Hewlett-Packard, Citigroup, Barclays in Court News

Hewlett-Packard Co.’s lawsuit seeking to block former Chief Executive Officer Mark Hurd from working at Oracle Corp. may be hard to win because California’s courts favor letting employees move freely, Bloomberg News’ Joel Rosenblatt and Aaron Ricadela report.

HP said that serving as an Oracle president would make it “impossible” for Hurd to avoid using or disclosing HP’s trade secrets and confidential information, according to yesterday’s complaint in California’s Santa Clara County Superior Court.

The theory that trade secrets will inevitably be disclosed “won’t work in California as a reason to prevent someone from taking a job,” said Mark Lemley, a professor at Stanford Law School who specializes in intellectual property. “Neither will California courts enforce a noncompete agreement. HP will have to show real evidence that Mark Hurd is about to use its secrets at Oracle.”

Oracle CEO Larry Ellison said in a statement that the lawsuit was “vindictive” and that it would make it more difficult for the two companies to work jointly in the information technology market.

Glenn Bunting, a spokesman for Hurd, declined to comment.

At HP, Hurd more than tripled profit by cutting costs and expanding beyond the company’s core business of computers and printers. He oversaw an acquisition spree of more than $20 billion, letting the company branch out into services, networking equipment and smartphones.

“In his new positions, Hurd will be in a situation in which he cannot perform his duties for Oracle without necessarily using and disclosing HP’s trade secrets and confidential information to others,” HP said in its complaint.

The case is Hewlett-Packard Co. v. Hurd, 110-cv-181699, California Superior Court, Santa Clara County (San Jose).

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Allergan Directors Are Sued Over Marketing of Botox

Allergan Inc. directors should be held liable for opening up the maker of wrinkle smoother Botox to criminal sanctions and a $600 million settlement by allowing the drug to be marketed for unapproved uses, investors said in a lawsuit.

Allergan’s board approved so-called off-label marketing plans for Botox as part of the company’s strategic plans and ignored repeated violations of federal law governing the sales and marketing of drugs, a Louisiana pension fund said in its Delaware Chancery Court lawsuit. The suit seeks to force directors to return money to the company to offset the settlement payout.

Allergan, based in Irvine, California, agreed Sept. 1 to plead guilty to a single misdemeanor charge in settling a U.S. probe of its Botox marketing practices. The company will pay $375 million in criminal fines and $225 million to resolve civil claims filed by the U.S. Justice Department.

“The off-label marketing practices have already caused injury to the company and will continue to cause harm by virtue of the fines it has agreed to pay in connection with those illegal sales and marketing practices,” the fund’s lawyers said in the Sept. 3 complaint.

Allergan officials said in a U.S. Securities and Exchange Commission filing yesterday that they are still studying the suit. The drugmaker “expects to contest it vigorously,” Matthew Maletta, Allergan’s associate general counsel, said in the filing.

Prosecutors alleged Allergan executives pushed salespeople to market the anti-wrinkle drug for headache, pain, muscle stiffness and juvenile cerebral palsy, which weren’t approved by the U.S. Food and Drug Administration.

Although doctors may prescribe drugs for uses not approved as safe and effective by government regulators, companies are forbidden to market them for off-label uses.

The global settlement concluded a more than two-year investigation that some analysts have said has held up FDA approval for use of Botox to treat migraines.

The case is Louisiana Municipal Police Employees Retirement System v. Pyott, 5795, Delaware Chancery Court (Wilmington).

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Lawsuits/Pretrial

Drilling Ban Foes Ask Judge to Find New Rules Illegal

Opponents of a federal ban on deep-water oil drilling asked a judge yesterday to rule that a new moratorium is illegal, according to court papers.

U.S. District Judge Martin Feldman in New Orleans on June 22 threw out the six-month ban imposed in May by federal regulators after the BP Plc oil spill, finding it too broad. Interior Secretary Kenneth Salazar issued a revised ban on July 12, saying it superseded the initial suspension.

The new rules violate Feldman’s order stopping the ban, lawyers for Hornbeck Offshore Services Inc. and other oil service companies said yesterday in a court filing. They asked Feldman to bar the government from enforcing the newer moratorium and sought a Sept. 22 hearing.

The July moratorium “violates the preliminary injunction order because it continues, in a different guise, a prohibition” on all drilling on the outer continental shelf in water deeper than 500 feet, Hornbeck’s lawyers said yesterday. All drilling has been halted “despite” Feldman’s June decision prohibiting enforcement of the first ban, they said.

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 is 10-30585, U.S. Court of Appeals for the Fifth Circuit (New Orleans).

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Citigroup Says Trial Not Needed Over EMI Dispute

Citigroup Inc. asked a federal judge to forgo a trial and rule in its favor in a lawsuit accusing the bank of tricking Terra Firma Capital Partners Ltd. into buying EMI Group Ltd. in 2007.

Terra Firma accused New York-based Citigroup of misrepresenting that another private-equity firm, Cerberus Capital Management LP, was still bidding on the music recording and publishing company, according to its complaint.

“This case should not proceed to trial,” Citigroup wrote in its request for so-called summary judgment, filed in the case docket yesterday. “Thirty-six depositions and millions of pages of documents have failed to yield any evidence that creates a triable issue of fact.”

In response, London-based Terra Firma said the record “makes clear that the trial should proceed.” A trial date has been set for Oct. 18 in federal court in New York.

No evidence suggests that David Wormsley, a Citigroup banker, knew Cerberus didn’t plan to bid when, according to Terra Firma, he told the buyout firm’s principal, Guy Hands, that Cerberus would bid 2.62 pounds ($4.02) a share for EMI, according to Citigroup’s filing. There is no evidence of fraud, the bank said.

Citigroup also disputed Terra Firma’s claim that it wouldn’t have bid for EMI had it known Cerberus wasn’t bidding.

Wormsley said in pretrial sworn testimony last month that he hasn’t decided whether to appear at the trial if called as a witness, according to Terra Firma’s filing yesterday. “It is no surprise, then, that Citi wants to avoid the courtroom,” Terra Firma said.

Terra Firma said the case hinges on a series of phone calls in May 2007 between Wormsley and Hands. The bank cited no evidence that Wormsley believed Cerberus would place the bid, Terra Firma said.

The case is Terra Firma v. Citigroup, 09-cv-10459, U.S. District Court, Southern District of New York (Manhattan).

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Trials/Appeals

Fed Planned to Wind Down Lehman Brokerage in 2008

The U.S. Federal Reserve planned to wind down Lehman Brothers Holdings Inc.’s brokerage business during the 2008 financial crisis, a Fed lawyer testified in Lehman’s lawsuit against Barclays Plc.

The Fed lent Lehman’s brokerage $45 billion for an “orderly wind-down” after the company filed for bankruptcy, Shari Leventhal, a lawyer for the Federal Reserve Bank of New York, said yesterday in U.S. Bankruptcy Court in Manhattan.

Barclays, based in London, ended up buying the brokerage less than a week after Lehman’s bankruptcy filing in September 2008. New York-based Lehman, which claims the U.K. bank received an undisclosed windfall of $11 billion in the deal, is seeking to recover the money to pay creditors. Barclays has said the transaction was reviewed by both sides.

Leventhal, a senior vice president at the New York Fed who was involved in the Barclays deal, said she spoke in support of the acquisition in bankruptcy court in September 2008 because the Fed was concerned about the stability of the financial markets, which had been under stress since the near-collapse of Bear Stearns Cos. the previous March.

“We were concerned to restore stability any way we could,” she told U.S. Bankruptcy Judge James Peck yesterday. For the Lehman brokerage, that meant “an orderly wind-down or acquisition,” she said. The latter was preferable because it would put Lehman’s brokerage accounts in safe hands and “there was an opportunity to save some jobs,” she said.

The cases are In re Lehman Brothers Holdings Inc., 08- 13555, and Giddens v. Barclays Capital Inc., 09-01732, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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Verdicts/Settlements

Skilled Healthcare to Pay $50 Million to Settle After Verdict

Skilled Healthcare Group Inc. agreed to pay $50 million to settle a case in which a jury found the company improperly staffed its California nursing homes.

The settlement, announced in a statement yesterday, allows Skilled Healthcare to avoid a $677 million damage verdict, the largest jury award in the U.S. this year, according to data compiled by Bloomberg. Skilled Healthcare shares plunged 76 percent after the verdict was announced in July.

The money will be put into escrow accounts to cover payments to members in the class-action lawsuit, Skilled Healthcare said. The accounts will be funded by Skilled Healthcare’s revolving credit facility, the company said. The terms of the settlement must be approved by a judge.

Skilled Healthcare, based in Foothill Ranch, California, was found liable by a Humboldt County jury on July 6 for improperly staffing 22 facilities in the state. The verdict included $619 million for Health Code violations and $58 million in restitution.

The case is Lavender v. Skilled Healthcare Group, DR060264, Superior Court, Humboldt County, California (Eureka).

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Cisco, Westcon to Pay $48 Million for Overbilling

Cisco Systems Inc., the biggest networking-equipment maker, and Westcon Group North America agreed to pay $48 million to settle claims that they overcharged the U.S. government, the Justice Department said.

The settlement resolves claims that Cisco and Westcon, a Cisco distributor, overcharged taxpayers through a General Services Administration contract. The accord settles a lawsuit filed by whistleblowers Norman Rille and Neal Roberts in Little Rock, Arkansas, under the federal False Claims Act.

The Justice Department previously settled claims made by the same men over allegations against Hewlett-Packard Co., EMC Corp., International Business Machines Corp., Computer Sciences Corp. and PricewaterhouseCoopers LLP.

“Overcharging the government results in waste of taxpayer dollars,” Brian D. Miller, GSA inspector general, said in a statement. “Our auditors and special agents keep vigilant watch to ensure contractors stay honest.”

Kristin Carvell, a spokeswoman for San Jose, California- based Cisco, said in a statement that the company was “very pleased” to resolve the case.

“These reported allegations are associated with events that go back several years ago and in no way reflect Westcon’s business practices,” Jeff Touzeau, a spokesman for Westcon Group, said in an e-mailed statement.

The case is U.S. ex rel. Rille v. PricewaterhouseCoopers LLP, 04-cv-988, U.S. District Court, Eastern District of Arkansas (Little Rock).

Wal-Mart Unit Loses Ruling Over Capping Tobacco Antitrust Fine

Wal-Mart Stores Inc.’s Asda unit, the U.K.’s second-biggest supermarket chain, lost a court ruling on its request to block a regulator from raising a 14.1 million-pound ($21.7 million) fine in a tobacco price-fixing case.

The Competition Appeal Tribunal in London rejected Aug. 6 Asda’s request to prevent the Office of Fair Trading from raising the fine. The OFT hasn’t said when it will increase the fine, or by how much.

“Asda agreed not to contest the allegations of infringement made by the OFT in return for a reduction in the fine that the OFT would otherwise have imposed,” Vivien Rose, a chairwoman at the tribunal, said in the ruling.

Asda, based in Leeds, England, is among 10 retailers and two tobacco companies, Imperial Tobacco Group Plc and Gallaher Group Ltd., that in April were fined 225 million pounds for coordinating cigarette prices between 2001 and 2003.

“When we agreed to settle the case with the OFT, we did not have access to all of the evidence or the OFT’s final reasoning,” Asda spokeswoman Jo Newbould said Aug. 6 in a statement. “Now that we have had time to consider properly their findings, we believe the OFT has got it wrong.”

Fairfax Media Loses Copyright Claim on News Headlines

Fairfax Media Ltd., Australia’s second-biggest newspaper publisher, lost a claim that it holds a copyright on headlines and bylines published in its Australian Financial Review.

Federal Court Judge Annabelle Bennett yesterday ruled that Reed Elsevier Plc’s ABIX service, which is included in the company’s LexisNexis service, can publish synopses of articles from the Australian Financial Review to its subscribers.

“Reed does not take a substantial part of such a work,” Bennett said in Sydney federal court. It “is a fair dealing for the purpose of reporting news.”

Fairfax, based in Sydney, sought to expand copyright protection to headlines for the first time in Australia. A decision in its favor would have had a “significant detrimental impact” on all bibliographical and reference systems, which rely on the full title of a book, essay, play, song or newspaper article for identification, Reed had argued.

“Copyright is very important for all publishers and creators but in this case Fairfax tried to push the copyright boundaries too far,” John Swinson, a partner at Mallesons Stephen Jaques and Reed’s lawyer, said yesterday in a phone interview from Brisbane.

The ruling “clarifies these areas of law that are important not just to newspaper publishers, but to online services such as Google that refer to other people’s work,” he said.

Fairfax is considering appealing the decision, Michael Gill, chief executive officer of the Financial Review Group, said in a statement.

The case is Fairfax Media Publications Ltd. v Reed International Books Australia Pty, NSD 1306/2007, Federal Court of Australia (Sydney).

Swiss Court Hands First Sentence on ‘Front Running,’ NZZ Says

The Zurich district court for the first time sentenced two people for so-called “front running” trading activities, NZZ reported.

A fund manager informed two accomplices about his planned investments in small and medium-sized Swiss companies, so that they could profit from share price movements, the Zurich-based newspaper said, citing the verdict. Through 13 transactions, the three men caused damages of 3.5 million francs ($3.5 million), NZZ said.

One of the men committed suicide during the investigation, while a second man received a three-year sentence, two of which are suspended. The third man was handed a 21-months suspended sentence, NZZ said. The verdict may be appealed and isn’t in force yet, the newspaper said.

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Litigation Departments

Lehman Creditors’ Lawyer at Milbank Charges $1,050 an Hour

Lehman Brothers Holdings Inc. creditors’ lawyer Dennis Dunne of Milbank Tweed Hadley & McCloy LLP bills the defunct firm at $1,050 an hour for services to the creditors committee after raising his fee in January from $995 an hour, according to a court filing yesterday.

Bankrupt Lehman pays the fees of lawyers who advise its official committee of creditors, as well as its own lawyers. Its own lead bankruptcy attorney, Harvey Miller of Weil Gotshal & Manges LLP, charges $990 an hour after an increase from $950 earlier, according to a separate filing in U.S. Bankruptcy Court in Manhattan.

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

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