Alison Frankel

Late Tuesday, U.S. District Judge Barbara Jones of Manhattan federal court denied Bank of America’s motion to disqualify Quinn Emanuel Urquhart & Sullivan from representing AIG in its $10 billion mortgage-backed securities case against BofA, Merrill, and other bank subsidiaries. BofA’s lawyers at Munger, Tolles & Olson had argued that a former Munger partner, Marc Becker, acquired confidential information about Merrill’s MBS litigation strategy before departing to join Quinn Emanuel in 2008, then proceeded to work on AIG’s case against BofA and Merrill. The judge faulted Quinn’s screening process for failing to identify Becker’s potential conflict. But she said Becker had performed only non-substantive editorial work on AIG’s complaint and remand motion, didn’t share any confidences, and took steps to segregate himself from the AIG case as soon as he was reminded of his previous work for Merrill Lynch and its former mortgage unit. “There is no meaningful showing here that the trial process will be tainted,” Jones wrote. “The court finds that it would be unduly prejudicial to disqualify Quinn.”

But what about Marc Becker?

In October, after learning that Munger Tolles had raised the issue of his previous work for Merrill Lynch and First Franklin Financial, Becker resigned from Quinn Emanuel’s London office. In a Nov. 3 declaration, Becker said that he hadn’t remembered working for First Franklin when he spent a total of 5.8 hours reviewing the two AIG documents. “Had I remembered it, I never would have had anything to do with the [BofA] action,” he wrote. “None of what I did during those 5.8 hours on the [BofA] action was in any way focused on, or specific to, First Franklin or Merrill Lynch. I did not use or disclose any confidential information of First Franklin or Merrill Lynch. In fact, I did not at that time, and do not now, recall any confidential information of First Franklin or Merrill Lynch.” Becker asserted that Munger’s account of his work for Merrill — which cast him as a lead partner in Merrill and First Franklin’s MBS defense strategizing — didn’t jibe with his refreshed recollection of a “far more limited” role.

Becker remained at Quinn Emanuel for a month after Munger first alerted the firm of his potential conflict. During that time, according to his declaration, he met with Quinn’s outside counsel, Gregory Joseph, to discuss his work for Merrill, without any Quinn partners present. “Thus, even if I had recalled any confidential information regarding Merrill Lynch or First Franklin, which I did not, Quinn Emanuel would not have been exposed to it,” he wrote. “I understand that defendants have suggested that I was aware of and deliberately ignored the existence of a conflict of interest arising from my work on the First Franklin matter. That is totally untrue.”

Nevertheless, on Oct. 19, Becker resigned from Quinn Emanuel. “The firm and I agreed to take this step because … we wanted to do everything in our power to eliminate any possible basis for disqualification,” Becker wrote. Quinn Emanuel name partner John Quinn had told Munger Tolles in an email when he first learned of the potential Becker conflict that Becker might have to resign if Munger pressed for Quinn’s disqualification. So Becker’s declaration includes a poignant paragraph hinting at his sense of betrayal: “I am deeply disappointed that my former partners at [Munger] — with whom I worked as a trusted and respected colleague and partner for almost 20 years — would contend that I improperly shared client confidences. I do not believe that they genuinely believe that I did or ever would do so. But by having claimed that there is a risk of future disclosure of confidences by me, they precipitated my departure from Quinn Emanuel, and have caused me great professional and personal hardship.”

Becker said in the declaration that he was planning to start up a solo practice as a solicitor in London, but hoped to be able to return to Quinn Emanuel when the conflict question was resolved. Quinn Emanuel, in its response to the disqualification motion, reiterated that Becker’s resignation was voluntary. “This step was not taken because of any doubt as to the fact that no confidences were or would be shared, or as to the efficacy of the firm’s screen,” the firm’s response said.

In fact, according to Jones’s decision denying the disqualification motion, Quinn Emanuel asked the judge to rule that the firm’s ethical wall between Becker and the AIG case is sufficient to permit Becker to return to the firm. Unfortunately for Becker, the judge said she “declines to do so.”

That would appear to leave Becker in limbo, unless BofA agrees he’s adequately walled off from the case against it. Quinn Emanuel, after all, is engaged in other cases against BofA and Merrill Lynch — most notably the Federal Housing Finance Agency’s suits — and the firm doesn’t want to face another disqualification motion based on Becker’s previous work for Merrill.

In a brief phone interview, Becker told me he’s pleased that Jones found he behaved ethically. “I am deeply gratified that the court agreed I did not share any client confidences,” he said, adding, “I believe this motion was a tactic move to [by Munger] to eliminate an adversary that they would prefer not to face.” Becker declined any additional comment, but it’s well-known that Munger Tolles and Quinn Emanuel have butted heads in two big trials in the last year: star bond-trader Jeffrey Gundlach’s dispute with his former employer TCW, which resulted in a split verdict in September; and Rambus’s antitrust trial against Micron and Hynix, in which a jury last month cleared Quinn client Micron.

Quinn Emanuel declined comment on the Becker matter. Munger partner Marc Dworsky didn’t respond to Reuters’ request for comment.

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The Federal Housing Finance Agency’s reported mortgage-backed securities suits against a slew of major banks haven’t yet been filed. But if you want to know what they’re likely to look like, check out Mass Mutual’s 168-page MBS complaint against Bank of America, Merrill Lynch, Bear Stearns, and J.P. Morgan, filed Thursday. (It’s so big the Massachusetts federal court docket split it into four parts: here, here, here and here.) Or you could look at AIG’s $10 billion megasuit against BofA, Countrywide, and Merrill, filed on Aug. 8, or Allstate’s 114-page complaint against Goldman Sachs on Aug. 15, or U.S. Bank’s MBS breach of contract suit against BofA, which came at the beginning of this week.

All of those complaints — and many, many more raising allegations that big banks misrepresented the quality of the mortgages underlying the asset-backed securities they packaged and sold — were filed by the law firm representing FHFA in its MBS investigation: Quinn Emanuel Urquhart & Sullivan. And that’s no accident. Quinn Emanuel, a 450-lawyer firm whose partners take home an average of more than $3 million a year, made a conscious decision more than three years ago to push into structured finance litigation against money-center banks, at a time when most litigators didn’t know the first thing about these instruments. In a way, the anticipated FHFA suits are the culmination of Quinn Emanuel’s four-year investment in MBS litigation.

Before 2007, Quinn Emanuel was usually competing for a seat on the banks’ side of the table. Then name partner John Quinn, a onetime Cravath, Swaine & Moore lawyer, had a revolutionary thought. Quinn Emanuel doesn’t have a big corporate practice, he reasoned, so there were no conflicts to keep the firm from suing financial institutions. Rather than vie with a pack of premier law firms for bank business, he decided the firm should give up its relationships with banks and accounting firms and start representing corporate clients with claims against big banks. “We deduced there weren’t very many prestigious law firms willing to be adverse to financial institutions,” name partner William Urquhart told me Friday.

The firm’s New York office was perfectly positioned for the new practice area. Quinn Emanuel New York lawyers represented the trustee in the Parmalat bankruptcy, so they’d already had some experience litigating against banks. And litigators Peter Calamari and Philippe Selendy had at least a glancing knowledge of structured finance from cases they’d handled against UBS and Bear Stearns. So when the housing bubble burst and mortgage-backed securities began to crater, Calamari, Selendy, and structured finance partner Jonathan Pickhardt hunkered down to learn all they could about the instruments — before Quinn Emanuel even had a single MBS client. “We invested an enormous amount of lawyer time to gain a deep, deep understanding of mortgage-backed securities,” Urquhart said.

“We had the expertise, and we had the horsepower,” added Calamari. “By the spring of 2008, it was apparent residential mortgage-backed securities were a disaster.”

The firm’s first MBS client was MBIA, the bond insurer. In October 2008, as the economic crisis worsened, Quinn Emanuel filed MBIA’s suit against Countrywide in New York state supreme court. That litigation produced some landmark MBS decisions from Judge Eileen Bransten, who refused to dismiss MBIA’s contract and fraud claims, ruled that MBIA can use statistical sampling to determine the percentage of deficient underlying mortgage loans, and granted the insurer access to discovery on the relationship between credit rating agencies and MBS issuers. Other businesses with MBS investments — including Mass Mutual, Allstate, and Assured Guranty — saw how the MBIA case was going and came to Quinn with their own claims. In October 2010 the FHFA disclosed that it had hired Quinn to analyze its potential MBS claims.

The work has already paid off big for Quinn Emanuel, even though MBS settlements are so far a rarity. (Two Quinn clients, Assured and the FHFA, have reached multibillion MBS settlements with BofA; the previous FHFA settlement involved mortgage loans Fannie Mae and Freddie Mac bought directly from Countrywide for their own securitizations; the expected new FHFA suit will center on mortgage-backed securities Fannie and Freddie invested in.) Unlike traditional plaintiffs firms, Quinn bills about 90 percent of its MBS cases at hourly rates, rather than on contingency. The volume of MBS litigation, in combination with the firm’s booming IP practice, has made Quinn Emanuel one of the three or four most profitable firms in the country.

Calamari told me that the MBS wave won’t last forever. New York has a six-year statute of limitations on fraud and contract claims; other states have narrower windows. The FHFA cases are reportedly being filed now to beat a three-year statute. “It’s clear that deadlines are coming,” Calamari said.

But the end is near only for new filings. When it comes to results of the MBS litigation, we’re just at the beginning.

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As all the world knows, Samsung is engaged in a do-or-die international patent battle with Apple. On Wednesday alone, Samsung saw a court in the Netherlands enjoin it from infringing an Apple smartphone patent; planned for an injunction hearing in Germany, where a court enjoined the Samsung Galaxy Tab, then lifted the preliminary injunction; and went before Judge Lucy Koh in San Jose federal court, where Apple is demanding yet another injunction barring Samsung devices.

But all that bet-the-company stuff doesn’t mean there’s no place for fun. In an August 23 declaration that set the tech world snickering, Samsung’s lawyers at Quinn Emanuel Urquhart & Sullivan asserted that Apple’s extremely broad design patents on the iPad were anticipated by (among other pop culture reference points) Stanley Kubrick’s 1969 movie 2001: A Space Odyssey. Quinn even helpfully provided a link to a YouTube clip of the crew of the Kubrick spaceship Discovery using thin rectangular devices that look curiously like iPads. (A similar Star Trek clip suggests Captain Picard also used an iPad before Apple invented it.)

The argument isn’t quite as wacky as you might think. Just recently, lawyers for Yves Saint Laurent told Manhattan federal judge Victor Marrero that Christian Louboutin can’t trademark red soles because Dorothy had red shoes in The Wizard of Oz; Judge Marrero cited Dorothy’s “famous ruby slippers” on the first page of his opinion knocking out Louboutin’s trademark. Trademarks have squishier standards than patents, but if it worked for Yves, maybe it’ll work for Samsung as well.

While Judge Koh ponders the question of invalidity-by-science-fiction, I thought about how other patent defendants, present and future, might make use of pop culture. Those flying cars now on the market for a cool $230,000? Sorry Terrafugia Transition. Chitty Chitty Bang Bang got there first. You can find all kinds of wristwatch televisions for sale (including models by Samsung). Wonder if they all disclosed Dick Tracy in applications to the Patent & Trademark Office. Inequitable conduct, anyone?

Creepy human-looking robots have experienced a recent population explosion, but C-3PO of Star Wars beat them by 30 years. Then again, C-3PO was himself anticipated by the (alas, unnamed) humanoid robot on the TV series Lost in Space. Laugh all you want, but Lost in Space is a trove of prior art. Look out Martin Jetpack – Lost in Space saw you coming forty years ago. (And not only Lost in Space: a jetpack scene appeared both in the 1965 James Bond film Thunderball, and in 1949′s King of the Rockiet Men.) Animal cloning? Jurassic Park. Human gene patents? Planet of the Apes. Even IBM’s landmark chess-playing computer was dreamed up back in 1910, in a sci-fi short story by Ambrose Bierce.

I’ve managed to avoid the obvious, but every Star Trek buff knows where we’re headed. That’s right: the Star Trek communicator. It’s a handheld device that flips open to permit Captain Kirk to talk with his ship and crew. Nokia liked the parallels between the Star Trek device and modern cellphones so much that it actually produced working prototypes based on Captain Kirk’s communicator. But by Samsung’s 2001: Space Odyssey standard, the entire cellphone industry was anticipated by Gene Roddenberry. Who knows how many of Nortel and Motorola patents for which Google, Microsoft, and Apple have recently decided to shell out billions are design patents that under Quinn Emanuel’s Space Odyssey standard are invalid because of Star Trek prior art?

The mind boggles.

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There are all sorts of questions out there about Google’s $12.5 billion acquisition of Motorola Mobility. What will the deal mean for HTC and Samsung, the other cellphone makers using the Android platform? Will the merger force Microsoft to make a bid for Nokia? And is Carl Icahn, Motorola’s biggest shareholder, finally satisfied? I’ll leave it to others to ruminate on all that. I’m interested, as always, in what this deal means for lawyers.

The one clear answer is that a union between Google and Motorola is a good thing for Quinn Emanuel Urquhart & Sullivan.

Quinn’s Charlie Verhoeven and his patent litigation team are favorites of both Google and Motorola in the smartphone wars. With Google’s endorsement, Quinn has been representing both Samsung and HTC in high-stakes litigation against Apple; Quinn got those assignments after amassing an impressive collection of patent trial wins for Google in the Eastern District of Texas. (Even Verhoeven and Google can’t win ‘em all; I reported in May on a $5 million verdict against Google in the Bedrock patent trial.)

There’s been speculation that Google brought Quinn into the HTC and Samsung cases under an Android indemnification agreement. Google and its partners have never confirmed that any such deal exists. If there is an indemnity arrangement, that might explain why Quinn Emanuel is representing Motorola in smartphone litigation with Apple and Microsoft. (When Google recently filed a non-party motion for sanctions against Microsoft in Microsoft’s U.S. International Trade Commission case against Motorola, Quinn Emanuel signed the Google pleading — even though Quinn also represents Motorola in the case, along with Steptoe & Johnson.)

But Quinn Emanuel’s relationship with Motorola extends beyond Motorola’s smartphone litigation. The firm stepped into a vicious trade secrets fight between Motorola and a Florida company after Motorola was twice sanctioned for discovery violations. The $10 billion case ended up settling for less than $50 million.

Also worth pointing out whenever we’re talking about Google: one of the two most recent appointees to the Federal Trade Commission, Edith Ramirez, was previously an IP partner at Quinn Emanuel. Last October, in a speech before the Golden State Antitrust and Unfair Competition Law Institute, Ramirez spoke of her first FTC review: Google’s proposed merger with AdMob, the rival smartphone advertising network. Even though the deal meant the combination of two of the biggest players in a rapidly expanding market, Ramirez voted with her fellow commissioners to permit the merger, partly because Apple was developing its own mobile ad network.

I reached out to John Quinn and Charles Verhoeven, but neither responded to my e-mail.

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Monday was (another) dreadful day for Bank of America. The bank’s shares closed at a two-year low, thanks in part to AIG’s double whammy: a $10 billion fraud suit against BofA and the insurer’s simultaneous motion to intervene in opposition to BofA’s proposed $8.5 billion settlement with Countrywide mortgage-backed securities noteholders. Bank of America and Countrywide’s securitization trustee, Bank of New York Mellon, thought the $8.5 billion deal would put their MBS woes behind them. Instead the proposed settlement seems to have made the two banks into bigger targets than they were before reaching an agreement with 22 big MBS investors.

There’s plenty of reason for BofA to worry about the AIG fraud suit. First off, the New York state court complaint was filed by Quinn Emanuel Urquhart & Sullivan, a familiar opponent for Bank of America. Quinn is counsel to the bond insurer MBIA in its MBS litigation against Countrywide, in which New York state supreme court judge Eileen Bransten has consistently sided with MBIA and Quinn Emanuel. (Among other crucial rulings, Judge Bransten rejected Bank of America’s preliminary argument that it’s not liable for Countrywide’s missteps.) Quinn also represents Fannie Mae and Freddie Mac, which forced Bank of America into a $2.8 billion settlement of MBS claims in January, and Allstate, which filed a $700 million MBS case against Countrywide in December. Different Quinn Emanuel lawyers are involved in the various BofA and Countrywide cases, but the firm isn’t starting from scratch.

The AIG fraud complaint is also a canny document. The suit lumps together allegations against Countrywide, Merrill Lynch, and BofA, painting all of them with the same tarry brush even though Countrywide and Merrill Lynch committed a good chunk of the alleged wrongdoing before they became part of BofA. Quinn includes public record information about their manifestly-deficient underwriting practices, but has brought the case as a fraud suit — not a contract case accusing BofA, Countrywide, and Merrill of breaching the representations and warranties on the mortgage loans underlying the securitizations AIG invested in. That way, AIG doesn’t have to show that it controls 25 percent of the voting rights, the threshold for standing in a securitization contract case. But under the causes of action the complaint asserts — state-law claims and federal claims under the Securities Act of 1933 — Quinn Emanuel doesn’t have to show that BofA, Countrywide, and Merrill acted with fraudulent intent.

Quinn partners Michael Carlinsky and Philippe Selendy, who signed the AIG complaint, also undoubtedly know that even if Bank of America’s $8.5 billion settlement is approved by Manhattan state supreme court judge Barbara Kapnick, their fraud case won’t be wiped out. BofA’s deal with the 22 MBS noteholders who negotiated the proposed settlement is expressly limited to investors’ breach-of-warranty claims. It doesn’t resolve securities fraud claims; in fact, three of the investors backing the proposed settlement have since sued Countrywide for fraud.

That’s why it’s so interesting that AIG filed its motion to intervene in the proposed settlement on the same day that it filed the fraud suit. The intervention petition, filed not by Quinn Emanuel but by Reilly Pozner, raises the now-familiar assertions that investors aren’t getting a big enough cash payout and that Bank of New York Mellon had a conflict in negotiating the deal because BofA agreed to indemnify BNY Mellon in a side-letter. But AIG is the first objector also to take aim at Gibbs & Bruns, the law firm that’s counsel to the 22 institutional investors that negotiated the proposed settlement.

“The genesis of the proposed settlement agreement appears to be an exclusive group of investors and their outside counsel, who without the participation of the other beneficiaries and with the blessing and cooperation of [BNY Mellon] as trustee, engaged in clandestine settlement negotiations with [BofA],” the petition said. “These discussions culminated in a settlement proposal that, if approved, would result in thousands of affected beneficiaries receiving a small fraction of their losses, while the inside institutional investors’ outside counsel would be paid $85 million — not from her clients but from [BofA].” That fee arrangement, AIG argues, means Gibbs & Bruns had an $85 million conflict in reaching a deal with Bank of America. (Gibbs partner Kathy Patrick told me the fee deal is “very typical in bondholder cases.” She said her clients, all experienced litigants, insisted that Bank of America pay Gibbs & Bruns fees rather than take money out of the settlement pool to pay the lawyers. “It’s in the best interests of investors,” Patrick said.)

So where, you may be wondering, is that ray of hope I mentioned in the headline? It’s in a two-page order Judge Kapnick entered in the MBS settlement docket Monday, after presiding over a mobbed hearing Friday. The judge agreed that her original order calling for investors to register objections by August 30 had to be modified because noteholders may not know by then whether they like the proposed deal. She ruled that any investor who wants a say in the case need only file a written notice of intervention, not a formal objection. But she rejected all of the intervenors’ demands for expedited discovery and left in place the August 30 deadline for investors to file intervention notices. Settlement proponents claimed that as a win.

“The court acted swiftly to address an issue that needed to be addressed,” said Patrick of Gibbs & Bruns. “We’re pleased that she indicated the case is going to move rapidly and that she left the existing deadline in place.”

Patrick said that deal supporters were encouraged by Friday’s hearing, at which Judge Kapnick seemed to be well-versed in the filings and eager to move things along. A transcript suggests that Gibbs & Bruns; BofA counsel from Wachtell, Lipton, Rosen & Katz; and BNY Mellon lawyers from Mayer Brown took a smart course when they filed the case as an Article 77 trust proceeding, under which the court is supposed to pay deference to the trustee unless objectors can show the trustee acted unreasonably or breached its duty.

“That’s the proceeding they brought,” Kapnick said, after noting that she had to look up the obscure Article 77 in the New York code. “It’s not, it’s not a class action. There aren’t provisions in there to opt out that you are talking about. That’s not what this is. If you started it, maybe that’s what you would have done, but they started it and that’s what they did. I have to work, at least now, within the confines of the proceeding that is before me.” (A lawyer from the New York Attorney General’s office was at the hearing, according to the transcript, but didn’t remind Judge Kapnick that the case now has additional fraud and Martin Act implications, thanks to the AG’s counterclaims against BNY Mellon.)

Patrick told me she believes the judge will look hard at AIG’s objection, given that it was filed on the same day as the insurers’ fraud suit against BofA. “There’s a serious question about whether AIG is acting to serve other litigation goals,” Patrick said.

And on a day when all else is bleak in BofA land, one judge offering a bit of scrutiny to allegations that harm the bank looks like sunshine.

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Back in March 2010, Apple filed separate suits at the U.S. International Trade Commission against Nokia and HTC, accusing both cellphone makers of infringing Apple’s smartphone patents. In April, the ITC staff recommended that the patents Apple had asserted against both Nokia and HTC should be tested in a consolidated case. Nokia and HTC supported the proposal. Apple’s lawyers at Kirkland & Ellis complained that the partial consolidation would aid Nokia and HTC by creating “complexity and delay,” but the lawyers didn’t fight hard against it because they didn’t want the case — which had the potential to knock iPhone competitors out of the U.S. market — to get bogged down.

The consolidation had clear advantages for the defendants and disadvantages for Apple. Nokia and HTC could mount a joint challenge to the validity of the Apple patents, pooling ideas and resources. Meanwhile, on the infringement side of the case, Apple’s Kirkland lawyers had a doubled workload to master the technology in phones made by both Nokia and HTC.

When the case was tried before ITC administrative law judge Carl Charneski in April and May, Nokia and HTC both had A-list defense counsel: Alston & Bird for Nokia; Keker & Van Nest and Quinn Emanuel Urquhart & Sullivan for HTC. (Quinn, remember, regularly represents Google; HTC phones run on Google’s Android platform.) The three defense firms worked together, incorporating one another’s briefs and presenting joint expert witnesses to opine on the validity of the Apple patents.

And then the fates of Nokia and HTC diverged dramatically. In June, Nokia announced that it had reached a global megadeal with Apple, with Apple agreeing to pay hundreds of millions of dollars for Nokia IP. HTC waited for Judge Charneski. His initial determination, issued Friday afternoon, found HTC to infringe two valid Apple patents. (HTC is off the hook with respect to two others.) Though the administrative law judge’s determination can be appealed to the full ITC, the preliminary ruling sent HTC’s share price off a precipice.

How did two defendants end up with such different results?

The answer to that question lies in litigation’s increasingly strategic significance for big businesses. Apple’s consolidated ITC case against HTC and Nokia was just one piece in the litigation chess game Apple is playing with every cell phone maker. Consider Apple’s smartphone litigation history with Nokia, a company which is allied with Microsoft in the great smartphone showdown. Nokia has a vast patent portfolio, including crucial 3G intellectual property. It initiated a patent war with Apple; Apple’s ITC complaint against Nokia was in retaliation for Nokia’s infringement claims against Apple. The litigation between the companies was more important in determining how big a licensing deal Apple would sign than in determining whether Apple would sign any deal at all.

HTC has far less leverage with Apple, which is why its loss in the ITC consolidated case looms so large. HTC is a young company without much IP Apple needs. It’s also closely allied with Google — Apple’s sworn smartphone enemy, thanks to Android. If Apple was unlikely to work out a licensing deal with HTC before Judge Charneski’s ruling, it’s even less likely to do so now. (Things can change, of course. HTC has said it will ask the full ITC to review Friday’s initial determination, and its own ITC infringement suit against Apple, tried right after the completion of the consolidated case, has not yet been decided.)

Apple still has major pending smartphone cases in the works with Motorola and Samsung. Both are veteran cellphone pioneers with valuable technology, a la Nokia; both also use Google’s android operating system, like HTC. Should be very interesting to see whether they end up like Nokia or HTC.

(Reporting by Alison Frankel)