Alison Frankel

How ‘Company Doe’ – now revealed as ErgoBaby – triggered 1st Amendment case

Alison Frankel
May 8, 2014 21:33 UTC

In September 2011, ErgoBaby — a small California-based maker of baby products – received potentially ruinous news. The Consumer Product Safety Commission intended to post a report on its public database of an incident in which a month-old baby in Maryland died while he was in an ErgoBaby carrier. The baby’s mom had been strawberry picking in hot weather with her infant strapped to the front of her body. The carrier’s coverlet was up, and, according to the initial autopsy report, “rebreathing in a hot environmental condition could have contributed to death.”

ErgoBaby brought in lawyers from Gibson, Dunn & Crutcher, who quickly protested that the CPSC’s proposed report contained materially inaccurate information. There was simply no link, ErgoBaby argued, between its carrier and the baby’s death because the autopsy’s note about rebreathing was sheer speculation. The CPSC revised the incident report twice, eventually removing a reference to the possibility that the baby’s death was related to recirculated hot air and stating that the cause of death was undetermined.

ErgoBaby believed that even the revised report would have a devastating impact on its business — and, moreover, according to CEO Margaret Hardin, that the CPSC public database was not intended to include such vague and unsubstantiated reports. In October 2011, the company’s lawyers filed a suit in federal court in Greenbelt, Maryland, to block the CPSC from publishing the stripped-down incident report. But ErgoBaby didn’t sue in its own name. That would have defeated the whole purpose of the litigation by exposing ErgoBaby’s fight with the CPSC over the incident report — exactly what the company was trying to avoid. So, in what Gibson partner Baruch Fellner called “an historic first,” ErgoBaby was identified in the complaint only as “Company Doe.” It asked the court to allow it to proceed under that pseudonym and to seal the entire docket of the case.

Over the next 10 months of litigation with the CPSC — in which it established that the baby in Maryland had choked on an unidentified object — ErgoBaby managed to keep its identity secret. The litigation went so well for the company that even the CPSC’s main expert ended up agreeing that the direct cause of the infant’s death was choking. In a 74-page ruling in July 2012, Judge Alexander Williams enjoined the CPSC from publishing the incident report. He also kept the case records under seal, agreeing with ErgoBaby that its victory over the CPSC would be hollow if its identity were revealed.

ErgoBaby and Gibson Dunn appeared to have blazed a new path for corporate defendants: They could litigate anonymously to clear their names, even in a matter of great public interest, so long as they could persuade the court of the dire consequences of their exposure.

Bully tactics aside – is it finally time to exonerate Chevron?

Alison Frankel
May 7, 2014 22:40 UTC

Chevron is a litigation bully that has employed relentless tactics in 20 years of litigation against villagers in the Ecuadorean rainforest, where the oil giant’s predecessor Texaco once drilled for oil. The Ecuadoreans deserve to live in better conditions, without fear that oil waste continues to pollute their soil and water. I believe both of these assertions to be truth. I do not believe they are causally connected. Chevron’s pattern of exploiting the weaknesses of its adversaries — especially in its recent and overwhelmingly successful campaign in U.S. courts to discredit the villagers’ $9 billion Ecuadorean judgment against the oil company — does not necessarily mean Chevron is responsible for cleaning up the Lago Agrio oil field.

As recently as last year, I didn’t think the fundamental question in the Ecuadoreans’ case would ever be answered. No one would ever know for sure, I thought, whether Chevron had contaminated the land and injured the people of the Lago Agrio. Chevron’s bulldog lawyers at Gibson, Dunn & Crutcher had amassed copious evidence that the verdict in Ecuador was hopelessly tainted by fraud. U.S. District Judge Lewis Kaplan of Manhattan recounted that evidence in a 497-page ruling in March that concluded the Ecuadorean verdict was “obtained by corrupt means.” But even Kaplan acknowledged the tragedy that misconduct by the villagers’ lawyers would forever obscure the truth or falsity of their claims. We’ll never know, Kaplan said, whether the villagers might have been able to prosecute a legitimate case against Chevron.

I am increasingly convinced that they could not have.

On Wednesday, their lawyers at the Washington, D.C., firm Patton Boggs surrendered to Chevron in abject fashion. Patton Boggs, which entered the Lago Agrio case in 2010 and was quickly ensnared in its own litigation with Chevron, agreed to pay the oil company $15 million and to assign its interest in the Ecuadorean judgment to Chevron. The firm said that its two lead partners in the Lago Agrio case, James Tyrrell and Eric Westenberger, would submit to depositions by Chevron lawyers at Gibson Dunn, and that it would turn over discovery materials to Chevron, under the supervision of Judge Kaplan.

In new Gawker infringement complaint, Tarantino shifts strategy

Alison Frankel
May 6, 2014 21:24 UTC

I had high hopes that the case of Tarantino v. Gawker would go down in legal history for establishing precedent on whether a news site is liable for inducing infringement by linking to copyrighted material. But based on the amended complaint filed last week, the film auteur’s suit against the snarky website will hinge on plain old direct infringement — if it survives at all.

In case you’ve forgotten, Tarantino originally sued Gawker and a file uploading service called AnonFiles in January, after a Gawker site linked to AnonFiles’ version of his script for The Hateful Eight, a Western in early production. Gawker said it was just reporting the news: Hollywood was already buzzing about the script because Tarantino had abruptly canceled filming when he discovered it had been leaked to a couple people. Tarantino’s suit claimed that Gawker induced a reader to upload The Hateful Eight script to AnonFiles (and, subsequently, to Scribd), then induced additional acts of infringement by exhorting its millions of readers to click on the links.

That was an untested theory. Contributory infringement in the digital age has mostly been associated with websites that facilitate file sharing, not with online news organizations that routinely link to copyrighted content posted elsewhere. From the beginning of this flap, Gawker has vehemently denied any connection with the anonymous uploader who created a link to Tarantino’s script at AnonFiles and Scribd, so, assuming those statements were true, it looked as if Tarantino’s contributory infringement suit would live or die based on his ability to show that Gawker readers directly violated his rights by clicking on the site’s links to his script. Unless Tarantino could show direct infringement, he couldn’t prove the site had induced any violation of his rights.

Sotheby’s lesson: Poison pills not panacea for embattled boards

Alison Frankel
May 5, 2014 22:27 UTC

Sotheby’s may have won its litigation battle with activist investor Dan Loeb of Third Point, but Loeb won his war with the auction house.

On Friday, Vice-Chancellor Donald Parsons of Delaware Chancery Court denied motions by Loeb and pension fund investors to block Sotheby’s from convening its annual shareholder meeting on May 6. Parsons held that the auction house’s board legitimately perceived a takeover threat last October, when it adopted a poison pill designed to fend off activist hedge funds, including Third Point, that were snapping up Sotheby’s stock. Parsons said he has policy concerns about a pill that discriminates against activist investors. But because the board’s primary intention was takeover defense, not to interfere with shareholder voting rights, directors are entitled to deference under Delaware’s 1985 precedent in Unocal v. Mesa Petroleum. Parson’s ruling is a vindication of the controversial Sotheby’s pill, which was set to trigger when an activist investor acquired 10 percent of the company’s shares but permitted a passive investor to amass 20 percent.

Nevertheless, in a settlement announced on Monday, Sotheby’s gave Loeb most of what he wanted in the proxy contest and the pill litigation. Faced with the prospect of losing to the activist investor in shareholder voting for three board seats, the auction house agreed to expand its board to include Loeb and the two other board candidates he had proposed. Sotheby’s also said it would terminate the troublesome poison pill. In exchange, Loeb conceded only that he would drop the proxy contest and the litigation and that he would cap his fund’s ownership of Sotheby’s shares at 15 percent.

How to bring private investors back into mortgage market

Alison Frankel
Apr 23, 2014 20:55 UTC

The Senate Banking Committee is scheduled next week to debate a bill to reform Fannie Mae and Freddie Mac, the government-sponsored enterprises that have single-handedly propped up the market for residential mortgages since the housing crash of 2008. The bill, known as Johnson-Crapo for the lead senators on the banking committee, faces an uncertain future. But even if it manages to emerge from the committee and ultimately become law, Johnson-Crapo won’t, on its own, guarantee the continuation of the U.S. housing recovery because the bill doesn’t address private investment in mortgage-backed securities.

The housing market needs private capital to share risk and keep interest rates affordable, as Pimco CEO Douglas Hodge wrote in an April 11 op-ed in Barrons. Yet as we all know from years of MBS litigation, investors in pre-crash MBS trusts believe they were badly deceived by issuers, originators and trustees, who then compounded their sins by refusing to make good on buy-back provisions in MBS contracts.

Even worse, in the eyes of MBS investors, banks that issued the securities and serviced the underlying mortgage loans shifted some of the burden of their own $25 billion settlement with the U.S. government onto investors. A report earlier this month from the Housing Finance Policy Center concluded that 24 percent of the mortgages that banks modified as part of the $25 billion settlement were owned by investors in MBS trusts, not by the banks themselves. Those modifications could be to investors’ benefit, if they result in revenue to MBS trusts from homeowners who might otherwise default, but as the Housing Finance report notes, there’s no transparency for investors, so they don’t know whether the banks acted reasonably or not.

At Aereo arguments, can old-school analogies explain new technology?

Alison Frankel
Apr 23, 2014 00:10 UTC

Technology is hard. Valet parking and coat check rooms are not, at least for U.S. Supreme Court justices. So at Tuesday’s oral arguments over the online TV startup Aereo, lawyers for Aereo, the U.S. government and the broadcasters who believe Aereo is pirating their copyrighted content used all sorts of tangible analogies to bring issues out of the cloud and into the real world.

Aereo, as you probably know from breathless coverage of how it will break cable’s stranglehold and change television-watching forever, permits subscribers to watch shows in almost live time without paying for cable service. The service uses thousands of dime-sized antennas to capture TV signals, then retransmits them to customers’ Internet devices at their direction. Aereo and its major backer, Barry Diller’s IAC/InterActive, contend that because its customers control transmissions from the tiny antennas, its set-up complies with copyright law as the 2nd Circuit U.S. Court of Appeals defined it in a 2008 case called Cartoon Network v. Cablevision. (In the Cablevision ruling, the 2nd Circuit said that the cable company wasn’t liable for infringement because its remote digital video recorder system was directed by its customers, who made copies of shows to replay for their own private use, not for prohibited public performances.) Broadcasters, of course, say Aereo’s multiple antennas are a guise to cover the company’s outright violations of the Copyright Act’s Transmit Clause, which Congress enacted in 1976 to prohibit cable companies from engaging in the same signal piracy that Aereo is now accused of.

Aereo realized before its case reached the Supreme Court that it was better off comparing itself to an old-school equipment provider – a sort of Radio Shack of the digital age – than bickering with broadcasters over how exactly its banks of antennas operate. No one, after all, believes Radio Shack is responsible for copyright infringement when it sells television antennas and electrical cables that people can set up on their own roofs. At oral arguments Tuesday, Aereo’s Supreme Court lawyer, David Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel, mostly stuck with that easy-to-grasp analogy. But when Chief Justice John Roberts challenged him on whether Aereo uses thousands of teeny antennas rather than one big one simply to take advantage of the 2nd Circuit’s quirky Cablevision ruling, Frederick called on another tactile comparison to justify Aereo’s devices: Lego blocks.

Institutional investors step off sidelines to sue BP for fraud

Alison Frankel
Apr 21, 2014 22:27 UTC

A spate of U.S. pension funds, including Bank of America’s private pension plan and funds for public workers in Maryland, Louisiana and Texas, filed suits Friday accusing BP of defrauding investors in its statements about the Deepwater Horizon oil spill in April 2010. Piling on just ahead of the statute of limitations, several foreign institutions, such as Norges Bank and Deka Investment, also brought cases Friday against BP. In all, the oil company is now facing individual securities suits by at least 20 institutional investors, all of which claim that their investment managers relied on the company’s supposed misrepresentations when they decided to buy BP shares.

That’s a big headache for BP, of course, but it’s also worrisome for other foreign-based companies with significant operations in the United States. Since 2010, those businesses have been virtually immune from securities fraud claims in U.S. courts, thanks to the U.S. Supreme Court’s ruling in Morrison v. National Australia Bank.

In Morrison, the Supreme Court held that American securities laws don’t apply outside of our borders. Trial courts have interpreted the decision to mean that companies listed on foreign exchanges can’t be sued for fraud under the Exchange Act of 1934. (There’s one loophole: Federal-law claims by investors who traded American Depository Shares are viable despite Morrison, but those suits can only recover losses in a defendant’s U.S. float.)

4th Circuit throws open courtroom windows in ‘Company Doe’ ruling

Alison Frankel
Apr 16, 2014 19:58 UTC

I plow through a lot of appellate opinions. Few of them make me want to stand up and read aloud in the Reuters newsroom. But a couple of sentences, from a ruling Wednesday by the 4th U.S. Circuit Court of Appeals, just about pushed me out of my chair. “A corporation very well may desire that the allegations lodged against it in the course of litigation be kept from public view to protect its corporate image, but the First Amendment right of access does not yield to such an interest,” the three-judge 4th Circuit panel wrote. “Whether in the context of products liability claims, securities litigation, employment matters or consumer fraud cases, the public and press enjoy a presumptive right of access to civil proceedings and documents filed therein, notwithstanding the negative publicity those documents may shower upon a company.” What an unwavering endorsement of open courts!

It’s all the more appropriate that the 4th Circuit underscored the public’s right to know because the case that prompted its ruling implicates the government’s discretion to protect public safety. In 2011, an unidentified local government agency submitted an incident report to the Consumer Product Safety Commission. The CPSC notified the company that manufactures the supposedly dangerous product, which insisted that the report was materially inaccurate and should not be published on the recently-established CPSC database for reports of unsafe products. The Commission agreed to some concessions, but ultimately said it intended to publish the report. The company sued in federal court in Greenbelt, Maryland, to enjoin the publication. It also moved to seal the litigation and to proceed under the pseudonym “Company Doe.”

Public Citizen, the Consumer Federation of America and the Consumers Union intervened to join the CPSC in opposing the company’s request to litigate in secret, but U.S. District Judge Alexander Williams sided with Company Doe. If the company were forced to reveal its identity in the litigation, the judge reasoned, it would suffer exactly the same reputational harm it was trying to avert through its injunction suit. The only way to protect the company from unwarranted damage, Williams said, was to permit the pseudonym and sealing until he reached a determination.

Google friends swamp 9th Circuit in ‘Innocence of Muslims’ case

Alison Frankel
Apr 15, 2014 23:06 UTC

Is there anyone who doesn’t sympathize with the actor Cindy Lee Garcia, who was baldly deceived into appearing in the abhorrent anti-Islam film “Innocence of Muslims”?

The filmmaker, a shadowy character who goes by three different names, told Garcia she’d be appearing in “Desert Warrior,” an adventure movie set in the Middle East. Instead, he overdubbed her lines to make it appear as though the actress was accusing the prophet Mohammed of pedophilia, and included her brief scene in a screed so incendiary that it inspired riots in Egypt and elsewhere in the Muslim world.

Targeted by death threats, Garcia eventually sued Google to force its YouTube unit to block the video. In February, she won a ruling from a divided three-judge panel at the 9th U.S. Court of Appeals, ordering Google to take down the film because Garcia was likely to prevail on her claim that ‘Innocence’ infringes her copyright on her individual performance.

The dubious new high-frequency trading case against the Merc

Alison Frankel
Apr 14, 2014 19:02 UTC

For all of the outrage kicked up by Michael Lewis’s depiction of fundamentally rigged securities exchanges in his book “Flash Boys,” there’s a giant obstacle standing in the way of punishing high-frequency traders or the exchanges that facilitate them: the blessing of federal regulators. As Dealbook’s Peter Henning wrote in his White Collar Crime Watch column on why high-frequency trading is unlikely to result in criminal charges, securities exchanges openly sell access to high-speed data feeds and to physical proximity that increases trading speed by milliseconds. Exchanges are, in the words of Andrew Ross Sorkin, “the real black hats” of high-frequency trading, since they unabashedly profit from differentiating access to trading information.

That may be true, but exchanges do so with the full knowledge of the Securities and Exchange Commission and the Commodity Futures Trading Commission. Georgetown professor James Angel, who specializes in the structure and regulation of financial markets, told me Monday that as long as securities exchanges don’t discriminate in the sale of high-speed access, they’re acting within their regulatory bounds. He compared the system to airlines selling different tiers of service: It’s perfectly fine to sell first-class seats to high-frequency traders as long as people in coach had the same opportunity to sit up front and opted instead for the cheap seats.

I had called Angel to ask his opinion of a new class action against the Chicago Mercantile Exchange. Filed Friday in federal district court in Chicago, the suit claims that the Merc’s parent, CME Group, has defrauded the derivatives market by representing that it’s providing real-time market information when, in fact, it has entered into “clandestine” contracts to provide order information to high-frequency traders before anyone else. Angel’s take? “This is a bogus case,” he said after reading the suit. “This is clearly about somebody who bought a coach ticket and is now complaining that they didn’t get first class service.”