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September 8, 2008 11:55 AM

THE AM LAW LITIGATION DAILY: SEPTEMBER 8, 2008

Posted by Ed Shanahan

             
TOP STORY September 8, 2008

WHITE-COLLAR
Texas Federal Judge Denies Sexual Abuse Charges
These days, stories of indicted lawyers have become a bit ho-hum. But tales of indicted federal judges--those are still rare indeed. No federal judge, in fact, had ever been indicted for federal sex crimes until this August, when Samuel Kent of Houston was charged with abusive sexual contact and attempted aggravated sexual abuse of his former case manager. The Texas Lawyer reports in this week's edition that Judge Kent is going on the attack to defend himself against the charges.

For those new to the story, the federal probe began last November following complaints by Cathy McBroom that during the six years they worked together the judge repeatedly made vulgar suggestions to her and twice made unwanted physical contact. McBroom filed a complaint with the Fifth Circuit Judicial Council, which reprimanded Kent and suspended him for four months. But McBroom and her attorney, Texas trial lawyer Rusty Hardin, considered that punishment inadequate and asked the Justice Department to investigate Kent's behavior. (The National Law Journal has an interesting article on the question of whether the review conducted by Kent's colleagues was sufficient.) The resulting indictment asserts that Kent treated McBroom "with an intent to abuse, humiliate, harass (and) degrade."

At his arraignment on September 3 in the same Houston courthouse where he works, Kent pleaded "absolutely, unequivocally not guilty." According to the Texas Lawyer, the judge took every opportunity to talk. "I absolutely intend to testify, and we're going to to bring a horde of witnesses," Kent said at the hearing. With the George H.W. Bush appointee represented by celebrated Texas defense lawyer Dick DeGuerin--whose client list includes Tom DeLay, David Koresh, and a real estate heir accused of killing and dismembering his neighbor--the Kent case promises to be quite a spectacle before it's over.


SECURITIES
New York Judge Approves Reduced Class In Alstom Litigation
While watching the Republican National Convention last week, we heard the slogan "Country First" more than a few times. That got us thinking: If plaintiffs lawyers had a political convention, what would their slogan be? Securities class action specialists might go with something like, "Shareholders First-No Matter Their Country." Consider the case against Alstom, the French transportation manufacturer. The trio of plaintiffs firms leading the case--Bernstein Litowitz, Grant & Eisenhofer, and Coughlin Stoia--sought to represent a class of American, Canadian, English, Dutch, and French shareholders. It was an interesting attempt at internationalism, but in an August 27 order, Manhattan federal district court judge Victor Marrero excluded the European shareholders from participating in the class action against Alstom. He also reduced the shareholder class against Alstom executives and subsidiaries.

Hughes Hubbard and Reed partner Kevin Abikoff, who represents Alstom, called the ruling "an enormous victory" for his client. He told us that part of the plaintiffs' case had already been thrown out on a subject-matter jurisdiction motion. "Alstom's exposure has been reduced substantially," Abikoff said.

Alstom isn't the only French company that's saying c'est magnifique about Judge Marrero's ruling. In a shareholder class action against Vivendi, Manhattan federal district court judge Richard Holwell last year certified a class of shareholders from France, England, and the Netherlands. Weil, Gotshal & Manges partner James Quinn, who is representing Vivendi (along with Cravath, Swaine & Moore partner Paul Saunders), told us that he believes Judge Marrero's reasoning is in line with arguments Vivendi made a few months ago in a motion asking Judge Holwell to reconsider his class certification ruling. "We're hopeful," Quinn told us.


SECURITIES
Plaintiffs Pass Early Test In Subprime Litigation
If the subprime litigation were a baseball game, we'd still be in the first inning. Dozens of suits have sprung from the wreckage of the housing crisis, but few courts have yet ruled on motions to dismiss. Plaintiffs, in other words, are still in the batter's box trying to get to first base. But that should start to change in the next few months. D&O Diary pointed us to one of the first subprime decisions, involving a case against home builder Toll Brothers and nine directors and officers. In an August 29 ruling, Philadelphia federal district court judge James Giles denied the defendants' motion to dismiss.

Shareholders in the case, represented by Coughlin Stoia and Berger & Montague, allege that the defendants made misleading statements about the company's ability to live up to its financial projections. Even as troubling signs began to emerge in the housing sector, Toll Brothers continued to assure investors that it would meet its numbers. Meanwhile, plaintiffs allege, company insiders were selling stock at an artificially inflated price.

As D&O blogger Kevin LaCroix points out, Judge Giles was economical in his decision--it's only 13 pages--so it's hard to parse his reasoning. But the lesson should be clear to defendants, according to LaCroix. He writes that the Toll Brothers case is a "a reminder that even with the substantial arguments that defendants can make in reliance on Tellabs and Dura Pharmaceuticals, some cases will nevertheless survive the motion to dismiss." Plaintiffs, in other words, can begin to believe they won't be no-hit in the subprime litigation.

Toll Brothers, we're told by plaintiffs counsel, is represented by Dechert's Robert Heim.


RICO

New York Judge Certifies Narrow Zyprexa Class
Eli Lilly has suffered a crazy amount of litigation in connection to its anti-psychotic blockbuster Zyprexa. In 2006, The New York Times reported that Lilly officers failed to disclose or misrepresented concerns about the drug's side effects, which include obesity and diabetes. The revelations spawned thousands of personal injury claims, securities class actions, and criminal charges brought by state attorney generals.

The latest development in the Zyprexa litigation is a ruling from Brooklyn federal district court judge Jack Weinstein in a fraud case. Purchasers of Zyprexa claimed that Lilly committed fraud when it overpriced the drug and misrepresented its benefits and drawbacks. In what The New York Law Journal calls a partial win for both sides, Judge Weinstein certified a class of third-party purchasers, but declined to approve a class of individual purchasers. The third-party plaintiffs can now pursue their Racketeering Influenced and Corrupt Organizations Act claims.

The judge also unsealed 350 documents that formed the basis of the Times's story, which the newspaper's reporter had obtained from a lawyer involved in a related Zyprexa case. "Based on this country's long-standing tradition of open access to the courts and court records, the enormous number of people who have taken or will take Zyprexa . . . and the age of the documents, the motions to unseal are granted," Weinstein wrote.


SPORTS
CBS Interactive Lines Up Against NFL Players Association
Now that the NFL season is in full swing, we're happy to bring you a litigation tale from the gridiron world. But we warn you that it may not endear you to your favorite highly paid athlete. The story involves the use of stats for fantasy football. Last week, CBS Interactive filed a complaint in Minnesota federal district court seeking a declaration that it does not owe the NFL Players Association for use of publicly available statistics. That's right: The players are asserting that the numbers on tackles, TDs, field goals, and the like belong to them. In the complaint, which was signed by Dorsey & Whitney partner Michael Lindsay, CBS Interactive says that the players association has threatened litigation if it's not paid licensing fees for use of the statistics. The complaint also states that the the players association "has gone so far as to say that if CBS Interactive takes any action to challenge its right to the licensing fees, it will never grant CBSSports.com rights necessary to operate fantasy games and will therefore put CBSSports.com out of the fantasy football business." (Sounds like these folks could use some help from Marc Edelman over at SportsJudge.com.)

We left a message with the NFLPA to learn who has been doing the alleged saber rattling, but our call was not returned.

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