The Work

August 11, 2008 9:30 AM

The Am Law Litigation Daily - August 11, 2008

Posted by Ed Shanahan

Edited by Andrew Longstreth

National Law Journal: Is Cy Pres A Plaintiffs Bar Boondoggle?

Trial lawyers have an amazing knack for making themselves look bad. It's true that their public relations problems--bad enough that their lobbying group had to get rid of the "Trial Lawyers" part of its name--are mostly due to the decades-long efforts of tort reformers. But trial lawyers don't do themselves any favors with performances like John Edwards' on ABC's Nightline Friday night. The favorite son of the plaintiffs bar admitted to an extramarital affair, taking pains to clarify that it took place when his wife's cancer was in remission. Yikes. At the same time, Fred Baron, the famous Texas asbestos lawyer who quit Baron & Budd to work for Edwards' campaign, said he paid Edwards' mistress, Rielle Hunter, to move with her baby out of North Carolina and into a $3 million home in Santa Barbara. Baron also paid for the supposed father of Hunter's child, a former Edwards campaign worker, to move out of the state with his (other) family. It ain't pretty, folks.

We had this unfortunate business in mind when we saw the National Law Journal's front-page story about cy pres awards (subscription required). There've been rumblings about these awards--charitable donations that come from unclaimed funds in major class action settlements--for years, but NLJ reports that those criticisms have lately grown to roars. Even when trial lawyers try to give money to charity, it seems, they look bad.

Critics argue that cy pres awards simply line the pockets of plaintiffs' lawyers, because they're included in the class settlement figure that's the basis of fee calculations. So even when a high percentage of class members doesn't make claims, cy press helps plaintiffs lawyers reap rewards. "If you want to have cy pres, have cy pres," AEI Legal Center resident fellow Ted Frank (who is no friend of the plaintiffs bar) told The National Law Journal. "But attorney fees shouldn't be based on it. Those should be based on what you won for the putative class."

Critics of cy pres---a fancy French term meaning "near as possible"--also argue that the beneficiaries often have no connection to the underlying litigation. But plaintiffs attorney Michael Hausfeld, name partner at Cohen, Milstein, Hausfeld & Toll, calls that argument "sour grapes." Hausfeld negotiated a $5.1 million cy pres award to George Washington University Law School, his alma mater, in an antitrust case against makers of specialty chemicals. The defendants objected to the deal but the judge in the case found the award to be appropriate, in part because it would fund the law school's Center for Competition Law. "No cy pres award is going to be an exact substitute for overcharging to victims," Hausfeld told the NLJ. "And the court felt that the concept that George Washington University was going to address in its new center was precisely one that focused on that issue."

Foreign Plaintiffs Lead $303 Million Class Action Settlement With GM, Deloitte

Once upon a time, defendants in securities class actions saw only major U.S.-based institutional investors on the other side. Now they are litigating with increasing frequency against investors with foreign accents. In the $303 million securities class action settlement that General Motors and Deloitte & Touche agreed to last week for alleged accounting manipulations, two affiliates of a leading German money manager called DekaBank served as co-lead plaintiffs. (This trend parallels efforts by plaintiffs lawyers to include foreign investors in U.S. class actions against foreign defendants, which explains why Patrick Daniels of Coughlin Stoia Geller Rudman & Robbins was in Paris recently.)

Deka's lawyers were from Labaton Sucharow and Grant & Eisenhofer. Lawyers from both firms say they hope this case, which was litigated in under three years--speedy by securities class action standards--bolsters the credibility of foreign investors as lead plaintiffs. "This case has broader international implications and confirms the importance of allowing international investors access to U.S. courts when they've been harmed by securities fraud," Labaton partner Eric Belfi told the Am Law Daily.

We suspect that Kirkland & Ellis partner Robert Kopecky, who represented GM, and Linton Childs of Sidley Austin, who represented Deloitte, are less sanguine about the development, but Kopecky declined to comment and Childs was unavailable.

Susman Godfrey Joins the Fray; Skadden Wins for Biogen

The Litigation Daily has a confession. A year ago we were part of the throng that believed securities class actions were on the wane. Okay, so we were a little short-sighted. Our bad. As an echo chamber of recent research reports keeps telling us, the securities class action business is in fact booming, courtesy of the subprime meltdown and credit crisis. Even Houston's Susman Godfrey, not well known for its work in the area, got into the act last week, filing a complaint in Central District of California against IndyMac CEO Michael Perry and former CFO Scott Keys.

But it's a long way from filing to settlement, and most plaintiffs still have to survive a motion to dismiss before they get defendants to cough anything up. Over the last few years, U.S. courts (including the highest one) have tightened pleading standards, generally making life harder on plaintiffs. Such was the case for Vincent Cappucci of Entwistle & Cappucci, who lost a First Circuit argument last week in a securities class action against Biogen, the pharmaceutical company. The appeals court affirmed a federal district court judge's dismissal of a suit against Biogen and its officers. The plaintiffs had alleged that Biogen made false and misleading statements about its Tysabri drug, which the company pulled from the market after an ongoing clinical trial revealed that two patients had contracted an infection that may have been caused by the drug. The appellate court agreed with the lower court that the plaintiffs had failed to state a strong inference of scienter against the defendants. Biogen and five of its officers were represented by James Carroll of Skadden, Arps, Slate, Meagher & Flom at the First Circuit. Joining him were Skadden lawyers Matthew Matule and Michael Hines. Greenberg Traurig attorneys Mark Berthiaume and Timothy Maguire represented Biogen's former general counsel.

Native Americans Awarded $455 Million in Land Trust Case

When we read last week that a Washington, D.C., federal district court judge had awarded Native Americans suing the federal government in an historic land trust case $455 million, we wondered whether they were among the 61 percent of plaintiffs who would have been better off settling rather than going to trial, according to a recent study described in The New York Times.

Don't get us wrong--$455 million is not chump change. But the Native Americans, represented by Kilpatrick Stockton, were seeking roughly $47 billion. The class action, filed in 1996 and led by Blackfeet tribe member Elouise Cobell, charged that the government mismanaged a trust fund created more than a decade ago to collect and disperse income derived from Indian lands. According to Legal Times, the plaintiffs in all Indian land trust cases--which include cases on behalf of tribes--previously rejected a $7 billion settlement offer from the government.

We wondered how much of the rejected $7 billion would have gone to the Cobell plaintiffs, so we called Kilpatrick partner Keith Harper, who has been litigating the case since day one. He told us there was no specific offer on the table for his clients, so it's impossible to predict what would have happened had the settlement been accepted. He also said that in addition to paying claims to individuals and tribes, the $7 billion would have paid for a variety of other remedies, like fixing the broken trust system.

Cold Case: Boies, Schiller Angles for Lead Counsel in Antitrust Action Against Packaged Ice Players

Back in March, when news broke that the feds were investigating two leading suppliers of packaged ice for antitrust violations, plaintiffs lawyers attacked with their characteristic zeal, filing dozens of suits. It promised to be a big case. Packaged ice, believe it or not, is a $1.8 billion industry.

Boies, Schiller & Flexner was late to the game. Its attorneys--led by Richard Drubel, Jr., and Philip Iovieno--didn't file their complaint until July 11. But in the quest to become lead counsel, it's not who files first that matters. Boies, Schiller's ace in the hole is Martin McNulty, a government informant who used to be an executive in the industry. (McNulty was the subject of a Wall Street Journal article last week.) Drubel and Iovieno told the Litigation Daily that no other plaintiffs complaint includes information from McNulty, whom they discovered in the course of their investigation. (Both declined to offer more specifics on how they found the informant.) Drubel also holds the experience card. In 2001 he and David Boies secured a $512 million settlement in an antitrust suit against Sotheby's and Christie's.

The packaged ice cases are being consolidated in the Eastern District of Michigan before Judge Paul Borman, who has yet to ask for lead counsel motions. We'll keep an eye on this one.

Venable Helps Free Innocent Man Who Spent 18 Years in Prison

Litigation can be a pretty cynical business, so whenever we can, we like to offer up stories that affirm our belief in the legal profession's power to achieve justice. Today we have the tale, via Legal Times, of Aaron Michael Howard. Last week Howard walked out of prison, where he'd spent the last 18 years. Howard was convicted--wrongfully, as it would turn out--for his role in the fatal shooting of Bobby Parker in Southeast Washington on February 8, 1988. He was sentenced to 21 years to life. It's worth repeating: 21 years to life.

To prove his innocence, Howard's court-appointed attorney, Washington, D.C.'s Zack Rosenburg, enlisted the support of the Mid-Atlantic Innocence Project, which brought in Seth Rosenthal and Moxila Upadhyaya of Venable. The trio re-investigated Parker's murder and uncovered evidence to support Howard's claim of innocence, including sworn statements from Howard's three co-defendants affirming that Howard was not involved.

But perhaps more inspiring than the work of Howard's attorneys was the act of bravery of assistant U.S. Attorney Tony Quinn: On July 30 he withdrew from the case, saying he believed in Howard's innocence.

"What is remarkable about this case is the courage shown by the lead ASUA and the cold case detective," said Venable's Rosenthal in a statement. "After carefully reviewing all of the evidence, both men concluded that Mike was innocent, and they held true to their convictions. Their recognition that an injustice had been done helped bring justice about."

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