Opinion

Alison Frankel

Did Argentina lie to the U.S. Supreme Court?

Alison Frankel
Jun 2, 2014 20:38 UTC

I may have been too quick to believe that Argentina actually intended to follow through on a pledge to the U.S. Supreme Court.

Last Friday, I credited the Argentine government with an historic concession in its May 27 brief to the court, in which Argentina pledged to comply with an injunction from the 2nd U.S. Circuit Court of Appeals prohibiting it from making payments to holders of its restructured debt before paying off hedge funds that refused to exchange defaulted bonds. Argentina is trying to persuade the Supreme Court to grant review of the 2nd Circuit’s so-called pari passu (or equal footing) injunction, and I believed that the promise of compliance from a country notorious for defying bondholder judgments against it was a show of good faith.

But NML Capital, one of the hedge funds opposing Argentina at the Supreme Court, presented evidence Friday afternoon to a Manhattan federal judge suggesting that the country is secretly planning to evade U.S. court orders in the event that the justices refuse to hear its case. NML told U.S. District Judge Thomas Griesa, who has been presiding over the Argentine bond litigation for more than a decade, about a newly surfaced May 2 memo from Argentina’s lawyers at Cleary Gottlieb Steen & Hamilton to the country’s Minister of Economy and Public Finance. The five-page memo lays out various scenarios for resolving Argentina’s dispute with the hedge fund holdouts and concludes that if the Supreme Court denies cert, the government’s “best option” would be to default “and then immediately restructure all of the external bonds so that the payment mechanism and the other related elements are outside of the reach of American courts.” (NML didn’t file the confidential memo because of privilege concerns, but The Financial Times’s FTAlphaville blog has an English translation of the entire document, which has also been reported in the Argentine press.)

NML contends that a restructuring designed to put Argentine debt beyond the reach of the U.S. courts would violate anti-evasion provisions in trial court orders that have already been affirmed by the 2nd Circuit. The hedge fund, which is represented by Dechert and Gibson, Dunn & Crutcher, went so far as to suggest to Judge Griesa that Argentina may have committed a fraud on the court. According to NML, Cleary’s May 2 memo to the Argentine minister indicates that the law firm and its client are, in fact, contemplating how to avert compliance with the directive that they must pay holders of defaulted bonds — even though lawyers at Cleary assured the judge at a hearing last November that there were “no steps being taken to evade the plan or to evade the injunction.”

So did Argentina mislead the Supreme Court when it said on May 27 that it intended to comply with the 2nd Circuit injunction if the justices denied cert? Here is exactly what the brief by counsel of record Paul Clement of Bancroft said: “Argentina’s recourse to judicial review does not represent unwillingness to comply with its legal obligations, but it shows Argentina’s struggle to continue honoring its debts to the exchange bondholders. Contrary to respondents’ assertions, absent relief Argentina will comply with the injunctions; though, since Argentina lacks the financial resources to pay the holdouts in full (what would amount to $15 billion) while also servicing its restructured debt to 92 percent of bondholders, Argentina will have to face, objectively, a serious and imminent risk of default.”

In new SCOTUS brief, Argentina pledges to comply with U.S. courts

Alison Frankel
May 30, 2014 20:44 UTC

The most notorious deadbeat in the U.S. courts made an historic concession this week.

In a May 27 response brief at the U.S. Supreme Court, Argentina said that, contrary to the accusations of its hedge fund foes, it will comply with directives from the 2nd U.S. Circuit Court of Appeals to pay renegade sovereign debtholders if the Supreme Court refuses to hear its appeal. That pledge marks a big departure from the outright defiance Argentina showed last year at the 2nd Circuit, when its lawyers informed the court that the government “would not voluntarily obey” a U.S. court order it disagreed with. Even after the appeals court ruling — which upheld an injunction that bars Argentina from making payments to holders of its restructured debt before it pays more than $1 billion it owes to the hedge fund holdouts — the Argentine government vowed that it would never negotiate with the rapacious hedge funds. Argentina now seems to be reconsidering that vow, both outside of the courts, as Reuters reported Thursday, and within the U.S. litigation, as the May 27 filing indicates.

In the new brief, Argentina’s lawyers — Paul Clement of Bancroft, who is counsel of record and a recent addition to Argentina’s team, and the country’s longtime advisers Jonathan Blackman and Carmine Boccuzzi from Cleary Gottlieb Steen & Hamilton — repeated their arguments that the Supreme Court should grant certiorari and ask New York’s highest state court to interpret the pari passu, or “equal footing,” provision in Argentina’s sovereign debt contracts. Argentina also suggested that this case is of such overwhelming importance to foreign sovereigns and to foreign debt markets that the Supreme Court might want to invite the views of the U.S. government, which (as I noted in March) didn’t file an amicus brief supporting Argentina’s cert petition.

What BP doesn’t want you to know about its oil spill claims appeal

Alison Frankel
May 29, 2014 22:22 UTC

Poor besieged BP. As you know if you’ve seen the full-page newspaper ads BP has been running for the last year, or watched a 60 Minutes report earlier this month, BP — the company whose well spewed millions of gallons of oil into the Gulf of Mexico in the 2010 disaster that killed 11 workers on the Deepwater Horizon rig — considers itself a victim, too. As BP tells it, the company has been martyred over and over again: by trickster trial lawyers who forced it into an open-ended class action settlement; by the administrator of the settlement, Patrick Juneau, who misinterpreted the terms of the deal in a way that permitted claims by people who weren’t even harmed by the oil spill; by U.S. District Judge Carl Barbier of New Orleans, who threw in with the plaintiffs lawyers and approved Juneau’s interpretation; and, most recently, by the 5th U.S. Circuit Court of Appeals, which just refused BP’s last plea for mercy.

Now the company’s only hope for salvation from billions of dollars in supposedly unwarranted claims lies with the U.S. Supreme Court, which BP petitioned on Wednesday to halt all payments to businesses harmed in the spill while it pursues its final appeals. BP wants all of us to know, however, that “this legal fight has not in any way changed our commitment to the Gulf,” as it said in its latest ad in The New York Times, which ran Thursday.

Here is what BP isn’t so eager to publicize: New rules promulgated by settlement administrator Juneau and approved by Judge Barbier will effectively block the very claims BP was so worried about when it launched its campaign against its own settlement a year ago. According to Joseph Rice of Motley Rice, a member of the plaintiffs steering committee in the BP class action and one of the lead negotiators of the original deal, the new policies will decimate payouts to construction, education, professional services and agriculture businesses — four industries BP initially targeted for filing unwarranted claims. In addition, Rice said, the new rules — which Barbier on Wednesday ordered the claims administrator to apply retroactively to all claims that haven’t yet been paid — will drastically reduce BP’s remaining liability.

After Halliburton, SCOTUS has another securities litigation puzzler

Alison Frankel
May 28, 2014 22:52 UTC

In a matter of weeks, the securities class action industry — I’m talking here about both plaintiffs and defense lawyers — will find out whether the U.S. Supreme Court has ended business as they know it. As you know, the justices will decide by the end of this term, in Halliburton v. Erica P. John Fund, if investors may continue to take advantage of the fraud-on-the-market doctrine the Supreme Court established in the 1988 decision Basic v. Levinson, which codified shareholders’ right to sue as a class. At oral arguments in March, the justices seemed to be reluctant to conduct radical surgery on the existing regime for class actions brought under the fraud provisions of the Exchange Act of 1934, but that’s no guarantee of the outcome.

Halliburton has cast such an enormous shadow that the court’s next big securities case hasn’t gotten much attention. In March, the justices granted certiorari to Mississippi’s public employees’ pension fund in a case presenting the issue of whether the filing of a shareholder class action suspends the three-year time limit on claims under the Securities Act of 1933. The 2nd U.S. Circuit Court of Appeals held last June that it does not, finding that the Supreme Court’s landmark 1974 ruling on class actions and tolling of the statute of limitations, American Pipe v. Utah, doesn’t apply to the time limit known as the statute of repose. Last week, MissPERS and two other public pension funds filed their merits briefs arguing that the 2nd Circuit drew a misguided distinction between the statute of limitations and the statute of repose. According to the briefs, the principles that led the court in the American Pipe case to conclude that the filing of a class action puts defendants on notice of liability should apply regardless of whether the time limit at issue is the one-year statute of limitations in the Securities Act or the three-year statute of repose.

The 2nd Circuit had concluded in its IndyMac decision that defendants have a “substantive right” to be free of exposure to investors’ Securities Act suits once three years have elapsed from the offering date. According to the 2nd Circuit opinion, written by Judge Jose Cabranes, the Supreme Court’s American Pipe ruling — which addressed extending the one-year deadline for investors to bring claims after they’ve discovered evidence of issuer wrongdoing — was “equitable tolling” rooted in Rule 23 of the Federal Rules of Civil Procedure, which governs class actions. The 2nd Circuit said that under Supreme Court precedent in the 1991 decision Lampf, Pleva v. Gilbertson, equitable tolling doesn’t apply to the three-year statute of repose in the Securities Act. It also said that the Rules Enabling Act forbids using a federal rule to preclude substantive rights, so courts can’t curtail a defendant’s right to be free of liability via Rule 23.

Justice Department sides with Madoff’s banks on SCOTUS review

Alison Frankel
May 27, 2014 20:02 UTC

Not every shred of hope is lost for Bernard Madoff trustee Irving Picard in his quest to recover billions from the international banks he has accused of abetting Madoff’s fraud. But it’s looking bleak for the Madoff trustee after the Justice Department filed a brief Friday at the U.S. Supreme Court. In response to the court’s request for the government’s view of Picard’s petition for a writ of certiorari, Solicitor General Donald Verrilli advised the justices to reject Picard’s appeal.

The dismissal in 2013 of Picard’s fraud suits by the 2nd U.S. Circuit Court of Appeals “does not conflict with any decision of (the Supreme Court) or of another court of appeals,” the SG’s brief said. “The decision below also does not preclude customers from pursuing their own actions against (the banks) based on the same alleged conduct that forms the basis of (Picard’s) claims. Further review is not warranted.”

The brief is an arduous trudge through the deep weeds of the law on federal pre-emption of state contribution claims; subrogation rights of the Securities Investor Protection Corporation; and the Bankruptcy Code standing of securities trustees to bring common-law claims on behalf of brokerage customers. If you are in the extremely small group of people for whom these are consequential questions, perhaps you’ll find illumination in the SG’s discussion of the intersection of Picard’s claims with such precedent as Caplin v. Marine Midland and Redington v. Touche Ross. For the rest of us, the brief is notable for the many different ways in which the Justice Department and its co-signer, the Securities and Exchange Commission, undercut Picard’s arguments for Supreme Court review.

In Chevron case, Ecuador says new tests prove long-standing pollution

Alison Frankel
May 22, 2014 21:22 UTC

The biggest frustration for Ecuador’s ambassador to the United States, Nathalie Cely Suárez, in her country’s seemingly endless dispute with Chevron over the cleanup of old drilling sites in the Amazon rainforest, is how effectively the oil company has created doubts about the contamination. “Of course contamination existed, and still exists today,” Cely said in an interview Wednesday. “People tend to forget that the most important thing in this case is people’s lives.”

This week, for the first time, the Ecuadorean government disclosed the results of water and soil testing conducted in 2013 by its experts — the U.S. environmental, engineering and infrastructure consultant Louis Berger Group — at five sites once operated by Chevron predecessor Texaco. Cely told me that she hopes the government’s disclosure, which comes in documents from its ongoing bilateral investment treaty arbitration with Chevron, will shift attention back to the plight of the Ecuadoreans who live in the drilling region and away from the conduct of the lawyers who represented the villagers. “Finally, we have our own proof,” she said. It’s one thing for Chevron to discredit testing by experts working for plaintiffs’ lawyers deemed by a federal judge in the United States to have engaged in fraud. But Cely said, “It’s another story when you have your own report, your own findings.”

Nothing in the Chevron case is simple and straightforward, so, of course, Chevron has its own interpretation of the Ecuadorean government’s test results. The oil company contends that the samples are evidence only of the harm inflicted on the region by the government’s own state-sponsored drilling and its failure to live up to remediation promises. “Rather than take responsibility for their activities,” a Chevron spokesman said in an emailed statement, ” President Correa and his subordinates continue to lay blame elsewhere. The only entities responsible for current environmental and social conditions in the Oriente are the Republic of Ecuador and Petroecuador.”

Allergan investors (other than Ackman!) sue for say in takeover fight

Alison Frankel
May 21, 2014 21:56 UTC

Valeant Pharmaceutical’s soon-to-be sweetened $47 billion bid for Allergan has been called “a weird textbook for the Future of Mergers & Acquisitions”: It’s the first deal in which an activist hedge fund investor, William Ackman of Pershing Square Capital, has teamed up with an operating company on a bid; and the first in which hostile bidders have convened an unofficial shareholder meeting and proxy vote to scare their target into negotiations. Ackman and Valeant are adding new steps to the old M&A dance — and shareholder class action lawyers are trying to figure out how to keep up with their moves.

On Tuesday, Bernstein Litowitz Berger & Grossmann and Grant & Eisenhofer filed their second declaratory judgment complaint against the Allergan board in Delaware Chancery Court. Two weeks after suing directors for supposedly promulgating a misinterpretation of a proposed bylaw amendment that would serve to entrench the board, the shareholder firms are back with a new theory and a new client. This time around, the lead plaintiff is the Police Retirement System of St. Louis and the allegation is that the Allergan board intends to rely on a “constituency” clause in its certificate of incorporation to rebuff a takeover offer that benefits shareholders. (Hat tip to the great Chancery Court newsletter, Chancery Daily.)

Allergan’s constituency provision, according to the complaint, permits the board to consider the interests of groups other than shareholders — such as customers and employees — in evaluating a takeover offer. The suit claims that the provision is contrary to Delaware’s doctrine, which holds that the board’s primary obligation is to maximize shareholder value. The plaintiffs’ firms, including Robbins Arroyo, are asking Delaware Chancellor Andre Bouchard to declare that Allergan’s constituency provision is void and to enjoin the board from relying on it.

5th Circuit’s last word to BP leaves constitutional question-mark

Alison Frankel
May 20, 2014 22:28 UTC

The 5th U.S. Circuit Court of Appeals has had it with BP and its attempts to evade the consequences of the deal it struck to end litigation over the 2010 Deepwater Horizon oil spill.

On Monday, eight 5th Circuit judges refused to review the decision of a divided three-judge panel, which held in March that the class action settlement’s payout process complies with the U.S. Constitution. That’s the last word from this court, which has now heard BP’s protestations about the settlement in four different rounds of briefing before two different three-judge panels. But it may not be the last word in the dispute. A dissent by three 5th Circuit judges practically implores the U.S. Supreme Court to take the case and resolve tricky constitutional questions about standing in class action settlements.

Judge Leslie Southwick wrote an opinion explaining the 5th Circuit’s decision not to rehear BP’s appeal en banc. His explanation is heavy on specifics about whether a particular exhibit in the settlement agreement conflicts with a policy statement subsequently issued by the claims administrator and ratified by the judge overseeing the class action, U.S. District Judge Carl Barbier of New Orleans. But Southwick’s opinion boils down to a simple idea: BP made compromises when it bought global peace via a gigantic class action settlement, and now it’s stuck with the repercussions.

Lesson from the smartphone wars: Litigation is not a business plan

Alison Frankel
May 19, 2014 19:55 UTC

After almost five years of suing each other in courts in the United States and Europe over patents on mobile devices, Apple and Google abruptly announced Friday night that they’ve called a ceasefire: They’re dropping all of the litigation. They’re not even making a deal to cross-license one another’s IP, just declaring a truce and walking away.

Apple has not yet settled with Samsung, the device manufacturer that most successfully employs Google’s Android operating system, so the two companies haven’t entirely resolved their dispute; evidence from the recently concluded patent infringement trial between Apple and Samsung in San Jose, Calif., revealed that Google is paying at least part of Samsung’s defense costs. (The Korea Times reported Monday that Apple and Samsung are in global settlement talks.) Until there’s a Samsung deal, two law professors, Brian Love of Santa Clara University and Michael Risch of Villanova told Bloomberg, the Google settlement is more important as a symbol than for any actual impact.

What is increasingly obvious is that the same can be said for the entire panoply of smart device patent cases. Apple and Samsung have now been through two long and expensive patent infringement trials before U.S. District Judge Lucy Koh in San Jose. Apple has won both, but the jury in the trial that concluded earlier this month awarded the company only $119.6 million in damages, less than a day’s sales for Samsung. Most importantly, Apple failed to win an injunction in the federal-court litigation. Samsung also tried and failed, in its case at the U.S. International Trade Commission, to win any prohibition on the importation of Apple products. Microsoft, meanwhile, established in separate litigation against Google that individual patents in high-tech devices are worth a pittance.

California finds ‘right to privacy’ for anonymous online commenters

Alison Frankel
May 16, 2014 21:29 UTC

The big headlines this week on privacy and the Internet were about a ruling from the European Union’s highest court, which, as you know, held that Internet search companies must respect a “right to be forgotten.” The EU decision is a money pit for Google and its ilk, which now have to figure out how to respond to people’s requests that search engines disable links to purportedly irrelevant information about them, even if the information is otherwise accurate and publicly accessible. First Amendment advocates in the United States lamented the EU’s decision as an incursion on the public’s access to perfectly legitimate information. I’m with them on that.

In California, by contrast, an intermediate appeals court has just found that privacy and free speech on the Internet actually operate in tandem, not in tension. And while the EU decision involved the privacy rights of those who are the subject of free speech, the California case flipped the inquiry to consider the rights of the speaker. On Wednesday, the Court of Appeal for the Second Appellate District, in Los Angeles, ruled that anonymous online comments are protected by the California state constitution’s right to privacy. The decision reversed a trial court order that the online news site Digital Music News must turn over computer records to the parent company of the digital music sharing site Grooveshark to enable Grooveshark to identify an anonymous commenter who claimed to be an employee.

The anonymous poster, wrote Judge Victoria Chaney for a panel that also included Judges Frances Rothschild and Jeffrey Johnson, “has done nothing more than provide commentary about an ongoing public dispute in a forum that could hardly be more obscure — the busy online comments section of a digital trade newspaper,” Chaney wrote. “Such commentary has become ubiquitous on the Internet and is widely perceived to carry no indicium of reliability and little weight. We will not lightly lend the subpoena power of the courts to prove, in essence, that Someone Is Wrong On The Internet.”

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