German Bond Default, BP, Credit Suisse in Court News

Germany must face a lawsuit over bonds that defaulted under Adolf Hitler in the 1930s, a U.S. appeals court ruled, saying the nation isn’t immune from the claims and that American courts have jurisdiction to decide whether the bonds are enforceable.

World Holdings LLC, based in Tampa, Florida, claimed it owns a “significant number” of $208 million in bonds sold to U.S. purchasers following World War I and has been rebuffed when it sought repayment by the German government. The firm is seeking “hundreds of millions of dollars” in the suit, said Michael Elsner, an attorney for the investors.

Germany sold the bonds to finance rebuilding following the conclusion of the war, according to court papers. By the mid- 1930s, after Hitler became chancellor, Germany had stopped making payments on the bonds in the run up to World War II, according to the ruling issued Aug. 9 by the federal appeals court in Atlanta.

Gerald Houlihan, an attorney for the German government, declined to immediately comment on the decision.

Under a 1953 treaty, the bondholder must show the bonds were held outside Germany as of Jan. 1, 1945, to ensure repayment. World Holdings claims the validation is unnecessary for those who didn’t originally accept the terms of the London Debt Agreement, also completed in 1953, which aimed to settle most of Germany’s pre-World War II debt.

Germany counters that World Holdings hasn’t contacted the country’s examiners with any request to validate the bonds. In addition, the country claims the 1953 treaty precludes the lawsuit in a U.S. court.

The three-judge panel said it may still eventually find that World Holdings’ failure to comply with the validation requirement could deem the bonds worthless.

The case is World Holdings LLC v. The Federal Republic of Germany, 09-14359, U.S. Court of Appeals for the Eleventh Circuit (Atlanta). The lower court case is 08cv20198, U.S. District Court for the Southern District of Florida (Miami).

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BP Suits Combined in ‘Center of Gravity’ New Orleans

BP Plc must face hundreds of lawsuits in federal court in New Orleans because the city is closest to the site of the largest offshore oil spill in U.S. history, a panel of judges ruled.

“Without discounting the spill’s effects on other states, if there is a geographic and psychological ‘center of gravity’ in this docket, then the Eastern District of Louisiana is closest to it,” the panel said in its decision yesterday.

U.S. District Judge Carl Barbier will preside over more than 300 suits, including wrongful-death claims by families of workers killed in the April explosion of the Deepwater Horizon drilling rig. Claims also cover revenue lost by Gulf Coast businesses and environmental damage.

Barbier has “considerable” experience with multidistrict litigation and “has been already actively managing dozens of cases in this docket,” the judges said. BP investors’ suits over losses tied to the spill will be sent to federal court in Houston.

Barbier yesterday set Sept. 17 for an initial conference for organizing the lawsuits in his court.

Government scientists estimated that the well spewed more than 4 million barrels of oil into the Gulf of Mexico, making it the largest accidental maritime oil spill. The leak was about 16 times larger than the estimated 257,000 barrels lost after the Exxon Valdez ran aground in Alaska in 1989.

BP has set aside $32.2 billion to pay spill costs and legal claims. The London-based company, which is selling $30 billion of assets, decided to replace Chief Executive Officer Tony Hayward after reporting a record quarterly loss of $17.2 billion.

“The decision is welcome news for Louisiana and our people, who have been at the epicenter of this tragic event,” Louisiana Governor Bobby Jindal said yesterday in a statement. The state supported consolidation in New Orleans.

“Louisiana is bearing the brunt of the blow so far,” plaintiffs’ lawyer Jere L. Beasley of Montgomery, Alabama, said yesterday in a phone interview. “From the victims’ standpoint, you couldn’t have a better location.”

BP sought to have the Judicial Panel on Multi-District Litigation consolidate the cases in Houston, home to BP’s U.S. headquarters. Other suggested consolidation sites included Miami as well as Mobile, Alabama, and Gulfport, Mississippi.

“We are aware of and respect the decisions of the” judicial panel, Scott Dean, a BP spokesmen, said in an e-mailed statement. “We look forward to the cases proceeding as expeditiously and efficiently as possible.”

The main MDL case is In Re Oil Spill by the Oil Rig “Deepwater Horizon” in the Gulf of Mexico on April 20, 2010, MDL Docket No. 2179.

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Credit Suisse, 44 Banks Deny Aiding Adelphia Fraud

Credit Suisse Group AG, Bank of America Corp. and 43 other banks urged a judge to dismiss a lawsuit claiming they aided a fraud at bankrupt Adelphia Communications Corp., the defunct cable television company.

The Adelphia Recovery Trust, formed to pursue claims against lenders and others, failed in seven years of litigation to prove that banks knew of the fraud, Credit Suisse lawyer Philip D. Anker argued yesterday in federal court in New York.

“There is not a single shred of evidence than any bank knew there was a breach of fiduciary duty, knew there was a fraud,” said Anker, speaking for the banks at a hearing on whether a judge should dismiss the lawsuit before trial.

Adelphia, once the fifth-biggest cable company, collapsed in 2002 after disclosing that founder John Rigas and his family owed $2.3 billion in off-balance-sheet debt on bank loans taken jointly with the company. Rigas is serving 12 years in prison, and his son Timothy is serving 15 years after their 2004 convictions for looting Adelphia and lying about its finances.

The Adelphia Recovery Trust is pursuing claims for fraud, aiding and abetting fraud, and aiding and abetting breach of fiduciary duty. The company sold its cable television assets to Time Warner Inc. and Comcast Corp.

An attorney for the trust, David Friedman, of New York’s Kasowitz, Benson, Torres & Friedman LLP, said the evidence shows that bankers knew that the Rigases and their private businesses failed to put up enough collateral on three syndicated loans. As a result, he said, the Rigases looted $2.8 billion.

The case is Adelphia Recovery Trust v. Bank of America, 05- cv-9050, U.S. District Court, Southern District of New York (Manhattan).

Jailed in Dubai, Accused Wait Long After Good Times Have Gone

Not long ago, British businessman Ryan Cornelius was living the high life, doing deals out of Bahrain and taking his family big-game fishing on his yacht and on safari in Kenya. He’s now into his third year in a Dubai jail cell, yet to be convicted of anything, Bloomberg News’ Henry Meyer reports.

Cornelius, 56, and six co-defendants have been charged with defrauding Dubai Islamic Bank PJSC of $501 million, one of the largest such cases in the history of United Arab Emirates. He says he did nothing wrong, and like others, foreigners and nationals, who profited in Dubai in the boom times, he waits in prison as the legal system slowly tries to separate the guilty from the innocent of those arrested in an anti-corruption drive.

Dubai’s image as the Singapore of the Middle East, a global hub for finance and tourism, is being tested as it tries to clamp down on excesses such as fraud and overdevelopment, which came with an explosion of people and investment. Its judicial system still often has more in common with its regional neighbors than the Western nations that it aspires to emulate, say lawyers and economists who work there.

The government won’t say how many people have been arrested in the two-year campaign against financial corruption. Detained in Dubai, a London-based lobbying group, says several hundred executives may have been jailed.

In all, about 40 percent of the 1,200 people in Dubai Central Prison have been convicted of defaulting on bank loans, Human Rights Watch said in a report in January. Even after completing their sentences, the New York-based group said, prisoners are likely to remain in jail until their debt is paid off, unlike in the U.S. or the U.K., where debtors’ prisons were abolished in the 19th century.

Over-lengthy sentences and a lack of specially trained judges to deal with white-collar crime threaten to discourage investment in Dubai, said Habib al-Mulla, the former chairman of the Dubai Financial Services Authority, an industry regulator. The U.S. State Department said in a March report that while the country’s constitution guarantees an independent judiciary, the U.A.E. court system remains “subject to review by the political leadership.” Defendants can spend months without being charged and are often unfairly denied bail, according to lawyers.

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Facebook Claimant Wants Suit Sent Back to State Court

Paul Ceglia, the man who claims in a lawsuit that he owns 84 percent of Facebook Inc., asked a federal judge overseeing the case to send it back to state court.

Ceglia’s lawyers argued in filings Aug. 9 that U.S. District Judge Richard Arcara’s court lacks jurisdiction over the matter because Ceglia and Facebook Chief Executive Officer Mark Zuckerberg are both citizens of New York state. Zuckerberg, who lived in Dobbs Ferry, New York, until 2004, has said he now lives in California.

“As a matter of law, Zuckerberg’s domicile remains in New York until he proves otherwise,” Ceglia’s attorneys argued in the filing.

Ceglia, 37, claimed in a suit filed June 30 in state court that Zuckerberg signed a contract in 2003 that entitles Ceglia to control of the world’s most popular Internet social- networking site. Facebook’s lawyers moved the case to federal court in Buffalo on July 9.

“This is another ridiculous and demonstrably false claim in an already absurd lawsuit,” Facebook, based in Palo Alto, California, said in an e-mailed statement. “It is telling that the plaintiff does not want his bogus case heard by a federal court.”

According to Facebook, Zuckerberg moved to California in 2004, the year he launched Facebook. The company said it offered to show Ceglia’s lawyers Zuckerberg’s California driver’s license, the lease on his Palo Alto home, California state tax returns and proof that he is registered to vote in the state.

The case is Ceglia v. Zuckerberg, 10-CV-00569, U.S. District Court, Western District of New York (Buffalo).

U.S. Can Join St. Jude Medical False Claims Case

The U.S. Justice Department can join a whistleblower’s lawsuit claiming St. Jude Medical Inc., a medical device maker, defrauded taxpayers by paying kickbacks to doctors, a federal judge ruled.

The government asked to intervene in the lawsuit of Charles Donigian, a former St. Jude employee who claimed the company paid kickbacks to encourage doctors to use its pacemakers and defibrillators, U.S. District Judge Douglas Woodlock ruled Aug. 9 in federal court in Boston.

Woodlock granted the government’s Aug. 5 motion to join the lawsuit, filed under seal in 2006. While the Justice Department said last December that it wouldn’t join the case, it changed course after reviewing thousands of pages of documents and interviewing witnesses, according to its motion to intervene.

“Based on that investigation, the United States has now determined that it has good cause to intervene,” Justice Department attorneys wrote in the Aug. 5 filing.

The False Claims Act lets citizens sue on behalf of the government and share in any recovery. The lawsuit claims St. Jude, based in St. Paul, Minnesota, falsely billed government health-care programs by paying doctors to help conduct clinical trials of its devices. Those payments were nothing more than kickbacks, according to the complaint.

St. Jude objected to the government’s motion to intervene and “will vigorously defend against the allegations in the lawsuit,” spokeswoman Amy Jo Meyer said in an e-mail.

Woodlock ruled that the government must file its own complaint by Aug. 31.

“We’re very pleased at the government’s intervention,” said Donigian attorney Marcella Auerbach.

The case is United States of America ex rel. Charles Donigian v. St. Jude Medical Inc., 06-cv-11166, U.S. District Court, District of Massachusetts (Boston).

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New Suits

Lehman Brothers Europe Sues Dubai Real-Estate Group Over Swaps

Lehman Brothers International Europe sued Dubai Holding Commercial Operations Group LLC, a real estate and hospitality group owned by the emirate’s ruler, over the value of swap transactions.

LBIE, which is in administration in the U.K., filed the lawsuit in London Aug. 9, according to court documents. The case is “a straightforward financial dispute regarding the valuation of certain swap transactions entered into between the parties,” LBIE’s administrators, PricewaterhouseCoopers LLP, said yesterday in an e-mailed statement. They declined to provide information on the value of the swaps.

Dubai Holding’s representatives at a public relations agency weren’t available to comment outside normal business hours.

Dubai Holding Commercial reported a full-year loss of 22.8 billion dirhams ($6.2 billion) on June 1, compared with a year- earlier profit of 10 billion dirhams after property prices there fell. The company last month got a two-month extension on its $555 million credit line that was about to mature. Its parent, Dubai Holding LLC, and its units owe banks $12 billion and began talks to roll over some of the loans, a person with knowledge of the matter who declined to be identified said in May.

LBIE’s parent, New York-based Lehman Brothers Holdings Inc., had more than 900,000 derivative contracts outstanding when it filed bankruptcy in 2008 listing $613 billion in debt.

The case is Lehman Brothers International Europe (in administration) v. Dubai Holding Commercial Operations Group LLC, case no. HC10C02586, High Court of Justice, Chancery Division (London).

Samsung, LCD-Panel Makers Sued by Illinois’s Madigan

Samsung Electronics Co., Toshiba Corp., Sharp Corp. and five other liquid-crystal display makers were sued by Illinois Attorney General Lisa Madigan over claims they conspired to fix prices.

The companies agreed to set the price and limit production of LCD panels, used in computers, television and mobile phones, from at least Nov. 30, 1998, to Dec. 11, 2006, Madigan said in a 34-page complaint filed yesterday in state court in Chicago.

The alleged scheme resulted in higher prices that hurt consumers and the state, said Madigan, who seeks unspecified damages for overcharges. Florida Attorney General Bill McCollum said yesterday in a statement that his office would file a similar suit in California alleging price-fixing for thin-film LCD panels. New York Attorney General Andrew Cuomo said Aug. 6 he filed an antitrust suit against LCD makers.

Samsung is based in South Korea, Toshiba is based in Tokyo and Sharp is based in Osaka, Japan. Defendants in Madigan’s suit also include LG Display Co. of South Korea, AU Optronics Corp. and Chi Mei Innolux Corp. of Taiwan, Hitachi Ltd. of Japan and Epson Imaging Devices Corp., a unit of Japan’s Seiko Epson Corp.

The case is State of Illinois v. AU Optronics Corp., 10CH34472, in the Cook County, Illinois, Circuit Court, Chancery Division (Chicago).

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Verdicts/Settlements

Wells Fargo Loses Consumer Case Over Overdraft Fees

Wells Fargo & Co. should pay about $203 million to customers who claim the bank manipulated debit-card transactions without their knowledge to increase revenue from overdraft fees, a federal judge ruled.

U.S. District Judge William Alsup in San Francisco issued the ruling yesterday, deciding the case without a jury.

Wells Fargo, the largest U.S. home lender, changed the way it treated customers’ daily debit transactions and cash withdrawals in December 2001, according to the lawsuit filed in 2007. Transactions with the highest dollar amount posted first, rather than in the order they occurred.

The practice resulted in more overdrafts, with customers overdrawing their accounts by small amounts multiple times a day, according to the complaint. The change allegedly was intended to boost revenue from overdraft fees, which ranged from $18 to $35 for each overdraft.

Customers don’t “reasonably expect that they will have to pay up to ten overdraft fees when only one would ordinarily be incurred,” Alsup wrote in the opinion. The multiple fees are “so pernicious,” he said, that they should only be allowed if customers expected them and in this case “the proof is the opposite.”

The lawsuit, filed by three customers on behalf of thousands of Californians charged overdraft fees, claimed the practice was unfair, deceptive and fraudulent and sought more than $350 million, plus punitive damages.

Wells Fargo will appeal the ruling, which isn’t “in line with the facts of the case,” Richele Messick, a spokeswoman for the San Francisco-based bank, said in a phone interview.

The case is Gutierrez v. Wells Fargo, 07-05923, U.S. District Court, Northern District of California (San Francisco).

Wal-Mart Wage Lawsuit Settlement Affirmed on Appeal

Wal-Mart Stores Inc.’s settlement of as much as $85 million with hourly workers who sued over allegations of unpaid wages was affirmed by a federal appeals court.

Questions raised on appeal were so “insubstantial as not to require further argument,” the U.S. appeals court in San Francisco said in an order yesterday. The three-judge panel affirmed the Nov. 2 decision by U.S. District Judge Philip M. Pro in Las Vegas to approve the settlement.

“Over 3 million Wal-Mart hourly employees who worked in 30 states have received good news,” Robert Bonsignore, a lawyer representing the workers, said in a statement. “Absent further appeals, employees can expect to be paid before the end of the year.”

The workers claimed that Bentonville, Arkansas-based Wal- Mart violated wage-and-hour laws by denying them rest breaks and manipulating time cards to reduce their pay. The accord was part of a global $640 million resolution of wage-and-hour claims reached in December 2008 between Wal-Mart and workers.

The appeal was brought by Wal-Mart workers who objected that the plaintiff lawyers were awarded 33 percent of $85 million, or $28.3 million, even though the lawyers later told the judge that Wal-Mart wouldn’t have to pay more than $65 million based on the numbers of claims submitted.

The case is In Re Wal-Mart Wage & Hour Employment Practices Litigation, MDL 1735, U.S. District Court, District of Nevada (Las Vegas).

Morgan Stanley Fined $800,000 Over Disclosure of Conflicts

Morgan Stanley, owner of the world’s largest brokerage, will pay $800,000 to settle regulatory claims that it didn’t disclose research analysts’ conflicts of interest to investors.

The New York-based firm also failed to alert customers to the availability of independent research, the Financial Industry Regulatory Authority said yesterday in a statement. The required disclosures didn’t appear in more than 6,000 equity research reports and 84 public appearances from April 2006 to June 2010, Finra said.

“This case strikes at the heart of Finra’s research disclosure requirements, which were written in response to scandals involving research analyst conflicts of interest,” James Shorris, Finra’s acting chief of enforcement, said in the statement. “Thousands of Morgan Stanley research reports did not include accurate information about the firm’s relationships with the companies it covered, depriving potential investors of important information.”

Morgan Stanley, which didn’t admit or deny the allegations, previously settled a Finra case in 2005 which found the firm violated research analyst disclosure rules, the Washington-based industry regulator said.

“Morgan Stanley initially reported this matter and cooperated fully with Finra,” Sandra Hernandez, a spokeswoman for the firm, said in an e-mailed statement. “Additionally, Morgan Stanley has developed and implemented improved systems for the publication of the required disclosures in response to this matter.”

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Litigation Departments

Stephen Zack Becomes American Bar Association President

Boies, Schiller & Flexner LLP partner Stephen Zack became president of the American Bar Association Aug. 9, the legal organization said in a press release. Zack, the administrative partner in Boies Schiller’s Miami office, has a practice that focuses on complex commercial litigation, emphasizing class actions, products liability cases and federal multi-district litigation, according to the firm.

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Court News

Saudi Arabia Requires 3,000 Judges for Courts, Gazette Reports

Saudi Arabia requires 3,000 judges as part a 9 billion- riyal ($2.4 billion) program to develop the kingdom’s judicial system, the Gazette said, citing Saleh Bin Abdullah Bin Humaid, the Supreme Judiciary Council chairman.

About 1,500 new judges will start working in Saudi courts soon, the Jeddah-based newspaper reported Aug. 10. There were no disagreements between the judiciary council and judges in the kingdom, the newspaper cited Humaid as saying.

Saudi Arabia, a Group of 20 member with a legal system based on Shariah, or Islamic law, announced plans in 2007 to establish a supreme court and commercial and labor courts. The kingdom wants to appoint more judges to develop the judicial system as it seeks to attract more international investment.

On The Docket

Tronox, Anadarko Dispute Scheduled for Trial in 2011

Tronox Inc.’s dispute with Anadarko Petroleum Corp. and its Kerr-McGee Corp. unit over environmental liabilities will go to trial in December 2011, after the U.S. agreed to meet a Nov. 1 deadline to produce documents for its claims of more than $5 billion.

Tronox, a bankrupt chemical maker, is scheduled for a Sept. 16 hearing to seek approval of a Chapter 11 plan to reorganize. Separately, Tronox’s official committee of equity holders has made a proposal to rival the company’s own reorganization plan, which has equity financing in place, lawyer David Crichlow told U.S. Bankruptcy Judge Allan Gropper in Manhattan court yesterday.

Crichlow said equity holders are still seeking a consensual resolution, but will ask him to terminate Tronox’s control of its bankruptcy if equity holders don’t get a “fair” distribution under Tronox’s plan.

Tronox has also made progress toward a deal to settle its environmental liabilities, Jonathan Henes, a lawyer for Tronox, told Gropper yesterday. He declined to give further details, citing concerns of market-moving information.

“I give you full carte blanche to reach any future agreements,” Gropper said, noting he was pleased with the progress made.

The bankruptcy case is Tronox Inc., 09-10156, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York at eamon2@bloomberg.net.

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

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