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October 14, 2008 9:28 AM

The Am Law Litigation Daily: Oct. 14, 2008

Posted by Joe Phalon

Edited by Andrew Longstreth

FIRMS
Fulbright & Jaworski Study: In-House Counsel Brace for More Litigation

In tough economic times, law firms have always counted on countercyclical practices like bankruptcy and litigation to pull them through. We've heard endless talk about an increase in litigation activity this year, but will it be enough to offset what's expected to be a dramatic downturn in corporate work? If you don't work at one of the handful of firms hired by the government and the financial institutions trying to avert disaster, you are likely hoping--nay, praying--for a monster year in litigation.

A study of litigation trends released today by Fulbright & Jaworski gives reason for cautious optimism. Fulbright surveyed 358 lawyers working in-house at corporations; 251 of them in the U.S. The in-house lawyers reported that for the first six months of this year, new case filings dropped--but few believe that decline will last. Only 8 percent of the lawyers at U.S. corporations predicted a drop in legal disputes involving their company into 2009. Among the in-house counsel with companies of more than $1 billion in revenue, only 3 percent foresaw a drop in litigation next year, while 43 percent predicted a jump in activity.

Yesterday we spoke with Stephen Dillard, chair of the litigation department at Fulbright. He told us that the survey respondents are usually accurate forecasters. Following the Class Action Reform Act and the passage of tort reform laws in a number of states, for example, the Fulbright survey correctly predicted a drop-off in class actions. So this year's responses should be good news for lawyers specializing in the Foreign Corrupt Practices Act and wage-and-hour class actions--both of which, according to survey respondents, are going to boom. Internal investigations into options backdating, on the other hand, are predicted to tail off.

Among the survey's other key findings, according to Dillard, was persistent unhappiness with the cost of e-discovery. "The federal rules were recently amended to liberate the rules of e-discovery and it was touted as a cost control measure," said Dillard. "Over time, it's been the opposite."

We asked Dillard if anything in this year's survey suggested that clients would exert more pressure to control legal fees. "The corporate community is always concerned about the cost of legal services and I suspect when times are tough, there'll be more scrutiny of that cost," Dillard told us. "But it's also true that the cost of legal services is several pegs down on the list of what's most important to the client, and I think that's true this year and will be true even in a very difficult economic environment." What clients want, Dillard said, are results and responsiveness. And that's not going to change, no matter the economic circumstances.

IP
Does a Fifth Circuit Decision Spell Doom for the Rocket Docket of East Texas?

In March, The American Lawyer's Nate Raymond detailed how the IP defense bar was learning to tame the plaintiffs-friendly federal court in Marshall, Texas. But yesterday a highly-anticipated ruling from the Fifth Circuit may have given the defense bar a way to avoid the Eastern District of Texas altogether.

For years, the East Texas rocket docket was like a spider web for IP defendants: Once they were sued in Marshall, where juries seemed to love nothing more than sticking it to big corporations, there was no escape. But according to Raymond, writing at the Am Law Daily, a Fifth Circuit decision issued on Friday could change that. The case involves a 7-year-old girl who died on a Dallas freeway while in her grandparents' Volkswagen Golf. Volkswagen, which had been sued for alleged design defects that caused the girl's death, has been fighting to have the case removed from Marshall.

Federal district court judge T. John Ward, who is credited with instituting the rule changes that made Marshall a haven for patent plaintiffs, denied Volkswagen's motion. In reversing him, the Fifth Circuit, sitting en banc, ruled 10-7 in favor of Volkswagen--and lobbed some harsh words at Judge Ward.

"Concluding that the district court gave undue weight to the plaintiffs' choice of venue, ignored our precedents, misapplied the law, and misapprehended the relevant facts, we hold that the district court reached a patently erroneous result and clearly abused its discretion in denying the transfer," Fifth Circuit judge E. Grady Jolly wrote in the majority opinion.

Morrison & Foerster partner James Pooley, who heads the American Intellectual Property Law Institute, which filed an amicus brief in the case in March, told Raymond that the Fifth Circuit opinion could have broad implications. "This may make it easier for defendants who are sued in the Eastern District of Texas to transfer to another district that may have a better connection to parties and the disputes," Pooley said.

M&A
Judge Kaplan to Wachovia, Citigroup Lawyers: You Guys Are Great!

Manhattan federal district court judge Lewis Kaplan is not known for being especially warm and cuddly. (Just ask the KPMG prosecutors.) Lawyers routinely describe him as a scary-smart intellectual who doesn't suffer fools.

So we were struck by his comments to lawyers for Wachovia and Citigroup on a conference call last Friday. The lawyers were discussing the implications of Citigroup's decision to withdraw from the bidding for Wachovia. Making appearances for Citigroup were Gregory Joseph of the Gregory P. Joseph Law Offices and his colleagues Sandra Lipsman and Jeffrey Zaiger; Wilmer Cutler Pickering Hale and Dorr attorneys Paul Engelmayer, Seth Waxman, and Charles Platt; and Citigroup in-house counsel P.J. Mode. Wachovia was represented by David Boies and George Frampton of Boies, Schiller & Flexner and Wachovia general counsel Jane Sherburne and deputy general counsel Douglas Edwards.

At the end of the call, Judge Kaplan closed with an impressive compliment to the lawyers before him. "Let me also make clear my appreciation and admiration for all the lawyers in the case," said Kaplan. "I know the pressure you're under. I read all your papers. You've done a wonderful job, and I'm enormously appreciative." (You can read the complete transcript of the teleconference here.)

WHITE-COLLAR
Will Defense Attorney Billy Martin Testify in Stevens Trial?

We have a strategy for covering the high-profile corruption trial of Alaska Senator Ted Stevens. It's to focus on the witnesses ignored by the many other news outlets writing about the case. So yesterday we told you about the star turns by Alaskan celebrities David Monson, an Iditarod musher, and Hobo Jim, the folk musician.

And today, instead of speculating about the testimony of Senator Orrin Hatch, who's expected to appear as a character witness for Stevens, we're more interested in keeping tabs on whether Billy Martin takes the stand. In the white-collar defense world, Martin--the Sutherland Asbill & Brennan partner who recently defended ex-Atlanta Falcons quarterback Michael Vick in the dog-fighting case--is an A-lister. (We're not sure if he has quite the stature of Hobo Jim, but then few do.)

Yesterday, Legal Times reported that Stevens's defense team at Williams & Connolly wants Martin to testify about a statement the Alaska senator made on a recorded phone call to Bill Allen, head of the now-defunct oil-service company VECO. Stevens was discussing Martha Stewart's conviction. "She didn't go to jail because she did something wrong," he said. "She was sent to jail because she lied about a conversation she had with somebody." Later in the call, Stevens added, "We should not try to look like we're gonna try to keep things from the world. . . . So I think we ought to just sweat out this grand jury and see what's happening."

You're probably wondering what Martin had to do with the conversation. The answer is: nothing. He doesn't represent Allen and has no special knowledge of the phone conversation. In fact, in a brief filed on Sunday objecting to Martin's proposed testimony, the government called him a "complete stranger" to the Stevens case.

W&C partner Brendan Sullivan argues that Martin will provide legal opinions about the telephone conversation. W&C also wants Martin to offer his interpretation of a stock deal in which Allen will receive $70 million for the sale of VECO--provided he continues to cooperate in the government's case against Stevens. No dice, says the government. Martin, prosecutors argue, is a "well-respected" criminal defense attorney, but he has "no experience, let alone expertise, in corporate, transactional matters."

We'll let you know if Washington, D.C., federal district court judge Emmet Sullivan permits Martin's testimony.

REGULATORY
SEC Issues First-Ever Enforcement Manual

Step right up and get your free copy of the SEC's Enforcement Manual here! That's right, folks. For the first time in its history, the SEC has codified its procedures in writing. The mysterious Wells Notice? Waiver of privilege? Termination notices? Now they're explained, in all their client-frightening complexity, in the manual.

For some background on the document, we called John Sturc, a partner at Gibson, Dunn & Crutcher who spent six years in the 1980s as the Associate Director of the SEC's Enforcement Division. Sturc told us he was heartened that the process of opening a case has been formalized, which ensures a degree of review that hadn't existed before. He also said--sounding like a defense lawyer--that the guidelines provide a path to closing cases, which is a break from the past.

"Once the cases were opened, it was hard to get 'em closed," said Sturc. "There wasn't any upside [for the SEC] in closing a case. This forces a review and a closure process of cases that are stale. I think that's very significant."

Even though little in the manual is mandatory, Sturc told us, the guidelines should help defense attorneys protect their clients from whimsical decision-making. "The advantage is that it creates a high degree of uniformity that hadn't existed," Sturc said. "Before, the process could be idiosyncratic depending on which office you dealt with or which supervisors you dealt with. That worked okay when the agency was a lot smaller. But as it has gotten bigger it has become more unwieldy. So what the guidelines permit people to argue is, 'This is the standard that should apply to me or to my client. And if there is to be a deviation form the standard, there ought to be a reason for it.'"

COMMODITIES
New York Judge Dismisses Complaint against JPMorgan in Amaranth Case

There are defendants aplenty in the case known as In Re Amaranth Natural Gas Commodities Litigation. The plaintiffs allege that a family of companies operating under the Amaranth name--as well as Amaranth brokers, its clearing house, and certain of its employees--manipulated natural gas futures contracts. In a recent ruling, Manhattan federal district court judge Shira Scheindlin kept most of them in the case, but dismissed one very important defendant: JPMorgan Chase, which served as Amaranth's clearing broker.

That's bad news for the plaintiffs. As you'll recall, Amaranth made history in 2006 when it became the biggest hedge fund to collapse, and it's unclear what, if any, assets the busted fund could come up with to pay a judgment against it. Some of the individuals named in the suit, like former Amaranth trader Brian Hunter and former Amaranth CEO Nicholas Maounis, are believed to be wealthy, but they don't have have a balance sheet like JPMorgan's. Not surprisingly, Vincent Briganti of Lowey Dannenberg Cohen & Hart, one of the attorneys who represents the plaintiffs, said he plans to take Judge Scheindlin's advice to re-plead the case against JPMorgan.

A team from Paul, Weiss, Rifkind, Wharton & Garrison--Daniel Toal, Eric Goldstein, Marguerite Dougherty, Mark Pomerantz, and Jason Wilson--represents JPMorgan in the case. The firm is also defending Morgan in a New York state court suit in which Amaranth, represented by Bartlit Beck Herman Palenchar & Scott, alleges that Morgan was responsible for some of its losses. A motion to dismiss the case is pending.

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