The Am Law Litigation Daily: December 18, 2008

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December 18, 2008 9:00 AM

The Am Law Litigation Daily: December 18, 2008

Posted by Ed Shanahan

Edited by Andrew Longstreth

WHITE-COLLAR
Former Brown & Wood Partner Convicted in KPMG Case
The government's KPMG tax case has certainly had its share of setbacks, but yesterday it achieved some redemption. A federal jury in Manhattan convicted Raymond Ruble, a former partner at Brown & Wood, along with Robert Pfaff and John Larson, two former KPMG executives, of multiple counts of fraud, conspiracy, and tax evasion. A third KPMG executive, David Greenberg, was acquitted.

Greenberg's attorneys, David Pitofsky and Richard Strassberg of Goodwin Procter, told The New York Times they are "extremely pleased."

Pfaff's lawyer, David Scheper of Overland Borenstein Scheper & Kim, told Bloomberg that he is "deeply disappointed" and that he will appeal. Both Ruble's lawyer, Jack Hoffinger of Hoffinger Stern & Ross, and Thomas Hagemann of Gardere, who represented Larson, declined to comment to Bloomberg.

It's a much needed win for the Manhattan U.S. attorney's office. After bringing indictments against 19 defendants, it has seen its case dramatically reduced by Judge Lewis Kaplan, who tossed charges against 13 of the defendants two years ago. The Second Circuit upheld that decision.

SECURITIES
Plaintiffs Target 'Feeder Firms' in Madoff Meltdown
Thanks to the Madoff meltdown, the term "feeder fund" has officially become part of our vocabulary. In this context, it refers to funds that poured billions of dollars into the mysterious black hole known as Bernard L. Madoff Securities. And, not surprisingly, those funds have been sued by their investors for allegedly abdicating their responsibilities. Check out D&O Diary blogger Kevin LaCroix's analysis of those suits here. "Given the magnitude and widespread dispersion of the Madoff losses, and given the fact that there appears to be little money left with Madoff and his fund, it seems likely there will be other (perhaps many other) investment funds, 'feeder funds,' hedge funds, funds of funds, and other entities, targeted by Madoff victims," writes LaCroix.

Brian Baxter of The Am Law Daily reports on the players who have appeared or will likely appear in "feeder fund" litigation. On behalf of New York Law School we have Stephen Rodd and Nancy Kaboolian of Abbey Spanier Rodd & Abrams, who have filed a 20-page complaint in the Southern District of New York. That suit targets GMAC chairman J. Ezra Merkin, his hedge fund Ascot Partners, and the fund's auditor, BDO Seidman. Merkin is represented by Andrew Levander of Dechert, while Schulte Roth & Zabel is defending Ascot. In addition to vowing a vigorous defense, Levander told Dow Jones that his client is a victim.

Hagens Berman Sobol Shapiro has targeted Brighton Company, another alleged feeder fund run by Stanley Chais. It filed its class action in the Central District of California on behalf of investors. According to a press release issued by the firm, the suit claims that "all the defendants contributed to the false, misleading, unlawful, unfair, and fraudulent acts and practices associated with the Ponzi scheme." Read the complaint here.

What are the chances of investors recovering any money? Buchanan Ingersoll & Rooney's Barry Slotnick, who has been consulting with Madoff investors, sounds optimistic. "When all is said and done, the gloom and doom with regard to the inability of those that have been defrauded to recoup is just wrong," Slotnick told The Wall Street Journal's Law Blog. "I've been speaking to people in various parts of the world and do believe that there are funds that have to be found and captured, and, necessarily there are techniques that I'm not at liberty to discuss right now that I will employ for my clients."

SECURITIES
Report Details Global Reach of U.S. Securities Class Actions
We've long known that securities class actions have gone global. But a new report by the RiskMetrics Group, which can be accessed here (subscription required), attempts to quantify just how much. For example, from 1996 through 2007, it counts 234 times that an international institutional investor has sought to be named lead plaintiff. The study also notes that in every year since 2002, international investors have filed motions to become lead plaintiff in more then 5 percent of all new federal securities class actions.

Much attention has been given to international investors bringing so-called foreign-cubed cases--foreign plaintiffs who bought securities of foreign issuers on a foreign stock exchange. ( The Second Circuit recently affirmed the dismissal of such a case but did not reject the possibility that similarly situated plaintiffs could bring actions.) But those cases make just a "fraction of the activity of international institutional investors in U.S. securities class actions," according to the RiskMetrics study. Some international plaintiffs have recently settled cases with major American companies, like Coca Cola and General Motors.

The increased activity by international plaintiffs in the U.S. courts has a lot to do with marketing efforts by plaintiffs firms. According to RiskMetrics, the firms that have represented the most international plaintiffs are: Milberg; Barroway Topaz Kessler Meltzer Check; Grant & Eisenhofer; Bernstein Litowitz Berger & Grossmann; Glancy Binkow & Goldberg; and Murray Frank & Sailer.

PRO BONO
Morgan Lewis Files Class Action for Veterans with Post-Traumatic Stress Disorder
We've heard of class actions filed against the Department of Veterans Affairs, alleging it failed to care adequately for soldiers who suffer from post-traumatic stress disorder. Morrison & Foerster has been involved in one such action. But yesterday, lawyers at Morgan, Lewis & Bockius and the National Veterans Legal Services Program took a different path. On behalf of five veterans of the wars in Iraq and Afghanistan who suffer from PTSD, they filed a suit in Federal Claims court targeting the U.S. Army.

The suit, which seeks class action status, claims that the Army has ignored federal law and its own regulations in denying benefits to soldiers who were discharged as a result of suffering from PTSD. According to the suit, the Army is required to assign veterans who suffer from PTSD a disability rating of at least 50 percent, which would make them eligible for full benefits. The Army, the suit alleges, has instead given those soldiers a rating below 50 percent. "Not only has the Army expelled these soldiers from service, but it has reneged on its statutory obligation to provide these veterans the aid, assistance, and benefits they are due under existing federal law and longstanding federal regulation," the suit alleges.

The Morgan Lewis attorneys working on the matter are Brad Fagg, David Kerr, James Kelley II, Richard Black, and Charles Groppe. Barton Stichman and Amy Fletcher appear on the complaint for the National Veterans Legal Services Program.

SECURITIES
California Judge Rejects Settlement in Backdating Case
The special litigation committee of KLA-Tencor has been demoted. The two-person committee had been charged with looking into derivative claims against former and current KLA officers and directors related to options backdating. After concluding its investigation, it recently asked a San Francisco federal district court judge to dismiss the complaint and approve settlements with some of the defendants. But The National Law Journal reports that, in an unusual order, Judge James Ware has rejected that request, which means that the responsibility for litigating the case now falls to plaintiffs' lawyers.

Judge Ware objected to the independence and size of the special litigation committee. He noted that one of the members, Stephen Kaufman, had been on the board since November 2002, when the backdating may have occurred. "Although this does not indicate that Kaufman committed any affirmative wrongdoing in his roles at KLA during this period, it does raise the possibility that Kaufman was tasked with investigating corporate malfeasance that he had previously, if unintentionally approved," he wrote. James Lyons of Skadden, Arps, Slate, Meagher & Flom, who represents the special litigation committee, declined to comment to the NLJ.

The NLJ reports that the case will now be handled by the plaintiffs' lawyers who first brought the suit, led by Shawn Williams of Coughlin Stoia Geller Rudman & Robbins.

IP
Vinson & Elkins Partner Wins Trial for Screenwriter Tyler Perry
Before Veronica Lewis met screenwriter and playwright Tyler Perry earlier this year, she had only seen one of his movies: Diary of a Mad Black Woman. As it turned out, that was a good one to see. Back in May 2007, Tyler had been sued for copyright infringement over the film in federal court in Marshall, Texas. When the case looked like it was heading to trial, Perry went looking for a trial lawyer. After his entertainment lawyers interviewed Lewis in October, she got the job.

Last week, following a week long trial, a jury found no evidence of infringement.

The plaintiff was playwright Donna West, who claimed that Perry's movie infringed the copyright of her play Fantasy of a Black Woman. West claimed that Perry could have had access to her work because both of their works had been performed at the same theater, although West's play was performed in 1991, while Perry presented his plays in 1999.

Before trial Perry had been represented by Leopold, Petrich & Smith, which was also representing defendant Lions Gate Entertainment, which funded and distributed the movie. But Lewis told us yesterday that Perry was so offended by the case that he wanted his own trial lawyer.

"I think that ended up working well for him," said Lewis. "He was 100 percent, more than 100 percent committed to it because he really did see it as a personal attack. He spent all these years building that good name and he just couldn't let it go by and let it be besmirched."

According to the Associated Press, West's lawyers, solo practitioners Willie Briscoe and Aubrey "Nick" Pittman, plan to seek a new trial.