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Bank of America, Airgas, Microsoft, 3M in Court News

Bank of America Corp., the biggest U.S. bank by assets and deposits, delayed foreclosures after a federal regulator called for a review because lenders may have submitted defective documents when repossessing homes.

Bank of America will investigate all affidavits in cases that have not yet gone to judgment in 23 states where courts have jurisdiction over home seizures, Dan Frahm, a spokesman for the bank, said Oct. 1. He estimated “tens of thousands” of documents will be studied and the process will take from “several days to a couple of weeks.”

Court documents showed JPMorgan Chase & Co. and Ally Financial Inc. employees may have submitted affidavits without confirming their accuracy. Federal lawmakers and state officials have said such practices could amount to fraud. JPMorgan said it will ask judges to postpone foreclosure rulings, while Detroit- based Ally said Sept. 21 its GMAC Mortgage unit would halt evictions.

Bank of America’s freeze “hopefully will give peace of mind to those monitoring the industry that we’ve used an abundance of caution that those foreclosures in process are handled correctly,” Frahm said in an interview. The Charlotte, North Carolina-based bank isn’t acknowledging that its associates made errors, Frahm said.

“The extent of the problem is enormous,” said Max Gardner, a Shelby, North Carolina, attorney representing borrowers alleging improper servicing practices by banks. “We have a problem in the housing market right now, given the inability to sell properties and declining property values, but the economic downside from this problem is even more monumental.”

Acting Comptroller of the Currency John Walsh last week asked the nation’s seven biggest lenders to review foreclosures for defective documents, spokesman Bryan Hubbard said. Attorneys general in at least six states are investigating claims that home lenders and loan servicers took shortcuts to speed foreclosures.

Home foreclosures in Connecticut should be frozen for 60 days because of “defective” documents, Attorney General Richard Blumenthal said in a request to the state Judicial Department. In California, Attorney General Jerry Brown said JPMorgan should be asked to prove its home foreclosures are legal, and must stop the practice if it can’t.

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Trials/Appeals

Airgas Trial on Air Products Bid to Focus on Annual Meeting

Airgas Inc., trying to fend off a $5.5 billion hostile bid from Air Products & Chemicals Inc., may face an uphill fight at trial this week when it challenges a new bylaw that moves up the date of its annual meeting.

Managers of Airgas are asking Delaware Chancery Court Judge William B. Chandler III in Georgetown to invalidate the bylaw, which shareholders approved in a Sept. 15 vote that added three Air Products nominees to the Airgas board.

Air Products wants its nominees to take control of the 10- member Airgas board at the next annual meeting, set for Jan. 18, and accept the takeover offer of $65.50 a share. Airgas officials have repeatedly rejected bids from Allentown, Pennsylvania-based Air Products, the second-biggest U.S. industrial-gases producer behind Praxair Inc.

“Airgas is in a tough position,” Paul Regan, a professor at Widener University Law School in Wilmington, who teaches courses on merger-and-acquisition law, said in a phone interview. “It’s well-established that shareholders can vote to amend bylaws, and I don’t think Delaware law requires a 12-month wait between annual meetings.”

During the week-long trial set to start today in Georgetown, lawyers for Radnor, Pennsylvania-based Airgas will argue that the bylaw wasn’t approved by a two-thirds majority of investors and forces the company to hold the equivalent of two annual meetings within a four-month period, according to court filings.

Air Products sued Airgas on Feb. 4, saying it violated legal duties to shareholders by rebuffing the buyout offers. Airgas filed a separate suit challenging the meeting-date bylaw after the Sept. 15 shareholder vote. Chandler has agreed to hear all arguments in the trial.

Air Products offered the amendment and a slate of candidates for Airgas’s board as part of its takeover effort. Under Airgas’s staggered board system, only a limited number of directors are up for election at any time, making proxy fights for control more difficult.

The bylaw to change the meeting date won 52 percent of votes cast and 46 percent of shares eligible to vote, according to Airgas. Shareholders also voted to oust three directors, including Peter McCausland, the company’s chairman and chief executive officer.

If Chandler finds the bylaw passes muster, it could have implications for other companies that use the staggered-board defense, Robert Daines, who teaches corporate law at Stanford University Law School in California, said in a telephone interview. About 40 percent of public companies have staggered boards, he said.

A ruling against Airgas “could signal an important shift in merger tactics and change the balance of power between management and shareholders,” said Daines, the director of Stanford’s Rock Center for Corporate Governance. “This could really curtail management’s powers to discourage bids.”

The cases are Air Products & Chemicals Inc. v. Airgas Inc., 5249, Delaware Chancery Court (Wilmington); and Airgas Inc. v. Air Products & Chemicals Inc., 5817, Delaware Chancery Court (Wilmington).

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Kerviel Faces Less Jail Time Than Madoff If Convicted

If Jerome Kerviel is convicted this week of causing Societe Generale SA’s 4.9 billion-euro ($6.5 billion) loss, he won’t face the kind of sentences given to financial felons such as Bernard Madoff -- or even Nick Leeson.

French prosecutors are seeking a four-year sentence and, if convicted, he is unlikely to serve more than two years in jail, lawyers said. The sentencing rules in France contrast with those in the U.S. and U.K. where authorities are increasingly trying to make examples of white-collar criminals.

Kerviel, 33, “would face a substantial amount of jail time” in the U.S., said Ira Sorkin, the lawyer who represented Madoff last year when the con man was sentenced to 150 years in prison for running a Ponzi scheme that cost investors $20 billion. “The amount of money involved would kick this up. Ten to 20 years would not shock anyone.”

Kerviel’s unauthorized bets on futures, hidden with faked hedges to minimize the apparent risk, reached 50 billion euros before Societe Generale realized what the trader was doing and began unwinding his positions. At his June trial, Kerviel admitted to lying to his colleagues and exceeding his trading limits, but argued that his superiors were aware of his actions.

Judge Dominique Pauthe, who led the three-judge panel at the trial in Paris, will announce the verdict and any sentence on Oct. 5.

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Potash Suit to Stop Takeover Should Be Thrown Out, BHP Says

Potash Corp. of Saskatchewan Inc.’s lawsuit seeking to block a $40 billion hostile takeover by BHP Billiton Ltd. should be thrown out, the Australian company told a U.S. judge.

The lawsuit accusing BHP executives of making misleading statements to drive down Potash’s stock is without merit and should be dismissed, lawyers for Melbourne-based BHP said in a filing Oct. 1 in a federal court in Chicago.

Potash “has failed to identify any misleading statement or material omission by defendants, let alone meeting its burden of pleading particularized facts” showing an intent to deceive, BHP said in its filing.

The world’s largest maker of fertilizer, Saskatoon-based Potash filed the suit on Sept. 22, one month after BHP announced its intent to acquire the company for $130 a share.

Potash said in its complaint that it filed the case in Chicago because BHP Chief Executive Officer Marius Kloppers conveyed the buyout offer to Potash CEO Bill Doyle within the court’s jurisdiction.

Potash, in separately filed papers, asked U.S. District Judge David H. Coar on Sept. 22 to issue an order blocking BHP from moving forward on bid until it issues “corrective” disclosures and gives Potash shareholders 60 days to review them.

Jamie Moser, an outside spokeswoman for Potash, declined to comment on the filing.

“The target company has every right to dispute the relevant (or not so relevant) facts with the bidder,” BHP’s attorneys said in its filing. “But in the end, once both sides’ positions are in the public domain, it is up to the shareholders, rather than the court, to resolve the dispute.”

The case is Potash Corp. of Saskatchewan Inc. v. BHP Billiton Ltd., 10-cv-06024, U.S. District Court for the Northern District of Illinois (Chicago).

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Verdicts/Settlements

Great-West Must Repay C$456 Million, Judge Rules

Great-West Lifeco Inc. must repay London Life Insurance Co. policyholders C$456 million ($447 million) for illegally using money in their accounts to help pay for a 1997 takeover, an Ontario judge ruled.

Testimony during a three-month trial that ended in January in London, Ontario, showed London Life used C$220 million of the policyholders’ funds to help Great-West make the acquisition.

“The defendants have done indirectly what was prohibited from being done directly,” by transferring money from the account holders’ accounts, Ontario Superior Court Judge Johanne Morissette wrote in an 83-page ruling Oct. 1.

Two former London Life actuaries and a Great-West policyholder sued on behalf of 1.8 million people, accusing the companies of illegally using the money to help pay for the C$2.9 billion acquisition. They sought as much as C$1 billion in damages, including repayment of their money with interest and penalties.

Great-West said in a statement that it intended to appeal the decision.

“Regardless of the ultimate outcome of this case, all of the participating policy contract terms and conditions will continue to be honored,” the company said.

The judge rejected a claim that Great-West illegally enriched itself with the transaction.

Great-West and its parent company, Power Financial Corp., were set on “maximizing profits at the expense of policyholders,” Paul Bates, the policyholders’ lawyer, said during the trial.

The company had argued the transaction was legal.

The case is Between James Jeffery and London Life Insurance Co., SC46300, Ontario Superior Court of Justice (London, Ontario).

Vila Can Dissolve Company That Has Rights to His Name

Bob Vila, former host of the “This Old House” home- improvement show, can dissolve a company that holds rights to his name and image, a Delaware judge ruled.

Vila, who spent 28 years offering home-improvement tips over the air before his syndicated series was canceled in 2008, told Chancery Court Judge Leo Strine Jr. in Wilmington at a June trial that he wanted to break up the holding company that controls his likeness, BVwebties LLC.

He disagreed with his partner’s business approach, he said. Vila and George Hill co-managed the company for a decade.

The men’s agreement “contemplates that a member or manager may seek judicial resolution,” Strine said Oct. 1 in a 34-page ruling. “This is what Vila has done, and he has succeeded in proving that dissolution is warranted,” he said.

The company operates the BobVila.com website, which offers a home-improvement blog and a real-estate search engine. Since 2007, Hill has stymied efforts to hire professional managers to help the website grow, Vila said in his January 2009 lawsuit.

Strine said he will appoint Martin Mand as liquidating trustee and have Mand retain as his counsel James Holzman of Prickett Jones & Elliott PA, court papers show.

The judge dismissed Hill’s counterclaims for breach of the agreement and breach of his fiduciary duty to Vila.

The case is Vila v. BVwebties LLC, 4308, Delaware Chancery Court (Wilmington).

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Lawsuit News

Cogent Defends 3M Sale, Says NEC Offer Not Firm Enough

Cogent Inc., the fingerprint-identification systems maker, defended its decision to sell out to 3M Co. and asked a judge to reject calls from Cogent shareholders to put the deal on hold in favor of a higher bid from NEC Corp.

The bid from NEC, Japan’s largest maker of personal computers, was too late, was not firm enough and would pose antitrust risks, Cogent’s attorney Donald J. Wolfe said Oct. 1 in a Chancery Court hearing in Wilmington, Delaware.

The investors asked Chancery Court Judge Donald F. Parsons to halt the 3M sale and require Cogent to eliminate the deal protections they say are precluding a firm offer from NEC. Parsons said he will rule before 3M’s offer expires at midnight, Oct. 7.

Cogent’s board rejected NEC’s offer of more than $1 billion because it was not a binding bid, Wolfe said. Cogent told NEC that “it was now or never” because 3M’s offer was definitive and had a deadline.

An investor attorney, Michael Hanrahan, accused Cogent’s founder and chief executive officer, Ming Hsieh, of pushing the board to accept 3M’s lower offer of $10.50 a share, or $943 million, partly because he wanted to collect a $153,000 retention bonus.

That argument makes no sense because under an NEC sale, Hsieh would collect $18 million more for the shares he owns, Wolfe said in court.

The case is In Re Cogent Inc. Shareholders Litigation, Consolidated CA 5780-VCP, Delaware Chancery Court (Wilmington).

Foreclosure Errors May Cloud Ownership of U.S. Homes

U.S. courts are clogged with a record number of foreclosures. Next, they may be jammed with suits contesting property rights as procedural mistakes in the foreclosure cases cloud title establishing ownership.

“Defective documentation has created millions of blighted titles that will plague the nation for the next decade,” said Richard Kessler, an attorney in Sarasota, Florida, who conducted a study in Sarasota county that found errors in about three- fourths of court filings related to home repossessions.

Attorneys general in at least six states are investigating borrowers’ claims that some of the nation’s largest home lenders and loan servicers are making misstatements in foreclosures. JPMorgan Chase & Co. is asking judges to postpone foreclosure rulings, while Ally Financial Inc. said Sept. 21 its GMAC Mortgage unit would halt evictions. The companies said employees may have completed affidavits without confirming their accuracy.

Such mistakes may allow former owners to challenge the repossession of homes long after the properties are resold, according to Kessler. Ownership questions may not arise until a home is under contract and the potential purchaser applies for title insurance or even decades later as one deed researcher catches errors overlooked by another. A so-called defective title means the person who paid for and moved into a house may not be the legal owner.

“It’s a nightmare scenario,” said John Vogel, a professor at the Tuck School of Business at Dartmouth College in Hanover, New Hampshire. “There are lots of land mines related to title issues that may come to light long after we think we’ve solved the housing problem.”

Almost one-fourth of U.S. home sales in the second quarter involved properties in some stage of mortgage distress, according to RealtyTrac Inc. In August, lenders took possession of record 95,364 homes and issued foreclosure filings to 338,836 homeowners, or one out of every 381 U.S. households, according to the Irvine, California-based data seller.

“If I were in the title industry, or a mortgage holder, or someone who bought a foreclosed property, this is something I would be very worried about,” said Michael Carliner, a Potomac, Maryland-based economic consultant specializing in housing.

Title insurers use their records and public documents to verify a seller is the home’s true owner and that the property is free from liens. They collect a one-time premium and pay costs that may arise if someone challenges a new owner’s right to the property. To obtain a mortgage, buyers are required to purchase a policy to protect the lender. Many people also get a so-called owners policy to protect themselves.

“Title is everything,” said Susan Wachter, a real estate professor at the University of Pennsylvania’s Wharton School in Philadelphia. “There’s no collateral without possession, and that is title.”

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New Suits

Tessera Claims Sony, Renesas Infringe on Chip-Package Patent

Tessera Technologies Inc., a designer of packaging for computer chips, said it sued Sony Corp.’s electronics unit and Renesas Electronics Corp. in an effort to obtain more patent royalties.

The lawsuit accuses Sony and Renesas of infringing a patent related to a way of making the packaging that goes around silicon wafers so they can be used reliably in smaller electronics, Tessera said in a statement. The company said it filed the complaint Oct. 1 in federal court in Wilmington, Delaware.

Tessera Chief Executive Officer Hank Nothhaft has called the company’s patent litigation a “strategic” effort to reach licensing agreements after negotiations fail. The San Jose, California-based company got almost all of its $299.4 million in revenue last year from royalty and licensing fees.

Sony, based in Tokyo, makes Bravia TVs, the PlayStation 3 game console, Vaio notebook computers and Blu-ray disc players. A Sony spokesperson didn’t immediately return a call seeking comment. Renesas, also based in Tokyo, makes chips that control products including DVD players and vehicle air bags.

The patent, issued in 2005, is different than ones asserted against companies including mobile-phone chipmaker Qualcomm Inc. and memory-chip maker Nanya Technology Corp.

Tessera lost a case before the U.S. International Trade Commission against memory-chip companies including Nanya, Acer Inc., Elpida Memory Inc. and ProMos Technologies Inc. It won a case against Qualcomm, Motorola Inc. and four other companies over chips used in wireless devices. Motorola later took a license to the Tessera patents.

Both the memory-chip and wireless-chip cases are on appeal.

Michael Jackson’s Estate Sued by Bahrain Loan Adviser

A Bahrain financial adviser that claims it helped Michael Jackson obtain $320 million in loans in 2005 has sued the singer’s estate for $1.2 million.

Jackson hired AQ Consulting WLL to help refinance $300 million Jackson owed to Fortress Investment Group LLC, AQ claimed in a complaint in federal court in New York on Sept. 30.

AQ said it secured a commitment from Citigroup Inc. to refinance the debt. Fortress, which had a right of last offer with Jackson, then agreed to refinance the loans itself. AQ got Jackson an additional $20 million in loans, it claimed.

According to AQ, Jackson agreed to pay the firm 1 percent of the total refinancing, or $3.2 million. He paid $2 million at the time of closing and agreed to pay the rest from future earnings, the financial adviser said.

Jackson died in 2009 at 50, leaving about $500 million in debt. Since his death, the estate, the owner of interests in songs by the Beatles and other artists, has generated more than $250 million.

John Branca, one of the executors of Jackson’s estate, didn’t immediately return a voice-mail message seeking comment on the suit.

The case is AQ Consulting WLL v. Branca, 1:10-cv-7496, U.S. District Court, Southern District of New York (Manhattan).

Microsoft Files Patent-Infringement Action Against Motorola

Microsoft Corp. said it filed patent-infringement claims against Motorola Inc. over smartphones that run on Google Inc.’s Android operating system.

Microsoft said it filed a complaint Oct. 1 with the U.S. International Trade Commission in Washington, which could result in a ban of U.S. imports of Motorola phones. A companion lawsuit was filed in federal court in Seattle.

Microsoft, which makes the Windows Mobile operating system for phones, in April signed a licensing agreement with HTC Corp. and said that it was demanding royalties from other makers of phones that run on the Android system.

The nine patents in the complaints relate to “a range of functionality embodied in Motorola’s Android smartphone devices that are essential to the smartphone user experience,” Redmond, Washington-based Microsoft said in a statement. They include synchronizing e-mail, calendars and contacts, scheduling meetings, and notifying applications of changes in signal strength and battery power.

To contact the reporter on this story: Ellen Rosen in New York at erosen14@bloomberg.net; 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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