Opinion

Alison Frankel

Why Parmalat litigation v. Grant Thornton is like 0-0 soccer game

Alison Frankel
Jun 26, 2014 19:43 UTC

If it is possible for an appellate ruling on the jurisdiction of bankruptcy trustees’ claims against an auditor to be snicker-inducing, Judge Richard Posner‘s opinion Wednesday for the 7th U.S. Circuit Court of Appeals in Parmalat v. Grant Thornton is that decision.

Posner precedes his recounting of the history of this litigation — which involves claims by two bankruptcy trustees for the once fraud-wracked Italian dairy conglomerate against former auditor Grant Thornton — by noting that he would “simplify ruthlessly.” (I will try to follow his example.) Near the end of the ruling, after he describes the cases’ journey from Illinois state court through federal courts in New York and Illinois, he observes that the 7th Circuit’s decision to send the cases back to Illinois state court where they began will effectively end any hope of bringing the litigation to a close “before it a chance to exceed the length of the Trojan War.” Funny, right?

I’m writing this post as the United States soccer team is facing off against Germany, so soccer is on my mind. The Parmalat suits against Grant Thornton remind me of a scoreless soccer match. We’ve seen some great footwork from the lawyers on both sides — Quinn Emanuel Urquhart & Sullivan for the main Parmalat bankruptcy trustee, Diamond McCarthy for the Parmalat Capital trustee, and Winston & Strawn for Grant Thornton — but neither side has put the ball in the net for a goal. Posner’s instruction that the cases return to state court puts the litigation into sudden-death overtime.

The outcome of the match will have implications not just for Grant Thornton but for all auditors facing claims from former clients driven into bankruptcy by accounting shenanigans. Auditors are broadly protected from liability under the common law doctrine of in pari delicto (“equally in fault”), which holds that participants in wrongdoing can’t recover from fellow miscreants. Judge Posner himself wrote a landmark opinion about in pari delicto, Cenco v. Seidman & Seidman, in 1982; and Judge Frank Easterbrook recently reiterated, in the 7th Circuit’s 2012 decision in Peterson v. McGladrey and Pullen, that in pari delicto defenses are available to auditors sued under Illinois state law.

Grant Thornton has argued at almost every stage of these long-running cases that Parmalat’s claims are barred by in pari delicto. U.S. District Court Judge Lewis Kaplan in Manhattan –who took charge of the trustee suits after they were removed to federal court and transferred to the Parmalat multidistrict litigation — agreed with Grant Thornton, granting the auditor summary judgment in 2009. The 2nd Circuit, however, found that Grant Thornton was offsides and invalidated the goal. Okay, what the appeals court actually did was vacate Kaplan’s judgment and order the cases to be sent back to state court because federal courts should have abstained from asserting jurisdiction.

Forum selection clauses are killing multiforum M&A litigation

Alison Frankel
Jun 24, 2014 21:00 UTC

It was entirely predictable that last spring, after Safeway announced that it had agreed to accept a $9.2 billion offer from the private equity firm Cerberus Capital, shareholders would rush to file suits challenging the deal. As you know, shareholder M&A suits have become an inevitable consequence of merger announcements, and, to the frustration of defendants, are often brought in more than one jurisdiction — which has meant, in years past, that if defendants couldn’t persuade judges to defer to other courts, they sometimes had to defend against the same claims by multiple plaintiffs firms in multiple courts.

Defendants thought they’d at least solved the multiforum problem a year ago, when then Chancellor Leo Strine ruled in Boilermakers v. Chevron that corporations may adopt and enforce bylaws requiring shareholders to bring suits in Delaware. The plaintiffs firms that had challenged bylaws adopted by Chevron and Fedex decided not to appeal Strine’s decision to the Delaware Supreme Court, though the state justices may yet have a say on Chevron’s forum selection clause via a parallel shareholder suit that was filed in federal court in San Francisco. (U.S. District Judge William Alsup has said he may certify the bylaw validity to the Delaware Supreme Court in that case.) Under prevailing Delaware precedent, the only way forum selection bylaws wouldn’t work for Delaware corporations was if judges in other jurisdictions refused to honor the provisions.

So far, all of the out-of-state judges to consider Delaware forum selection bylaws have deferred to the provisions — with the California state judge presiding over a wing of the Safeway litigation the latest to rule that a forum bylaw is enforceable. (Sullivan & Cromwell has a client alert describing all four decisions; I first heard about the S&C memo from The Chancery Daily.)

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.

Can banks force clients to litigate, not arbitrate?

Alison Frankel
Apr 3, 2014 20:38 UTC

If you are a customer of a big bank — let’s say a merchant unhappy about the fees you’re being charged to process credit card transactions — good luck trying to bring claims in federal court when you’re subject to an arbitration provision. As you probably recall, in last term’s opinion in American Express v. Italian Colors, the U.S. Supreme Court continued its genuflection at the altar of the Federal Arbitration Act, holding definitively that if you’ve signed an agreement requiring you to arbitrate your claims, you’re stuck with it even if you can’t afford to vindicate your statutory rights via individual arbitration.

But what if you’re a bank customer who wants to go to arbitration — and, in a weird role-reversal, the bank is insisting that you must instead bring a federal district court suit? Will courts show the same deference to arbitration when a plaintiff, rather than a defendant, is invoking the right to arbitrate and not litigate?

On Friday, the 2nd Circuit Court of Appeals will hear a rare tandem argument in two cases that present the question of whether bank clients have the right to arbitrate their claims even though they’ve signed contracts with forum selection clauses directing disputes to federal court. Believe it or not, the 2nd Circuit will be the third federal appellate court to answer this question, which has divided its predecessors. In January 2013, the 4th Circuit ruled that a UBS client may proceed to arbitration, but on Friday, the 9th Circuit held that a Goldman Sachs customer who agreed to a nearly identical forum selection clause must sue in federal court. To add to the confusion, the 9th Circuit panel was split, which led the majority to call the case “a close question.”

Halliburton alert! New briefs argue Congress never endorsed Basic

Alison Frankel
Jan 7, 2014 20:47 UTC

Last February, when Chief Justice John Roberts and Justice Samuel Alito of the U.S. Supreme Court sided with the court’s liberal wing in Amgen v. Connecticut Retirement Plans, they joined an opinion that left intact the standard for certification of a class of securities fraud plaintiffs. Amgen, as you probably recall, had asked the court to impose a requirement that shareholders prove the materiality of supposed corporate misrepresentations in order to win class certification. The majority refused, in a decision written by Justice Ruth Ginsburg. Among other things, Justice Ginsburg said that if Congress had wanted to tinker with the Supreme Court’s 1988 precedent on securities class certification, Basic v. Levinson, it could have done so in 1995, when lawmakers passed the Private Securities Litigation Reform Act, or again in 1998, when the Securities Litigation Uniform Standards Act became law. Instead, Justice Ginsburg wrote in Amgen, “Congress rejected calls to undo the fraud-on-the-market presumption of classwide reliance endorsed in Basic.”

But is that really what Congress did in 1995? The answer to that question could have a big impact on the future of securities class actions.

The Amgen case, as you know, led directly to this term’s securities blockbuster: Halliburton v. Erica P. John Fund, which puts Basic’s presumption of shareholder reliance on supposed corporate misstatements – and thus the foundation of most securities fraud class actions – directly before the justices. Halliburton’s lawyers at Baker Botts filed their merits brief last week, urging the court to undo Basic as bad law based on misguided economic theory. On Monday, Halliburton’s amici joined in. They’re mostly the usual suspects: the U.S. Chamber of Commerce and other pro-business organizations; the Securities Industry and Financial Markets Association; the American Institute of Certified Public Accountants; the Washington Legal Foundation; and DRI – The Voice of the Defense Bar. Two different groups of law professors filed briefs, one a technical argument about the efficient-market theory underlying Basic and the other a scholarly condemnation of securities class action litigation.

Kiobel brief shows State/DOJ split over human rights litigation

Alison Frankel
Jun 15, 2012 04:00 UTC

When John Bellinger of Arnold & Porter was the legal adviser to the State Department in the administration of George W. Bush, the Justice Department filed about a dozen amicus briefs addressing the Alien Tort Statute, a 1789 law that has become a modern vehicle for international human rights litigation. Bellinger told me on Thursday that he signed every one. When foreign nationals use the ATS to bring cases in U.S. courts for conduct that took place overseas, foreign policy is implicated, and the State Department wants a voice. That’s why Bellinger believes it’s so significant that when the Justice Department filed its new amicus brief in the reformulated Kiobel v. Royal Dutch Petroleum case at the U.S. Supreme Court, State Department legal adviser Harold Koh did not sign it.

“That seemed to be a not-so-subtle message — more to the human rights community than the Supreme Court — that State did not agree with the Justice Department position,” said Bellinger, who blogged about the DOJ brief on Wednesday night at Lawfare. “The Obama administration was in a tight spot in this one.”

The DOJ brief, signed by Solicitor General Donald Verrilli, argues, tepidly, against the application of the Alien Tort Statute against Shell by Nigerian nationals who claim the oil company was complicit in state-sponsored torture and murder in their country. That’s a switch in sides for the government, which had supported the Nigerians in Kiobel‘s first trip to the Supreme Court, when the issue was whether corporations could be liable under the Alien Tort Statute. The Justice Department said they could, in an amicus brief that State Department adviser Koh signed.

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