November 18, 2008 9:00 AM

The Am Law Litigation Daily: November 18, 2008

Posted by Ed Shanahan

Edited by Andrew Longstreth and Alison Frankel

SECURITIES
Plaintiffs in AIG Class Action Seek to Disqualify Judge
A hotly contested battle for lead plaintiff (and lead counsel) has been playing out since July in the securities class action against American International Group. But that drama has taken a backseat to a motion made public last week by two competing lead plaintiff candidates and their counsel. Both plaintiffs are seeking to disqualify Manhattan federal district court judge Loretta Preska--whose husband, a litigator at Cahill, Gordon & Reindel, represents AIG.

The AIG plaintiffs claim in the underlying litigation that they are owed billions of dollars in damages because AIG misled investors about its portfolio of credit-default swaps. The four cases initially filed against AIG were assigned to Manhattan federal district court judge Richard Sullivan, but AIG's attorneys at Weil, Gotshal & Manges requested a transfer to Judge Preska, who was already handling an AIG derivative action. Judge Preska filed a notice that appeared on the docket before Judge Sullivan, disclosing that her husband, Cahill partner Thomas Kavaler, works on matters for AIG. Nevertheless, Sullivan granted Weil's motion and transferred the shareholder class action to Preska.

The funds fighting to be named lead plaintiff--and their lawyers at Bernstein Litowitz Berger & Grossmann and Bernstein, Liebhard & Lifshitz--put aside their differences for long enough to file a joint motion to disqualify Judge Preska, which draws upon public information and a declaration provided by Cahill partner Edward Krugman. The plaintiffs lawyers argue that the judge's interests are indirectly tied to the fate of AIG. They point out that Kavaler, who is a member of Cahill's executive management committee, is representing AIG in a class action pending before the Second Circuit (to which Judge Preska was recently nominated by President Bush). The plaintiffs' lawyers also note that Cahill "currently represents AIG in seven ongoing litigations [and] has previously represented AIG in 17 concluded cases."

The motion includes substantial financial information on fees AIG has paid Cahill, but the data is redacted. Among the tantalizing information: a redacted chart detailing the percent of Cahill revenue derived from AIG; an estimate of Cahill's net income attributable to AIG fees; and an estimate of Kavaler's take-home pay that's traceable to AIG fees. The plaintiffs contend that Kavaler's work for AIG "[has had], and in all likelihood will continue to have, a direct and substantial impact on the financial position of the Kavaler household."

"Given the extent of Mr. Kavaler's take-home pay attributable to fees from AIG," the plaintiffs lawyers add, "it cannot be doubted that a fair-minded observer might reasonably question the court's impartiality, particularly where, as here, it is conceivable that decisions in this case--which has already become one of the central narratives in the current economic crisis--could affect the viability of AIG and thus its future need for the service of, and its ability to pay, outside counsel such as Cahill."

Sean Coffey of Bernstein Litowitz and Francis Karam of Bernstein Liebhard, whose names appear on the motion, both declined to comment.

REGULATORY
Transition Time for U.S. Attorneys
Letters of resignation are starting to arrive from the country's 93 U.S. attorneys. On Monday, the Associated Press reported that Manhattan U.S. attorney Michael Garcia informed Main Justice that he's leaving for Kirkland & Ellis, confirming an earlier report by The New York Times. And meanwhile, just a ferry ride from Garcia's Foley Square office, New Jersey U.S. attorney Christopher Christie also submitted his two-page resignation letter to Attorney General Michael Mukasey. The letter reads a lot like a prelude to an announcement that Christie intends to run for governor, but so far the former Bush fundraiser has been mum on that question.

Another newly departed U.S. attorney, Houston's Don DeGabrielle, participated in a Q&A with the Houston Chronicle on Sunday. The newspaper's first question to DeGabrielle, who's now a partner at Fulbright & Jaworski, highlighted the sometimes difficult transition that former high-level government officials have to make when they enter (or re-enter) the private sector:

Chronicle: You've been a prosecutor most of your career. What makes you think you can now work the other side of cases?

DeGabrielle: I spent more than half of my life in law enforcement, and my goal was seeking justice. As an FBI agent, a state prosecutor, or federal prosecutor, I was always seeking justice and not just a conviction. There were times there were prosecutors, as well as agents, who may have been overzealous in their pursuit of something. They were committed but not necessarily mindful of a balance, of whether justice would be served at the end of the day or whether it was just going to be a notch on someone's belt. We had an enormous power to ruin people's lives, and I felt we had to be very certain we had a case we could prove beyond a reasonable doubt.

REGULATORY
Mark Cuban Smacked with SEC Insider Trading Charges, Turns to Fish & Richardson, Dewey & LeBoeuf
Mark Cuban hates to lose. He said so on his blog last week, after his NBA team, the Dallas Mavericks, got off to a slow start. And that's just basketball. Yesterday the stakes for Cuban were raised quite a bit with the news that the SEC has filed insider trading charges against him. The pressure is now on Cuban's defense counsel: Fish & Richardson's Paul Coggins and Dewey & LeBoeuf's Ralph Ferrara.

In the SEC complaint, filed in the Northern District of Texas, the government alleges that Cuban sold his entire stake--600,000 shares--in an Internet search company called Mamma.com (now known as Copernic.com) after receiving nonpublic information. In 2004 the CEO of Mamma.com told Cuban about a plan to raise capital through a PIPE (private investment in public entity). According to the SEC, Cuban didn't like the plan and became angry. "Well, now I'm screwed," he allegedly told the CEO. Cuban subsequently called his broker and sold all of his Mamma.com shares in advance of the public offering--which the SEC alleges to be a violation of insider trading laws. The sell-off helped Cuban avoid more than $750,000 in losses.

Cuban's lawyers are a couple of veteran all-stars of white-collar work. Coggins is a former Dallas U.S. attorney and Ferrara was the SEC's general counsel before entering private practice. Neither Coggins nor Ferrara returned our calls immediately, so it's unclear who will be taking the lead. We know Fish & Richardson has long provided counsel to Cuban and the Dallas Mavericks. One of the firm's partners, Steven Stodghill, served as team counsel for the Mavs from 2000 to 2002 and has since represented the team in various litigation matters.

On Monday afternoon Cuban updated his blog with a post about the SEC's case, in which winning is again a central idea. "I am disappointed that the Commission chose to bring this case based upon its enforcement staff's win-at-any-costs ambitions," said Cuban. "The staff's process was result-oriented, facts be damned. The government claims are false and they will be proven so."

SECURITIES
Second Circuit Reinstates Kickback Class Action Against The Hartford
Here's some good news, for a change, for the beleaguered securities class action bar: The Second Circuit yesterday reinstated a 2004 class action against The Hartford, which stems from former New York AG Eliot Spitzer's investigation of kickbacks paid to insurance brokers Marsh and Aon. The appellate judges vacated a ruling by Connecticut federal district court judge Christopher Droney, who had granted The Hartford's motion to dismiss the case on statute of limitations grounds.

"We're pleased that investors will have the opportunity to hold The Hartford accountable for fraudulently concealing kickbacks, bid rigging, and price manipulation," lead plaintiffs lawyer Eric Isaacson told the Litigation Daily in an e-mail. When we called The Hartford's lead counsel, Jack Auspitz of Morrison & Foerster, for comment, we received an e-mail response from the company. "The decision addressed a preliminary, procedural motion to dismiss the case on statute of limitations grounds," The Hartford's statement said. "The court held only that there was not enough publicly available information two years before the suit was filed to put an ordinary investor on inquiry notice of the claims. There has been no decision on the merits of the allegations. The Hartford continues to believe those allegations are completely meritless."

MoFo argued that investors had "storm warnings" of fraud at The Hartford beginning in 2001, citing "complaints in four lawsuits that were filed in California and Illinois state courts between 1999 and 2001; various articles from news sources and industry newsletters; portions of regulatory filings filed by The Hartford with the SEC; and samples of insurance filings," according to the Second Circuit ruling. But the Second Circuit--which included a lengthy review of its prior "storm warning" rulings in its opinion--found that these materials didn't give investors enough warning to dismiss their case on summary judgment.

So for all the plaintiffs firms that have seen subprime securities class actions dismissed in recent months, take heart. Sometimes you get a second chance.

--Alison Frankel

REGULATORY
Behind Obama's New White House Counsel
When Barack Obama was considering a presidential run, he dubbed Williams & Connolly partner Gregory Craig one of "the Kool-Aid boys" for his enthusiastic support, according to a story in Newsweek. Later, during the presidential campaign, Obama addressed Craig as "Senator John McCain." Craig played the role of Obama's Republican challenger during debate prep sessions, a role he apparently played convincingly. "Don't lecture me about war," Craig reportedly said during one session. "Do not tell me how to deploy men in combat. I was flying a jet over Vietnam when you were in grade school."

Now that the campaign is over, Obama has a new name for Craig: White House counsel. Legal Times provides a bit of background on the 63-year-old. Between stints at Williams & Connolly, where he was a protégé of Edward Bennett Williams, Craig served as a foreign policy and national security adviser to Massachusetts senator Edward Kennedy; worked under Secretary of State Madeleine Albright; and was special counsel to the White House during President Clinton's impeachment.

At Williams & Connolly he famously represented the father of Cuban refugee Elian Gonzalez in a custody battle in 2000. More recently, he had been defending former Bolivian president Gonzálo Sánchez de Lozada and former defense minister Carlos Sánchez Berzaín (fourth item) against claims by relatives of civilians who were killed during protests in Bolivia. Craig's future relationship with the firm remains unclear, according to Legal Times.

WHITE-COLLAR
Prosecutors May Seek to Disqualify Dan Webb in Extortion Case
Troubled midwestern politicos seem to be a growing client base for Dan Webb. A couple years ago, the chairman of Winston & Strawn represented former Illinois governor George Ryan at a corruption trial. (Ryan was convicted and is in prison.) More recently, he represented embattled Detroit mayor Kwame Kilpatrick against charges of perjury, obstruction of justice, and misconduct in office. (Kilpatrick made a plea deal and is in prison.) Webb's latest is Illinois lobbyist and businessman William Cellini, who's been indicted for extorting contributions to the campaign of Governor Rod Blagojevich.

At his arraignment last week, Cellini pled not guilty. (He's obviously hoping for a different outcome than Ryan and Kilpatrick got.) At the hearing, Chicago federal prosecutors from U.S. Attorney Patrick Fitzgerald's office indicated that they may seek to disqualify Webb. According to the Chicago Sun-Times, assistant U.S. attorney Chris Niewoehner said Winston & Strawn had represented a witness in the case, whose identity he did not disclose.

"I think this is a matter I should talk over with the government," Webb reportedly said at the hearing. "I believe there is no conflict."

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