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March 5, 2009 9:00 AM

The Am Law Litigation Daily: March 5, 2009

Posted by David Bario

Appellate / Product Liability / Mass Torts
Supreme Court Rules Against FDA Preemption; Let the Plaintiffs Rejoicing Begin!

The spring thaw has come early for plaintiffs lawyers in pharmaceutical cases. By now, every mass torts litigator with a pulse has heard about the Supreme Court's 6-to-3 ruling in Wyeth v. Levine, in which the majority held that FDA-approved labeling does not preempt state law liability claims. The Court upheld a $6.7 million jury award for musician Diana Levine, who lost most of her arm to gangrene after she was injected with Wyeth's antinausea medication Phenergan. Justice Stevens wrote the majority opinion; Chief Justice Roberts, along with Justices Alito and Scalia (but, significantly, not Thomas) dissented.

The ruling caps a fierce battle over the limits of preemption that came to a head in the final years of the Bush administration, after an FDA lawyer issued new labeling regulations in 2006 stating explicitly that the agency's approval of a drug label preempted "conflicting or contrary state law." Defense lawyers seized on the change in defending state tort claims over labeling in pharmaceutical cases, winning dismissal of about half the cases in which they claimed preemption, according to a tally kept by the Drug and Device Law blog, which, you won't be surprised to hear, has some mournful analysis of Wednesday's ruling. (For more background on the preemption debate, check out this terrific American Lawyer story by Tamara Loomis.)

The Court has effectively knocked the preemption defense out of drug companies' reach. The majority opinion makes clear that Wyeth must comply with both state and federal law in labeling its drugs and that the language on preemption introduced by the FDA in 2006 "does not merit deference." The case was argued for Wyeth by Seth Waxman of Wilmer Cutler Pickering Hale and Dorr and for Levine by Kellogg, Huber, Hansen, Todd, Evans & Figel's David Frederick.

The Litigation Daily caught up with Frederick as he was rushing to catch a plane to San Antonio, where he's speaking at the University of Texas. He was understandably thrilled with the ruling. "The Court has decisively rejected the basic preemption argument that the drug companies have been making," Frederick tells us. "This was a resounding victory for consumers." Frederick says his team had a specific plan to win over certain justices. "And I felt like we executed the strategy," he says. "Every time you win a Supreme Court case, there's always that surprise and delight that your efforts worked out. But I always felt like the case was in the band of a close decision. And I felt like we had better arguments than Wyeth did."

The plaintiffs bar shared Frederick's jubilation at the Supreme Court win. Christopher Seeger of Seeger Weiss told us the decision was a "perfect rejection" of Wyeth's argument that it could not comply with both state and federal labeling requirements at the same time. He noted that the plaintiffs bar had watched with growing discomfort as relatively liberal jurisdictions like the U.S. Court of Appeals for the Third Circuit showed an inclination to accept the pharmaceutical industry's preemption defense. Wednesday's ruling puts an end to those fears. "This couldn't read any better if I had written it myself," Seeger told us.

And on the defense side? "It is a complete slap in the face to both the FDA and the Bush administration's position on preemption," said Dechert's James Beck (one of the bloggers at Drug and Device Law). The decision limits the preemption defense to cases where the FDA has made an "affirmative decision" on use of a particular drug, Beck told us. Dozens of cases that had been formally or informally frozen pending the Wyeth ruling, he said, will now move ahead at full steam.

We say you defense lawyers should remember the silver lining: The Wyeth ruling means you'll be able to get back to racking up the hours for Big Pharma!

International
Settlement Talks Launched in $22.5 Billion Russian RICO Case Against Bank of New York

Any case that brings together an airline disaster plaintiffs lawyer from Miami; a former U.S. attorney general; Alan Dershowitz; the author of the RICO act; and Jonathan Schiller of Boies, Schiller & Flexner is bound to be a doozy. And indeed the $22.5 billion suit filed two years ago in Moscow's Arbitrazh Court by Russia's Federal Customs Service against the Bank of New York Mellon has not disappointed. (We've previously covered the case here and here.) But like all good things, the so-called Russian RICO case must come to an end, and with news Wednesday that the Russian agency has proposed a meeting with the bank to discuss a possible settlement, it appears that the end is near.

Dow Jones cited a Russian news source in reporting that the customs service, under order to settle the case from Prime Minister Vladimir Putin, might be willing to accept as little as $800 million.

Miami plaintiffs lawyer Steven Marks of Podhurst Orseck brought the suit, which alleged that a BoNY vice president illegally transferred $7 billion out of Russia more than a decade ago, after the bank spurned his initial offer to resolve the case for $600 million. Marks took the novel approach of filing in Russian courts but citing U.S. RICO laws. When the Russian court ordered hearings on the applicability of RICO in Russian civil jurisprudence, Marks was able to wrangle RICO drafter G. Robert Blakey and Harvard's Dershowitz to testify on the customs service's behalf.

The Bank of New York called on Schiller, who brought his own big guns to the Russian hearings: former U.S. attorney general Richard Thornburgh and New York litigator Greg Joseph.

To find out how serious settlement talks are, we called Marks, who's in Russia preparing for the March 10 resumption of RICO hearings. Marks told us he's expecting the Russian court to issue final judgment on the RICO applicability soon, and suggested that the imminent ruling may be prompting settlement talks. "For the first time, the banks seems to be expressing interest in resolving the case," he said.

When we talked to Schiller, he downplayed the importance of the Russian RICO ruling. "We are confident that if any bogus judgment were to emerge from this court it would not be enforceable in any country in which the bank has material assets," he said. But Schiller did tell us that it's "a significant development" that the Russian customs agency--and not Marks--had written to the bank in hopes of resolving the case.

Russia, with plenty of bank headaches at home, may feel like it doesn't need more in New York.

Law Firms
A Bad Week for O'Melveny: Mass Layoffs and Another Major Defection

On Wednesday, The Am Law Daily broke the news that O'Melveny & Myers is laying off 90 lawyers, about 10 percent of its workforce. It's not the biggest of the mass law firm layoffs we've had the sad duty to report in the last few weeks, but at the Litigation Daily we took particular note because O'Melveny, a onetime American Lawyer Litigation Department of the Year, is such a litigation-heavy shop.

Firm chairman A.B. Culvahouse said in the firm's announcement of layoffs that O'Melveny's "litigation practice continues to be very active and robust," suggesting that most of the laid-off lawyers come from the firm's "transactions area."

But O'Melveny is also losing a litigator it will miss: copyright and trademark star Dale Cendali, who will join Kirkland & Ellis next week, along with two other O'Melveny IP lawyers. Cendali's move comes hard on the heels of the departure of James Asperger, O'Melveny's longtime white-collar group head, for Quinn Emanuel Urquhart Oliver & Hedges and of Michael Sage, O'Melveny's bankrutpcy cochair, for Dechert.

O'Melveny has added three lateral partners in 2009: former Homeland Security adviser (and Washington, D.C., U.S. attorney) Kenneth Wainstein; former Heller Ehrman M&A partner Steven Tonsfeldt; and former private equity firm director Dean Collins, who will be resident in Asia.

The Litigation Daily talked to Cendali on Wednesday, and she was quick to say her decision to join Kirkland was "completely not related" to the layoffs at O'Melveny, where she practiced for 18 years. "O'Melveny is a fine, strong firm," she said. "This was a unique opportunity."

Cendali, whom we most recently wrote about in connection with the dispute over rights to an iconic image of Barack Obama, told us that her friend John Desmarais--Kirkland's highest-profile IP litigator--has been courting her for years. His pitch, she says, was that her copyright, trademark, and Internet IP expertise was a perfect complement to Kirkland's preeminent patent practice. "We could offer clients destination practices for all their IP needs," said Cendali, who is probably best known as counsel for Harry Potter author J.K. Rowling.

Though Cendali declined to name other clients, she said she represents many of the same entities as Kirkland's IP lawyers, though on different sorts of matters. There have been no client conflict issues in her move, she adds. "I'm eager to be integrated into the firm and to work with Kirkland's IP litigators," Cendali tells us.

O'Melveny chair Culvahouse said in an e-mail statement that the firm remains "well positioned to weather and ultimately grow in the face of this challenging economic environment."

--Alison Frankel

Corporate / Securities
The Boies v. Wells Showdown Is On: Judge Rakoff Denies Greenberg Motion to Dismiss

For those of us who admit to a certain guilty pleasure in watching former AIG CEO Maurice "Hank" Greenberg slug it out with his former company, a ruling Wednesday by Manhattan federal district court judge Jed Rakoff promises more thrills to come. Judge Rakoff rejected efforts by Greenberg's Starr International to dismiss AIG's counterclaim in a suit over ownership of millions of AIG shares. Bloomberg reports that the parties are now set to go to trial June 15.

Our own Andrew Longstreth, who's taking a break from the Litigation Daily to work on an American Lawyer feature, previewed the trial in the magazine's February issue. The showdown will pit Theodore Wells, Jr., of Paul, Weiss, Rifkind, Wharton & Garrison against David Boies of Boies, Schiller & Flexner--the first time these heavyweights have faced off since they traded statements at a trial seminar almost a decade ago.

If the headliners aren't enough to get your blood pumping, the plot is pretty enticing as well. Starr, represented by Boies and his partner Nicholas Gravante, Jr., initially sued AIG in 2005 over a $15 million art collection and other assets it said AIG refused to hand over when Greenberg was forced out as CEO. AIG countersued, claiming that Starr violated an agreement to hold 290 million AIG shares in trust for AIG and its employees.

Whichever side wins, it should be quite a show.

Regulatory / Tax
Congress Digs Up Baker & McKenzie Memo in UBS Tax Case

Looks like John Savarese of Wachtell, Lipton, Rosen & Katz has some reading to do. Savarese, who is defending Swiss banking giant UBS from the Internal Revenue Service's recently filed petition to compel the bank to disclose the identities of its U.S. private banking clients, now has a 180-page list of exhibits to plow through, courtesy of the Senate permanent subcommittee on investigations, which on Wednesday began hearings on offshore tax havens.

Brian Baxter at The Am Law Daily has a nifty piece on some of the documents the subcommittee uncovered. One of them, Baxter reports, details the advice Baker & McKenzie gave UBS as the bank set up offshore asset vehicles and insurance plans for the benefit of U.S. clients. The law firm warned UBS that it could "not recommend products (such as the use of offshore companies, annuity, or insurance products) to our clients as an 'alternative' to filing a Form W-9. This could be viewed as actively helping our clients to evade U.S. tax, which is a U.S. criminal offense."

Yet, Baxter notes, UBS appears to have ignored Baker's advice: The devices the law firm warned against are what federal prosecutors and the IRS have accused UBS of using to hide the identity of U.S. clients. (In late February, you'll recall, prosecutors reached a $780 million deferred prosecution agreement with UBS.)

So we guess Savarese and his team from Wachtell and Stearns Weaver Miller Weissler Alhadeff & Sitterson won't be making any "advice of counsel" arguments anytime soon.

--Alison Frankel

IP
Teed Off Golf Ball Companies Swing at Each Other (Again)

Isn't golf supposed to be a gentlemanly game in which disputes are settled over a drink back at the clubhouse? Not, apparently, when it comes to golf ball design. The bitter IP rivalry between the two leading golf ball manufacturers intensified Tuesday, when both companies filed suit in Delaware federal district court, each accusing the other of infringing patents on the top-of-the-line golf balls used by tour professionals.

Callaway Golf Company claims in its complaint that it engineered a ball it unabashedly calls "the Holy Grail of golf balls." Its ball, Calloway says, "has, among other things, both long distance off the tee as well as good feel and spin around the greens."

But Acushnet Company, which makes Titleist balls, says in its complaint that Callaway's ball infringes nine Acushnet patents, including its rights to "golf ball with improved flight performance" and "golf ball with spherical polygonal dimples."

The suits follow a recent IP victory for Callaway against Acushnet. Callaway sued its rival in February 2006, claiming Acushnet's Titleist Pro V1 family of balls infringed Callaway patents. Callaway won at trial in December 2007 and obtained a permanent injunction from the trial court in November 2008. The injunction took effect January 1, 2009, forcing Acushnet to recall the infringing balls.

Both companies are sticking with the same outside counsel for the new round of litigation. Fish & Richardson represents Callaway and Howrey represents Acushnet.

--Ross Todd


Edited by David Bario

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