Bloomberg News

Wal-Mart, Barclays, Primary Global, JPMorgan in Court News

June 21, 2011

(Adds climate-change suit in Verdicts section, David Lerner Associates in New Suits, TCW in Lawsuits and Rambus in Trials. Updates Theflyonthewall.com in Verdicts and 3M in New Suits.)

June 21 (Bloomberg) -- The U.S. Supreme Court, in a ruling that will mean new limits on class-action suits, ruled that Wal- Mart Stores Inc. can’t be sued for discrimination on behalf of potentially a million female workers.

The justices said the lawyers pressing the case failed to point to a common corporate policy that led to gender discrimination against workers at thousands of Wal-Mart and Sam’s Club stores across the country.

The workers “provide no convincing proof of a companywide discriminatory pay and promotion policy,” Justice Antonin Scalia wrote for five members of the court. The justices were unanimous on some aspects of the opinion and divided on others.

The company, based in Bentonville, Arkansas, said in a statement that the ruling “effectively ends this class-action lawsuit.”

“As the majority made clear, the plaintiffs’ claims were worlds away from showing a companywide pay and promotion policy,” Wal-Mart said.

The ruling may help companies facing similar suits. Units of Cigna Corp., Goldman Sachs Group Inc., Bayer AG, Toshiba Corp., Publicis Group SA, Deere & Co. and Costco Wholesale Corp. all face gender discrimination complaints that seek class-action status. More than 20 companies supported Wal-Mart at the Supreme Court, including Intel Corp., Altria Group Inc., Bank of America Corp., Microsoft Corp. and General Electric Co.

Four justices -- Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan -- said they would have returned the case to a lower court and let the workers try to press ahead with a class action under a different legal theory.

The women’s lawyers said they would seek to press ahead with claims on behalf of aggrieved workers, either as individuals or as part of smaller groups.

“This case is not over,” said Brad Seligman, one of the two lead attorneys for the workers. “Wal-Mart is not off the hook. There are thousands of claims of discrimination that remain to be filed.”

The case was one of the most closely watched Supreme Court business disputes in years, in part because the justices hadn’t looked at the standards for certifying a class-action suit in 12 years. Billions of dollars were at stake for Wal-Mart, the world’s largest private employer.

The case is Wal-Mart Stores v. Dukes, 10-277, U.S. Supreme Court (Washington).

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Banks Can’t Block Theflyonthewall.com Reports, Court Rules

Barclays Plc, Bank of America Corp.’s Merrill Lynch and Morgan Stanley can’t use New York law to block Theflyonthewall.com, an online financial news service, from issuing immediate reports about changes in their stock ratings, a federal appeals court ruled.

The appeals panel yesterday in Manhattan reversed a lower court ruling that had blocked Theflyonthewall.com, based in Summit, New Jersey, from reporting the upgrades or downgrades of stocks for two hours or until half an hour after the opening of the New York Stock Exchange.

The injunction U.S. District Judge Denise Cote in Manhattan issued last year relied on New York state law, which permits plaintiffs to sue based for the misappropriation of so-called hot news.

“We conclude that in this case, a firm’s ability to make news -- by issuing a recommendation that is likely to affect the market price of a security -- does not give rise to a right for it to control who breaks that news and how,” U.S. Circuit Judge Robert Sack wrote on behalf of two judges on the three-judge panel.

In a statement, Theflyonthewall.com called the ruling “a complete victory in its long-running battle with the investment firms.”

Glenn Ostrager, lead counsel for Theflyonthewall.com, said in the statement that he is pleased the appeals court clarified the law governing the publication of hot news. Theflyonthewall.com will continue to publish its daily news feeds, the company said in the statement.

“We are disappointed in the court’s decision, and we are reviewing the decision to determine our next steps,” Benjamin Marks, a lawyer for the banks, said in a statement. “Each of the plaintiffs remains committed to protecting their equity research against unauthorized appropriation. We note that the appellate court left undisturbed the trial court’s determination that Theflyonthewall.com had infringed copyrights in equity research and left in place the injunction against further such infringement.”

The case is Barclays Capital Inc. v. Theflyonthewall.com Inc., 10-1372, 2nd U.S. Circuit Court of Appeals (Manhattan).

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Hedge Fund Expert-Networker Convicted in Insider Trade Case

Winifred Jiau, a former consultant with expert networking firm Primary Global Research LLC, was convicted in the third trial to result from a U.S. government crackdown on insider trading tied to hedge funds.

Jiau, 43, who provided industry information to financial clients, was convicted of one count each of conspiracy and securities fraud in Manhattan federal court for passing inside tips about Nvidia Corp. and Marvell Technology Group Ltd. to hedge fund managers.

A sentencing date was scheduled for Sept. 21. Jiau’s lawyer, Joanna Hendon, said she would file an appeal after the sentencing.

Jiau, of Freemont, California, was one of several dozen people charged in overlapping insider rings stemming from the probe of New York-based hedge fund Galleon Group LLC. The cases implicated hedge funds, banks, technology firms and consultants such as Jiau.

The case is U.S. v. Jiau, 11-cr-00161, U.S. District Court, Southern District of New York (Manhattan).

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Climate-Change Suit Against Utilities Rejected by Top Court

States can’t invoke federal law to force utilities to cut greenhouse-gas emissions, the U.S. Supreme Court ruled, shutting off one avenue for groups that advocate bolder steps against climate change.

The unanimous ruling is a victory for five companies -- American Electric Power Co., Duke Energy Corp., Xcel Energy Inc., Southern Co. and the government-owned Tennessee Valley Authority -- that had been sued by six U.S. states, including California, and the city of New York.

The states, which sought a cap on emissions, argued that carbon dioxide spewed by the utilities is a public nuisance because it causes climate change. The justices said the Environmental Protection Agency was better equipped than federal judges to assess the costs and benefits of reducing greenhouse gases.

“It is altogether fitting that Congress designated an expert agency, here, EPA, as best suited to serve as primary regulator of greenhouse-gas emissions,” Justice Ruth Bader Ginsburg said for the court. Justice Sonia Sotomayor didn’t take part in the case.

Through the federal Clean Air Act, Congress has entrusted the EPA and state regulators to determine greenhouse-gas regulations for industries, according to the court.

The ruling bolsters EPA’s position as the focal point for curbing heat-trapping emissions from vehicles and industrial polluters such as power plants, according to David Doniger, policy director for the climate center at the Natural Resources Defense Council, an environmental group based in New York.

The Obama administration joined the power industry in urging rejection of the suit.

The ruling reverberates beyond the power industry. Trade groups representing automakers, oil companies, farmers, mining companies, chemical companies and manufacturers all urged the court to dismiss the suits, in some cases saying their members might face similar claims.

The case is American Electric Power v. Connecticut, 10-174. U.S. Supreme Court (Washington).

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Ex-Langbar CEO Gets One Year in Jail for Misleading Market

Geoffrey Stuart Pearson, the former chief executive officer of a Bermuda-based investment company at the center of a fraud scandal, was sentenced to a year in prison for making misleading statements about its assets.

Pearson, 63, was found guilty of three counts of making misleading statements to the financial markets after a five-week trial at a London criminal court, according to a statement yesterday from the U.K. Serious Fraud Office, which prosecuted the case. Pearson, who was acquitted of 10 other charges, was also barred from working as a company director for five years, the SFO said.

The jury found that Pearson lied to the market, saying that Langbar International Ltd. had assets held by Banco do Brasil SA and others in order to boost its share price. He also falsely stated the company had an asset value of 357 million pounds ($578 million), according to the agency’s statement.

Pearson’s lawyer, Shula de Jersey, said the former CEO has helped to recover 38 million pounds in a related civil lawsuit.

The judge recognized “Mr. Pearson was, for a substantial part of time, himself a victim of deception by the principals in this fraud, none of whom have ever been arrested, and this was the basis upon which he was sentenced,” de Jersey said.

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New Suits

JPMorgan, RBS Sued by Federal Agency Over Mortgage Bonds

JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc units were sued by the federal agency that regulates credit unions, seeking to recover money lost on mortgage-backed securities.

The National Credit Union Administration Board, or NCUA, accused the institutions of packaging and selling mortgage bonds with loans that didn’t meet underwriting guidelines. The bonds, sold to federally chartered credit unions, were rated AAA when issued, according to the agency.

A material percentage amount of the loans included in the bonds “were all but certain to become delinquent or default shortly after origination,” the regulator said in two complaints filed in federal court in Kansas City, Kansas. It didn’t specify the amount of money sought.

JPMorgan sold credit unions almost $213 million of mortgage bonds using sale documents that contained untrue statements or lacked important information, according to one complaint. RBS used documents with the same flaws to sell credit unions about $138 million of bonds, the NCUA said in the other complaint.

The NCUA wants the banks to help cover losses tied to the failures of at least four federal credit unions that bought the securities, including U.S. Central Federal Credit Union, which was placed into conservatorship in 2009. The agency is liquidating the credit unions.

The prospectuses for the bond sales contained “untrue statements of material fact or omitted material facts,” in violation of U.S. securities laws, according to the NCUA.

Michael Geller, a spokesman for Edinburgh-based RBS, and Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, didn’t immediately return calls for comment yesterday.

The cases are National Credit Union Administration Board v. J.P. Morgan Securities LLC, 11-cv-02341, and National Credit Union Administration Board v. RBS Securities Inc., 11-cv-02340, U.S. District Court, District Of Kansas (Kansas City).

David Lerner Associates Sued Over $6.8 Billion in REITs

David Lerner Associates Inc. was sued by investors who claimed it acted negligently in the sale and underwriting of more than $6.8 billion in shares of the Apple Real Estate Investment Trusts.

The brokerage firm, known for its founder’s “Take a tip from Poppy” advertising slogan, misstated the business model of the REITS and misrepresented the value of shares and returns for investors, according to a complaint filed yesterday in federal court in Newark, New Jersey.

During the past seven years, the firm collected more than $600 million in fees and commissions while five Apple REITs made more than $6 billion in proceeds, according to the complaint. The firm has marketed the REITs as appropriate for conservative investors and claims they have never lost money by investing in hotels, the complaint said.

“In fact, investors who have acquired interests in the Apple REITs have incurred substantial unrealized losses because their interests are worth far less than the price paid by investors to acquire them,” according to the complaint, filed by Stanley and Debra Kronberg of Mahwah, New Jersey.

Joseph C. Pickard, the firm’s general counsel, said in an e-mailed statement that the claims are “frivolous” and were filed by “attorneys seeking a quick payday.”

“The allegations are baseless and rife with falsehoods, distortions and misleading statements, and we look forward to the opportunity to be vindicated in a court of law,” he said.

The case is Kronberg v. David Lerner Associates Inc., U.S. District Court, District of New Jersey (Newark).

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3M Sues Porton Capital, CEO Harvey Boulter Over ‘Blackmail’

3M Co., the maker of Scotch tape, sued Porton Capital Inc. and its chief executive officer, Harvey Boulter, in New York state court, accusing them of trying to extort $30 million in connection with a lawsuit in the U.K. over 3M’s purchase of a medical technology company.

Porton and Ploughshare Innovations Ltd., two of the shareholders who sold their stakes in the technology company, sued 3M in London over the deal. The trial began last week and is expected to continue into July, St. Paul, Minnesota-based 3M said yesterday in a New York State Supreme Court filing. Ploughshare is a unit controlled by the British Ministry of Defense, according to the suit.

“Instead of awaiting the outcome of the pending litigation, defendants and their investors have engaged in an unlawful campaign to blackmail 3M into paying $30 million in order to avoid the continuation of the campaign,” the company said in its complaint.

3M also said in its complaint that the “defendants seek to publicly defame 3M and its chairman/CEO.” George W. Buckley is the chairman and chief executive officer.

“I got what my client believes was a ransom demand,” William Brewer, the lawyer for 3M who filed the suit in New York, said in a telephone interview.

Brewer said the defendants implied that a settlement unfavorable to them would hurt 3M’s chances to do business in the U.K.

“He broke the rules of settlement under confidentiality, which in most places in the world is both unprofessional and unethical for a lawyer of his supposed standing,” Boulter said in an e-mail. “To publicly characterize a settlement negotiation as blackmail is shameful of Mr. Brewer.”

The trial centers on 3M’s acquisition of Acolyte Biomedica Ltd., which was developing products to detect microorganisms, according to the complaint.

The case is 3M Co. v. Boulter, 651708/2011, Supreme Court of the State of New York (New York County).

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Lawsuits/Pretrial

TCW Group Asks Judge to Throw Out Gundlach’s Contract Claims

TCW Group Inc. asked a judge to throw out breach-of- contract claims by its former investment chief Jeffrey Gundlach, who said he was fired in 2009 so the company wouldn’t have pay him as much as $1.25 billion in fees.

Los Angeles Superior Court Judge Carl West said at a hearing yesterday that summary judgment wasn’t the appropriate way to resolve Gundlach’s claims. West issued a tentative decision before the hearing denying TCW’s request for a ruling that Gundlach has no claim because he had no contract, and took the matter under submission without issuing a final order.

“There was an agreement here and what this agreement was isn’t entirely clear,” West said at the hearing. “A jury is going to have to determine what the terms were.”

TCW, the Los Angeles-based unit of Societe Generale, sued Gundlach and three other ex-employees in January 2010 after more than half of its fixed-income professionals joined Gundlach’s new firm, DoubleLine Capital Inc. TCW seeks more than $200 million in damages, claiming Gundlach stole its trade secrets as he plotted to start his own business.

Gundlach filed counterclaims a month later, saying he was dismissed so that TCW wouldn’t have to pay $600 million to $1.25 billion in future management and performance fees from the funds his group managed.

John Quinn, a lawyer for TCW, said at the hearing that Gundlach was never promised any specific amount or percentage of the fees and that he received what was left from his group’s share of the fees after he had paid all the expenses of his group. It was “gross oversimplification” to say that Gundlach was entitled to a percentage of TCW’s fees, Quinn said.

Mark Helm, a lawyer for DoubleLine, said TCW had been paying Gundlach and Gundlach had been working under an agreement and that the only dispute was what the terms of the contract were.

The jury trial is scheduled to start July 25.

The case is Trust Co. of the West v. Jeffrey Gundlach, BC429385, Los Angeles County Superior Court.

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Merrill Must Face Group Lawsuit Over Mortgage Securities

Bank of America Corp.’s Merrill Lynch unit must face a group lawsuit by union and public employee retirement funds over mortgage-backed securities, a federal judge ruled.

U.S. District Judge Jed S. Rakoff in Manhattan certified a class of buyers of 301 tranches of mortgage-backed securities in 18 separate offerings from February 2006 through September 2007. Rakoff also granted the investors’ request to appoint New York- based Bernstein Litowitz Berger & Grossmann LLP as lead lawyers for the class.

“After careful consideration, and for reasons that will be stated in a forthcoming written opinion, the court hereby grants both motions,” Rakoff wrote in an order released June 16.

In the litigation, filed in 2008, the investors accuse Merrill of issuing offering documents for $16.5 billion of certificates that omitted material facts and contained untrue statements, including that the underlying mortgages complied with the stated underwriting guidelines. Rakoff’s certifying of the class is a boon to the investors because it means they don’t have to sue individually.

Bill Halldin, a spokesman for Charlotte, North Carolina- based Bank of America, declined to comment.

The named plaintiffs in the case include the Mississippi Public Employees’ Retirement System, the Los Angeles County Employees Retirement Association, the Wyoming State Treasurer, the Connecticut Carpenters Pension Fund and the Connecticut Carpenters Annuity Fund.

The case is Public Employees’ Retirement System of Mississippi v. Merrill Lynch & Co., 08-10841, U.S. District Court, Southern District of New York (Manhattan).

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Trials/Appeals

Rambus Says Hynix, Micron Conspired Illegally as Trial Opens

Hynix Semiconductor Inc. and Micron Technology Inc. carried out an “unlawful conspiracy” to drive Rambus Inc. out of the computer memory market, a Rambus lawyer said as an antitrust trial began yesterday in California.

Rambus, based in Sunnyvale, California, is seeking as much as $12.9 billion from Hynix and Micron over Rambus-designed dynamic random access memory, or RDRAM, chips. The $4.3 billion in damages sought by Rambus against the two companies would be automatically tripled under California law, according to Rambus. The chip manufacturers deny the claims.

Hynix and Micron engaged in “a secret and unlawful conspiracy to kill a revolutionary technology, make billions of dollars and hang onto power,” Rambus lawyer Bart Williams told jurors. “The conspiracy worked,” he said. “Rather than win the race to become the next industry standard,” RDRAM “was condemned to a smaller market share.”

Micron and Hynix are scheduled to present their arguments today.

Rambus claims Ichon, South Korea-based Hynix and Boise, Idaho-based Micron inflated the price of RDRAM chips and collusively underpriced their own SDRAM and DDR chips to undercut competition from Rambus.

Micron General Counsel Rod Lewis said in an e-mailed statement that Rambus’s case in one example of its “continued attempts to place blame on third parties for its failure to compete successfully in the marketplace.” RDRAM failed because it was less efficient and more costly to produce and implement than its competitors, Lewis said.

The case is Rambus Inc. v. Micron Technology Inc., 04- 431105, California Superior Court (San Francisco).

First American Gets Supreme Court Hearing in Kickback Suit

The U.S. Supreme Court agreed to consider halting a suit that accuses First American Financial Corp. of operating an illegal title-insurance kickback scheme and seeks hundreds of millions of dollars on behalf of homebuyers.

The justices yesterday granted an appeal by First American, the second-largest U.S. title insurer, which is seeking to block the suit in a federal court in California.

The suit centers on First American’s ownership stake in thousands of title agencies across the country. The company is accused of acquiring those interests in exchange for promises that the agencies would refer customers to a First American unit that sells title insurance.

First American argued in its appeal that consumers can’t sue under the 1974 U.S. Real Estate Settlement Procedures Act, which bars kickbacks, unless they claim they paid higher fees as a result. A federal appeals court in San Francisco rejected that contention, letting the suit proceed.

The Supreme Court will hear the case in its next term beginning in October.

First American is based in Santa Ana, California.

The case is First American Financial v. Edwards, 10-708, U.S. Supreme Court (Washington).

PPL Gets U.S. High Court Hearing on $50 Million Montana Award

The U.S. Supreme Court agreed to review a decision requiring a PPL Corp. unit to pay more than $50 million to Montana for the use of riverbeds under the company’s hydroelectric facilities.

PPL Montana is appealing a Montana Supreme Court ruling that said the state owns the riverbeds and is entitled to demand rent payments. The company argues in its appeal that the riverbeds are owned either by private parties or the federal government.

A Montana state trial court ordered the company to pay $40 million in past rent, plus an unspecified amount for rent starting in 2008. PPL Montana last year recorded a pretax charge of $56 million to cover estimated payments through the first quarter of 2010. The company said last month that its total accrued loss as of March 31, 2011, was $78 million.

The justices agreed to hear the appeal against the advice of the Obama administration, which urged rejection without a hearing.

The dispute centers on dams on the upper Missouri, Madison and Clark Fork rivers. PPL is based in Allentown, Pennsylvania.

The case is PPL Montana v. Montana, 10-218, U.S. Supreme Court (Washington).

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On the Docket

Trial of Ex-Deutsche Bank Chief Breuer to Start August 18

The trial of Rolf Breuer, former chief executive officer of Deutsche Bank AG, is scheduled to start Aug. 18, the Munich Regional Court said in an e-mailed statement yesterday. Breuer is charged with attempted fraud for allegedly lying when testifying in a court case brought by Leo Kirch against him and the lender.

--With assistance from Patricia Hurtado, Don Jeffrey and Bob Van Voris in New York; Lindsay Fortado in London; Thom Weidlich in Brooklyn, New York; Kim Chipman and Greg Stohr in Washington; Karin Matussek in Berlin; Joel Rosenblatt in San Francisco; David Voreacos in Newark, New Jersey; Edvard Pettersson in Los Angeles; and Steven Church in Wilmington, Delaware. Editor: Glenn Holdcraft

To contact the reporter on this story: Elizabeth Amon in Brooklyn, New York, at eamon2@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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