Facebook, American Express, Glaxo, L'Oreal, Kagan, Black in Court News
A lawyer for Facebook Inc. said she was “unsure” whether company founder Mark Zuckerberg signed a contract that purportedly entitles a New York man to 84 percent of the world’s biggest social-networking service.
Paul Ceglia filed a complaint against Facebook and Zuckerberg in state court in New York’s Allegany County on June 30. Ceglia claims that a contract he and Zuckerberg signed in April 2003 entitles him to ownership of most of the closely held company. Ceglia’s lawyer produced the document yesterday at a hearing in federal court in Buffalo, New York.
“Whether he signed this piece of paper, we’re unsure at this moment,” Facebook lawyer Lisa Simpson told U.S. District Judge Richard Arcara.
Facebook, which has yet to call the alleged contract with Ceglia a phony, has “serious questions” about its authenticity, Simpson said. Facebook is worth $24.6 billion, according to SharePost.com, a marketplace for closely held firms.
“Mr. Zuckerberg did have a contract with Mr. Ceglia,” Simpson said. Zuckerberg, 26, worked for Ceglia as a computer coder, she said.
Ceglia has asked the federal court to extend a state judge’s order barring the transfer of ownership interests in the Palo Alto, California-based company.
Facebook said Ceglia remained silent for more than six years and his claim is probably too old to pursue. Also, Ceglia claims his alleged contract, which refers to “The Face Book,” was signed about nine months before the company was founded, Facebook said.
The case is Ceglia v. Zuckerberg, 10-CV-00569, U.S. District Court, Western District of New York (Buffalo).
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Drill-Ban Foes Challenge U.S. Bid to Dismiss Suit
Hornbeck Offshore Services Inc. and other oil-service companies asked a judge to reject a U.S. request to dismiss their lawsuit challenging the federal moratorium on deep-water oil drilling in the Gulf of Mexico.
U.S. District Judge Martin Feldman in New Orleans on June 22 threw out the six-month ban imposed by federal regulators on oil and gas drilling in waters deeper than 500 feet, finding it was too broad. A three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans on July 8 refused regulators’ request to put Feldman’s order on hold while the government appeals.
Interior Secretary Kenneth Salazar issued a revised ban on July 12 that may allow new wells if the industry shows it has strengthened safety standards. The government also asked both courts to dismiss the Hornbeck lawsuit. The new policy “repackages the prior moratorium,” lawyers for offshore service companies said in court filings.
The new halt “in all critical respects, is a mirror image of the moratorium the secretary issued on May 28 and which the court preliminarily enjoined,” Carl Rosenblum, a lawyer for companies suing to overturn the ban, said in papers filed yesterday in New Orleans federal court.
President Barack Obama imposed a six-month suspension on deep-water drilling in reaction to the BP Plc oil spill, the worst in U.S. history, caused by the sinking of the Deepwater Horizon drilling rig off the Louisiana coast in April. Obama said the moratorium is needed to give a presidential commission time to study the safety of offshore operations.
The case is Hornbeck Offshore Services LLC v. Salazar, 2:10- cv-01663, U.S. District Court, Eastern District of Louisiana (New Orleans). The appeal case is 10-30585, U.S. Court of Appeals for the Fifth Circuit (New Orleans).
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Toyota Faces Grand Jury Scrutiny on Steering Rod Flaw
Toyota Motor Corp., working to rebound from its worst recall crisis, said it faces additional scrutiny over potential defects in vehicle steering rods.
The company said in a filing yesterday that a federal grand jury in New York issued it a subpoena to provide documents related to flaws in steering relay rods. The National Highway Traffic Safety Administration in May said it opened an investigation on the matter.
“We’ll cooperate with the investigation,” Steve Curtis, a spokesman for Toyota’s U.S. unit, said in a phone interview. Toyota isn’t discussing specific models involved at this time, he said.
Toyota, the world’s largest automaker, has been under investigation this year by the Transportation Department and its NHTSA auto-safety regulator for responses to safety defects in the company’s cars and trucks. The automaker in April agreed to pay a record $16.4 million fine over a delayed defect notification for accelerator pedals that can stick.
The office of the U.S. Attorney in Manhattan won’t confirm or deny whether there is an investigation of the steering rods, spokeswoman Yusill Scribner said yesterday, citing agency policy. Toyota first learned of the subpoena on June 29, the company said yesterday in the filing.
“We all know the government has been investigating this,” John Kristensen, a lawyer suing Toyota, said yesterday. Kristensen, of O’Reilly Collins in San Mateo, California, represents the family of Michael Levi Stewart, 18, who died when his 1991 Toyota pickup truck rolled over into a ditch in Idaho on Sept. 15, 2007.
The lawsuit filed on behalf of Stewart’s family claims a defective steering relay rod led to the fatal accident. A trial in that case is scheduled to begin in November in state court in Los Angeles.
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American Express Wins Dismissal of Investors’ Fraud Suit
American Express Co. won dismissal of a proposed class- action shareholder lawsuit claiming the company misled investors about its underwriting guidelines and delinquent-cardholder payments.
U.S. District Judge William Pauley in New York on July 19 granted American Express’s request to throw out the 2009 suit. The suing investors failed to establish that defendants including Chief Executive Officer Kenneth I. Chenault and Chief Financial Officer Daniel T. Henry knew of any fraud or acted with reckless disregard, Pauley said.
“The complaint’s allegations, taken collectively, reveal a company attempting to increase its share of the credit card market during significant financial turmoil,” Pauley said, calling the case “a classic example of fraud by hindsight.”
The plaintiffs alleged that American Express officials touted the New York-based company’s credit-risk management and later made misleading statements about its underwriting guidelines, the credit quality of its portfolio and the level of loss reserves.
“AMEX pursued its expansionary strategy at the wrong time,” Pauley said. “That a business plan turned out to be ill-timed and, in hindsight, ill-advised, does not transmogrify it into a securities fraud.”
“We’re delighted with the ruling,” said Joanna Lambert, a spokeswoman for American Express.
Beth Kaswan, a lawyer for the plaintiffs declined to comment.
The case is Local No. 30 International Brotherhood of Electrical Workers Pension Fund v. American Express, 09-CV-3016, Southern District of New York (Manhattan).
Stanford Officers Seek to Not Testify in Lloyd’s Case
Former Stanford Financial Group executives shouldn’t be forced to testify at an insurance-coverage trial about their roles in an alleged $7 billion fraud run by R. Allen Stanford before a criminal trial can be held, their lawyer said in a court filing.
Former Chief Investment Officer Laura Pendergest-Holt and two former top accounting officers at Stanford’s financial services firm said in a court filing yesterday that Lloyd’s of London is trying to “place the civil cart before the criminal horse” in their lawsuit against the underwriters.
The executives sued Lloyd’s for denying them access to legal defense funds under Stanford’s $100 million directors and officers liability policies.
The attempt by Lloyd’s to force the executives to testify and provide written answers to justify their activities forces them into “a constitutional Hobson’s choice” over their right against self-incrimination, said their lawyer, Lee Shidlofsky, in the filing in federal court in Houston.
Stanford, Pendergest-Holt, former Chief Accounting Officer Gilbert Lopez and former global controller Mark Kuhrt were indicted in June 2009 on charges they swindled investors through a scheme built on allegedly bogus certificates of deposit issued by Antigua-based Stanford International Bank.
The executives have denied any wrongdoing. A separate trial of Stanford is scheduled for January. The other three executives will face a jury after Stanford’s trial.
All four defendants sued Lloyd’s in November, after the underwriters denied their claims because former Chief Financial Officer James M. Davis pleaded guilty and Stanford’s court- appointed receiver released a forensic accounting report. The insurance-coverage case is set for trial in August before U.S. District Judge Nancy Atlas in Houston.
Akin Gump attorney Neel Lane, who represents Lloyd’s of London, didn’t immediately return an e-mail seeking comment yesterday on the filing.
The case is Pendergest-Holt v. Certain Underwriters at Lloyd’s of London, 4:09-cv-03712, U.S. District Court, Southern District of Texas (Houston).
The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).
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Mustier Insider-Trading Probe Is Dropped by Paris Prosecutors
The Paris prosecutor dropped an investigation into alleged criminal insider trading by former Societe Generale SA investment bank chief Jean-Pierre Mustier a month after the French market regulator fined him for the same.
“The prosecution classified it for no follow-up,” said Dominique Borron, a spokesman for the prosecutor, by telephone yesterday. He declined to provide a reason for ending the probe.
The Autorite des Marches Financiers fined Mustier 100,000 euros ($130,000) on June 30 for his Aug. 21, 2007, sale of 6,000 shares in Societe Generale. He liquidated most of his equity portfolio at the same time.
Mustier is appealing the AMF decision. Calls to his lawyer, Jean Veil, for comment were not immediately returned.
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Glaxo Said to Have Paid $1 Billion Over Paxil Suits
GlaxoSmithKline Plc has agreed to pay more than $1 billion to resolve more than 800 cases alleging its Paxil antidepressant caused birth defects in some users’ children, according to people familiar with the settlements.
The accords, which provide an average payout of more than $1.2 million to families of affected children, leave more than 100 birth-defect cases still pending, the people said. Officials of Glaxo, the U.K.’s biggest drugmaker, said July 19 they set aside $2.4 billion to resolve litigation over Paxil and its Avandia diabetes drug.
The birth-defect settlements bring to more than $2 billion the amount Glaxo has agreed to pay to resolve a variety of Paxil-related suits, including claims it caused suicides or attempted suicides and addiction problems, the people said.
Glaxo officials confirmed July 19 they agreed to settle some Paxil birth-defect cases filed against the drugmaker. They refused to comment on the terms of the settlements.
“The company has agreed to these settlements, despite its litigation defenses, in order to avoid the costs, burdens and uncertainties of ongoing litigation,” Sarah Alspach, a Glaxo spokeswoman, said in an e-mailed statement.
“GSK believes it acted properly and responsibly in conducting its clinical trial program, in marketing the medicine, in monitoring its safety once it was approved for use and in updating pregnancy information in the medicine’s label as new information became available,” Alspach added.
Alspach refused yesterday to specify how much of the $2.4 billion charge is devoted to resolving Paxil litigation and how much has been set aside to deal with Avandia lawsuits. She also declined to say how much of the reserve will be used to pay the company’s legal fees for both cases.
The company has agreed to pay more than $500 million so far to settle suits alleging Avandia posed an increase risk of heart attacks and strokes in diabetics, people familiar with those accords said earlier this month.
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Prosecutors Probe L’Oreal Contract for Bettencourt Friend
Paris prosecutors are investigating a complaint by a L’Oreal SA investor over an artistic consulting contract the company has with a friend of Liliane Bettencourt, daughter of the company’s founder and its largest shareholder.
The complaint was filed July 5 by a retiree and alleges the 10-year contract, which pays photographer and writer Francois- Marie Banier 405,000 euros ($523,000) a year, was a misuse of company funds, the investor’s lawyer said yesterday.
Dominique Borron, a spokesman for the prosecutors, said yesterday the preliminary investigation, which seeks to determine if there are grounds for a criminal probe, was opened last week.
Bettencourt’s daughter has pursued a private prosecution against Banier in nearby Nanterre, claiming he manipulated her 87-year-old mother into giving him about 1 billion euros in gifts ranging from artwork to real estate. The trial was postponed indefinitely earlier this month, when the judge decided to investigate new evidence from secret recordings made by a former butler.
“Did he really give artistic advice on things like the color of perfume bottles?” Frederik-Karol Canoy, the investor’s lawyer, questioned in a telephone interview yesterday. He didn’t name his client.
The complaint wasn’t filed against a specific person, leaving it up to investigators to determine whom to target.
L’Oreal is aware of the complaint and can’t comment further because its content is unknown, spokeswoman Guylaine Mercier said. She confirmed the company has a 10-year contract with Banier that lasts through 2011.
A call to Banier’s lawyer wasn’t returned.
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Rosneft Chief to Testify in Khodorkovsky Trial, Interfax Says
OAO Rosneft Chief Executive Officer Sergei Bogdanchikov will testify this week in the second trial of former Yukos Oil Co. billionaire Mikhail Khodorkovsky, Interfax reported, citing defense lawyers.
State-run Rosneft’s press service declined to comment immediately. Rosneft became Russia’s largest oil company after acquiring Yukos’s biggest assets in government auctions to recover more than $30 billion in back taxes.
Khodorkovsky is serving an eight-year prison term for fraud and tax evasion and is now being tried on similar charges in a Moscow court. He has repeatedly denied wrongdoing, calling the case against him political retribution for his opposition to then-President Vladimir Putin.
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Supreme Court Nominee Kagan Is Cleared by Senate Committee
The Senate Judiciary Committee approved the nomination of Elena Kagan to the U.S. Supreme Court, clearing the way for President Barack Obama’s second pick for the high court to be confirmed by early August.
The panel voted 13-6 yesterday, with Senator Lindsey Graham of South Carolina the only Republican on the panel to support her. Senate Majority Leader Harry Reid, a Nevada Democrat, plans a vote by the full Senate during the week of Aug. 2.
Democratic control of the Senate all but ensures Kagan will become the 112th justice in U.S. history and the third woman on the current court.
She would replace Justice John Paul Stevens and likely align as he did with the court’s more liberal members, leaving intact the court’s 5-4 conservative majority on such issues as abortion, gun rights and campaign finance.
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On the Docket
Conrad Black Bail Hearing Set for Today by Trial Judge
Conrad Black, the former Hollinger International Inc. chairman serving a 6 1/2 year federal prison sentence for fraud, may be free on bail as soon as today.
U.S. District Judge Amy J. St. Eve in Chicago, who presided over the four-month 2007 jury trial that ended with the convictions of Black, 65, and three other men, scheduled a hearing, according to a court docket entry yesterday.
A federal appeals court granted Black’s petition for bail July 19, leaving the terms to St. Eve. The Chicago-based court’s ruling followed a U.S. Supreme Court decision last month narrowing the scope of a law relied upon by prosecutors in their case against him.
While Black headed Hollinger, it was the world’s third- largest publisher of English language newspapers. The Chicago- based company is now known as the Sun-Times Media Group Inc.
Black and his fellow executives were convicted of stealing $6.1 million from the company as they engineered its sale of $3 billion in assets from 1998 to 2001.
Since March, 2008, the Canadian-born Black has been in the low-security U.S. prison in Coleman, Florida.
The trial court case is U.S. v. Black, 05-cr-727, in the Northern District of Illinois (Chicago). The appellate case is U.S. v. Black, 07-4080, U.S. 7th Circuit Court of Appeals (Chicago).
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Veritas’s McKeon Can’t Be Represented by Schulte Roth
Robert B. McKeon, founder of the private-equity firm Veritas Capital Management LLC, can’t be represented by the law firm Schulte Roth & Zabel LLP in litigation with an ex-employee, a New York appeals court ruled.
The court yesterday upheld a lower-court ruling that Schulte Roth and partner Benjamin M. Polk were barred from representing McKeon in the suit because McKeon’s “interests are adverse to other members” of the Veritas entities, including the plaintiff, Thomas Campbell.
In dueling litigation, Campbell accuses McKeon and the Veritas entities of pushing him out of an investment in DynCorp International Inc., and Veritas accuses Campbell of violating his employment terms by entering deals with Omnicom Group Inc. to help the advertising company hide losses. Both cases have been on hiatus until the legal-representation question was decided.
McKeon had sought to overturn the lower court’s ruling on representation while Campbell asked the appellate division of New York Supreme Court to reverse a determination that the law firm can represent McKeon’s entities. The appeals panel upheld both decisions.
Ronald E. Richman, a lawyer for Veritas and McKeon at New York-based Schulte Roth, said he couldn’t comment on the ruling. Edward M. Spiro, a lawyer for Campbell at Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer PC, didn’t return a call for comment.
The cases are Campbell v. McKeon, 600673/2008, and Veritas Capital Management LLC v. Campbell, 650058/2008, New York State Supreme Court, New York County (Manhattan).
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Fortress Credit Sues Ruskin Moscou Law Firm Over Dreier Fraud
Fortress Credit Corp. sued law firm Ruskin Moscou Faltischek PC for issuing what it called “utterly false” legal opinion letters that Marc S. Dreier used to defraud the investment manager.
Fortress loaned more than $50 million in 2006 and 2007 to companies it believed to be controlled by a New York real-estate developer that Ruskin Moscou purported to represent, according to the lawsuit filed yesterday in New York State Supreme Court in Manhattan.
Dreier misappropriated the proceeds, Fortress said. Dreier is serving a 20-year sentence in federal prison in Minnesota after admitting he sold at least $400 million in phony notes to hedge funds to finance a lavish lifestyle and prop up his now- defunct 250-lawyer New York firm, Dreier LLP.
“Ruskin Moscou simply acted as an ‘opinion mill’ for Dreier, providing him with on-demand legal opinion letters that helped propel and perpetuate his Ponzi scheme,” Fortress said in the complaint.
“We believe the suit is baseless and look forward to complete vindication through the judicial process,” Barbara Cerrone, a spokeswoman for Uniondale, New York-based Ruskin Moscou, said in an e-mailed statement.
The case is Fortress Credit Corp v. Ruskin Moscou, 651023/2010, New York Supreme Court (Manhattan).
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