Madoff, William Blair, StuyTown, Daimler, Shell, Merrill in Court News
Bart M. Schwartz, the court- appointed receiver for Ariel Fund Ltd. and Gabriel Capital LP, which were feeder funds for Ponzi schemer Bernard Madoff, sued J. Ezra Merkin for breach of fiduciary duty, gross negligence and fraud.
Rather than make any decisions on the funds’ investments, Merkin handed over responsibility to Madoff, his company Bernard L. Madoff Investment Securities LLC and Cerberus Capital Management LP, according to the lawsuit, filed in New York state Supreme Court on Sept. 16.
Merkin and his Gabriel Capital Corp., which also was sued, breached their fiduciary and other obligations to the funds by “allowing Madoff and other money managers to control the Funds’ assets and concealing and failing to monitor the actions of these managers despite the size of these investments,” the suit says.
Madoff is serving a 150-year term in federal prison in Butner, North Carolina, after pleading guilty to orchestrating history’s biggest Ponzi scheme. His investors lost about $20 billion in principal.
“We are disappointed that the receiver has decided to use investors’ funds to bring its own lawsuit when the New York attorney general is already pursuing the same claims on behalf of all investors,” Andrew Levander, a lawyer for Merkin, said in an e-mailed statement.
Schwartz said in an e-mail that his lawsuit “complements” Cuomo’s effort, and assures investors in the Ariel and Gabriel funds that “they will have a direct representative with a seat at the table in any negotiations.”
The case is Bart M. Schwartz v. J. Ezra Merkin, 651516/2010, New York state Supreme Court (Manhattan).
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William Blair Sued Over Chicago Meter Privatization
William Blair & Co. was sued by a Chicago resident who accused the investment firm of failing to properly assess the value of a $1.15 billion, 75-year parking meter privatization contract.
Jennifer Bunting of Chicago filed the lawsuit against the firm Sept. 17 at the Illinois state courthouse in the city. She’s seeking group status on behalf of the city’s 2.8 million residents.
Chicago, the third-largest U.S. city, leased its meters to a partnership led by Morgan Stanley in December 2008. Last July, the group estimated its revenue over the lifetime of the agreement at $11.6 billion. The Blair firm, based in Chicago, was the city’s outside financial adviser on the plan.
“The city was paid, conservatively, $974 million less for this 75-year lease than the city would have received” from the revenue generated by its 36,000 meters during that time, Bunting said, citing a 2009 report by the city’s inspector general.
Bunting accused the firm of negligence, alleging its valuation “shortchanged” the city of millions or billions of dollars for which she’s seeking unspecified money damages.
Tony Zimmer, a spokesman for William Blair, didn’t immediately return a voice-mail message seeking comment Sept. 17.
The case is Bunting v. William Blair & Co. LLC, 10CH40418, Cook County, Illinois, Circuit Court, Chancery Division (Chicago).
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StuyTown Lenders Plan Foreclosure as Ackman Halted
Senior debt holders of Stuyvesant Town-Peter Cooper Village, Manhattan’s biggest rental complex, plan to proceed with an Oct. 4 foreclosure sale after a judge blocked a rival group’s move to take control of the apartments.
State Supreme Court Justice Richard Lowe in Manhattan issued a preliminary injunction stopping a foreclosure by Bill Ackman’s Pershing Square Capital Management LP and Winthrop Realty Trust, which bought $300 million of mezzanine debt on the property. The joint venture, PSW NYC LLC, may only proceed if it first pays senior creditors the $3.67 billion that they are owed under the first mortgage, according to Lowe’s order Sept. 16.
“The intercreditor agreement is unambiguous,” Lowe wrote in the decision. “Its plain language obligates PSW to cure all senior loan defaults.”
CWCapital Asset Management LLC, the special servicer for the senior mortgage, is seeking to move forward with its own foreclosure almost nine months after Stuyvesant Town owner Tishman Speyer Properties LP defaulted on its $3 billion senior loan and $1.4 billion of mezzanine, or junior, debt. The Pershing-Winthrop venture filed a notice Sept. 17 that it will appeal Lowe’s decision, potentially pushing back the CW auction.
“We vigorously disagree with the court’s ruling,” Michael Ashner, chairman and chief executive officer of Boston-based Winthrop, said in an interview. “We believe his interpretation of the contract was erroneous.”
“They can’t foreclose, they can’t sell to anybody and they can’t transfer,” Greg Cross, a lawyer for CWCapital, said after the judge’s decision. “They have to pay us in full.”
CWCapital will now proceed with its scheduled Oct. 4 foreclosure on the property, Cross said.
The case is Bank of America NA v. PSW NYC LLC, 10-651293, New York State Supreme Court, New York County (Manhattan).
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Daimler Unit Executive Arrested in U.K. Truck Probe
An executive at Daimler AG’s U.K. truck unit was arrested by police as part of a cartel probe by British antitrust regulators.
Ian Jones, the head of the U.K. Mercedes-Benz truck division, was detained by police last week, Mercedes spokesman Simon Wood said in a telephone interview.
The Office of Fair Trading, which investigates and prosecutes antitrust violations, is probing Mercedes, Volvo AB and at least three other truck makers.
“At this time we have no knowledge of wrongdoing,” Wood said in an e-mailed statement. “As always the presumption of innocence applies to all people involved. Due to the ongoing legal process the company is unable to comment further.”
The company said Sept. 16 that the OFT had visited its offices in Tongwell, England, as part of the investigation.
Calls to Jones’s office were referred to Wood, who declined to provide Jones’s contact details. Jonathan Marciano, a spokesman for the OFT in London, declined to comment.
Office Romances Face More Enemies as Co-Workers File Lawsuits
The office romance has survived threats such as corporate no-fraternization policies, philandering chief executives, David Letterman, or, in the recent case of former Hewlett-Packard Co. Chief Executive Officer Mark Hurd, ambiguous contractors. Now there’s a new legal menace, Spencer Morgan reports in Bloomberg BusinessWeek’s Sept. 20 issue: scorned workers who claim that an office affair fostered an invidious work environment, even if they weren’t actually involved in the romance themselves.
So-called third-party or hostile-work-environment sexual harassment claims are difficult to prove while easy to allege, particularly by employees fearing for their jobs in a sluggish economy.
As job insecurity has mounted and third-party claims have risen, the office fling may become the recession’s latest victim.
“It seems likely that there’s a certain opportunistic element to what’s happening out there,” says Sondra Solovay, a director of Workplace Answers, a San Francisco-based compliance services company. “Employees who fear for their jobs are making sexual-favoritism complaints as a means of ensuring their own job security.”
The most pressing threat to the office romance is the rise of the retaliation lawsuit, Solovay says. Such suits are waged by workers who claim they were fired to prevent them from filing a discrimination claim against their employer.
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Continental, United Merger Contested in Federal Court
Continental Airlines Inc.’s merger with UAL Corp., approved by shareholders Sept. 17, should be blocked because the combination would create a monopoly, a lawyer representing consumers argued in federal court.
The attorney, Joseph Alioto, and Katherine B. Forrest, a lawyer representing Houston-based Continental and Chicago-based United, presented final arguments in the antitrust case before U.S. District Judge Richard Seeborg in San Francisco.
To temporarily block the merger and then contest it at a trial, Alioto must convince Seeborg that the acquisition substantially reduces competition or creates a monopoly.
“In the U.S. we happen to believe in competition rather than combination,” Alioto told Seeborg. Arguments presenting potentially reduced service at Cleveland’s airport, for example, and potential price increases must demonstrate a “threatened” and not necessarily certain injury to consumers to block the deal, Alioto said. The challenge “at least deserves a trial on the merits,” Alioto said.
Shareholders of UAL and Continental approved Sept. 17 the $3.22 billion all-stock merger that was announced in May and is scheduled to close by Oct. 1. The airlines received regulatory approval from the Justice Department in July to merge, creating an airline company surpassing Delta Air Lines Inc. as the world’s biggest.
Forrest said Alioto hasn’t presented evidence sufficient to block the merger. She told Seeborg that Ohio Attorney General Richard Cordray closed an investigation of the merger and that the companies have been promised that a similar inquiry in California will be closed.
Seeborg said he will rule before Oct. 1.
The case is Malaney v. UAL Corp., 10-2858, U.S. District Court, Northern District of California (San Francisco).
Airgas can Argue at Air Products Trial, Judge Says
Airgas Inc. will be permitted to argue its challenges to new board bylaws at a trial beginning Oct. 4 in which hostile suitor Air Products & Chemicals Inc. will ask a judge to facilitate its acquisition of Airgas, according to court papers.
At a Sept. 15 meeting, Airgas shareholders voted for three of the bidder’s director nominees and proxy questions, including holding a second annual meeting on Jan. 18 giving Air Products nominees a chance to take control of the board.
Delaware Chancery Court Judge William B. Chandler III granted Airgas fast-track status on its case in an order made public Sept. 17 and said that Airgas’s arguments “shall occur at the pleasure of the court” during Air Products’ trial.
Allentown, Pennsylvania-based Air Products has offered $5.5 billion for Airgas, which is shunning the offer as inadequate.
Air Products sued Radnor, Pennsylvania-based Airgas Feb. 4, asking Chandler to force Airgas to perform its duty to shareholders and negotiate with Air Products.
Airgas sued Air Products separately on Sept. 15, asking Chandler to declare that the revised bylaw that allows a second annual meeting in four months isn’t permitted under Delaware corporation law.
Beth Mentesana, an Air Products spokeswoman, and Jay Worley, a spokesman for Airgas, weren’t able to respond to phone calls and e-mails after regular business hours Sept. 17.
The cases are Air Products v. Airgas, CA5249; and Airgas v. Air Products, CA5817, Delaware Chancery Court (Wilmington).
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Toyota Motor Settles Suit Tied to Fatal San Diego Crash
Toyota Motor Corp. said it settled a suit with relatives of four people killed in a San Diego accident that prompted the Japanese automaker to recall vehicles on concern they might suddenly accelerate.
“Through mutual respect and cooperation we were able to resolve this matter without the need for litigation,” Toyota said in an e-mailed statement last night, without disclosing the terms of the settlement.
Toyota President Akio Toyoda, in remarks to Congress in February, apologized to the family of Mark Saylor, the California Highway Patrol officer who was killed along with his wife, daughter and brother-in-law in a Lexus that sped out of control in August 2009. Investigators identified floor mats as a probable cause of that accident.
“Especially, I would like to extend my condolences to the members of the Saylor family, for the accident in San Diego,” Toyoda said in front of a U.S. House Committee on Feb. 23. “I would like to send my prayers again, and I will do everything in my power to ensure that such a tragedy never happens again.”
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Companies Immune From Alien Tort Suits, Court Rules
Companies, including Royal Dutch Shell Plc’s Nigerian unit, aren’t subject to U.S. lawsuits by foreigners seeking damages for human rights violations, a federal appeals court in New York ruled.
A panel of the court ruled 2-1 Sept. 17 that the Alien Tort Statute gives U.S. courts jurisdiction over alleged violations of international law by individuals only, not by corporations.
The decision dismisses claims by a group of Nigerians that Shell aided in the torture and murder of dissidents in Nigeria in the 1990s, including the playwright Ken Saro-Wiwa.
“The principle of individual liability for violations of international law has been limited to natural persons -- not ‘juridical’ persons such as corporations -- because the moral responsibility for a crime so heinous and unbounded as to rise to the level of an ‘international crime’ has rested solely with the individual men and women who have perpetrated it,” Circuit Judge Jose Cabranes wrote on behalf of the two-judge majority.
Cabranes said that the Alien Tort Statute, enacted in 1789, allows U.S. courts to hear death and injury claims by non-U.S. citizens connected to violations of international law, including war crimes and crimes against humanity.
In a separate opinion, Circuit Judge Pierre N. Leval said the majority’s ruling would permit companies to profit from slavery, genocide, piracy and official torture without liability under the statute. Leval agreed with the majority of the panel that the case should be dismissed. He disagreed with the majority that the statute doesn’t apply to corporations.
Paul L. Hoffman, a lawyer for the Nigerian plaintiffs, didn’t immediately return a voice-mail message seeking comment on the ruling.
Alison Chassin, a Shell spokeswoman, didn’t immediately return a voice-mail message seeking comment.
The case is Kiobel v. Royal Dutch Petroleum Co., 0096-4800, 2nd U.S. Circuit Court of Appeals (Manhattan.)
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Ex-UBS Client Hernandez Sentenced to Year in Prison
Former UBS AG client Federico Hernandez, who pleaded guilty to hiding Swiss accounts once valued at $8.8 million from U.S. tax authorities, was sentenced to a year in prison followed by six months of home confinement.
Hernandez, 44, pleaded guilty April 15 as part of a U.S. crackdown on tax evasion by clients of foreign banks. His term was the longest yet for a former UBS client after nine others got sentences ranging from probation to 10 months.
U.S. prosecutors sought a term of 18 to 24 months, saying in court papers that the sentence was “unusually important” in deterring the “rampant problem” of unreported offshore bank accounts. Hernandez, a financial adviser, sought three months, saying his wife had a stroke and they have two children.
“This is a difficult case,” U.S. District Judge Denny Chin said in federal court in New York. “Mr. Hernandez does have a lot going for him. He’s otherwise led a productive, law- abiding life. On the other hand, this is serious conduct.”
Chin also imposed a fine of $4,000 and ordered Hernandez to pay restitution of $84,423 to the Internal Revenue Service, which his lawyer said he already paid after filing amended tax returns. Hernandez also has agreed to a penalty of $4.4 million, or half of the amount of the highest value of his Swiss accounts.
“I’m deeply sorry for my actions,” Hernandez said before Chin imposed sentence. “I respectfully ask for your leniency and the shortest possible sentence you can impose on me.”
The case is U.S. v. Hernandez, 10-cr-334, U.S. District Court, Southern District of New York (Manhattan).
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Squawk Box Lawsuit Most Popular Docket on Bloomberg
A lawsuit brought by the U.S. against former stockbrokers involved in a scheme to let day traders eavesdrop on internal conversations over brokers’ “squawk boxes” was the most-read litigation docket on the Bloomberg Law system last week.
Kenneth Mahaffy Jr., a former broker at Merrill Lynch & Co. and Citigroup, and five co-defendants were found guilty in the case in April 2009. Mahaffy was sentenced to two years in prison in December. In July, the men lost a bid to have their convictions tossed, after claiming prosecutors hid evidence of their innocence.
On Sept. 8, Ralph Casbarro, 48, a former Citigroup Inc. stockbroker, who cooperated with prosecutors, was fined $500 and received no prison sentence or probation for his involvement.
The case is U.S. v. Mahaffy, 05-cr-00613, U.S. District Court, Eastern District of New York (Brooklyn).
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Lehman Adviser Fees Reach $961 Million Through August
Lehman Brothers Holdings Inc., the investment bank in bankruptcy since September 2008, has paid lawyers and advisers working on the case $961.3 million through August.
Restructuring firm Alvarez & Marsal LLC, which is running Lehman, earned $16.4 million in August, bringing the total the firm has earned to $342.4 million, according to an August operating report filed Sept. 17 in U.S. Bankruptcy Court in Manhattan.
Weil Gotshal & Manges LLP, Lehman’s lead bankruptcy law firm, collected $8.6 million in August and $220.9 million total for its work on the case. Milbank Tweed Hadley & McCloy LLP, the law firm representing Lehman’s unsecured creditors, was paid $69.3 million through August, according to the report.
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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