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December 15, 2008 9:00 AM

The Am Law Litigation Daily: December 15, 2008

Posted by Ed Shanahan

Edited by Andrew Longstreth

CORPORATE / M&A
Huntsman Terminates Merger Agreement, Settles with Apollo and Hexion for $425 Million

After Vice Chancellor Stephen Lamb found that Hexion Specialty Chemicals had willfully breached its merger agreement with Huntsman in September, the company--and potentially its owners at Apollo--were facing the prospect of billions of dollars in damages. So this morning's announcement that Apollo and Hexion will pay Huntsman $425 million to end the litigation looks like a steal for Huntsman's erstwhile merger partners.

It's unclear what prompted Huntsman to settle, but the company has been struggling mightily since the merger fell apart. Before the market opened today, Huntsman was trading at less than $6 per share. The company, in other words, could use the cash in hand from a deal with Apollo and Hexion, which will come in addition to the deal's $325 million breakup fee. The breakup fee is expected to be paid by the banks that were to have financed the merger, Credit Suisse and Deutsche Bank. The deal, which came together quickly last week, also calls for Apollo to invest $250 million in Huntsman in exchange for convertible preferred stock.

The settlement will mean the end of Hexion's New York state court suit against Credit Suisse and Deutsche Bank. That case, which sought to compel the banks to fund the merger, is now moot because Huntsman ended the merger agreement.

But one piece of the sprawling Huntsman/Hexion litigation will continue: Huntsman's suit against Credit Suisse and Deutsche Bank in Texas state court. In that case, Huntsman alleges that the banks conspired with Apollo to interfere with not only the Hexion merger, but also with a previous agreement between Huntsman and another chemical company. As part of today's settlement, Apollo has pledged to help Huntsman in its suit against the banks, which is scheduled to go to trial in Texas in May. In return, Apollo will share in any recoveries in the Texas case in excess of $500 million. Apollo will receive 20 percent of whatever Huntsman is awarded over $500 million, up to a total of $425 million. Assuming Apollo's insurance will cover a significant portion of the $425 million settlement, the deal could turn out to be a net gain for the private equity shop.

Brad Karp and Lewis Clayton of Paul, Weiss, Rifkind, Wharton & Garrison represented Apollo during the settlement negotiations. Hexion was represented by Marc Kasowitz of Kasowitz, Benson, Torres & Friedman. Huntsman had Vinson & Elkins partners David Harvin and Harry Reasoner.

SECURITIES / WHITE-COLLAR
Thank You, Bernie Madoff! In the Biggest Alleged Fraud in Wall Street History, There Will Be Lawyers

From what we gather, accused swindler extraordinaire Bernard Madoff was an immensely charitable man. If we were the Psychology Daily we might suggest something about salving a guilty conscience, but we're the Litigation Daily. So instead we'll offer thanks to Madoff on behalf of the white-collar criminal defense and securities class action lawyers for whom his alleged $50 billion fraud--said to be the largest in Wall Street history--has already begun to provide gainful employment.

To defend him in the Manhattan U.S. attorney's criminal case, Madoff has hired a team at Dickstein Shapiro that includes Daniel Horowitz, Mauro Wolfe, and Ira "Ike" Sorkin, according to Zach Lowe at The Am Law Daily. Meanwhile, Madoff's sons--who turned their father in to the authorities--have hired Martin Flumenbaum of Paul, Weiss, Rifkind, Wharton & Garrison, according to a Bloomberg report.

Lee Richards of Richards, Kibbe & Orbe will be the court-appointed receiver for Madoff's company, according to The Am Law Daily, which notes that Richards served as the court-appointed monitor in the Computer Associates case.

The civil cases against Madoff have already begun. (No surprise, considering the gold mine of allegations in the SEC case against the legendary trader.) The New York Times DealBook links to a complaint filed in the Eastern District of New York on Friday by Mark Mulholland of Ruskin Moscou Faltischek, who's representing a Long Island investor. And there will be more where that came from. Milberg and Seeger Weiss announced Friday that they had been hired by "dozens" of investors in Madoff's investment company. We've also been told that other investors have retained Steptoe & Johnson attorney Mike Miller. We can hardly wait for the lead plaintiff battle that's sure to come in this one.

LAW FIRMS
Apple to Pare Its Outside Counsel Roster

Apple is clicking and dragging some of its outside firms to the trash, according to The Recorder. In an effort to boost efficiency, Apple's general counsel, Daniel Cooperman, is compiling a list of preferred firms that will handle big chunks of the company's corporate and litigation work.

The Recorder, which reports that the list will not be completed until next year, takes note of some recent shifts in Apple's lineup. O'Melveny & Myers has picked up more work lately, thanks to partner George Riley's close relationship with Apple CEO Steve Jobs. Apple has also been turning recently to Townsend and Towsend and Crew for IP, though historically, the company has used Weil, Gotshal & Manges; Howrey; and Fish & Richardson for its all-important IP work. The Recorder says that Apple's been giving antitrust assignments to Morrison & Foerster and employment matters to Orrick, Herrington & Sutcliffe.

Cooperman wouldn't comment on who's on the short list to make the short list but said that firms' willingness to offer "creative value propositions"--that's Apple-speak for alternative billing--would be important.

SECURITIES
New York Judge Rules Argentine Pension Funds Subject to Judgment in Distressed Debt Case

Vulture funds seeking to collect more than $550 million in bond default judgments against the Republic of Argentina are closer than ever to sinking their talons into frozen Argentine pension assets. In a 40-page opinion, Manhattan federal district court judge Thomas Griesa ruled last week that funds held in the United States for Argentine pensioners can be used to satisfy the vulture funds' previously obtained judgment against the country.

As we've noted before, Simpson Thacher & Bartlett's Barry Ostrager, who represents the vulture funds, sought and received an order from Judge Griesa freezing the Argentine pension fund assets after Argentina announced it was nationalizing its pension system. At a hearing last month, lawyers from Skadden, Arps, Slate, Meagher & Flom, who represent the body empowered to control the Argentine pension funds under the recently passed nationalization law, argued that by the terms of that law, the funds do not belong to the Republic and therefore should not be subject to a freeze order.

But in his opinion, Judge Griesa disagreed. "The court holds that [Skadden's client] is a political subdivision of the Republic of Argentina, that it is subject to the jurisdiction of this court because the court has jurisdiction over the Republic, and that the assets of the [body that controls pension funds] are subject to attachment and execution to the same degree as are the assets of the Republic."

In reaching his conclusion, Judge Griesa emphasized news reports that Argentina's political leadership plans to use the pension funds for general government functions. Ostrager told us the nationalization plan was a gift to his clients. "Argentina committed financial suicide by nationalizing those assets and declaring they would be part of the treasury," he said.

Skadden partner Marco Schnabl, who represents the Argentine social security system, told us his client disagrees with Judge Griesa's opinion and that it will likely file an appeal. Cleary Gottlieb Steen & Hamilton's Jonathan Blackman, who represents the Republic of Argentina, did not return a call seeking comment.

APPELLATE / IP
Cravath Wins Appellate Ruling Affirming Plavix Patent

In the December issue of IP Law & Business, reporter Joe Mullin analyzed the dangers that generic drug companies face when they launch drugs that are the subject of litigation--"at risk" drugs (subscription required). As an example, Mullin cited the gamble taken by a privately held Canadian firm called Apotex, which rolled the dice when it introduced a generic version of Plavix in 2006.

Shortly after the drug hit the market, Sanofi-Synthelabo, which owns the Plavix patent, and Bristol-Myers Squibb, owner of the Plavix marketing rights, sought and obtained an injunction barring sales of the generic. Then at trial in January 2007 before New York federal district court judge Sidney Stein, Apotex was found to have infringed the Plavix patent. Mullin predicted in IP Law & Business that if Apotex lost its appeal to the Federal Circuit, "it will likely be hit with damages."

That nightmare scenario came closer to reality on Friday, when the Federal Circuit upheld the district court's ruling. The case now appears to be headed back to Judge Stein for a damages trial. Evan Chesler of Cravath, Swaine & Moore argued the appeal for Bristol and Sanofi. Robert Breisblatt of Katten Muchin Rosenman, who argued for Apotex, told us that his client is disappointed in the ruling and is considering its options.

COMMERCIAL / SECURITIES
Injunction Hearing Set for Today in National City-PNC Deal; Courtroom Live Offers Streaming Video

Last week, to secure the blessing of antitrust regulators scrutinizing its proposed $5.58 billion acquisition of National City, PNC Financial agreed to sell off 61 National City branches. But the deal is not done yet. National City shareholders have filed more than a dozen suits contesting the transaction. Today they will seek an injunction at a hearing in the Delaware Court of Chancery before Chief Judge William Chandler III. You can check it out in real time at CourtroomLive.com.

Crain's Cleveland Business reports that the shareholders are alleging the deal benefits National City directors over shareholders, who under the terms of the acquisition will not receive "adequate, fair, or maximum" value for their shares (subscription required). It's unclear who will be arguing for each side, since lawyers involved in the case didn't return our calls. But for the plaintiffs, the docket lists Seth Rigrodsky and Brian Long of Rigrodsky & Long and Daniel Scotti and Bruce Bernstein of the now defunct Dreier. For National City, it's Stephen Norman and Abigail LeGrow of Potter Anderson & Corroon. For PNC Bank the docket lists Gregory Williams of Richards, Layton & Finger.

SECURITIES
Cuomo's Deputy Scraps with Skadden Partner at Securities Litigation Conference

These are not easy times for financial institutions, and not the least of their troubles, at least to hear them tell it, is the sheer number of ambitious regulators targeting them. Their plight--such as it is--led to a somewhat testy exchange last Thursday at a New York City Bar panel discussion, "Securities Litigation During the Credit Crisis," moderated by Gibson, Dunn & Crutcher partner Lawrence Zweifach.

Eric Corngold, the good-humored executive deputy attorney general for economic justice under Andrew Cuomo in New York, skirmished a bit with David Zornow, the head of Skadden, Arps, Slate, Meagher & Flom's white-collar crime practice, when Corngold was asked about his office's mandate.

"My boss doesn't want to be a less-good U.S. attorney's office," Corngold replied. "We look for different roles to play." The deputy AG cited as an example the auction-rate securities cases that Cuomo brought against dozens of banks over the summer. Corngold said the New York AG united dozens of state AGs and other regulators, including the SEC, and in a few months achieved an "amazing" result: The banks, thus far, have agreed to return $61 billion to investors and pay $500 million in fines.

But Zornow didn't seem impressed with the collaborative effort. "There was a perception that the companies were getting whipsawed among different agencies," he said. Zornow also complained that witnesses in auction-rate cases were subjected to multiple and repetitive interviews.

"It is not a perfect system," Corngold replied. "Getting dozens of smart and eager regulators on the same page is hard."

But Corngold wasn't ready to concede that government authorities are the only beneficiaries of what can be an unwieldy system. "Sometimes the defense bar uses apparent inconsistencies in their favor," he said.

Zornow, perhaps unwilling to tip any defense secrets, did not respond.

--Ben Hallman

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