September 2012

On Tuesday, Judge Gardephe rejected an attempt by Reserve Management Company (RMCI), the investment adviser to the Reserve Primary Fund – the money market fund that “broke the buck” four years ago after Lehman’s bankruptcy – to send its malpractice action against Wilkie Farr & Gallagher LLP back to state court. The Court concluded that the exercise of federal jurisdiction over the action was appropriate because of the “strong federal interest in the federal securities law issues raised in RMCI’s malpractice complaint.” As we reported previously, in defending the SEC’s securities fraud action against them, RMCI and two of its principals have claimed that they relied on Wilkie’s advice in communicating with the public on September 15 and 16, 2008 and considering a credit support agreement that would preserve the Primary Fund’s $1.00 NAV. RMCI’s malpractice action against Wilkie asserts that Wilkie provided incompetent advice to RMCI that led to it being sued by the SEC and private parties. It also alleges that Wilkie’s simultaneous representation of RMCI and the Reserve Primary Fund presented a conflict of interest that the firm never disclosed to RMCI and that has caused significant prejudice to RMCI. RMCI claims that Wilkie failed to advise RMCI properly about including an indemnification and advancement of attorney fees provision in the management agreement between RMCI and the Reserve Primary Fund.
Continue Reading Judge Gardephe Won’t Send Reserve Fund Malpractice Suit Back to State Court

Trial in the SEC’s securities fraud action against several entities and individuals who managed the Reserve Primary Fund – the money market fund that “broke the buck” four years ago after Lehman Brothers announced its bankruptcy – is slated to begin on October 1, 2012. Earlier this week, in anticipation of the looming trial date, Judge Paul Gardephe issued a series of evidentiary rulings. They were a mixed bag for the parties. On the one hand, Judge Gardephe rejected the SEC’s attempt to prevent the Reserve Fund defendants from pursuing an advice of counsel defense. On the other, he ruled that two of defendants’ expert witnesses could not testify at trial. These rulings could have a substantial effect on the trial or on any settlement negotiations between the parties.
Continue Reading Judge Gardephe Allows Reserve Fund Defendants to Proceed with Advice of Counsel Defense

Today, Judge Forrest permanently enjoined enforcement of a portion of the National Defense Authorization Act, a federal law President Obama signed on December 31, 2011, authorizing the government to detain persons, including U.S. citizens, who “substantial[ly] support” Al-Qaeda, the Taliban or their “associated forces.” Judge Forrest had issued a preliminary injunction in May, and the ruling today, which is 112 pages, follows similar reasoning. She was particularly forceful in rejecting the Government’s argument that the Court should “essentially ‘stay out of it’–that is, exercise deference to the executive and legislative branches and decline to rule on the statute’s constitutionality”:
Continue Reading Judge Forrest Issues Permanent Injunction Against Detention Law

In the latest in a long line of SDNY opinions on copyright infringement cases brought against anonymous users of the BitTorrent file-sharing service, Judge Baer dismissed without prejudice the suits against all but the first identified John Doe defendant in the case on the grounds that they were improperly joined. Judge Baer lamented that the same “swarm” technology that has allowed for joinder of these defendants in many cases has created a plague on the federal courts: “It is this swarm that Plaintiffs have relied on in grouping Doe defendants together in a common suit. Ironically, there are swarms on both sides, for copyright locusts have descended on the federal courts, exacting low-cost settlements from embarrassed John Does and then moving on to the next District.” Judge Baer lists 30 separate BitTorrent actions against anonymous defendants that have been brought in federal court, which he describes as a “but a sample,” turning the federal courts into “cogs in a plaintiff’s copyright-enforcement business model.”
Continue Reading Judge Baer Severs John Doe Defendants in Latest BitTorrent Copyright Case

In a fraudulent transfer case brought by the trustee for Thelen LLP against law firms where former Thelen partners took work, Judge Pauley ruled today that the billable matters (as compared to contingency cases) were not “property” of the bankruptcy estate. Although “unfinished business” is generally an asset of a dissolved partnership, Judge Pauley concluded that “applying the unfinished business doctrine to pending hourly fee matters would result in an unjust windfall for the Thelen estate, as compensating a former partner out of that fee would reduce the compensation of the attorneys performing the work.” He also observed that deeming billable matters “property” to be shared with the estate would conflict with ethical rules against dividing fees, and “would have bizarre consequences”:
Continue Reading Judge Pauley Rules that Dissolved Law Firm’s Hourly Matters Are Not Property of Bankruptcy Estate; Certifies Issue for Interlocutory Appeal