The Work

December 16, 2008 9:00 AM

The Am Law Litigation Daily: December 16, 2008

Posted by Ed Shanahan

Edited by Andrew Longstreth

Siemens Settles Record-Setting FCPA Case

The German engineering company Siemens made history yesterday, when it agreed to pay fines totaling $1.34 billion to regulators across the world to settle a bribery probe. The $800 million that Siemens will pay to the Department of Justice and the SEC is by far the largest amount ever extracted in a Foreign Corrupt Practices Act case. It could have been worse. The FCPA Blog writes that Siemens faced up to $2.7 billion in fines under the Federal Sentencing Guidelines and could have been charged with antibribery provisions, which would have kept the company from bidding for U.S. contracts. But U.S. prosecutors asked for only $350 million in criminal fines and didn't pursue antibribery charges.

Why did prosecutors settle for less? The FCPA Blog points to the sentencing memorandum filed in Washington, D.C., federal district court Friday, in which prosecutors praised the company's cooperation, calling it "exceptional" and "wide-ranging."  Prosecutors gave high marks to Debevoise & Plimpton, which had been hired by Siemens's audit committee to do an internal investigation. They praised Debevoise for providing "frequent and extensive reports to [the Department of Justice] and the SEC in face-to-face presentations and conference calls that assisted the Department enormously." Prosecutors noted that, according to Siemens's latest estimates, Debevoise lawyers and employees at Deloitte & Touche spent more than 1.5 million billable hours on the investigation. Debevoise has been handsomely compensated. According to The Wall Street Journal, Siemens has paid Debevoise more than $274 million.

Davis, Polk & Wardwell represented Siemens in its deal with Justice and the SEC, which was submitted for approval yesterday to the federal court in Washington. Here's the joint statement made by prosecutors and Siemens.

Supreme Court Rules Against Altria in Preemption Case

Oral arguments can be deceiving. In October our reporter Tony Mauro wrote that the U.S Supreme Court appeared to be siding with Altria Group in a lawsuit brought by Maine smokers testing whether they could bring false advertising claims regarding "light" cigarettes in state court. Mauro, who knows as much about the high court as almost any observer, wrote that Altria's lawyer, Theodore Olson of Gibson, Dunn & Crutcher, appeared to convince the justices that the Federal Cigarette Labeling and Advertising Act preempted this suit because it involved smoking and health claims. In contrast, he wrote, the plaintiffs' lawyer, David Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel, "struggled to persuade the court that this suit was about consumer fraud and deception, and thus was not preempted."  (Read the transcript here.)

But yesterday, in what Mauro calls a "surprise"  decision, the Supreme Court ruled 5-to-4 that Frederick's clients should be able to bring a state lawsuit claiming that Altria, the parent company of Philip Morris USA, fraudulently advertised the benefits of "light" cigarettes. Writing for the slim majority, Justice Paul Stevens agreed with Frederick, claiming that federal law does not limit "states' authority to prohibit deceptive statements in cigarette advertising."

Frederick has another closely watched preemption case pending before the Supreme Court. In November he argued for Diana Levine in her case against drug company Wyeth. The issue there is whether drug companies can be sued over the labeling of drugs that have been approved by the FDA. Wyeth was represented by Seth Waxman of Wilmer, Cutler, Pickering, Hale and Dorr.

Cravath Replaces Wachtell as Counsel to Citigroup Directors in Delaware Derivative Litigation

Earlier this month The Deal reported that Citigroup's independent directors had hired Cravath, Swaine & Moore's Robert Joffe to advise them on its myriad problems. Apparently that portfolio includes derivative litigation in Delaware Chancery Court, where plaintiffs have alleged that Citigroup officers and directors breached their fiduciary duties by failing to monitor and control the bank's exposure to the subprime market. In the case known as In Re Citigroup, Inc. Shareholder Derivative Litigation, both Joffe and Cravath partner Richard Clary have made appearances this month on behalf of Citigroup directors, who had previously been represented by Wachtell, Lipton, Rosen & Katz.

What spurred the change? As the Deal pointed out, Wachtell may have conflicted itself out when it represented Wells Fargo in its deal for Wachovia. Just days before Wells made its offer, Citigroup had signed an agreement to negotiate a deal with Wachovia. Citigroup subsequently filed a suit against Wells and Wachovia to stop the deal. It failed to quash the deal, but Citigroup is still seeking damages.

Clary of Cravath declined to comment about the change. Lawrence Pedowitz of Wachtell did return a call for comment. Citigroup declined to comment.

Wachtell is not out of the picture entirely. In a motion filed December 4 by Citigroup officers (represented by Paul, Weiss, Rifkind, Wharton & Garrison) and directors (represented by Cravath) to stay the litigation or dismiss it, Wachtell is listed as counsel to the nominal defendant Citigroup.

U.K. Judge Orders A&O to Disclose Fees in Patent Case

We know the Brits think litigation costs are out of control in the United States, but some feel the same about litigation on their own soil. Legal Week, our sibling publication in London, has a report on an unusual ruling from a U.K. judge ordering Allen & Overy to estimate its future costs to defend BlackBerry maker Research in Motion in a patent dispute with U.S. technology company Visto Corporation.

The order apparently came in response to a request made by Visto's lawyers at McDermott Will & Emery, who wanted the information to determine whether its case against RIM was worth the risk. In the spirit of "turnabout is fair play," the order also forced McDermott to disclose its fees. Legal Week writes that A&O must also disclose costs incurred to date in this litigation. In a separate, related case brought by RIM against Visto, A&O incurred fees totaling £5.18 million, but the judge refused to allow RIM to collect these fees in full. He called the fees "unnecessary" for the case, which included a five-day trial.

A spokesperson for A&O told Legal Week that Visto's effort to shine light on its fees is "a further attempt to interfere with RIM's business in the U.K." and that A&O would "seek to reuse as much of the work product from the earlier proceedings as possible in the new dispute."

Lovells partner Nicholas McFarlane, who is not involved in the case, told Legal Week that the order was unusual. "I do not think there has ever been an order whereby a claimant is asked to predict what its costs will be," said McFarlane. "It seems a great pity that costs yet again become the subject of discussion in patent litigation and are the big issue."

Howrey Representing Advisory Firm at Center of Grand Jury Probe into Political Contributions

In the wake of the startling allegations lobbed at Illinois governor Rod Blagojevich, other investigations into political corruption may seem quaint by comparison. But that won't stop prosecutors from trying to bring new cases. According to Bloomberg, prosecutors across the country are investigating so-called pay-to-play schemes in the municipal bond market.

Bloomberg reports that Beverly Hills-based CDR Financial Products, a financial advisory firm, is at the center of one such grand jury probe in Albuquerque. The FBI is looking into whether there's any connection between the $1.5 million fees CDR received in 2004 from the New Mexico Finance Authority and a $100,000 contribution by CDR to New Mexico governor Bill Richardson's political action committees. CDR is also under investigation by Justice for whether it conspired with local governments to jack up the price of fees in bond deals, according to Bloomberg. CDR, which has denied wrongdoing, is represented by Howrey's Richard Beckler, who cochairs the firm's securities litigation, government enforcement, and white-collar crime practice.

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