The Firms

January 13, 2010 9:01 AM

Litigation Department of the Year: Paul Weiss, General Litigation Finalist

Posted by Ed Shanahan

By Michael Goldhaber

From the January Issue of The American Lawyer

Paul, Weiss, Rifkind, Wharton & Garrison won Litigation Department of the Year four years ago on the strength of its work for Citigroup, Inc. Arguably, the firm had an even better run for Citi in 2008-09, and its work for Citi's rivals gives plausibility to the boast of chair Brad Karp that "Paul, Weiss is the go-to firm for Wall Street litigation." Still, one financial client by the name of American International Group, Inc., may wish it went elsewhere.

The firm's biggest victory in 2008-09 came at trial against the Parmalat Finanziaria SpA trustee, with partners Theodore Wells and John Baughman defending Citi. After hoping to implicate Citi in Parmalat's fraud to the tune of $30 billion, the trustee walked away from the state court trial in Hackensack, New Jersey, with empty pockets--and a counterclaim bill that now exceeds $450 million, pending appeals. Getting a jury to love a detested bank would be remarkable at any time--let alone in fall 2008, the darkest hour of the financial crisis.

As that crisis matured, Paul, Weiss won early results for Citi on multiple fronts. In February 2009 a team led by Karp and Richard Rosen persuaded Delaware chancellor William Chandler III to largely dismiss the claim against Citi directors for failing to foresee the subprime Armageddon. Paul, Weiss was delighted with Chandler's sweeping logic: "The mere fact that a company takes on business risk and suffers losses--even catastrophic losses--does not evidence misconduct, and without more, is not a basis for personal director liability."

With that quote taped to its partners' foreheads, between August and October, Paul, Weiss batted down five credit-crunch class actions against Citi in federal court in New York: two subprime suits brought under ERISA and derivative shareholder theories, two auction-rate securities suits brought under securities fraud and derivative shareholder theories, and a "cash balance" pension plan claim dismissed by the U.S. Court of Appeals for the Second Circuit. Meanwhile, suits arising from the collapse of the Falcon family of hedge funds and other "Citi Alternative Investments" were dismissed or settled for small amounts, according to Paul, Weiss. Finally, in December, the Second Circuit affirmed Citi's win in a relatively modest credit default swap (CDS) contract case brought by hedge fund VCG Special Opportunities Master Fund Limited, which Citi hopes will be precedent-setting.

Paul, Weiss is far from done with Citi's credit-crunch docket. A $2 billion CDS fraud claim by Ambac Financial Group, Inc., awaits in New York state court. Also looming is a gigantic stock-drop claim, filed after Citi's market capitalization fell by nearly a quarter-trillion dollars.

Click here to continue reading.

VIDEO: Paul Weiss chair Brad Karp discusses how client Citigroup--and the entire financial sector--is faring in court.

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