Charles Schwab Corp. sued units of Bank of America Corp.’s Merrill Lynch & Co., UBS AG and Bear Stearns Cos. over claims they lied or omitted information about mortgage-backed securities Schwab bought from them.
Schwab, an independent online broker, claims it paid the firms $130 million for three securities, and that more dubious securities are likely to turn up if the suit is allowed to go forward. The complaint was filed June 29 in state court in San Francisco, where Schwab is based.
The securities dealers lied or didn’t disclose information about loans underlying the bonds they sold, including the loan- to-value ratios of mortgages and the number of properties that were not primary residences, according to the complaint.
Bill Halldin, a Bank of America spokesman, said the securities Merrill Lynch issued that are identified in the suit are “performing well, are not in default, and therefore we don’t believe there’s any basis for the complaint.” Merrill Lynch is the world’s largest brokerage.
JPMorgan Chase declined to comment, spokesman Joe Evangelisti said in an e-mail.
UBS spokeswoman Karina Byrne didn’t return a call seeking comment after regular business hours.
The case is Charles Schwab v. Merrill Lynch, Pierce, Fenner & Smith, 10-501151, California Superior Court (San Francisco).
Pfizer Board Liable for Marketing Miscues, Suit Says
Pfizer Inc. directors should be held liable for the drugmaker’s repeated violations of federal laws governing drug- marketing practices that resulted in the company having to pay a $2.3 billion settlement, a union pension fund said in a lawsuit.
New York-based Pfizer’s board turned a blind eye to criminal guilty pleas the company entered over marketing practices for medicines such its Bextra pain-killing drug and its Neurontin epilepsy pill, the Bricklayers Local 8 & Plasters Local 233 Pension Fund, a Pfizer shareholder, said in the suit. Directors’ inaction has hurt the value of investors’ stakes in the company, the fund’s lawyers contend.
“The board and senior management made a calculated bet that the negative consequences of getting caught would never become significant,” the fund’s attorneys said yesterday in the Delaware Chancery Court complaint. “Defendants lost that bet.”
The $2.3 billion settlement to resolve government probes into Pfizer’s marketing practices was the largest accord in history to address such sales techniques. Proceeds from the accord went to government health agencies including Medicare, Medicaid and the military’s Tricare health plan.
Chris Loder, a Pfizer spokesman, didn’t return calls and an e-mail for comment on the suit.
The case is Bricklayers Local v. Ausiello and Pfizer Inc., CA5631, Delaware Chancery Court (Wilmington).
NYC Investment Officer Sues Firm He Founded for $10 Million
New York City chief investment officer Lawrence Schloss is suing the private equity firm he founded for at least $10 million in back pay and investment proceeds.
Schloss, appointed in January by New York City Comptroller John Liu to oversee about $100 billion of city pension funds, sued Diamond Castle Holdings LLC, according to a filing yesterday with the State Supreme Court in Manhattan. He alleged the firm and four of its senior managing directors breached the company’s limited liability agreement.
Schloss, 55, founded Diamond Castle in 2004. Before that, he was head of CSFB Private Equity, a Credit Suisse Group AG unit that had $32 billion in assets at the time. He was also chairman of DLJ Merchant Banking Partners before it was acquired by CSFB.
“We tried to reach a resolution that was fair to Mr. Schloss and consistent with our obligations to our investors,” a statement from Maureen Connelly, a Diamond Castle Holdings spokeswoman, said. Schloss’s demands “are inappropriate and unreasonable,” the statement said.
The case is Lawrence M.v.D. Schloss v. Diamond Castle Holdings LLC, Docket No. 650908/2010, New York Supreme Court.
Hefner, Playboy Sued Over Bid to Take Company Private
Playboy Enterprises Inc. and founder Hugh Hefner were sued by shareholders over a proposal to take the media company private.
Directors of Playboy, based in Chicago, have a duty to get the best price for shareholders, investor Charles Germershausen contends in a complaint filed yesterday in Delaware Chancery Court in Wilmington, Delaware.
“The Going Private Plan is the product of a flawed process designed to sell PEI to Hefner and Rizvi Traverse on terms detrimental” to stockholders of PEI, the lawyer representing Germershausen said in the complaint.
The case is Germershausen v. Hefner, 5632, Court of Chancery, State of Delaware (Wilmington).
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Glaxo Said to Pay $460 Million to End Avandia Drug Suits
GlaxoSmithKline Plc agreed to pay about $460 million to resolve a majority of lawsuits alleging the company’s Avandia diabetes drug can cause heart attacks and strokes, people familiar with the accords said.
Glaxo, the U.K.’s biggest drugmaker, agreed to settle about 10,000 suits for an average of at least $46,000 apiece, the people said. The company had been facing more than 13,000 suits alleging Glaxo hid the drug’s heart-attack risk, according to a UBS AG analyst. The settlements come as Glaxo is set to face its first Avandia trial in federal court in Philadelphia in October.
“This is exceptionally good news given the market has discounted $6 billion liability,” for Avandia litigation, Gbola Amusa, an analyst at UBS in London, said in an interview. “We had outlined an absolute worst-case scenario where $500,000 per case would have to be paid.”
Glaxo, the U.K.’s largest drugmaker, is settling Avandia claims as a U.S. Food and Drug Administration advisory panel was meeting yesterday to consider whether Avandia’s ability to control blood-sugar levels outweighs a possible increase in heart attacks, strokes and deaths from cardiovascular disease. Mary Anne Rhyne, a spokeswoman for Glaxo, declined to comment.
The case is In Re Avandia Marketing, Sales Practices and Products Liability Litigation, 07-01871, U.S. District Court for the Eastern District of Pennsylvania (Philadelphia).
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Airline Challenge to Congestion Pricing Is Rejected
A U.S. appeals court rejected airlines’ challenge to a regulation letting airport operators charge more at busy times of the day to reduce delays.
The U.S. Court of Appeals for the District of Columbia denied the petition brought by the Air Transport Association, the carriers’ Washington trade group, which represents companies including Delta Air Lines Inc. and AMR Corp., which owns American Airlines. The carriers said the regulation was discriminatory and unreasonable.
The “creativity” of regulators should be welcomed to alleviate flight congestion, the appeals court wrote. The higher fees were allowed under a U.S. Transportation Department regulation made final in 2008.
“It is entirely reasonable to expect an airline, and in turn its passengers, to pay a premium for the opportunity to arrive at a peak time,” the court wrote.
The case is Air Transport Association of America Inc. v. U.S. Department of Transportation, 08-1293, U.S. Court of Appeals for the District of Columbia (Washington).
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Foxconn Asks Hong Kong Court to Strike Out BYD Claims
The claims should be struck because BYD failed to provide any “material” facts or allegations to back its case filed Oct. 2, 2009, Winston Poon, Foxconn’s lawyer, said at a hearing yesterday in the Court of First Instance in Hong Kong.
“Not only are the matters immaterial, they are also vexatious,” Poon said. “They will waste the court’s time and money.” Judge Louis Chan didn’t specify at the end of the hearing when he would rule on Foxconn’s request.
BYD, backed by billionaire Warren Buffett, countersued after two Foxconn units filed a suit in 2007 that claimed BYD recruited Foxconn employees and stole the companies’ trade secrets. BYD, China’s largest maker of rechargeable batteries, doubled its revenue from its handset business in 2005, 2006 and 2007 as a result, Foxconn said in court documents.
In its countersuit, BYD accuses its rival of unlawful interference with its business, defamation and conspiracy to injure. Foxconn was involved in planting documents and coercing a former employee to confess he had stolen secrets, according to BYD’s filings.
Foxconn, the world’s largest contract-manufacturer of mobile phones, faces competition from BYD for orders of handset components from customers including Nokia Oyj.
The case is HCA2114/2007, BYD Co. and Shenzhen Futaihong Precision Industry Co. in the Hong Kong Court of First Instance.
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Bayer Contaminated U.S. Rice Crop, Lawyer Tells Jury
A Bayer AG unit carelessly contaminated U.S. long-grain rice fields with its genetically engineered seed, causing a dive in exports to Europe, a lawyer for a Louisiana grower told jurors at the end of a trial.
The rice growers’ “reputation for producing a pure product was destroyed, with the export market lost,” attorney Don Downing told the federal court jury yesterday in St. Louis. “It was Bayer’s carelessness, and Danny Deshotels was hurt,” said Downing, who represents the Deshotels family and its rice- growing business.
The trial is the fifth against the German company and its Bayer CropScience unit over rice crop contamination in the southern U.S. Bayer has lost four trials so far, two in state court and two in federal, for a total of more than $52 million in jury awards.
Farmers in five states claim the company and Bayer CropScience negligently contaminated the U.S. long-grain rice crop with its genetically modified LibertyLink seed, leading to export restrictions, bans on two kinds of high-yield seeds and a plunge in prices.
“You have not heard of any negligence by Bayer,” Mark Ferguson, the company’s trial attorney, said yesterday. “It was Bayer’s rice, it was released and other rice was contaminated. The question is, did Bayer act reasonably?” he said.
The case is In Re Genetically Modified Rice Litigation, 06- md-1811, U.S. District Court, Eastern District of Missouri (St. Louis).
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Ex-IKB CEO Ortseifen Must Be Acquitted, Lawyer Says
Former IKB Deutsche Industriebank AG chief executive officer Stefan Ortseifen should be acquitted of charges he manipulated the lender’s share price in 2007 at the beginning of the subprime-mortgage crisis, his lawyer said.
Ortseifen didn’t misstate IKB’s risks regarding asset- backed securities tied to the U.S. mortgage market in the press release his trial centers on, lawyer Rainer Hamm told the Dusseldorf Regional Court in closing arguments yesterday. IKB’s troubles only started later and Ortseifen couldn’t have predicted that, his lawyer said.
“The mistake is to infer from our knowledge today what Mr. Orseifen should have known in July 2007,” said Hamm. “Must a bank executive be smarter than the chiefs of ratings agencies who tell us only now that they didn’t know at the time that they got these products totally wrong?”
Ortseifen is the first German bank executive to be charged over the financial crisis and is facing claims he misled investors by downplaying effect of the looming U.S. subprime crisis in a press release on July 20, 2007. IKB received a bailout package 10 days later and subsequently got as much as 12 billion euros ($15.1 billion) in guarantees from Germany’s bank- rescue fund.
Prosecutor Nils Bussee said July 7 that Ortseifen should receive a 10-month suspended prison term and pay an “adequate” penalty. The court is scheduled to issue a verdict today.
The case is LG Dusseldorf, 14 KLs 6/09.
BT Pension Trustees Seek U.K. Court Ruling on Deficit Liability
The trustees for BT Group Plc’s employee pension plan, the U.K.’s largest, asked a court to rule on how much of the fund and its 9 billion-pound ($13.6 billion) deficit will be assumed by the government if the company collapsed.
The government guaranteed the plan when the company was privatized in 1984, Alan Steinfeld, a lawyer for the pension plan told a London judge yesterday. The plan, which has 344,000 members, has assets of 31.3 billion pounds against liabilities of 40.4 billion pounds, Steinfeld said.
While BT is committed to 525 million pounds a year in deficit repair payments, a court ruling on the so-called Crown Guarantee may allow the pension trustees to reduce BT’s contributions when the next valuation of the fund takes place in December 2011, Fitch Ratings said in a note before the hearing.
BT, the U.K.’s biggest fixed-line phone company, said in an e-mailed statement that the case was “purely technical and legal” and “any comments about the impact of the court ruling on future payments is pure speculation.”
The case is TLC 637/09 BT Pension Scheme Trustees v. British Telecommunications PLC & ors.
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LVMH Says Court to Examine Google Keyword-Use in Adverts Fight
LVMH Moet Hennessy Louis Vuitton SA said a French appeal court will examine Google Inc.’s possible liability in a dispute over sales of trademarked terms as keywords that link searches to advertisements.
The Cour de Cassation, France’s highest court, has asked the Paris appeals court to look at potential “wrongdoings” by Google “to the detriment of Louis Vuitton,” Paris-based LVMH said in an e-mailed statement yesterday.
The European Union’s highest court on March 23 ruled that while Google, owner of the world’s most-used search engine, doesn’t breach companies’ trademark rights by selling keywords, it may be liable for trademark breaches in adverts if it knew of, or had control over, ad data. The top French court had in 2008 sought the EU tribunal’s guidance in the case.
Google’s storage of ad content on its systems may make it liable for trademark breaches if national judges find it plays an “active role” in creating the promotions, the EU court said.
The Cour de Cassation “considers that Google can be held liable on the grounds of civil liability,” LVMH said in yesterday’s statement. The decision “opens the possibility for the appeals court to decide on the civil liability of Google over the use of trademarks without the owner’s authorization.”
The French court “confirmed that Google has not infringed trademark law by allowing advertisers to select keywords corresponding to third party trademarks,” Benjamin Amaudric Du Chaffaut, a lawyer for Google, said in an e-mailed statement. “User interest is best served by maximizing the choice of keywords.”
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Judiciary Panel to Vote July 20 on Kagan’s Nomination
The Senate Judiciary Committee will vote July 20 on Elena Kagan’s nomination to the U.S. Supreme Court, in time for her to be confirmed by early August about two months before the beginning of the next court term.
“I would hope to complete it and vote” next week, Senator Patrick Leahy of Vermont, the panel’s Democratic chairman, said yesterday in Washington. “I think everybody’s made up their mind” on how to vote.
Senator Jeff Sessions of Alabama, the panel’s top Republican, requested a week’s delay in the vote. He said yesterday he has a number of concerns about placing Kagan on the court, including her lack of judicial experience and “less than candid” responses to lawmakers’ questions on issues like abortion and gun rights.
Kagan, 50, was nominated by President Barack Obama on May 10 to replace Justice John Paul Stevens, who retired from the nine-member court. She is the U.S. solicitor general, the government’s top lawyer before the Supreme Court. Kagan formerly was dean of Harvard Law School and worked for four years in President Bill Clinton’s White House as a lawyer and policy adviser.
Democratic leaders plan to schedule a confirmation vote in the full Senate before lawmakers’ monthlong August recess. The court will begin its new term Oct. 4.
Democrats control 58 of the Senate’s 100 seats, practically ensuring Kagan’s confirmation.
On the Docket
Hornbeck Gets 2 Weeks to Answer U.S. Bid to Scrap Drilling Ban
The New Orleans appeals court gave a July 26 deadline for opponents of the U.S. deep-water drilling moratorium to respond to the government’s request to dismiss their lawsuit, according to the court’s website.
Two New Orleans courts were asked by Interior Secretary Kenneth Salazar to dismiss an industry lawsuit challenging the moratorium after the government issued a new temporary ban.
U.S. District Judge Martin Feldman in New Orleans on June 22 threw out the six-month ban imposed by federal regulators on oil and gas drilling in waters deeper than 500 feet, finding it was too broad. A three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans on July 8 refused regulators’ request to put Feldman’s order on hold while the government appeals.
On July 12, Salazar issued a revised ban that may allow new wells if the industry shows it has raised safety standards. The new policy replaces the earlier ban and renders the challenge to it moot, U.S. Justice Department lawyers said yesterday in filings with both courts in New Orleans.
President Barack Obama initially imposed a six-month suspension on deep-water drilling in reaction to the BP Plc oil spill, the worst in U.S. history, caused by the sinking of the Deepwater Horizon drilling rig off the Louisiana coast in April.
Hornbeck Offshore Services Inc. and more than a dozen other offshore service and supply companies sued U.S. regulators, including Salazar, last month, seeking to block the moratorium.
“We’ve just received the decision memorandum of the government,” Carl Rosenblum, Hornbeck’s lawyer, said in a phone interview. “We’re still evaluating it, but we have substantial concerns about whether it is consistent with Judge Feldman’s order.”
The case is Hornbeck Offshore Services LLC v. Salazar, 2:10-cv-01663, U.S. District Court, Eastern District of Louisiana (New Orleans). The appeal case is 10-30585, 5th U.S. Circuit Court of Appeals (New Orleans).