August 8, 2008 12:58 PM

THE AM LAW LITIGATION DAILY: August 8, 2008

Posted by Jonathan Thrope

Edited by Andrew Longstreth

LITIGATOR OF THE WEEK
Wayne Smith of Gibson, Dunn & Crutcher
It's been an eight-month roller coaster for Gibson, Dunn securities litigation cochair Wayne Smith. In January he suffered the biggest trial defeat in recent securities class action history: A federal jury in Phoenix returned a $277 million verdict against Smith's client, Apollo Group, for misleading investors about the Apollo-owned University of Phoenix. Smith's loss came just months after JDS Uniphase's defense win in another rare securities class action trial, which prompted defense attorneys to ask, "What went wrong for Smith and Apollo?"

Now, if they want to learn a thing or two, they should be saying, "Wayne, what'd you argue in that post-trial briefing?" Because on Tuesday, Phoenix federal district court judge James Teilborg threw out the verdict against Apollo, ruling that the drop in the company's share price was not prompted by its failure to disclose a critical Department of Education report. Actually, you don't have to ask Smith. You can read his winning brief right here.

It's not clear what impact Judge Teilborg's ruling will have on the securities class action landscape. Will defendants be inspired by Apollo's come-from-behind victory and refuse to settle dubious claims? We don't know, but we do believe that Smith and Apollo deserve credit for standing by their arguments, even after the jury rejected them.

"The court's decision validates the arguments made by Apollo Group since the beginning of the case," Smith told the Am Law Daily earlier this week. And for his $277 million validation, Wayne Smith is our Litigator of the Week.

REGULATORY
Citigroup In Landmark Auction-Rate Securities Settlement
Here's a story we've heard before: A financial scandal breaks, billion-dollar litigation roils the world's largest financial institutions, and Citigroup decides its best strategy is to settle early. In the scandal du jour, Citigroup has beaten most of its competitors to the auction-rate securities settlement line, agreeing yesterday to buy back $7 billion in frozen securities and pay $100 million in civil penalties. (Merrill Lynch, represented by Skadden, Arps, Slate, Meagher & Flom, followed hours later with a settlement of its own, offering to buy back $10 billion worth of securities.)

The price of peace has apparently gone up since Citi settled the WorldCom ($2.65 billion in 2004) and Enron ($2 billion to Enron shareholders in 2005; $1.66 billion to the estate last March) litigation. But the same lawyer--Brad Karp, the new chairman of Paul, Weiss, Rifkind, Wharton & Garrison--represented Citi in all three megacases. Harry Weiss of WilmerHale also represented Citigroup in the auction-rate securities case.

SECURITIES
Jenner & Block Represents STMicroelectronics in Auction-Rate Securities Suit Against Credit Suisse
As a rule, Am Law 100 firms don't like to sue big banks. It's considered bad business. The word's financial institutions compete fiercely for business, but they tend to show solidarity when it comes to litigation. They don't take it lightly when one of their own is sued. (Just ask Linklaters.) So we were a little surprised to see that Jenner & Block, which has a significant corporate practice, is representing the Swiss semiconductor company STMicroelectronics in an auction-rate securities suit against Credit Suisse Group.

But maybe we shouldn't have been. The capital markets crisis has stung big, established companies, not just retail investors. And STMicro happens to be Europe's largest chip maker. Its suit, which made a splash when it was filed Wednesday, alleges that Credit Suisse ignored the chip maker's instructions and poured $450 million into auction-rate securities when it was supposed to be investing in student loan-backed instruments.

"After the illegal scheme was exposed by ST in the summer of 2007, rather than siding with customers who had been victimized, Credit Suisse Group aligned itself with its wholly owned subsidiary Credit Suisse Securities and its corrupt brokers and directors," STMicro alleged in the complaint, according to Bloomberg.

We called Jenner partner and former Enron task force director Andrew Weissmann, whose name appears on the docket for STMicro, to ask about the firm's willingness to take on Credit Suisse. Weissmann, who is working with Matthew Alsdorf on the case, wouldn't discuss Jenner's internal deliberations, but he assured us that the firm didn't have a conflict and intends to pursue STMicro's case "vigorously."

MERGERS AND ACQUISITIONS
Bear Stearns Hearing Set for Monday
After reading the August Vanity Fair piece and the recent Fortune article about the fall of Bear Stearns, we got to thinking: What happened to all the litigation that sprang from the dust of the investment bank's collapse? So we checked in with JPMorgan's lawyer, Marc Wolinsky of Wachtell, Lipton, Rosen & Katz. He told us about an upcoming hearing in New York state court, where Bear Stearns investors sued JPMorgan Chase, Bear Stearns, and several Bear directors and officers. The investors allege, among other things, that the Bear defendants breached their fiduciary duty to shareholders when they agreed to the merger with JPMorgan, and that Morgan aided and abetted the alleged breaches. On Monday, Wolinsky will argue the defendants' summary judgment motion before Judge Marcy Kahn. His opponent will be Daniel Krasner of Wolf Haldenstein Adler Freeman & Herz.

Bear Stearns is also still fending off securities class actions that claim the investment bank misled shareholders about its financial condition before it fell into the arms of JPMorgan. Those cases are being consolidated before Manhattan federal district court judge Robert Sweet. The extremely hard-working Brad Karp of Paul, Weiss is defending Bear, along with his partner Eric Goldstein. The lead plaintiff has not been named but all signs are pointing to the State of Michigan Retirement Systems, which is represented by Labaton Sucharow and Berman DeValerio Pease Tabacco Burt & Pucillo.

ARBITRATION
Blank Rome Wins $7.5 Million for Westinghouse Lighting
Oh, the metaphorical opportunities presented by Blank Rome's win for Westinghouse Lighting! On Wednesday, after a six-day arbitration, retired federal appellate judge Arlin Adams awarded Westinghouse $7.5 million in damages from PolyBrite International, which failed to pay royalties for its use of the Westinghouse name. Now, let's see: Did Blank Rome light up PolyBrite? Turn out the lights on its opponent? Dim PolyBrite's prospects? Regardless of the bad puns, we want to highlight the winning lawyers from Blank Rome: Dan Rhynhart, Alan Hoffman, Stephen Gross, and Jaret Gronczewski. (Highlight--get it?)

The dispute stems from a 2003 agreement authorizing PolyBrite to sell light bulbs under the Westinghouse brand name. PolyBrite was supposed to pay Westinghouse royalties over a five-year period but never paid a cent. According to Blank Rome's Rhynhart, PolyBrite tried to argue that Westinghouse Lighting did not have the right to license the name. But Judge Adams seems to have considered that defense a shot in the dark. (Okay, we promise we'll stop!) We called one of PolyBrite's lawyers, Chuck Bretz of Chuck Bretz & Associates, but he was not immediately available for comment.

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