Opinion

Alison Frankel

Avandia case: the new normal for plaintiffs’ fees in mass torts?

Alison Frankel
Jan 23, 2013 22:20 UTC

Last week, the court-appointed mediator in the consolidated Avandia marketing and product liability litigation against GlaxoSmithKline informed U.S. District Judge Cynthia Rufe of Philadelphia that 58 plaintiffs’ firms in the case have agreed to an allocation plan for $143.75 million in common-fund fees. As mediator Bruce Merensteinof Schnader Harrison Segal & Lewis described the process, nine law firms objected to the initial allocation plan proposed by a Rufe-appointed fee committee. After a dozen phone calls and 15 in-person sessions over the last few months, members of the fee committee adjusted their own take to bring the objectors on board. In the final allocation outlined in Merenstein’s report, the biggest share of the common fees, $22.6 million, will go to Reilly PoznerWagstaff & Cartmell is in line for $17.2 million; Andrus Hood & Wagstaff for $14.7 million; and Miller & Associates and Heard Robins Cloud & Black for more than $10 million. The Miller firm was an objector to the original allocation plan, but all of the other firms looking at eight-figure awards from the common fund were on the fee committee.

Keep in mind that the common-fund fees are on top of whatever contingency fees the plaintiffs’ firms will receive as a share of their clients’ settlements with GSK over the diabetes drug. Rufe ordered last October that all of the plaintiffs in thousands of settled (and later-settled) cases must pay 6.25 percent of their settlements into a common fund to compensate the lawyers who worked on behalf of all Avandia plaintiffs in the consolidated litigation. If you do the math, that reflects a total of $2.3 billion in Avandia settlements by GSK (Rufe doesn’t cite the total but based her order on an aggregated estimate calculated by a plaintiffs’ expert.)

So what, you may be wondering, is the total percentage of that $2.3 billion that will go to plaintiffs’ lawyers? We don’t know. And that’s why the Avandia litigation model, which GSK previously employed in the Paxil litigation, could be a boon to plaintiffs lawyers.

Unlike defendants in the $4.85 billion Vioxx litigation or the megabillions fen-phen diet drug litigation, GSK did not reach a global settlement with Avandia claimants via a class action. Instead, according to the MDL steering committee’s memo in support of its common-fund fee request, the pharmaceutical company reached thousands of individual settlements, typically settling en masse with plaintiffs’ firms that had large portfolios of cases.

Individual settlements, unlike class deals, don’t have to be approved by the court. Nor do the fees associated with them, which are typically the subject of contingency contracts between lawyers and their clients. So, unlike the federal judges in the Vioxx and fen-phen class settlements, Rufe is not overseeing all fee awards to the lawyers who brought and settled Avandia cases, just the common-fund fees for lawyers. That’s icing on the fee cake for the 58 firms that will receive common-share money for taking 220 depositions, working with more than 20 expert witnesses, reviewing millions of pages of documents and writing and arguing briefs for the benefit of all Avandia plaintiffs. I’m sure mediator Merenstein and representatives of the 58 common-share firms deserve a lot of credit for resolving their differences and reaching a consensual allocation plan — unlike the lawyers in the Vioxx case, in which the judge had to step in to decide distribution of the $350 million common fund – but it was also in the interest of the plaintiffs’ firms.

New suit: Financial straits led to ethics infractions by Hausfeld

Alison Frankel
Jan 22, 2013 23:45 UTC

Jon King, a California lawyer who was a founding partner at Michael Hausfeld’s eponymous antitrust shop but was fired from the firm last October, spares no accusations in the 78-page wrongful termination complaint he filed last week in federal court in the Northern District of California. The suit is a compendium of supposed misbehavior by Hausfeld and some of his partners, allegedly committed under the pressure of financial straits. I’m not sure how much fire underlies the clouds of smoke from King’s red-hot complaint, but Hausfeld has made enough enemies and is leading enough big cases — including a potentially gargantuan investor class action against the banks that allegedly manipulated Libor rates — that the suit is going to be the talk of the antitrust bar.

I want to say up front that I emailed Hausfeld, asking him to address some of the specific accusations in King’s complaint. I did not receive a reply from him, but a representative sent an email statement: “This is an employment grievance from a former partner of Hausfeld LLP,” it said. “The firm separated with Mr. King for good reason, and the allegations made by him are baseless. We abide by the highest ethical standards and will defend our reputation vigorously.”

So keep Hausfeld’s denial in mind as you consider King’s allegations that the firm took financial advantage of co-counsel in litigation over the unauthorized use of likenesses of college athletes in videogames; courted Asian electronics companies to be plaintiffs in one antitrust case even as the firm litigated against them in another action; tried to undermine client development efforts by co-counsel; and signed the name of a famous client — NFL Hall of Famer Elvin Bethea — to a letter he did not write or support. Individually the accusations may not amount to much, and there’s a lot in King’s kitchen-sink complaint that, quite frankly, seems intended to tar the reputation of some Hausfeld partners rather than to bolster King’s argument that he was fired for blowing the whistle on the firm’s unethical practices. But the complaint includes enough details about the founding and operation of Hausfeld LLP to be a fascinating inside look at the firm.

In smartphone wars, Apple stalks the elusive injunction

Alison Frankel
Jan 18, 2013 23:33 UTC

If ownership of a valid patent can’t help you stop a competitor from selling products that incorporate your proprietary technology, then — according to an extraordinary new filing by Apple – there’s something seriously wrong with the patent system.

Apple has asked the Federal Circuit Court of Appeals to bypass standard operating procedures and commit the entire court, rather than a three-judge panel, to reviewing its bid for a post-trial injunction barring the sale of Samsung devices that have been found to infringe Apple patents. U.S. District Judge Lucy Koh of San Jose, California, who presided over the trial of Apple’s claims against Samsung last summer, refused last month to grant Apple a permanent injunction, citing the Federal Circuit’s October 2012 ruling in yet another Apple case against Samsung. Though Apple has already petitioned for en banc review of that ruling, which involved a pretrial injunction, its new motion argues that the standard for injunctions is even more important when a patent holder has already gone through trial and established the illegal conduct of its competitor. The entire Federal Circuit, Apple contends, must clarify whether the appeals court really intended to contradict its own and U.S. Supreme Court precedent and make it “all but impossible” to obtain a permanent injunction in a smart-device case.

The brief includes an unusually blunt discussion of how injunction motions shape patent litigation — and why they’re such a powerful weapon for patent holders. “The injunction standard defines a patentee’s rights as against a competitor and affects numerous strategic decisions in a patent case, including whether to file, what patents to assert, what discovery requests to make, what consumer survey questions to ask, what issues to put to a damages expert, what questions to ask at depositions, what patent claims to advance at trial, and whether and when to settle,” wrote Apple’s lawyers at Wilmer Cutler Pickering Hale and Dorr and Morrison & Foerster. If the Federal Circuit takes away the possibility of a permanent injunction, Apple argued, that leaves patent holders only with the chance to obtain money damages, which their competitors will come to consider just a cost of doing business. “If that is indeed the law,” Apple’s brief said, in language that sounds like an overt challenge to the Federal Circuit, “patent rights will be greatly diminished in value.”

Supreme Court conundrum: How far does a soybean seed patent go?

Alison Frankel
Jan 17, 2013 22:53 UTC

Vernon Hugh Bowman is the rare Indiana soybean farmer destined for immortality as a U.S. Supreme Court caption.

Bowman had the temerity to attempt to outwit Monsanto, the giant agriculture company that, as you surely know, invested hundreds of millions of dollars and years of research in the creation of soybean seeds that are genetically modified to withstand the herbicide glyphosate, which Monsanto markets as Roundup. The genetically modified seeds, according to the Supreme Court brief Monsanto filed Wednesday, have been such a hit with farmers that more than 90 percent of the U.S. soybean crop begins with Monsanto’s Roundup Ready seeds. Given that every soybean plant produces enough seeds to grow 80 more plants — and that soybeans grown from Roundup Ready seeds contain the genetic modification of glyphosate resistance — Monsanto has insisted that farmers sign licensing agreements with strict restrictions. Soybean producers are only supposed to use the Roundup Ready seeds they buy to grow crops in a single season, and they’re forbidden from planting second-generation seeds harvested from first-generation crops.

The licensing agreements do contain an exception, though: Farmers are allowed to sell the second-generation seeds to grain elevators, which, in turn, are permitted to sell a mixture of undifferentiated seeds as “commodity grain.” Monsanto contends that commodity grain should be used for feed, not cultivation. But Bowman figured that the mixture sold by grain elevators probably contained mostly Roundup Ready seeds, so for several years, after harvesting his first crop (planted with authorized, Monsanto-licensed seeds), he planted a second crop with commodity grain. When he treated the second crop with herbicide, he was proved right — most of the plants were resistant.

New paradigm for mortgage put-back claims?

Alison Frankel
Jan 16, 2013 22:22 UTC

I did a double take Wednesday, when I noticed a pair of new suits by Lehman Brothers Holdings in federal court in Colorado. The complaints, which are almost identical, claim that the mortgage originator Universal American Mortgage breached representations and warranties about loans it sold to Lehman, which subsequently suffered losses as a result of those breaches. But here’s the thing: Each suit addresses only one supposedly deficient loan! Lehman’s lawyers at Akerman Senterfitt allege that Lehman sustained about $100,000 in damages on one of the loans and $120,000 on the other — numbers that are light years apart from the multibillion-dollar claims we’ve seen from groups of mortgage-backed securities investors who band together to assert contract breaches in thousands of loans at a time.

The Lehman complaints each also contained a curious paragraph, noting that the claims at issue were previously asserted as counts in an eight-loan put-back case Lehman was litigating in federal court in Miami. The judge in that case, Lehman said, had decided after a pretrial conference last week that “each loan must be filed separately, rather than joined within one action.”

That notation sent me to the docket in the Florida case, and to the order entered by U.S. District Judge James King on Jan. 9. It’s true: King ruled that every allegedly deficient loan has to be addressed in its own suit, not in a block case. “The lack of commonality among the various factual circumstances pertinent to each of the eight individual loans makes them all but impossible to be adjudicated together,” King wrote. “That lack of commonality flows from, among other things, the facts that each of these loans was made at a different time, to different borrowers, in different locations involving different purchases of different real properties; most fundamentally, each loan requires separate proof as to whether a breach occurred, what damages, if any, flowed from any such breach, and what the amounts of any such damages are.”

NY appeals court: Bond insurers have right to jury in MBS cases

Alison Frankel
Jan 15, 2013 23:29 UTC

Back in October 2011, New York State Supreme Court Justice Shirley Kornreich issued a pair of strange decisions in parallel cases against Credit Suisse by the bond insurers MBIA and Ambac. The monolines, both represented by Patterson Belknap Webb & Tyler, had sued the bank in 2010, asserting claims for both fraud and breach of contract in connection with Credit Suisse mortgage-backed securities they agreed to insure. Kornreich had previously dismissed the fraud counts, holding that they merely duplicated the monolines’ contract claims. But that ruling put her at odds with at least six other state and federal judges, and when the New York Appellate Division, First Department, affirmed the consensus view in a different case, Kornreich had little choice but to reinstate the Ambac and MBIA fraud claims. As expected, she did so in those October 2011 decisions.

But what Kornreich gave the bond insurers with one hand, she took away with the other. In the same 2011 decisions, the judge ruled that Ambac and MBIA had waived their rights to a jury trial in the contracts they signed with Credit Suisse. That meant that she, rather than a jury, would decide the merits of those newly reinstated fraud allegations — and she didn’t think there was much merit to them. Kornreich’s decisions said that Ambac and MBIA couldn’t just point to the MBS offering materials and claim they were duped. Credit Suisse, she said, had offered ample notice of potential weaknesses in the underlying loan pool. To prove fraudulent inducement, she ruled, Ambac and MBIA would have to show that the bank engaged in outright deception.

The judge did order discovery on the bond insurers’ fraud claims, though not much has taken place. In the meantime, Ambac and MBIA appealed Kornreich’s holding that they’d waived their right to a jury trial. They argued that the waiver should not apply, since it was part of a contract they claimed they’d been fraudulently induced to enter. Credit Suisse, represented in both cases by Orrick, Herrington & Sutcliffe, countered that although New York law does hold that contract waivers are not enforceable when a plaintiff is suing to invalidate the contract, Ambac and MBIA are not asking for rescission of the contract, but only for money damages. In that circumstance, Credit Suisse said, Kornreich correctly ruled that the bond insurers don’t have the right to trial by jury.

Who owns AIG’s MBS fraud claims? Billions ride on the answer

Alison Frankel
Jan 14, 2013 23:13 UTC

Amid the furor last week over whether AIG would thumb its nose at its federal rescuers and join former chairman Hank Greenberg’s $25 billion constitutional case against the United States, a curious side deal by AIG and Greenberg’s Starr International was mostly overlooked. Last year, as government lawyers prepared motions to dismiss Starr’s suits against both the United States and the Federal Reserve Bank of New York, AIG signed an agreement with Starr that kept the insurer out of the fray — even though one of the most powerful defenses against the claims Starr was asserting on behalf of AIG was that Greenberg’s lawyers had served the requisite presuit demand on the corporation’s board.

We still don’t know exactly why AIG agreed to the side deal with Greenberg and we probably won’t ever get a direct answer now that AIG is out of the case. (AIG’s board voted Wednesday to stay out of Starr’s Fifth Amendment “takings” case and Starr lawyer David Boies of Boies, Schiller & Flexner subsequently said Greenberg won’t sue the board for breach of duty.) But a filing Friday by AIG shows that the insurer has its own megabucks dispute under way with the Federal Reserve. That could be one of the reasons AIG didn’t help the government defend against Starr’s suits — and, more importantly, at this point, it could affect AIG’s $10 billion claims against Bank of America, as well as BofA’s proposed $8.5 billion breach-of-contract settlement with holders of Countrywide mortgage-backed securities.

AIG’s new filing, styled as a New York State Supreme Court complaint against the New York Federal Reserve’s Maiden Lane special purpose vehicle, requests a declaration that in 2008, when the Fed paid $20.8 billion to acquire AIG’s mortgage-backed portfolio through the Maiden Lane vehicle, Maiden Lane did not acquire AIG’s rights to sue MBS issuers for securities fraud. (The Fed has since sold off the Maiden Lane MBS portfolio, at a profit of more than $2 billion.) The complaint explains that the suit is a response to recent declarations by Fed officials in AIG’s case against Countrywide, which (as I’ve told you) Bank of America has moved to dismiss on the grounds that the Fed, and not AIG, owns the fraud claims AIG has asserted.

Dela. high court to rule: Can derivative fraud suits outlive mergers?

Alison Frankel
Jan 11, 2013 23:07 UTC

If ever there was a corporate board that should have been worried about breach-of-duty accusations, it was the directors of Countrywide in 2007 and 2008, after the collapsing real estate market exposed fatal flaws in the mortgage lender’s business model. Shareholder lawyers, always quick to sense opportunity in corporate scandal, began to file derivative suits accusing Countrywide directors of countenancing fraud in the fall of 2007. By May 2008, the cases had been consolidated in federal court in Los Angeles, and lead counsel at Bernstein Litowitz Berger & Grossmann and Grant & Eisenhofer had successfully countered most of the defendants’ dismissal arguments. At that point, it appeared that the Countrywide case could turn out to be a true rarity: a derivative suit that actually generated money damages.

Then Bank of America rode in and bought Countrywide for $2.5 billion. Regardless of what you think of that acquisition, which has been dubbed the worst banking deal of all time, the merger offered at least one very distinct benefit for Countrywide board members. Because the deal was structured as a stock-for-stock transaction, the Countrywide shareholders who had brought derivative breach-of-duty claims against the board, and had survived a motion to dismiss most of those claims, no longer held Countrywide stock. That meant they no longer had standing to assert their case on behalf of Countrywide. After the merger was completed in July 2008, Bank of America, not the former Countrywide shareholders, owned claims against Countrywide board members — and BofA certainly wasn’t going to assert them, since the merger agreement specifically indemnified the board.

The merger, in other words, seemed to spell the end of the derivative suit. In December 2008, U.S. District Judge Mariana Pfaelzer of Los Angeles said as much when she dismissed the case. The judge quoted from the Delaware Supreme Court’s 1984 ruling in Lewis v. Anderson: “It is well established that a merger which eliminates a derivative plaintiff’s ownership of shares of the corporation for whose benefit she has sued terminates her standing to pursue those derivative claims.” Lewis included an exception for cases in which the entire merger is a fraud engineered to protect the board, but Pfaelzer said the fraud exception doesn’t encompass the BofA deal, in which the directors’ escape from liability was the side effect of a legitimate merger.

Latest in private Libor cases: California city, counties file suit

Alison Frankel
Jan 10, 2013 23:35 UTC

The first time I wrote about private antitrust claims against banks for rigging the London Interbank Offered Rate (or Libor), it was August 2011 and the judicial panel on multidistrict litigation had just consolidated 18 class actions alleging a conspiracy to manipulate the benchmark rates, which are used to set variable interest rates on all sorts of securities around the world. I titled the piece, “The megabillions litigation you’ve never heard of.”

How things have changed in the 17 months since then! The private Libor litigation still has megabillions potential, but thanks to the tsunami of Libor news in 2012, everyone knows it. The consolidated cases are proceeding in federal court in Manhattan before U.S. District Judge Naomi Reice Buchwald, who is considering fully briefed motions to dismiss by more than a dozen bank defendants. Meanwhile, new claimants have piled on. I’ve already told you about the class actions filed after the $450 million Barclays settlement last summer, which tried to distinguish themselves from the cases already under way. Now there’s another wrinkle in the private Libor litigation: On Wednesday, the counties of San Diego and San Mateo, the city of Riverside and the municipal utility district of Oakland filed simultaneous antitrust complaints in three different federal courts in their home state of California. And a lawyer from the firm that filed all of the new cases, Cotchett, Pitre & McCarthy, told me Thursday that he is hoping more California cities and counties will join in. “California public entities — that’s who we’re trying to gather up,” said Daniel Sterrett of Cotchett.

The allegations in the California suits will be familiar to anyone who has followed the burgeoning Libor scandal, in which banks supposedly falsified reports of interbank borrowing rates to a British banking authority in order to improve trading positions or avoid damaging their reputations. The new complaints aren’t even the first to mine documents released by British and U.S. regulators in connection with UBS’s $1.5 billion settlement in December. The Los Angeles County Employees Retirement Association, represented by Bernstein Litowitz Berger & Grossmann, filed a class action on Dec. 21 that included allegations based on the UBS materials. (The pension fund’s suit, interestingly, asserts only federal racketeering and California state-law claims that are not already in the ongoing class action, so at least as the original case is currently pleaded, the pension fund’s case doesn’t overlap it.)

Supreme Court declines to halt 2nd Circuit’s Twiqbal pushback

Alison Frankel
Jan 9, 2013 23:57 UTC

In litigation, as in life, there’s usually no better strategy for catching the attention of rulemakers than to tattle on subordinates for ignoring their directives. That was clearly the thinking of lawyers for a group of magazine publishers who wanted the U.S. Supreme Court to review a 2012 ruling by the 2nd Circuit Court of Appeals that revived an antitrust conspiracy case against them. The publishers’ petition for certiorari claimed that the 2nd Circuit opinion undermined the high court’s holdings in Bell Atlantic v. Twombly and Ashcroft v. Iqbal – the incredibly consequential recent Supreme Court decisions that made it easier for defendants to win the dismissal of plaintiffs’ complaints. The publishers called on the justices to use the opportunity of the 2nd Circuit decision, captioned Anderson News v. American Media, to reiterate their intentions in Twombly and Iqbal (known slangily as Twiqbal).

On Monday, the Supreme Court refused to take the bait and denied the cert petition. That leaves the publishers’ brief to serve the perverse purpose of explaining to antitrust plaintiffs (and, for that matter, plaintiffs in all sort of other cases) exactly how the 2nd Circuit’s Anderson decision permits them to get past dismissal motions premised on Twombly and Iqbal. (The brief even includes a handy rundown on trial judges outside of the 2nd Circuit who have cited the Anderson case when they refused to toss antitrust complaints.) The justices may, of course, decide later on to revisit circuit court interpretations of Twiqbal, but for now the cert denial is undoubtedly good news for plaintiffs.

In the underlying case, the magazine wholesaler Anderson News c laimed that it was driven out of business when publishers conspired to resist its attempt to impose new per-magazine and inventory surcharges on them. U.S. District Judge Paul Crotty tossed the complaint, finding that Anderson hadn’t met the Twombly standard of creating a plausible inference of collusion, since there were alternative and legitimate business reasons for each publisher independently to decide not to pay the new charges. But in April 2012, the 2nd Circuit vacated Crotty’s decision.

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