26 Aug
2014

Jay Z Moves to Block Court-Ordered Deposition in Suit Over Roc-A-Fella Logo

In papers filed yesterday, music mogul Jay Z (Shawn Carter) moved by order to show cause to block a court ordered deposition.  In the underlying suit, the plaintiff claims to be owed compensation for having created the logo for Jay Z’s record label, Roc-A-Fella. Jay Z argues that, despite the court having earlier ordered the deposition for this week, discovery has since confirmed that he would have no relevant knowledge, and that the deposition would be purely for harassment:

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20 Aug
2014

Judge Berman: Insurer Not on the Hook for $30 Million Judgment in Counterfeiting Case

In an order today, Judge Berman ruled that insurance company USF&G was not obligated to reimburse Ashley Reed Inc. for a $30 million judgment against it for selling counterfeit Fendi bags.  The USF&G policy insured against “Advertising Injury,” which Judge Berman ruled was separate from the company’s actual counterfeiting of the bags.

Defendants have failed to meet their burden of demonstrating coverage under the Policies because the Ashley Reed Defendants’ liability in the Fendi (and BCF) Actions was not based upon the “advertising” of counterfeit Fendi products.  Rather, their liability was premised upon their “offering for sale and selling certain [counterfeit] fashion accessories.”  As the Second Circuit has held, “[a] complaint does not claim an advertising injury if it alleges only the manufacture, importation, and sale of infringing goods without claiming harm arising from advertising.”

18 Aug
2014

Judge Scheindlin: Supreme Court’s Halliburton Decision Did Not Change Plaintiff’s Burden of Proving “Price Impact” in Securities Fraud Case

In a brief order today, Judge Scheindlin denied a request by French conglomerate Vivendi to file, in light of the Supreme Court’s recent decision in the Halliburton II case, a new Rule 50(b) motion three years after its initial post-trial motion was denied. As Judge Scheindlin explained:

In the Supreme Court’s own words, it granted certiorari in Halliburton II to address two issues: (1) “to resolve a conflict among the Circuits over whether securities fraud defendants may attempt to rebut the Basic [Inc. v. Levinson] presumption at the class certification stage with evidence of a lack of price impact”; and (2) “to reconsider the presumption of reliance for securities fraud claims that [the Supreme Court] adopted in Basic. The Court said yes to the first question and no to the second.

Vivendi had argued that Halliburton II created new law under Rule 10b-5, requiring a plaintiff to prove that a misleading statement had an impact on the price of a security. But, Judge Scheindlin ruled, that has always been the rule, and was the rule when Vivendi’s prior Rule 50(b) motion had been denied. Halliburton II merely requires that “[d]efendants must be afforded an opportunity before class certification to defeat the [Basic]presumption through evidence that an alleged misrepresentation did no actually affect the market price of the stock.”

In its prior motion, Vivendi had argued that the plaintiffs had failed to show how or whether any of 57 alleged misstatements caused price inflation, instead relying on evidence that the misstatements “hade a role” in causing or “maintaining” inflation in the stock.  As Judge Scheindlin ruled, that issue had already been litigated at the district court, and Vivendi’s argument would have to be made to a higher court:

Halliburton II made no mention of how a plaintiff can prove price impact, and certainly did not address the maintenance theory of inflation relied upon by plaintiffs in Vivendi. While this is surely an interesting issue, the district court has made its ruling. Vivendi’ s opportunity to challenge this theory of price impact, and the adequacy of the proof supporting it, lies with the Court of Appeals and perhaps the Supreme Court.

14 Aug
2014

Judge Marrero Rejects SAC’s Argument that SEC Disgorgement Amount Fully Covered Investor Damages

In an opinion today, Judge Marrero denied SAC Capital’s motion to dismiss a class action brought by investors in Wyeth and Elan stock who traded contemporaneously with trades that SAC allegedly made based on inside information.

SAC argued (among other things) that it already disgorged to the SEC an amount larger than the amount sought in the complaint for some of the claims, but Judge Marrero found that the precise amount of any offset would have to be determined in discovery:

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11 Aug
2014

Judge Scheindlin: MLB, NHL Television Deals Not Exempt from Antitrust Laws

In an opinion issued on Friday, Judge Scheindlin denied the summary judgment motion of MLB, the NHL, Comcast and DirectTV on antitrust claims rising out of the territorial distribution of television rights the sports leagues have arranged with regional sports networks.  Under the current system, fans are able only to watch a team’s games if it is available from their specific regional network, or if they are willing to pay for the right to watch every team’s games league-wide.

Judge Scheindlin, after recounting the nearly century-long history of the “so-called ‘baseball exemption’” to the antitrust laws, formulated by the Supreme Court in Federal Baseball Club of Baltimore v. National League of Professional Baseball Clubs in 1922 and revisited several times by the Court and Congress, ruled that the exemption does not apply to territorial broadcasting restrictions.

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06 Aug
2014

In CDO Case, Judge Forrest Rules That New, Helpful Facts Cannot Revive Expired Claims

In an opinion today, Judge Forrest dismissed as untimely claims by a Korean bank, Woori bank, against Citi arising from Woori’s investment in Citi-sponsored CDOs.  Woori argued that it did not have the facts for its claims until the Financial Crisis Inquiry Commission Report in 2011, but Judge Forrest —  echoing a similar decision by Judge Marrero in a similar suit Woori filed against Merrill Lynch (see our post here) — ruled that the underlying facts were known well before then.

Woori alleged one category of facts, relating to the “Class V CDO,” that were not in the Commission report and not at issue in the prior ruling from Judge Marrero, but Judge Forrest ruled that those allegations could not revive an otherwise expired claim:

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05 Aug
2014

Judge Rakoff Questions Second Circuit While Reluctantly Approving SEC-Citi Settlement

In an opinion today, Judge Rakoff, following a remand from the Second Circuit (see our post here), relucutantly approved the $285 million SEC-Citibank settlement that he had previously rejected and that involved no admission of wrongdoing.

Judge Rakoff offered a few criticisms of the Second Circuit’s decision, even as he concluded that it compelled the resulting settlement approval.

First, the Second Circuit’s opinion said that the SEC would be “politically liable if it fail[ed] to adequately perform its duties,” but Judge Rakoff countered: “It is difficult to know what the Court of Appeals meant by ‘politically liable’ since the SEC, by its charter, is designed to be free of political interference, see 17 C.F.R. §140.10, and routinely asserts its independence from political pressures.”

Second, the Second Circuit observed that a more searching review of settlement — along the lines of what Judge Rakoff had done initially — might be appropriate in cases where the court’s “initial review of the record raises a suspicion that the consent decree was entered into as a result of improper collusion between the S.E.C. and the settling party.”  Judge Rakoff countered: “The Court of Appeals gave no indication of how a facial review of such a limited record, joined in by both parties, could raise a suspicion of collusion, nor did it offer any other example of where a fuller inquiry would be appropriate.”

Third, Judge Rakoff bristled at the suggestion in the Second Circuit’s opinion that the SEC could avoid judicial review altogether by bringing cases in its own administrative proceedings: “One might wonder: from where does the constitutional warrant for such unchecked and unbalanced administrative power derive?”  (Coincidentally, the WSJ has an Op-Ed expressing that same view today.)

The opinion concludes with Judge Rakoff conceding his own “sour grapes”:

[T]his Court fears that, as a result of the Court of Appeal’s decision, the settlements reached by governmental regulatory bodies and enforced by the judiciary’s contempt powers will in practice be subject to no meaningful oversight whatsoever. But it would be a dereliction of duty for this Court to seek to evade the dictates of the Court of Appeals. That Court has now fixed the menu, leaving this Court with nothing but sour grapes.

04 Aug
2014

Judge Castel Refuses to Lift PSLRA Discovery Stay in Suit Challenging Bank Merger

In an Order dated Friday, Judge Castel denied the motion of an investor, Cartica, to lift the automatic PSLRA discovery stay in Cartica’s suit challenging the proposed merger between a Chilean bank (Itau) and a Brazlian bank (CorpBanca). Cartica claims that the disclosures to investors were incomplete and misleading, and sought limited discovery in advance of a potential motion to preliminarily enjoin the shareholder vote. Judge Castel found that Cartica’s position would undermine the purposes of the PSLRA discovery stay:

Cartica seeks a lift of the stay in order for it to prepare a motion for preliminary injunction — which would require this Court to examine the sufficiency of Cartica’s claims. The PSLRA stay is meant to prevent discovery until this Court has evaluated Cartica’s claims under the standards for a motion to dismiss. Cartica’s desire for discovery to enable it to engage in motion practice does not create undue prejudice when the very purpose of the PSLRA is to prevent discovery in support of such motion practice until after an examination of the motion to dismiss.

30 Jul
2014

Judge Rakoff Orders Bank of America to Pay $1.3 Billion in “Hustle” Case

In an opinion today, Judge Rakoff ordered Bank of America to pay $1.3 billion in the so-called “Hustle” case, in which a jury found that Countrywide (later acquired by Bank of America) and an officer named Rebecca Mairone engaged in a scheme to defraud Fannie Mae and Freddie Mac into buying faulty mortgages.

Judge Rakoff rejected Bank of America’s argument that the statute at issue, FIRREA, required the penalties to be calculated by reference to the “net” gains or loss resulting from the alleged conduct:

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