lawyers at Patton Boggs agreed to dismiss the case. Turkcell hinted in a press release that it would refile its claims in another jurisdiction. (And in fairness, at the time the company sued in federal court in Washington, precedent from the District of Columbia Court of Appeals in Doe v. Exxon Mobil held that the ATS does extend overseas.)

The dismissal on jurisdictional grounds does, however, leave unanswered the other question Turkcell’s case raised: Are bribery and corruption violations of the international law of nations? The Alien Tort Statute was enacted in 1789 to provide a forum for such violations of global standards of behavior, then fell into obscurity. Since its revival in the 1970s, ATS cases have generally involved human rights atrocities, which clearly fall under the international law rubric. Courts were reluctant, however, to permit corporate plaintiffs to make use of the ATS in what boiled down to business disputes.

Libor litigation lives! Schwab refiles fraud claims in state court

Alison Frankel
Apr 30, 2013 20:49 UTC

A month ago – right after U.S. District Judge Naomi Reice Buchwald of Manhattan issued a stunning decision that dismissed antitrust and racketeering class action claims against the global banks involved in the process of setting the benchmark London Interbank Offered Rate – I told you that individual investors might be able to rise from the wreckage with common-law fraud and federal securities suits, so long as they could show that they were deceived by the banks’ misrepresentations about Libor’s legitimacy and held enough Libor-pegged securities to justify the expense of litigating claims on their own. On Monday, Charles Schwab filed a new complaint in San Francisco County Superior Court asserting that it meets both of those conditions: Schwab entities supposedly purchased billions of dollars of Libor-based financial instruments based on false assurances that the benchmark was set honestly.

Citing admissions from Libor settlements that U.S. and British regulators have reached with Barclays, UBS and Royal Bank of Scotland, as well as expert reports developed in the decimated federal multidistrict Libor litigation, Schwab’s lawyers at Lieff, Cabraser, Heimann & Bernstein claim that Libor banks conspired to suppress the benchmark borrowing rate. That artificial suppression, according to Schwab, permitted the banks to pay unduly low interest rates on floating-rate securities pegged to Libor and even on short-term fixed-rate notes with returns based on Libor rates. The parent company and various Schwab funds are asserting common-law fraud, breach of contract and unjust enrichment claims; violation of California’s trade practices statute; and federal securities claims.

Schwab (which also brought individual claims, now dismissed, in the antitrust MDL) takes care to address two potential bank defenses: reliance and timeliness. The bulk of the 125-page complaint is dedicated to demonstrating that Libor was manipulated, but Schwab spends several pages detailing the banks’ public assurances that it was not. The supposed conspiracy to depress Libor, according to the complaint, “was, by its very nature, self-concealing.” Reasonable investors could not know that the rate was being suppressed, Schwab said, when officials from Credit Suisse, JPMorgan Chase, Bank of America and Citigroup were assuring the public that Libor was legitimate.

Will CDO investors’ deal boost litigation against rating agencies?

Alison Frankel
Apr 29, 2013 21:28 UTC

This is a rare sentiment, but thank goodness for Congress. Were it not for reports issued in 2011 by theFinancial Crisis Inquiry Commission (an expert panel created by federal statute) and the Senate Subcommittee on Investigations, we’d have precious little public-record testimony about the role that the credit rating agencies Standard & Poor’s, Moody’s and Fitch played in the near collapse of the economy. With Friday’s settlement between S&P, Moody’s and two groups of investors in collateralized debt obligations known as Cheyne and Rhinebridge, we’ve lost one of our last remaining chances to see the rating agencies answer to private investors.

I want to emphasize that the deal is a landmark. It is apparently the first time that S&P and Moody’s have settled accusations that investors were misled by their ratings. That’s unquestionably a great result for the CDO purchasers in the case and for their lawyers at Robbins Geller Rudman & Dowd, who have battled since 2008 to keep $700 million in fraud and negligence claims alive. Unlike investors in more than three dozen other cases claiming the credit rating agencies facilitated the issue of toxic mortgage-backed securities, Abu Dhabi Bank, the Kings County pension fund and their fellow CDO purchasers survived preliminary motions, beating back the agencies’ argument that their ratings were opinions protected by the First Amendment. Then, through discovery, Robbins Geller uncovered hot documents - even more than the rating agencies produced to Congress – that helped investors withstand defense requests for summary judgment.

Lead counsel Luke Brooks and Daniel Drosman of Robbins Geller declined to disclose the terms of the CDO settlement but told me Monday that their clients are very pleased with “what we view as an extraordinary result.” (An S&P representative declined to comment; a Moody’s spokesman told Reuters that the agency wanted to put the CDO litigation behind it.)

Microsoft win in rate-setting case vs Motorola is call to litigation

Alison Frankel
Apr 26, 2013 22:15 UTC

For the first time ever, a federal district judge has decided what constitutes a reasonable license rate for a portfolio of standard-essential patents. U.S. District Judge James Robart ruled late Thursday that Motorola is entitled to royalties of a half cent per unit for Microsoft’s use of standard-essential video compression patents and 3.5 cents per unit for Motorola’s wireless communication patents. According to Microsoft, those terms would require it to pay Motorola a grand total of about $1.8 million a year in royalties – a far cry indeed from the billions Motorola requested in a royalty demand to Microsoft in 2010. It’s still to be determined at a trial this summer whether Motorola breached its obligation to license its essential technology to Microsoft on reasonable terms. But make no mistake: Robart’s ruling on reasonable royalties is a dreadful outcome for Motorola and its parent, Google.

In fact, there’s a good argument that the framework Robart used to determine a fair royalty rate is bad news for all patent holders that depend on license fees for essential technology. Until the smart device wars, when Microsoft and Apple balked at Motorola’s licensing demands, product makers generally considered themselves to be at the mercy of companies that developed essential technology adopted by international standard-setting boards. Robart’s ruling, if it is eventually upheld by the 9th Circuit Court of Appeals, gives so-called implementers like Microsoft and Apple not only the methodology to whittle down patent holders’ licensing demands but also a recourse if negotiations stall. Implementers now know they can go to court and ask a judge to decide a fair royalty based on the relative value of essential patents to their final product. We’ve already seen courts and regulators blunt the threat of injunctions by holders of standard-essential patents. Robart’s decision shifts the balance of power even further away from patent holders.

To understand why, let’s run quickly through the findings in the 207-page opinion. The judge said early on that he agreed with Motorola’s lawyers at Ropes & Gray and The Summit Law Group that the best way to set a fair royalty rate would be to consider a hypothetical bilateral negotiation. He rejected Microsoft’s proposed “incremental value” approach, which would have based the value of essential patents on the cost of adopting alternative technology. But that was just about the only positive aspect of the ruling for Motorola.

NFL profits from violence, so is it liable to brain-injured retirees?

Alison Frankel
Apr 25, 2013 21:38 UTC

On Thursday night, professional football teams will hold their annual draft of college players. For the young men who are selected, the draft will be a dream realized, the culmination of years of hard work and hard knocks. But before they sign their million-dollar contracts, they might want to have a look at a photo taken earlier this month. It’s of Mary Ann Easterling, the widow of former Atlanta Falcons safety Ray Easterling, who shot himself last year after a long struggle with dementia. Easterling’s widow broke down earlier this month, at a press conference following a crucial hearing before the federal judge overseeing consolidated litigation against the National Football League by about 4,500 retired players who claim that the NFL deceived them about the risk of traumatic brain injury. According to the players, their NFL dream ended in the tragedy of depression, dementia, and, for 40 of them, death.

The NFL, as I’ve reported, takes the position that the players’ accusations of negligence and fraud are pre-empted by collective bargaining agreements between the players’ union and NFL teams. Health and safety are addressed in the agreements, the NFL contended last September in a motion to dismiss the players’ cases, so the retirees must arbitrate their claims rather than litigate them in court. The retirees responded last October, arguing in a brief opposing dismissal that their union agreements with NFL teams don’t address the league’s own duty to protect and deal honestly with players. According to the players, the NFL wants to have its cake and eat it too: The league profits from violence, packaging the most shattering on-the-field hits in films it sells to the public, yet it disavows responsibility for the toll of that violence.

It’s a mark of how seriously the NFL takes this litigation that for arguments earlier this month before U.S. District Judge Anita Brody of Philadelphia, the league brought in Paul Clement of Bancroft, the former Bush Administration solicitor general whose typical bailiwick is the U.S. Supreme Court. (The NFL is also represented by Paul, Weiss, Rifkind, Wharton & Garrison and Dechert.) The retired players had Supreme Court counsel of their own: David Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel was brought in to argue by steering committee lead counsel from Seeger Weiss and Anapol Schwartz.

News Corp deal: a new way to police corporate political spending?

Alison Frankel
Apr 22, 2013 21:43 UTC

On Monday, the directors and officers of Rupert Murdoch’s News Corp agreed to settle a derivative suit accusing them of breaching their duty to shareholders by failing to avert the phone-hacking scandal at the company’s British newspapers. News Corp’s insurers will pay $139 million, in what shareholder lawyers atGrant & Eisenhofer called the largest-ever cash settlement of derivative claims in Delaware Chancery Court. The settlement, which comes as News Corp prepares to split its news and entertainment branches into two publicly traded companies, was produced after several months of mediation that took place while the company’s motion to dismiss was pending before Vice Chancellor John Noble.

The cash portion of the deal (which will be eventually reduced by legal fees paid to G&E, co-lead counsel fromBernstein Litowitz Berger & Grossmann and several other plaintiffs firms that managed to grab a piece of the case) is obviously the big news, but among the many corporate governance enhancements detailed in the memorandum of understanding between News Corp and shareholders, you’ll find what appears to be a historic concession by the company: News Corp has agreed to disclose its campaign and political action committee contributions to shareholders and its lobbying and Super PAC spending to the board. According to two advocates for corporate political transparency, this settlement apparently marks the first time that shareholders have used the vehicle of a derivative suit to obtain enhanced disclosure of corporate political spending. “I think it’s terrific,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington (CREW). “Any way to force companies to disclose spending is good for democracy.”

Earlier this year, you may recall, New York State’s public employee pension fund brought a books-and-records suit against Qualcomm, seeking to force the chipmaker to tell shareholders about its political spending. (Notably, the New York fund, like shareholders in the News Corp case, was represented by Mark Lebovitch of Bernstein Litowitz.) I said at the time that the novel tactic of suing corporations under the Delaware law that grants shareholders the right to request corporate books and records could be a breakthrough in the post-Citizens United effort to force companies to admit their political spending. Qualcomm certainly knuckled under. In February, less than six weeks after the New York fund sued, the previously opaque corporation agreed to disclose online all of its contributions to candidates and parties, as well as donations to Super PACs and trade associations.

Virginia Supreme Court revives epic suit against Massey Coal

Alison Frankel
Apr 19, 2013 20:22 UTC

If Hugh Caperton’s litigation against Massey Coal were a cat, it would now be entering its sixth or seventh life, thanks to a ruling Thursday by the Supreme Court of Virginia.

Long ago, in 1998 to be exact, the West Virginia coal mining executive launched his case against Massey, which Caperton accused of driving his mining business into ruin. According to Caperton and his lawyers at Reed Smith, when Massey acquired a company Caperton supplied with coal, it aborted Caperton’s supply agreement with the acquired company, put Caperton’s business on the brink of collapse, then reneged on tentative offers to buy Caperton’s operations. Caperton sued Massey’s subsidiary in Virginia state court for breaching the original supply contract and won a $6 million jury verdict. But he also brought tort claims against Massey in West Virginia, since that’s where he lived and where his fateful meetings with Massey’s then chief, Don Blankenship, took place. Caperton believed that Blankenship meant to destroy him, and a state-court jury in West Virginia apparently agreed. In 2002, it awarded Caperton more than $50 million in punitive and compensatory damages.

The West Virginia Supreme Court of Appeals, however, was more kindly disposed toward Blankenship and Massey. A lot more kindly disposed. As it would later emerge, one judge on the state high court had vacationed with Blankenship on the French Riviera. Another had received $3 million in contributions from Blankenship in his campaign for a seat on the Supreme Court – more than the combined contributions of all the rest of the judge’s supporters. Despite recusal efforts by Caperton and Reed Smith, the West Virginia high court struck down the verdict in 2007 on the grounds that a forum selection clause in Caperton’s original supply contract required him to bring any claims in Virginia – and because Caperton had already obtained a judgment in Virginia, his tort claims were barred under the doctrine of res judicata.

Placing blame for Aurora mass shooting: Is movie theater responsible?

Alison Frankel
Apr 19, 2013 03:42 UTC

I have a feeling that we’re going to be hearing a lot more about a ruling Wednesday by U.S. District Judge R. Brooke Jackson of Denver, who said that victims of the Batman movie massacre in Aurora, Colorado, may proceed with claims that the Cinemark movie theater is responsible for the tragedy under the state’s premises liability law. Moviegoers were owed “a duty to exercise reasonable care to protect them against dangers of which Cinemark knew or should have known,” Jackson ruled. The judge, who is overseeing 10 federal-court cases consolidated for discovery, found that the victims’ suits raised enough questions about whether Cinemark failed to anticipate that a killer could enter the theater unarmed, sneak out to obtain weapons and re-enter undetected – and whether the theater had in place adequate security to deal with a reasonably anticipated threat – to survive Cinemark’s dismissal motion.

He did not reach that conclusion lightly. Jackson said that he was initially skeptical of the plaintiffs’ claims, despite “overwhelming sympathy and grief for the victims of the Aurora theater shootings.” Like many people, he said, his first reaction to suits against Cinemark was, “How could a theater be expected to prevent something like this?”

That’s the question Cinemark’s lawyers at Taylor Anderson highlighted in their motion to dismiss federal-court suits against the theater, and it’s why this case should be closely watched by businesses open to the public. Is it reasonable to expect that untrained movie theater employees could anticipate a mass murder? After all, the family and doctors of the accused gunman, James Holmes, didn’t know that he would open fire in a movie theater, killing 12 people and wounding 70. Law enforcement agencies and officials at the university Holmes attended didn’t foresee it. Nor did the companies that supplied Holmes’s guns, ammunition and other weaponry. Yet suits against Cinemark would impose responsibility for the horrific tragedy only on the movie theater, under the theory that it should have known a mass murder could take place on its property and failed to take steps to prevent it.

Human rights lawyers look for silver lining in Kiobel black cloud

Alison Frankel
Apr 17, 2013 22:09 UTC

When the U.S. Chamber of Commerce rushes out a statement hailing a decision by the U.S. Supreme Court, you can be sure that opinion is a defeat for plaintiffs’ lawyers. So it is with the court’s long-awaited ruling Wednesday in Kiobel v. Royal Dutch Petroleum. All nine justices agreed with Shell’s counsel at Quinn Emanuel Urquhart & Sullivan that claims by a group of Nigerian nationals suing under the Alien Tort Statute for Shell’s alleged abetting of state-sponsored torture and murder in their country should be dismissed, though they split on precisely why. The majority, in an opinion written by Chief Justice John Roberts, held that the presumption against extraterritoriality, most recently articulated by the court in Morrison v. National Australia Bank, applies to the Alien Tort Statute even though the ATS, unlike laws regulating conduct, is strictly a jurisdictional statute. Roberts’ opinion rejected (among other things) arguments that because the ATS was enacted to address piracy on the high seas, it extends to atrocities committed on foreign soil.

Corporations like Shell, which are based outside of the United States, can now rest assured that they cannot be sued under the ATS by non-U.S. nationals who claim to have suffered harm from the corporation’s activities abroad – an outcome greeted warmly by pro-business interests. But in a call with reporters on Wednesday afternoon, human rights lawyers tried to look on the bright side, pointing to indications throughout the court’s majority opinion and three concurrences that all is not lost for victims who want their day in a U.S. courtroom.

Those indications begin with Roberts’ concluding words in the majority holding. Yes, he said, the presumption must be against extraterritorial application of the ATS, but that presumption is not inviolable when there’s a strong connection between the United States and the allegations asserted. “Where the claims touch and concern the territory of the United States, they must do so with sufficient force to displace the presumption against extraterritorial application,” Roberts wrote.