Oct. 19 (Bloomberg) -- Guy Hands, whose Terra Firma Capital Partners Ltd. paid $6.7 billion for EMI Group Ltd. at the height of the buyout boom in 2007, began trial of his claim that he was tricked into overpaying by a Citigroup Inc. banker.
Hands is trying to prove that Citigroup’s David Wormsley lied to him when he said that Cerberus Capital Management LP planned to submit a competing bid for EMI, the 113-year-old music publishing company whose recording stars have included Enrico Caruso, Frank Sinatra, the Beatles and Radiohead.
Wormsley, Terra Firma’s “trusted adviser,” was “playing two sides of the street at the same time,” David Boies, the lead lawyer for Terra Firma, told a jury of nine people in his opening statement yesterday in federal court in Manhattan.
Terra Firma claims $8.3 billion in damages, saying it would have paid less for EMI had it known that Cerberus wasn’t going to bid. After the auction, Citicorp covered up its fraud by perpetuating the fiction of a Cerberus bid long after the bidding was over, Boies said.
“They knew that they had lied and they made Terra Firma make this bid on the fictional idea that there were other bids,” Boies said.
Citigroup, which provided 3 billion pounds ($4.8 billion) in loans to finance the acquisition, says Wormsley didn’t lie to Hands and didn’t even know that Cerberus had decided not to bid. Terra Firma based its bid on its own estimate of EMI’s value, not on any statements by Wormsley, according to Citigroup.
“There was no fraud, there were no lies,” said Citigroup lawyer Theodore Wells in his opening statement. “Guy Hands wanted to buy EMI. He wanted to win.”
Wells said Terra Firma’s suit was the result of a deal that lost money for everyone involved, including Citibank.
“As time went on, it didn’t turn out to be a great deal,” Wells said. “It turned out to be a bad deal. People lost a lot of money.”
Terra Firma Chief Executive Officer Tim Pryce, the first witness in the trial, testified yesterday that Hands told him, for the first time in the second half of 2007, that Cerberus might not have bid in the auction.
Pryce, who was Terra Firma’s general counsel at the time of the auction, also testified that it would have been damaging to the firm’s business to have withdrawn its EMI bid.
“There would have been severe reputational consequences for Terra Firma,” Pryce told jurors. “It would have been very much more difficult for us to do these types of deals in future.”
The case is Terra Firma v. Citigroup, 09-cv-10459, U.S. District Court, Southern District of New York (Manhattan).
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Health Care Constitutionality Probed by U.S. Judge
A federal judge in Virginia said he will rule by yearend whether President Barack Obama’s health care overhaul is constitutional, adding that his decision will be a “brief stop” in the case on its way to the Supreme Court.
U.S. District Judge Henry E. Hudson in Richmond, Virginia, heard arguments yesterday over whether the law’s requirement for individuals to buy health insurance is overreaching by Congress. Justice Department lawyers have argued that failure to have health insurance is an active decision with broad economic effects that can be regulated by the government.
Already, a U.S. judge in Michigan has found the law falls within the framework of the constitution, while a federal judge in Florida last week, in allowing a case in Pensacola to proceed, said it’s not even a “close call” that Congress may have overstepped its bounds.
“This court is just one brief stop on the way to the Supreme Court,” Hudson said at the close of arguments yesterday.
Hudson in August gave approval for Virginia’s suit to move ahead, rejecting the federal government’s arguments that the state had no right to sue. Virginia said the requirement to buy insurance exceeds Congress’s powers regulate interstate commerce.
The case is Commonwealth of Virginia v. Sebelius, 10-cv-00188, U.S. District Court, Eastern District of Virginia (Richmond).
Lockheed Workers Rebuffed by U.S. High Court in Age-Bias Case
The U.S. Supreme Court refused to reinstate a jury verdict favoring 17 fired workers who sued a Lockheed Martin Corp. unit for age discrimination.
The justices yesterday left intact a federal appeals court decision that ordered a new trial in the case, which was making its third trip to the nation’s highest court.
The workers were among 31 employees, all but one over age 40, who were fired in 1996 from the Lockheed unit that operates the Knolls Atomic Power Laboratory in upstate New York. They had won awards that ranged from $69,000 to $1.1 million.
The Supreme Court in 2008 ruled in favor of the workers on the standards that apply under the U.S. Age Discrimination in Employment Act. The court said an employer must show it had a legitimate reason for a challenged practice other than age discrimination.
Some lower courts had saddled workers with the burden of proof on that issue, requiring them to show that the employer lacked any reasonable basis other than age for its actions.
The New York-based 2nd U.S. Circuit Court of Appeals in December said Lockheed’s KAPL unit should have a chance to convince a jury that it had met the standard.
The case is Meacham v. Knolls, 09-1449, U.S. Supreme Court (Washington).
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U.S., Michigan File Antitrust Suit Against Blue Cross
Blue Cross Blue Shield of Michigan was sued by the U.S. Justice Department and the Michigan attorney general’s office for allegedly entering agreements that raised hospital prices.
In its complaint, the Justice Department said Blue Cross negotiated contracts with 70 of the state’s 131 general acute-care hospitals that led to higher prices for the insurer’s competitors. In some cases, the hospitals charged rivals 30 percent to 40 percent more than Blue Cross, the department said in a press release.
The practice “harms competition and consumers,” Christine Varney, head of the department’s antitrust division, told reporters in Washington. “This cannot be allowed in Michigan.”
Calling the suit “without merit,” Blue Cross spokesman Andrew Hetzel said the hospital contracts help consumers.
“Negotiated hospital discounts are a tool that Blue Cross uses to protect the affordability of health insurance for millions of Michiganders,” he said in a statement posted on the company’s website.
Zijin Shares Fall After Lawsuit Over Dam Collapse
Zijin Mining Group Co., China’s biggest gold producer, fell the most in 11 months in Shanghai trading after the company said it faces legal claims in connection with a fatal dam collapse at a tin mine.
Two subsidiaries are being sued by the Xinyi city government for at least 19.5 million yuan ($2.9 million), a Guangdong court notified, according to a statement on Oct. 17 from the gold miner.
Zijin said on Sept. 27 that four people died after a dam at its mine collapsed and the Guangdong government is investigating. Tang Tao, a spokesman of the Guangdong government, said that 28 people were dead or missing after the accident, and an initial investigation showed “serious quality problems” with Zijin’s tailing dam.
The accident would lead to a loss of 19 million yuan, Zijin said on Sept. 27. The tin mine was in trial production, it said.
Separately, Zijin had been fined 9.6 million yuan for the July acid-waste spill that poisoned almost 2,000 metric tons of fish, the company said on Oct. 7. The company spilled 2.4 million ton of gallons of acidic waste from its Zijinshan copper mine in Fujian province, polluting the Ting river.
Chairman Chen Jinghe will have to focus on cleaning up and expansion plans may be delayed after the accidents, according to UOB-Kay Hian Ltd. Zijin posted a profit of 3.6 billion yuan in 2009 after gold and copper prices rose.
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Oil Industry Asks Judge Not to Scrap Drill Ban Lawsuit
U.S. regulators haven’t let deep-water drilling resume in the Gulf of Mexico despite lifting a moratorium last week, so an industry lawsuit should continue, opponents of the ban said.
Lawyers for Ensco Offshore Co., which is suing to block a federal ban on drilling in waters deeper than 500 feet, told U.S. District Judge Martin Feldman in New Orleans that regulators replaced the ban on Oct. 12 with new rules that continue to prevent rigs from returning to work.
“Defendants cannot show that their October decision memo completely and irrevocably eradicated the effects” of the drilling ban, Lawrence R. DeMarcay III, one of Ensco’s lawyers, said in papers filed today in New Orleans federal court. “Defendants, in fact, have not allowed any such activities to resume, and they show no signs of doing so in the near future.”
The Obama Administration first banned deep-water drilling in May, in reaction to the BP Plc oil spill caused by the sinking of the Deepwater Horizon rig off the Louisiana coast. Feldman threw out the original moratorium on June 22 as too broad, after the oil industry and Gulf Coast business and political leaders sued over claims the ban was improperly imposed.
U.S. regulators last week asked Feldman to throw out Ensco’s lawsuit, which targets a second drilling moratorium regulators implemented in July after their first policy was overruled. The government argued that Ensco’s lawsuit is irrelevant now that the second ban has been rescinded.
The case is Ensco Offshore Co. v. Salazar, 2:10-cv-01941, U.S. District Court, Eastern District of Louisiana (New Orleans).
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HP Says Hurd Shareholder Suits Should Be Combined
Hewlett-Packard Co. is seeking a court order to have shareholder lawsuits over former Chief Executive Officer Mark Hurd’s separation agreement consolidated into a single case in federal court.
The complaints share a common claim that Hewlett-Packard’s directors wasted company money by awarding Hurd as much as $53 million in severance when he resigned after an internal investigation determined he violated business conduct standards in trying to conceal a personal relationship with a marketing contractor named Jodie Fisher.
Lawyers for HP, Hurd and other individual defendants named in the cases and two shareholder groups asked U.S. District Judge James Ware in San Jose, California, yesterday to group similar suits into one case before him. A lawyer representing two other shareholder groups yesterday told Ware his cases are a “straight shot” based on California law, and should therefore be litigated separately.
Ware suspended pretrial information gathering in all the cases until at least Nov. 1, when he scheduled arguments on the request for consolidation.
The case is Levine v. Andreessen, 10-3608, U.S. District Court, Northern District of California (San Jose).
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Bayer Settles Texas Suits Over Contaminated Rice
A Bayer AG unit settled a lawsuit brought by three Texas growers over claims its genetically engineered seed contaminated U.S. long-grain rice fields, causing a plunge in exports to Europe.
The settlement was reached Oct. 15 after three days of trial in federal court in St. Louis and announced to the judge over the weekend, said attorney Don Downing, who represents the Texas rice farmers. The settlement only covers claims by the growers in trial and doesn’t affect more than 6,000 other claims, Downing said in an interview yesterday.
“It’s an historic event,” Downing said. “It’s the first time there has been a settlement in a farmers’ case” against Bayer involving contaminated rice, he said.
Farmers in five states claim Bayer 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. Bayer, based in Leverkusen, Germany, denies negligence and disputes the damages claims, contending that rice sales rebounded after an initial drop.
The Texas trial was the seventh against Bayer in the genetically modified rice litigation. Bayer lost the first six, for a total of about $54 million. The company is challenging the verdicts in appeals and post-trial motions.
“Bayer CropScience has always been willing to settle such biotech rice litigation cases on reasonable terms and is pleased to be able to do so in this instance,” CropScience Chief Executive Officer Bill Buckner said in an e-mailed statement. The company said it would continue mediation over the claims by the remaining plaintiffs.
The federal case is In re Genetically Modified Rice Litigation, 06-md-1811, U.S. District Court, Eastern District of Missouri (St. Louis).
Four New York Men Convicted in Plot to Bomb Bronx Synagogues
Four men who plotted to bomb New York City synagogues and fire heat-seeking missiles at military planes were convicted by a federal court jury in Manhattan.
The defendants, James Cromitie, 44, David Williams, Onta Williams and Laguerre Payen face as long as life in prison when they are sentenced on the charges, which include conspiracy to use weapons of mass destruction within the U.S.
The case is U.S. v. Cromitie, 09-cr-00558, U.S. District Court, Southern District of New York (Manhattan).
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Ex-Chinatrust Executive Koo Sentenced to 9 Years
Chinatrust Financial Holding Co.’s former vice chairman Jeffrey Koo Jr. was sentenced to nine years in prison for manipulating shares of a rival during an attempted takeover, a Taiwan court said.
Koo’s actions drove down the price of Mega Financial Holding Co. shares during Chinatrust’s bid for the company in 2005 and 2006, the Taipei District Court said in a statement announcing his conviction and sentencing yesterday.
Chinatrust manipulated the share price using structured notes in its attempt to combine with Mega to create Taiwan’s second-largest financial group by market value, yesterday’s verdict said. Koo, whose father is Taiwan’s 26th richest man according to Forbes magazine, resigned from Chinatrust in November 2006.
Vanney Cho, a spokesman for Chinatrust Financial, declined to comment when reached by phone yesterday. Koo, who denied the charges during the trial according to the Central News Agency, couldn’t be reached for comment, Cho said.
Mortgage Rescue Firm Owner to Pay $805,000 to N.J.
The owner of several New Jersey loan-modification companies agreed to pay $805,000 to resolve civil allegations that he defrauded homeowners trying to avoid foreclosure, the state’s attorney general said.
Stephen Pasch of Greenbrook Township settled claims that his New Day Financial Solutions Inc. collected upfront fees from homeowners after promising them help on mortgage modifications, a practice banned by state law, Attorney General Paul Dow said yesterday in a statement. Lawyer Ejike Uzor of Newark, New Jersey, and two of his companies also agreed to pay $25,000 to resolve the case.
A state Superior Court judge signed a consent judgment for Uzor on Sept. 29 and for Pasch on Sept. 7, according to documents released yesterday.
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Ashcroft Gets Supreme Court Review in Detainee Suit
The U.S. Supreme Court will consider reinforcing the legal immunity of top government officials, agreeing to decide whether a man can sue former Attorney General John Ashcroft after being detained without charge for 16 days.
The justices will review a ruling that allowed a suit filed by Abdullah al-Kidd, a Muslim U.S. citizen who was arrested in 2003 and held as a material witness in a terrorism probe. Al-Kidd says the government classified him as a material witness because it lacked enough evidence to hold him as a suspect.
Obama administration lawyers are representing Ashcroft at the Supreme Court, arguing that the lower court ruling would have dire consequences for criminal investigations.
The ruling would “threaten the ability of prosecutors to discharge their duties without fear of personal liability, severely limit the usefulness of the material witness statute and substantially chill officers in the exercise of important government functions,” acting U.S. Solicitor General Neal Katyal argued in the appeal.
Al-Kidd’s lawyers said in court papers that his case “involves a gross abuse of the government’s narrow power” under material witness law, which lets the government hold innocent persons to ensure they will be available to testify.
The case is Ashcroft v. Al-Kidd, 10-98.
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Barnes & Noble Names DeFelice VP, General Counsel
Barnes & Noble Inc. announced the appointment of Gene DeFelice as vice president, general counsel and corporate secretary.
DeFelice was previously senior vice president, general counsel & secretary at Savvis Inc., a provider of technology services to companies, Barnes & Noble said in a statement.
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