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Stanford, JPMorgan, HP, GMAC, BofA in Court News

Updated on

R. Allen Stanford, the indicted financier, sued U.S. prosecutors and agents of the FBI and Securities and Exchange Commission, accusing them of “abusive law enforcement” and seeking $7.2 billion in damages.

Stanford, who has been held without bail since being indicted in 2009, filed the lawsuit Feb. 16 at the U.S. courthouse in Houston. He is accused of leading a $7 billion securities fraud scheme and has pleaded not guilty.

“Mr. Stanford contends the named and unknown agents undertook illegal tactics to prosecute Mr. Stanford, starting with a civil prosecution by the SEC,” according to the complaint. The SEC sued him two years ago yesterday.

The Texas financier alleges the federal government has used more than $51 million of his own assets to pursue the cases against him. “The agents have engaged in unfair, abusive law-enforcement methods and tactics,” he alleged.

Kevin Callahan, an SEC spokesman, declined in an e-mail yesterday to comment on Stanford’s lawsuit. Citing a court-imposed gag order in the criminal case, Laura Sweeney, a Justice Department spokeswoman, also declined to comment.

The case is R. Allen Stanford v. Stephen Korotosh, 11cv582, U.S. District Court, Southern District of Texas (Houston).

The criminal case is U.S. v. Stanford, 09cr342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank Ltd., 09cv298, U.S. District Court, Northern District of Texas (Dallas).

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JPMorgan, EMC Sued by Ambac Over Securitization Losses

Ambac Assurance Corp. sued JPMorgan Chase & Co.’s EMC Mortgage and JPMorgan Securities units in New York state court, claiming it was fraudulently induced to participate in mortgage-backed securitization transactions.

The insurer is seeking to be made whole, as if it had never entered into the 2005 to 2007 transactions worth hundreds of millions of dollars, according to the complaint filed yesterday in Manhattan.

The actions covered by the lawsuit began when EMC was owned by Bear Stearns & Co. and continued after 2008, when it was bought by New York-based JPMorgan, according to the complaint. Ambac said JPMorgan engaged in a “bad-faith strategy” and rejected Bear Stearns’s findings of loans that breached representations.

“Bear Stearns’ material misrepresentations, omissions and breaches of the parties’ agreements fundamentally altered and essentially gutted the parties’ bargain,” according to the complaint. “JPMorgan caused EMC to reject legitimate repurchase demands.”

In mid-2006, Bear Stearns induced investors to buy and Ambac to insure securities backed by a pool of mortgages that a Bear Stearns deal manager called a “sack of s--t,” according to the complaint. Bear Stearns disregarded the quality of the loans to increase the volume for securitizations, Ambac said. When the market collapse exposed the defective loans, JPMorgan took over Bear Stearns and prevented EMC from honoring its promises to disclose and repurchase defective loans, Ambac said.

Howard Opinsky, a spokesman for JPMorgan, had no immediate comment.

The case is Ambac Assurance Corp. v EMC Mortgage Corp., 650421/2011, New York state Supreme Court (Manhattan).

For the latest new suits news, click here. For copies of recent civil complaints, click here.


Hewlett-Packard Investor Seeks Sex Report on Hurd

A Hewlett-Packard Co. investor asked a Delaware judge to release a law firm’s confidential report on allegations of “sexual harassment” that led to Mark Hurd’s ouster last year as chief executive officer.

The so-called Covington Report, prepared for the HP board by lawyers at Covington & Burling LLP, is “a critical piece of the puzzle” about Hurd’s departure, lawyers for shareholder Ernesto Espinoza wrote to Delaware Chancery Court Judge Donald Parsons Jr. in court papers made public yesterday.

“HP invokes the attorney-client privilege to shield the Covington Report,” while Delaware courts “have repeatedly recognized” that divulging such information may help avoid “the perpetration of frauds” and corporate waste, plaintiff’s lawyer Norman Monhait wrote in the brief.

Espinoza sued HP on Nov. 18 in a sealed complaint seeking company books and records as a part of his investigation into possible wrongdoing by directors. The board granted Hurd a severance package valued at as much as $40 million, “rather than terminate him for cause” with no money, according to the brief.

The internal investigation revealed that Hurd “had a close personal relationship with contractor Jodie Fisher” and that she received compensation, at times, where “there was not a legitimate purpose,” Monhait wrote. While Hurd said he was “unaware of her past adult film career,” the probe revealed that he “searched out these movies and watched them on a pornographic website,” according to Monhait.

Michael Thacker, a spokesman for Palo Alto, California-based HP, the largest maker of computers, declined to comment on the filings. Glenn Bunting, a spokesman for Hurd, also declined to comment.

Peter J. Walsh Jr., a lawyer for the company, said in court papers that the report is covered by rules protecting the confidentiality of attorney-client communications, and Espinoza falls “woefully short” of showing that disclosure of the law firm’s report is necessary and essential to his stated purpose.

The Delaware case is Espinoza v. Hewlett-Packard Co., CA6000, Delaware Chancery Court (Wilmington). The California case is Levine v. Andreessen, 10-3608, U.S. District Court, Northern District of California (San Jose).

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Ex-Liverpool Owners Fail to Overturn Order Blocking Lawsuit

Former Liverpool owners George Gillett and Tom Hicks failed to overturn a court order restraining them from suing for damages in the U.S. over the forced sale of the soccer team.

Justice Christopher Floyd at the High Court in London said while the pair can file lawsuits seeking information in American courts, they must ask permission from a U.K. judge if they want to file any damage claims in their own country. Floyd’s October ruling cleared the way for the owners of the Boston Red Sox to buy the 18-time English champion for 300 million pounds ($482 million).

Floyd said there isn’t a “blanket prohibition on all conceivable actions, as the owners tend to suggest,” only a requirement that they ask the U.K. court before they file other actions abroad. Hicks and Gillett lost about $222 million on the forced sale.

Hicks and Gillett, who in 2007 bought the team via a 219 million-pound leveraged buyout, have called last year’s sale an “epic swindle” and claimed the team’s directors and lender Royal Bank of Scotland Group Plc conspired against them. The duo filed a lawsuit in Texas to block the deal and sought $1.6 billion in damages. They later dropped the case when threatened with a U.K. contempt-of-court charge.

At a hearing last week, Richard Snowden, a lawyer representing RBS, said if Hicks and Gillett want to sue to recoup money, they should do so in the U.K.

Liverpool said in a statement yesterday it was “delighted” with Floyd’s ruling “prohibiting the former owners from commencing legal actions” outside the European Union.

Hicks and Gillett can appeal yesterday’s ruling.

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GMAC Won’t Face Much of Maine False Foreclosure Documents Suit

Ally Financial Inc.’s GMAC mortgage unit won’t have to face much of a lawsuit by Maine homeowners seeking damages over what they said were the company’s wrongful foreclosure practices.

U.S. District Judge D. Brock Hornby in Portland, Maine, granted GMAC’s request to dismiss two claims in the complaint, according to a decision Feb. 16. He will probably throw out the remaining claim, Thomas Cox, a lawyer for the homeowners, said in an interview.

“I just don’t see how anything survives,” Cox said.

The decision will hurt similar lawsuits across the country in which homeowners are attacking the foreclosure practices of lenders, Cox said. Based on the judge’s ruling, homeowners can only challenge the use of false documents in their individual foreclosure cases, preventing them from filing class-action, or group lawsuits, he said.

“It’s going to be cited as precedent in any other case in the country where somebody is trying to bring an action against a servicer for having filed false affidavits,” said Cox, a Portland attorney.

If false documents are used in foreclosure cases, homeowners can seek to vacate the judgment in their particular cases, Hornby wrote. They can’t file new lawsuits, according to the decision.

Cox called that a “hollow remedy” because most homeowners can’t afford defense attorneys.

Gina Proia, an Ally spokeswoman, declined to comment.

The case is Bradbury v. GMAC Mortgage LLC, 10-00458, U.S. District Court of Maine (Portland).

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Judge Gives U.S. 30 Days to Act on Gulf Drill Permits

U.S. offshore energy regulators have 30 days to act on five Gulf of Mexico drilling permits that have been unreasonably delayed by the Obama Administration’s offshore drill bans, a New Orleans judge ruled.

“The government is under a duty to act by either granting or denying a permit application within a reasonable time,” U.S. District Judge Martin Feldman ruled yesterday in New Orleans. “Not acting at all is not a lawful option.”

Feldman ordered offshore energy regulators to act within 30 days on five permit applications filed by companies that have drilling contracts with Ensco Offshore Co., the Louisiana drilling company leading the legal challenge to the government’s offshore drilling bans.

He said these permits have been delayed anywhere from four to nine months by drilling suspensions imposed by regulators in the wake of the worst offshore oil spill in U.S. history. Before the spill, permits were typically processed within two weeks.

“We are aware of the ruling and are reviewing it,” Wyn Hornbuckle, a Justice Department spokesman, said in an e-mail yesterday. “We have no further comment at this time.”

Sean O’Neill, an Ensco spokesman, didn’t immediately return a call seeking comment.

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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BofA Unit’s Utah Foreclosures Violate Law, State Says

A Bank of America Corp. unit is breaking the law by foreclosing on homeowners in Utah because it doesn’t meet state requirements, the state attorney general’s office said in a federal appeals court case.

ReconTrust Co., a subsidiary of Bank of America, the biggest U.S. lender by assets, isn’t a member of the state bar or a title insurance company and is unqualified to carry out trustee foreclosures, Utah Attorney General Mark Shurtleff wrote in court papers filed Feb. 16 with the U.S. Court of Appeals in Denver.

“ReconTrust Co. N.A. is a non-depository national bank initiating approximately 4,000 home foreclosures in Utah each year in violation of Utah law,” the attorney general’s office said.

The court filing was made in a homeowner’s lawsuit against ReconTrust and Bank of America.

“National banks must abide by state law,” said John Christian Barlow, an attorney for the homeowner, Peni Cox. “ReconTrust just wants to foreclose, period,” he said.

A Utah state judge issued an injunction last year blocking ReconTrust from trustee foreclosure sales in the state, Barlow said. A federal judge later lifted the injunction.

“It is Bank of America and its related affiliates’ policy to handle foreclosures in compliance with applicable laws,” Jumana Bauwens, a spokeswoman for Bank of America, said in an e-mailed statement. “We believe the district court was correct in its ruling in our favor and believe the ruling should not change as a result of this appeal.”

The case is Cox v. ReconTrust Co., 10-04117, U.S. Court of Appeals for the 10th Circuit (Denver).

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U.S. Asks Judge to Clarify Health-Care Law Decision

The Obama administration asked a U.S. judge to clarify the scope of his ruling that invalidated the nation’s health-care reform law.

U.S. District Judge Roger Vinson in Pensacola, Florida, last month ruled that the portion of the Patient Protection and Affordable Care Act that mandates people procure minimum coverage starting in 2014 is unconstitutional. He then granted a request by 26 states to invalidate the entire law, saying the mandate was integral to all aspects of the statute.

The federal government, in papers filed with Vinson yesterday, asked the judge to clarify whether that ruling relieves the plaintiff states of their rights and obligations under the act while the U.S. appeals.

The court’s ruling “potentially implicates hundreds of provisions of the Act and, if it were interpreted to apply to programs currently in effect, duties currently in force, taxes currently being collected, and tax credits that may be owed at this time or in the near future, would create substantial uncertainty,” the U.S. said in its filing.

“We believe it is important to put to rest any doubts about the ability of states and other parties to continue to implement these critical programs and consumer protections provided under this statute,” Tracy Schmaler, a Justice Department spokeswoman, said in an e-mailed statement announcing the U.S. filing.

The case is State of Florida v. U.S. Department of Health and Human Services, 10-cv-00091, U.S. District Court, Northern District of Florida (Pensacola).

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FIFA, UEFA Lose EU Court Appeal Over Soccer TV Rights

Soccer fans may be able to continue watching World Cup and European Championship matches for free after a European Union court ruled that governing bodies can’t strike exclusive pay-TV deals for the games in the U.K. and Belgium.

FIFA and UEFA, the game’s global and European governing bodies, lost court appeals yesterday against EU decisions allowing nations to make the soccer tournaments available to anyone with access to a TV set.

Restrictions are “justified” to “ensure wide public access to television broadcasts,” the EU General Court, the 27-nation region’s second-highest tribunal, ruled yesterday. Recent statistics show that the system in Belgium and the U.K. to show the World Cup for free drew many viewers, “a significant proportion of whom are not usually interested in football.”

A ruling in FIFA’s favor could have ended decades of tradition in the U.K., where the World Cup, the most-watched sporting event, must be broadcast on free-to-air television. Yesterday’s decision echoes a non-binding opinion by an adviser to the EU’s top court earlier this month in a case involving the Premier League and exclusive broadcasting agreements.

UEFA said in a statement it was “disappointed” by the ruling and “will now study the decision in detail in order to decide on next steps.” FIFA said in an e-mail it won’t comment on the decision.

Jonathan Todd, a spokesman for the Brussels-based commission, said the ruling “implies that” similar lists in other member states “are also fully compatible” with EU law.

The cases are T-385/07 FIFA v Commission; T-55/08 UEFA v Commission; T-68/08 FIFA v Commission.

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AstraZeneca Said to Settle More Seroquel Lawsuits

AstraZeneca Plc agreed to pay $150 million to settle more lawsuits claiming its antipsychotic drug Seroquel causes diabetes, pushing the amount the drugmaker has paid to resolve cases over the medicine to almost $350 million, people familiar with the accords said.

AstraZeneca, the U.K.’s second-biggest drugmaker, will resolve about 6,000 cases alleging the company knew Seroquel could cause diabetes and failed to adequately warn patients, two people familiar with the settlements said. They spoke on the condition of anonymity because they weren’t authorized to speak publicly about the accords. The cases settled for an average of about $25,000 each, the people said.

The settlements signal AstraZeneca is seeking to put the Seroquel litigation behind it as it works to overcome setbacks in its drug-development pipeline, said Jeremy Batstone-Carr, London-based analyst for Charles Stanley & Co., who rates the drugmaker’s shares “accumulate.”

The settlement, which resulted from a court-ordered mediation, leaves AstraZeneca facing about 4,000 Seroquel claims, according to a regulatory filing. The London-based drugmaker announced last summer it had resolved about two-thirds of the 26,000 suits over the drug that had been filed in courts around the U.S.

Tony Jewell, a U.S.-based spokesman for AstraZeneca, declined to comment on the settlements in an e-mailed statement, saying they were confidential.

The case is In Re Seroquel Products Litigation, 06-MD-01769, U.S. District Court, Middle District of Florida (Orlando).

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Satyam Computer Agrees to Pay $125 Million to Settle U.S. Suit

Satyam Computer Services Ltd., the software services exporter embroiled in India’s biggest corporate fraud, agreed to pay $125 million to settle a shareholder lawsuit in federal court in New York.

The agreement, filed Feb. 16 before U.S. District Judge Barbara Jones in Manhattan, resolves litigation in which Satyam argued that U.S. shareholder lawsuits should be dismissed because its home country was the proper venue for the claims. The judge must approve the accord at a hearing to be scheduled later.

“This was a fairly dark cloud of uncertainty that has gone away,” Vineet Nayyar, chairman of Satyam, said in an interview yesterday with Bloomberg UTV. “With this uncertainty gone, it should reinforce client confidence.”

Satyam’s shares plunged 44 percent from Sept. 22 to Nov. 29 after then Chairman Ramalinga Raju revealed an accounting fraud estimated at 100 billion rupees ($2.2 billion) by investigators and resigned. Investors in the U.S. filed at least a dozen class-action lawsuits that were consolidated before Jones.

Satyam entered into the settlement to “enhance its credibility and business opportunities in the United States market, and eliminate the burden, expense, uncertainty and distraction of further litigation,” according to the filing. The company didn’t admit any wrongdoing in the accord.

The case is In re Satyam Computer Services Ltd. Securities Litigation, 09-md-2027, U.S. District Court, Southern District of New York (Manhattan).

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Ex-Hevesi Adviser Gets Up to 4 Years in Pension Case

Former political consultant Henry “Hank” Morris, who pleaded guilty to securities fraud in a probe of corruption at the New York state pension fund, must go to prison for as long as four years, a judge said.

Morris, once chief political adviser to former state Comptroller Alan Hevesi, was sentenced to 1 1/3 to four years yesterday in Manhattan by New York state Supreme Court Justice Lewis Bart Stone. Morris admitted in November that the investment process at the pension fund was manipulated to benefit him, his associates, and contributors to Hevesi’s campaign.

“My actions undermined the integrity of New York state’s government,” Morris told the judge yesterday. “For too long I was blind to that truth.” He was taken into custody after sentence was passed.

As part of his plea, Morris agreed to forfeit $19 million he reaped in fees. William Schwartz, Morris’s attorney, had asked the judge to sentence his client to probation.

“Morris was a central player in this scheme,” Stone said in a sentencing decision, part of which he read from the bench.

Morris was the first defendant to be sentenced of about eight people who pleaded guilty in connection with a probe of “pay-to-play” at the New York pension fund. In October, Hevesi admitted to receiving a reward for official misconduct. He is scheduled for sentencing March 10. The investigation was conducted by former New York Attorney General Andrew Cuomo, now the state’s governor.

The case is People v. Morris, 0025/2009, New York State Supreme Court, New York County (Manhattan).

For more, click here.

For the latest verdict and settlement news, click here.

Litigation Departments

J&J to Pay $73 Million in Legal Costs Over Risperdal

Johnson & Johnson must pay $73 million in legal costs to the state of Louisiana over a more than $257 million verdict against the drugmaker over the marketing of its Risperdal antipsychotic drug, a judge ruled.

Judge Donald Herbert in Opelousas, Louisiana, ruled last week that J&J must pay $70 million in legal fees and $3.3 million in expenses to cover Louisiana’s costs in suing the drugmaker over claims it defrauded the state’s Medicaid system by touting Risperdal as superior to competing antipsychotic drugs and minimizing its links to diabetes.

“We believe the fees are excessive,” Michael Heinley, a spokesman for J&J’s Ortho-McNeil Janssen Pharmaceuticals unit, said in a Feb. 15 phone interview. Heinley said J&J will ask Herbert to grant a new trial in the case. If he refuses, the company will appeal the verdict and the fee award, he said.

Louisiana’s case centered on drug safety claims that J&J and its Ortho-McNeil-Janssen unit made in November 2003 correspondence to 700,000 doctors. The U.S. Food and Drug Administration responded with a warning letter saying J&J made false and misleading claims that minimized the potentially fatal risks of diabetes and overstated the drug’s superiority to competitors.

“We’re very satisfied with the fee award and think it’s fair and reasonable,” Pat Morrow, an Opelousas-based lawyer who represented the state in the case, said in a Feb. 15 telephone interview.

The case is Caldwell ex rel. State of Louisiana v. Janssen Pharmaceutical, 04-C-3967, 27th Judicial Court, St. Landry Parish, Louisiana (Opelousas).

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For the latest litigation department news, click here.

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