News Corp., Petrohawk, Madoff, SocGen, Galleon in Court News

Rupert Murdoch and his son James told U.K. lawmakers that resolution of a phone-hacking scandal at News Corp. (NWSA)’s British unit was delayed because they relied on a clean bill of health from the law firm Harbottle & Lewis LLP.

The law firm, based in London, has clients including Diageo Plc (DGE), Vodafone Group Plc and model Kate Moss, according to its website. It was hired in 2007 to examine a file of News International internal e-mails and found no evidence of illegal activity beyond a private investigator and News of the World royal reporter who were jailed after intercepting voice mails for the tabloid, James Murdoch told lawmakers yesterday.

“We and the company rested on that opinion for a period of time,” James Murdoch said at the hearing. “It is a key bit of outside legal advice from senior counsel.” The company went to police four years later, after a new internal review of the same file uncovered evidence of additional wrongdoing, he said.

Ken Macdonald, the former U.K. director of public prosecutions, told a separate group of lawmakers yesterday that Harbottle & Lewis had evidence that indicated “serious criminal offenses” by News Corp. workers. Lawmakers described the file as “an enormous pile of documents” that sat at the law firm for years.

The Murdochs cited the law firm’s report as they sought to explain why News International failed to understand or acknowledge the widespread use of phone hacking at the 168-year-old newspaper, which was shut in an effort to contain fallout from the scandal. James Murdoch said that previous denials of wrongdoing were based on the outside study, as well as police assertions there was no need to investigate further.

Harbottle & Lewis Managing Partner Glen Atchison said the 55-year-old firm asked News International to release it from “professional duties of confidentiality” so that it could respond to “inaccurate statements or contentions.”

The company refused, “so we are still unable to respond in any detail as to our advice or the scope of our instructions in 2007, which is a matter of great regret,” Atchison said in a phone interview yesterday.

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New Suits

Petrohawk Investor Sues Over $12.1 Billion BHP Acquisition

Petrohawk Energy Corp. (HK) was sued by a shareholder over claims its proposed $12.1 billion cash sale to BHP Billiton Ltd. (BHP) undervalues the company.

The deal creates a conflict of interest on the part of directors that “colors their ability to make an unbiased decision” regarding the fairness of the proposal, shareholder Astor BK Realty Trust said in the complaint filed July 18 in Delaware Chancery Court. Astor is seeking to represent all Petrohawk shareholders in its request for a court order barring the transaction.

“The board’s acceptance of BHP’s offer demonstrates the company’s all-too-eager-to-sell mentality,” lawyers for the trust said in the complaint.

BHP said last week it would pay $38.75 a share using cash and debt for Petrohawk, its biggest acquisition. The offer is 61 percent more than Houston-based Petrohawk’s average price over the past 20 trading days and compares with the 25 percent average premium in 17 deals worth at least $5 billion for oil and gas producers in the past five years, according to data compiled by Bloomberg.

Petrohawk Chief Executive Officer Floyd C. Wilson will make about $152 million from the deal on his roughly 3 million shares, and will likely be eligible for a $10.4 million change-of-control payment, according to the complaint. Stock options could add $24.85 million, according to the complaint.

Joan Dunlap, a spokeswoman for Petrohawk, didn’t immediately return a phone call and e-mail seeking comment.

The case is Astor BK Realty Trust v. Petrohawk Energy Corp., CA6675, Delaware Chancery Court (Wilmington).

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Lawsuits/Pretrial

Toyota Can Appeal Part of Speed-Up Suit Ruling, Judge Says

Toyota Motor Corp. (7203) won the right to appeal a federal judge’s ruling that car owners who hadn’t experienced unintended acceleration could sue the company over economic losses related to the alleged defect.

U.S. District Judge James V. Selna in Santa Ana, California, said yesterday Toyota could immediately challenge part of his May decision rejecting the company’s bid to dismiss the suits. Toyota can seek to appeal his ruling granting “standing,” or the right to sue, to certain vehicle owners, Selna said.

The appeal would focus on the issue “of whether each plaintiff must allege that he or she has experienced a manifestation of the product’s alleged defect in order to allege that he or she suffered an injury,” Selna said. “An immediate appeal” of the standing ruling “will materially advance the ultimate termination of this litigation,” he said.

Toyota, the world’s largest automaker, recalled millions of U.S. vehicles, starting in 2009, after claims of defects and incidents involving sudden unintended acceleration. The recalls set off a wave of litigation, including hundreds of economic-loss suits and claims by individuals or their families alleging injuries and deaths.

Most of the federal lawsuits were combined before Selna, who is overseeing pretrial evidence-gathering.

An appellate court decision “could significantly reduce the time, burden, and expense of litigating this case and, by potentially decreasing substantially the number of claims pending against Toyota, may help move the remaining cases forward more quickly,” Brian Lyons, a spokesman for the Toyota City, Japan-based company, said in an e-mailed statement.

Steve Berman, a lawyer for vehicle owners, didn’t return a call for comment.

The cases are combined as In re Toyota Motor Corp. Unintended Acceleration Marketing, Sales Practices and Products Liability Litigation, 8:10-ml-02151, U.S. District Court, Central District of California (Santa Ana).

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Trials/Appeals

Madoff Investor Asks Appeals Court to Review Picower Deal

An investor in Bernard Madoff’s Ponzi scheme who unsuccessfully challenged a $7.2 billion settlement by the U.S. with the estate of Jeffry Picower asked a federal appeals court to review the district judge’s decision.

Adele Fox filed the appeal July 18 in response to U.S. District Judge Thomas Griesa’s decision in May to uphold the settlement with the billionaire’s estate. Rejecting Fox’s argument that Madoff investors had a right to recoup funds from the estate themselves, he said that “victimhood does not create an interest in forfeited property.”

The settlement struck in December by the U.S. and the Madoff firm’s liquidator Irving Picard dwarfs the $2.6 billion of other funds set aside to date for distribution to the con man’s investors. The appeal means the Picower funds will continue to be tied up in court.

Picower, one of the largest of Madoff’s investors, may have suspected the con man was running a Ponzi scheme, according to Picard. Picower drowned in 2009, and his estate forfeited the money to the U.S. and Picard.

The settlement also is being challenged by lawyer Helen Chaitman on behalf of investors.

Picard, who has filed more than 1,000 suits seeking money for Madoff investors, has estimated the principal lost by all Madoff investors at $19 billion. He and his law firm, Baker & Hostetler LLP, have collected about $179 million in fees since Madoff’s 2008 arrest.

The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-ap-1789, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The Fox district court case is U.S. v. $7.2 billion, 10-cv-09398, U.S. District Court, Southern District of New York (Manhattan).

Societe Generale Seeks $50 Million From Saad Group

Societe Generale SA (GLE), France’s second-biggest bank, told a U.K. trial judge that a unit of Saudi Arabia’s Saad Group failed to repay a $50 million loan guaranteed by its billionaire founder Maan al-Sanea.

The unit, Saad Trading Contracting & Financial Services Co., defaulted on the loan arranged in 2009, four months before Saad Group said it would seek to restructure its debt, lawyers for Societe Generale said yesterday at the High Court in London. The lawsuit, filed in August 2009, seeks repayment of the loan plus a commission and legal costs.

The trial comes as al-Sanea, deemed the world’s 62nd richest person by Forbes Magazine in 2009, faces separate fraud claims by another Saudi company, Ahmad Hamad Algosaibi & Brothers Co., which alleges al-Sanea used fake documents to take out billions of dollars in loans in Algosaibi’s name.

Units of Saad Group and Algosaibi, both based in the Saudi oil city of Al-Khobar, defaulted after borrowing about $15.7 billion from more than 80 banks. Al-Sanea married into the Algosaibi family before founding Saad Group, which has businesses ranging from construction to health care.

Algosaibi last month admitted liability in a $250 million lawsuit in London filed by HSBC Holdings Plc (HSBA) and four other banks that loaned it money before the default.

Tim Robertson, a U.K.-based spokesman for al-Sanea, declined to comment on the trial when reached yesterday by phone. The company has consistently denied the allegations.

Verdicts/Settlement

R.J. Reynolds Loses Bid for Appeal of $28.3 Million Verdict

Florida’s Supreme Court declined to hear R.J. Reynolds Tobacco Co. (RAI)’s appeal of a $28.3 million verdict in a case that the cigarette maker argued may affect thousands of so-called Engle tobacco claims in the state.

The court, in a one-page order yesterday, turned aside the company’s bid for an appeal of the 2009 verdict in favor of Mathilde Martin, who claimed her husband, Benny Ray Martin, died from a smoking-related disease. The decision leaves in place a lower state appeals court ruling that affirmed the verdict.

Reynolds, a unit of Winston-Salem, North Carolina-based Reynolds American Inc., sought to have the Florida Supreme Court review the lower appeals court ruling, arguing that the trial court misapplied a 2006 decision by the Florida Supreme Court in the Engle case. The Engle decision ended a statewide class action filed on behalf of Florida smokers.

In the 2006 ruling, named after Howard Engle, the lead plaintiff in the class action, the court said that some jury findings in the case could be applied by former class members who file individual claims.

David Howard, a spokesman for R.J. Reynolds, said the company is disappointed the Florida Supreme Court won’t review the lower court’s decision, which he said deprived the company of its constitutional right to a fair trial. Reynolds will try to appeal to the U.S. Supreme Court, Howard said.

“This signals that Engle remains good law, now and forever, in Florida,” said Matt Schultz, a lawyer for Martin.

Altria Group Inc. (MO)’s Philip Morris USA unit, the biggest U.S. cigarette maker, faces claims from about 8,900 Engle plaintiffs, the company said in its most recent quarterly filing with the Securities and Exchange Commission. About 8,600 have filed claims against Reynolds, the company said in its quarterly SEC filing. About half the claims are filed in state court, half in federal court.

The case is R.J. Reynolds Tobacco Co. v. Martin, SC11-483, Florida Supreme Court (Tallahassee).

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Google Gets More Time for Book-Scan Settlement With Authors

Google Inc. (GOOG) and a group of publishers and authors got more time to negotiate a possible settlement of a lawsuit over the search-engine company’s digital reproduction of books.

“We are not there yet,” Michael Boni, a lawyer for the authors, told U.S. Circuit Judge Denny Chin in Manhattan yesterday. “They are very complicated, complex issues, requiring us to delve into them in the dog days of summer.”

Google was sued in 2005 by authors and publishers who said the company was infringing their copyrights on a massive scale by digitizing books and allowing “snippets” of them to be seen online. Chin objected to an earlier, $125 million settlement, saying it would be unfair to authors.

Chin, who kept the case after he was elevated to the appeals court bench from the U.S. District Court in April 2010, set a new hearing for Sept. 15.

The judge told the lawyers yesterday that he was “concerned” about the amount of time it was taking to come up with a revised settlement and indicated that he expected progress at the September hearing.

“If the matter is not resolved, or close to being resolved, I’m going to give you a relatively tight schedule for discovery,” Chin said. Discovery refers to the pretrial gathering and sharing of evidence.

“We’ve been working closely with the authors and publishers to explore a number of options,” Gabriel Stricker, a spokesman for Mountain View, California-based Google, told reporters after the hearing yesterday. “Regardless of the outcome we’ll continue to make books more discoverable and useful through Google Books and Google eBooks.”

Google has scanned more than 15 million books so far.

The case is Authors Guild v. Google Inc., 05-CV-8136, U.S. District Court, Southern District of New York (Manhattan).

Straumur Ordered to Pay Stapi $44 Million by Icelandic Court

Iceland’s ALMC hf, formerly Straumur-Burdaras Investment Bank hf, was ordered to pay Stapi Pension Fund 5.2 billion kronur ($44 million) by Reykjavik’s District Court yesterday.

Stapi sued the bank after its claim was rejected by ALMC as the fund had failed to meet a deadline to file claims against the lender, which was at the time seeking a composition agreement with its creditors.

“There’s no authorization in law to conclude that claims are voided due to the fact that they weren’t announced during bankruptcy or winding-down proceedings,” according to the ruling. “In light of the above-mentioned, the demands of the claimant are approved.”

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Litigation Departments

News Corp. Independent Directors Hire Debevoise Law Firm

News Corp.’s independent directors hired the law firm Debevoise & Plimpton LLP, according to Mary Jo White, a partner at the firm and the former U.S. attorney in New York.

Michael Mukasey, who served as U.S. attorney general under George W. Bush, will join White in representing directors, Suzanne Elio, a spokeswoman for the firm, said yesterday.

“Debevoise & Plimpton has been retained to advise Viet Dinh in his supervision of the Management and Standards Committee on behalf of the independent members of the board,” Elio said in an e-mail. She declined to comment further.

Dinh, who runs a small law firm in Washington that specializes in damage control, and venture capital executive Tom Perkins are leading the efforts of independent directors, who hold nine of 16 board seats. Dinh, also a professor at Georgetown University and the chief architect of the USA Patriot Act, represented Perkins, a former Hewlett-Packard Co. (HPQ) director, during a scandal at that company.

News Corp. Chairman Rupert Murdoch and his son James appeared yesterday before a committee of the U.K. Parliament to answer questions about the company’s role in phone hacking by the News of the World tabloid. The Federal Bureau of Investigation is looking into whether News Corp. employees tried to hack the voice mail of victims of the Sept. 11 terrorist attacks in the U.S.

White, chairwoman of the litigation department at New York-based Debevoise, spent 8 1/2 years as the top federal prosecutor in Manhattan before entering private practice and representing companies including Morgan Stanley and Bristol-Myers Squibb Co. In February 2009, she wooed Mukasey to the firm.

Earlier this year, Mukasey was hired by the U.S. Chamber Institute for Legal Reform to lobby Congress on foreign bribery law, seeking changes that would limit companies’ liability and exposure. U.S. lawmakers have asked the Justice Department and the Securities and Exchange Commission to probe News Corp. for possible violations of the Foreign Corrupt Practices Act, alleging that company employees may have paid U.K. police or other U.K. government officials for stories.

“There are questions about whether the Foreign Corrupt Practices Act has been violated by Rupert Murdoch and his news empire,” said Democratic Senator Dick Durbin on NBC’s “Meet the Press” program.

Dinh didn’t return a telephone call and e-mail seeking comment. Mukasey didn’t return two phone messages seeking comment.

Teri Everett, a spokeswoman for New York-based News Corp., declined to comment.

Galleon Prosecutor Sees Closure as Rajaratnam Sentencing Nears

When former hedge-fund consultant Danielle Chiesi appears at her sentencing for insider trading today, one lawyer who helped build the case against her and Galleon Group LLC co-founder Raj Rajaratnam won’t be there, Bloomberg News’s David Glovin reports.

Joshua Klein left the Manhattan U.S. Attorney’s Office on Jan. 19, 2010, exactly one year before Chiesi pleaded guilty to three counts of conspiracy to commit securities fraud. Wiretaps and other evidence Klein helped gather led to Chiesi’s guilty plea and Rajaratnam’s conviction following a trial.

“I won’t be in the courtroom, but I’ll be watching,” Klein, 43, said in an interview from Petrillo Klein LLP, the Manhattan law firm he co-founded last year with former prosecutor Guy Petrillo. “When you live with a case for a long time, you cannot completely separate yourself from it.”

Rajaratnam, 54, will be sentenced on Sept. 27. A Manhattan federal jury convicted him in May of 14 counts of insider trading for using inside tips to make $63.8 million. He faces 15 1/2 years to 19 1/2 years in prison, prosecutors said at the time of his conviction.

Chiesi, who worked at New Castle Funds LLC, admitted in January that she passed Rajaratnam illegal tips that she got from sources including Robert Moffat, a former International Business Machines Corp. executive who has also pleaded guilty. Chiesi, 45, faces as long as 46 months behind bars under U.S. guidelines. She agreed this month to pay $540,000 to settle related allegations by the U.S. Securities and Exchange Commission.

Since August 2009, federal prosecutors in New York have charged 49 people with insider-trading crimes. Of those, 44 have been convicted, according to the government. No one has won a dismissal or acquittal. Five cases are pending.

Klein said he felt a sense of “closure” with the Rajaratnam verdict.

“I congratulated the trial team,” he said. “I definitely did feel a sense of having achieved certain goals, and of having had an input in making a dent in combating a certain type of activity that has proven difficult to identify and prosecute.”

The case is U.S. v. Rajaratnam, 1:09-cr-1184, U.S. District Court, Southern District of New York (Manhattan).

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On the Docket

AstraZeneca to Face 2012 Arkansas Trial Over Seroquel Sales

AstraZeneca Plc (AZN) must face a trial over claims by Arkansas that the drugmaker hid health risks of its anti-psychotic drug Seroquel when selling it to residents covered by the state’s Medicaid program, a judge ruled.

London-based AstraZeneca, which agreed in March to pay $68.5 million to resolve claims that it deceptively marketed Seroquel in a number of states, will face a September 2012 trial of a lawsuit filed by Arkansas Attorney General Dustin McDaniel over sales of the drug, Circuit Judge Chris Piazza in Little Rock ruled yesterday.

Arkansas officials, who opted out of the March Seroquel settlement, contend AstraZeneca defrauded the state’s Medicaid program by failing to properly outline the anti-psychotic medicine’s risks in its warning label. The state seeks a $5,000 penalty for each Seroquel prescription written in Arkansas over an 11-year period starting in 1997, according to Fletcher Trammell, one of the state’s lawyers.

AstraZeneca officials are confident the drugmaker will be “fully vindicated as the case progresses” in Arkansas, Tony Jewell, a U.S.-based spokesman for the company, said in an e-mailed statement. AstraZeneca is the U.K.’s second-largest drugmaker after GlaxoSmithKline Plc.

The case is State of Arkansas v. AstraZeneca Pharmaceuticals LP, 08-5448, Pulaski County, Arkansas, Circuit Court (Little Rock).

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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: Michael Hytha at mhytha@bloomberg.net.

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