The Am Law Litigation Daily: November 20, 2008

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November 20, 2008 9:00 AM

The Am Law Litigation Daily: November 20, 2008

Posted by Dimitra Kessenides

Edited by Andrew Longstreth

FCPA
Dissecting the BAE International Bribery Probe
As we learned last week at the PLI Institute on Securities Regulation, we're entering a new world of bribery investigations (fifth item). It's a world of multiple regulators who speak different languages and apply different and often inconsistent laws. In the December issue of Corporate Counsel, reporter Sue Reisinger takes an in-depth look at the international bribery investigation into BAE Systems. Her story provides important insights into how these sprawling probes can play out.

London-based BAE, Europe's largest defense contractor, persuaded the British government to drop its investigation into a lucrative arms deal it had struck with Saudi Arabia. But that didn't stop the U.S. government from showing its badge. In rather dramatic fashion, Reisinger reports, American officials last May slapped a subpoena on BAE's then CEO, Mike Turner, while he was at an airport in Houston. They also took a look at the documents he was carrying and at his computer. That's cold.

Reisinger pieces together the case against BAE, which involves a prince, a $120 million slush fund, prostitutes, luxury limos, and exotic vacations. She also spoke to the company's general counsel, Philip Bramwell, in first interview Bramwell has given to an American journalist since the scandal broke. Bramwell is negotiating with the Justice Department and trying to rebuild BAE's image. Since taking the job in January 2007, he told Reisinger, Bramwell has beefed up compliance, hired new in-house attorneys for India and Saudi Arabia, and commissioned a committee to recommend ethical reforms at the company.

Reisinger writes that the legacy of the BAE case may be its impact on other companies. She notes that firms like London's Norton Rose have launched practice groups to respond to the demand for advice in corruption law. "The climate is changing here and will change quite fast, as it did in the U.S. three to five years ago," Norton partner Sam Eastwood told Reisinger. "Three years ago, a law firm didn't dare approach a corporation and say, 'Let's talk about corruption.' It would be an embarrassment."

Now, not so much.

APPELLATE
Bingham Attorney: Supreme Court's Sonar Case Ruling Tightens Standards for Preliminary Injunctions
Last week the Supreme Court voted 6 to 3 in favor of the Navy in a dispute with environmentalists over the Navy's use of sonar off the coast of California. You probably knew that. But you might not have realized that the opinion has broad implications for any lawyer seeking a preliminary injunction in federal court. Yesterday we spoke to Bingham McCutchen partner David Salmons, who coauthored an alert on the subject. Salmons, who served in the Bush administration's solicitor general's office under Theodore Olson and Paul Clement, told us the sonar ruling tightens standards for preliminary injunctive relief, which some federal appellate courts, particularly the Ninth Circuit, had relaxed in recent years.

"One of the things that is significant about [the standard] is that it cuts across all federal cases," Salmons said. "There are a number of contexts in which it is very routine for parties to seek preliminary relief--patent cases, other business tort cases, civil rights cases....It could come up in any area. What the court has done is tighten up the standard a bit and that will make it on the margin more difficult for parties to obtain injunctive relief."

Salmons also told us that the decision reaffirms the high-stakes gamble lawyers take when they ask for a preliminary injunction: The request offers courts an early opportunity to judge a case on the merits. "And if the court doesn't think you're going to have the goods at the end of the day, and they think that strongly enough, they can preclude certain forms of relief completely or enter judgment for the other side," said Salmons.

REGULATORY
Ted Olson Helps Broker Settlement for eHarmony in Discrimination Case
What will the Federalist Society make of this? Yesterday the New Jersey attorney general's office announced that it had entered a settlement agreement with eHarmony under which the company will begin to offer same-sex matching services next year. The online dating service's lawyer: Ted Olson, the conservative darling. In a statement, the Gibson, Dunn & Crutcher partner framed the deal as the practical choice.

"Even though we believed that the complaint resulted from an unfair characterization of our business, we ultimately decided it was best to settle this case with the attorney general since litigation outcomes can be unpredictable," Olson said. "EHarmony looks forward to moving beyond this legal dispute, which has been a burden for the company, and continuing to advance its business model of serving individuals by helping them find successful, long-term relationships."

The litigation against eHarmony began with a case filed in 2005 by Eric McKinley, a New Jersey resident who claimed eHarmony's site violated New Jersey's antidiscrimination law because it didn't offer same-sex match services. The New Jersey AG office's civil rights division launched an investigation and found probable cause. With yesterday's settlement, McKinley's suit will be dismissed without eHarmony admitting any violations. But McKinley isn't walking away empty-handed. Under the terms of the settlement agreement, he will receive a free year's subscription to eHarmony's new same-sex match site, Compatible Partners.

Olson's cocounsel on the deal was Robert Freitas of Orrick, Herrington & Sutcliffe, which is also representing eHarmony in a similar suit in California. That case made news yesterday as well. Los Angeles Superior Court judge Victoria Gerrard Chaney granted the plaintiffs' motion to certify a class to seek damages against eHarmony.

eHarmony is of the view that the New Jersey settlement should spell the end of the California case. "We believe this case is now essentially moot, and we're confident that we will prove that in court," said Antone Johnson, vice president of legal affairs of eHarmony, in a statement given to the Litigation Daily before the California court issued its ruling on class certification. "Now that we're entering the same-sex matching market, we fail to see what the [California] plaintiffs could achieve through litigation."

Joshua Konecky at Schneider Wallace Cottrell Brayton Konecky, co-lead attorney for the California plaintiffs, spoke to us after Judge Chaney's class certification ruling was issued. He said his case will continue despite the New Jersey settlement, which he characterized as "vague." Konecky said he would press on for injunctive relief and damages for the plaintiffs.

SECURITIES
Skadden Appears for Argentina's Social Security System in Distressed Debt Case
Last month we gave props to Simpson, Thacher & Bartlett partner Barry Ostrager for winning a freeze of Argentine pension fund assets held in the United States (fifth item). Ostrager represents vulture funds that are seeking to collect on more than $550 million in bond default judgments against the Republic of Argentina. When Argentina's government announced that it would be nationalizing its pension system, Ostrager saw an opportunity to pounce. Manhattan federal district court judge Thomas Griesa granted Ostrager's request for a freeze.

Last week Judge Griesa held a hearing on whether to extend the freeze. (Here's the transcript.)

Part of the hearing addressed the nature an organization known as ANSES--Argentina's social security administration--that will control the funds if legislation to nationalize them passes. (The vote is scheduled for today.) Ostrager argued that ANSES is, in fact, the Republic of Argentina and not a judicially distinct entity. He said that ANSES's nominal control of the funds should have no bearing on his clients' rights to them. Jonathan Blackman of Cleary, Gottlieb, Steen & Hamilton argued the opposite. He said that under the proposed legislation, the funds that would be transferred to ANSES would only be used to pay pensioners. The money, Blackman said, will not belong to the government.

To drive the point home, ANSES even hired separate counsel at Skadden, Arps, Slate, Meagher & Flom. Before the hearing, the Skadden lawyers filed an objection to the freeze order, arguing that the funds ANSES manages, or will manage in the future, should not be subject to judgments against the Republic of Argentina. At the hearing Skadden partner Marco Schnabl argued that Judge Griesa should not have the power to order a restraint against his client because it's not a party to the litigation between Ostrager's clients and the Republic of Argentina.

But Skadden's arguments failed to change Judge Griesa's mind. At the end of the hearing, he extended the freeze on the pension funds.

WHITE-COLLAR
Former Brokerage Firm CEO Faces Criminal and SEC Charges
Every white-collar defense attorney knows that parallel government investigations can present difficult choices. Offer testimony to regulators at the SEC, for example, and you might get burned by prosecutors investigating criminal charges. Refuse to answer questions from civil regulators, and you risk raising prosecutors' suspicions.

Chadbourne & Parke's Douglas Jensen is very familiar with the problems for clients facing overlapping investigations. He's written an article on the subject, but more crucially, he also has a client who is in precisely the pickle his article discusses. On Tuesday, the U.S. attorney's office in Manhattan charged Kevin Cassidy, the former CEO of commodities broker Optionable, with conspiring with a Bank of Montreal trader to inflate the value of his positions in exchange for fees. At the same time, the SEC announced it had also brought charges against Cassidy.

Jensen declined to elaborate on how he would handle the two investigations. He reiterated a statement he made at a hearing on Tuesday. "Kevin Cassidy vigorously disputes the charges and looks forward to being vindicated," said Jensen. In both cases, we're sure.

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