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October 27, 2008 10:45 AM

The Am Law Litigation Daily: Oct. 27, 2008

Posted by Joe Phalon

Edited by Andrew Longstreth

EMPLOYMENT
Bad Economic Times Good for Employment Litigation

Among the country's biggest firms, labor and employment lawyers have seen their status decline--and their partnerships imperiled--as their work has become increasingly rate-sensitive. Over the years a handful of employment megafirms have picked up partners and work shed by their onetime competitors, and have come to dominate the practice. And now they may reap the benefits of their specialty.

Though employment litigation isn't the sexiest or most profitable practice, there still seems to be plenty of it. In Fulbright & Jaworski's 2008 litigation survey, for example, in-house counsel reported that their most common source of litigation was employment matters. And The National Law Journal reported last week that retaliation suits by employees hit an all-time high last year.

In a different sector of the employment law practice, the Am Law Daily's Nate Raymond reports on a fight over talent in the highest echelons of the banking word. In a suit filed last week, JPMorgan Chase Bank, represented by Orrick, Herrington & Sutcliffe's Michael Delikat and James McQuade, alleges that the recruiting firm IDW Group broke several contracts with the bank when it lured senior executive Patrik Edsparr to the hedge fund Citadel. And it wasn't the first time that Citadel had lured talent from JP Morgan, according to The New York Times: JPMorgan stopped trading with Citadel for one day in September to protest the hedge fund's poaching of its executives.

IDW is represented by Debra Raskin of Vladeck, Waldman, Elias & Englehard.

CONSUMER
In Horse Race Case, Gibson, Dunn Is Winning Bet

Earlier this year, 7,000 BetJet horse race betting machines made by a company called Scientific Games were discovered to suffer from a software glitch. An unidentified bettor first reported the problem after he put down 1,300 one-dollar, quick-pick, superfecta bets on the Kentucky Derby. Yes, that would be the most important, most watched horse race of the year. But none of the 1,300 computer-generated picks, the bettor noticed after the race was run, included the horse that won, Big Brown. Oops.

It turned out that the Quick Bet option on the machines--in which a bettor relies on the machine to generate picks--omitted the last posted horse from the selection process. Under regulatory scrutiny after the glitch was discovered, Scientific Games hired Gibson Dunn & Crutcher to help broker a settlement with the California Horse Racing Board.

But that wasn't the end of Scientific Games's problems: Angry bettors took the company to court. Scientific Games faced two class actions in California federal court and one state class action. The plaintiffs alleged various torts for the glitch and sought to recoup damages. In one federal action, Gibson's attorneys convinced the plaintiffs to drop their suit based on California law, which bars claims arising out of betting. But the lead plaintiff in the other federal action, Jerry Jamotchian, went forward with his claim. In their motion to dismiss, Gibson, Dunn attorneys argued that the claims were "hopelessly speculative" and "nothing more than an attempt to use the legal system as insurance for losing wages."

Jamotchian's attorneys tried to argue that the suit was not about recovering gambling losses but about undoing a transaction in which Jamotchian did not receive the randomized ticket he sought. But Los Angeles federal district court judge George King didn't buy it. In a decision dismissing the case last week, Judge King wrote that he could not agree "that a suit to be placed in the ex ante position after a losing bet is not one to recover gambling losses." On the same day Judge King issued his opinion, the plaintiff in the state action withdrew his complaint.

We called Jamotchian's attorneys, Robert Goodin of Goodin, MacBride, Squeri, Day & Lamprey and Kirk Hulett of Hulett Harper Stewart, but didn't hear back.

The Gibson team was led by partner and horse-racing fan Theodore Boutrous, Jr., who was assisted by Debora Yang, Douglas Fuchs, and Theane Kapur. Scientific's general counsel, Ira Raphaelson, and assistant general counsel Greg Cline worked on the matter as well.

"Scientific Games acted just the way the betting public should want companies to act," said Boutrous. "The  company  moved quickly to work with regulatory authorities to resolve the issues and to fully protect the betting public. California law is very clear that these types of lawsuits are barred and meritless. The district court got it exactly right."

SECURITIES
UBS Coughs Up $100 Million to Settle HealthSouth Derivative Suit

Here's some news from the last golden age of corporate fraud: HealthSouth, the healthcare service provider that became mired in an accounting scandal in 2003 under its erstwhile chief executive Richard Scrushy, announced last week that UBS agreed to pay $100 million to settle a derivative action. The Am Law Daily's Brian Baxter reports that the Swiss bank, represented by Sullivan & Cromwell, had faced billions in liability.

In a statement, HealthSouth's general counsel, John Whittington, said the deal represents "another milestone in HealthSouth's recovery of damages sustained by the company under prior management." In a testament to how odd and confusing securities class actions and derivative cases can become, just two years ago, the company itself dished out $445 million to settle a shareholder class action.

For UBS, Sullivan & Cromwell's team included Robert Giuffra, Jr., Brian Frawley, Michael Tomaino, Jr., Jeffrey Scott, and Julia Jordan. The derivative plaintiffs were represented by John Hale of Birmingham's Hare, Wynn, Newell & Newton. Julia Boaz Cooper of Birmingham's Bradley Arant Rose & White represented HealthSouth in the negotiations. (Skadden, Arps, Slate, Meagher & Flom, which has served as counsel to the company in the past, was conflicted out.)

IP
Federal Circuit Sides With Townsend In Conflicts Case

It's an old trick known as the "hot potato gambit": create a conflict in order to drop a smaller client for a bigger one. In a patent suit in the Eastern District of Texas, a California company called Marvell claimed that it was the purported hot potato, dropped by Townsend and Townsend and Crew in favor of the Commonwealth Scientific and Industrial Research Organization (the research arm of the Australian government). In the Texas case, Townsend represented the CSIRO in a suit against a slew of tech companies for their use of wireless patents. Marvell was not a defendant, but it had indemnified some of the CSIRO's targets. Claiming that Townsend should have known that those deals created a conflict, Marvell sought to disqualify the firm from representing the CSIRO.

But as the Recorder reported on Friday, the Federal Circuit agreed with the district court that Marvell never told Townsend of its indemnification agreements--and therefore Townsend didn't purposefully create a conflict. In refusing to disqualify Townsend, the appellate judges cited the 2007 order of Texas federal district court judge Leonard Davis: "Marvell takes the position that it had no reason to disclose its indemnity obligations as those agreements might be used against them in licensing negotiations with CSIRO," Judge Davis wrote. "While Marvell is free to choose which facts it does and does not disclose to counsel, Marvell cannot subsequently assert those purposefully withheld facts as a means to disqualify."

Townsend partner Gary Ritchey, who represents the CSIRO, told the Recorder that the decision "will be welcomed by many law firms."

James Wagstaffe of Kerr & Wagstaffe argued the case for the CSIRO before the Federal Circuit. Williams & Connolly partner Paul Gaffney argued for Marvell.

JUDICIARY
Clarifying A Second Circuit Judge's Remarks on Pro Bono

A couple weeks ago, we told you about a story in the Rochester Daily Record that attributed some controversial comments about pro bono to Second Circuit Chief Judge Dennis Jacobs. (Scroll down; it was our fifth item.) According to the Daily Record's story, Jacobs, speaking at a Federalist Society meeting, condemned pro-bono as a self-serving, antisocial activity. Critics, including the University of California, Irvine School of Law dean Erwin Chemerinsky, quickly pounced on Judge Jacobs for his views.

But not everybody was so quick to judge. Former American Lawyer executive editor Mark Obbie, who is now a journalism professor at Syracuse University (and whom we at the Litigation Daily revere), and Walter Olson of Point of Law were skeptical of the story. (You can read Obbie's post here and Olson's here.) We should have been, too. The Federalist Society has posted the full text of Judge Jacobs's speech, which is a more nuanced discussion of pro bono than was originally reported. While the judge was indeed critical of certain aspects of big-firm pro bono, he by no means denounced all pro bono work. Noting at the end of his talk that the Second Circuit solicits volunteers to represent those who can't afford legal services, Jacobs said he was "as appreciative about work done for the public good as anybody else."

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Please note that Dean Chemerinsky has responded to the Wall Street Journal on the release of the full text of Judge Jacobs' speech:

October 24, 2008, 12:11 pm
Chemerinsky Stands by Op-ed, Calls for Throw-Down With Jacobs
Posted by Dan Slater
Not since the law school rankings kerfuffle between the Buffalo law dean and U.S. News has the Law Blog performed referee duty, a function we try to avoid. But since the rules of civil procedure typically allow for a complaint, an answer and then a reply, we think it’s appropriate to give Dean Chemerinsky the final say on the pro bono squabble.

We just received an e-mail from Chemerinsky, via his spokesman. It reads, in part:

Having read Judge Jacobs’ speech, I believe that the newspaper reports about it were accurate. He twice refers to pro bono work as “anti-social” . . . He equates pro bono work with public interest work and says: “My point, in a nutshell, is that much of what we call legal work for the public interest is essentially selfserving.” He criticizes law firms that do pro bono work and says it is done “to assist their recruiting — to confer glamor on their work, and to give solace to overworked associates.”

At the end, he does acknowledge that some pro bono work is useful — but the earlier part of the speech makes clear that this is not so if it is against the government or in impact litigation. The speech is very strong in criticizing public interest law and impact litigation. . .

I thus believe that the reports of his speech were in context and that my criticism was necessary and appropriate. But if Judge Jacobs feels differently, I would be honored to debate him about this. It could be jointly sponsored by the Federalist Society and the American Constitution Society. I’d be delighted to host this at the University of California, Irvine, or come to New York, or even both. . . A debate could be an important forum for exploring this issue in more depth.

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