The Work

September 30, 2008 10:00 AM

The Am Law Litigation Daily: September 30, 2008

Posted by Joe Phalon

Edited by Andrew Longstreth

Who Loses in Wachovia's Sale to Citi?

In the last couple of weeks Wall Street law firms have had to adjust to a new reality: waking up and not knowing if their clients will make it through the day. The latest mighty bank to fall, as of this posting, was Wachovia, which yesterday announced it would sell its retail bank, corporate and investment bank, and wealth management businesses to Citigroup.

That brings us to what has become an all-too-regular question here at the Litigation Daily: Who's going to lose work? Or, at least, who might?

The Am Law Daily's David Bario scoured public records and found that almost 40 Am Law 100 firms have represented Wachovia on five or more matters since 2003. Among the most active of the bank's outside counsel were Seyfarth Shaw; Reed Smith; Troutman Sanders; Morgan, Lewis & Bockius; McGuireWoods; Hunton & Williams; Simpson Thacher & Bartlett; and DLA Piper. (We previously reported on firms that stand to lose Merrill and Lehman work and firms that once counted Washington Mutual as a big litigation client. Simpson Thacher, it's worth noting, is on all three lists.)

Citigroup acquired Wachovia's retail bank, but not the holding company and not Wachovia Securities, the broker-dealer, so some legal assignments may go unchanged. Another wild card is the fate of Jane Sherburne, who became Wachovia's general counsel in June after serving as litigation chief at none other than Citigroup. Sherburne, a former top lawyer in the Clinton administration, gained a reputation as someone who thrives as crisis manager, which is what partly attracted her to the job at Wachovia. "I realized that I was moving into a situation that was very fluid," Sherburne told Corporate Counsel over the summer, adding that Wachovia "is on the cusp of a new phase that will present interesting and challenging legal issues." Will Sherburne rejoin her old friends (and fellow Wilmer expats) at Citi? Stay tuned.

One firm that will be especially interested in Sherburne's next career move is Paul, Weiss, Rifkind, Wharton & Garrison. It's no secret that she was a big fan of Paul Weiss when she was at Citi, and had already begun to use the firm at Wachovia. Of course, Paul Weiss already is in the catbird seat, handling the lion's share of litigation for one of the few megabanks that, at least today, seems stable.

Boies Schiller's $230 Million Man

Maurice "Hank" Greenberg and his associates have spent $230 million on legal fees over the last few years, according to an excellent profile of the former American International group CEO and his many litigation problems in the current issue of Fortune. The magazine doesn't say just how much of that $230 million has gone to Greenberg's lawyers at Boies, Schiller & Flexner, but we assume it's a lot. (Indeed, between Greenberg's fees and the contingency fee windfall on the $1.8 billion antitrust settlement that Boies negotiated for Amex in June, we can say with a high degree of certainty that this is going to be a very happy holiday season for the children of Boies partners.)

The story claims that there was disagreement between Greenberg's civil lawyers at Boies, Schiller and his criminal attorney, Robert Morvillo, over whether Greenberg should testify in the civil fraud suit against him former New York AG Eliot Spitzer initiated. While David Boies and his partner Nicholas Gravante, Jr., encouraged Greenberg to testify, Morvillo of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer thought that a deposition in the civil case would expose him to criminal charges. The Boies team prevailed and Greenberg agreed to be deposed.

On the eve of that deposition, the AG's office and Greenberg's lawyers were close to a settlement, according to Fortune. Greenberg was even willing to throw in up to $100 million to to "subsidize home heating for the poor." What he wasn't willing to do was admit wrongdoing and pay a fine. The state lawyers said no deal and thus the case continues. Yesterday, Greenberg was scheduled to give his third deposition in the civil fraud suit.

Spitzer, meanwhile, told a reporter from The New York Times that AIG's bailout proves he was right about Greenberg's company when he went after the insurance giant in 2005. When the NYT's Danny Hakim approached the man now best known as Client Number Nine (but once called the Sheriff of Wall Street) in front of his Fifth Avenue home, Spitzer defended his aggressive pursuit of AIG with characteristic humility. "I've committed my sins and I've paid for them," he said. "But I was right."

Williams & Connolly Files for Mistrial in Stevens Case
The government's case against U.S. Senator Ted Stevens of Alaska has been moving faster than a speeding snowmobile. The nation's longest-serving Republican Senator was indicted in July for public corruption, facing charges that he failed to report more than $250,000 in gifts. Stevens told the presiding judge, Emmet Sullivan of Washington, D.C., federal district court, that he wanted to be tried before he stood for re-election in November. Sullivan obliged, and, amazingly, less than two months after Stevens was indicted, a jury has been seated and both sides have given their opening statements.

But has the prosecution hit an ice patch? Over the weekend, Stevens's Williams & Connolly lawyer filed a motion asking for a mistrial or a dismissal. The motion, which you can read here, claims that an employee responsible for overseeing the renovation of Stevens's home--which is at the center of the government's allegations--gave Williams & Connolly lawyers information that undercuts the prosecution. Williams & Connolly also informed Washington, D.C., federal district court judge Emmet Sullivan yesterday that prosecutors allowed the employee to fly back to Alaska the day the trial began.

Judge Sullivan appeared troubled by the revelations. "There may be an inference," he said, "[that] the government chose not to call him to testify because the government finally realized that his testimony would not be helpful," Sullivan said, according to Bloomberg. The judge said that prosecutors should be ready to explain "under penalty of perjury" why the employee was allowed to leave Washington without the court's approval. Prosecutor Nicholas Marsh said in court that he believed the government had disclosed all that was required.

If you can't get enough of all things Stevens, check out a profile in this week's Legal Times of lead defense counsel Brendan Sullivan, Jr., of Williams & Connolly and prosecutor Brenda Morris. According to Legal Times, they're a pair of very passionate lawyers--albeit with very different styles.

Delaware Judge Rules Against Loral Noteholders
Vice Chancellor Leo Strine of the Delaware Court of Chancery has issued his opinion in the sprawling case known as In re Loral Space and Communications Inc. Consolidated Litigation. (Even the name is sprawling!) It's a complicated matter involving two shareholder cases and one bondholder case. We're most interested in the bondholder suit, in which a group of hedge funds holding Loral notes sued the company after it announced it would redeem the notes. The noteholders claimed that Loral had illegally paid off a major investor in return for its consent to redeem the bonds.

For the redemption plan to pass under the indenture governing the bonds, Loral had to obtain the agreement of more than a third of the bondholders. The hedge funds claimed that to buy the consent of a large bondholder, MHR Fund, which held over 45 percent of the notes, Loral offered extra consideration in a convertible preferred stock issuance.

Vice Chancellor Strine assumed the facts alleged by the hedge funds were true and asked the question: Was Loral legally permitted to give extra consideration to MHR? Using New York law, which governed the indenture provisions, he decided that it was. Loral lead defense counsel, Francis Menton, Jr., of Willkie, Farr & Gallagher, says there has been a dearth of cases addressing the question of whether payment to bondholders for redemption consent is permissible. This ruling, he told us, "fills an important gap in the case law." Brian Hail of Goodwin Procter, who represented the hedge funds, declined to comment.

Cephalon Agrees to Pay $425 Million to Settle Off-Label Marketing Case
The Department of Justice announced yesterday that biopharmaceutical company Cephalon will pay $425 million to resolve allegations that it marketed three drugs for uses that were not approved by the Food and Drug Administration. In regulatory-speak, that's known as "off-label" marketing.

As part of its deal with the feds, Cephalon will plead guilty to one misdemeanor violation of the Food, Drug, and Cosmetic Act and will pay a $50 million fine. On top of that, the company will pay $375 million (plus $12 million in interest) to settle False Claims Act suits brought by former Cephalon employees who alleged that the company's off-label marketing defrauded Medicaid, Medicare and other federal programs. The agreement, filed in the Eastern District of Pennsylvania, can be found here.

Approximately $46 million will be distributed among the plaintiffs who brought the qui tam actions. They were represented by Brian Kenney of Kenny, Lennon & Egan; David Stone of Boies Schiller & Flexner; Kirk Chapman of Milberg; Peter Chatfield of Phillips & Cohen; and Frederic Ellis of Ellis & Rapacki.

In the deals announced yesterday, Cephalon was represented by J. Sedwick Sollers and Mark Jensen of King & Spalding and Eric Sitarchuk of Morgan, Lewis & Bockius.

Make a comment

Comments (0)
Save & Share: Facebook | Del.ic.ious | | Email |

Reprints & Permissions


Report offensive comments to The Am Law Daily.

The comments to this entry are closed.

By: TwitterButtons.com

From the Newswire

Sign up to receive Legal Blog Watch by email
View a Sample