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Supreme Court wary 3rd-party lawsuits
Lawyer Blog News |
2007/10/10 15:09
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The Supreme Court voiced skepticism Tuesday about efforts to allow lawyers, accountants and others who do business with large corporations to be the targets of class-action securities suits. At issue in the high-profile case is whether victims of large-scale corporate fraud can sue third parties that may have played a significant role in the scheme. Think Enron, Global Crossing or any other massive fraud that involved a web of business relationships, where outside experts allegedly signed off on questionable corporate practices.
The Supreme Court and other federal courts have largely frowned on such suits, saying that only the Securities and Exchange Commission has the authority to bring suit against third parties as so-called aiders and abetters. But following the wave of corporate implosions, class-action suits seeking to hold those entities accountable have been on the rise, largely because those outside parties often are the only ones left standing holding any assets. Tuesday, one of those investor class-action cases reached the justices, with several suggesting they are not inclined to allow the suit to go forward.
That's a view that will be welcomed by a range of powerful business groups, including the U.S. Chamber of Commerce and the American Bankers Association. Along with the Bush administration, they warn that making third parties vulnerable to such suits would result in an explosion of securities litigation, damaging American competitiveness in the global marketplace.
The closely watched dispute is one some observers have labeled the "Roe vs. Wade" of securities law, one in which more than 30 friend-of-the-court briefs were filed, and it played to an electric atmosphere in a packed Supreme Court chamber.
While business groups largely lined up one side, such consumer advocates as AARP, the senior citizen lobby, and the Council of Institutional Investors stood with the investor plaintiffs.
"The stakes are enormous," said Jeffrey McFadden, a Washington securities lawyer who attended the arguments.
The case involves Charter Communications Inc., a cable television provider that entered into side deals with Motorola Inc. and Scientific-Atlanta Inc., two makers of set-top cable boxes. In 2000, in a scheme to pump up its revenues, Charter agreed to overpay the vendors for the boxes. The vendors then returned part of the money to Charter in the form of advertising fees, adding about $17 million to Charter's balance sheet.
After the machinations were revealed and Charter's stock price plummeted, investors brought suit against all of the parties. Charter eventually settled, leaving the two vendors in the suit.
Lawyers for the vendors argued that the companies never knew the extent of Charter's scheme to inflate its revenues and that they never made any false representations directly to Charter's shareholders, something required to find a violation of federal securities law.
A Missouri federal court dismissed the case against the vendors and the federal appeals court in St. Louis affirmed, citing Supreme Court precedent that has interpreted federal securities laws to bar private causes of action against third-parties.
Chief Justice John Roberts on Tuesday demonstrated little interest in departing from precedent, saying that Congress had clearly decided who could and could not bring suit under federal securities laws.
"We don't get in this business of implying private rights of actions anymore," Roberts said. "We haven't done it in quite some time."
And Justice Anthony Kennedy seemed to worry that once the door to such suits was opened there would be no end to them -- and that companies would simply stop doing business with publicly traded companies as a result.
"I see no limitations to your proposal," he said to the counsel for the investors, New York lawyer Stanley Grossman.
But Grossman argued that there would be no litigation free-for-all, saying that a requirement that third parties must actively participate in an intentional effort to deceive the public would eliminate most prospective actions.
Among the justices, Ruth Bader Ginsburg appeared most likely to come down on the side of the plaintiff investors. She was critical of the vendors' conduct in the case, saying it was possible they knew about Charter's plans but sat by passively. The scheme "can only work if the vendors are silent. Silence, not speech, is what counts," she said. "They set up Charter to make those statements to swell their revenues, revenues they didn't have."
Ginsburg repeatedly expressed a desire to find some sort of middle ground between barring the suits altogether and elevating third parties to the level of the primary corporate defrauders. She noted that it was unlikely the SEC could ever make fraud victims whole by suing third-parties on its own, since the government is not in a position to distribute large damage awards.
Chicago lawyer Stephen Shapiro, arguing for the defendant companies, said Congress had rewritten the securities laws in the 1990s to allow only for the SEC actions and the court needed to recognize that. |
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Law for domestic partners stands in Oregon
Legal Career News |
2007/10/10 14:29
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| State election officials say opponents failed to turn in enough signatures to block Oregon's domestic-partnership law for same-sex couples. State elections officials reported Monday that the effort fell 116 valid signatures short of the 55,179 needed to suspend the law and place it on the November 2008 ballot for a popular vote. That means that as of Jan. 1, Oregon will join eight other states that have approved spousal rights in some form for same-sex couples: Connecticut, Vermont, New Hampshire, New Jersey, Maine, California, Washington and Hawaii. Massachusetts is the only state that allows gay couples to marry. Later this week, word is expected on whether opponents gathered enough signatures to block a gay-rights law that would ban discrimination based on sexual orientation — though that effort, as well, appears to be lacking sufficient signatures. Social-conservative and church groups mounted the signature-gathering drive after the two gay-rights laws were approved by the Democratic-controlled Oregon Legislature with strong backing from Gov. Ted Kulongoski, also a Democrat. The state's largest gay-rights group called Monday's announcement a "proud day for Oregon." "In refusing to sign these petitions, Oregonians showed that they aren't interested in rolling back our anti-discrimination laws," said John Hummel, executive director of Basic Rights Oregon. Sponsors of the referral effort had conceded in recent days that they probably hadn't gotten enough signatures. But they vowed to take another avenue to try to derail the laws — an initiative effort to repeal the laws outright. They would have until next July to collect 82,000 valid signatures to repeal each of the two laws. |
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Treasurys Dip As Rate Cut Seems Unlikely
Business Law Info |
2007/10/10 13:02
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| Treasury prices fell Wednesday amid a growing consensus in the bond market that the Federal Reserve won't cut rates this month. Minutes from the Fed's September monetary policy meeting, released Tuesday, showed Fed officials to be unusually uncertain about the economy and unwilling to state whether there is greater risk or rising inflation or slowing growth. The Fed's elevated uncertainty convinced the Treasury market that it had gone too far in pricing in an October rate cut in prior weeks. "The market is virtually eliminating any Fed move on Oct. 31, due to the Fed minutes," said Tom di Galoma, fixed income analyst at Jefferies & Co. "This has the bears in control." The view that the Fed is on hold sparked heavy overseas selling of Treasurys and Japanese government bonds that continued into the U.S. session. The stock market had its own interpretation of the Fed minutes, zeroing in on the fact that Fed policy makers were very worried about the rapid deterioration of the credit markets last summer. The Fed cut rates by a half percentage point at its Sept. 18 meeting and equities investors appear to think the bank could order another rate cut at its October meeting. Stocks were a bit lower Wednesday, after rallying sharply Tuesday on the minutes. |
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Atlantic City Mayor Robert Levy Resigns
U.S. Legal News |
2007/10/10 12:59
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| The mayor of Atlantic City has handed in his resignation, after he vanished for two weeks amid allegations that he lied about his military service, his attorney said Wednesday. Levy's departure is effective immediately, according to attorney Edwin Jacobs. On Tuesday, the missing mayor resurfaced after returning home from a stay at a psychiatric and substance abuse center. In a statement Wednesday, Jacobs cited "multiple health problems" as a factor in Levy's resignation, but did not provide further details. Levy has been under federal investigation for embellishing his Army service in Vietnam. "The circumstances surrounding his resignation include multiple health problems, but were precipitated by a pending Federal Department of Veterans Affairs investigation," Jacobs said. Last fall, the Press of Atlantic City reported that the Vietnam veteran's claims that he was a member of the Green Berets were untrue. He apologized, but federal authorities have been looking into whether the 64-year-old Levy made that claim to increase his veteran's benefit payments. Jacobs said in the statement that the mayor was in discussions with the U.S. Attorney's Office about resolving the investigation in a "fair and expeditious" way. Levy allegedly took in about $25,000 in extra benefits payments as a result of the falsification. No part of the investigation includes allegations of Levy's abuse of his position as mayor, his lawyer said. Levy served in the United States Army for 20 years, form 1964-1984 and served two tours of duty in Vietnam, from which he received multiple medals, awards and citations, according to Jacobs. "The pending investigation has called into question two of those awards, neither of which appear to be supported by an appropriate military order," said Jacobs. Members of the city council had asked a judge to declare the mayor's office vacant and clear the way for the council president to take over as interim mayor. Levy — who was missing for almost two weeks — was at home after leaving a Somerset County clinic known for treatment of substance abuse and mental health issues, according his lawyer. Tuesday's revelation about Levy's whereabouts came after a brief conference with a state judge, who scheduled a Friday hearing to discuss a request by a city councilman to declare that the mayor had abandoned his office. |
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Sallie Mae $25 billion buyout ends up in court
Court Feed News |
2007/10/10 12:10
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| The planned $25 billion buyout of U.S. student lender Sallie Mae has ended up where many said it would -- in court. Sallie Mae said late on Monday that it filed a lawsuit seeking a breakup fee of $900 million from the consortium led by J.C. Flowers & Co, which last week proposed to cut its bid price for the lender citing a recent credit market squeeze and legislation that slashes subsidies to student lenders. Sallie Mae's lawsuit seeks a declaration that the buyer group has reneged on the merger agreement, that no "material adverse change" has occurred, and that Sallie Mae may terminate the takeover and collect the $900 million. A material adverse change (MAC) is a condition that could cause a substantial reduction in earnings power and it can give buyers or lenders a "walk right" from their obligations. The lawsuit is being seen by many as a hard-ball attempt by Sallie Mae to force the buyer group to stick to the original deal, in which the group offered $60 a share, or come up with something closer to it than its revised proposal of $50 a share, or $20.6 billion offer, plus extra payments depending on how the company performed. "We are prepared to close under the contract the parties signed in April," said Sallie Mae chairman Albert Lord in a statement late on Monday. "Sallie Mae has honored its obligations under the merger agreement. We ask only that the buyer group do the same."
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U.S. court threatens Arar's bid for redress
Legal World News |
2007/10/10 10:06
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| The U.S. Supreme Court has refused to hear the appeal of a German man who says he was tortured as part of Washington's practice of "extraordinary rendition,'' a move that could derail Maher Arar's quest for justice in this country. The court, without comment, denied the bid by 44-year-old Khaled el-Masri, essentially upholding the Bush administration's argument that "state secrets'' would be endangered if the German man's lawsuit against the CIA was allowed to proceed. It was the first time a case of rendition, often referred to as the out-sourcing of torture, has reached the country's highest court. El-Masri has maintained he was a victim of mistaken identity when he was picked up by CIA agents in Macedonia on New Year's Eve 2003, then beaten, shackled, drugged and chained to the floor of a so-called "ghost flight'' and sent to a "black site'' prison in Afghanistan. There he claimed he was tortured and abused for five months before being unceremoniously dumped on a hillside in Albania and told to find his own way home. The White House has never acknowledged it rendered el-Masri, but his story has been documented in extensive media accounts, backed by European investigations and accepted by the government of German Chancellor Angela Merkel. The only other rendition victim seeking redress in American courts is Canadian telecommunications engineer Maher Arar. Arar was shuttled to a Syrian prison, where he was tortured after being picked up by American authorities at New York's JFK Airport in 2002. His U.S. lawyer said Arar's appeal of a lower court ruling would proceed in New York on Nov. 9 and pointed to differences in the two cases that could keep the Canadian's case alive. Maria LaHood said in the el-Masri case, the government argued it cannot even reveal if the German was rendered. But in the Arar case, the government has acknowledged the Canadian was removed to Syria, she said, but has argued it cannot reveal why. Washington argues the reason Arar was sent to Syria is a "state secret,'' but LaHood said she will argue on appeal that the reasons are not relevant, only the rendition is at issue. "This was a real disappointment that the court would not even hear the case and would just defer to the executive,'' she said. |
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