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(Adds Deloitte in Lawsuits section and Credit Lyonnais and Rajaratnam in Verdicts.)
Oct. 10 (Bloomberg) -- The four top federal prosecutors in California said they are cracking down on the state’s medical- marijuana industry, which officials say generates annual sales of more than $1 billion.
Landlords for several clinics are being sent letters saying they face jail time if they don’t evict the pot shops, the U.S. Attorneys from Sacramento, San Diego, Los Angeles and San Francisco said Oct. 7 at a press conference in Sacramento. The prosecutors are also targeting large-scale growers and distributors.
In California, the first state to permit marijuana for medical use, about 400,000 people use pot on a daily basis, according to the Board of Equalization, the state’s tax administrator. The clinics have annual revenue of as much as $1.3 billion and produce sales taxes of as much as $105 million, said Anita Gore, a spokeswoman.
“While California law permits collective cultivation of marijuana in limited circumstances, it does not allow commercial distribution through the store-front model we see across California,” said Andre Birotte, the U.S. Attorney in Los Angeles.
Prosecutors said the crackdown involves civil forfeiture lawsuits against properties allegedly used in drug trafficking, letters of warning to clinic operators and landlords, and criminal indictments that charge six people with marijuana trafficking in Southern California.
“Large, commercial operations cloak their money-making activities in the guise of helping sick people when in fact they are helping themselves,” said Benjamin Wagner, the U.S. attorney in Sacramento. “Our interest is in enforcing federal criminal law, not prosecuting seriously sick people and those who are caring for them.”
Laura Duffy, the U.S. Attorney in San Diego, said California is “the number-one marijuana-producing state in the country.”
Sabre Loses Bid to Consolidate American, US Airways Suits
Sabre Holdings Corp., the largest U.S. provider of flight data to travel agents, lost a bid to consolidate antitrust lawsuits brought by AMR Corp.’s American Airlines and US Airways Group Inc.
Centralizing the complaints in federal court in Fort Worth, Texas, “would not serve the convenience of the parties and witnesses,” the U.S. Judicial Panel on Multi-District Litigation ruled Oct. 6. Under an MDL program, cases with common factual issues can be consolidated before one judge to streamline document exchanges and avoid duplication in pretrial proceedings.
“Sabre is represented in both actions by common counsel,” the MDL panel said in its ruling. “In these circumstances, we believe an informal cooperation among the involved attorneys is both practicable and preferable.”
US Airways, based in Tempe, Arizona, sued Sabre in federal court in New York. Fort Worth-based American sued Southlake, Texas-based Sabre and rival Travelport LLC in Texas. Both carriers opposed centralization, according to court documents.
The lawsuits are at the heart of a dispute between U.S. carriers and so-called global-distribution systems, such as Sabre, that collect flight and fare data from carriers and distribute it to travel agents. The airlines want greater control over how the data is distributed.
Todd Lehmacher, a US Airways spokesman, declined to comment on the ruling. Nancy St. Pierre, a Sabre spokeswoman, also declined to comment.
“We believe the panel made the right decision, as our case is distinct from the case US Air has brought against Sabre,” Ryan Mikolasik, a spokesman for American with consulting firm Weber Shandwick, said in an e-mail. “We look forward to continuing to pursue our claims against Sabre.”
Sabre and Travelport, the second-biggest U.S.-based global distribution system, control more than 90 percent of the U.S. data sent to travel agents.
The Fort Worth case is American Airlines Inc. v. Travelport Ltd., 11-cv-00244, U.S. District Court, Northern District of Texas (Fort Worth). The Manhattan case is U.S. Airways Inc. v. Sabre Holdings Corp., 11-cv-02725, U.S. District Court, Southern District of New York (Manhattan).
Whirlpool Wins Six-Month Halt in LG Refrigerator Patent Suit
Whirlpool Corp., the world’s largest appliance maker, said it won a six-month stay of litigation in a refrigerator- technology patent infringement lawsuit brought in Trenton, New Jersey by Korean rival LG Electronics Inc.
The postponement was related “to progress in separate proceedings challenging the validity of LG’s patents” in the U.S. Patent and Trademark Office, Whirlpool, based in Benton Harbor, Michigan, said Oct. 7 in a statement.
“We expect LG’s patents to be found invalid under the re- examination proceedings,” said Marc Bitzer, president of Whirlpool’s North America Region.
In another case, Whirlpool and Seoul-based LG halted proceedings in mid-trial last week in U.S. District Court in Wilmington, Delaware.
“The court’s ruling will be entered and made public in the near future, resolving the issues that were pending in this retrial” over a patent for refrigerator icemakers, Kristine Vernier, a Whirlpool spokesperson, said in an Oct. 3 e-mailed statement. LG officials didn’t return messages seeking comment.
In the Delaware case, Whirlpool lawyers asked a jury to award $16.2 million in patent damages.
The Delaware case is LG Electronics v. Whirlpool Corp., 1:08-cv-00234, U.S. District Court, District of Delaware (Wilmington).
To see the patent, click: 6,082,130.
Sprint, Cellular South Ask AT&T Judge Not to Dismiss Cases
Sprint Nextel Corp. and Cellular South Inc. asked a federal judge not to dismiss their lawsuits challenging AT&T Inc.’s takeover of wireless carrier T-Mobile USA Inc., arguing the companies have the right to challenge the merger under antitrust law.
The companies filed their opposition to AT&T’s motion to dismiss Oct. 7 in federal court in Washington. AT&T is seeking to have the lawsuits thrown out on the grounds that the companies don’t have the right to sue because they are competitors, not consumers.
The merger could “injure competitors in ways that also injure consumers through higher prices, diminished service and reduced innovation,” Sprint and Cellular South said in a joint filing. “Those injuries to competitors, which align with harm to consumers, are ‘antitrust injuries,’ and create standing for a competitor.”
Sprint brought its antitrust lawsuit on Sept. 6, less than a week after the U.S. sued to block the deal, saying the proposed merger would harm consumers and weaken Sprint’s ability to compete with AT&T and Verizon Communications Inc.
Cellular South sued on Sept. 19 claiming the merger “threatens to substantially lessen competition” and cause it significant losses and damages. Cellular South, based in Ridgeland, Mississippi, changed its name to C Spire Wireless on Sept. 26, according to its website.
The Justice Department sued Dallas-based AT&T and Bonn- based Deutsche Telekom AG’s T-Mobile unit on Aug. 31, arguing a combination of the two companies, which would make AT&T the biggest U.S. wireless carrier, would “substantially” reduce competition. Seven states and Puerto Rico joined the government’s case.
Sprint’s case is Sprint Nextel Corp. v. AT&T Inc., 11-cv- 01600, U.S. District Court, District of Columbia (Washington). Cellular South’s case is Cellular South Inc. v. AT&T Inc., 11- cv-01690, U.S. District Court, District of Columbia (Washington). The government’s case is U.S. v. AT&T Inc., 11-cv- 01560, U.S. District Court, District of Columbia (Washington).
Texas County’s Lawyers to Ask Permission to File MERS Suit
Attorneys for the Texas county that includes Houston will seek permission Oct. 11 to hire outside lawyers to sue Mortgage Electronic Registration Systems Inc. over $100 million or more in unpaid mortgage-filing fees.
The proposal was posted Oct. 7 on the agenda for the Harris County Commissioners Court, the governing body for the county. County attorneys will hire the same law firm, Malouf & Nockels, that handled a similar lawsuit filed by Dallas last month, County Attorney Vince Ryan said in an interview Friday.
The Dallas County district attorney’s lawsuit claimed Merscorp Inc.’s MERS, which runs an electronic registry of mortgages, cheated the county out of tens of millions of dollars in uncollected filing fees. MERS tracks servicing rights and ownership interests in mortgage loans on its registry, allowing banks to buy and sell loans without recording transfers with counties.
“Our preliminary estimate, based on very superficial knowledge, is we’re looking at a minimum of $11 million and it could be much, much more depending on the number of times the real estate was used as collateral and should’ve generated a filing fee,” said Ryan, the Harris County attorney.
The county may be seeking more than $100 million in unpaid fees, he said. Janis Smith, a spokeswoman for Reston, Virginia- based Merscorp, declined to comment on the county’s plan.
The cases against MERS include: Dallas County v. Merscorp Inc., CC-11-06571-E, County Court at Law, Dallas County, Texas; and Christian County Clerk v. Mortgage Electronic Registration Systems Inc., 5:11-cv-00072, U.S. District Court, Western District of Kentucky (Louisville).
For more, click here.
SEC Asks U.S. Judge to Order Deloitte Shanghai Unit to Court
Deloitte Touche Tohmatsu CPA Ltd. should be ordered to appear in a U.S. court for rejecting a Securities and Exchange Commission demand for documents related to an investigation of its former client Longtop Financial Technologies Ltd., an SEC lawyer said.
In a hearing Oct. 7 in Washington, SEC lawyer Mark Lanpher said the Shanghai-based unit of Deloitte Touche Tohmatsu Ltd. has refused to respond to a court filing seeking documents that the regulator claims are “critical” to its probe of possible fraud at Longtop, a financial-software maker based in Hong Kong.
“We have an ongoing fraud. Time is of the essence,” Lanpher said, asking U.S. Magistrate Judge Deborah Robinson to approve a “show cause” order requiring D&T Shanghai to appear in court to explain why it hasn’t complied with a subpoena issued in May.
Robinson responded that she needed more information from the SEC regarding her authority to require a foreign company to appear in a U.S. court. She gave the SEC until Oct. 14 to make that argument in a court filing.
Michael Warden, a lawyer for D&T Shanghai, was in the courtroom. He didn’t address the judge and declined to comment after the proceeding. In a July 8 letter to the SEC, Warden said China law prevented his client from turning over documents.
The case is U.S. Securities and Exchange Commission v. Deloitte Touche Tohmatsu CPA Ltd., 11-mc-00512, U.S. District Court, District of Columbia (Washington).
For the latest lawsuits news, click here.
Trials and Appeals
U.S. Asks for Bar to Alabama Immigration Law During Appeal
The U.S. government asked a federal appellate court to block enforcement of parts of Alabama’s new immigration law while it seeks review of sections of the ruling in the state’s favor.
U.S. District Judge Sharon Lovelace Blackburn in Birmingham, Alabama on Sept. 28 rejected parts of a federal challenge to legislation signed by Governor Robert Bentley in June. The state created new police powers, including the authority to examine the immigration status of people stopped if there is “reasonable suspicion” they are unlawfully in the country.
Blackburn on Oct. 5 denied the federal government’s request for a stay of enforcement while the decision is appealed.
“The state regime contravenes the federal government’s exclusive authority over immigration,” lawyers for the U.S. government said in papers filed with the Court of Appeals in Atlanta on Oct. 7.
The Beason-Hammon Alabama Taxpayer and Citizen Protection Act includes provisions requiring public schools to collect data on the enrollment of children of unlawful residents and criminalizing the failure of illegal immigrants to complete or carry alien registration documents.
Blackburn’s Sept. 28 ruling allowed enforcement of those provisions as well as one making it a felony for illegal aliens to do business with the state or its political subdivisions.
The judge, who was nominated for the bench by President George H.W. Bush in 1991, blocked parts of the measure that criminalized the transportation and harboring of those illegally in the U.S. and their applying for jobs or being hired.
The American Civil Liberties Union, Southern Poverty Law Center and other civil rights groups have filed a separate lawsuit challenging the legislation.
The case is U.S. v. State of Alabama, 11-14532, U.S. 11th Circuit Court of Appeals (Atlanta).
For the latest trial and appeals news, click here.
Verdicts, Settlements and Sentences
Credit Lyonnais Agrees to Settle AIG Suit for $150 Million
Credit Lyonnais SA agreed to settle a suit filed by American International Group Inc.’s SunAmerica unit over its 1993 investment in a California insurance company that the French bank had acquired.
AIG Retirement Services, formerly SunAmerica, and Credit Lyonnais, filed a settlement agreement on Oct. 6 in federal court in Los Angeles. The settling parties also include Consortium de Realisation SA, a French state-owned company that took on Credit Lyonnais’s unprofitable assets and liabilities related to Executive Life Insurance Co., the California insurer.
The AIG unit sued a group of French companies including Credit Lyonnais in 2005, alleging that it was defrauded when it bought a 33 percent stake in New California Holdings Inc. because it didn’t know that the French owners, a group led by MAAF Assurances SA, were a front for Credit Lyonnais. At the time, the French bank couldn’t own an insurer under U.S. law.
“We’re pleased to have resolved our dispute with this group of settling defendants,” Mark Herr, a spokesman for New York-based AIG said in an e-mailed statement.
New California is the restructured successor of Executive Life, which was taken over by the state of California after it had become insolvent and was later sold to the MAAF group. France, on behalf of Credit Lyonnais, paid $600 million to settle claims the bank misled regulators by not disclosing it was the true owner of Executive Life.
Credit Agricole SA bought Credit Lyonnais in 2003.
MAAF in August agreed to pay $24 million to settle AIG’s claims. Artemis SA, the holding company of French billionaire Francois Pinault, is still a defendant in the case. The trial is scheduled to start Oct. 18.
The potential claims in the lawsuit were as much as $1 billion, George Terwilliger, a lawyer for Consortium de Realisation, said in a telephone interview. The case was the last one pending over Credit Lyonnais’s involvement in the takeover of Executive Life in the early 1990s, Terwilliger said.
“We believe this was a fair and reasonable settlement,” Terwilliger said.
Lawrence Friedman, a lawyer for Credit Lyonnais, declined to comment.
The case is AIG Retirement Services v. Altus Finance, 05- 1035, U.S. District Court, Central District of California (Los Angeles.)
Rajaratnam Fraud Had ‘Unknowing’ Participants, U.S. Says
Galleon Group LLC co-founder Raj Rajaratnam deserves a longer prison term because his insider-trading schemes involved “five or more people,” including “knowing” and “unknowing” participants, prosecutors said.
At the request of U.S. District Judge Richard Holwell in Manhattan, prosecutors on Oct. 7 named the people they said were either complicit or unknowing participants in the schemes. Holwell is to sentence Rajaratnam on Oct. 13.
Rajaratnam, 54, was convicted in May of 14 counts of securities fraud and conspiracy. Prosecutors, saying he made $72 million from his crimes, asked for a prison term of 19 years and seven months to 24 1/2 years. The defense said Rajaratnam made just $7 million and should get 6 1/2 to 8 years.
“This court should find that Rajaratnam’s conduct was ‘otherwise extensive’ given the number of knowing participants and unknowing participants who took actions at Rajaratnam’s direction that were peculiarly tailored and necessary for the commission of the crimes,” according to the filing by assistant U.S. attorneys Jonathan Streeter, Reed Brodsky and Andrew Michaelson.
In their sentencing memorandum filed Oct. 7, prosecutors cited federal sentences in which a longer prison term was imposed because the criminal activity involved “five or more knowing participants.” They said there were at least nine knowing participants in Rajaratnam’s crimes, including the defendant’s brother, Rengan Rajaratnam, who hasn’t been charged with any wrongdoing.
Terence Lynam, a lawyer for Rajaratnam, declined to comment on the filing.
The case is U.S. v. Rajaratnam, 09-01184, U.S. District Court, Southern District of New York (Manhattan).
Emanuel Goffer Sentenced to Three Years for Insider Trading
Emanuel Goffer was sentenced to three years in prison for his role in an insider-trading scheme carried out with his brother, former Galleon Group LLC trader Zvi Goffer.
U.S. District Judge Richard Sullivan imposed the sentence on Goffer, 32, in a hearing in Manhattan Oct. 7, two weeks after he gave 10 years in prison to his 34-year-old brother. Both brothers were caught in a U.S. crackdown on insider trading at hedge funds. Galleon co-founder Raj Rajaratnam, the central figure in the investigation, is to be sentenced Oct. 13.
“This was a deliberate scheme to procure inside information, privileged information, from a law firm by bribing lawyers to corrupt them,” Sullivan told Goffer before imposing the sentence.
Sullivan said federal sentencing guidelines, which are advisory, called for Emanuel Goffer to receive 41 to 51 months. Sullivan also sentenced Goffer to three years of supervised release after the prison term and ordered him to forfeit $761,000 made from the scheme.
The two Goffers were convicted, along with former trader Michael Kimelman, in June. Sullivan said Friday that Emanuel Goffer deserved less prison time than his brother, who was “clearly the most culpable person” in the ring.
The case is U.S. v. Goffer, 10-cr-00056, U.S. District Court, Southern District of New York (Manhattan).
For the latest verdict and settlement news, click here.
Citigroup Sued by Cardholders Over May Security Breach
Citigroup Inc., the third-largest U.S. bank, was sued by cardholders over a May computer security breach that affected more than 360,000 accounts.
Kristina and Steven Orman of Northport, New York, sued Citigroup in federal court in Manhattan Oct. 7, seeking to represent victims of the hacking in a class-action, or group, lawsuit. Money was stolen from their bank account and their credit cards were illegally used by third parties following the breach, they said.
“Defendants have taken no steps that adequately or effectively protect cardholders against illegal use of the cardholders’ sensitive and extensive financial records since the breach,” the Ormans alleged in the complaint. They seek unspecified damages.
Citigroup said in June that the breach, affecting 1.5 percent of its card customers in North America, was discovered at Citi Account Online during routine monitoring. Customers’ names, account numbers and e-mail addresses were viewed, Citigroup said.
Sean Kevelighan, a spokesman for New York-based Citigroup, said bank officials haven’t seen the lawsuit and couldn’t comment on it.
The case is Orman v. Citigroup Inc., 11-cv-7086, U.S. District Court, Southern District of New York (Manhattan).
Dynegy Suit Most Popular Docket on Bloomberg Last Week
A new lawsuit against Dynegy Inc., some of its subsidiaries and its board of directors was the most-read litigation docket on the Bloomberg Law system last week. The power producer was sued by the U.S. Bank National Association, the noteholders’ trustee, over claims that the Houston-based company moved assets from the reach of creditors by restructuring the company. The noteholders in this suit have claims of at least $500 million.
In September, Dynegy transferred $1.25 billion of assets, mainly coal-fired power facilities, out of a unit that issued bonds for the company, leaving fixed-income investors with fewer claims in a bankruptcy. The company has posted five straight quarterly losses driven by lower electricity prices and reduced cash flow.
The suit, filed Sept. 27 in New York State Supreme Court, seeks both damages and injunctive relief.
The case is The Successor Lease Indenture Trustee v. Dynegy Inc., 652642/2011, New York State Supreme Court (Manhattan).
For more, click here.
--With assistance from Patricia Hurtado and Bob Van Voris in New York; Phil Milford and Sophia Pearson in Wilmington, Delaware; Margaret Cronin Fisk in Detroit; and Laurel Brubaker Calkins in Houston; Andrew Harris in Chicago; Tom Schoenberg and Sara Forden in Washington; Michael B. Marois in Sacramento; Christopher Palmeri and Edvard Pettersson in Los Angeles; and Mary Schlangenstein in Dallas. Editor: Mary Romano
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