January 9, 2009 9:00 AM
The Am Law Litigation Daily: January 9, 2009
Posted by Ed Shanahan
Edited by Andrew Longstreth
Litigator of the Week
Kenneth Geller of Mayer Brown
Among the myriad hot-button issues in American jurisprudence today, federal preemption is at the top of the list. To its critics, it's a license for companies to escape liability for misleading consumers. To its defenders, it's the only sensible way to regulate businesses.
The Litigation Daily isn't taking sides in that debate. We just keep score. And this week the pro-preemption crowd received a big win. On Monday, Minneapolis federal district court judge Richard Kyle tossed out a large group of cases against Medtronic, which faced dozens of product liability suits for its Sprint Fidelis defibrillator, which it pulled from the market in October 2007. In dismissing the cases, Judge Kyle cited the 2008 Supreme Court decision Riegel v. Medtronic, Inc., which barred "common-law claims challenging the safety or effectiveness of a medical device marketed in a form that received pre-market approval from the FDA."
Medtronic--and other medical device makers--can thank our Litigator of the Week for the decision. Kenneth Geller of Mayer Brown served as cocounsel with Gibson, Dunn & Crutcher's Theodore Olson in the Riegel case, and then benefited from his own Supreme Court victory as Medtronic's lead counsel in the Minnesota defibrillator cases.
Citing his client's wishes, Geller--who is Mayer Brown's vice-chairman and a veteran Supreme Court litigator--declined to speak with us. But here's what Medtronic had to say about Judge Kyle's ruling: "This decision supports the principle that the U.S. Food and Drug Administration is the appropriate body to determine the safety and efficacy of innovative technologies."
Plaintiffs Lawyers Pounce on 'India's Enron'
In today's global economy, it's ever more difficult to evade American securities class action lawyers. Satyam Computer Services learned that lesson Thursday, a day after its chairman and chief executive, B. Ramalinga Raju, confessed in a resignation letter to Satyam's board of directors that he'd engaged in a $1 billion accounting fraud. No sooner had Satyam been dubbed "India's Enron" than two U.S. plaintiffs firms--Florida's Vianale & Vianale, and Izard Nobel of Connecticut--announced that they had filed securities class actions against certain Satyam directors and officers on behalf of purchasers of the company's American Depository Receipts, which are traded on the New York Stock Exchange. Here's the press release from Vianale and the release from Izard.
More suits are sure to be on the way. On Thursday we talked to name partner Sam Rudman of Coughlin Stoia Geller Rudman & Robbins, who told us he's exploring the possibility of filing cases in the United States on behalf of American investors who bought Satyam shares on exchanges in India. Rudman conceded that Satyam could have subject-matter jurisdiction defenses against such actions, but said he believes plaintiffs can overcome those arguments. Rudman also told us to expect more financial scandals to erupt in the developing world in 2009.
"This is just the beginning," Rudman said.
Whither the Billion-Dollar Verdict?
Billion-dollar jury verdicts have become as rare as the ivory-billed woodpecker. According to data compiled by Bloomberg, juries did not issue a single verdict of more than $1 billion in 2008 and served up only one in 2007--a $1.5 billion IP award against Microsoft that was later set aside by the judge in the case.
That's a marked decline from the previous 14 years, when, according to Bloomberg, there were 26 verdicts of more than $1 billion, including six of more than $5 billion.
What explains the drop? Bloomberg reports that some plaintiffs lawyers, cognizant of Supreme Court rulings that limit punitive damages relative to compensatory damages, are treading carefully when they ask juries for money. "There's no need to ask for huge punitives that far outstrip compensatory damages," Phoenix attorney Grant Woods told Bloomberg.
Barry Lee of Manatt Phelps & Phillips was part of the team that won the largest verdict of 2008--a $606.6 million award against Boeing Co. and a subsidiary in a contract case for ICO Global Communications Holdings. Lee, who won Litigator of the Week honors for his work on that case, told Bloomberg he was careful to take a measured approach to damages, asking for $949 million in punitives, which amounted to less than three times the $270.6 compensatory verdict he'd won in the earlier phase of trial.
"It's always in my mind, not only on punitives, but on compensatory damages," Lee said. "We want everything our client is entitled to, but we don't overreach."
Some see smaller verdicts as the work of powerful corporate lobbyists. "We're seeing the effects of a campaign that has been ongoing for the last ten to 12 years of trying to eliminate punitive damages against corporate interests," Robert Cunningham of Cunningham Bounds Yance Crowder & Brown of Mobile told Bloomberg. "It appears to have worked."
Bankruptcy / Securities
Kramer Levin Partner Makes Sense of Madoff Clawbacks
For weeks, we've been hearing about how the investors who cashed out of Bernard Madoff's investment funds before they collapsed could be sued by their less-prescient fellow investors. We liked the name for these contemplated actions--"clawbacks"--but we weren't quite sure how they'd work. Now we get it, thanks to an excellent piece in The Deal by Kramer Levin Naftalis & Frankel bankruptcy partner Philip Bentley.
Bentley draws upon his experience representing redeemers in the Bayou hedge fund bankruptcy to map out the likely progress of the case against Madoff redeemers. According to Bentley, the Madoff investors who got their money out are likely to be sued by the trustee of Bernard Madoff Investments--Irving Picard of Baker Hostetler. Under the bankruptcy code, Bentley explains, Picard has broad powers to recover payments made to investors 90 days before the bankruptcy was declared.
But the recent redeemers, he says, aren't the only investors who should expect to be targeted by Picard. "Many investors who redeemed as many as six years before the Madoff bankruptcy will probably also be sued by the trustee," Bentley writes. "Specifically, the trustee is likely to assert fraudulent transfer claims against at least two groups of investors. First, those who profited from their Madoff investments will be asked to return their profits," he says. "Second, and most controversial, investors who redeemed as long ago as December 2002 may be asked to return their principal, as well as their profits."
Return their principal six years after they said goodbye to Bernie? That seemed pretty harsh to us, but Bentley cites a New York bankruptcy court's ruling in the Bayou case that said investors had to return their principal and profits if it could be shown that they "should have known" about the fraud when they made their redemptions.
Bentley, who represents Madoff redeemers, writes that it remains to be seen whether the judge overseeing the Madoff bankruptcy will rule the same way. But he has already explored a line of defense for Madoff redeemers---that they shouldn't be expected to have known about a scheme that no one else detected. "If no fraud was found by the Securities and Exchange Commission despite its several investigations, nor by the various sophisticated institutional investors that conducted due diligence on their own," Bentley writes, "how can it be said that anyone 'should have known' what was occurring?"
For Prosecutors, Finding Wall Street Bad Guys Isn't Easy
Back in November we wondered why we had not seen more indictments of Wall Street defendants, especially given all the hype about U.S. attorneys adding resources to their white-collar units. The always-insightful Roger Parloff of Fortune magazine (an Am Law alum) asks the same question in a provocative Fortune cover story this month. Parloff's conclusion: The issues aren't so neat and clear. They often involve statements executives made about market conditions that seem crazy in retrospect, but once upon a time could be defended. "The process that is due requires distinguishing foolish mistakes from lies and fraud--a line that can get surprisingly fine," writes Parloff. "To the chagrin of John Q. Public, there will be serious defenses in most of these cases."
One of Parloff's most interesting points about fraud investigations is the high price paid by the companies that are the first to be caught. (Or, in the credit crisis, to go under.) After the failure of Fannie Mae, Freddie Mac, Lehman Brothers, and AIG, the appetite for investigation began to flag, Parloff notes, citing the lack of attention given by prosecutors to the near collapse of Citigroup. "Criminality is about deviance, so the more widespread and undesirable conduct turns out to have been, the more difficult it become to treat it as criminal," he writes.