Feb. 23 (Bloomberg) -- Lehman Brothers Holdings Inc. lost a bid to recover an alleged $11 billion “windfall” from Barclays Plc’s purchase of its defunct brokerage unit when a judge ruled the transaction was fair.
Barclays stands to get at least $800 million of the $3 billion it wanted, and may get a similar amount later, according to a ruling yesterday by U.S. Bankruptcy Judge James Peck in Manhattan and previous court filings.
“In this very high-stakes dispute, Barclays was sure enough of its position that it was willing to bet the house on prevailing rather than entertaining settlement,” said George Kuney, a professor at the University of Tennessee College of Law in Knoxville who teaches bankruptcy and contract law.
The trustee liquidating the remnant of Lehman’s brokerage claimed London-based Barclays owed $7 billion. His claim also was denied by Peck.
The bankruptcy fight pitted the U.K.’s third-biggest bank against Lehman, whose creditors the company has said will get an average of 18.6 cents on the dollar, without lawsuit proceeds.
Peck said it was “especially” important that emergency sales in bankruptcy court should be final.
“The court concludes that the lapses in disclosure at the sale hearing did not affect the fairness or alter the outcome of the hearing and were not characterized by either the deliberate withholding of material information or willful misconduct,” as Lehman and the trustee had alleged, Peck wrote.
Barclays bought the brokerage in the 2008 financial crisis after Lehman went bankrupt, as regulators urged approval of the deal to prevent a panic. The sale took a week. Barclays has said it was the sole bidder, taking 10,000 employees and giving 72,000 customers access to $40 billion in assets frozen in the September 2008 bankruptcy. Lehman’s lead bankruptcy lawyer, Harvey Miller of Weil Gotshal & Manges LLP, testified in April that the sale “was of enormous benefit to the nation.”
Kimberly Macleod, a spokeswoman for New York-based Lehman, said she couldn’t immediately comment yesterday.
The case is In re Lehman Brothers Holdings Inc., 08-13555, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Kissel Testifies Her Husband Was Sexually Abusive, Absent
Nancy Kissel, who has admitted killing her Merrill Lynch & Co. banker husband, told Hong Kong’s High Court Feb. 22 that he was an absent spouse who physically and sexually abused her.
“The more involved he got with investment banking, the more forceful he was with me sexually,” Kissel, 46, told the nine-member jury in her retrial for murder.
Kissel’s lawyer Edward Fitzgerald said earlier the Michigan-born mother of three was provoked by Robert Kissel on the night of his Nov. 2, 2003, death. Fitzgerald said he will call specialists in depression and post-traumatic stress disorder to show that her mental condition at the time makes her less culpable for the killing, he said.
Nancy Kissel was convicted of murder in 2005 and sentenced to life in prison. Hong Kong’s Court of Final Appeal ruled in February 2010 the conviction was unfair and ordered a new trial. Kissel’s application for a halt to the criminal proceedings was rejected by Judge Andrew Macrae in November. The retrial began Jan. 11.
Prosecutors rejected Kissel’s guilty plea to manslaughter and argued that she drugged her husband Robert, bludgeoned him to death in their bedroom and hid the body in a storeroom. She was the main beneficiary of his $18 million estate and was having an affair at the time of the killing.
A manslaughter conviction may mean a sentence of eight to 12 years, her lawyers have said. She has already served more than six years in prison. The retrial is scheduled for 50 days.
The case is HKSAR v. Nancy Ann Kissel, HCCC55/2010 in Hong Kong’s High Court of First Instance.
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BGC Loses U.K. Appeal of Tullett Broker-Poaching Ruling
BGC Partners Inc. lost its appeal of a ruling that the firm was part of an unlawful conspiracy to poach brokers from competitor Tullett Prebon Plc.
A three-judge panel at the Court of Appeal in London yesterday ruled that the trial judge’s original ruling in March was correct, dismissing BGC’s appeal on all grounds.
Tullett, the London-based inter-dealer broker, sued BGC in 2009 claiming Anthony Verrier, BGC’s executive managing director, spent tens of millions of pounds to convince the heads of various Tullett trading desks to breach their contracts by getting colleagues to defect.
In March, Judge Raymond Jack ruled in Tullett’s favor and said the damages BGC should pay would be decided at a trial scheduled for later this year. During the litigation BGC was blocked by the court from hiring anybody from Tullett. The order was in force for around a year, according to court documents.
“Tullett Prebon welcomes today’s judgment in the Court of Appeal which rejected all the appeals lodged by BGC,” the broker said in an e-mailed statement.
BGC spokesman Richard Oldworth declined to comment.
The U.K. case is Tullett Prebon Plc v. BGC Brokers LP, HQ09X01241, High Court (London).
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NYSE, Deutsche Boerse Sued by Big Board Investor Over Sale
NYSE Euronext, the parent company of the New York Stock Exchange, and Deutsche Boerse AG were sued by a Big Board shareholder who hopes to stop its planned $9.53 billion sale to the German company.
The proposed deal, which would create the largest owner of equities and derivatives markets, undervalues NYSE and is structured to discourage competing bids, the shareholder, James Benson, said in a complaint filed Feb. 18 in New York State Supreme Court in Manhattan.
“The proposed sale is wrongful, unfair and harmful to NYSE public shareholders, and represents an effort by defendants to aggrandize their own financial position and interests at the expense of” investors, Benson’s lawyers wrote.
Under the planned sale, Deutsche Boerse, which runs the Eurex futures platform and Frankfurt Stock Exchange, will swap one share of its own stock for one share in the new company, while every NYSE Euronext share will be converted into 0.47 of a share. Shareholders have filed other lawsuits over the deal in Delaware and New York.
Eric Ryan, a spokesman for NYSE, declined to comment. Naomi Kim, a spokeswoman for Deutsche Boerse, didn’t immediately respond to an e-mail seeking comment.
The case is Benson v. NYSE Euronext, 650446-2011, New York State Supreme Court (Manhattan).
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Citigroup Executive Knew of Madoff Fraud, Trustee Suit Says
Citigroup Inc.’s Citibank ignored warning signs of Bernard L. Madoff’s Ponzi scheme, and a bank executive knew the con man’s stated trading strategy couldn’t generate the reported returns, the trustee liquidating Madoff’s firm said in a lawsuit.
The unidentified Citibank executive, who was responsible for making recommendations to clients on derivatives, “concluded” by June 2007 that returns reported by a Madoff feeder fund, Fairfield Sentry Ltd., couldn’t have come from the strategy, trustee Irving Picard said in a complaint unsealed yesterday. The executive reached his conclusion after meeting with analyst Harry Markopolos, a whistleblower who also alerted U.S. regulators to the fraud, Picard said.
The Citibank official later communicated with Markopolos orally and in writing, specifically discussing the fraud before the Ponzi scheme was exposed in December 2008, Picard alleged.
“Citi knew, and was on notice of, irregularities and problems concerning the trades reported by BLMIS, and strategically chose to ignore these concerns in order to continue to enrich themselves,” Picard said in the complaint, referring to Madoff’s firm, Bernard L. Madoff Investment Securities LLC.
Picard laid out in the complaint details of a lawsuit he filed under seal in December against New York-based Citigroup and other banks. He is demanding $425 million from Citigroup-- money it received “in connection with” a loan to a Madoff feeder fund and a swap transaction with a Swiss hedge fund linked to a second feeder fund, Picard said.
“Citi will vigorously defend against these claims by the trustee as they are entirely without merit and completely false,” Danielle Romero-Apsilos, a spokeswoman for the bank, said yesterday in an e-mail.
Madoff is serving a 150-year sentence in federal prison in Butner, North Carolina, after pleading guilty to orchestrating the biggest Ponzi scheme in U.S. history.
The main case is Securities Investor Protection Corp. v. Bernard L. Madoff Investment Securities LLC, 08-01789, and the Citigroup case is Picard v. Citibank, 10-05345, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Mets Owners Seek Information Underlying Madoff Trustee Claim
Sterling Equities Inc., which owns the Mets Major League Baseball team, asked a court to order the trustee liquidating con man Bernard Madoff’s firm to turn over documents supporting a $1 billion claim against Sterling.
In documents filed yesterday in the case before U.S. Bankruptcy Judge Burton Lifland in Manhattan, Sterling demands documents and transcripts underlying what the trustee claims are “good faith” allegations “based upon a serious investigation,” according to the filing.
“Instead, the trustee, who acts as a fiduciary to all Madoff victims, including the Sterling defendants, seeks to delay the disclosure of this critical information” and dismisses Sterling’s request as “frivolous,” according to the filing.
The $1 billion legal fight, in which trustee Irving Picard wants to recover $300 million in alleged phony profit from Madoff’s scheme made by Sterling and as much as $700 million in principal, is being mediated by former New York Governor Mario Cuomo. The mediation has started and “will be impossible if the Sterling defendants do not have access to all of the trustee’s pre-complaint discovery,” according to the filing.
Picard’s lawyer, David Sheehan, didn’t return a call seeking comment after regular business hours.
In court filings, Picard claims the Mets owners used $90 million in Madoff profits for day-to-day operations, blinding them to “red flags” signaling that Madoff was a fraud.
Mets Chairman Fred Wilpon and Saul Katz, the team’s president, have called the claims “abusive, unfair and untrue.”
The case is Picard v. Katz, 10-05287, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
Billionaires May Lose From Attack on U.K. Libel Tourism
A Saudi Arabian sheikh and a Ukrainian businessman may be among the last of the so-called libel tourists in the U.K.
The government may rewrite defamation laws that currently allow a non-citizen to sue a foreign media outlet for reputational damage claims in the U.K. That would close the door for people who have sometimes used London courts to silence critics. U.S. film director Roman Polanski, former California Governor Arnold Schwarzenegger and Russian billionaire Boris Berezovsky have won lawsuits filed under the statute.
Labeling the law a “laughing stock,” Deputy Prime Minister Nick Clegg vowed to publish a draft bill this spring, targeting libel tourism and the high costs of bringing suit. The law, whose critics say it’s only accessible to the rich, dates back to Victorian times and is plaintiff-friendly, placing the burden of proof on the defendant, contrary to laws in the U.S. and most of continental Europe.
Advocates of the current law say the debate is overblown, pointing out that few libel cases make it to trial.
“Unlike in the U.S., we balance the right to reputation with freedom of speech,” said Nigel Tait, a partner at British libel law firm Carter-Ruck, who has represented Elton John and Simon Cowell. “Our laws and procedures are fair all around.”
The changes will only drive fees up with claimants having to prove more and lawyers racking up more hours, he said.
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Vivendi Wins Ruling Limiting Class-Action Fraud Verdict
Vivendi SA won a court ruling that limits an earlier class-action securities fraud verdict against the company to holders of its American depositary receipts.
A Manhattan jury in January 2010 found that Paris-based Vivendi misled shareholders about its financial health 57 times from 2000 to 2002, artificially inflating the value of its shares. Lawyers for the investors claimed that damages to the entire shareholders’ class totaled $9.3 billion.
U.S. District Judge Richard Holwell in a 122-page ruling released yesterday dismissed claims by holders of Vivendi’s ordinary shares from the suit. He applied a U.S. Supreme Court decision saying that U.S. securities laws don’t protect investors who buy foreign stocks on overseas exchanges.
The ruling eliminates more than 80 percent of the claimed damages in the case, according to Flavie Lemarchand-Wood, a spokeswoman for Vivendi, owner of the world’s biggest music and video-game companies.
“Vivendi will now analyze Judge Holwell’s decision in detail to determine its next steps,” Lemarchand-Wood said in a telephone interview.
Holwell relied on the Supreme Court’s 2010 decision in Morrison v. National Australia Bank, which barred the U.S. court claims of a group of Australian citizens who bought shares of an Australian bank on foreign exchanges.
“While we are of course disappointed at the court’s application of the Morrison decision to this case, we are pleased that the court soundly rejected Vivendi’s many arguments challenging the jury verdict, and we will proceed vigorously to expedite procedures to allow class members to collect their damages,” Dan Fleshler, a spokesman for Milberg LLP, said in a statement.
Milberg is one of the law firms representing Vivendi investors in the case.
The case is In Re Vivendi Universal SA Securities Litigation, 02-cv-5571, U.S. District Court, Southern District of New York (Manhattan).
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Obama Health-Care Law Challenge Dismissed by Washington Judge
The Obama administration’s health-care reform law survived a constitutional challenge in federal court in Washington, marking the third U.S. victory against cases seeking to block the measure.
U.S. District Judge Gladys Kessler yesterday dismissed a lawsuit brought in June by five individuals who claimed the provision of the Patient Protection and Affordable Care Act requiring people to procure minimum insurance coverage starting in 2014 is unconstitutional.
In a 64-page opinion, Kessler said Congress was acting “within the bounds” of its constitutional Commerce Clause power when it imposed the insurance requirement.
“The individual decision to forgo health insurance, when considered in the aggregate, leads to substantially higher insurance premiums for those other individuals who do obtain coverage,” Kessler wrote. “Thus, the aggregate effect on interstate commerce of the decisions of individuals to forgo insurance is very substantial.”
Kessler, like judges in Michigan and Virginia who concluded the mandate is constitutional, was appointed by President Bill Clinton. The two federal judges who have invalidated all or part of the measure were each appointed by a Republican president.
Edward White, a lawyer in Ann Arbor, Michigan, who represents the plaintiffs, said he was disappointed with the ruling and that his clients would file an appeal.
The case is Mead v. Holder, 10-cv-00950, U.S. District Court, District of Columbia (Washington).
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Deutsche Bank, Breuer Get $1.8 Billion Kirch Suit Dismissed
Deutsche Bank AG, Germany’s biggest bank, won dismissal of a 1.3 billion-euro ($1.8 billion) damage lawsuit by businessman Leo Kirch over claims the lender caused his media group’s 2002 bankruptcy.
The Munich Regional Court yesterday rejected the case against the bank and Rolf Breuer, its former chief executive officer. Kirch claimed his media group couldn’t restructure after Breuer questioned its creditworthiness and that, as a result, Kirch had to surrender his 40 percent stake in publisher Axel Springer AG that he had used as collateral for a loan which the lender terminated in April 2002.
Deutsche Bank “could have terminated that loan and made use of the collateral in the summer of 2002, because the share price had dropped below 55 euros,” presiding Judge Brigitte Pecher said after delivering the ruling. “The bank had the right to do that under the loan terms and it seems reasonable that it would have done so. So Kirch would have suffered the same loss.”
Kirch’s dispute with the Frankfurt-based bank stems from a February 2002 Bloomberg television interview in which Breuer said “everything that you can read and hear” is that “the financial sector isn’t prepared to provide further” loans or equity to Kirch.
In the following months, the units of Kirch’s company filed what would be the country’s biggest bankruptcy case since World War II. The company’s assets included the largest film library outside the U.S., rights to broadcast World Cup soccer matches and a majority stake in ProSiebenSat.1 Media AG, Germany’s biggest private broadcaster.
“The ruling is no surprise and we take it quite relaxed,” a spokesman for Kirch said. Kirch will wait for the written judgment and then take the necessary steps, he said.
Kirch was seeking about 900 million euros because his Printbeteiligungs unit was forced to sell the Axel Springer shares. The court also rejected an additional claim for 400 million euros for a separate loss, saying Kirch didn’t show that the loss actually existed.
“We are happy that the court backed our position and fully rejected the suit,” Deutsche Bank spokesman Christian Streckert told reporters after the ruling.
Yesterday’s case is LG Muenchen, 33 O 9550/07.
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CSX, Railroads Win at U.S. Supreme Court in State Tax Case
The U.S. Supreme Court broadened the ability of railroads to challenge state taxes as illegally favoring other types of carriers, ruling in favor of CSX Corp. in an Alabama case.
The justices, voting 7-2, said CSX can press claims that the state is violating a federal law that protects railroads from discrimination by forcing the company to pay higher fuel taxes than motor and water carriers.
A lower court has said that the federal law, known as the Railroad Revitalization and Regulatory Reform Act, doesn’t permit lawsuits over generally applicable sales and use taxes.
CSX says that in some parts of the state it pays diesel fuel taxes of as much as 10 percent -- or 30 cents per gallon on fuel costing $3. Motor carriers pay a flat rate of 19 cents per gallon, while water carriers are exempt from sales and use taxes if they travel in interstate or foreign commerce, CSX says.
Justice Elena Kagan wrote the majority opinion in the case, issuing her second decision since joining the court in August. She said the justices were ruling only that CSX could put its case before a federal court and not that the railroad should win on its claim of discrimination.
Justices Clarence Thomas and Ruth Bader Ginsburg dissented.
The case is CSX Transportation v. Alabama Department of Revenue, 09-520.
Suits Against Vaccine Makers Curbed by U.S. Supreme Court
The U.S. Supreme Court reinforced the shield that protects drugmakers from lawsuits over vaccines, ruling against two parents who blame Pfizer Inc.’s Wyeth unit for their teen-age daughter’s seizure disorder.
The justices, voting 6-2, said a 1986 federal law preempts claims that a drugmaker should have sold a safer formulation of a vaccine. The law, designed to encourage vaccine production by limiting patient suits, channels most complaints into a company-financed no-fault system that offers limited but guaranteed payments for injuries shown to be caused by a product.
“The vaccine manufacturers fund from their sales an informal, efficient compensation program for vaccine injuries,” Justice Antonin Scalia wrote for the majority. “In exchange they avoid costly tort litigation and the occasional disproportionate jury verdict.”
The ruling is a victory for the four companies that supply vaccines for the U.S. market -- Wyeth, GlaxoSmithKline Plc, Merck & Co. and Sanofi-Aventis SA. A ruling letting the parents sue Wyeth might have allowed suits by thousands of families that say vaccines caused autism in their children. Since 1988, the no-fault process has led to almost $2 billion in compensation to more than 2,500 families.
The issue for the Supreme Court was whether the 1986 law leaves open the possibility that patients can sue manufacturers when the side effects were avoidable. The Obama administration joined Wyeth, acquired in 2009 by New York-based Pfizer, in urging the justices to bar those types of suits.
Justices Sonia Sotomayor and Ruth Bader Ginsburg dissented. Sotomayor said the ruling “leaves a regulatory vacuum in which no one ensures that vaccine manufacturers adequately take account of scientific and technological advancements when designing or distributing their products.”
Justice Elena Kagan didn’t take part in the ruling.
The case is Bruesewitz v. Wyeth, 09-152, U.S. Supreme Court (Washington).
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Pfizer Reaches Global Settlement on Nigerian Trovan Suits
Pfizer Inc., the world’s biggest drugmaker, reached a final settlement in lawsuits over tests of an antibiotic on Nigerian children.
Two suits claimed Pfizer used the unproven antibiotic, Trovan, in 1996 without warning patients’ parents of risks. The New York-based company will join a meningitis trust fund managed by an independent board in Kano, Nigeria, according to an e-mail yesterday in which Pfizer and the plaintiffs announced the agreement. Financial terms weren’t disclosed.
The suits stemmed from an outbreak of bacterial meningitis in northern Nigeria. Pfizer worked with Nigerian officials to recruit 200 sick children for a study of Trovan to treat the illness. Eleven of the patients died, and others were left paralyzed, deaf or blind, according to the suits.
“The settlement will bring an end to all litigation pertaining to Trovan in the U.S. and Nigeria and allow for joint compensation for participants in the study and their families,” Pfizer and the plaintiffs said in the statement.
Pfizer settled with the state government of Kano and the federal government of Nigeria in 2009. The financial terms of the settlement are confidential, Chris Loder, a spokesman for Pfizer, said in a telephone interview.
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