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December 10, 2008 9:00 AM

The Am Law Litigation Daily: December 10, 2008

Posted by Ed Shanahan

Edited by Andrew Longstreth

WHITE-COLLAR
D&O Insurer Refuses to Pay Legal Fees for Former Biotech CEO--Before Criminal Trial

We've written plenty about companies protesting the legal bills of former executives in trouble with the law. The Sun-Times Mirror Group and McAfee are just a couple of examples. We've also explained why companies have such a hard time wriggling out of indemnification agreements that compel them to pay their executives' legal fees, even after those execs are convicted. But yesterday, The Recorder's Dan Levine broke a story about a case in which a D&O insurance carrier is refusing to pay the legal bills of a former biotech official under indictment--and he hasn't even gone to trial yet.

Former InterMune CEO Scott Harkonen, who is accused of illegally marketing the drug Actimmune, is facing a June 2009 trial. But his defense lawyers at Kasowitz, Benson, Torres & Friedman may have to curtail their work if Arch Specialty Co. does not honor a $5 million insurance policy. On November 19, Arch abruptly informed InterMune that it would refuse to pay out on a policy that covers Harkonen's legal fees. Last week, with Harkonen and InterMune about to exhaust three other layers of D&O insurance (worth $20 million), Kasowitz lawyers filed a preliminary injunction motion against Arch, seeking to force the insurer to pay Harkonen's defense costs in the criminal case.

"I think it is extremely rare to see a situation like this," Kasowitz partner William Goodman told The Recorder.

Why has Arch refused to pay? According to Kasowitz's motion, Arch offered no forewarning when it cut off the spigot, but The Recorder quotes a letter Arch sent to Harkonen and InterMune. In the letter, Arch said Harkonen had agreed to a warranty in the policy that stated he was unaware of any circumstance that could lead to a claim. In fact, Arch asserted, at the time he signed the warranty Harkonen "was fully aware of his actions and misrepresentations with respect to Actimmune." Arch also cited InterMune's 2006 deferred prosecution agreement.

Kasowitz partner Marcus Topel submitted a declaration asserting that Arch couldn't rely on mere allegations to deny coverage. "I have been a practicing criminal defense attorney for over 32 years," Topel wrote. "I have not had a D&O carrier decline coverage based on allegations stated in criminal charging documents or civil complaints, prior to those matters being resolved by a jury and affirmed on appeal." We'll let you know how this one turns out.

IP
New IP Litigation Database Unveiled at Stanford

Move over, Joe Grundfest. There's a new litigation data clearinghouse at Stanford Law School. On Monday night the school unveiled an online searchable database that tracks all patent cases filed since 2000. The Recorder reports that the project, which was spearheaded by Stanford professor (and Keker & Van Nest of counsel) Mark Lemley, has IP lawyers buzzing already.

"The tools that are being created here will make research and strategy much more efficient," Apple general counsel Daniel Cooperman told The Recorder. "And, therefore, resolutions will be more efficient."

There are quite a few surprises in the data. For instance, the number of patent suits filed over the last eight years has hovered between 2,300 and 2,800, but the number of defendants has gone up. It may also be surprising to tech companies that complain about such suits--especially since the ascendence of East Texas as an IP venue--that defendants have a better winning percentage than plaintiffs in the courtroom. Defendants actually prevailed in 57 percent of the trials in the database.

"It's clear that if you're willing to take the case to judgment, you've got a decent shot at avoiding liability," Lemley told The Recorder.

EMPLOYMENT
Wal-Mart Settles Minnesota Wage and Hour Class Action for $54 Million

In this holiday shopping season, it looks like Wal-Mart just got a real bargain. Facing $2 billion in potential liability in a Minnesota wage-and-hour class action, the retailing giant has agreed to a $54.3 million settlement with a class of about 100,000 current and former Wal-Mart workers in the state. A hearing for court approval of the settlement is set for January 14.

This latest development in the long-running Wal-Mart wage-and-hour national litigation tour comes after a Minnesota state court judge ruled in July that Wal-Mart had willfully broken state labor laws by making employees work off the clock. Following a bench trial, Judge Robert King, Jr., awarded plaintiffs $6.5 million in compensatory damages. But his ruling also meant that Wal-Mart could have been on the hook for another $2 billion in a second trial that would address Minnesota state law violations, which are subject to fines of up to $1,000 per violation. According to Bloomberg, the $54.3 million settlement will include a substantial fine to be paid to the state.

Justin Perl of Maslon Edelman Borman & Brand, co-lead counsel for the plaintiffs, said in a statement that he and his clients are "satisfied with this settlement" and "gratified that these hourly workers will now be paid after seven years of litigation." A Wal-Mart spokesperson said the company's policies "are to pay every associate for every hour worked and to make rest and meal breaks available for everyone."

In addition to Perl, plaintiffs counsel are William Sieben of Schwebel, Goetz & Sieben and Franklin Azar and Rodney Bridgers of Franklin D. Azar & Associates. Wal-Mart is represented by Neal Manne of Susman Godfrey.

EMPLOYMENT
New York Judge Rules for Ex-JPMorgan Brokers in Overtime Case

It's not just Wal-Mart that's facing wage-and-hour litigation. In recent years, major commercial banks have been targeted by brokers who claim they're owed wages for overtime work. On Tuesday, Reuters reported that a New York federal judge has allowed two former JPMorgan Chase brokers to proceed with their claims against the bank.

The plaintiffs, Alan Krichman and James Howell, want unpaid overtime wages, as well as deductions that were allegedly made from their commissions in customer-disputed transactions. But in an intriguing wrinkle, they're also hoping to establish two class actions: an opt-in class alleging federal Fair Labor Standard Act claims, and an opt-out class for state law claims. In a motion to dismiss their complaint, JPMorgan's lawyers from Morgan, Lewis & Bockius argued that the two classes cannot be permitted to coexist.

But in a brief order, Manhattan federal district court judge George Daniels wrote that "there is a reasoned line of authority in this circuit supporting the conclusion that separate FLSA and state law classes can be simultaneously certified."

The plaintiffs also made a breach of contract claim, which Judge Daniels dismissed.

"We won on all the major points," said plaintiffs counsel John Halebian of Lovell Stewart Halebian. Halebian told us that Judge Daniels also recently denied JPMorgan's motion to stay the case pending a request to have it transferred to the Judicial Panel on Multidistrict Litigation.

We called JP Morgan defense counsel Samuel Shaulson of Morgan Lewis but didn't hear back.

COMMERCIAL / CORPORATE
Jury Awards Texas Businessman $316 Million in Case Against Turner

Before Tuesday, we confess, we didn't know anything about Texas businessman David McDavid or his legal battle with Turner Broadcasting System over the sale of the Atlanta Hawks and the Atlanta Thrashers, as well as operating rights to Phillips Arena. But after a state court jury awarded McDavid $316 million yesterday, we're doing our best to get up to speed.

According to The Atlanta-Journal Constitution, in 2005 McDavid sued Turner for $450 million in Fulton County Superior Court. McDavid had previously signed a letter of intent to buy the teams and the arena rights, and he had exclusive negotiating rights with Turner. But in September 2003, after that agreement expired, Turner announced it had reached a deal with an eight-member group of investors called the Atlanta Spirit, which includes the son and son-in-law of Turner founder Ted Turner.

McDavid, who was reportedly represented by Bondurant Mixson & Elmore, accused Turner executives of sharing confidential financial information with the Spirit in breach of Turner's contract with him. According to the Atlanta Business Chronicle, the jury found for McDavid on breach of contract and promissory estoppel claims. It cleared Turner on McDavid's allegations of breach of confidentiality and fraud.

Turner was represented by Troutman Sanders partner Jim Lamberth. "We are disappointed with the decision of the court and the jury's interpretation of the facts in what was a complex business transaction," Turner said in a statement obtained by the Chronicle. "We will carefully consider all options, including appeal, and will announce any plans at the appropriate time."

CONSUMER
Proskauer Wins Dismissal of Aquafina Labeling Suit

When Pepsi-Cola announced last summer that it would change the labeling on its Aquafina water bottles to make it clear that the water in the bottles actually comes from a tap, some consumers claimed to be shocked. In an amended class action complaint filed in the Southern District of New York in May, they alleged the old Aquafina label, which contained the slogan "Pure Water--Perfect Taste" and a blue squiggly line depicting a mountain, had created the false impression that the water came from a source in the mountains. The supposedly hoodwinked Aquafina drinkers claimed damages for unfair and deceptive trade practices and unjust enrichment.

But last week, White Plains federal district court judge Cathy Seibel dismissed the case, ruling that the consumers' claims were preempted by the federal Food, Drug and Cosmetic Act. "Aquafina meets the federal standards regarding source disclosure for purified water, and thus this action is preempted," Judge Seibel wrote.

Jeffrey Klafter of Klafter Olsen & Lesser, lead counsel for the plaintiffs, told us that he is studying the opinion and considering an appeal. Pepsi is represented by Louis Solomon of Proskauer Rose.

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