The Work

February 24, 2009 9:00 AM

The Am Law Litigation Daily: Feb. 24, 2009

Posted by David Bario

Trial Begins in W.R. Grace Criminal Asbestos Contamination Case

What's the most significant criminal case ever filed against a polluter? According to David Uhlmann, a former head of the Justice Department's environmental crimes unit, it's the federal government's prosecution of W.R. Grace & Company (and five of its former executives) for allegedly exposing its workers and the residents of Libby, Mont., to asbestos during Grace's mining operations in the town. Trial in the long-running case--which had been stalled since 2006 for appeals of evidentiary issues--finally began Monday.

According to Bloomberg's account, prosecutors said in opening arguments that Grace "chose profits at the expense of people’s health and chose avoiding liability over disclosing the health hazards to the government."

The local paper, The Missoulian, is providing daily multimedia coverage, as well as an up-to-date time line and links to key documents. Caveat emptor: The Missoulian makes little pretense of objectivity, accusing Grace of killing more than 200 people and sickening hundreds of others when its mining and processing of vermiculite allegedly released asbestos particles into the air. The New York Times also offers some useful background on the case.

Missoula assistant U.S. attorney Kris McLean and Kevin Cassidy of the Justice Department's environmental crimes section are prosecuting the case. David Bernick of Kirkland & Ellis is leading the defense team for Grace, which has been charged with conspiracy, violation of the Clean Air Act, and obstruction of justice. (We most recently wrote about Bernick in connection with his defense of Dow Chemical in the Rohm and Haas takeover litigation in Delaware Chancery Court.) Bernick is a longtime adviser to Grace, orchestrating in April a resolution of thousands of civil asbestos claims that had forced Grace in Chapter 11. Bloomberg is reporting that a substantial fine in the criminal case--Grace faces a potential $280 million hit, according to SEC filings--could jeopardize the company's emergence from bankruptcy, which had been planned for later this year.

The influx of lawyers to Missoula for the case has so overwhelmed the courthouse that federal district court judge Donald Molloy had his courtroom remodeled to handle the throngs. The horde includes David Krakoff of Mayer Brown (for former Grace exec Harry Eschenbach); Carolyn Kubota of O'Melveny & Myers (for Jack Wolter); Elizabeth Gray of Sowell, Gray, Stepp & Laffitte and William Coates of Roe, Cassidy, Coates & Price (for William McCaig); Tom Frongillo of Weil, Gotshal & Manges (for Robert Bettacchi); and Stephen Privack of Bradley Arant Boult Cummings (for Robert Walsh). Former company attorney O. Mario Favorito has been severed from the case due to attorney-client privilege and will be tried separately; he is represented by Stephen Jonas of Wilmer Cutler Pickering Hale and Dorr. Missoula's Garlington, Lohn & Robinson is local counsel for W.R. Grace.

In Rambus's IP War, It Was an Especially Manic Monday

To technology geeks, Rambus is best known for patenting technology in the early 1990s to speed up how data is extracted from memory chips. But to us, the company is best known for its nonstop patent infringement battles with the Federal Trade Commission and a bevy of chipmakers. (We've previously covered the litigation here and here.) On Monday, Rambus got a little bad news and a lot of good in its multifront IP litigation war.

First the bad: San Jose federal district court judge Ronald Whyte, who seems to specialize in Rambus litigation, denied the company's motion for an injunction against the sale of Hynix's dynamic random access memory chips in the U.S. Rambus had sought the injunction in the wake of a 2006 jury finding of patent infringement against Hynix.

But Judge Whyte also ruled, according to Bloomberg, that Rambus can collect its $133.4 million damages award (plus interest) against Hynix. In the Hynix litigation, Rambus is represented by its regular outside counsel from Munger, Tolles & Olson. Hynix's lead lawyer is Kenneth Nissly, who recently joined O'Melveny from Thelen. The Hynix case is separate from the Rambus patent infringement suit against Hynix and three other chipmakers that Judge Whyte stayed last month.

And Judge Whyte's damages ruling wasn't Rambus's only reason to celebrate yesterday. The company also got word that the U.S. Supreme Court had denied the FTC's cert petition, which sought to resurrect an antitrust case that the U.S. Court of Appeals for the District of Columbia rejected in April 2008.

The FTC had claimed in a suit that dates back to 2002 that Rambus deceived an industry standards-setting organization by not disclosing planned DRAM patents, thus setting itself up for monopoly profits once standards on the evolving technology were set. In their brief in opposition to the FTC's petition for certiorari, Rambus's lawyers at Munger and Wilmer Cutler Pickering Hale and Dorr argued that the FTC had not proven that the company's actions excluded its rivals or created a monopoly on the technology.

Wilmer's Douglas Melamed and Paul Wolfson and Gregory Stone and Steve Perry of Munger wrote Rambus's Supreme Court brief. It probably won't surprise you to hear that Hynix and one of the other chipmakers Rambus is tussling with in California submitted amicus briefs supporting the FTC's petition. Hynix's brief was written by Orrick Herrington & Sutcliffe's Robert Freitas; Robert Skitol of Drinker Biddle & Reath wrote the amicus brief for Nanya.

New York AG Grills Thain Over Merrill Bonuses, Wants More Disclosures

Former Merrill Lynch chief John Thain faced six hours of questioning by lawyers from the New York attorney general's office last week. And they're not done with him yet. On Monday, Andrew Cuomo filed a motion asking that Thain provide details about bonuses distributed to Merrill employees just before the company merged with Bank of America.

Dealbook has an excerpted transcript of Thain's testimony from last week, in which the former high-flying Merrill chief refused to answer questions about bonuses for all but the five highest-paid Merrill executives. Thain's lawyer, Andrew Levander of Dechert, told Cuomo's office that his client was directed not to discuss individual bonuses by Bank of America's counsel in the bonuses probe. (BofA is represented by Cleary Gottlieb Steen & Hamilton partner Lewis Liman, who forwarded our call for comment to the bank, which did not respond.)

Levander told us that Thain is doing everything he can to cooperate with investigators, but that Bank of America has intervened to ask New York state supreme court justice Bernard Fried--who is hearing the AG's motion to compel Thain to disclose bonus information--to keep the Merrill bonuses confidential. The bank has until March 4 to file papers, and the attorney general’s office response is due March 11. The motion is scheduled to be argued March 13.

--Ross Todd

Galveston Federal District Court Judge Samuel Kent Pleads Guilty, Resigns from Bench

Judge Samuel Kent has spared the federal court system--and his alleged victims--the spectacle of a trial on criminal sexual abuse charges. On Monday, with jury selection slated to begin, Kent admitted to nonconsensual sexual contact with two female court employees, pled guilty to one count of obstructing the investigation of the case against him, and resigned from his judgeship. "Judge Kent believes this compromise settlement is best for all involved, the complainants and their families, Judge Kent and his family, and the court and judicial system," read a statement issued by Kent's defense lawyer, Richard DeGuerin of Houston's DeGuerin & Dickson.

That's a far cry from what Kent was saying at his arraignment back in September, when he pled "absolutely, unequivocally not guilty" to six counts of sexual abuse. As we reported at the time, the judge took every opportunity to talk at the September 3 hearing. "I absolutely intend to testify, and we're going to bring a horde of witnesses," he said in his trademark booming voice. In contrast, Mary Flood of the Houston Chronicle noted, Kent "all but whispered" his guilty plea Monday.

Rusty Hardin of Houston's Hardin & Associates, who represents the court employee who first reported allegations against Kent, told The National Law Journal that his client is "very relieved" by the plea deal, although he added that she would wait until Kent's sentencing to make a statement. The client, Cathy McBroom, alleged that Kent touched her under her clothing twice and made obscene statements to her during the course of her six years of  employment with him. As for civil actions against Kent, Hardin told the NLJ, "We never really planned that and have not talked about that. We wanted to keep that off the table so as not to undermine her as a witness," he said.

According to the Chronicle, Kent faces up to 20 years in prison on the obstruction charge, although prosecutors have reportedly suggested he be sentenced to three years.

--Alison Frankel

Did 'Sir Allen' Stanford Violate the FCPA?

The saga of R. Allen Stanford, with his mystery island in the Caribbean, his Florida castle, and his peculiar cricket obsession, is quickly beginning to rival that of Bernie Madoff for sheer drama. For us, part of the appeal is that Texas-born Stanford, a U.S. citizen, presided over his alleged $8 billion fraud from the tiny island of Antigua, population 69,000. As a former State Department official told The New York Times, Stanford's relationships with Antiguan officials seemed "weirdly intimate."

Did somebody say FCPA? Richard Cassin at the FCPA blog had a post Monday on whether Stanford's dealings with the Antiguan government and U.S. lawmakers may have violated the Foreign Corrupt Practices Act. Cassin notes that the SEC complaint against Stanford doesn’t mention overseas corruption. Still, he combed news stories about Stanford’s activities looking for hints of possible FCPA violations.

What he found is tantalizing: In the late 1990s Antigua's government appointed Stanford to an advisory board charged with regulating the island's banks--including Stanford’s own Stanford Financial Group. Guess who bankrolled the advisory board? Yep--Stanford, who was also extremely close to various Antiguan officials, particularly former Antiguan prime minister Lester Bird. Meanwhile, for years "Sir Allen" (he was knighted in Antigua in 2006) organized free "fact-finding" trips for U.S. politicians to visit "vacation destinations," presumably in the Caribbean.

Cassin concludes that these examples on their own probably don't constitute FCPA violations. And FCPA may turn out to be the least of Stanford's criminal problems. But as Cassin notes, Stanford still hasn't been charged with criminal fraud. It's early in the investigation, so the Antiguan connection may yet turn out to be important.

Mouse Hunt: Slumdog Producer Suing Disney Over Who Wants to Be a Millionaire?

Celador International Ltd. was a big winner at Sunday night's Oscar ceremony. The British production company's movie Slumdog Millionaire took home eight Oscars, including the award for best motion picture of the year. Here at the Litigation Daily, we don't pretend to be film critics (although we sure did love George Clooney in Michael Clayton). But we were intrigued to hear that Celador is not only a production company: It's also a litigant!

Celador created and developed the game show Who Wants to Be a Millionaire?, which first aired in the United Kingdom in 1998. The game show has since been licensed to more than 50 countries and territories, including the United States, where Walt Disney Co. holds the rights. And therein lies a problem, according to Celador. In its five-year-old Los Angeles federal district court suit against Disney, Celador alleges that self-dealing among Disney subsidiaries, including ABC Network, has cut the producer off from potential revenue streams for the program.

"In essence, Disney sits on both sides of the bargaining table in any negotiation for the production rights to the series," Celador's complaint argues. The company is represented by the Los Angeles office of Robins Kaplan Miller & Ciresi. Sheppard Mullin Richter & Hampton's Martin Katz is leading Disney's defense team. Katz declined our request for comment on the suit, which is scheduled to go to trial in Los Angeles in May.

Disney better hope its lawyers fare better against Celador in court than its movies did against Slumdog Millionaire at the Oscars.

--Drew Combs

Edited by David Bario

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