The Am Law Litigation Daily: December 22, 2008

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December 22, 2008 9:00 AM

The Am Law Litigation Daily: December 22, 2008

Posted by Dimitra Kessenides

Edited by Andrew Longstreth

SECURITIES
Monday Morning Madoff (Update)
Tis the season for massive financial fraud, and we at The Am Law Litigation Daily have a few more stocking stuffers for you. Today's news concerns (who else?) Bernard Madoff.

According to Columbia Law School professor John Coffee, most big law firms would be wise to steer clear of suing Madoff's now defunct investment firm, which lacks sufficient assets to make going after it worth their while. "It's a lean and starved corpse," Coffee told The National Law Journal. "This is medium-sized litigation that will probably go to relatively small firms."

A more likely source of recovery, according to the article, will be third parties that helped finance the Madoff operation, such as banks, hedge funds, and investment firms. At least two law firms--Greenberg Traurig and Holland & Knight--have formed crisis teams to respond to anticipated litigation against clients like these. "Whether or not it leads to a significant amount of business, we wanted to have a place where people could come to understand what's going on," said Greenberg Traurig partner Brad Kaufman.

(A bad omen for would-be plaintiffs: On Friday, Bloomberg reported that investors withdrew a court request to freeze the assets of Ezra Merkin, who invested in funds controlled by Madoff, after the judge seemed disinclined to grant it.)

In other news, critics who have slammed the Securities and Exchange Commission for ignoring obvious warning signs have a new weapon in their arsenal. It seems that not only did Madoff post suspiciously consistent and suspiciously high returns for investors, he also posted suspiciously consistent and suspiciously low golf scores. Really, is nothing sacred?

--Ben Hallman

IP
MGA Files Emergency Appeal in Bratz Case
Since the beginning of the month, the Bratz doll has been on life support. On December 3, Riverside, Calif., federal district court judge Stephen Larson granted a sweeping injunction sought by Mattel Inc. against Bratz-maker MGA Entertainment, barring the company from selling any Bratz-related products. In August a jury had found MGA liable for copyright infringement and the company was ordered to pay Mattel $100 million. The injunction also requires MGA to recall all Bratz items and hand them over to Mattel for destruction. In a separate order, Judge Larson ruled that MGA can no longer use the Bratz name.

On Friday, MGA's lawyers filed an emergency appeal with the Ninth Circuit, seeking a stay of those orders pending an appeal. Although Judge Larson stayed his orders until February, MGA argues that's not enough "to prevent both the collapse of MGA and irreparable loss of the Bratz brand." MGA is represented by three firms: Howard Rice Nemerovski Canady Falk & Rabkin; Skadden, Arps, Slate, Meagher & Flom; and Mitchell, Silberberg & Knupp.

In an attempt to get the Ninth Circuit involved, the partially redacted motion notes that Judge Larson won't be available to hear MGA's stay application during the week of December 22, and is unlikely to rule on a stay before the year-end. "The court's inaction," they argue, "is tantamount to denial of the stay motion."

Appearing on the motion for MGA are Howard Rice attorneys Jerome Falk, Jr., Steven Mayer, Douglas Winthrop, Shaudy Danaye-Elmi, and Rebecca Kahan; Skadden's Thomas Nolan, Raoul Kennedy, and Jason Russell; and Russell Frackman from Mitchell, Silberberg & Knupp.

We e-mailed John Quinn of Quinn Emanuel Urquhart Oliver & Hedges, who represented Mattel at trial, for a comment. He gave us this brief statement: "Two words: Hail Mary."

PRO BONO
Judge Blasts Secret Service for Discovery Violations in Discrimination Case
We read about discovery disputes all the time. But it's not every day that a judge accuses a party of making a "mockery" of discovery rules and court orders. That's the accusation leveled by a federal magistrate judge against the Secret Service in a racial discrimination class action. On Wednesday night, Judge Deborah Robinson of the federal district court in Washington, D.C., imposed severe sanctions against the agency for repeatedly failing to turn over evidence to the plaintiffs. In the 51-page opinion, she wrote that the Secret Service's recalcitrance has been and continues to be the "most prominent feature" of the suit.

The case was filed by ten current and former African American Secret Service agents, alleging discrimination in promotions.

Judge Robinson noted that since discovery began in 2004, she has entered nine orders compelling the Secret Service to provide discovery and three orders imposing sanctions. In Wednesday's order she issued a crippling sanction: The Secret Service will not be allowed to present any evidence in its defense at trial.

A spokesperson for the Secret Service told Cox News Service that it "wholly disagrees with the magistrate's findings" and that it would appeal.

Hogan & Hartson and the civil rights law firm Relman & Dane are representing the plaintiffs pro bono. "For years the Secret Service has aggressively hidden the truth about the culture of pervasive racial discrimination at the agency," said Hogan lawyer Melissa Henke in a press release. "The court's sanction is a positive step towards correcting the prejudice suffered by former and current African American special agents as a result of the Secret Service's misconduct in this lawsuit. The Plaintiffs now look forward to presenting at trial their overwhelming evidence of [the] racially discriminatory promotions process at the Secret Service."

Hogan partner E. Desmond Hogan and Jennifer Klar of Relman & Dane are also working on the case.

COMMERCIAL
McGuireWoods Sued over Former Partner's Alleged Fraud
The ghost of Louis Zehil has come back to haunt McGuireWoods. The firm's former partner was indicted by prosecutors and charged by the SEC last year for profiting from the sale of restricted securities issued by seven corporate clients. According to the SEC, he pocketed almost $18 million at the expense of those companies.

The Kansas City Star reported last week that the bankruptcy trustee for one of those companies, Ethanex Energy, has sued Zehil and McGuireWoods alleging, among other things, fraud, breach of fiduciary duty, and negligent supervision. The complaint, which can be read here, states that "McGuireWoods had the ability, right, obligation, and duty to control and monitor defendant Zehil's actions."

McGuireWoods partner William Allcott told The Kansas City Star the suit has no merit. Noting that Zehil is a former partner, he said: "[His] activities were conducted secretly, without the firm's knowledge, solely for Mr. Zehil's personal benefit."

The criminal and SEC cases against Zehil are pending, according to the Star.

PRODUCT LIABILITY
After Supreme Court Decision, Smokers Take Aim at Philip Morris
Christmas came early for plaintiffs lawyers suing Philip Morris over the marketing of so-called light cigarettes. Last week the Supreme Court ruled 5-to-4 that federal law does not preempt state law claims alleging false advertising. Plaintiffs lawyers didn't waste time trying to capitalize on the decision. On Wednesday three firms filed a class action in the Eastern District of New York seeking to represent all New Yorkers who purchased Marlboro Lights. The firms are Parker Waichman Alonso; Douglas & London; and Morgan & Morgan. Read the complaint via Courthouse News.

It's not all doom and gloom this holiday season for Philip Morris, however. Last week the New York Court of Appeals upheld the dismissal of a $20.5 million verdict against Philip Morris and Brown & Williamson in a light-cigarettes case alleging negligent product design. Some observers say this ruling may be more important than the Supreme Court case. The appeals court reasoned that the suit by plaintiff Norma Rose, who died during the appeal, could not go forward because her lawyers "made no attempt to prove that smokers find light cigarettes as satisfying as regular cigarettes--indeed it is virtually uncontested that they do not."

Philip Morris was represented by Andrew Schapiro of Mayer Brown. Brown & Williamson relied on Thomas Riley of Chadbourne & Parke. The plaintiff was represented by former New York Court of Appeals judge Howard Levine, now a senior counsel at Whiteman Osterman & Hanna.

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