Bank of America Corp.’s law firm defending the company against MBIA Inc. in a dispute over defective mortgages said that a court ruling in a separate case means lenders should reevaluate their reserves for bad loans.
Lenders could be forced to repurchase shoddy mortgages even if banks’ misrepresentations weren’t responsible for defaults, O’Melveny & Myers LLP said in a client note on its website. The law firm cited a June 19 ruling in which the judge sided with bond insurer Syncora Holdings Ltd. against a mortgage company.
“In light of a recent federal court ruling, banks may wish to reevaluate litigation risk from plaintiff insurers claiming injury” in bonds they backed, Robert Stern, an O’Melveny partner, said in the note dated July 27. Firms “facing such lawsuits may wish to reevaluate their exposure and possibly adjust reserves set aside to cover such risks.”
The Syncora ruling contrasts with Bank of America’s argument that bond insurers and other firms should only win refunds if they prove that loan defects led to defaults. While Chief Executive Officer Brian T. Moynihan committed more than $40 billion to clean up mortgages at the second-biggest U.S. lender, he has yet to resolve disagreements with MBIA, whose claims make it one of the bank’s biggest remaining adversaries.
“What’s shocking about the O’Melveny note is that they represent Bank of America in the MBIA litigation; it’s not like they are confused about the type of claims or the nature of the contract,” said Manal Mehta, founder of San Francisco-based hedge fund Sunesis Capital, which owns MBIA stock. “They’ve come out very explicitly and said, ‘Hey guys, loss-causation is a game changer for your reserves.”
The note “was not a commentary on any institution’s reserve decisions,” said Majory Appel, a spokeswoman for O’Melveny & Myers. Lawrence Grayson, a spokesman for Charlotte, North Carolina-based Bank of America, declined to comment on the law firm’s note.
Stern has represented a subprime lender and U.S.-owned mortgage firm in disputes over loans, according to the law firm’s website. Appel declined to say whether Stern was involved in the MBIA case.
Bank of America had outstanding claims from the so-called monoline insurers on $3.1 billion of mortgages as of June 30, “substantially all” of which the lender has refused to repurchase after its assessment of whether valid defects exist, the firm said this month in a filing.
The bank’s interpretation is that it only has to buy back a loan if an underwriting error or misrepresentation “was the cause of the loss,” Moynihan’s firm said in the filing. Otherwise the company would be paying for defaults tied to the economic slump, a risk that should be handled by the insurer, the bank has said.
The case is MBIA Insurance v. Countrywide Home Loans, 602825-08, New York State Supreme Court (New York County).
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Chadbourne & Park Working on ResCap Examiner Investigation
Arthur J. Gonzalez, who was appointed on July 3 as examiner for Residential Capital LLC, said in a court filing Aug. 6 that his investigation will cost $29 million to $36 million. Gonzalez said it’s “realistic” to expect that his report will be filed in early February.
As examiner, Gonzalez will use law firm Chadbourne & Park LLP along with Mesirow Financial Consulting LLC as financial advisers.
The Chadbourne team working on the case includes bankruptcy partners Howard Seife, David LeMay and Ted Zink and litigation partner Thomas McCormack.
Gonzalez retired as a bankruptcy judge in New York on March 1. His investigation will cover ResCap and its parent, non-bankrupt Ally Financial Inc.
U.S. Bankruptcy Judge Martin Glenn formally called for an examiner in June and later directed Gonzalez to investigate Ally and Cerberus Capital Management LP, ResCap’s proposed sale and reorganization plan, the role of ResCap’s board, alternatives to ResCap’s proposals, claims against officers and directors, claims ResCap proposes to release, and the value of the releases. ResCap is Ally’s mortgage-servicing subsidiary.
ResCap filed for Chapter 11 reorganization on May 14, intending to sell the servicing business to Fortress Investment Group LLC while Ally bought leftover mortgages and paid $750 million for releases.
The case is In re Residential Capital LLC, 12-12020, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Advent Agrees to Buy Ares’ AOT, Maker of Serta Mattresses
Advent International Corp., the Boston-based leveraged buyout firm founded by Peter Brooke, agreed to buy a majority stake in AOT Bedding Super Holdings, the maker of Serta and Simmons mattresses.
Sullivan & Cromwell LLP represents Ares Management, Ontario Teachers’ Pension Plan and AOT Bedding Super Holdings while Advent was counseled by the law firm Weil Gotshal & Manges LLP.
The S&C team is led by Los Angeles corporate/mergers and acquisitions partner Alison Ressler together with New York partners Neal McKnight, financing; Andrew Mason, tax; Matthew Friestedt, executive compensation and benefits and Yvonne Quinn, antitrust.
Weil’s team was led by corporate partner Marilyn French, Boston and included financing partner Kelly Dybala, Dallas, tax partner Marc Silberberg, New York; benefits/executive compensation partner Amy Rubin, New York; IP partner John Brockland, Silicon Valley; environmental partner Annemargaret Connolly, Washington; regulatory partner John O’Loughlin, Washington; and antitrust partner John Scribner Washington.
The transaction values the mattress company at about $3 billion including debt, said a person with knowledge of the matter. The purchase is expected to be completed in the fourth quarter, Advent said Aug. 5 in a statement sent by e-mail that didn’t disclose terms.
Existing investors Ares Management LLC, based in Los Angeles, and the Ontario Teachers’ Pension Plan will retain a “significant” stake in AOT Bedding, the private equity firm said in an e-mailed statement. Chuck Dohrenwend, a spokesman for Advent International, declined to specify the size of its stake or comment beyond the press release.
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Cozen O’Connor Announces Addition of Senior Corporate Attorney
The former chairman of Loeb & Loeb LLP’s national mergers and acquisitions group, Andrew M. Ross, moved to Cozen O’Connor in New York.
Ross’s practice includes domestic and international mergers and acquisitions, debt and equity financing, venture capital and bank financing, and general corporate representation, the firm said. His practice also involves the representation of senior executives in employment agreements and other compensation arrangements.
In addition, Ross works with Chinese law firms, investment banks, and Chinese professionals to assist Chinese companies engaging in acquisitions and investment in the U.S.
“Andy’s private equity and venture capital experience adds significant depth to our firm’s corporate practice in the New York region,” Cozen O’Connor president and executive partner Michael J. Heller said. “In addition, his extensive experience with Chinese companies presents valuable opportunities for clients seeking to structure in-bound investments and acquisitions.”
Cozen O’Connor has 575 attorneys at 21 offices in the U.S. and Canada.
Proskauer Broadens Biotech Patent Litigation Capabilities
Proskauer Rose LLP has expanded its biotechnology patent litigation practice in New York with the addition of Mary S. Consalvi as a partner in the firm’s patent law group. Consalvi is the former president and general counsel of NetBio Systems, Inc., a provider of rapid DNA analysis solutions located in Waltham, Massachusetts, the firm said.
Consalvi has more than 20 years of experience. Prior to her tenure at NetBio, Consalvi served as vice president and chief intellectual property counsel at biotechnology company Transkaryotic Therapies. Before that she was a partner in private practice at Howrey Simon Arnold & White and Lyon & Lyon, the firm said.
Brendan O’Rourke and Robert Cleary, Proskauer partners and co-chairs of the firm’s litigation department said of Consalvi, “Not only is she a top-notch litigator, but she also has a keen understanding of patent and other business issues facing biotech companies based on her strong corporate and industry background.”
At NetBio, Consalvi was responsible for all aspects of the company’s financing, business development and corporate and legal affairs. She is also an intellectual property litigator, focusing on patent, trademark, copyright and trade secret law. She has counseled clients on “freedom to operate” analyses, opinion work and issues of patent validity, infringement and new-product introductions and represented companies with government grants and contracts, the firm said.
Proskauer has 13 offices worldwide.
Skadden Partner Joins SNR Denton’s Capital Markets Practice
SNR Denton LLP hired Kenneth A. Wright Jr. as a partner in its capital markets practice in New York. Wright joins from Skadden, Arps, Slate, Meagher & Flom LLP, the firm said.
Wright represents issuers, underwriters, placement agents, dealers, credit enhancers, lenders, private investors, investment advisers and other market participants in a variety of financial transactions, the firm said. Wright also has represented financial institutions in asset-backed commercial paper and medium-term note programs.
SNR Denton has more than 60 locations worldwide, through offices, associate firms and special alliances across the U.S., the UK, Europe, the Middle East, Russia and the CIS, Asia Pacific and Africa.
Morrison & Foerster Adds Two New Lawyers in Denver
Morrison & Foerster LLP has strengthened its nationwide investment management and securities litigation and enforcement practices, with two hires in its Denver office. Kelley A. Howes joins from Janus Capital Group Inc., where she was general counsel. Brian Neil Hoffman joins from the Securities and Exchange Commission, where he was a senior attorney in the division of enforcement in the Chicago regional office.
As Janus’s general counsel from 2007 to 2011, Howes was responsible for the company’s global legal, regulatory, corporate governance, internal audit, and insurance matters. She managed regulatory examinations, enforcement matters, and multiple class and derivative actions, acted as the company’s corporate secretary and was a member of Janus’s executive committee, ethics committee, disclosure committee, and internal compliance controls committee.
Hoffman, a former Morrison & Foerster associate from 2001 to 2010, re-joins the firm’s securities litigation, enforcement, and white-collar defense group. At the SEC he investigated and litigated potential insider trading, corporate reporting and controls violations, and other securities fraud claims.
Morrison & Foerster has more than 1,000 lawyers in 15 offices in the U.S., Asia and Europe.
Convicted Accountant Parse Seeks New Trial in Tax-Fraud Case
David Parse, an accountant convicted in what a judge called the biggest U.S. tax-fraud prosecution in history, is seeking a new trial on the grounds that his lawyers were inadequate.
U.S. District Judge William Pauley in June granted a new trial for Parse’s three codefendants, after a juror disclosed she had lied about her past including that she was an alcoholic and a suspended attorney. Pauley let Parse’s conviction stand, ruling that his lawyers, from the New York firm Brune & Richard LLP, failed to reveal information they had about the juror, Catherine Conrad, whom Pauley called a “pathological liar.”
“As the court found, a reasonably competent lawyer on learning that Juror No. 1 might be a suspended lawyer with a history of alcoholism would have taken some action to resolve the issue,” Parse said in court papers filed yesterday in Manhattan federal court. “Choosing to do nothing was not a viable option.”
In May 2011, the jury including Conrad returned guilty verdicts against Paul Daugerdas and Donna Guerin, former Jenkens & Gilchrist lawyers; Denis Field, the former chief executive officer at accounting firm BDO Seidman LLP; and Parse, who worked for Deutsche Bank AG unit Alex. Brown. Craig Brubaker, a second former Alex. Brown accountant, was found not guilty.
Pauley ruled that Conrad’s presence on the jury deprived Parse’s codefendants of a fair trial. Parse’s lawyers waived the issue by failing to alert the court of information it had about Conrad, he ruled.
The 10-week tax fraud trial included 9,200 pages of testimony from 41 witnesses. Lawyers introduced 1,300 pieces of evidence.
The case is U.S. v. Daugerdas, 09-CR-581, U.S. District Court, Southern District of New York (Manhattan).
Ex-Apple Designer Says Samsung Phones Mimic IPhone Patent
The former Apple Inc. graphics designer who invented the smiling computer icon for the original Macintosh testified that the application screen on Samsung Electronics Co. phones is “substantially similar” to the iPhone design patented by Apple.
Susan Kare, who began her career at Apple in 1982 as a screen graphics and digital font designer, was called yesterday as witness by the company in its multibillion-dollar patent trial against Samsung in federal court in San Jose, California.
Kare told the jury the phones are so similar that she picked one up while visiting the office of Apple’s lawyers and mistook a Samsung phone for an iPhone.
Apple and Samsung are the world’s largest makers of the high-end handheld devices that blend the functionality of a phone and a computer. The trial is the first before a U.S. jury in a battle being waged on four continents for dominance in a smartphone market valued by Bloomberg Industries at $219.1 billion. Each company is trying to convince jurors at the trial that its rival infringed patents covering designs and technology.
Apple is using Kare’s testimony to advance its claims that Samsung phones infringe the software design of the iPhone.
Yesterday, when Kare was shown at least 10 Samsung phones in court, she said the application screens on all of them are “substantially similar overall” to that described in Apple’s patent.
“The similarities I saw were the regular grid, the rows of four icons, the colorful mix of icons that are square with rounded corners,” she said.
During cross-examination, Samsung’s attorney, Charles K. Verhoeven, showed Kare a Samsung phone and asked her to walk him through the steps required to arrive at the application screen she was asked to analyze. When he turned it on, “Samsung” illuminated. After it was electronically unlocked, Verhoeven demonstrated, through Kare, that a customer had to navigate the phone’s home screen to get to the application screen.
“Wouldn’t you agree that by the time the consumer turns on the phone, and goes through the steps we looked at, seeing the Samsung sign prominently for several seconds,” Verhoeven asked, “that the consumer knows it’s a Samsung phone?”
“I’m not an expert in consumer behavior, and that kind of user experience,” Kare replied. “I’m really focused on graphic user interface, so I’m not sure I’m qualified to answer that.”
Apple seeks $2.5 billion for its claims that Samsung infringed patents. Samsung, based in Suwon, South Korea, countersued and will present claims that Apple is infringing two patents covering mobile-technology standards and three utility patents.
The case is Apple Inc. v. Samsung Electronics Co. Ltd., 11-cv-01846, U.S. District Court, Northern District of California (San Jose).
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